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Digital Density Index Guiding digital transformation A new way for Australian government and business leaders to understand, measure and manage digital strategies to drive growth and competitiveness
The Accenture Digital Density Index empirically shows increased penetration of digital technologies in economic activity can significantly lift Australia’s productivity and GDP growth—potentially driving annual GDP growth rates by 0.25 percent over the next five years, resulting in an estimated AUS$34.5 billion of additional economic output (GDP) in the year 2020.1 2 Digital Density Index
The key is for governments and businesses to understand
what drives digital density, measure it, and then manage it.
Digital Density Index 3
Introduction
It is no secret that greater use of digital technologies
can help the Australian economy become more
competitive and grow more strongly.
But new research from Accenture Strategy top-ranked Netherlands. This position
provides empirical evidence they can, and reflects both the progress Australia has
quantifies the impact of increased use of made in embracing digital as well as the
digital technologies on competitiveness work that the country still has before it.
and economic growth (see “About the
For instance, although Australia has high
research” for more details).
internet usage (87 percent of households
At the core of our research is the use the internet) and leads the world in
Accenture Digital Density Index, telecommunications investment per head,
a comprehensive scorecard of what it scores poorly on creating and exploiting
truly matters to digitally-led economic digital markets—which is reflected in
productivity. Reflecting the pervasive the fact that only 2.3 percent of retail
nature of digital technology, the sales in Australia are conducted online,
index covers more than 50 indicators compared with 10 percent in the UK and
across four equally weighted areas of 13 percent in South Korea. Furthermore,
economic activity: Making Markets, the country’s enterprises are inconsistent
Running Enterprises, Sourcing Inputs in their application of digital technologies
and Fostering Enablers (Figure 1). to drive efficiencies. Australia is a leader
in cloud and analytics use, but lags in
A higher score on the Digital Density
the use of radio-frequency identification
Index reflects a broader and deeper
(RFID), knowledge management and
adoption of digital technologies, as
crowdsourcing. And while Australia
well as the skills, ways of working,
is second only to the Netherlands in
and regulatory frameworks needed
the use of digital to source finance, it
to realise their economic potential
has the lowest score among advanced
(Figure 2). Australia’s score—52.7 out of
economies in the use of digital to source
100—places the country eighth out of
and manage labour.
the 17 leading economies we studied,
considerably below the 75 earned by
4 Digital Density Index
Digital Density Index 5
Figure 1: Areas of economic activity measured by the Digital Density Index
Making Markets Sourcing Inputs
This is the recognition that existing This is the extent to which the
markets are becoming increasingly factors of production are sourced
digital, and new markets are being and used with digital technology.
created through digital means. The second part of sourcing inputs
is to capture the degree to which
digital technologies change the
lifecycle of sourcing these factors
for the business.
Running Enterprises Fostering Enablers
Running enterprises relates to The impact of digital is in part
the extent to which firms are enabled by the institutional and
embracing digital technologies and socio-economic environment.
activities to carry out business
functions such as supply chain,
strategy, talent, procurement, and
research and development.
6 Digital Density IndexFigure 2: Digital Density scores for Another potential shortcoming is an
17 leading economies (0-100) insufficient focus on building the digital
Netherlands
skills that are vital to economic growth.
New research has found that eight in 10
US
Australian parents think that digital skills
Sweden and computer programming should be
South Korea integrated into primary and secondary
UK
curricula. “With youth unemployment
and underemployment at high levels it is
Finland
not surprising that Australian parents are
Austria concerned about the future employment
Australia opportunities of their school aged
Germany
children,” commented Suzanne Campbell,
CEO of AIIA.2
China
Spain
Closing these and other gaps in digital
adoption could lead to greater productivity
Belgium
and, other things being equal, faster
Japan GDP growth. According to our analysis,
Brazil an increase of 10 points in Australia’s
France
Digital Density Index score could boost
the country’s annual GDP growth rates
Italy
by 0.25 percent over the next five years,
India resulting in an estimated AUS$34.5 billion
0 1 2 3 4 5 6 7 8
of additional economic output (GDP) in
the year 2020 (measured in 2014 prices).3
Making Markets Running Enterprises
This compares with more than the entire
Sourcing Inputs Fostering Enablers
education budget of $29.5 billion.4
Importantly, our model found it can take
up to six years for the full economic
benefit of greater digital density to be felt,
with productivity benefits feeding through
fully into trend growth rates of GDP
over this period. This insight should be a
catalyst for governments and businesses
to act now to increase the digital density
of economies and organisations.
