How best to assist companies in their adaptation to the digital age?

Main messages
  • Need to raise awareness about the business case for digitalisation
  • Need to invest in technology and human resources
  • Need to review supply chain management and external stakeholder relationship management

Need to raise awareness about the business case for digitalisation

Data from the European Company Survey 2019 show that about one-quarter of European establishments with at least 10 employees are highly digitalised, but a similar share are digitalised only to a limited extent. While the data do not indicate the direction of causality, they show that higher degrees of digitalisation go hand in hand with innovation, good business performance and workplace well-being. Accordingly, it is not a question of investing in advanced technologies just for the sake of it: there is an obvious business case for digitalisation.

Recent developments related to COVID-19 have made this even clearer. The pandemic has accelerated the development and adoption of digitalisation, and experts predict that digitalisation will increasingly become an imperative for businesses, with those not engaging in it expected to be disadvantaged in terms of competitiveness and sustainability.

As the pandemic made it necessary to change how work was done, many European businesses took the opportunity to progress their transition to the digital age. Nevertheless, it can be assumed that there are some otherwise viable companies that are not fully aware of the need for digitalisation and thus risk failing to fulfil their economic and labour market potential. In particular, this is likely to be the case for smaller companies in traditional sectors (such as construction) and countries characterised by a lower prevalence of digitalisation (for example, some eastern European Member States). Furthermore, some enterprises are likely to be aware of, and interested in, progressing their digitalisation but lack information on how this can be done efficiently and effectively to benefit both the company and its employees.

  • Governments and social partners (in line with the EU social partners’ 2020 framework agreement on digitalisation) could increase their efforts to inform companies about the potential benefits of digitalisation, by illustrating digitalisation’s impact on productivity, profitability, market reputation, client relationships, competitiveness, workplace well-being and employee relationships.
  • Companies, particularly smaller ones, could benefit from enhanced information provision and advice on how to decide on, design, implement and run digital solutions in their production/service provision systems and workplaces. Exchange between companies of contextualised use cases and good practices on digitalisation, facilitated by governments and social partners, could inspire them and help them to anticipate and manage the necessary adaptations. For this purpose, existing instruments such as business information portals and exchange events for managers could be used and upgraded through additional funding and reorientation towards digitalisation. For example, such activities could be supported by the funds available from the European Commission’s Recovery and Resilience Facility, as a minimum of 20% of the expenditure under national recovery and resilience plans must be devoted to fostering the digital transition. Furthermore, specific support in the framework of the updated industrial strategy, aimed at accelerating the digital transformation of the industrial ecosystem, could be dedicated to this purpose.
  • In the provision and exchange of knowledge on actual applications of digital technologies, care should be taken to emphasise the need for human-centric approaches, to ensure that standards previously established at workplace level do not deteriorate as a result of the deployment of digital technologies. Businesses should be made aware of the human and ethical implications of digitalisation and the potential unintended side effects that could negatively affect their staff.

Need to invest in technology and human resources

Business transformation to adapt to the digital age will in many cases require financial investment in the development or purchase of technology, as well as investment in staff to ensure that they have the skills required to design, implement and maintain the digital solutions. Some employers may also need to be made aware that such costs constitute a valuable investment in the competitiveness and sustainability of the enterprise.

That said, research shows that financial and human resources limitations are among the factors hindering digital transformation. Accordingly, awareness raising on its own will not be sufficient, and financial support will be required for companies facing resource bottlenecks that prevent financial and human resources investments.

Policy pointers

  • Financial support for innovation and technologies should not be limited to development alone. It would be beneficial, particularly for smaller enterprises and those less familiar with digital technologies, if financial support could also be used to plan and design how digitalisation could most effectively and efficiently be introduced into the workplace, to purchase hardware and software related to digital solutions, and to maintain and update it over time. Ideally, such support would include some form of ex ante impact assessment exploring the potential impact of the planned digital solutions on the workplace, to ensure that they do not have negative effects on staff. In this regard, a balance needs to be found between criteria to protect employees and the administrative burden imposed on beneficiaries of support.
  • Skills development support should cover a broad range of pathways, from the provision of basic digital skills to training in highly specialised ones; from initial education to ongoing lifelong training; from in-house on-the-job training to external formal education; and so on. Furthermore, a wide variety of occupational profiles should be considered. It is not only important to equip specialists with the expertise they need to drive digitalisation in European companies, as envisaged in the EU’s Digital Education Action Plan for 2021–2027. To properly support increasing digitalisation, and, in line with the European Skills Agenda, it is also important that all workers have at least basic digital skills. Finally, managers should also be targeted, to enhance their skills related to choosing the most suitable digital solutions for their specific business case, planning and implementing those solutions, and managing human resources in a digital workplace.
  • Targeted financial support for such skills development activities would be beneficial, particularly for smaller companies with more limited financial resources and higher dependency on their incumbent staff.
  • Given the potential need for company restructuring as part of the digital transition, skills development and capacity building may also be needed for social partners to effectively anticipate the required changes and negotiate and design their implementation in a way that results in a ‘win–win’ situation for employers and staff. This could be done at regional and national levels, but it would also be useful at EU level, as similar challenges are experienced across countries.

Need to review supply chain management and external stakeholder relationship management

Digitalisation changes not only the products and services offered and the processes and work organisation within enterprises but also cooperation with other organisations, such as business partners along the supply chain. This seems to be particularly true when digitisation technologies are involved, but automation and platform work – which may be increasingly used to outsource tasks – could also result in modifications to cross-organisational cooperation.

Changes in supply chains can impact companies’ business models, and as a result work organisation and skills requirements. In relation to this aspect also, awareness about the need to adapt and information on how best to do so could be (further) increased.

Policy pointers

  • Governments and social partners should monitor developments in national and global supply chains, to ensure a level playing field for actors in the digital economy. Particular attention should be devoted to large market players that might dominate the market and supply chains, potentially exploiting their business partners (including self-employed individuals). Initiatives could be carried out, for example, in the framework of the Digital Services Act and the Digital Markets Act.
  • Companies could be supported in reviewing their existing supply chain activities to assess the need for digitally driven adaptation, and in assessing whether new or different cross-organisational cooperation might be needed. Existing advice and consultancy services related to business restructuring could be used for this purpose.
  • From an operational point of view, enterprises could also benefit from support in identifying suitable business partners and in negotiating the terms and conditions of cooperation. This might be most useful for smaller enterprises lacking specific organisational roles and expertise in this area, and for cross-national, cross-disciplinary cooperation, where different cultures, languages, practices and understandings can make the establishment and implementation of cooperation challenging.
  • If changes to supply chain activities are likely to translate into changes in work organisation and hence working conditions and job quality, social partner discussion should take place before the business decision in question is implemented, to ensure that workers are informed and consulted. If done well, this will result not only in ‘win–win’ workplace practices but also in enhanced trust on the part of staff in management and greater buy-in with regard to the new business practices among employees, which in turn will be favourable for business performance. In addition to the abovementioned skills development and capacity building, policy could also support the exchange of experiences and approaches across regions, sectors and countries.

 

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