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strategy+business



issue 68 AUTUMN 2012




Digitization and Prosperity
The economic growth of nations in linked to one factor: adoption
of information and communications technology.




by BAHJAT EL-DARWICHE, MILIND SINGH,

AND SANDEEP GANEDIWALLA




reprint 00127
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                      1
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                              by Bahjat El-Darwiche,
                              Milind Singh,
                              and
                              Sandeep Ganediwalla

                             The economic growth of nations is
                             linked to one factor: adoption of information                                                                           2
                             and communications technology.




                             Policymakers today face an environment trans-             — how to promote and structure the digitization of
Illustration by Greg Mably




                             formed by information and communications technol-         their economies. These choices have enormous conse-
                             ogy (ICT). More people today have access to a mobile      quences. Countries that have achieved advanced levels of
                             phone than to electricity; the amount of data generated   digitization, defined as the mass adoption of connected
                             globally is expanding exponentially. In every country,    digital technologies and ICT applications by consumers,
                             leaders of government and business are deciding —         enterprises, and governments, have realized significant
                             through their policies and strategies for ICT, Internet   economic, social, and political benefits. For them, digi-
                             access, communications media, and digital applications    tization is a pathway to prosperity. Other countries are
Bahjat El-Darwiche               Milind Singh                   Sandeep Ganediwalla                         Also contributing to this article
                      bahjat.eldarwiche@booz.com       milind.singh@booz.com          sandeep.ganediwalla@                        were Booz & Company senior
                      is a partner with Booz & Com-    is a principal with Booz &     booz.com                                    partner Karim Sabbagh and
                      pany in Beirut. He specializes   Company in Dubai. He           is an associate with Booz &                 partner Roman Friedrich,
                      in communications, media,        focuses on sector policy and   Company in Dubai. He                        along with Raul Katz of Tele-
                      and technology, with expertise   development strategy for the   specializes in analysis,                    com Advisory Services LLC.
                      in telecom-sector growth         telecommunications and ICT     performance, and strategy
                      strategy, policymaking and       industries.                    for the telecommunications
                      regulatory management,                                          and ICT industries.
                      digitization business and
                      operating models, and
                      strategy-based restructuring
                      for ICT companies.




                      falling disproportionately behind.                              Internet. Most of them used dial-up modems. By 2010,
                           The difference among countries was a core find-            there were 1.4 billion PCs, 5 billion mobile phone users,
                      ing of a recent study conducted by Booz & Company,              and an Internet population of 2 billion, about the size of
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                      “Maximizing the Impact of Digitization.” Other stud-            India and China combined. Nearly all were connected
                      ies on ICT and prosperity have focused primarily on             with broadband or a handheld browser, and they were
                      Internet access: whether people are able to connect to          geographically and economically dispersed; more than
                      wireless and broadband technologies. But by looking             half a billion people today connect online from Africa.
                      more closely at the ways people use digital technologies
                      and applications, we found that the greatest social and
                      economic benefits depend on factors related to adoption         Exhibit 1: Components of the Digitization Score
                      and usage: such as pricing, reliability, speed, and ease of     To measure the impact of digitization on each country, the research
                                                                                      study analyzed six key attributes. Each was tracked through a group
                      use. In any geography, these factors determine the level        of proxy indicators based on publicly accessible data.
                      of digitization, which in turn has a proven impact on
                      reducing unemployment, improving quality of life, and            Ubiquity: Access to digital services and applications
                      boosting citizens’ access to public services. Digitization       • Fixed broadband penetration              • Number of personal computers
                                                                                       • Mobile phone penetration                 • 3G mobile connection penetration
                      allows governments to operate with greater transparency
                                                                                       • Mobile broadband penetration
                      and efficiency, and it has a dramatic effect on economic
    3
                      growth, but not all at once. Countries at the most ad-           Affordability: Availability through low pricing

                      vanced stage of digitization derive 20 percent more in           • Fixed-line installation costs            • Mobile prepaid tariff
                                                                                       • Fixed-line cost per minute               • Fixed broadband Internet
                      economic benefits than do those that are just beginning.
                                                                                       • Mobile connection fees                    access tariff
                           Policymakers have an important role to play in
                      moving their countries toward advanced levels of digi-           Reliability: Quality and consistency of connection

                      tization. In their approach to technology, they need             • Investment per telecom subscriber (mobile, broadband, and fixed)

                      to shift focus from access, toward adoption and us-              Speed: Real-time data throughput rates
                      age. That means elevating digitization on the national           • International Internet bandwidth         • Broadband speeds
                      agenda; tracking progress systematically; developing a
                      better governance model for the telecom and informa-             Usability: Ease of getting online and ease of use
                                                                                       • Internet retail as a % of total retail   • Domains per 100 inhabitants
                      tion technology sectors; adopting an ecosystem perspec-          • E-government Web measure index           • IP addresses per 100 inhabitants
                      tive; enabling competition; and stimulating demand.              • % of individuals using the Internet      • Social network unique visitors
                                                                                                                                                                       strategy+business issue 68




                                                                                       • Data as a % of wireless revenue          • Average SMS usage per customer

                      Measuring Digitization                                           Skill: Incorporation of digital services into lives and businesses
                      In 1990, there were 100 million personal computers               • Engineers per 100 inhabitants            • % of labor force with more than
                                                                                                                                    secondary education
                      worldwide, 10 million mobile phone users, and less than
                      3 million people (about the population of Berlin) on the        Source: Booz & Company
During most of the ICT sector’s development, its               •	 Advanced economies (those with a score of 40
impact was measured in terms of connection: the num-           and higher) are in the most mature stage of digitization.
ber of people reached by telecommunications lines and          These countries have a talent base that can take advan-




