The human challenges of digitalisation

In our recent report on the macroeconomic trends that are having the greatest impact on businesses across the world, business leaders globally recognised both the opportunities and challenges of the global transition to a digital economy. The tech skills gap was a particular source of concern and rightly so.

The tech skills shortage not only has the potential to hold back innovation, it could prevent many businesses from carrying out their day to day activity, since so many companies rely on legacy systems that need constant attention just to keep going.

Judging by the results of the survey we conducted for this study, digital economy executives generally expect macroeconomic trends (everything from demographic change to the transition to Net Zero) to hold considerable growth opportunities for their businesses in the years ahead.

Continued digitalisation will be a key source of that growth, as organisations across all sectors recognise gaps in technology capabilities and seek to embed digital technology ever more firmly in their foundations. Another trend—worldwide efforts to reach net zero carbon emissions—will also do much to shape the fortunes of digital economy businesses.

Accelerating Change & Tech’s Potential

Of the macroeconomic trends, digitalisation is seen to offer digital economy companies the most attractive business opportunities over the coming years, as organisations everywhere deploy newer technologies while striving to derive ever more value from them. However, across sectors, 97% of the executives surveyed said their organisations’ existing technology capabilities are not sufficient to capitalise on the opportunities that the macroeconomic trends offer. This will present opportunities for digital economy companies who will be called on to fill many of these existing and future gaps. Prominent among those technologies is AI. Given a list of specific market developments that could impact their businesses over the next decade, digital economy respondents say advances in AI (notably, machine learning and natural language processing) and related fields are the most likely to do so.

Figure 1: AIs gathering force

Market developments likely to have the biggest impact on digital economy businesses over the next decade

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“This is not just hype,” says Sinan Aral, director of the MIT Initiative on the Digital Economy. “There’s real innovation at work in the generative AI chatbots we’re seeing today. They offer hints of exponential increases in LLM performance that I think are on the near horizon.” Investments are already pouring into startups working in the area. NFX, a venture capital firm, counted over 500 generative-AI startups in 2022.

At the same time, accelerated technology change can pose difficulties for digital economy businesses. There are potential risks arising from AI-related ethical hazards, and the danger of falling afoul of data privacy rules. As a result, organisations will increasingly be held accountable to new regulations aiming to put safeguards in place. For example, in 2022 alone, 37 AI-related bills were passed into law globally, as per Stanford University’s 2023 AI Index. Since this is a rapidly evolving area, digital economy companies will struggle even more than usual to acquire the skills necessary to fully utilise AI and comply with whatever regulations various jurisdictions might implement. There's no easy fix to this – but businesses can help reduce the impact by training their workforce early in the foundations of data and AI, as well as making sure they are keeping a close watch in their key markets on how regulation is developing.

Another set of difficulties is internal: they may be purveyors of advanced digital solutions, but tech companies are no strangers to problems with their own digitalisation programmes. In particular, many industry respondents (35%) say their firms struggle to overcome problems posed by legacy IT systems. The complexity of legacy monolithic architectures – a singular large network with one code base - poses a significant barrier to modernisation. This is especially challenging for larger and older firms who rely on legacy applications compared to start-ups. Start-ups, especially in the tech sector, are agile and able to adopt modern software at pace. This agility, of course, depends on those start-ups having the necessary skills in their small workforces. The greater resources of larger, more established companies could well give them an advantage, enabling them to offer higher salaries and training programmes designed to fill neatly any current skills gaps.

Technology leaders struggle with the same challenges as incumbents in other sectors, says Aral. “Even industry innovators suffer from infrastructure inertia and mental inertia when it comes to legacy systems,” he says. Maintaining legacy systems is also a costly endeavour, taking up between 60% and 80% of the average IT budget. This eats up money arguably better spent on improving employees’ digital skills and investing in new technologies.

Figure 2: Digital difficulties

The toughest challenges that technology transformation and further digitalisation will pose to digital economy businesses

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The Human Side of Tech

Judging by the survey, the implications of changing population demographics appear to be keeping executives of digital economy businesses up at night. For example, 45% of them see tough challenges ahead in meeting the accessibility demands of users with disabilities. Forty percent also expect challenges in tailoring their products and services to older customers, as populations age. These concerns reflect the impacts of shifting demographics, and an increasing focus on digital inclusion and digital vulnerability by governments and regulators.

Population ageing also figures in respondents’ concerns about their future workforce. Retaining older skilled talent, for example, will likely require more flexibility in regards to retirement age and benefits policies.

As they seek to secure the skills needed to ensure growth, digital economy companies will also need to find ways to accommodate new talent, such as a new generation of digital natives who are extremely comfortable with using new technologies and prefer hybrid work arrangements. Businesses will need to reorganise existing processes and structures to meet growing demands for work flexibility. It will also require efforts to align corporate values with those of the emerging workforce, in areas such as diversity and inclusion as well as commitments to decarbonise, as discussed in the previous section.

When asked the types of skills their businesses will need most to meet their growth objectives, the respondents cited cybersecurity (28%), cloud and IoT (Internet of Things) (27%), and emotional intelligence (25%), in order of importance. New policies on cybersecurity are increasingly assigning more responsibility to technology providers, for example to bring only “secure-by-design” and “secure-by-default” digital products to market. This shift in policy stance will increase the pressure on technology providers to maintain and build cybersecurity capabilities, placing further demands on an already stretched and highly sought after cybersecurity workforce.

Additionally, the inclusion of emotional intelligence in the top three skills underscores the importance of the human touch, which working with new technologies such as AI will require. This will be especially important, as businesses will need to communicate to employees how its tech is being adopted. Emotional intelligence will also play a vital role in assisting companies to upskill their current workforce and find effective, engaging ways to train their future talent.

Figure 3: Staying ahead in the competition for talent and skills

The toughest challenges digital economy businesses will face in securing the skills they will need over the next decade

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As businesses in the digital economy and other sectors address these challenges, they must also recognise that the types of skills sets they will need are likely to evolve. Aral cites the example of data scientists: “Soon, the main skill these specialists require will not be coding, but rather asking the right questions and then drawing conclusions and presenting them in ways that are useful for decision-makers. The data scientist role will shift to feature higher level skills than the role features today.” According to a GitHub survey, 92% of the developers in the US are already using AI coding tools.

Conclusion

Digital economy businesses are arguably better placed to benefit from the impacts of macroeconomic changes than those in any other sector. Their evolving technology capabilities and agility should keep them at the forefront of change in business, and also help their customers to innovate.

But success is not guaranteed. Digitalisation is not just a quick process that business leaders need to tick off their to-do list. It is a constant process, and one which will likely intensify as the pace of technological change increases. Businesses will need to be flexible and creative to navigate successfully the workforce and skills challenges this sector faces. As ever more intelligent technologies develop, companies must give due consideration to the ethical and security issues they create or risk stakeholder backlash and regulatory intervention. And, amongst all of this, the sector must continue to demonstrate that it can reduce its own carbon footprint. The challenges that the megatrends pose will evolve, and management of digital economy businesses must keep close sight of them.

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