Digital Economy:
Trends, Opportunities and
Challenges
Dr. James Manyika
Extracts from McKinsey Global Institute
Research
Digitization of everything
McKinsey & Company | 1
Size of the Digital Economy
Up to 98% Examples
Percent of US economy Retail via e-commerce 13%
impacted by digitization
Investment in ICT as a share of total 17%
investment
Payments made digitally 28%
Households subscribing to online
36%
98% video streaming services
Freelancers who have done work 42%
online
51%
Americans who get news from online
aggregators
64%
Adults with smartphones
Households with broadband
10%
73%
10%
ICT as a share of GDP, taking
into account price effects Adults who use social media 74%
Taxes that are e-filed 85%
5%
ICT Sectors as a share of GDP
in official statistics
5% Adults who use the Internet 87%
Millennials who regularly use e-mail 90%
Americans with access to high-speed
98%
wireless Internet
McKinsey & Company | 2
More to come as more technologies (mostly digital)
continue to transform the economy
Disruptive Dozen – Selected for scope and scale over next 10 years
IT and how we use it New building blocks More…
Blockchain/
Cryptocurrencies
Human-Computer
Mobile Cloud Internet of AI, Machine-learning Next-generation Advanced Interfaces (AR, VR
internet technology Things (IoT) genomics materials etc)
Automation of Digital IDs/Biometrics
knowledge work
Machines at work Rethinking energy comes of age
Quantum Computing
Advanced Autonomous and 3D Energy Advanced oil Renewable
robotics near-autonomous printing storage and gas energy
vehicles exploration and
recovery
SOURCE: McKinsey Global Institute analysis McKinsey & Company | 3
Three opportunities and challenges
1. Digitization for growth, productivity and innovation
2. Digitization of Globalization
3. Digitization of work
Foundations to get right
McKinsey & Company |
4
Extent of Digitization varies by sector Relatively low
digitization
Relatively high
digitization
MGI Sector Digitization Index Digital leaders within relatively un-digitized sectors
2015 or latest available US data
Assets Usage Labor
Overall Digital Digital Digital GDP Emplyment
Digital Trans- Inter- Business Market Digitization
Sector digiti-
zation1 spending
asset
stock actions actions processes making
spending
on workers
capital
deepening of work
Productivity share
share
ICT growth, 2005–142
% 1% Knowledge-intensive
% sectors,
Media 1 6 1.5 6.4
highly digitized
Professional services 2 1 4.2
Finance and insurance 7 8 -0.6
Wholesale trade 7
25 Capital-intensive,
-1.2
potential to
Advanced manufacturing 4 further digitize their assets
6 4 0.6
Oil and gas
2 3 2 2.1
Utilities 2 0.7 -3.6
Chemicals and pharmaceuticals 2
30.3 Service sectors
0.4
with long tail of
Basic goods manufacturing small firms having room to
5 2 0.5 1.1
Mining
digitize customer transactions
6 4 0.6
Real estate ● 1 0.3 -1.5
Transportation and warehousing ●
3 13 44 B2B sectors
0.3 with the potential to
Education ● 3 3
digitally -0.3
engage and interact
Retail trade
with their customers and users
● 1 2 -0.8
Entertainment and recreation 6 10 0.0
Personal and local services 1
52 Labor-intensive
-0.2
sectors with the
Government ●
potential to provide digital tools
6 12 -0.4
Health care
and skills to their workforce
13 13 0.3
Hospitality ● 6 7 11 -0.1
Construction 3 67 Large, localized,
-1.0
low productivity
Agriculture and hunting 4 5
could transform
-1.5
for productivity
and delivery of services
1 2 1.5
SOURCE: BEA; BLS; US Census; IDC; Gartner; McKinsey social technology survey; McKinsey Payments Map; LiveChat customer satisfaction report; Appbrain;
US contact center decision-makers guide; eMarketer; Bluewolf; Computer Economics; industry expert interviews; McKinsey Global Institute analysis McKinsey & Company | 5
Gap widening between the most digitized and the rest
4.1x increase in
digitization
1.7x increase in
Leading sectors in 1997 = 100%
digitization
Rest of US
economy,
degree of
digitization 8% 12% 14%
relative to leaders
1997 2005 2013
McKinsey & Company | 6
Even among businesses, there is a large gap between
