By Erkko Autio, Research Director, Professor of Technology Venturing, Imperial College Business School
I have been studying Digital Life, in one form or another, for more than 20 years. Before I go on about why I find it so fascinating, and why I was so eager to partner with Telefonica to create its Index on Digital Life, I’ll first provide a few necessary definitions.
To understand Digital Life, we first need to understand digitalisation. Digitalisation is the process of embedding digital technologies in everyday and business life. As people and businesses start using digital technologies (PCs, smartphones, broadband, applications – you name it) the society and economy they live and operate in gets digitalised. Digital Life, then, is the outcome of digitalisation at societal and economic levels.
So, why have I bothered myself with understanding digitalisation and measuring its impacts across the world?
I have dedicated myself to the study of digitalisation because it has the ability to change everything. It liberates value creation from physical constraints. I’ll use an example to explain what I mean by this. A shoe is a shoe: all you can do with it is to walk or run. But, if you embed an accelerometer and a microchip into the shoe, it can start measuring your steps, speed, and distance. It can communicate with your smartwatch and send your exercise data to the cloud. With digitalisation, your shoe can take on completely new functionalities and connect you to a cloud-based fitness ecosystem.
At a socio-economic level, it is estimated that digitalisation has the potential to increase GEP per capita growth rates by 40%. Again, this is because digitalisation has the power to affect everything we do. It changes the way individuals and organizations interact, communicate, and learn; how they work and conduct business; how they spend their leisure time.
So, why was I so excited to work with the team at Telefonica on its Index on Digital Life, the most comprehensive global index of its kind ever created?
Despite the impact digitalisation can and does have at both an individual level and a societal one, previous measurements of it have been narrow and have offered us little insight.
Most existing indices focus on investment in digital infrastructures or the current state of it. They ignore the crucial process through which this investment is actually transformed into economic growth, disregarding that investment can be efficient or inefficient.
This traditional narrowness is addressed by Telefonica’s index, which offers us a more holistic view of digitalisation. Specifically, the Index takes an approach that not only measures investments, but more crucially, the complex processes that convert these investments into a potential to increase GDP growth and economic prosperity. The Index is both a measure of the process of and readiness for digitalisation.
The dual focus of the Index meant that it threw up a few surprises for us when we began examining the results:
- First, there are big differences across countries. The score of the leading country in Digital Life (USA) was twice as high as that of the countries in the bottom.
- Second, the benefits of digitalisation appear to be self-reinforcing: benefits from digitalisation drive further benefits from digitalisation.
- Third, it is not all doom and gloom for the less well-off countries. 30 out of 34 countries over-performed relative to their GDP-predicted score in at least one of the areas we measured.
- Fourth, in order to effectively nurture Digital Life, you really need a holistic approach that cuts across policy silos and government departments.
To me, the most important message for low-income countries is that digitalisation and its outcome on Digital Life is probably the single most important tool to advance their economies. But you need to take an ecosystem approach and coordinate your policy actions in all domains of Digital Life. If you do this right, there is a good chance that you will set off a virtuous cycle where success begets further success.
Keeping track of the countries that do this well, and helping guide those who need a bit more help, is what’s going to keep me looking at Digital Life for many more years to come.