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The benefits of digital are not limited to the digital sectors: digital transformation can make every business in every sector more productive, wherever they are located. A recent survey of 1,000 UK-based businesses found digital capabilities helped boost revenues by 4.4% and reduce costs by 4.3%.[footnote 1] For example, small and medium sized enterprises (SMEs) with a strong web presence on average grow more than twice as quickly as those with minimal or no presence, export twice as much, and create twice as many jobs.
While UK companies have similar levels of internet access and web presence as those in other European countries, they are less likely to digitise their back-office functions than their peers in other countries. Fewer than 20% of UK enterprises use software to share information across the organisation, compared to 40% in France and more than 55% in Germany[footnote 2] and only 22% of SMEs in the UK use any form of e-commerce.[footnote 3]
From marginal changes like a restaurant adopting online bookings, to wholesale business transformation, our ambition is for all UK companies to be able to realise the efficiency gains offered by adopting digital ways of working. If successful, this could play a crucial role in closing the UK’s productivity gap with the G7 average.[footnote 4]
The challenge of digitisation
Each business has its own specific digital needs, but there are four core digital activities that we believe most businesses need to do to remain competitive:
- maintain a web presence
- sell online
- use the cloud
- digitise back-office functions such as payroll
Many businesses are still a long way off adopting these digital processes as a core part of their operations and, as the chart below shows, we are lagging behind our competitors.[footnote 5]
The Productivity Leadership Group, a business-led initiative addressing the UK’s productivity challenge, has recently published a report[footnote 6] identifying some of the barriers that may be stopping businesses adopting digital technologies. These include:
- knowledge by managers of what technologies are available and how they could be deployed within businesses
- the low priority afforded to digital transformation
- the cost of bringing in outside expertise
- the cost of buying new software and equipment
- lack of skills among the workforce
These echo the findings of a 2015 SME self-assessment survey[footnote 7] on the barriers they face in adopting digital technologies, shown in the chart below.
The Productivity Council
In the Autumn Statement 2016, government confirmed £13 million funding to support the creation of a Productivity Council.
It will be established to drive engagement with business and improve productivity across the economy, including through appropriate use of digital technologies. It will connect, encourage and amplify the impact of existing initiatives to improve productivity, acting as the UK’s productivity ‘centre of excellence’. It will also:
- promote the message that businesses are at the heart of productivity growth and engage, encourage and inspire every business in the UK to improve
- act as a conduit to connect and share best practice, drawing on the firm-level local expertise and networks of the Local Enterprise Partnerships (LEPs) and Growth Hubs to maximise impact
- achieve impact at scale by capturing the existing initiatives and guidance that currently sits across other professional bodies, organisations and universities – giving business a single first point of contact for business improvement and helping them navigate the available help
Specifically, the Council will:
- create open-source user-rated ‘productivity hubs’ to capture this guidance, so businesses are able to see in a transparent manner which resources have been most valuable to other companies
- connect businesses, in-person, to share what ‘good’ looks like - in their local region, sector or supply chain - driven through engagement with LEPs, high-performing businesses in their area, and local industry bodies
- use data and analysis to better inform legislation to promote and support productivity
Support for business
Co-ordination of provision
There are a range of tools and training programmes that are already available to businesses to help understand and deliver the efficiencies offered by adopting digital ways of working, and a number of these are outlined in the box below.
If businesses are unaware of the support that is on offer to them or do not know how to take advantage of it, then government can help. Initiatives such as the Digital Skills Partnership (described in Chapter 2), and the Productivity Council (described above) have been designed to make the process of finding the right support as simple as possible.
The Industrial Strategy green paper set out how we will support the development of business-to-business ratings and feedback platforms. This could make it easier for SMEs to determine the quality of business advice and support services provided to them by other firms.
Support for wider digital adoption
There is already a range of free support available to businesses across different sectors, and of different sizes to help them become more digital and improve their access to skills. Below is a non-exhaustive list of the types of initiative currently available to demonstrate the breadth of support available and organisations providing support.
The Google Garage initiative has delivered training in 80 towns across the UK to over 250,000 businesses and individuals. Garages have operated in Newcastle, Manchester, Birmingham, Leeds, and Glasgow. Throughout 2017, the programme will offer face-to-face training in 100 cities and towns across the UK as well as free online courses, providing face-to-face training and mentoring in digital skills for all local businesses. Google has pledged to provide five hours of digital training to every person and every small business in the UK.
Microsoft is providing support to charity NACUE (National Association of College and University Entrepreneurs) to help young entrepreneurs get digital and business skills training. It has also opened up five Regional Skills Academies in partnership with Risual (a IT services company) and a select group of colleges. The colleges will provide industry relevant IT apprenticeships and youth employment as well as provide access to Microsoft certified qualifications. Colleges are already open in Derby and Wales.
Digital Business Academy is a free online platform created by Tech City UK to provide the skills needed to start, grow or join a digital business. There are over 14,000 active learners. Currently there are 11 courses available created by University College London, Cambridge University Judge Business School, Founder Centric and Valuable Content.
Do it Digital is an independent, not-for-profit campaign that looks to highlight resources around the UK - online and off - that can help small businesses get the most out of digital. The campaign has set an ambition to help one million small businesses during 2017 and is currently running its second 100 Days Of Digital, during which it shares and champions a different digital opportunity every day. A range of organisations have committed to supporting this goal, including the British Library, which is running a programme to train 10,000 small businesses through its Business & IP Centres network.
Where there is a specific geographical, sectoral or economic need that is not being met by existing provision, we will ensure that action is taken to address such gaps.
