Connecting Commerce. Business confidence in the United Kingdom s digital environment. A report from The Economist Intelligence Unit.
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1 Connecting Commerce Business confidence in the United Kingdom s digital environment A report from The Economist Intelligence Unit Written by
2 United Kingdom s standing as the UK s business and financial capital is unrivalled, as is its prominence in those fields within Europe as a whole. The same is true when it comes to the digital environment within which companies operate. Overall business confidence in the digital environment is higher in than in any other European city. Whether the question is about the availability of people and skills, local support for digital innovation and entrepreneurship, the financial environment or the quality of ICT infrastructure, -based executives are amongst the most confident in the world. The same cannot be said of the other British city in the Digital Cities Barometer,, where executives are considerably less positive about the local digital environment. The Midlands largest municipality is 32 nd in the barometer overall, behind most other European cities. Index, in which ranks first and 23 rd out of 60 cities 1. Another study a global ranking of tech start-up hubs ranks third behind only Silicon Valley and New York 2. s pre-eminence as a digital city is clear to Christopher Haley, who is head of New Technology and Startup Research at Nesta, a charitable foundation that focuses on innovation. We have several world class universities in, probably the best concentration within a city anywhere in the world, says Mr Haley. And we have a relatively good environment for capital, including venture capital, expansion capital and angel funding. Like San Francisco and New York, however, s attractiveness as a hub also generates some downsides, he adds. is an extremely expensive city, so the cost of talent and office space clearly are issues, particularly for smaller companies. These results broadly parallel those of other recent studies, such as the 2016 edition of the European Digital City Figure 1: Overall barometer readings UK cities Score (out of 10) Rank (out of 45) th nd 1 Nesta, The European Digital City Index Startup Genome, Global Startup Ecosystem Report is not ranked in this study. 2 Telstra Connecting Commerce The Economist Intelligence Unit Limited
3 Talent, education and skills Most survey respondents share Mr Haley s appreciation of the city s educational institutions. Nearly six in 10 executives (58%) rate them as effective at preparing students with the digital skills that companies need. respondents are similarly positive on this score, with 53% giving an effective rating to the training their educational institutions provide. The gap between the two cities is large, however, when the issue turns to quantity: 70% of respondents rate local institutions as effective when it comes to the numbers of graduates joining digital talent pools, whereas less than half of those in (47%) say the same. What skills are companies in most need of? For those in, security is deemed highly important to firms digital transformation efforts (a finding consistent with the toughest transformation challenge executives say they are experiencing that associated with cyber security concerns). Another critical set of skills relates to the Internet of Things, the networks connecting the mushrooming numbers of sensors that are embedded in physical objects. Another major skill need is for experts in data analytics; these include the scientists or engineers skilled in handling the data generated by Internet of Things sensors. survey respondents, on the other hand, appear to prioritise skills in managing internal change. This result probably reflects the internal difficulties businesses are experiencing at implementing digital initiatives. The digital transformation challenge cited most frequently by executives there is simply that their initiatives take too long to implement. Organisational siloes and lack of senior management commitment are also difficult challenges to overcome for several firms. Figure 2: Digital skills most needed by organisations to support their digital transformation initiatives Digital security 20% 25% Internet of Things 13% 25% Big data analytics 17% 23% Business network Cloud computing Business change management 10% 17% 17% 20% 20% 27% Product service offering 10% 23% 4 Telstra Connecting Commerce The Economist Intelligence Unit Limited
4 Accelerating transformation boasts a vibrant and multifaceted complex of digital support structures used by start-ups and corporates alike accelerators, incubators, innovation labs, meet-up groups, university-based communities and many other formal and informal networks. Nesta has identified 205 incubators and 163 accelerators currently operating in the UK; although the former are evenly distributed across the country, half of its accelerators (81) are in. Accelerators are also beginning to be set up in other cities including (currently numbering 10), Bristol, Cambridge and Manchester. 3 Still, more traditional organisations such as business associations are where companies in both and turn to most frequently for help in overcoming their digital transformation challenges. In, such associations may be relatively young and focused on areas of technology expertise. (An example is Innovate Finance, an association that serves the city s thriving fintech sector.) Almost six in 10 respondents (57%) in say their firms use these and other structures to obtain advice on specific technology issues they are facing. Another 46% say they are useful sources of new ideas for products and services. Speaking of as well as the UK and Europe, Mr Haley says that large companies are increasingly active participants in digital support structures and forums. He has also noticed a change in corporate attitudes in recent years toward such collaboration. We ve asked these companies why they are working with start-ups. In response, many say it s about solving particular business problems or about expanding into future markets. Many also cite more imprecise but equally important motivations, such as rejuvenating the internal corporate culture. On the whole, large firms want to bring in new ideas and new ways of working. They want to try and shake things up a bit. Figure 3: The most helpful external groups in assisting firms digital transformation efforts Business associations and events Innovation labs and centres University networks and events General business conferences 40% 33% 20% 18% 18% 27% 17% 20% 27% 27% Industry conferences 3 Nesta, Business incubators and accelerators: The national picture, report prepared for the Department for Business, Energy and Industrial Strategy, April Telstra Connecting Commerce The Economist Intelligence Unit Limited
