What is the digital economy?

by John Reiners

Last week, Tech UK, a publically funded body promoting the UK’s digital sector, and NESTA, an innovation charity, published Tech Nation 2016, a thorough analysis of the onward march of the UK’s digital economy. This builds on their inaugural study last year charting the emergence of clusters of digital start-ups in cities and regions across the UK. It raises some interesting questions about how we define the contribution of digital to the economy, of interest to policy makers of all countries wanting to promote modernization.

The report acknowledges that this year, digital innovation has become an essential contributor across all UK industries. In some sectors (e.g. Marketing, PR and Design) almost half of companies are primarily digital technology businesses. And it estimates that 41% of tech jobs are actually in traditional industries, with a large and growing number in the public sector and healthcare.

These findings reinforce what we found in our comprehensive study of the UK’s £ 92 Billion digital opportunity, sponsored by Virgin Media Business. It is no longer helpful to view the tech sector in isolation. The digital economy is increasingly the economy. Policy should focus on encouraging all businesses (not just tech start-ups) to get the most out of the potential digital technology offers. Growing clusters of innovative tech start-ups can definitely help, but often it will be through working productively with traditional industries. The definition of tech jobs can also be misleading. Increasingly most jobs need some digital expertise. We need more coders and data scientists, but we also need digital content marketers, accountants, lawyers and business strategists who can help firms in all industries adapt to a digital world.

As the economy grows increasingly digital, across all sectors, there are many implications for companies and their management teams. Our report identifies a group of Digital Leaders, who are building a breadth of “digital capabilities”. Crucially, these capabilities go beyond deploying the latest tech and attracting great digital talent. Success is also about having the strategies, business models and operations adapted for the digital age – for example to exploit an information advantage, be in tune with their customers, work across boundaries, building and contributing to productive digital platforms and ecosystems. The reward for these Digital Leaders is improved financial performance, but also a range of other important commercial benefits (like satisfied customers and workforce) critical for long term success in the new economy.

John Reiners is Oxford Economics Managing Editor, EMEA. He manages research programs on a wide range of topics, including digital economy and international trade. He also follows emerging trends, like the emerging platform economy. He can be contacted at jreiners@oxfordeconomics.com