2017 Update of the U.S. Digital Economy and Business Implications

Great Prairie Group follows the performance of the U.S. digital economy. We take a snapshot of the digital economy, the underlying sectors that drive its growth, and the strategic implications for a business.

THE U.S. DIGITAL ECONOMY

The U.S. digital economy measured roughly $2.33 trillion in 2016, growing at a compounded annual growth rate (CAGR) of 6% since 2010.

E-commerce, e-business, and e-business infrastructure make up the digital economy. E-commerce reached $389 billion in 2016, growing at a CAGR of 15% since 2010.

E-business and e-business infrastructure comprise the lion share of the digital economy. In 2016, they accounted for $1.94 trillion, growing at a CAGR of 4% since 2010.

Exhibit 1. Overview of the U.S. Digital Economy

Source: BEA, Great Prairie Group

How does the digital economy
impact your business?

ITS DRIVERS

The major private sectors that drive the digital economy include Information, Manufacturing, Finance, Professional & Business Services, and Retail Trade. They are the largest in the sheer size of digital activity, and in each case, digital growth in the sector is faster or on par with sector growth.

Exhibit 2. Industry Growth vs. Digital Growth by Sector

Note: Sectors defined by NAICS codes
          Bubble size proportional to digital activity

Source: BEA, Great Prairie Group analysis

Within each sector, industries are adopting digital technology at varying rates of growth.

How fast is digital being adopted in your industry?

ARE YOU READY FOR DIGITAL CHANGE?

Digital change differs from traditional competitive dynamics in that it is disruptive. When it happens, it comes at you fast and furious. Digital disruptors can emerge out of nowhere and quickly gain scale and market share to become industry leaders while incumbents hold on to traditional physical business models. Therefore, it pays to know what’s coming.

Exhibit 3. Business Drivers of Digital Disruption

Five foundational elements at the heart of your business can be vulnerable to digital disruption. They include the company’s value chain, your value proposition, your company’s customer base, the supplier base, and the exchange of information with them. The following questions offer a high-level guide to evaluate whether these elements are at risk.

Yes       No
Are there several stages in your value chain, making it long, slow, and complex?

A long value chain hampers the ability to understand and respond quickly to changing customer requirements. New technologies enable new entrants to remove stages in the value chain and skip existing participants, reducing cycle time and complexity, and cutting pent up costs.

Can the value proposition of your physical products and services be enhanced with more information or social media?

This condition creates the opportunity for new entrants to deploy e-commerce solutions, improving the customer experience with physical products and services with speed, choice, and convenience. Added features include self-service, product configuration, customization, integrated one-stop shopping, the speed of service, selection, order entry, and quick fulfillment.

Is your customer base fragmented with a low degree of buying power?

Given a fragmented customer base with low buying power, new entrants may come in to exploit electronic purchasing methods that streamline the buying process and bypass the current value chain. Also, new entrants may aggregate customers to build buying power.

Is your supplier base fragmented, with large procurement costs and lengthy procurement cycle times?

The purchasing function can be automated to shorten cycle time, reduce cost, and work with few consolidated online suppliers. Examples of automation include digital requisition forms, customized electronic catalogs, online selection, linking to the manufacturer’s website, reviewing product specifications, selecting delivery terms, signing electronically, paying online, and connecting order entry to the accounting system.

Is the exchange of information with the market transparent?

Process visibility implies that business customers have access to internal operations, including order status, product information, pricing, tracking, tracing, and availability. Examples include shop-floor monitoring in manufacturing, warehouse product movement and inventory levels in plant logistics, and shipment tracking in transportation.

An affirmative answer to any of these questions signals potential business exposure to digital disruption.

Source: Great Prairie Group

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our strategy & finance practice?

YOUR COMPANY POSITION

Your company position in the digital economy comes down to two main factors: your firm’s exposure to digital disruption, and the rate of digital adoption in your industry.

Exhibit 4. Four Potential Company Positions

High DISADVANTAGED
Catch up to keep from being swept away
UNDER IMMEDIATE THREAT
Aggressively alter strategy
Low SAFE
Revise strategy to stay current
UNDER EVENTUAL THREAT
Anticipate change and initiate strategic change
Low High

Source: Great Prairie Group

What makes the difference between disrupting versus being disrupted is taking proactive action.

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We track over 70 industries and 350 commodities. For more information, contact us directly.