DIGITAL ECONOMY : UK's Digital Economy Strategy - A Primer

In January 2018, there were news reports that work has begun on the Digital Economy Strategy with the help of McKinsey. According to the reports at the time, the strategy document was to be made public in April 2018. However, it is mid September already and there is no sign of the strategy document.

We at Colombo Business Blog thought that it would be a good exercise to analyse some first world digital strategies - starting with the UK - so that we could benchmark our own digital economy strategy document when it eventually see the light of the day.

UK DIGITAL ECONOMY STRATEGY

The original source documents could be accessed here and here


The UK's place in the world digital landscape

The UK tech sector can be said as a shining light in Europe, but Brexit is a serious challenge. It is therefore critical that the UK looks beyond its borders and the EU and set its sights on a truly international scale.

The tech sector has experienced rapid growth over recent years, both across the UK and beyond. At each stage of growth, ecosystems experience shared challenges and find shared strengths.

Software, IT and telecoms services together generated 4.2% of UK gross value added (£59bn) and provided 885,000 jobs in 2011. By 2014 digital economy employed 1.3 million people in 2014, 5% of all employees in Great Britain. Between 2014 and 2017 employment in the UK's digital tech sector increased by 13.2%. Uk workers in digital tech are also more productive than those in non-digital sectors, by an average of £10,000 per person per annum.

UK has 107,000 software businesses, and are the world’s number two exporter of telecoms services (£5.4bn) and number three in computer services (£7.1bn) and information services (£2bn). By 2014 there were 204,000 digital economy businesses, 9% of the UK total in 2015.  The UK has world-class strengths in communications, especially wireless technologies; software development, computing and data analysis; cyber security; and user experience and service design.

In UK, 33% of tech company customers are based outside the UK, compared to 30% in Silicon Valley and 7% in Beijing.  25% of the world’s entrepreneurs report a significant relationship with two or more others based in London, a figure beaten only by Silicon Valley.

The UK is a global leader in digital tech investment

The UK was in the top three countries for total capital invested in digital tech companies from September 2016 to August 2017, behind only the US and China. Only the US has a higher number of deals.

Total investment and number of deals in digital tech companies have risen significantly since 2012. From £984 million in 2012, spread over 870 deals to £3.3 billion in 2016 over 2645 deals – both deal count and investment have more than tripled over the four year period. In this period average deal size has increased incrementally – from £1.13 million in 2012, dropping to £0.94 million in 2013, and then steadily rising year-on-year to £1.25 million in 2016.

Challenges for UK digital businesses (especially start-ups and digital SMEs)

Low working capital

New companies have low working capital and less opportunities to inject new working capital, affecting their resilience and ability to build the relationships they need in order to break into a complex and competitive market.

Skills shortages

The forces that create a dynamic and fast-moving innovation culture also create skills shortages, particularly as innovation gains pace.

Getting Heard / Getting Noticed

With more than 200 smart-home demonstrators in the UK and more than 3,000 e-health applications on the European market, how can the new ideas of a small, unknown company be heard?

Intellectual property

The cost and delays encountered in protecting intellectual property contrast with the speed of technology change, leading small companies to look for competitive advantage through agility and know-how instead of through long-term strategies such as patent registrations or diversification.

Tribal boundaries

Successful digital businesses fuse technical expertise with creative flair and an understanding of their customers. However, this fusion means erasing the tribal boundaries between ‘geeks’ and ‘luvvies’ or tech people and marketing / creatives / public relations people working in the industry. These cultural divisions within the digital community can be as hard to overcome as the gaps in understanding between technologists and their clients.

Funding support

Support from government, investors and clients can be less agile than the companies themselves, and is often designed around traditional innovation models and linear product development processes. The drag of this support on companies’ time and resources can even outweigh the value on offer.

Rapid scaling

Digital platforms often succeed based on the size of their user base. This pressure to ‘go big or go home’ tempts businesses to scale up customer numbers rapidly, often before business structures are properly in place.

Investor confidence

With a short product cycle, rapidly evolving technology and markets, and high churn of companies, the digital industry lacks a coherent strategic roadmap, challenging confidence in long-term investment in digital capability

Growth Areas for UK digital economy

Mobility
Internet of Things 
Data Mining
Enterprise Services 

Objectives of the UK Digital Strategy

1. Encouraging digital innovators
2. Equipping the digital innovator 
3. Focus on the user
4. Growing infrastructure, platforms and ecosystems 
5. Ensuring sustainability

Encouraging digital innovators

We see two main constituencies of digital innovators: the technical expert providing technology and digital solutions, and the digital champion driving change through an established business.

