1.
June 30, 2016
Digital Europe:
Pushing the frontier,
capturing the
benefits

2.
2McKinsey & Company
Change is accelerating exponentially
Europe must capture the momentum
Europe’s digitisation lags behind the US
And varies between countries and sectors
Adapt and win
A united Europe can grab these opportunities
A new digital divide is opening up
Between the ‘haves’ and the ‘have-mores’

3.
3McKinsey & Company
Waves of digital innovation are accelerating
1960s 1970s 1980s 1990s 2000s 2010s
~3 years15 years
Desktops
and PCs
Basic office
software
Games and
visual
graphics
Enterprise
software
Internet
technologies
Personal
computing
GPS
Wi-Fi, 2G/3G
Laptops
Mobile phones
Social media
Smartphones
and apps
Smart devices and
sensors
Predictive algorithms,
machine learning,
robotics
Modern
programming
languages
Algorithmic
advancement
Mainframes and databases
Desktop and personal computing
Business software
Internet and e-commerce
Mobile broadband
Social media
Big data

4.
4McKinsey & Company
Used cross-border bandwidth Size of bubble represents
intraregional used bandwidth
Data flows are surging, redrawing the world’s borders
45xcross border bandwidth
between 2005-2014
EUROPE
ASIA
LATIN
AMERICA
NORTH
AMERICA
AFRICA
MIDDLE
EAST
OCEANIA
Bandwidth
(gigabits per second (Gbps)
>20,000
20,000-5,000
5,000-1,000
1,000–500
<500

5.
5McKinsey & Company 5McKinsey & Company
Connectedness score
Data flows
7
10
15
19
21
25
35
43
56
100
8 of the 10 most connected countries are in Europe

6.
6McKinsey & Company 6McKinsey & Company
The European startup ecosystem is
developing at a rapid pace
Number of unicorns in Europe
Number of accelerators
and incubators between
2008 and 2013
x3
Growth in venture
capital funding between
2013 and 2015
x2
Of European unicorns
are profitable
60%
47
2016
30
2014

7.
7McKinsey & Company
Change is accelerating exponentially
Europe must capture the momentum
Europe’s digitisation lags behind the US
And varies between countries and sectors
Adapt and win
A united Europe can grab these opportunities
A new digital divide is opening up
Between the ‘haves’ and the ‘have-mores’

8.
8McKinsey & Company 8McKinsey & Company
Today the contribution of digital to
European GDP lags behind the US…
Share of digital contribution to GDP, %
4.0%
5.4%5.5%
6.6%6.9%
8.0%
10.0%
5.0%

9.
9McKinsey & Company 9McKinsey & Company
21%
74%
5%
60%
8%
32%
…reflected in a low presence of European internet
companies compared to the US…
IOT
companies
Big data
companies1
1 Top 10 companies
Europe
US
Asia
Market capitalisation
Top 20 companies, Percent, 2015
Revenue
Top 20 companies, Percent, 2015
55%
5%
40%64%36%
Internet
companies
Unicorns

10.
10McKinsey & Company
…partly because Europe is still reliant on US digital imports…
Digital trade balance
with the US
Percent
-4.2% -11.4%-3.8% -5.6%-5.2%-3.6%-2.8%
0%
1.0%
-0.2%
1.3%
0.2%
-0.4%
1.6%
Digital trade balance
with EU28
Percent

11.
11McKinsey & Company
MGI Sector Digitization Index, 2015 or latest available Europe data
…and partly because companies across sectors have not taken the digital turn yet
Low High
Relative digitisation
ICT
Media
Finance and insurance
Professional services
Wholesale trade
Entertainment and recreation
Personal and local services
Advanced manufacturing
Transportation and warehousing
Utilities
Retail trade
Education
Chemicals and pharmaceuticals
Hospitality
Real estate
Government
Health care
Basic goods manufacturing
Construction
Agriculture
Selected sectors
Knowledge-intensive
sectors that are highly
digitised across most
dimensions
1
Capital-intensive
sectors with the potential
to further digitise their
physical assets
2
Highly localised
sectors that lag across
most dimensions
3
Assets Labour Usage

12.
12McKinsey & Company
Country effects explain one-third of the variation in digital capability across Europe,
sector effects the other two-thirds
MGI Sector Digitization Index, 2015 or latest available Europe data Low High
Relative digitisation
ICT
Media
Finance and insurance
Professional services
Wholesale trade
Entertainment and recreation
Personal and local services
Advanced manufacturing
Transportation and warehousing
Utilities
Retail trade
Education
Chemicals and pharmaceuticals
Hospitality
Real estate
Government
Health care
Basic goods manufacturing
Construction
Agriculture
Selected sectors