Digital Density Index 7Beyond the technical model – creating a new mindset The Digital Density Index can help gauge the current digital density of an economy and guide digital investments in a business. In fact, a digital density profile can be an important starting point for leaders as they shape and implement digital strategies, and target specific opportunities for improvement. But perhaps even more important, the broad areas of economic activity the model describes can also help Australian government and business leaders think differently about how digital technology can transform the country’s economy and its businesses to capitalise on new growth opportunities. 8 Digital Density Index
Digital Density Index 9
Making Markets Running Enterprises
Understand and support new business Transform how you operate
models and markets
An original selling point of digital technologies
In the business sector, innovative thinking is was their ability to take time, cost and distance
demonstrated by energy retailer Powershop. out of an activity or process. That still holds
Serving over 50,000 B2C and B2B customers true today. Companies and governments should
in New Zealand and Australia, Powershop increase their use of digital technologies to
offers a completely new way for customers transform key business processes to create
to buy energy. Powershop sells energy as greater leaps in efficiency and productivity.
a consumer goods product, not as contracts
For example, global mining company Rio Tinto
with complex tariffs. Using either a
has increased free cash flow in its copper mining
state-of-the-art website or mobile app,
operations by leveraging data streams from
customers can buy different energy products,
processing equipment to continually optimise
before or after they use them, by adding units
the production performance of the plant.7
of energy to their cart and checking out via
the online register—just as they do on Amazon.
They can also access a wide range of online
tools that show them how they’ve consumed
energy and help them forecast future usage.5
Importantly, new business models are being
fuelled through an application programming
interface (API) economy where companies
are mixing and matching capabilities and
information from numerous providers to build
new services and concepts. For example,
Australia finance and accounting software
provider MYOB has a well-developed API and
developer programme that allows third parties
to create ‘add-ons’ to build new services, such
as debtor management and notification.6
10 Digital Density IndexSourcing Inputs Fostering Enablers
Think forward to the Industrial Internet Look beyond digital infrastructure
of Things
High-speed broadband is important. However,
To keep growing and innovating, economies digital requires a much broader range of enabling
and businesses must use land, talent, factors beyond technology infrastructure.
capital, ideas, and other resources ever more Governments and businesses must work together
effectively. The Industrial Internet of Things in at least four additional areas to create an
would further accelerate the digitalisation of environment in which digital can flourish.
supply chains, as objects interact with objects
The first is making it easier for entrepreneurs
and humans to optimise processes or create
to launch digital businesses—as Telstra is
new product and service hybrids.8
doing with its muru-D project. This accelerator
For example, Tasmanian wine producers are provides mentoring, tailored acceleration
already gathering information on leaf wetness, services, and perhaps most important,
soil moisture, soil temperature, rainfall, investment, to early-stage startups. muru-D
relative humidity, solar radiation, wind speed participants receive AUS$40,000 in seed capital
and direction, and (ambient) temperature all as well as access for six months to Telstra
with the aim of being able to take action to experts and office space purpose-built for
better manage grapes on the vine. 9
startups.10 Strong links between academia and
industry are also important to accelerating new-
business launches. But while such structures
are prevalent in the US and UK—Stamford,
Cambridge and Oxford Universities are good
examples—they’re largely absent in Australia.
The second is streamlining and simplifying
market rules to reflect the degree of
commerce, online and offline, that now
depends on digital. If Australian organisations
are to grow and innovate at pace with
their global peers, they must act quickly,
stretching their digital boundaries by forging
new connections and embracing emerging
technologies that enable them to compete
in the growing digital ecosystem.
Digital Density Index 11The third involves initiatives to develop digital
skills, which are increasingly critical to the Considering digital density in
success of a country’s economy and its citizens. business growth and investment
A recent report by the Slade Group suggested
decisions
only nine percent of employers believed recent
university graduates were equipped to undertake As businesses increase their use of digital
digital role requirements and increasingly, the technologies, they should consider the
private sector is being involved in the re-tooling digital density of the countries and regions
of the workforce to take advantage of digital in which they operate, and those they
opportunities. For example, one leading target for new investments. The reason
Communications provider is active in facilitating is intuitive: A company heavily reliant on
staff to take part in schemes to exchange staff digital for growth—for example, a bank that
from the US to improve skills in digital.11 wants to drive aggressive adoption of its
online banking capabilities—should favour
The fourth is consumer and citizen trust that
countries with greater digital density.