The strategy is to;

1. Ensure that business support, encouragement and investment is available to those developing digital ideas

1. Help early-stage digital businesses to connect to established businesses and potential lead customers in industry and government

1. Help established companies find the innovators who can help them develop digital solutions, including bringing digital expertise to bear on Innovate UK’s activity in health and care, transport, energy, built environment and creative industries

1. Help these digital innovators to drive change, whilst managing risk to existing business flows

1. Encourage innovators in different sectors to share knowledge, develop common approaches and translate and reuse experience from other industries.

Equipping the digital innovator

Digital innovation requires the deployment of technology into business systems. To create a user experience requires products and services, and to create these requires engineering and business design.

The strategy is to;

1. Support tools and systems that streamline transaction flows; that allow data, content, metadata, value and permissions to be moved seamlessly without manual intervention; that are trusted by businesses; and that protect the value of digital assets.

1. Help businesses to develop technology and services that bring the benefits of the digital world into the user context of the physical world.

1. Work with data and content owners on tools and systems to improve the quality of existing and future data sources and their suitability for secondary use, and with web and mobile service designers on tools for software design that take advantage of these resources.

1. Help businesses to build confidence in the commercial and user value of their products.

Focus on the user

Good business strategies begin not with the product, or the commercial model, but with the user. Understanding users and their needs is of paramount importance to all business – from digital start-ups to existing businesses that are digitising. 

Once they understand this, they can design elegant solutions that provide an excellent user experience. This is more evident when designing direct customer-facing products, but remains true further upstream for those offering services to other businesses. Somewhere, there is always a human.

The strategy is to;

1. Encourage digital businesses to think about their users’ needs and the user experience at every step of product development

1. Ensure that digital products are trusted, by helping businesses to design their systems for resilience, privacy and consent, identity management and data security

1. Help businesses to develop products that are available when needed, and that relate and adapt to the place and context within which they are used

1. Invite businesses to consider inclusive or adaptable designs, so that they can create a compelling experience for the broadest possible market.

Growing infrastructure, platforms and ecosystems

The digital economy is connected. Communications networks move data and deliver services; the traffic is handled by software and data management platforms; devices provide the final bridge to the real world and the user. 

This intricate system is joined together by tools and interfaces that connect businesses into digital supply chains, facilitating data transfer, transactions, payments and hand-offs of metadata and security information. 

Each of these elements has the potential to create a marketplace for users and suppliers. Interoperability, open standards and architectures, and interfacing standards such as APIs (application programming interfaces) and metadata standards all contribute to market defragmentation, as do regulations to promote open competition and free trade.

The strategy is to;

1. Support businesses developing interoperable infrastructure and software platforms and enablers that can be used by multiple client businesses, and encourage industry-wide common practice to broaden the market for their suppliers and their users.

1. Support new entrants to build up digital ecosystems around these platforms, and help them with tools and connections, until the activity reaches a critical mass that enables them to scale. This encompasses interoperable open systems ranging from open data to ‘internet of things’

1. Help communications and device businesses, and software and data systems businesses, to work together with service and applications businesses to support one another’s investment cases and to design complete user solutions

1. Work across Europe and worldwide to help establish common practice and fluid trading systems that will support UK digital innovators as they export.

Ensuring sustainability

Digital innovation draws on information and communication technologies and component hardware. We support the development of this capability through our enabling technologies strategy. But digitisation is not just about technology. It streamlines and reroutes business processes and workflows, it disrupts the way we manage transactions and how we think about value, and it redesigns human experiences and changes the way we interact with one another. 

In our digital strategy, therefore, we must also draw upon social and economic science, understand the role of law and regulation, draw on design expertise and consider the psychology of the marketplace. This requires multidisciplinary effort and often raises questions for policy makers or exposes unanswered questions for research. Innovate UK, in collaboration with Forum for the Future and Aviva Investors, has developed the Horizons framework.

The strategy is to;

1. Work closely with the UK research councils to encourage cross disciplinary academic collaboration and help connect it to real-world business needs.

1. Work with government and regulators to ensure that legal, regulatory and policy frameworks are supportive of digital innovation and business growth, and collaborate in delivering those policy initiatives that invite business innovation.

1. Work with skills agencies and universities so that appropriate skills are available to both product designers and individual and commercial product users, to ensure confident deployment and adoption.

1. Use, and encourage others to use, the Horizons framework when developing strategies and plans.

1. Work alongside other support bodies and the third sector, so that our support for commercial progress can be balanced with support for social progress.