The Three Industries Leading the Digital Advance

The media, high tech, and telecommunications industries lead all the sectors surveyed on three key digital metrics:

  • Percentage of companies with digital products and/or services
  • Revenue generated from those digital offerings (as a percentage of total revenue)
  • 2014 spending on digital initiatives (as a percentage of company revenue)

Why are those industries in front on those metrics? It’s likely because their products and services, as well as the processes that create demand and supply for those offerings, are inherently more susceptible to transformation through digital technology. Call this ‘digital intensity’.

To be sure, measuring the digital intensity of companies and entire industries is difficult. However, a number of parties have tried (and continue to try). One of the more recent attempts was a study published in July 2013 by the U.S. International Trade Commission.29

The study measured the amount of digital trade in the U.S and exports to other countries. It defined digital trade as “commerce in products and services delivered via the Internet.” The USITC report found the digital content revenue of the U.S. media industry in 2012 was between 20% and 57% of total revenue, depending on the product. Digital revenue from music was 57% of total revenue; digital revenue from games was 40%; digital revenue from videos was 30%; and digital revenue from books was 20%.

Still, the USITC report admits that trying to quantify the economic impact of digital technology is not easy. For one, it says digital products and services have not been around very long. “Statistical agencies are still developing methods for quantifying them.”30

Any attempt to quantify the impact of digital technologies on industries is subject to substantial debate. Nonetheless, we gathered data from the 820 survey respondents to provide another way of measuring the digital intensity of the industries we surveyed. This digital intensity index is based on a survey question in which we asked companies to estimate the degree to which five core aspects of their business are digitized today and could ever be in the future.31 Those five aspects (which are present in every business) are:

  • The core product and/or service offering: A purely digital product or service is one available to customers in a purely digital form – e.g., the online edition of a newspaper, a streaming video, a music download. Example: Netflix streams movies (so its streaming products are 100% digital).
  • How those offerings are manufactured or produced: We defined this metric as the percentage of the production process that is or could be automated – e.g., a company whose factories assemble products only with robots would be highly digital.
  • How offerings are marketed and sold: We defined this as the percentage of total marketing campaign dollars spent on online marketing.
  • How offerings are delivered to customers: We defined this as the percentage of products and services delivered online. So if 60% of the movies and TV shows that Netflix distributes are through streaming (as compared with mailing DVD disks, which of course are physical objects), then they would have answered this question with “60%”.
  • How customers and offerings are supported after the sale: We defined this as the number of customer service inquiries handled online as a percent of total inquiries (which also includes call centers, the mail, among others)

The cross industry percentages show that the 13 industries believe the impact of digital technologies on these five core aspects of their business is low today, and only about half what it ultimately will be (see Exhibit lll-13 and Exhibit lll-14):

30 Ibid, p. 6-9.

31 These five core aspects of any business are about their ‘core’ processes – i.e., what’s directly involved in making a product or producing a service, and creating demand and supply for it, and delivering it to customers. It does not take into consideration the supporting functions of a business – e.g., the HR, IT, legal, finance, procurement and other functions that Harvard Business School Professor Michael Porter refers to as “support processes”.

  • The core product or service offering: 21% on average are digitized today; 39% ultimately will be
  • How those offerings are manufactured or produced: 18% today (the lowest percentage among the five aspects); 36% ultimately
  • How offerings are marketed and sold: 21% today; 43% ultimately
  • How offerings are delivered to customers: 19% today; 39% ultimately
  • How customers and offerings are supported after the sale: 21% today; 43% ultimately

In conclusion, these numbers indicate that executives across industries themselves believe that the impact of digital technologies hasn’t been substantial enough. Nonetheless, they predict that digitization will deliver a much bigger impact in the future.

Exhibit lll-13: The Current State of Digitization …

Exhibit lll-13 The Current State of Digitization

Exhibit lll-14: – And Projections for the Future

Exhibit lll-14 And Projections for the Future

But in calculating a quotient or index of the impact of digital technologies on companies and industries, we believe that two of the five aspects have far greater impact than the other three:

  • Whether the core product or service itself can be turned into a purely digital offering
  • Whether that offering can be delivered digitally over the internet

As a result, in calculating a digital quotient for the 13 industries, we gave this data a much heavier weight than the information on the other three factors(see box).

Based on our formula, five industries emerged as the most ‘digital’, led by media and
entertainment. In addition:

  • The average digital quotient for all industries combined was 31%
  • Media and entertainment’s quotient was 42%.
  • The other three with higher-than average scores were telecom, high tech, and insurance.
  • The least digital industries today: CPG, utilities, energy.

Overall, these findings are similar to those of a Forrester Research survey fielded in

A Formula for Measuring Digital Intensity of Industries

If an offering can be put in purely digital form, it can be delivered digitally over the internet (with sufficient bandwidth) and thus dramatically reduce the cost of producing and delivering it.

And if that offering can be delivered digitally over the internet, it can be marketed and sold globally and customer usage tracked carefully (which enables a company to continually refine the offering based on monitoring that usage, as well as develop new offerings).

If it can be delivered digitally and its usage tracked, a company can intimately understand customer needs for improvements and new offerings. Thus, the degree to which the offering is digital and can be delivered digitally matters more than the other three factors.

With that in mind, we weighted the 5 factors (on a scale of 0-100%) based on their importance to transforming a business model: product and/or service offering received a 40% weight;how the offering is delivered received a 30% weight; how the offering is produced (5%); how the offering is marketed and sold (15%);and how the offering and its customers are supported (10%).

late 2013/early 2014. When asked about the degree to which their business would be disrupted by digital technologies in the next 12 months (i.e., in 2014), the industries with the highest percentage of respondents believing their industry would be disrupted (at least somewhat) were insurance, banking and financial services, education and social services, government and non-profits, media, entertainment and leisure (excluding travel), and retail and wholesale.32

Digital Strategy is More Likely to be All-Encompassing at High Tech, Banking and Industrial Companies + How are Digital Initiatives Organized? It Varies by Industry
Industries with the Largest Gaps in Current and Future Digital Intensity