                                                                                                                             features title of the article
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thus with access to the Internet. But in a world of near-      tage of digital services.
universal access, a new form of assessment is needed.               For the world as a whole, the progression of digiti-
     The extent of a country’s digitization can be mea-        zation through these stages is accelerating. Developed
sured across six key attributes: ubiquity (the level of ac-    countries such as Germany, the United Kingdom, and
cess to digital services and applications), affordability      the United States took nearly four years on average to
(pricing), reliability (the quality of connection), speed      move from the emerging to the transitional stage; now,
(the rate of data throughput), usability (the ease with        countries such as the United Arab Emirates, Kuwait,
which people can get online and use applications avail-        and Estonia are making that same move in less than
able there), and skill (the ability of users to incorporate    two years. Between 2004 and 2007, countries registered
digital services into their lives and businesses). (See Ex-    39 stage leaps; between 2007 and 2010, there were 65
hibit 1.)                                                      stage leaps. From 2004 to 2007, countries moved, on
     In studying the impact of digitization on prosper-        average, seven points up the scale (of a total 100 points).
ity, we have found measurable proxy indicators for all         From 2007 to 2010, the average jump was 10 points.
six of these attributes. Thus, the level of digitization can        This acceleration stems from a number of factors.
                                                                                                                                 4
be scored for any country. The scores show that the pro-       Emerging countries are following a path that devel-
gression of digitization proceeds in four similar stages in    oped nations have already blazed, learning from their
all geographies. (See Exhibit 2, page 5.)                      successes and mistakes. Young economies can also take
     •	 Constrained economies (those with a digitization       advantage of more mature technologies and markets,
score below 25) have barely begun to develop affordable        along with the corresponding price reductions. When
Internet connections, often because they are held back         skills are transferred to more countries and better gov-
by political factors or lagging economic development.          ernance structures are put in place, the implementa-
Internet services remain expensive and limited in reach.       tion and usage of new technologies generally accelerate.
     •	 Emerging economies (those with a score between         Some emerging countries, like those in the Gulf Coop-
25 and 29.9) have achieved significant progress in pro-        eration Council in the Middle East, are bypassing in-
viding affordable and widespread access. However, the          termediate phases and jumping directly to higher levels
reliability of services remains below par, capacity is lim-    of digitization.
ited, and usage is low.
     •	 Transitional economies (those with a digitization      Economic and Social Impact
score between 30 and 39.9) provide citizens with ubiq-         The effect of digitization on a country’s economy is
uitous, affordable, and reasonably reliable services, and      highly visible. In the 150 countries we studied, an in-
usage is expanding at a relatively rapid pace.                 crease in digitization of 10 percentage points triggered
Exhibit 2: Components of the Digitization Score
                      The range of digitization scores for 150 countries shows that 65 countries are still in the constrained stage;
                      19 are emerging, 28 are transitional, and 38 have achieved advanced levels of ICT adoption and use.
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                                                                                       North America                                                                  (HIGHEST
                                                                                       South and Central America/Caribbean                                            SCORE)
                                                                                                                                                                      63.7
                                                                                       Europe                                                                         Norway
                                                                                       Africa                                                                         Iceland
                                                                                                                                                                      Korea
                                                                                       Middle East
                                                                                                                                                       52.0           Hong Kong
                                                                                       Asia/Pacific/Oceania                                            Australia      Switzerland
                                                                                                                                                       Belgium        U.S.
                                                                                                                                        43.6           Singapore      Luxembourg
                                                                                                                                        UAE            France         Taiwan
                                                                                                                        37.9            Greece         Portugal       Canada
                                                                                                                        Estonia         Poland         Germany        Israel
                                                                                                                        Ukraine         Hungary        Austria        Denmark
                                                                                                          31.6
                                                                                                                        Cyprus          Belarus        Spain          Japan
                                                                                                          Montenegro
                                                                                                                        Bulgaria        Slovenia       Italy          U.K.
                                                                                      26.9                Turkey
                                                                                                                        Croatia         New Zealand    Ireland        Sweden
                                                                                      Panama              Mexico
                                                                                                                        Latvia          Lithuania      Netherlands    Finland
                                                                                      Azerbaijan          Barbados
                                                                       23.8                                                             Chile          Czech Republic 52.2
                                                                                                          Seychelles    Uruguay
                                                                       Kazakhstan     Antigua & Barbuda                                 Malaysia
                                                                                                          Jordan        Oman                           Russia
                                                                       Guyana         Botswana                                          Mauritius
                                                          20.0                                                          Argentina                      Romania
                                                                                      Trinidad & Tobago   Lebanon
    5                                                     Aruba        South Africa
                                                                                      Armenia             Mongolia      Serbia          Saudi Arabia   Slovakia
                                                          Moldova      Belize                                                           Qatar          43.7
                                       12.9                                                               Costa Rica    Macao
                                                                       India          China                                             Malta
                                       Bangladesh         Sri Lanka                                                     Iran
                                                                                      Ecuador             Brazil
                                                          Bolivia      Egypt                                                            Kuwait
                        8.1            Vietnam                                                            Peru          Philippines
                                                                       Fiji           Bosnia                                            38.0
                                       Cote d'Ivoire      Kyrgyzstan                                                    Bahrain
                        Benin                                                         Georgia             Macedonia
                                                          Honduras     Gabon
                        Sao Tome       Swaziland                                                          Saint Lucia   Colombia
                                                                       El Salvador    Indonesia
                                       Vanuatu            Morocco                                                       31.7
                        Mozambique                                                    Brunei              Albania
                                                          Bhutan       Paraguay
                        Cameroon       Kenya                                                              Venezuela
                                                                       Pakistan       Tunisia
                                       Uzbekistan         Cape Verde
                        Togo                                                          Thailand            27.1
                                                          Angola       Suriname
                        Yemen          Uganda
                                                          Syria        Dominican Rep. Algeria
                        Rwanda         Iraq
                                                                       Guatemala      23.8
                                       Nepal              Ghana
                        Mali
                                                          Zambia       Namibia
                        Lesotho        Cuba
                                                          Nigeria      20.2
                        Afghanistan    Djibouti
                                       Senegal            Cambodia
                        Madagascar
                                       Laos               13.0
                        Burkina Faso
                        Niger          Burundi
                        Comoros        8.9
                        Ethiopia
                        1.9
                                                                                                                                                                                    strategy+business issue 68




                        (LOWEST
                        SCORE)




                                           STAGE: Constrained                                    Emerging               Transitional                       Advanced
                                               SCORE: Less than 25                                 25 to 29.9              30 to 39.9                      40 and higher

                      Source: Booz & Company                                                     Emerging
The more advanced the country, the greater the
   impact of digitization, which establishes a virtuous
   cycle: A country reinforces and accelerates its
   own progress as it moves along the line.




a 0.50 to 0.62 percent gain in per capita GDP. (See                                 anything, increased since then.)
Exhibit 3.) By contrast, access (as measured in studies of                               Digitization also has a significant impact on job
broadband penetration) contributes a gain in per capita                             creation: A 10 percent increase in digitization reduces