businesses and governments would use their
personal data responsibly. Digital trust relies In fact, a strong digital business
on secure infrastructure and appropriate infrastructure across a region’s markets,
data protection rules, as well as initiatives by supply chains and talent has become a
businesses to become increasingly transparent critical criterion for companies seeking to
with their customers as to how and why their expand or relocate. It’s just as important
data is used. At the heart of this in Australia, as access to natural resources, a good
is the handling of data, transparency about transportation system, and skilled people.
how customer data is used, the purposes it That’s especially true as governments
is used for, the rules for sharing with third begin to seek to actively boost digital
parties and the length of time data is stored. density to increase growth and national
Some organisations, such as Telstra, are competitiveness of economies. And for
encouraging trust by taking a transparent businesses whose prospects are closely
approach by explaining what data is held and tied to GDP, or are looking to improve
giving access to the same data related to each their position in their own industry
customer. This data is also available to law rankings, digital density may be a
enforcement agencies under a lawful request leading indicator of growth hotspots.
without a warrant.12
12 Digital Density IndexConclusion
Australian companies have advantages and strengths when
competing in the global digital economy. However, as our analysis
shows, being competitive requires committing to digital in all
aspects of economic activity. That means going beyond merely
digitising existing processes and customer channels. To truly
excel, Australian organisations need to reinvent processes and
develop entirely new digitally-enabled products, services and
customer experiences. The Digital Density Index can help leaders
more accurately determine how and where they should invest to
best leverage digital technologies to drive competitiveness and
economic growth, as well as measure their progress along the way.
Digital Density Index 13Reference 9. On cloud wine – how cloud computing can
1. The Accenture and Oxford Economics study enhance the wine on our table, Chris Griffith,
on Digital Density, 2014 The Australian, November 21, 2013.
http://www.theaustralian.com.au/business/
2. AIIA: Australian parents want their kids taught technology/on-cloud-wine-how-cloud-
digital technology skills. February 20, 2015. computing-can-enhance-the-wine-on-our-table/
https://www.aiia.com.au/news/217480/ story-e6frgakx-12267646358339.
Australian-parents-want-their-kids-taught-
digital-technology-skills.htm 10. Muru-D website, https://muru-d.com
3. The Accenture and Oxford Economics study 11. Australia struggling with a digital skills shortage.
on Digital Density, 2014 April 28, 2015. http://www.training.com.au/ed/
australia-struggling-with-a-digital-skills-shortage/
4. Australian Government Taxation and Spending
2013-2014. http://www.budget.gov.au/2013-14/ 12. Telstra Privacy https://www.telstra.com.au/
content/overview/html/overview_44.htm privacy/customer-access
5. Powershop http://www.powershop.co.nz/our- About the research
customers/; http://www.powershop.com.au/ The Accenture and Oxford Economics study on
questions-answered/ Digital Density was based on three principal
research components:
6. MYOB launches API for online accounting suite
iTnews for Australian Business March 18, 2013. 1. Collection of internationally comparable
http://www.itnews.com.au/News/336866,myob- observations across hundreds of measures of
launches-api-for-online-accounting-suite.aspx digital technology and related indicators, from
public and private sources.
7. “Rio Tinto chief Sam Walsh hails $80 million
cash flow boost from big data,” Peter Ker, 2. From more than 50 of those indicators, the
Sydney Morning Herald, March 14, 2014. www. construction of a statistically tested composite
smh.com.au/business/rio-tinto-chief-samwalsh- Digital Density Index for 33 major economies,
hails-80-million-cash-flowboost-from-big-data- 16 of which included partially imputed scores.
20140313-34pju.html#ixzz3LIOZdTKC
3. Multivariate regression analysis to estimate
8. Industrial Internet of Things Will Boost Economic equations that explain variation in countries’
Growth, but Greater Government and Business total factor productivity by reference to their
Action Needed to Fulfill its Potential, Finds relative Digital Density Index scores.
Accenture http://newsroom.accenture.com/
article_display.cfm?article_id=6314
14 Digital Density IndexThe study estimates only the effect of changes in total
factor productivity on GDP. Expanding Digital Density
likely would have additional positive GDP effects
from factors including expansion of the digital/ICT
sector and capital deepening across the economy.
Further analysis could also consider other effects of
expanding Digital Density, including effects on labour
markets, public finances, and investment patterns.
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please visit www.oxfordeconomics.com.
Digital Density Index 15For more information, About Accenture Strategy
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