“COVID has boosted computerisation”
Martin Wörter and Mathias Beck are examining the digital transformation as part of a research project funded by the National Research Programme (NRP). In this interview the two innovation economists explain why the coronavirus pandemic has accelerated computerisation and why Europe is still lagging behind the United States in terms of technology.
During the COVID-19 lockdowns we all learned how to use digital tools such as videoconferencing software. Has the coronavirus pandemic given computerisation a boost?
Wörter: COVID has indeed boosted computerisation and has enabled companies to make progress not only in the application of digital technologies but also in the field of innovation. Firms are increasingly using computerisation components such as interfaces and sensors to make their products more attractive.
Why didn’t companies do this before the coronavirus pandemic? Did they fail to anticipate the digital revolution?
Wörter: Sometimes you need some stimulus from outside – what we economists call an ‘external shock’. COVID has also transformed the market environment. Several sectors have gone digital, creating opportunities for new digital products and services. Many companies said to themselves, “If not now, when?”
Did all firms make progress on computerisation during the coronavirus pandemic or does this only apply to certain sectors and companies?
Beck: Small and medium-sized enterprises – so-called SMEs – have clearly closed the gap in terms of computerisation and, especially, with respect to working from home. Although working from home was already possible pre-pandemic at large corporations such as Google and Microsoft, it was uncharted territory for SMEs. Small and medium-sized firms in Switzerland now have a much greater digital capability than they had before COVID. It has mainly been the United States – in the form of the aforementioned large corporations such as Google, Apple, Microsoft, Facebook and Amazon – that has led the way in terms of computerisation in recent years. Apart from a few exceptions such as SAP in Germany and Logitech in Switzerland, Europe has mostly lagged behind technologically.
“Corona has widened the gap with the US in terms of digitalisation.”Martin Wörter
Has the COVID pandemic narrowed the gap with the US?
Wörter: I would say that the gap has actually widened, because the most important communication technologies that were used during the pandemic – such as Microsoft Teams, Skype, Google Meets and Zoom – all come from the United States.
How can this technological gap be explained?
Wörter: This is due to several factors, such as the different market structures in Europe and the US. Throughout the history of communication technology there were regional monopolies in Europe that limited technology competition until the turn of the millennium. In the United States such monopolies were broken up much earlier, for example by splitting AT&T into the ‘Baby Bells’, which accelerated the pace of technological progress. In addition, there is more venture capital in the US, which is a key factor in the creation of new firms.
What is the start-up culture like in Switzerland?
Wörter: Switzerland’s start-up culture has improved. There are more and more start-ups in the digital economy, especially at the digital/finance and digital/pharma interfaces. Start-ups in these two fields can piggyback on the financial and pharmaceutical industries that are so successful in Switzerland. Many so-called digital ecosystems have formed there
“The technology exchange between universities and businesses works very well.”Mathias Beck
Silicon Valley in California is considered to be the centre of the digital world. Does Europe have the ability to create a digital centre as well and, if so, what chance would Zurich have?
Beck: The development of the greater Zurich region is highly interesting. It is no coincidence that Google, Facebook and Microsoft all have a presence there. The technology exchange between universities and businesses works very well. I see problems here with the provision of venture capital. If you want to scale up a business model – i.e. expand it to reach many customers – you need a lot of capital. The US is still ahead of us in this respect, which is why Silicon Valley will probably remain the key player for the time being.
How has computerisation affected the Swiss labour market?
Wörter: Our studies reveal that computerisation has increased demand for highly skilled workers while demand for low-skilled workers has decreased. On average, however, computerisation has had a positive impact on the labour market. More jobs have been created than destroyed thanks to computerisation.
Do we have enough suitably qualified specialists in Switzerland to make computerisation work?
Beck: Our surveys show that the shortage of suitably qualified graduates is a serious barrier to computerisation. That’s why education and training are essential. We are on the right track, but we are still a long way from achieving our goal. It is also important to understand that technical expertise in computerisation is not enough on its own. You have to combine digital capability with new products, processes and business models.
The share prices of companies in the technology sector have risen sharply in recent years but have fallen disproportionately this year. Are we again facing the risk that a technology bubble is about to burst, as we experienced with the bursting of the dotcom bubble on the Neuer Markt in 2000?
Wörter: Back then the start-up market was massively overhyped and too little attention was paid to underlying value and realistic business models. That is not the case today. The major established digital players such as Google, Microsoft, Apple and Amazon all possess a large customer base, ample capital and solid management. That’s why I don’t see any current parallels with the year 2000.
Technology of the future or just hot air? Three technology trends from the digital world
Metaverse: The artificial word ‘metaverse’ – composed of the words ‘meta’ (beyond) and ‘universe’ – refers to a digital space that is linked to physical reality, for example through digital glasses or full-body suits, and that enables users to have a second identity. This technology is already commonplace in the gaming sector. But the metaverse goes beyond that. This idea enables users to lead a second life in it and to shop, work, live and party there. “This idea is not entirely new,” stresses Martin Wörter. “A form of metaverse already existed more than a decade ago under the heading ‘Second Life’.” Today, however, there is much more capital behind it, he says. Last year, for example, the Facebook group renamed itself ‘Meta Platforms’ to reflect the greater importance of the metaverse. “Just how much economic potential this technology has remains to be seen,” adds Wörter.
Bitcoin and blockchain: Bitcoin is the best-known cryptocurrency. It is based on blockchain technology. Bitcoin was launched in 2009. There are now over 10,000 cryptocurrencies. “Bitcoin in particular and cryptocurrencies in general create huge uncertainty,” says Mathias Beck. But the blockchain technology behind it is highly interesting, even in applications beyond cryptocurrencies. “This technology can be used, for example, to computerise supply chains without the need for paper or delivery notes,” explains Martin Wörter.
Artificial intelligence: This collective term combines technologies in which algorithms are programmed in such a way that they can solve problems independently like a human brain. A classic example is the analysis of large amounts of data (‘big data’), be it numbers or texts, for patterns and correlations. The term ‘machine learning’ is often used in this context. “The field of artificial intelligence has huge potential – especially for Switzerland,” says Mathias Beck. “Swiss firms compete not just on price but also on the quality of their products. If these products have an intelligent digital component, this increases the potential for greater value creation.”
The research project
The Innovation Economics Research Group at the KOF Business Cycle Research Centre, headed by Professor Dr Martin Wörter, and researchers from the Chair of Strategic Management and Innovation, headed by Professor Dr Georg von Krogh from the Department of Management, Technology and Economics at ETH Zurich, are investigating the digital transformation of Swiss companies as part of a research project funded by the Swiss government’s National Research Programme (NRP) entitled ‘Digital Transformation’. The project, led by Dr Mathias Beck, aims to identify mechanisms and conditions for the successful digital transformation of firms. The project supplements previous findings on digital transformation and offers an integrated view of its impact on organisations, business performance and market dynamics in Switzerland. New, evidence-based insights will broaden our understanding of change processes and will subsequently complement and support them with evidence-based policy measures. The aim is to provide policymakers and business decision-makers with a basis on which to make evidence-based recommendations for action. For more information on the NRP77 project entitled ‘Digital transformation: how companies, performance and markets are changing through the digital transformation’, click external pagehere.
Contacts
KOF Konjunkturforschungsstelle
Leonhardstrasse 21
8092
Zürich
Switzerland
KOF FB Innovationsökonomik
Leonhardstrasse 21
8092
Zürich
Switzerland
KOF Bereich Zentrale Dienste
Leonhardstrasse 21
8092
Zürich
Switzerland