We have already introduced a number of programmes aimed specifically at closing the gap in digitisation between different sectors and we will build on this work to tackle the specific issues certain industries face.
Juergen Maier, CEO of Siemens UK, will lead a review of industrial digitalisation, that will report its findings in the summer. This will consider how UK manufacturing can become more productive and competitive by increasing its use of digital technology and automation. A key focus will be identifying where policy interventions and support mechanisms can encourage industry investment in technology and innovation and drive forward the automation of industrial processes. This will include considering which sectors can benefit most from these advances, and looking at the experience of our international competitors. Two further examples of work with specific sectors is outlined in the box below.
To ensure support is more effectively deployed to the regions and businesses that need it we will ensure interventions are based on quality data and business analytics. For example, we will explore how data – such as that held by HMRC and Companies House – can be used to identify scale-up businesses. This could then be made available to local public and private sector organisations so they can better identify, target and evaluate their support. We will also be examining how we can best exploit synergies in other government datasets to more effectively identify and target advice and support, and improve our communication with the UK’s fast growing businesses.
Over the last two decades construction has had the lowest productivity and R&D investment rates of any industrial sector in the UK. Following a government initiative in 2011, construction clients and their industrial supply-chain are starting to adopt a digital approach through the use of Building Information Modelling (BIM); we now lead the world in its implementation. Last year, digital construction made a major contribution to savings of £1.2 billion in government construction programmes.
In February 2015 government set out the next phase of digital construction with the launch of Digital Built Britain (DBB). This strategy introduces more sophisticated digital and data tools, incorporating performance measurement of assets and service through the Internet of Things, sensors and telemetry. This is further supported by the coordination of government policy of Smart Cities with DBB to provide asset owners, service providers and the construction sector with an integrated, safe and secure data-infrastructure to ensure the future provision of social infrastructure and services.
Ultimately, DBB will create a direct data chain between the design, construction, commissioning and operation of assets to enhance social outcomes and, through data feedback mechanisms, provide a basis for continued improvement in asset design and performance.
Globally, retail is increasingly moving online and the UK leads the way in online sales. In 2014 almost £600 billion in online sales were made by non-financial UK businesses. Over 86 million online shoppers bought from the UK in 2015. But while many of the world’s leading online retailers are British, many British traditional retail businesses are not yet making best use of digital technology. Retail companies that are not taking advantage of e-commerce are impeding themselves when online channels are often the first port of call for shoppers. We will encourage businesses and Local Enterprise Partnerships to build on the Digital High Streets initiative, to help retail businesses become more digitally capable.
A changing workforce
The adoption of digital technologies such as connected and autonomous vehicles, connected devices, robots, and AI present attractive new business opportunities, and a means to unlock productivity gains. But they will also bring significant changes to the future of work, employment and society, as well as increased threats from cyber attack. Preparing for and responding to these developments will require collective action across government and society, and for our business leaders to have the necessary digital acumen to lead the digital transformations within their companies.
To meet this challenge we are already undertaking a review of modern employment, including the impact of new ways of working such as on-demand platforms, led by Matthew Taylor, the Chief Executive of the Royal Society of Arts. This will ensure that employment practices keep pace with modern business models. Additionally, given the paramount need for workers to continue retraining and upskilling to ensure they are not lost from the workforce, we taking forward a range of measures (set out in Chapter 2) to incentivise digital skills training.
Adopting digital technology and ways of working can help businesses gain access to markets in other countries. The government recently launched GREAT.gov.uk, a new digital trade hub to help businesses export, which provides advice and support to current and potential exporters. This includes access to a smart database to connect them with global online marketplaces such as Amazon and Alibaba. We have also negotiated preferential rates with key e-marketplaces, making the UK one of the easiest and best places from which to sell goods online around the world. We are delivering promotions in key overseas markets to promote UK companies on these marketplaces.
We are developing a new, more flexible Customs Declaration Service (CDS), which will replace the current service, CHIEF. We expect all customers to have moved onto CDS by January 2019. CDS will support increased volumes of transactions and any future changes to legislation, and will ensure that the UK has a robust and flexible customs declarations service in the years ahead.
A common identity framework
If we are to have a genuinely digital economy, a critical component will be a trusted framework for sharing and validating information related to identity. The approach must be secure, reliable and convenient for individuals and businesses.
The cost of identity assurance processes in the UK has been estimated at over £3.3 billion (£1.65 billion inside organisations and another £1.65 billion of consumers’ time costs). This figure excludes fraud to the UK economy, which the National Fraud Office estimates at £52 billion, of which an increasing proportion is perpetrated online.
There is a tremendous opportunity to reduce fraud in our current system. In the immediate future, transaction costs for both businesses and individuals could reduce, as trust increases and transactions that have traditionally been manual become digital. There will be positive economic impact not only in creating markets for new products and services, such as allowing the easy export of digital content produced in the UK, but also through realising the value that these products and services will deliver to the wider UK economy.
We will work with industry and the relevant stakeholders and interest groups to adopt and promote open standards for validating information, especially as it relates to identity. If we get this right, it will create a safe, reliable, cost-efficient way for individuals and businesses to transact with each other and the government digitally.
GOV.UK.Verify (see chapter 6), the government’s online identity verification service, went live in May 2016. It enables individuals to prove their identity online and to access government services securely. Verify is being piloted with a number of local authority services to establish where it can meet identity needs in local government. We are working towards 25 million people having a GOV.UK Verify account by 2020.
GDS will work with the private sector so that people can use the same account to prove their identity online for private sector services. We have already begun work on some early pilots to explore opportunities for private sector applications, for example allowing people to open a bank account without having to go into a branch.