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GDP of just 0.16 percent — approximately half as much                               a nation’s unemployment rate by 0.84 percent. From
impact. The more advanced the country, the greater the                              2009 to 2010, digitization added an estimated 19 mil-
impact of digitization appears to be, which establishes a                           lion jobs to the global economy, up 5 percent from the
virtuous feedback cycle: A country reinforces and accel-                            estimated 18 million jobs added from 2007 to 2008.
erates its own progress as it moves along the line. On the                          This is an especially critical finding for emerging mar-
basis of data from 2009 and 2010, we estimate that the                              kets, which will need to create hundreds of millions
total global economic impact of digitization, in terms                              of jobs in the coming decade to ensure that a boom-
of added GDP, was US$395 billion per year. (It has, if                              ing population of young people can contribute to their
                                                                                    national economy. Finally, a 10-point increase in digi-
                                                                                    tization has, on average, led to a six-point increase in
Exhibit 3: Digitization and Economic Growth
                                                                                    the country’s score on the INSEAD Global Innovation
For each of the four stages, the contribution made by digitization
increases. Bars show the added GDP per capita, averaging the countries              Index, which ranks countries according to innovation
in each stage, for every 10 percent increase in digitization scores
                                                                                    potential. (See “The Innovativeness of Nations,” by Rob
recorded between 2009 and 2010.
                                                                                    Norton, s+b, Spring 2012.) In other words, as a country
                                                                                                                                                    6
Percentage Increase in GDP per Capita                                               progresses in its digitization development, it appears to
                                                                                    become more innovative.
                                                       0.62%
                                     0.59%                                               Assessing the social impact of digitization is more
                                                                                    complicated because no metrics apply to all geographies
                    0.51%
   0.50%                                                                            in the same way. Many studies have tracked income dis-
                                                                                    parity as a proxy for social inequality, using the Gini
                                                                                    coefficient (a measure of statistical dispersion), but in
                                                                                    emerging economies that are in the process of elevat-
                                                                                    ing millions of people out of poverty, the relationship
                                                                  Contribution
                                                                  of Access Only*   between economic growth and inequality is complex.
                                                                       0.16%        Therefore, we focused our study of the social impact of
                                                                                    digitization on two measures: quality of life and equal-
                                                                                    ity of access to basic services. We used the widely pub-
Constrained       Emerging        Transitional       Advanced
                                                                                    lished Gallup Wellbeing Index and the Organisation
                                                                                    for Economic Co-operation and Development (OECD)
*Based on studies of OECD, Germany, Latin America, Brazil, Chile, and Malaysia
                                                                                    Better Life Index to measure the former, and the United
Source: Global Insight, Booz & Company analysis                                     Nations Development Programme’s (UNDP’s) Human
In 2007, Qatar reduced the royalties paid by the
                        telecom sector to the government. The ICT
                        sector’s contribution to Qatar’s GDP has grown by
                        approximately 16 percent in the five years since.




                      Development Index to measure the latter.                     disseminate information effectively: A 10-point increase
                           In developed economies, increasing digitization sig-    in digitization increases the Transparency International
                      nificantly boosts quality of life: OECD countries gain       index by approximately 1.2 points. Digitization raises
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                      an average of 1.3 points on the Better Life Index for        e-government effectiveness by approximately 0.1 points
                      every 10-point increase in the digitization score. How-      (and kick-starts another virtuous cycle, as greater e-
                      ever, in countries with lower levels of economic devel-      government effectiveness accelerates digitization). And
                      opment, the impact of digitization is less pronounced,       digitization gives the population more insight into gov-
                      most likely because quality-of-life factors beyond digiti-   ernment policies and functions, which might, in turn,
                      zation — food, housing, clothing, water, energy, health,     lead to more active political participation and support
                      and transportation — are in shorter supply and thus          the development of human rights.
                      more critical. In other words, digitization improves a            Finally, digitization supports better delivery of
                      country’s quality of life only when the basic needs of its   public education and other government services. Here
                      population have been met.                                    again, digitization’s impact is more pronounced in the
                           Yet when we examine access to basic services, we see    case of developing countries, where a 10-point increase
                      the opposite effect. Digitization’s impact is greatest in    in digitization results in an average 0.17-point increase
                      constrained and emerging economies. A 10-point in-           in the Inequality-Adjusted Education Index. This trend
                      crease in the digitization score leads to an increase of     has less effect in developed countries because they al-
    7                                                                              ready have greater access to universal basic education.
                      approximately 0.13 points in the Human Development
                      Index. In more developed economies where basic hu-
                      man needs are more easily met, digitization plays a less     What Can Governments Do?
                      pronounced role in expanding access to education, sani-      The digitization index can be an invaluable tool for
                      tation, water, and healthcare.                               countries seeking to advance their place in the world. In-
                           To assess government effectiveness, we used three       vestment in broadband infrastructure has helped ensure
                      metrics: the 2010 Corruption Perceptions Index pub-          widespread high-speed access to the Internet and com-
                      lished by Transparency International; the e-government       munications services. But this investment is not enough.
                      development index created by the United Nations              Nor is the next step to simply invest more money —
                      Public Administration Network to gauge the provi-            even if the money is available. Instead, policymakers can
                      sion of electronic services by governments; and the          play a pivotal role by focusing on five key imperatives.
                      Inequality-Adjusted Education Index, measured by the              1. Elevating digitization on the national agenda. To
                                                                                                                                                strategy+business issue 68




                      UNDP to show the extent of public education, a key           realize the wide-ranging benefits that digitization of-
                      government service. We found that greater digitiza-          fers, countries need support from the highest levels of
                      tion led to improvement on all three counts. Digitiza-       government. Every country, whatever its digitization
                      tion enables a society to be more transparent, increas-      maturity level, needs a national agenda, with oversight
                      ing public participation and the government’s ability to     at the executive branch of government. Otherwise, the
ICT sector can devolve into a “tragedy of the commons”        rums and policy consultations. (See “School Reform
in which too many competitive stakeholders, fighting to       for Realists,” by Andrea Gabor, page 34.) The frame-
sell products and services online, impede progress. Some      works for public–private partnerships that can manage
governments, especially those in the constrained and          investments that are less immediately attractive should
emerging stages, also need to change their approach to        be clear. For example, governments may decide to fund
ICT-related taxation. They must stop viewing the sector       broadband deployment in remote regions, but let the
as a source of tax revenue and recognize it instead as an     private sector target the urban areas.
enabler of socioeconomic development. Countries that               Most developed countries have seen direct benefits
have made this transition have been rewarded. In 2007,        from strong sector governance. Singapore, for example,
Qatar reduced the royalties paid by the telecommuni-          executed its digitization plan in 2006, and its ICT sec-
cations sector to the government. The resulting incen-        tor had grown by 13.6 percent by 2008, due in part to
tives for entrepreneurship have helped the ICT sector’s       the country’s robust governance. Developing countries




