Download Canada Digital Density Index

Canada Digital
Density Index: Guiding
Digital Transformation
Accenture’s Digital
Productivity Study
The Accenture Digital Productivity study
2014 produced new insights into the way
digitalization affects economic performance
in the world’s major economies. The
study produced a comprehensive digital
density scorecard that captures not just
the integration of digital technologies and
processes into business practices, but also
the degree to which digital is enabled in
the surrounding institutional and economic
environment. This study found empirical
evidence that higher degrees of digital
density are related to better economic
Performance.
Fig.1 Canada’s Digital Density profile
Digital Density is composed of four
components, which are in turn scored
according to 18 key aspects.
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Digital Density in Canada
Canada gains a high digital density score,
revealing the country’s consistently
forward-leaning approach to digitalization
across the scorecard. This high score is
in spite of relatively slow internet speeds
and a relatively small pool of information
and communications technology (ICT)
skilled labour. Canada’s success is built
on institutions, behaviours and attitudes
towards digital change as much as hard
infrastructure.
Digital Density Component Scores
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Canada’s Digital
Density profile
Canada scores consistently high across
the scorecard, landing it in the top
half of the sample in each component.
Canada offers strong foundations for digital
entrepreneurs and Canadian businesses
are leaders in the adoption of new digital
technologies. Surprisingly, this is despite
being a country with relatively weak digital
infrastructure.
The Making Markets component reveals
a well- connected population, although
one that has been slow to embrace
online transactions. The internet is used
frequently in advertising and Canadian
firms compare relatively well in terms of
the automated interaction between each
other and the digital platforms they use to
collaborate.
Canada scores well in the study for the
digitalization of business operations in
the Running Enterprises component.
Canadian business models are characterized
by an openness to new digital innovations,
firms generally have a clear strategy for
digital progress, R&D spending is high and
firms score above-average in their embrace
of new ‘technology processes’. There are
still shortcomings. Canada’s Human Capital
score is in the bottom half of the range and
it receives a low score for innovation.
For the Sourcing Inputs component,
which measures the digitalization of
factor markets, Canada scores in the top
third of the study sample. Some strong
scores for use of the industrial internet
are reflected in the strong ‘Plant, property
and equipment’ score. The digitalization
of labour market processes is close to the
average, as is the use of digital platforms to
access capital.
The enabling environment in Canada is
generally strong, although weaknesses
exist. Canada is well regarded for the
organizational flexibility of its industries,
thanks in part to a very efficient labour
market. There is also a lot of confidence
in the potential of digital and the
government’s role in facilitating it. However
the speed of internet connectivity to
facilitate this is surprisingly weak.
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Fig 2. Canada Digital Density breakdown
Performance against rest of international
sample (quartiles indicated by dotted
gridlines)
Spotlight on Canada
Digital Density
Canada’s high digital density score is a
story of consistency across the broad
scorecard. Canada rarely finds itself at
the digital frontier in our metrics but is
habitually above average. It suffers few
shortcomings significant enough to drag its
overall score down, but that is not to say
there is no room for improvement.
Canada has a well-connected
population. Data from the International
Telecommunications Union (ITU) shows that
87% of Canadians were using the internet
in 2012, which places it fifth highest in the
study (Fig 3). Similarly the World Economic
Forum’s (WEF) measure of internet access
in schools places it 6th highest in the study,
the 2nd highest outside Europe. Typical of
Canada’s profile, these are solid scores, not
quite at the frontier.
But internet connections are not very
mobile, nor very fast. Canada had only
0.6 mobile broadband subscriptions per
head in 2012, compared to a study average
of 0.77, and 1.3 per head in the US (Fig
4). Of Canada’s connected population,
only 38% had high speed fixed broadband
connections by 2013, notably lower than
the study average (53%), and the US (68%).
The typical Canadian enterprise is
more digitalized than its international
competitors. The 2014 Accenture Global
Agenda survey found that 46% of
Canadian firms reported having more
than half of their business supported by
digital technologies. A marginally higher
proportion than the 45% of US firms and
much higher than the study average
of 38%.
This may be the reason businesses have
been slower to shift transactions online
than in other countries. Euromonitor
data shows that 29% of advertising spend
is made online (Fig 5), the third highest in
the study and notably above the US level
of 20%. However only 1.8% of Canadian
retail sales were made online in 2013. This
compares to the study average of 4.3% and
a US level of 7.3%.
Fig 3. Proportion of Canadians using
the internet
% of all Canadian adults using the internet
regularly, ITU
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Fig 4. Growth in mobile broadband
Mobile broadband subscriptions per head,
selected countries, ITU
Fig 5. Online advertising expenditure
% of all advertising spending done online,
Euromonitor
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And the scorecard shows that Canadian
firms appear to make greater use of
new digital technologies than their
international counterparts. Canada stands
out in the 2014 Global Agenda survey for
the importance executives place on mobile
technologies and cloud computing to their
business (Fig 6). Canadian enterprises
are well regarded for their use of data
analytics; in the top 6 of our sample. They
are also in the top half of the sample for
operationalizing machine to machine
communications.
Canada provides a broadly supportive
enabling environment to digitally
minded enterprises. The WEF’s Global
Competitiveness Report scores Canada
comfortably above average in terms
of management quality, labour market
flexibility and labour market relationships.
