Europe’s Rocky Path to Digital Transformation: What to Expect Next

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For years, Europe has lagged global leaders in embracing digital transformations. In an age when interactions, transactions, and the overall economy are increasingly happening in the digital realm, companies here aren’t realizing their full potential. And the situation isn’t improving fast enough – in fact, it could get worse.

There have been pockets of progress since the warning signs began emerging several years ago, but unless companies delve more deeply into digital, Europe runs the risk of falling even further behind. Companies in the United States, China, Japan and elsewhere are capitalizing on the successes of digital transformations, and it’s time for European companies to become more active.

Even government has tried to bolster interest in this area, with the European Commission noting, “EU businesses are not taking full advantage of these advanced technologies or the innovative business models offered by the collaborative economy.” The commission introduced several efforts, including the Digital Transformation Monitor, which identifies digitisation trends and tracks progress at the national and sector-wide levels; and the Watify awareness campaign, which aims to incentivize policy makers, business leaders and other stakeholders to launch joint investment projects.

But more needs to be done.

One of the biggest problem areas: artificial intelligence (AI). If European companies don’t quickly embrace and recognize the importance of AI, the digital gap could become much more severe.

While Europe houses about 25 percent of AI startups, early-stage investment in the technology trails that of the United States and China, according to a recent paper by the McKinsey Global Institute (MGI). Europe lags the United States when it comes to AI diffusion – except in smart robotics – and less than half of companies here use even one AI technology, with most being in the pilot stage, according to the report.

Closing the AI gap

For those willing to take the dive into AI, the benefits to bottom lines can be significant. “If Europe develops and diffuses AI according to its current assets and digital position relative to the world, it could add some £2.7 trillion, or 19 percent, to output by 2030,” the MGI report says. “Such an impact would be roughly double that of other general-purpose technologies adopted by developed countries in the past.”

So why aren’t more companies jumping on board?

Integrating AI has its challenges, the report notes, including: potential workplace disruption, the risk of “exacerbating social inequality,” malicious use, abuse of data privacy, and cyber security, just to name a few.

But Europe’s digital problem extends beyond AI. We also lag world leaders when in comes to internet startups. In 2017, Europe had none of 10 biggest internet companies worldwide, according to MGI. In addition, when it came to startups, per-capita capital investment in Europe ranged from £3 in Italy to £123 in Sweden – compared with £220 in the United States. And we only had 10 percent of the world’s 185 “unicorns,” compared with 54 percent in the United States.

Amid the gloomy statistics and comparisons, however, there are reasons to be hopeful. A small but savvy cohort of companies here are testing and using AI technology. Those embracing it are doing so because they foresee AI and automation driving the biggest growth opportunities, according to the report.

Europe has a lot working in its favor, MGI notes: a growing number of successful digital hubs, world-class research institutions, what could potentially become the largest single digital market worldwide, and a vast and fast-growing pool of professional developers.

With these tools at their disposal, it’s time for companies to make thoughtful, strategic moves to implement AI technology at a much faster rate. If they do, they only stand to benefit – in productivity, bottom-line sustainability and global competitiveness.