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contribution to Qatar’s GDP grow by approximately 16          can accelerate development of their ICT sectors by es-
percent in the five years since. Qatar’s share of total ICT   tablishing a policymaking function and investing early
activity in the Middle East has doubled.                      in a sector-development arm. Saudi Arabia, for instance,
      Governments can also elevate the digitization agenda    advanced rapidly through the stages of digitization by
by creating an effective system that measures, tracks,        ensuring fulfillment of all regulatory and oversight roles
and demonstrates the impact of every dollar invested in       at the national level.
it. Economies at all four stages of development are still          3. Adopting an ecosystem philosophy. It’s not pos-
developing and refining the relevant metrics. For ex-         sible to stop the convergence of the telecommunications,
ample, the United States’ National Broadband Plan was         media, and technology industries, or the integration of
approved by the Federal Communications Commission             the value chain, including infrastructure, applications,
in 2010. It includes dozens of specific measures to im-       and usage. Even in relatively small countries, like Qa-
prove regulations and standards, with six overarching         tar, Singapore, and the Netherlands, ICT companies
goals: bringing high-speed Internet to 100 million more       are looking beyond their local markets to expand their
homes, providing leadership in mobile innovation, de-         business. (See “The Global ICT 50: The Supply Side of
                                                                                                                               8
veloping a more robust broadband network, ensuring            Digitization,” by Olaf Acker, Florian Gröne, and Ger-
more affordable broadband service, establishing nation-       mar Schröder, s+b, Autumn 2012.) These changes in the
wide wireless access for first responders, and enabling a     technology and media ecosystem will mean abandoning
clean energy economy.                                         or changing many established government practices.
      2. Developing a better governance model. Govern-             For example, emerging economies have often abet-
ments play four complementary roles in fostering digiti-      ted investment in telecommunications infrastructure,
zation. They set policy, regulate companies and activity,     and as a result this sector is fairly well developed. In
invest in developing the sector, and “e-enable” public ser-   many of these countries, however, other kinds of infor-
vices (bring them online, along with appropriate links to     mation technology still lag. For instance, in the United
private-sector services). Each role is distinct but must be   Arab Emirates, non-telecommunications spending ac-
coordinated with the others. To ensure synergies and ef-      counts for 21 percent of total ICT spending, compared
ficiencies, most countries place all four functions within    with 37 percent in developed markets such as Finland;
a single organization, as the United Kingdom and Qatar        this means that the untapped ICT opportunity beyond
have done.                                                    telecommunications in emerging economies (for ser-
      The most effective governance structures involve        vices such as enterprise computing) is significant.
open and appropriate collaboration among private                   Policymakers also need to foster local capabilities
companies and agency officials, through industry fo-          in creating content and applications. In Estonia, for
In several countries, when competition inhibited
                        investment in Internet infrastructure, policymakers
                        created new “natural monopolies” to fill this role.




                      example, innovative software and hardware compa-             — through ICT license auctions, privatization of state-
                      nies have been in place since the 1990s; they contrib-       owned telecom and media companies, and deregula-
                      uted more than €500 million (US$473 million) in              tion of barriers to entry — has been a key mechanism
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                      annual revenues by 2001, and have created more than          in driving competition. In Saudi Arabia, for example,
                      400,000 jobs overall. Their success encouraged Esto-         market liberalization began in the early 2000s, as state-
                      nia to launch a development fund in 2007 to further          owned Saudi Telecom prepared to compete openly in
                      develop its knowledge economy, investing in resources        its home market for the first time, and to enter other
                      such as ICT parks and innovation centers, and set-           markets. This liberalization led to a 9 percent annual
                      ting up particular export-oriented projects, such as an      growth rate in digitization between 2000 and 2004.
                      “Estonia–India foresight project” with a concentration       The 2005 entry of another phone company, Etisalat,
                      on cybersecurity.                                            spurred heavy investment in fixed and mobile broad-
                           National investment in ICT-related innovation           band, which, in turn, fueled 17 percent annual growth
                      capabilities can have lasting economic effect. In the        in digitization between 2005 and 2010.
                      mid-2000s, Egypt introduced ICT into its education                In some cases, competition can backfire. In India,
                      system, developed e-content, created technology parks,       for example, excessive liberalization triggered aggressive
                      encouraged the creation of small and midsized enter-         competition and unsustainable returns for sharehold-
                      prises focused on ICT via developing technology incu-        ers. To correct such a situation, policymakers should
    9
                      bators, and established the ICT Trust Fund, which uses       encourage consolidation that will restore balance to the
                      digital technology to promote and enhance the perfor-        sector. For example, in several countries, when compe-
                      mance of these enterprises. As a result, Egypt became        tition inhibited investment in Internet infrastructure,
                      one of the largest ICT exporters in the Middle East and      policymakers created new “natural monopolies” to fill
                      North Africa region, with 27 percent yearly growth in        this role: regulated companies like OpenNet in Singa-
                      ICT service exports from 2005 to 2009. Even during           pore, QNBN in Qatar, and National Broadband Net-
                      the country’s political upheaval, the number of ICT          work in Australia. In cases like these, regulators need
                      companies continued to grow, from about 4,000 in             to ensure that the monopolistic entity is well regulated
                      2010 to 4,600 in 2012.                                       and that there is significant service-level competition
                           4. Enabling competition. Although telecommunica-        to spur innovation. Singapore, for example, created a
                      tions was a monopolistic business for most of the 20th       regulatory framework that effectively gave OpenNet a
                      century, the industry has learned the value of compe-        monopoly in building and operating the country’s pas-
                                                                                                                                                strategy+business issue 68




                      tition since the mid-1980s. Competitive provision of         sive networks. This framework allows regulated returns
                      broadband and software infrastructure fosters innova-        on investment in infrastructure while ensuring com-
                      tion and drives adoption, two factors critical to enabling   petition in services. Similarly, in the United Kingdom,
                      countries to progress in their digitization efforts.         policymakers are encouraging consolidation of the in-
                           In most emerging economies, market liberalization       frastructure — as evidenced by the merger of Orange
and T-Mobile — while maintaining a competitive en-           from investment in digitization beyond simple broad-
vironment in services.                                       band access.
     5. Stimulating demand. Countries can progress rap-           In his book The Shield of Achilles: War, Peace and
idly in digitization by encouraging the adoption of new      the Course of History (Knopf, 2002), constitutional
applications by individuals, businesses, and their own       historian Philip Bobbitt argued that the world was go-
agencies. One way to stimulate demand is to ensure           ing through a fundamental shift in the prevailing view
that citizens can perform all government-related tasks       of the purpose of government, from the 20th-century
— such as paying taxes, renewing drivers’ licenses, and      nation-state, which derived its legitimacy by guarantee-
enrolling in school — using broadband networks.              ing the welfare of the nation’s people, to the 21st-cen-
     Beyond that, demand for ICT services depends on         tury “market state,” which will focus on expanding op-
technological literacy and skilled human capital. Poli-      portunities for its citizens.
cymakers can invest in digitization by providing train-           The embrace of digitization is, perhaps, an example
ing programs and incentives for education. They can          of that shift. Indeed, nowhere are the benefits of the
also boost usage by promoting high-speed broadband           market state more evident than in ICT. National gov-
services and ensuring that these networks are both           ernments have learned that there are limits to their role
widely available and affordable.                             as welfare guarantors. They cannot protect their citizens
     A number of countries in the advanced stage of          indefinitely against the vicissitudes of the global econo-
digitization have learned how to raise demand. For in-       my. But by advancing the cause of digitization, they can




                                                                                                                                         features title of the article
                                                                                                                                         features technology
stance, France has increased ICT spending at a yearly        become market makers, building their own capabilities
rate of 5 percent since 2003 through a number of ini-        — and those of their citizens and businesses — to raise
tiatives. Among these are the creation of the Villes In-     the level of opportunity for their entire population. +
ternet association, which works with local authorities                                                               Reprint No. 00127
to develop Internet-literate citizens; and the Comité In-
terministériel pour la Société de l’Information, which
was created to encourage Internet usage, improve pub-
lic services via technological innovation, and strength-
en the competitiveness of French companies.

