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Digital Czech Republic: How We Grow Digital Czech Republic: How we grow Report | January 2017 Preface Digital Czech Republic is a McKinsey & Company Insights and aspirations for the different industry report that attempts to provide a holistic view sectors of this report were developed together with of digitization in the Czech Republic. It aims to our sector leaders: Wojtek Bogdan, Viktor Hanzlík, quantify – for the first time – the opportunity that Ivan Jelic, András Kadocsa, Michal Čermák, digitization presents for the Czech economy. Tomáš Karakolev, Peter Kováčik, John Leach, Its aspiration is to help businesses think about Michal Skalský, Daniel Svoboda, Michal Valachovič digitization and to offer a number of sector-specific and Jiří Franta. We are also thankful to David Tan perspectives and potential ambitions. An additional and Sergey Khon from Finalta, who provided us goal is to consider the role of digitization beyond with unique insights on the financial segment. business, and offer policy makers and citizens a Moreover, we would like to thank the experts who point of departure for thinking about digitization. provided their knowledge and expertise to various parts of this report. They are; Sree Ramaswamy, The report also reflects the deep commitment of Henk Broeders, Somesh Khanna, Adrian Booth, McKinsey’s Prague office to Czech economic and Niko Mohr, Peter Peters, Rajat Agarwal, Shankar social development. It continues the tradition of Chandrasekaran, Mukund Sridhar, Karel Dörner previous research, including our study on Czech and Jürgen Meffert. We would like to thank our economic potential (October 2015, in cooperation management consultants – Boris Reznicek, Marek with the Aspen Institute and Forbes), the potential Slobodnik, Dan Kohout, Albert Soukup and Lucie of women in Czech business (April 2012), and the Markova – who have been working together with state of the Czech education sector (September sector experts and contributors in writing this report. 2010). This report is part of a series of publications on digitization across the world. Previous publications include Digital America: A tale of the haves and have-mores (published December 2015), Digital Europe: Pushing the frontier, capturing the benefits (June 2016), The economic essentials of digital strategy (March 2016), and Digital Poland: Capturing the opportunity to join leading global economies (August 2016). We would like to thank the authors of these reports for sharing their expertise and insights with us. Michal Čermák Expert Partner, McKinsey & Company Prague Dan Svoboda Managing Partner, McKinsey & Company Prague About McKinsey & Company McKinsey & Company is a global management About the McKinsey Global Institute consulting firm, deeply committed to helping The McKinsey Global Institute (MGI), the institutions in the private, public, and social sectors business and economics research arm of achieve lasting success. For nine decades, our McKinsey, was established in 1990 to develop primary objective has been to serve as our clients’ a deeper understanding of the evolving global most trusted external adviser. With consultants economy. MGI’s mission is to help leaders in the in more than 100 offices in 62 countries, across commercial, public, and social sectors develop industries and functions, we bring unparalleled a deeper understanding of the evolution of the expertise to clients anywhere in the world. global economy and to provide a fact base that contributes to decision making on critical About McKinsey Prague management and policy issues. The Prague office of McKinsey & Company is a unique blend of talented people, innovative ideas, management excellence, and a long history of relationships with leading Czech and Slovak institutions. Since 1994, we have managed to grow into a large office with a ‘small office feel’, not losing our entrepreneurial roots and spirit. We regularly do pro bono work: most recently, we looked at how to radically improve the outcomes of our primary education system. Equally importantly, we are proud to have raised and developed a number of business and society leaders in the Czech Republic and Slovakia. About Digital McKinsey Digital McKinsey is a global organization that brings together the best of McKinsey’s digital capabilities. Digital McKinsey not only advises but also builds, operates, and transfers capabilities to help our clients create value by reinventing the core of their businesses. Digital McKinsey brings together nearly 2,000 experts from across our global firm – including more than 800 developers, designers, IT architects, data engineers, agile coaches, and advanced analytics experts. Contents 08 In Brief 12 Reaching high: The macroeconomics of digitization 14 Introduction: Opening our eyes to the