The Digital Economy

Europe's erosion of investment in technology

John Higgins / Mar 2013

The European Commissioner for Research, Innovation and Science, Máire Geoghegan Quinn. Photo: European Union 2013

It’s generally taken for granted that adopting the latest new technology will make an economy or a business more competitive. The EU Digital Agenda is designed to drive the deployment and take up of technology and give the boost necessary to propel the European economy out of economic crisis. This may seem relatively straightforward and yet time and time again increasing productivity and competitiveness is a major challenge. 

Investing in the right technologies and securing a real return is difficult for businesses. Opportunities abound as some high performers are demonstrating. However, investing in technology also carries great risks and doesn’t guarantee productivity and competitiveness gains. Why is this? Why do some high technology investors see no improvement in their competitiveness at all, and perform the same as companies with low or no investment. How can we ensure that the best environment exists for investment to deliver the necessary results? For a long time we have struggled to answer these fundamental questions.

For the first time research by INSEAD business school, supported by AT&T, has shown that advances like the cloud, mobile and online collaboration do improve competitiveness. INSEAD interviewed senior executives from 225 multinational companies active across Europe, Asia Pacific and North America and its findings make interesting reading for government and businesses alike.

From their research the authors of the study were able to identify that the most critical factor in making technology investments succeed is to have other strong business resources in place. They must sit on top of mature, standardised platforms. Being agile and competitive doesn't mean being the quickest. The secret is avoiding the creation of 'infrastructure spaghetti' in the rush to adopt the latest tools. Conversely, when firms with weak business resources make significant investments in new technology, their likelihood of better performance does not increase at all and is at risk of being completely wasted.

The research clearly shows that the most important resource by far is ‘digital maturity’. Firms that have mature digitized platforms and invest in new technology significantly increase the likelihood of being competitively agile, compared to firms with immature digitized platforms that make similar investments. The study clearly shows the direct link between specific technology investments and improved organizational performance when these investments are made carefully.

For the first time the research provides new data that can help businesses decide how to invest in technology. This is critical for global competition. European companies are spending less on new technology.  At present the Asia-Pacific region is leading the way. Firms there invest a much greater percentage of their total ICT budgets in new technology, and expect to quick results from investments. It is expected that investment in mobility will see 82% from 2010-1015. Cloud will see 150% growth and collaboration tools will see 44% growth. In comparison Europe, whilst investment is still accelerating, expenditure on mobile will rise 66% whereas spending on cloud services will increase by 96%. Yet European companies do have the opportunity to leverage their past investments to make every new investment count.

Europe is letting its advantage in technology driven productivity erode.  It is investing less, and growing that investment slower. European businesses must leverage their years of investment in technology and ensure their digital platforms are sufficiently mature, so they make every investment count and stay competitive in this tough environment. The technology industry is proving that it can make a serious difference to productivity, but technology must work with the rest of the business if it is to be successful. European governments must help businesses by creating a regulatory environment that facilitates this investment.


John Higgins

John Higgins

March 2013

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