The Digitization Imperative
For some policymakers, the statistics on digitization
will be a wake-up call. The metrics will reveal gaps in
a country’s capabilities — and ways in which it is not
                                                                                                                                         10
equipped to compete with other countries. Other poli-
cymakers will be pleased to see that they are relatively     Resources
well prepared — but for how long?
                                                             Roman Friedrich, Michael Peterson, and Alex Koster, “The Rise of
     The results also confirm a feeling that many poli-      Generation C,” s+b, Spring 2011, strategy-business.com/article/11110:
cymakers share: that digitization can catalyze dramatic      How digitization is fostered by people born after 1990: a connected,
                                                             communicating, content-centric, computerized, and community-
economic, social, and political improvements. Anec-          oriented cohort.
dotal evidence abounds: Water utilities have installed
                                                             Art Kleiner, “Philip Bobbitt: The Thought Leader Interview,” s+b, Spring
sensors that reduce leakage, saving water and money;         2004, strategy-business.com/article/04109: A long-range view of the
healthcare organizations send text messages to preg-         evolution of the concept of government, with immense implications for
                                                             digitization and business leadership in general.
nant women with advice on prenatal care, creating a
healthier new generation even before it is born; fleets of   Karim Sabbagh, Roman Friedrich, Bahjat El-Darwiche, and Milind
                                                             Singh, “Maximizing the Impact of Digitization,” Booz & Company
delivery trucks use GPS devices to find shorter routes,      white paper, 2012, booz.com/global/home/what_we_think/reports_and_
cutting down on their greenhouse gas emissions. But          white_papers/ic-display/50436119: The paper from which this article was
until the impact is quantified, nobody quite knows           adapted, with more detail on the relationship between digitization and
                                                             measures of quality of life and economic growth.
how much to emphasize digitization, or how its impact
                                                             For more thought leadership on this topic, see the s+b website at:
compares to that of other factors. We hope this analysis     strategy-business.com/technology.
can help demonstrate the high leverage that can accrue

