Digital Czech Republic: How we grow

Digital Czech Republic: How we grow

Across the developed world, digitization is affecting old and new alike.

The major assets of some of the world’s largest companies are pieces of data, and many of the sectors they compete in did not exist only three decades ago. Even sectors that are intrinsically physical, such as construction, are introducing digital technologies. Companies do so to change the way they work and how they engage with customers and partners. People are using technologies to transform their lives, going online to do everything from finding a job to finding love. Young people do so in astonishing numbers—96 percent percent of Czechs under 24 have used the internet in the past three months.1

The reason Czech companies digitize depends on the sector they are in. Attacker banks are transforming themselves end to end to serve customers digitally, offering unrivaled online experiences and keeping their operations exceptionally lean. Grocery stores are going online, surpassing the service of traditional supermarkets by delivering food wherever and whenever customers want it.

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.

This report considers these issues. A few of our key findings:

  • 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 (such as construction and healthcare) lag far behind.
  • The Czech Republic lags behind Western Europe in labor productivity; in nominal terms, the gap stands at 60 percent. Digitization is a way to narrow that gap, and the Czech sectors that are more digitized have seen more productivity growth. By embracing digitization, the Czech Republic can contribute to closing up to 19 percent of the productivity gap. Spread out over ten years, this would increase Czech GDP by 1.0 to 2.1 percent annually.
  • A framework helps to illustrate the effects of digitization on different sectors. It views the effect of digitization as a change in labor productivity resulting from four factors: (1) changing legacy product or service volumes, (2) changing costs, (3) revenue from new products or 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 various opportunities and challenges in different sectors. Companies in each sector need to set bold aspirations to take advantage. We discuss 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 that should help them make the right decision.
  • Digitization should not be limited to business alone. Czech policy makers 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 individuals and businesses online.
  • Finally, individuals will need to balance the advantages and disadvantages of digitization and fight to ensure that in aggregate it brings them a happier life.

To download the report, please click on the link below.