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November 17, 2015

Time to Speed up Digitalization!

by Digitalization, Point-of-View

Originally published in OpusCapita Journal.

Digitalization and globalization have only just begun and they are moving ahead rapidly! Europe, unfortunately, is not at the leading edge in creating this new world and is not even among those reaping the quickest rewards. Instead, it seems to be stuck in the slow lane. Digitalization, new technologies, and the large-scale use of automation do, nevertheless, offer the opportunity to move to a faster growth track and finally reverse the declining productivity trend of the past 30 years.

“Europe has not yet reached the speed that it should have in digitalization. In the USA, digital solutions have had a significant role in boosting productivity for a long time. In Asia the economic growth is currently based more on urbanization and the growth of industrial production than digitalization. But, Japan, South Korea and Singapore, for example, are already exceptions here,” says Esko Aho, former prime minister of Finland.

Aho has been researching companies’ operating environments and competitiveness in his expert role as Senior Fellow at Harvard University. Currently he is Executive in Residence at Aalto University, Finland, where he leads a course concentrating on the challenges of global and local operating environments. His role as chairman of the Board of the East Office of Finnish Industries expert organization also gives him a good insight into the Russian market.

Time is running out

According to a forecast by the OECD, the world economy will double by 2030 and it will double again by 2050. The average GDP growth per capita is greatest in growing economies in Asia and Africa.

The 2014 Policy Brief by the independent Conference Board states that the EU is in a good position to benefit from digitalization and the resulting growth in productivity, but that time is running out. Slow growth and economic stagnation erode the prerequisites for long-term sustainable growth, which include demand, labor force skills and ICT investments.

“Digitalization is a huge opportunity and is actually the only opportunity for us to quickly improve productivity, increase the quality of services, curb public expenditure and create new competitive edge for companies and society,” says Aho.

An ecosystem for digital success

A considerable barrier for progress in Europe is the lack of a digital single market. Aho emphasizes the significance of a functional ecosystem in the creation of digital breakthroughs – to verify this you only need to take a look at Silicon Valley.

“It is no accident that so far the digital success stories have mainly been entertainment created for the market. When you consider logistics, healthcare or the financial sector, for example, the role of society as the architect of digitalization becomes key. To create an ecosystem we also need leading companies and their innovative digital solutions."

“We need to promote the horizontal movement of experts. It’s not enough to create a working group out of people with narrow areas of special expertise, we need individuals with the ability to lead and examine issues on a broad scale,” says Aho.

One example of skills not matching up were the difficulties and failures experienced in the development of electronic patient information systems.

There are also positive examples. A report by Citi GPS mentions automation in the banking world: in the Nordic countries and Germany, for example, checks are a rarity, the use of debit cards is widespread and there is a sparse network of bank branches. But customers do not want to return to the way things were before.

“We need the courage to change the way things are done. We will not reap the benefits of technology unless we make fundamental changes to the entire concept,” says Aho.

Full speed ahead!

Job losses have been feared in all technological revolutions, starting with the industrial revolution, when the artisans who were against this sabotaged the ‘spinning jennies’ in the woolen and cotton mills.

“We Europeans are prone to protective thinking. We think that the role of society is to minimize risks, which easily leads to a situation in which things do not change, or do not change quickly enough. Renewal is always based on the ability to take risks,” says Aho.

“If we slow the development of digitalization now because we want to safeguard jobs, we will lose these jobs anyway through global competition. Right now we need to believe in the fact that this revolution will also create new jobs and competitive edge.”

For example, researchers at the Oxford Martin School found that the 1980s Computer Revolution resulted in job losses but in the end also created over 1,500 new job titles in the USA, which proves that there was widespread restructuring of industries, firms and workplaces.

The unbeatable team

According to Aho, another feature that characterizes European discourse in particular is placing technology and human thoughts in opposition. Twenty years ago, IBM’s Deep Blue computer defeated Garri Kasparov in chess. Back then many were already proclaiming that mankind had lost out to machines. However, a human and computer will still triumph in chess when playing together against a computer.

“For me this proves the power of human thought. I don’t believe that technology will ever be able to replace human, creative thought. It just gives it new dimensions and provides people with new ways of working.”

Esko Aho spoke at the OpusCapita Finance Forum in Helsinki in May 2015.

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