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Digitization and Prosperity

  • 1. strategy+business issue 68 AUTUMN 2012 Digitization and Prosperity The economic growth of nations in linked to one factor: adoption of information and communications technology. by BAHJAT EL-DARWICHE, MILIND SINGH, AND SANDEEP GANEDIWALLA reprint 00127
  • 3. features technology by Bahjat El-Darwiche, Milind Singh, and Sandeep Ganediwalla The economic growth of nations is linked to one factor: adoption of information 2 and communications technology. Policymakers today face an environment trans- — how to promote and structure the digitization of Illustration by Greg Mably formed by information and communications technol- their economies. These choices have enormous conse- ogy (ICT). More people today have access to a mobile quences. Countries that have achieved advanced levels of phone than to electricity; the amount of data generated digitization, defined as the mass adoption of connected globally is expanding exponentially. In every country, digital technologies and ICT applications by consumers, leaders of government and business are deciding — enterprises, and governments, have realized significant through their policies and strategies for ICT, Internet economic, social, and political benefits. For them, digi- access, communications media, and digital applications tization is a pathway to prosperity. Other countries are
  • 4. Bahjat El-Darwiche Milind Singh Sandeep Ganediwalla Also contributing to this article bahjat.eldarwiche@booz.com milind.singh@booz.com sandeep.ganediwalla@ were Booz & Company senior is a partner with Booz & Com- is a principal with Booz & booz.com partner Karim Sabbagh and pany in Beirut. He specializes Company in Dubai. He is an associate with Booz & partner Roman Friedrich, in communications, media, focuses on sector policy and Company in Dubai. He along with Raul Katz of Tele- and technology, with expertise development strategy for the specializes in analysis, com Advisory Services LLC. in telecom-sector growth telecommunications and ICT performance, and strategy strategy, policymaking and industries. for the telecommunications regulatory management, and ICT industries. digitization business and operating models, and strategy-based restructuring for ICT companies. falling disproportionately behind. Internet. Most of them used dial-up modems. By 2010, The difference among countries was a core find- there were 1.4 billion PCs, 5 billion mobile phone users, ing of a recent study conducted by Booz & Company, and an Internet population of 2 billion, about the size of features technology “Maximizing the Impact of Digitization.” Other stud- India and China combined. Nearly all were connected ies on ICT and prosperity have focused primarily on with broadband or a handheld browser, and they were Internet access: whether people are able to connect to geographically and economically dispersed; more than wireless and broadband technologies. But by looking half a billion people today connect online from Africa. more closely at the ways people use digital technologies and applications, we found that the greatest social and economic benefits depend on factors related to adoption Exhibit 1: Components of the Digitization Score and usage: such as pricing, reliability, speed, and ease of To measure the impact of digitization on each country, the research study analyzed six key attributes. Each was tracked through a group use. In any geography, these factors determine the level of proxy indicators based on publicly accessible data. of digitization, which in turn has a proven impact on reducing unemployment, improving quality of life, and Ubiquity: Access to digital services and applications boosting citizens’ access to public services. Digitization • Fixed broadband penetration • Number of personal computers • Mobile phone penetration • 3G mobile connection penetration allows governments to operate with greater transparency • Mobile broadband penetration and efficiency, and it has a dramatic effect on economic 3 growth, but not all at once. Countries at the most ad- Affordability: Availability through low pricing vanced stage of digitization derive 20 percent more in • Fixed-line installation costs • Mobile prepaid tariff • Fixed-line cost per minute • Fixed broadband Internet economic benefits than do those that are just beginning. • Mobile connection fees access tariff Policymakers have an important role to play in moving their countries toward advanced levels of digi- Reliability: Quality and consistency of connection tization. In their approach to technology, they need • Investment per telecom subscriber (mobile, broadband, and fixed) to shift focus from access, toward adoption and us- Speed: Real-time data throughput rates age. That means elevating digitization on the national • International Internet bandwidth • Broadband speeds agenda; tracking progress systematically; developing a better governance model for the telecom and informa- Usability: Ease of getting online and ease of use • Internet retail as a % of total retail • Domains per 100 inhabitants tion technology sectors; adopting an ecosystem perspec- • E-government Web measure index • IP addresses per 100 inhabitants tive; enabling competition; and stimulating demand. • % of individuals using the Internet • Social network unique visitors strategy+business issue 68 • Data as a % of wireless revenue • Average SMS usage per customer Measuring Digitization Skill: Incorporation of digital services into lives and businesses In 1990, there were 100 million personal computers • Engineers per 100 inhabitants • % of labor force with more than secondary education worldwide, 10 million mobile phone users, and less than 3 million people (about the population of Berlin) on the Source: Booz & Company
  • 5. During most of the ICT sector’s development, its • Advanced economies (those with a score of 40 impact was measured in terms of connection: the num- and higher) are in the most mature stage of digitization. ber of people reached by telecommunications lines and These countries have a talent base that can take advan- features title of the article features technology thus with access to the Internet. But in a world of near- tage of digital services. universal access, a new form of assessment is needed. For the world as a whole, the progression of digiti- The extent of a country’s digitization can be mea- zation through these stages is accelerating. Developed sured across six key attributes: ubiquity (the level of ac- countries such as Germany, the United Kingdom, and cess to digital services and applications), affordability the United States took nearly four years on average to (pricing), reliability (the quality of connection), speed move from the emerging to the transitional stage; now, (the rate of data throughput), usability (the ease with countries such as the United Arab Emirates, Kuwait, which people can get online and use applications avail- and Estonia are making that same move in less than able there), and skill (the ability of users to incorporate two years. Between 2004 and 2007, countries registered digital services into their lives and businesses). (See Ex- 39 stage leaps; between 2007 and 2010, there were 65 hibit 1.) stage leaps. From 2004 to 2007, countries moved, on In studying the impact of digitization on prosper- average, seven points up the scale (of a total 100 points). ity, we have found measurable proxy indicators for all From 2007 to 2010, the average jump was 10 points. six of these attributes. Thus, the level of digitization can This acceleration stems from a number of factors. 4 be scored for any country. The scores show that the pro- Emerging countries are following a path that devel- gression of digitization proceeds in four similar stages in oped nations have already blazed, learning from their all geographies. (See Exhibit 2, page 5.) successes and mistakes. Young economies can also take • Constrained economies (those with a digitization advantage of more mature technologies and markets, score below 25) have barely begun to develop affordable along with the corresponding price reductions. When Internet connections, often because they are held back skills are transferred to more countries and better gov- by political factors or lagging economic development. ernance structures are put in place, the implementa- Internet services remain expensive and limited in reach. tion and usage of new technologies generally accelerate. • Emerging economies (those with a score between Some emerging countries, like those in the Gulf Coop- 25 and 29.9) have achieved significant progress in pro- eration Council in the Middle East, are bypassing in- viding affordable and widespread access. However, the termediate phases and jumping directly to higher levels reliability of services remains below par, capacity is lim- of digitization. ited, and usage is low. • Transitional economies (those with a digitization Economic and Social Impact score between 30 and 39.9) provide citizens with ubiq- The effect of digitization on a country’s economy is uitous, affordable, and reasonably reliable services, and highly visible. In the 150 countries we studied, an in- usage is expanding at a relatively rapid pace. crease in digitization of 10 percentage points triggered
  • 6. Exhibit 2: Components of the Digitization Score The range of digitization scores for 150 countries shows that 65 countries are still in the constrained stage; 19 are emerging, 28 are transitional, and 38 have achieved advanced levels of ICT adoption and use. features technology North America (HIGHEST South and Central America/Caribbean SCORE) 63.7 Europe Norway Africa Iceland Korea Middle East 52.0 Hong Kong Asia/Pacific/Oceania Australia Switzerland Belgium U.S. 43.6 Singapore Luxembourg UAE France Taiwan 37.9 Greece Portugal Canada Estonia Poland Germany Israel Ukraine Hungary Austria Denmark 31.6 Cyprus Belarus Spain Japan Montenegro Bulgaria Slovenia Italy U.K. 26.9 Turkey Croatia New Zealand Ireland Sweden Panama Mexico Latvia Lithuania Netherlands Finland Azerbaijan Barbados 23.8 Chile Czech Republic 52.2 Seychelles Uruguay Kazakhstan Antigua & Barbuda Malaysia Jordan Oman Russia Guyana Botswana Mauritius 20.0 Argentina Romania Trinidad & Tobago Lebanon 5 Aruba South Africa Armenia Mongolia Serbia Saudi Arabia Slovakia Moldova Belize Qatar 43.7 12.9 Costa Rica Macao India China Malta Bangladesh Sri Lanka Iran Ecuador Brazil Bolivia Egypt Kuwait 8.1 Vietnam Peru Philippines Fiji Bosnia 38.0 Cote d'Ivoire Kyrgyzstan Bahrain Benin Georgia Macedonia Honduras Gabon Sao Tome Swaziland Saint Lucia Colombia El Salvador Indonesia Vanuatu Morocco 31.7 Mozambique Brunei Albania Bhutan Paraguay Cameroon Kenya Venezuela Pakistan Tunisia Uzbekistan Cape Verde Togo Thailand 27.1 Angola Suriname Yemen Uganda Syria Dominican Rep. Algeria Rwanda Iraq Guatemala 23.8 Nepal Ghana Mali Zambia Namibia Lesotho Cuba Nigeria 20.2 Afghanistan Djibouti Senegal Cambodia Madagascar Laos 13.0 Burkina Faso Niger Burundi Comoros 8.9 Ethiopia 1.9 strategy+business issue 68 (LOWEST SCORE) STAGE: Constrained Emerging Transitional Advanced SCORE: Less than 25 25 to 29.9 30 to 39.9 40 and higher Source: Booz & Company Emerging