world 16 Looking up to the bar: Digitization across Europe 20 Understanding growth: Labor productivity 24 Pleasures and pains: How digitization works 30 Setting our ambitions: Productivity growth 32 Choosing your field and setting aspirations: Industry focus 34 Telecommunications 40 Retail 48 Manufacturing 56 Banking 64 Insurance 70 Utilities 76 Construction 82 Healthcare 88 Making a difference for everybody: Businesses, government and individuals 92 Companies: Achieving a successful digital transformation 94 Government: Bringing digitization to citizens 102 Individuals: Fighting for a happier life 106 Summarizing what we learned: Conclusion 110 Contributors 114 Appendix: Methodology of the macroeconomic section Digital Czech Republic: How we grow 7 8 Digital Czech Republic: How we grow In brief Digital Czech Republic: How we grow 9 As with the rest of the world, the Czech Republic Digitization presents different opportunities and is undergoing a digital transition. Its effects on the challenges in different sectors. Companies in economy are not uniform – companies in different each sector need to set bold aspirations to take industry sectors digitize at a different pace and advantage of these trends. This report discusses have to adopt their own aspirations. Meeting possible aspirations and digitization levers in them will enable the Czech Republic to accelerate eight key sectors (telecommunications, retail, productivity and growth. However, digitization manufacturing, banking, insurance, utilities, is the responsibility of all stakeholders – not just construction, and healthcare). The highest- businesses. Policy makers and citizens will also priority levers differ from sector to sector and need to do their part to accelerate digitization and companies need to understand the broader ensure that it works for them. implications of digitization on their competitive advantages and market conduct, and the McKinsey’s Industry Digitization Index captures dynamics in the broader value chain. how digitization is spreading across Europe and provides a picture of companies’ digital Business leaders have already recognized assets, uses, and workers. The index shows that that a digital transformation is necessary, but Europe’s economy is digitizing unevenly, with often struggle to ensure that they take the right large variations across sectors and firms. The approach. We provide “nine key questions” information and communications technology which should help them make the right decision. sector is at the digital frontier. Media and finance are close to the frontier, while large, traditional It would be a mistake to limit digitization to sectors (like construction and healthcare) lag far business. Czech policymakers need to adopt behind. digital technologies to transform the delivery of public services. The Czech Republic ranks 92nd The Czech Republic lags behind Western in the provision of online government services Europe in labor productivity; in nominal terms, – just below Belarus and El Salvador. The the gap stands at 60%. Digitization is a way Government can also help get Czech individuals to narrow that gap, and indeed more digitized and businesses online. Finally, it can change the Czech sectors have seen more productivity way of setting regulation, adopting, for example, growth. By embracing digitization, the Czech a more experimental approach to regulate the Republic can contribute to closing up to 19% of next Uber or Airbnb. the productivity gap. Spread out over 10 years, this would increase Czech GDP by 1.0 – 2.1% Finally, individuals will need to balance the annually. advantages and disadvantages digitization brings to their daily lives and fight to ensure We propose a framework to demonstrate the that in aggregate it brings them a happier life. effects of digitization on different sectors. The Digitization transforms all dimensions of our framework views the effect of digitization as a lives; our careers, our consumption habits, our change in labor productivity resulting from four entrepreneurial opportunities, the way we gather factors: (1) changing legacy product/service information, as well as our social and communal volumes, (2) changing costs, (3) revenue from lives. new products/services and (4) changes in hours worked. Using these factors as a lens explains Digitization is a challenge and all stakeholders why digitization is a boon to some sectors and a will need to find new ways of doing things. curse to others. The authors hope that this report will provide direction in this uncharted territory. 10 Digital Czech Republic: How we grow Digital Czech Republic: How we grow 11 12 Digital Czech Republic: How we grow Reaching high: The macroeconomics of digitization As a child needs to explore the world, our economy needs
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