Digital Czech Republic: How we grow

Digital CZ final-1

As with the rest of the world, the Czech Republic is undergoing a digital transition. Its effects on the economy are not uniform – companies in different industry sectors digitize at a different pace and have to adopt their own aspirations. Meeting them will enable the Czech Republic to accelerate productivity and growth. However, digitization is the responsibility of all stakeholders – not just businesses. Policy makers and citizens will also need to do their part to accelerate digitization and ensure that it works for them.

  • McKinsey’s Industry Digitization Index captures how digitization is spreading across Europe and provides a picture of companies’ digital assets, uses, and workers. The index shows that Europe’s economy is digitizing unevenly, with large variations across sectors and firms. The information and communications technology sector is at the digital frontier. Media and finance are close to the frontier, while large, traditional sectors (like construction and healthcare) lag far behind.
  • The Czech Republic lags behind Western Europe in labor productivity; in nominal terms, the gap stands at 60%. Digitization is a way to narrow that gap, and indeed more digitized Czech sectors have seen more productivity growth. By embracing digitization, the Czech Republic can contribute to closing up to 19% of the productivity gap. Spread out over 10 years, this would increase Czech GDP by 1.0 – 2.1% annually.
  • We propose a framework to demonstrate the effects of digitization on different sectors. The framework views the effect of digitization as a change in labor productivity resulting from four factors: (1) changing legacy product/service volumes, (2) changing costs, (3) revenue from new products/services and (4) changes in hours worked. Using these factors as a lens explains why digitization is a boon to some sectors and a curse to others.
  • Digitization presents different opportunities and challenges in different sectors. Companies in each sector need to set bold aspirations to take advantage of these trends. This report discusses possible aspirations and digitization levers in eight key sectors (telecommunications, retail, manufacturing, banking, insurance, utilities, construction, and healthcare). The highest-priority levers differ from sector to sector and companies need to understand the broader implications of digitization on their competitive advantages and market conduct, and the dynamics in the broader value chain.
  • Business leaders have already recognized that a digital transformation is necessary, but often struggle to ensure that they take the right approach. We provide “nine key questions” which should help them make the right decision.
  • It would be a mistake to limit digitization to business. Czech policymakers need to adopt digital technologies to transform the delivery of public services. The Czech Republic ranks 92nd in the provision of online government services – just below Belarus and El Salvador. The Government can also help get Czech individuals and businesses online. Finally, it can change the way of setting regulation, adopting, for example, a more experimental approach to regulate the next Uber or Airbnb.
  • Finally, individuals will need to balance the advantages and disadvantages digitization brings to their daily lives and fight to ensure that in aggregate it brings them a happier life. Digitization transforms all dimensions of our lives; our careers, our consumption habits, our entrepreneurial opportunities, the way we gather information, as well as our social and communal lives.
  • Digitization is a challenge and all stakeholders will need to find new ways of doing things. The authors hope that this report will provide direction in this uncharted territory.

Download the whole study in PDF.

For other Pro Bono Studies we did in past, please go HERE.