Established
Emerging
digital leaders and the rest Med
Low
Digital Quotient score (sample of large corporations)
84
74
64
54
44
Average = 34
Emerging Established
leaders leaders
24
14
McKinsey & Company | 7
Digital “haves” and “have-mores”
Faster revenue growth 3x faster profit and Higher productivity 2x faster wage growth
margin growth and innovation
$
+…
McKinsey & Company | 8
Three opportunities and challenges
1. Digitization for growth, productivity and transformational innovation
2. Digitization of Globalization
3. Digitization of work
Foundations to get right
McKinsey & Company |
9
Cross-border data flows surging and connecting more
countries, companies and people
Size of bubble represents intraregional used bandwidth
Used cross-border bandwidth
Regions Bandwidth
2010 45 1 Gigabits per second (Gbps)
100% = 241.71.T3eTrabbpitss per second NA
United States and Canada <50
(Tbps)
EU
Europe 50–100
EU
AS
EU Asia 100–500
NA
45x
NA AS LA
AS Latin America 500–1,000
ME
MEME Middle East 1,000–5,000
AA
AA Africa 5,000–20,000
LA OC
LA AF
OC
Oceania >20,000
McKinsey & Company | 10
Individuals engaging globally, increasingly enabled by digital
Social networking users with at International Cross-border
least one foreign connection travelers e-commerce
914 million 429 million shoppers
361 million
People living outside Cross-border Cross-border Students studying
home country online workers online students abroad
244 million 44 million 13 million 5 million
NOTE: Numbers adjusted to account for overlap between platforms and for individuals making multiple international trips in the same
year.
SOURCE: Facebook; AliResearch; US Department of Commerce; OECD; World Bank; McKinsey Global Institute McKinsey & Company | 11
analysis
Three opportunities and challenges
1. Digitization for growth, productivity and innovation
2. Digitization of Globalization
3. Digitization of work
Foundations to get right
McKinsey & Company | 12
Labor Market Platforms Emerging
Examples
[7,999 job [364 million
Platforms matching searches/minute] members] [24 million
individuals with jobs visitors/month]
Platforms for [12.5 million users] [6,500 workers]
“OnDemand” work [25,000 service
providers]
[1 million drivers] [14,300,000 users]
Talent management
tools for recruiting and
training
1 All companies are illustrative and not exhaustive, many span multiple
functions
McKinsey & Company | 13
Automation potential in high-wage, high-skill occupations as
well as low-wage, low-skill occupations
Comparison of wages and automation potential for US jobs
Ability to technically automate Over next 10 years
Percentage of time on activities1 that can be automated by adapting currently demonstrated technology
100
▪ 44% of activities ($2.2 trillion
in wages) likely automated…
File clerks
80 but only <5% of whole
occupations likely to be fully
automated
60
▪ At least 30% of
40 activities in 60% of
Landscaping and
groundskeeping workers occupations likely
20 automated, redefining most
occupations
0
0 20 40 60 80 100 120
Hourly wage
$ per hour
SOURCE: O*Net 2014 database; McKinsey analysis McKinsey & Company | 14
Historical rate of middle-skill job automation Estimate
could double
Hi Lo
Med Base
US middle-skill occupations displaced due to technological change
% of middle-skill occupations
9
8
7
6
5
4
1959–69 1969–79 1979–89 1989–99 1999–2007 2007–15 2015–25
2 3 5 5 6 6 12
Millions of middle-skill
occupations displaced
McKinsey & Company | 15
Three opportunities and challenges
1. Digitization for growth, productivity and innovation
2. Digitization of Globalization
3. Digitization of Work
Foundations to get right
McKinsey & Company | 16
Foundations to get right
Data and Privacy
To fully capture benefits to:
Internet access
▪ Economy (growth, productivity, Cybersecurity
and Governance
competitiveness)
Measurement
▪ Businesses and entrepreneurs and
▪ Individuals (workers, classification
consumers, citizens) challenges
▪ Society Policy-making Work and Wage
for a Digital era effects
Skill, Capability,
Infrastructure
gaps
McKinsey & Company | 17