5 Data sharing Governments around the world are organising and publishing the troves of public data they hold in machine-readable format, in online portals and through APIs (application programming interfaces). One purpose is to improve the transparency of government operations to citizens; another is to spur innovation. According to the World Wide Web Foundation, a notfor-profit organisation formed to promote use of the Internet, there is no country in the world that is better at pursuing open data initiatives than the UK. 4 The availability of open government data is clearly important to businesses operating in, in particular. As many as 83% of executives agree that this is the case, and 35% say such data are very important to their businesses; 56% say their businesses use such data frequently or periodically (Figure 4). A considerably smaller share, 50%, of respondents say open data are important to their firms, and only 37% use it at least periodically. Figure 4: How often does your organisation make use of open government data provided by city departments? 15% 5% 7% 18% 13% 7% 30% 25% 38% 43% Frequently Periodically Occasionally Not at all Don t know 4 World Wide Web Foundation, Open Data Barometer, Global Report (Fourth Edition), Telstra Connecting Commerce The Economist Intelligence Unit Limited
6 data sharing helps app builders, but scale is elusive Brave new world? The elephant in the room of any discussion of the UK s or its cities digital competitiveness is Brexit the country s impending departure from the European Union (EU). The biggest potential downsides, particularly for s digital environment, are slower migration of technology talent from EU countries and a diminution of investment in the city s thriving fintech and other digital industries. The signals thus far are mixed. There are anecdotal reports of a reduced frequency of ecosystem events such as hackathons, as well as of slower hiring of European technology specialists by local firms. 5 The same reports suggest a coming decline in European investment flows into technology firms. Yet Innovate Finance reports that investment flows into UK fintechs recovered in the first half of 2017 to surpass pre- Brexit levels. 6 Our UK survey respondents display no overt indications of anxiety. Talent shortages and funding constraints are seen as challenges by and firms for their digital transformation efforts, but the percentages are less than registered in many other cities. And although as many as 43% of executives (and 33% of those in ) say their firms have considered relocating to seek a more positive environment, that number is considerably smaller than stated by their peers in US and several other European cities. UK businesses, it seems, have some degree of confidence that their digital environments will remain vibrant in the years to come. In 2015, the Datastore was awarded the Open Data Publisher Award, an annual honour conferred by Open Data Institute (ODI), a not-forprofit organisation co-founded by Tim Berners-Lee, the inventor of the World Wide Web. The Datastore is itself a creation of the Greater Authority, the city s government. A look at the Datastore website provides an idea of why it is well regarded. Launched in 2010, the site includes over 700 data sets (downloadable through two APIs) organised into nine categories covering different public services and areas of government administration. Of these, the transport category has arguably proven the most beneficial to local businesses, as it includes data made available by Transport for (TfL), the authority that operates the Underground, buses, city rail networks and major roads. TfL also makes transport data available to citizens and businesses on its own website. s most celebrated app business, Citymapper, built its eponymous journeyplanning app using this transport data. The company now provides Citymapper apps in 39 cities around the globe. Mr Haley lauds Citymapper and a handful of other small firms for making effective use of open data. He worries, however, that most start-ups using public data, in and elsewhere, are finding it difficult to scale and earn significant revenue. If businesses want to innovate with big data, the data they use must of course be of good quality. But that s not enough: firms also need assurance that the data will continue to be published in the future. If you re going to invest in building something around the data, you don t want the plug to be pulled on it. In order to scale, a guarantee of continued data availability is vital. Another advantage in scaling up is of course having a large addressable market, something that UK start-ups operating outside often struggle with. For this reason Mr Haley believes there is potential in portals that would pool data from governments in multiple cities, which could enable businesses offering data-based services to cover a wide geographic area. Such experiments are taking shape today in the north of England, an example being Data Mill North, established in 2014 by the Leeds City Council and now also including data from neighbouring Bradford. s authorities are themselves experimenting with ways to make better use of data in public services, with a pilot Office of Data Analytics and the recent appointment of the city s first chief digital officer. 5 See, for example, Silicon Roundabout gets Brexit jitters, The Observer, August 20, Investment in UK fintech tops pre-brexit levels in first half of 2017, Reuters, July 26, Telstra Connecting Commerce The Economist Intelligence Unit Limited
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