Europe’s global competitiveness is being driven by promising developments. European companies have made considerable progress in upgrading infrastructure, and amidst a global shortage of technology talent, Europe overall is ahead of the US when it comes to reskilling workers.
But there is an emerging gap standing in our way.
Weighing down the growth prospects of European businesses is an inadequate adoption of technology—call it a “tech deficit.” And this is causing us to lag behind others, especially businesses in North America.
Technology has become central to companies’ growth strategy, and business leaders must adapt accordingly. Look at technologies such as Generative AI; enterprises are exploring how to use the technology, but if they actually want to extract value from it, their business will require a strong digital core of cloud and data.
This means including technology in the very first draft of your business strategy, not as an afterthought. It means prioritizing technology when developing new products, services or business models. By not setting these priorities, companies risk losing out on billions of additional revenues.
According to a new research we conducted, European companies could generate up to €3.2 trillion in additional revenue by 2024 if they were to close the technology deficit against their counterparts in North America.
For too long, technology has been seen a lever to optimize costs, rather than driving growth. Today, all strategies lead to more technology. And to begin to close the gap, European businesses must understand and address the dynamics that are fueling the deficit.
Three actions for business leaders
I’ve been analyzing the root of this emerging gap across the Atlantic, whilst speaking to colleagues and clients regarding what can be done from a European business perspective. I believe that ultimately, as business leaders we need to look at three key areas: leading by example, embracing the opportunity and playing to our strengths.
These areas are not only actions every European business should be taking, but they also address the source of the “tech deficit”:
1. Leading by example. Given the criticality of technology in business strategy, tech experience in boardrooms has never been more crucial. The role of a board is to build long-term value for the company, establish a vision, set the strategy and oversee its execution. They need to make informed decisions and guide the organization on how to create value from technology.
Yet our analysis of the largest 2,000 companies in the world shows that 33% of European companies don’t have any board members with technology experience at all, compared to only 19% of North American companies.
What I mean by leading by example is embedding technology in your company’s DNA. Make technology training compulsory for the executive team and board—that will send a strong message to the rest of the organization about the importance of technology and continuous learning. And then take your people on that journey with you, setting measurable learning goals for all employees and invest in their continuous learning.
The importance of technology to your business and people comes from the very top.
2. Embracing the opportunity. European companies allocate less of their revenues to Research & Development (R&D) investments, allowing the gap to widen. In 2017, European companies trailed their North American counterparts by 70 basis points in terms of R&D investments as a percentage of revenue. In 2022, this gap had doubled to 140 basis points. This investment gap amounted to $147 billion in 2022. This could explain why only 17% of European companies are currently ready to scale generative AI and take advantage of its benefits, compared to 30% of US companies, according to a survey of over 2,300 C-suite executives we conducted.
I completely understand it’s a dilemma for business leaders; finding the right balance of how much of your revenue to allocate towards R&D. But I believe this is about protecting your future growth—and not looking at R&D is putting the future of your business in jeopardy.
Embracing the opportunity is understanding that technology can play a critical role in accelerating R&D. For example, technologies like cloud, AI and Quantum can help advance drug discovery in pharmaceuticals and create more sustainable materials in chemicals, accelerating sustainability agendas in the process. It is less the absolute amount that is invested in R&D that matters, but the portion of revenue allocated to it and most importantly how it is used.
3. Playing to our strengths. European businesses are fighting back. We need to look at the great work already being done in Europe and how we can use that to narrow the gap. Two key areas of focus are skills and sustainability.
Our research shows that they are surpassing their US counterparts in several key aspects of technology-enabled operations. This includes outpacing American businesses by an impressive 10% in terms of extensive technology skilling programs. While various reports have highlighted Europe’s lead over North America in ESG activity, including implementing sustainability and CO₂ reduction measures.
Another example is extending Europe’s advantage in smart manufacturing. Germany stands at the forefront of the cyber-physical transformation of manufacturing, actively promoting the adoption of “Industrie 4.0” principles that help propel innovation. Collaboration between the German government, academia and industry associations has resulted in initiatives such as the Industrial Twin Association, connecting physical industrial products with the digital world.
New growth
Addressing their tech deficit while doubling down on technology skilling will enable European companies to drive growth.
Europe’s situation is unique in so many ways: extraordinary diversity, a rich tapestry of cultures and strong national policy making. We must build on these strengths and take them to the global stage.
And we must sharpen our focus on building new growth. Closing the technology deficit will require European companies to rethink their approach and transform their actions on multiple fronts. And by embracing this the opportunity, they can unlock opportunities and position themselves as world leaders in key industries.
Read the full article here