  • 7. The more advanced the country, the greater the impact of digitization, which establishes a virtuous cycle: A country reinforces and accelerates its own progress as it moves along the line. a 0.50 to 0.62 percent gain in per capita GDP. (See anything, increased since then.) Exhibit 3.) By contrast, access (as measured in studies of Digitization also has a significant impact on job broadband penetration) contributes a gain in per capita creation: A 10 percent increase in digitization reduces features title of the article features technology GDP of just 0.16 percent — approximately half as much a nation’s unemployment rate by 0.84 percent. From impact. The more advanced the country, the greater the 2009 to 2010, digitization added an estimated 19 mil- impact of digitization appears to be, which establishes a lion jobs to the global economy, up 5 percent from the virtuous feedback cycle: A country reinforces and accel- estimated 18 million jobs added from 2007 to 2008. erates its own progress as it moves along the line. On the This is an especially critical finding for emerging mar- basis of data from 2009 and 2010, we estimate that the kets, which will need to create hundreds of millions total global economic impact of digitization, in terms of jobs in the coming decade to ensure that a boom- of added GDP, was US$395 billion per year. (It has, if ing population of young people can contribute to their national economy. Finally, a 10-point increase in digi- tization has, on average, led to a six-point increase in Exhibit 3: Digitization and Economic Growth the country’s score on the INSEAD Global Innovation For each of the four stages, the contribution made by digitization increases. Bars show the added GDP per capita, averaging the countries Index, which ranks countries according to innovation in each stage, for every 10 percent increase in digitization scores potential. (See “The Innovativeness of Nations,” by Rob recorded between 2009 and 2010. Norton, s+b, Spring 2012.) In other words, as a country 6 Percentage Increase in GDP per Capita progresses in its digitization development, it appears to become more innovative. 0.62% 0.59% Assessing the social impact of digitization is more complicated because no metrics apply to all geographies 0.51% 0.50% in the same way. Many studies have tracked income dis- parity as a proxy for social inequality, using the Gini coefficient (a measure of statistical dispersion), but in emerging economies that are in the process of elevat- ing millions of people out of poverty, the relationship Contribution of Access Only* between economic growth and inequality is complex. 0.16% Therefore, we focused our study of the social impact of digitization on two measures: quality of life and equal- ity of access to basic services. We used the widely pub- Constrained Emerging Transitional Advanced lished Gallup Wellbeing Index and the Organisation for Economic Co-operation and Development (OECD) *Based on studies of OECD, Germany, Latin America, Brazil, Chile, and Malaysia Better Life Index to measure the former, and the United Source: Global Insight, Booz & Company analysis Nations Development Programme’s (UNDP’s) Human
  • 8. In 2007, Qatar reduced the royalties paid by the telecom sector to the government. The ICT sector’s contribution to Qatar’s GDP has grown by approximately 16 percent in the five years since. Development Index to measure the latter. disseminate information effectively: A 10-point increase In developed economies, increasing digitization sig- in digitization increases the Transparency International nificantly boosts quality of life: OECD countries gain index by approximately 1.2 points. Digitization raises features technology an average of 1.3 points on the Better Life Index for e-government effectiveness by approximately 0.1 points every 10-point increase in the digitization score. How- (and kick-starts another virtuous cycle, as greater e- ever, in countries with lower levels of economic devel- government effectiveness accelerates digitization). And opment, the impact of digitization is less pronounced, digitization gives the population more insight into gov- most likely because quality-of-life factors beyond digiti- ernment policies and functions, which might, in turn, zation — food, housing, clothing, water, energy, health, lead to more active political participation and support and transportation — are in shorter supply and thus the development of human rights. more critical. In other words, digitization improves a Finally, digitization supports better delivery of country’s quality of life only when the basic needs of its public education and other government services. Here population have been met. again, digitization’s impact is more pronounced in the Yet when we examine access to basic services, we see case of developing countries, where a 10-point increase the opposite effect. Digitization’s impact is greatest in in digitization results in an average 0.17-point increase constrained and emerging economies. A 10-point in- in the Inequality-Adjusted Education Index. This trend crease in the digitization score leads to an increase of has less effect in developed countries because they al- 7 ready have greater access to universal basic education. approximately 0.13 points in the Human Development Index. In more developed economies where basic hu- man needs are more easily met, digitization plays a less What Can Governments Do? pronounced role in expanding access to education, sani- The digitization index can be an invaluable tool for tation, water, and healthcare. countries seeking to advance their place in the world. In- To assess government effectiveness, we used three vestment in broadband infrastructure has helped ensure metrics: the 2010 Corruption Perceptions Index pub- widespread high-speed access to the Internet and com- lished by Transparency International; the e-government munications services. But this investment is not enough. development index created by the United Nations Nor is the next step to simply invest more money — Public Administration Network to gauge the provi- even if the money is available. Instead, policymakers can sion of electronic services by governments; and the play a pivotal role by focusing on five key imperatives. Inequality-Adjusted Education Index, measured by the 1. Elevating digitization on the national agenda. To strategy+business issue 68 UNDP to show the extent of public education, a key realize the wide-ranging benefits that digitization of- government service. We found that greater digitiza- fers, countries need support from the highest levels of tion led to improvement on all three counts. Digitiza- government. Every country, whatever its digitization tion enables a society to be more transparent, increas- maturity level, needs a national agenda, with oversight ing public participation and the government’s ability to at the executive branch of government. Otherwise, the
  • 9. ICT sector can devolve into a “tragedy of the commons” rums and policy consultations. (See “School Reform in which too many competitive stakeholders, fighting to for Realists,” by Andrea Gabor, page 34.) The frame- sell products and services online, impede progress. Some works for public–private partnerships that can manage governments, especially those in the constrained and investments that are less immediately attractive should emerging stages, also need to change their approach to be clear. For example, governments may decide to fund ICT-related taxation. They must stop viewing the sector broadband deployment in remote regions, but let the as a source of tax revenue and recognize it instead as an private sector target the urban areas. enabler of socioeconomic development. Countries that Most developed countries have seen direct benefits have made this transition have been rewarded. In 2007, from strong sector governance. Singapore, for example, Qatar reduced the royalties paid by the telecommuni- executed its digitization plan in 2006, and its ICT sec- cations sector to the government. The resulting incen- tor had grown by 13.6 percent by 2008, due in part to tives for entrepreneurship have helped the ICT sector’s the country’s robust governance. Developing countries features title of the article features technology contribution to Qatar’s GDP grow by approximately 16 can accelerate development of their ICT sectors by es- percent in the five years since. Qatar’s share of total ICT tablishing a policymaking function and investing early activity in the Middle East has doubled. in a sector-development arm. Saudi Arabia, for instance, Governments can also elevate the digitization agenda advanced rapidly through the stages of digitization by by creating an effective system that measures, tracks, ensuring fulfillment of all regulatory and oversight roles and demonstrates the impact of every dollar invested in at the national level. it. Economies at all four stages of development are still 3. Adopting an ecosystem philosophy. It’s not pos- developing and refining the relevant metrics. For ex- sible to stop the convergence of the telecommunications, ample, the United States’ National Broadband Plan was media, and technology industries, or the integration of approved by the Federal Communications Commission the value chain, including infrastructure, applications, in 2010. It includes dozens of specific measures to im- and usage. Even in relatively small countries, like Qa- prove regulations and standards, with six overarching tar, Singapore, and the Netherlands, ICT companies goals: bringing high-speed Internet to 100 million more are looking beyond their local markets to expand their homes, providing leadership in mobile innovation, de- business. (See “The Global ICT 50: The Supply Side of 8 veloping a more robust broadband network, ensuring Digitization,” by Olaf Acker, Florian Gröne, and Ger- more affordable broadband service, establishing nation- mar Schröder, s+b, Autumn 2012.) These changes in the wide wireless access for first responders, and enabling a technology and media ecosystem will mean abandoning clean energy economy. or changing many established government practices. 