Industry Thought Leadership

Digital technologies have transformed society on an unprecedented scale over the last two decades. Today, it's digital technology that has the potential to bring widespread social changes and economic advancement. However, it is essential that nations understand and cater to the digital economy as it will play a key role in achieving government objectives of economic diversification, and national digital transformation. Both the public and private sector must transform into digital enterprises to remain relevant and competitive, if they are to thrive in the digital era.

Digital technologies have transformed society on an unprecedented scale over the last two decades. Today, it's digital technology that has the potential to bring widespread social changes and economic advancement. However, it is essential that nations understand and cater to the digital economy as it will play a key role in achieving government objectives of economic diversification, and national digital transformation. Both the public and private sector must transform into digital enterprises to remain relevant and competitive, if they are to thrive in the digital era.

Defining the Digital Economy
The digital economy has been defined in different ways, primarily based on scope. Early on in the digital era, the term knowledge economy was used to denote a combination of the Information and Communications Technology (ICT) sector, digital media and e-commerce. However, the digital revolution in the last two decades has made digital business models much more widespread, this new scenario requires a definition based on a much broader scope. According to the Organization for Economic Co-operation and Development (OECD), the digital economy encompasses all economic activities reliant on, or significantly enhanced by, the use of digital inputs, including digital technologies, digital infrastructure, digital services and data.

The emergence and evolution of the digital economy is characterized by three key trends that help us better understand the new economic construct:

1. Dominant Digital Business Models
   The digital economy is often referred to as a platform economy, where digital business models and platforms that enable them, dominate. In some industries, such as transportation and tourism, digital platforms have caused severe disruption to traditional models: think the likes of Uber and Airbnb. In sectors such as banking and government, digital is now the primary mode of service delivery, leading to branches and customer service centers closing down.
2. The Shift from Providing Services to Creating Experience
   Organizations differentiate themselves by creating digital experiences for customers in the digital economy. For example, today's leading retailers inspire customer purchases by using AI-based, personalized marketing messages as well as delivering in-store and online Augmented Reality (AR) and Virtual Reality (VR) experiences. They create seamless digital and physical shopping experiences through automated stores and ecommerce fulfillment centers. The public sector is also providing a similarly seamless digital experience through initiatives such as national government service portals, national digital identities, and more.
3. The Rise of Industry Ecosystems
   Traditional and linear value chains with limited partner engagement are now giving way to integrated ecosystems that use software platforms to deliver value, create resiliency, and foster innovation through connected processes. For example, leading banks engage with Financial Technology (FinTech) players to enhance services and innovate rapidly within the Financial Services Industry (FSI). Such industry ecosystems thrive on data sharing and use digital platforms for intercompany collaboration and multiplied innovation.

The Four Key Enablers of the Digital Economy
The global economy is on its way to fulfilling its objectives— more than 65% of global Gross Domestic Product (GDP) is predicted to be digitalized as soon as 2022. Accelerated investment in digital transformation will further spur the creation of digitally-enabled products, services and experiences across all industries, significantly impacting economic development, particularly as nations move away from resource-based economic models. To facilitate this transition, governments and policymakers should focus their efforts on critical enablers of the digital economy. As such, there are four aspects that are foundational to its evolution, addressing them head on will multiply economic growth in the future:

1. Digital Strategies and Regulations
   The digital economy requires focused attention, tailored strategies and policymaking efforts. China, for example, has put significant emphasis on the digital economy in its national strategy for 2021–25 and expects it to become the core component fueling its commercial transformation. The country plans to use data and applications to not only upgrade and transform traditional industries but also foster new business models.
2. Digital Infrastructure
   The digital economy requires organizations and individuals to connect seamlessly regardless of their location and therefore relies on robust, reliable, responsive, secure and scalable digital infrastructure. Digital infrastructure, today, is comprised of a myriad of technological elements such as telecommunication networks and storage infrastructure — including data centers and the cloud — sensor and camera networks, applications and platforms. By the end of 2022, 60% of network resources will migrate to the network edge, to deliver adaptable and agile connectivity services to a population who live, work, and play in a heavily distributed way.
3. Data
   The digital economy is primarily a data-driven economy. Data is the most valuable resource in the digital age, and it’s a key enabler of personalized customer experiences and industry ecosystems. The ability of an organization to capture data, synthesize information, learn continuously and apply the resulting insights at scale, is a key differentiator in the digital economy. A combination of IoT platforms, devices, networks, AI and ML tools, spreads intelligence from the edge to the core and creates a data value chain. However, fully exploiting data remains a significant challenge for organizations. It is estimated that less than 3% of existing data is analyzed with the aim of improving enterprise intelligence. National governments and policymakers that focus on developing the digital economy should strive to create an open data economy, where data is shared widely, creating value, albeit supported with strong data privacy and protection laws to counter potential threats.
4. Digital Skills
   The increasing role of digital technologies in the workplace requires a range of new digital skills. This falls into two categories: core ICT skills — such as programming, and generic ICT skills required by employees in a digital environment. However, it is difficult to find core ICT skills. With rapid technological evolution, the skills learned at educational institutions often fall short and quickly become outdated. Enhancing the ICT skills of graduating students and the wider workforce will be critical to digitalization efforts and the long-term evolution of the digital economy. For governments and policymakers, this also has significance since they need to adapt a new generation to changing economic scenarios and avoid disruptions to the labor market.

The Digital Economy and National Digital Transformation
Economic prosperity and the improvement of citizens' lives are priorities for every nation. As digital technologies are steadily intertwined with the way products and services are created and consumed, the digital economy is becoming a critical component of national transformation. It’s crucial for national governments and policymakers to understand this new economic construct and facilitate its evolution by creating a supportive environment. To thrive in the digital age, organizations must also transform digitally through creating superior customer experiences by embracing digital business models, mastering data and participating in industry ecosystems.