Business digitalisation in Europe: Key figures

Digital transformation has profoundly changed our working environments. Since 2011, MIT and Capgemini have sought to quantify this progression through a triennial study. The study concludes that businesses that take advantage of digital transformation were 26% more successful than the average in their industries.¹ In 2013, a report published by Booz & Company highlighted the disparities in digitalisation between countries and sectors, showing that the progress of digital transformation depended largely on legislators.²

A report published in 2016 by the McKinsey Institute showed that Europe was lagging behind the United States, with only 12% of its digital transformation potential being achieved, equivalent to six percentage points less than the US.³ Europe, recognising the urgency, has since been working to catch up by digitalising its economy and businesses. In 2016, McKinsey forecast that Europe’s accelerating digitalisation would bring several trillion euros to its economy. And the institute’s prediction proved to be correct.

Digital transformation: Disparities between countries

In 2015, the European Commission created the Digital Economy And Society Index (DESI), which is an index used to assess the progression of EU countries towards a digital economy and society. It aims to identify which sectors need priority investment. The index takes the following factors into consideration:

• Connectivity
• Digital skills
• Citizens’ internet use
• Integration of digital technologies by businesses, public services, and research and development.

The DESI has shown that all European countries have continuously improved their digital performance in recent years.

Nordic countries at the top of the list

Based on the 2019 DESI, the best-performing countries in Europe in terms of digitalisation are: Finland, Sweden, the Netherlands, and Denmark.⁴ The leading countries in terms of GDP are Germany and France, with both countries falling to the middle of the rankings when it comes to digitalisation.

Finland’s top ranking is due, at least in part, to its willingness to make going digital a priority. For example, mobile internet usage is twice as high as its European neighbours making the ecosystem conducive to tech start-ups. With Finland being the homeland of Nokia it has undoubtedly learned some digitalisation lessons from the telecommunications giant.

When it comes to business digital transformation the Netherlands is ahead of the game. According to the European Investment Bank, it is well ahead in business digitalisation and particularly in automation, which leads to greater productivity. The adoption of digital technology by Dutch companies is also significantly higher than in other European countries.

GDP status in leading countries

In France, Germany, and the UK there is an obvious trend towards digitalisation. Although historically these three countries have been leaders, now faced with the constant changes related to business digital transformation, they don’t appear to be keeping up. According to a survey carried out in 2020, only 22% of businesses surveyed believe they have the necessary skills to succeed in their digital transformation.⁵

This can be explained by a lack of investment in digitalisation from the authorities in these countries and a general mistrust of digital technology. Traditionally Europe is a continent of human values, which makes going digital more difficult to accept in corporate culture.⁶

Southern European countries, such as Spain and Portugal, have made great efforts in recent years in terms of digitalisation. Spain is now ranked 11th in the DESI index, ahead of France and the United Kingdom, whereas in 2017 it was 17th. This significant rise can be attributed to the Spanish authorities’ determination to focus on digital technology: training, scientific and technological research, and roadmaps for the digital transformation of businesses.

This awareness should create a positive dynamic for Southern Europe in the years to come. Portugal has been ranked 19th for several years which makes its digitalisation objectives clear. As progress accelerates, today’s investments will help the country to stay in the digital race with the support of businesses and authorities.

Three sectors that stand out in digital transformation

In terms of digital transformation, studies show that the banking, insurance, and communication sectors are ahead of the game compared to the electronics, high-tech, and services sectors.⁸ This can be explained by the fact that these sectors are under greater pressure from globalisation. They have to adapt urgently in order to survive. Online bank transfers and the emergence of advertising on social media have simply left businesses in these sectors no choice but to react quickly and adapt.

As a result, there are three sectors which really stand out in the digitalisation of businesses in Europe. These are: 

1. The banking sector

According to a study conducted by Mastercard on more than 11,000 people in 11 countries across Europe, 84% have used a digital banking service within the last month and 38% within the last week.⁹ The emergence of European neobanks such as Revolut, N26 — or 100% online banking services such as Wise — have forced traditional banks to go digital, creating a real dynamic for the banking sector in Europe.

This digital maturity can also be seen in the insurance sector, which is investing in artificial intelligence and predictive data analysis. “InsurTechs”, insurance companies using new technologies, are thriving in Europe with a market estimated at €90 billion.¹⁰

2. The construction sector

Although McKinsey recognises the construction sector as having a lot of potential in terms of digitalisation, it is still lagging behind.¹¹ Industry professionals unanimously agree that digitalisation would be extremely beneficial for the sector.¹² Their 2018 manifesto reported that digitalisation would: 

• Improve productivity, security and working conditions
• Reduce delays
• Provide affordable housing
• Increase the quality of construction and infrastructure.