13.
13McKinsey & Company
Captured digital potential by country
Percent
Tremendous upside remains to be captured
18%
10%
12%
15%
17%
10%
15%
12%

14.
14McKinsey & Company
€2.5 trillion

15.
15McKinsey & Company
Change is accelerating exponentially
Europe must capture the momentum
Europe’s digitisation lags behind the US
And varies between countries and sectors
Adapt and win
A united Europe can grab these opportunities
A new digital divide is opening up
Between the ‘haves’ and the ‘have-mores’

16.
16McKinsey & Company
Consumers
More consumer surplus
Companies
Faster revenue growth
Workers
More automation
Digitisation creates a divide between
‘haves’ and ‘have mores’

17.
17McKinsey & Company
2000 2014
Annual
Google
searches
178 mn
unique monthly
US visitors in
2014
International
call volumes
with Skype
$37 bn
savings for
consumers just
in 2013
Consumer surplus through free internet search has
accumulated rapidly in the past decade…
74%
of online US
adults are on
social media
in 2014
Social
media
usage
100 mn
unique monthly
US visitors in
2014
Wikipedia
article count

18.
18McKinsey & Company
…though the ‘have more’ minority captures
most of the surplus
80%
Have mores
Captured value from
Web services
Haves
40%
Internet users
20%
60%

19.
19McKinsey & Company 19McKinsey & Company
More highly digitised companies perform
better financially…
Digitisation score
4%
10%
18%
5 year revenue growth, CAGR
Percent
+14pp15%
18%
42%
+27pp
3-year Total Return to
Shareholders
Percent
High
Low
Medium

20.
20McKinsey & Company
…and more digitised sectors experience
faster productivity growth
Germany
Netherlands
Italy
Sweden
France
0.900.70 0.800.600.400.30 0.500.200.10
Productivity
Compound annual growth rate, %
Digitisation index
Composite score measuring digitsation level across sectors

21.
21McKinsey & Company
Ability to technically automate
Percentage of time on activities that can be automated
Hourly wage, $ per hour
No activity is immune to automation, but some
jobs are more impacted than others…
0 20 40 60 80 100 120
File clerks
Landscaping workers
Chief executives
0%
100%

22.
22McKinsey & Company
…and the phenomenon could accelerate in the coming years
44% of all activities likely to be
automated in the next 10 years
Displacement of middle-skill jobs due
to automation could accelerate from
8% today to 15% in the next decade
Advanced
robotics
Artificial
intelligence

23.
23McKinsey & Company
Change is accelerating exponentially
Europe must capture the momentum
Europe’s digitisation lags behind the US
And varies between countries and sectors
Adapt and win
A united Europe can grab these opportunities
A new digital divide is opening up
Between the ‘haves’ and the ‘have-mores’

24.
24McKinsey & Company 24McKinsey & Company
VivaTechnology’s Partners are
already grappling with the
toughest digital challenges
Big Data
How to manage the public data
generated by individuals on
smartphones?
Artificial Intelligence
How to leverage AI to improve in-
store operations (inventory,
replenishment)?
Environmental footprint
How to reduce the environmental
impact in train stations?
Personalisation
How can customer data enrich
personalisation features?
Customer experience
How to improve guest experience
by digitally empowering hotel
employees?
Themes Technologies
Internet of Things
How to effectively analyse and process
sensor data collected in-store?
Open
innovation
Blockchain
What services and value proposition
can be added to the blockchain
ecosystem?
Efficiency
How to improve the generation of
distributed energy?

25.
25McKinsey & Company 25McKinsey & Company
For companies, digital
transformations should be performed
along 6 strategic priorities
2 Become agile and learning-focused
1 Evolve existing business models
3 Take advantage of new innovation models
4 Bring the customer along
5 Build ─ or buy ─ the right digital capabilities
6 Adapt your workforce
Company
digitisation

26.
26McKinsey & Company 26McKinsey & Company
Policymakers must act to create a more dynamic digital ecosystem
3Deepen Europe’s partici-
pation in global dataflows
France launched the etalab
program to open public data
4
Unlock R&D investment
and access to capital for
entrepreneurs
The UK offers up to 50% in
tax benefits for investors in
early stage digital businesses
2Create a more seamless
digital market
The EU will invest more than
€50B by 2020 in digital
initiatives
5
Address issues
surrounding skills in the
labour market
Germany developed an app
to support citizens looking for
a job
1 Digitise government
operations
Estonia's eID scheme allows
online authentication
Facilitating
the transition

27.
27McKinsey & Company
The best time
to plant a tree
was 20 years ago.
The second best
time is now.