AI News, Notes from the AI frontier: Tackling Europe's gap in digital and AI artificial intelligence

McKinsey: Tackling Europe’s gap in digital and AI

Tackling Europe’s gap in digital and AI Europe’s average digital gap with the world’s leaders is now being compounded by an emerging gap in artificial intelligence.

If Europe on average develops and diffuses AI according to its current assets and digital position relative to the world, it could add some €2.7 trillion, or 20 percent, to its combined economic output by 2030.

One positive point to note is that Europe may not need to compete head to head but rather in areas where it has an edge (such as in business-to-business [B2B] and advanced robotics) and continue to scale up one of the world’s largest bases of technology developers into a more connected Europe-wide web of AI-based innovation hubs.

In a new discussion paper, Notes from the AI frontier: Tackling Europe’s gap in digital and AI (PDF–623KB), the McKinsey Global Institute (MGI) blended the findings of authoritative secondary research sources with three primary independent global surveys at the corporate and sector levels conducted in 2017 and 2018 to better gauge how firms anticipate the way AI might unfold in Europe.

MGI’s 2016 research found that European countries were capturing only 12 percent of their full digital potential (defined as weighted deployment of digital assets, labor, and practices across all sectors, compared with the most digitized sector)—two-thirds of the captured potential in the United States.

Although Europe’s GDP is comparable with that of the United States and just ahead of China’s, the digital portion of Europe’s ICT sector today accounts for around 1.7 percent of GDP, lower than the share in China at 2.1 percent and only half the 3.3 percent share in the United States.

While large Western European companies are continuing to expand their use of early digital technologies, the share of fully digitized companies increased by less than 10 percent a year between 2010 and 2016.

Available data on diffusion are scarce, but our blend of survey research demonstrates that European companies may lag behind their US counterparts in their adoption of big data architecture and of the advanced machine learning techniques that are the foundations of AI—with 12 percent less use than in the United States.

In the most advanced industry—high-tech—93 percent of adopters are capturing AI for 10 percent of its potential use, but still only 17 percent of European companies (compared with about 22 percent in the United States) are using AI technologies at 75 percent of potential.

AI may scale up in a fast-paced game of competition, innovation, and new skills acquisition Our analysis of three surveys suggests that there are three channels that will determine the extent of the productivity boost that comes from AI: competition, innovation, and new skills.

These drivers of adoption have major implications for European business and society: If Europe develops and diffuses AI according to its current assets and digital position relative to the world, it could add some €2.7 trillion, or 20 percent, to its combined economy output, resulting in 1.4 percent compound annual growth through 2030 (Exhibit 1).

In our analysis, we examine three macroeconomic enablers—automation potential, investment capacity, and connectedness—and four microeconomic enablers: digital legacy, innovation foundation, human capital, and the maturity of AI ecosystems.

In general, Europe fares well with regard to its automation potential and in the stock of cognitive skills, but has not, on average, been able to increase its innovative capacity, and faces challenges in developing a large AI startup ecosystem.

It is impossible to predict with any precision all of the jobs that are likely to be created through AI, but we contend that in the EU-28, on average, AI could enable the creation of as many new jobs as jobs that are changed, especially if Europe develops innovative new products and new demand.

Given that digital technologies are the bedrock of diffusion of AI technologies, the risk is that Europe could fall further behind the world’s leaders on AI technologies and miss out on a significant source of potential new economic dynamism.

Tackling Europe’s gap in digital and AI

On many metrics, the European economy and its businesses have been grappling for years to capture the full potential of current and previous generations of digital tools.

If Europe on average develops and diffuses AI according to its current assets and digital position relative to the world, it could add some €2.7 trillion, or 20 percent, to its combined economic output by 2030.

One positive point to note is that Europe may not need to compete head to head but rather in areas where it has an edge (such as in business-to-business [B2B] and advanced robotics) and continue to scale up one of the world’s largest bases of technology developers into a more connected Europe-wide web of AI-based innovation hubs.

In a new discussion paper, Notes from the AI frontier: Tackling Europe’s gap in digital and AI (PDF–623KB), the McKinsey Global Institute (MGI) blended the findings of authoritative secondary research sources with three primary independent global surveys at the corporate and sector levels conducted in 2017 and 2018 to better gauge how firms anticipate the way AI might unfold in Europe.

Among the major findings are the following: MGI’s 2016 research found that European countries were capturing only 12 percent of their full digital potential (defined as weighted deployment of digital assets, labor, and practices across all sectors, compared with the most digitized sector)—two-thirds of the captured potential in the United States.

Although Europe’s GDP is comparable with that of the United States and just ahead of China’s, the digital portion of Europe’s ICT sector today accounts for around 1.7 percent of GDP, lower than the share in China at 2.1 percent and only half the 3.3 percent share in the United States.

While large Western European companies are continuing to expand their use of early digital technologies, the share of fully digitized companies increased by less than 10 percent a year between 2010 and 2016.

Available data on diffusion are scarce, but our blend of survey research demonstrates that European companies may lag behind their US counterparts in their adoption of big data architecture and of the advanced machine learning techniques that are the foundations of AI—with 12 percent less use than in the United States.

In the most advanced industry—high-tech—93 percent of adopters are capturing AI for 10 percent of its potential use, but still only 17 percent of European companies (compared with about 22 percent in the United States) are using AI technologies at 75 percent of potential.

These drivers of adoption have major implications for European business and society: If Europe develops and diffuses AI according to its current assets and digital position relative to the world, it could add some €2.7 trillion, or 20 percent, to its combined economy output, resulting in 1.4 percent compound annual growth through 2030 (Exhibit 1).

In our analysis, we examine three macroeconomic enablers—automation potential, investment capacity, and connectedness—and four microeconomic enablers: digital legacy, innovation foundation, human capital, and the maturity of AI ecosystems.

In general, Europe fares well with regard to its automation potential and in the stock of cognitive skills, but has not, on average, been able to increase its innovative capacity, and faces challenges in developing a large AI startup ecosystem.

It is impossible to predict with any precision all of the jobs that are likely to be created through AI, but we contend that in the EU-28, on average, AI could enable the creation of as many new jobs as jobs that are changed, especially if Europe develops innovative new products and new demand.

Given that digital technologies are the bedrock of diffusion of AI technologies, the risk is that Europe could fall further behind the world’s leaders on AI technologies and miss out on a significant source of potential new economic dynamism.

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Jim Whitehurst is president and chief executive officer of Red Hat, the world's leading provider of open source enterprise IT software solutions and services, and author of "The Open Organization: Igniting Passion and Performance."

Whitehurst has grown Red Hat and its influence by reaching key milestones - most notable in 2012 when it became the first $1 billion revenue open source software company.

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