This last point aims to call on EU authorities to develop strong leadership on digitalisation through regulations which specifically target the profession. A European Commission report highlighted that although its construction market is one of the pillars of the economy, it was only 5th in the world in terms of Building Information Modelling (BIM).¹³

Europe’s construction sector employs 20 million people, generates 10% of GDP and is also a large consumer of intermediate goods.¹⁴ The way in which it operates can single-handedly influence the whole economy. This means there are significant digitalisation challenges for the construction sector.

This is still a long way off. Simple tasks, such as digitising documents are not yet widespread practice. However, this sector could quite quickly increase its productivity through innovation incentives. This sector has a promising future thanks to many technologies that already exist: 5D modelling, collaborative and mobile working, and the Internet of Things.

3. The health sector

The health sector also has great promise with a potential 7-10% increase in productivity according to the same McKinsey study. By using existing technologies, this sector can already improve care and offer economic viability. However, data protection requirements and massive investment in infrastructure have slowed down its digital transformation. Recent events related to COVID-19 have shown the importance for Europe to accelerate the digitalisation of the medical sector. It is well behind countries like South Korea, which were able to anticipate and respond to the pandemic with the help of digital technology. The challenge for Europe in the coming years will be to deploy a massive digitalisation strategy coordinated between countries.

Just like the Marshall plan launched after the war to rebuild the European industry, the European Commission is now working on a new Marshall plan to repair the unprecedented economic damage caused by the COVID-19 crisis. However, instead of injecting capital into the economy, this reconstruction plan will take the form of investment in new technologies, due to the increased competitiveness of ultra-digitalised businesses. Massive digitalisation of businesses and governments is more than ever a priority for the recovery of the post-pandemic European economy.

At present, the delay in terms of digitalisation is fairly substantial compared to leading countries such as the USA, Japan, and China. According to a report published in 2016, only 15% of platform businesses valued at more than one billion dollars were founded in Europe, compared to 46% in the USA, and 35% in Asia.¹⁵

Europe must adapt quickly in order to remain competitive. The number of European businesses adopting digital technology is still low with less than a fifth of European businesses highly digitalised and only 12% of those are using Big Data analysis.¹⁶ Investment in digitalisation must be directed towards key competences such as:

• Robotics
• Automated systems
• Internet of Things
• High-performance computing
• Artificial intelligence
• Cloud computing

As well as adopting new digital technologies, Europe also needs to invest in digital skills. According to a European Commission report, at present 44% of European citizens lack basic digital skills.¹⁷ The education system is now being particularly targeted, with a need for technological equipment in most European countries. A plan to digitalise education is currently underway to prepare the younger generation for the digital age.

A relaxation of regulations is also essential, particularly relating to artificial intelligence, which has already been reformed before it is even used. This is a major barrier for European businesses who are serious about getting into the field and competing with American companies, who don’t have to deal with this legislative burden. The current President of the European Commission, Ursula von der Leyen, recently unveiled her digitalisation plan for the next five years, with the aim of making artificial intelligence a priority.¹⁸

This leadership strategy is essential if Europe is to recover from the effects of the pandemic. However, business leaders need to keep up. According to a study by the Harvard Business Review, the risks associated with digital transformation are now the number one fear of business leaders and managers.¹⁹ With 70% of digital transformation projects failing to achieve their objectives, barriers to change such as fear of the unknown and fear of failure are a major obstacle to the digitalisation of businesses.²⁰

For the next few years, it is imperative for business leaders to focus on artificial intelligence and digital transformation.²¹ AI in particular is seen as a means of improving product quality, but also in combating global warming and the risks of the pandemic.²² According to a report published in 2019 by Ernst & Young, and Microsoft²³, only 4% of businesses in Europe are using AI and 40% of European AI start-ups …aren’t using AI!²⁴

Although political measures and new technologies are at the heart of digitalisation, the human factor remains essential. Digital skills, cultural change, and the deployment of appropriate strategies are among the best practices that business leaders must adopt as soon as possible.

Digital transformation: Deutsche Telekom’s success story

A number of initiatives are being put in place to help Europe remain competitive in the digital age. 

Digital Innovation Hubs is a project set up by the European Commission in order to build a network of businesses on digital transformation and support them in digitalising their processes, products and services using new technologies. With only one in five businesses being highly digitalised in Europe, this initiative for both small and large businesses, aims to advance digitalisation throughout the ecosystem.²⁵

According to the 2019 Forbes Top 100 Digital Companies List, the number one company in Europe, ranking 19th, is Deutsche Telekom.²⁶ The German company is an excellent example of digitalisation. Erick Eckert, one of its managers, believes that the company’s willingness to embrace innovation has been a driving force for its digital transformation.²⁷ Although difficult at first, it has made the company “more agile, more innovative and faster – and that has made it possible to accelerate the digitalisation of our customers”.