2. Developing a better governance model. Govern- For example, emerging economies have often abet- ments play four complementary roles in fostering digiti- ted investment in telecommunications infrastructure, zation. They set policy, regulate companies and activity, and as a result this sector is fairly well developed. In invest in developing the sector, and “e-enable” public ser- many of these countries, however, other kinds of infor- vices (bring them online, along with appropriate links to mation technology still lag. For instance, in the United private-sector services). Each role is distinct but must be Arab Emirates, non-telecommunications spending ac- coordinated with the others. To ensure synergies and ef- counts for 21 percent of total ICT spending, compared ficiencies, most countries place all four functions within with 37 percent in developed markets such as Finland; a single organization, as the United Kingdom and Qatar this means that the untapped ICT opportunity beyond have done. telecommunications in emerging economies (for ser- The most effective governance structures involve vices such as enterprise computing) is significant. open and appropriate collaboration among private Policymakers also need to foster local capabilities companies and agency officials, through industry fo- in creating content and applications. In Estonia, for
  • 10. In several countries, when competition inhibited investment in Internet infrastructure, policymakers created new “natural monopolies” to fill this role. example, innovative software and hardware compa- — through ICT license auctions, privatization of state- nies have been in place since the 1990s; they contrib- owned telecom and media companies, and deregula- uted more than €500 million (US$473 million) in tion of barriers to entry — has been a key mechanism features technology annual revenues by 2001, and have created more than in driving competition. In Saudi Arabia, for example, 400,000 jobs overall. Their success encouraged Esto- market liberalization began in the early 2000s, as state- nia to launch a development fund in 2007 to further owned Saudi Telecom prepared to compete openly in develop its knowledge economy, investing in resources its home market for the first time, and to enter other such as ICT parks and innovation centers, and set- markets. This liberalization led to a 9 percent annual ting up particular export-oriented projects, such as an growth rate in digitization between 2000 and 2004. “Estonia–India foresight project” with a concentration The 2005 entry of another phone company, Etisalat, on cybersecurity. spurred heavy investment in fixed and mobile broad- National investment in ICT-related innovation band, which, in turn, fueled 17 percent annual growth capabilities can have lasting economic effect. In the in digitization between 2005 and 2010. mid-2000s, Egypt introduced ICT into its education In some cases, competition can backfire. In India, system, developed e-content, created technology parks, for example, excessive liberalization triggered aggressive encouraged the creation of small and midsized enter- competition and unsustainable returns for sharehold- prises focused on ICT via developing technology incu- ers. To correct such a situation, policymakers should 9 bators, and established the ICT Trust Fund, which uses encourage consolidation that will restore balance to the digital technology to promote and enhance the perfor- sector. For example, in several countries, when compe- mance of these enterprises. As a result, Egypt became tition inhibited investment in Internet infrastructure, one of the largest ICT exporters in the Middle East and policymakers created new “natural monopolies” to fill North Africa region, with 27 percent yearly growth in this role: regulated companies like OpenNet in Singa- ICT service exports from 2005 to 2009. Even during pore, QNBN in Qatar, and National Broadband Net- the country’s political upheaval, the number of ICT work in Australia. In cases like these, regulators need companies continued to grow, from about 4,000 in to ensure that the monopolistic entity is well regulated 2010 to 4,600 in 2012. and that there is significant service-level competition 4. Enabling competition. Although telecommunica- to spur innovation. Singapore, for example, created a tions was a monopolistic business for most of the 20th regulatory framework that effectively gave OpenNet a century, the industry has learned the value of compe- monopoly in building and operating the country’s pas- strategy+business issue 68 tition since the mid-1980s. Competitive provision of sive networks. This framework allows regulated returns broadband and software infrastructure fosters innova- on investment in infrastructure while ensuring com- tion and drives adoption, two factors critical to enabling petition in services. Similarly, in the United Kingdom, countries to progress in their digitization efforts. policymakers are encouraging consolidation of the in- In most emerging economies, market liberalization frastructure — as evidenced by the merger of Orange
  • 11. and T-Mobile — while maintaining a competitive en- from investment in digitization beyond simple broad- vironment in services. band access. 5. Stimulating demand. Countries can progress rap- In his book The Shield of Achilles: War, Peace and idly in digitization by encouraging the adoption of new the Course of History (Knopf, 2002), constitutional applications by individuals, businesses, and their own historian Philip Bobbitt argued that the world was go- agencies. One way to stimulate demand is to ensure ing through a fundamental shift in the prevailing view that citizens can perform all government-related tasks of the purpose of government, from the 20th-century — such as paying taxes, renewing drivers’ licenses, and nation-state, which derived its legitimacy by guarantee- enrolling in school — using broadband networks. ing the welfare of the nation’s people, to the 21st-cen- Beyond that, demand for ICT services depends on tury “market state,” which will focus on expanding op- technological literacy and skilled human capital. Poli- portunities for its citizens. cymakers can invest in digitization by providing train- The embrace of digitization is, perhaps, an example ing programs and incentives for education. They can of that shift. Indeed, nowhere are the benefits of the also boost usage by promoting high-speed broadband market state more evident than in ICT. National gov- services and ensuring that these networks are both ernments have learned that there are limits to their role widely available and affordable. as welfare guarantors. They cannot protect their citizens A number of countries in the advanced stage of indefinitely against the vicissitudes of the global econo- digitization have learned how to raise demand. For in- my. But by advancing the cause of digitization, they can features title of the article features technology stance, France has increased ICT spending at a yearly become market makers, building their own capabilities rate of 5 percent since 2003 through a number of ini- — and those of their citizens and businesses — to raise tiatives. Among these are the creation of the Villes In- the level of opportunity for their entire population. + ternet association, which works with local authorities Reprint No. 00127 to develop Internet-literate citizens; and the Comité In- terministériel pour la Société de l’Information, which was created to encourage Internet usage, improve pub- lic services via technological innovation, and strength- en the competitiveness of French companies. The Digitization Imperative For some policymakers, the statistics on digitization will be a wake-up call. The metrics will reveal gaps in a country’s capabilities — and ways in which it is not 10 equipped to compete with other countries. Other poli- cymakers will be pleased to see that they are relatively Resources well prepared — but for how long? Roman Friedrich, Michael Peterson, and Alex Koster, “The Rise of The results also confirm a feeling that many poli- Generation C,” s+b, Spring 2011, strategy-business.com/article/11110: cymakers share: that digitization can catalyze dramatic How digitization is fostered by people born after 1990: a connected, communicating, content-centric, computerized, and community- economic, social, and political improvements. Anec- oriented cohort. dotal evidence abounds: Water utilities have installed Art Kleiner, “Philip Bobbitt: The Thought Leader Interview,” s+b, Spring sensors that reduce leakage, saving water and money; 2004, strategy-business.com/article/04109: A long-range view of the healthcare organizations send text messages to preg- evolution of the concept of government, with immense implications for digitization and business leadership in general. nant women with advice on prenatal care, creating a healthier new generation even before it is born; fleets of Karim Sabbagh, Roman Friedrich, Bahjat El-Darwiche, and Milind Singh, “Maximizing the Impact of Digitization,” Booz & Company delivery trucks use GPS devices to find shorter routes, white paper, 2012, booz.com/global/home/what_we_think/reports_and_ cutting down on their greenhouse gas emissions. But white_papers/ic-display/50436119: The paper from which this article was until the impact is quantified, nobody quite knows adapted, with more detail on the relationship between digitization and measures of quality of life and economic growth. how much to emphasize digitization, or how its impact For more thought leadership on this topic, see the s+b website at: compares to that of other factors. We hope this analysis strategy-business.com/technology. can help demonstrate the high leverage that can accrue