It places fourth in the study, ahead of the
United States but behind the UK at the
study’s frontier. Canada’s pool of skilled
labour is slightly above average for the
study, with around 3.2% of the workforce
employed in ICT. Much higher than the 2%
of the US workforce, and slightly higher
than the EU10 average of 3.1%.
The degree of investment in digital and
telecoms however paints a more varied
picture. ITU data reveals that Canada’s
per-capita investment in telecoms is the
second highest in the study, at US$401
per capita (Fig 7), behind only Australia –
perhaps reflecting their sparse populations.
However, company spend on R&D is more
limited in Canada according to the WTO
Global Competitiveness Report, which ranks
it 14th out of the study’s 18 countries.
The scorecard also reveals certain
shortcomings in the digital performance
of Canadian industry, for example
in innovation. The WEF’s Global
Competitiveness Report ranks Canada low
in terms of its capacity for innovation. This
is also reflected in the number of patent
applications, with only 200 applications
made per million working age residents
compared to an average of 399 in Western
countries and 1185 in the United States
(Fig 8).
Fig 6. Importance placed on digital
technologies
% rated ‘extremely’ or ‘moderately’
important by executives for the next 12
months, Accenture
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Fig 7. ICT investment
Fixed investment in ICT per working age
head, USD 2012, ITU
Fig 8. Patent applications
Number of patents applications per
1 million residents
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Digital Density and better
economic performance
The Digital Productivity study upon which
this report is based, found empirical
evidence that a high degree of digital
density is related to better economic
performance. Using a combination of
regression analysis and macroeconomic
forecasting, the study found that by raising
its digital density score by 10 points by
2020, an economy could add an extra 0.25
percentage points to its average annual
growth rates. That is the equivalent of
adding around 1.8% on top of Canada’s
2020 GDP. These impacts are transmitted
through productivity improvements alone.
For Canada to achieve such a 10 point
boost to its digital density profile it would
have to make a range of interventions
across the economy. Fig 9 shows how
Canada currently compares to the
distribution of other countries in the
study in each of the four Digital Density
components.
The following list of interventions, if
combined, could add 10 points to Canada’s
digital density score and thus represent
the scale of progress required to achieve
the productivity gains identified by our
macroeconomic modelling.
Making Markets
• Remove barriers to online commerce:
rapid catch-up with US levels. This is the
equivalent of growing from 1.85% of all
retail sales being made online to 7.35%.
This would still be lower than the UK’s
10.4%.
Running Enterprises
• More R&D: Increase investment in R&D to
US levels. This is the equivalent of raising
expenditure from 1.73% of GDP to 2.79%.
• Prioritise innovation: Catch up with 6th
and 7th ranked UK and Netherlands in the
WEF’s Capacity for Innovation metric and
in the number of patents issued. This is
equivalent to increasing from 190 patents
per million inhabitants per year, to 340.
And matching best practices in the
Netherlands for crowd-sourcing.
• Improve mobile connection with
customers: Meet US levels. Learning from
international best practice could improve
Canada’s score.
Making Markets
Fig 9. Canada’s Digital Density scores
How they compare to the rest of the
sample
Running Enterprises
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Sourcing Inputs
• Embrace remote working: In the labour
market, invest in technologies and
behaviors that facilitate remote working,
matching Sweden and the Netherlands at
the frontier by this metric
Fostering Enablers
• Mobile connectivity: Catch-up with US.
Canada’s 0.6 mobile subscriptions per
head is far behind the US, where there are
1.3 per head.
• Digital government: Follow example
of study leader, South Korea. Canada’s
government could do more to digitalize
its interactions with the private sector,
learning from best practices such as in
South Korea.
• Enhance ICT services offer: A 30%
increase in the size of Canada’s ICT sector,
as a share of GDP, would bring Canada’s
sector close to Indian or Brazilian levels. A
60% increase would bring it to the study
average.
• Upgrade broadband speeds: Catch up with
UK/US. Canada lags behind the UK and
US in terms of average fixed broadband
speeds, with around half the proportion of
UK/US users subscribing to fast internet.
Sourcing Intputs
Fostering Enablers
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About the research
The Accenture and Oxford Economics study
on Digital Density was based on three
principal research components:
1. Collection of internationally comparable
observations across hundreds of measures
of digital technology and related indicators,
from public and private sources.
2. From more than 50 of those indicators,
the construction of a statistically tested
composite Digital Density Index for 33
major economies, 16 of which included
partially imputed scores.
3. Multivariate regression analysis to
estimate equations that explain variation
in countries’ total factor productivity by
reference to their relative Digital Density
Index scores.
The study estimates only the effect of
changes in total factor productivity on
GDP. Expanding Digital Density likely
will have additional positive GDP effects
from factors including expansion of the
digital/ICT sector and capital deepening
across the economy. Further analysis could
also consider other effects of expanding
Digital Density, including effects on labour
markets, public finances, and investment
patterns.
This report focuses on the Canadian
findings. You may also be interested in
reading the Global report available at
www.accenture.com/digitaldensity.
* Accenture does not guarantee the accuracy or completeness of the information in this report. Accenture makes no representation or
warranty, express or implied, and accepts no liability concerning the fairness, accuracy, or completeness of the information contained
herein or for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this
presentation or for any decision based on it.
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