Today, the company relies on 5G, artificial intelligence, and big data. According to Timotheus Höttges, CEO of Deutsche Telekom, “Europe has already lost the digital battle – i.e. the digitalisation of major markets – to the United States and China, and it’s about to lose the battle of data and AI”.²⁸ This willingness to innovate and stay on track is creating a dynamic around the digital transformation of businesses, taking all the other sectors of the economy with it. With the added support of European authorities, awareness of digitalisation is well underway.

Digitalisation of European businesses: Efforts for a promising future

In this article we have seen that the digitalisation of businesses is a key issue in Europe. While there are disparities between countries, the potential for successful Europe-wide digitalisation is ever-present. Even if Nordic countries have a head start, southern and central European countries are preparing to enter the digitalisation race.

With the historical leaders still lagging behind, Europe could catch up with the American and Chinese heavyweights in the next few years. Digital transformation must be more than ever a priority for business leaders in Europe. 

What is the current digitalisation situation in your company? We have appropriate solutions for all businesses in order to go further in your digitalisation efforts.

¹ 'Une étude mondiale réalisée par Capgemini Consulting et le MIT Center for Digital Business', Capgemini, Novembre 2012.

² 'Digitization for economic growth and job creation', Strategy&, 2013.

³ 'Digital Europe: Realizing the continent’s potential', McKinsey, July 2016.

⁴ 'The Digital Economy and Society Index (DESI)', European Commission, 2020. 

⁵ 'Europe facing major challenges as Digital Transformation becomes number one skills issue', Intelligent CIO, March 2020.

⁶ 'Europe’s digitalisation delay: help via (higher) education', The Conversation, March 2019.

⁷ 'The rise of Digital Challengers', McKinsey, 2018.

⁸ 'Digitalisation de l’économie : l’Europe en retard sur les Etats-Unis', IEIF, June 2016. 

⁹ 'Digital banking has become part of European’s everyday life. New study from Mastercard reveals', Mastercard, 2019.

¹⁰ 'AssurTech : l’approche prédictive de Luko pour dépoussiérer l’assurance habitation', Frenchweb, Septembre 2019.

¹¹ 'Digital Europe: Pushing The Frontier, Capturing The Benefits', McKinsey, June 2016. 

¹² 'Joint Manifesto on Digitalisation from the Construction Industry', FIEC. 

¹³ 'Report: Supporting digitalisation of the construction sector and SMEs', European Commision, Octobre 2019. 

¹⁴ 'Communication From The Commission To The European Parliament And The Council - Construction 2020', European Commission, July 2012.

¹⁵ 'The Rise of the Platform Enterprise', The Center For Global Enterprise, January 2016.

¹⁶ 'How much are European companies using data?', The Datalandscape.

¹⁷ 'The Digital Skills and Jobs Coalition', European Commission, February 2020.

¹⁸ 'How the Next European Commission Should Tackle AI', Center for Data Innovation, Septembre, 2019.

¹⁹ 'Digital Transformation Is Not About Technology', Harvard Business Review, March 2019.

²⁰ 'Why Digital Transformations Fail: Closing The $900 Billion Hole In Enterprise Strategy', Forbes, March 2018.

²¹ 'Digitalisation and AI: At the heart of Europe's industrial future', The Parliament Magazine, February 2019.

²² '(How) will the EU become an AI superstar?', Deutsche Bank Research, March 2020.

²³ 'Artificial Intelligence in Europe Report: At a glance', Pulse Microsoft.

²⁴ 'Forty percent of ‘AI startups’ in Europe don’t actually use AI, claims report', The Verge, March 2019.

²⁵ 'Digital Innovation Hubs (DIHs) in Europe', European Commission, May 2020.

²⁶ 'Top 100 Digital Companies', Forbes, 2019.

²⁷ 'Deutsche Telekom’s Dirk Eckert Harnesses Digital Disruption', Radius, Octobre 2019.

²⁸ 'Deutsche Telekom & Orange : le manifeste en faveur d’une Europe numérique', Orange, May 2019.

Aurélie Toro

About the author

Aurélie uses her experience in content creation and digital marketing to help French-speaking leaders in their daily practices. Always looking to do things that make sense for society and passionate about researching, writing and sharing useful information, she does her best to bring a fresh vision to the leaders who read us on the topics of agile management, meeting management and digital transformation.