British businesses fear they will face digital disruption by 2018

Half of all UK business leaders (50%) fear that their industries face significant digital disruption within the next two years, according to new research published by Microsoft. The financial services sector, which employs 2.2 million people and contributes ?66bn in taxes to the UK economy, is demonstrating the highest level of anxiety, with two-thirds (65%) of respondents fearing the impact of disruption on their markets over the course of the next 24 months.

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The report, the most extensive of its kind to date, finds that whilst disruption is imminent for a wide range of industries, the shelf life of current business models is also extremely limited – nearly half of UK business leaders (44%) say their existing business models will cease to exist within the next five years.

Despite the potential threats such disruption will mean for British businesses, many organisations seem unwilling to face the coming changes. Almost half (46%) of business decision makers
say senior leaders in their organisations are unwilling to disrupt their existing businesses to grow and compete.

“The dawn of the fourth industrial revolution is a massive opportunity for British businesses but many are still living in an age of innocence or inertia when they need to be innovating,” says Nicola Hodson, General Manager, Marketing & Operations, Microsoft UK. “Whilst this research indicates that business models are breaking, many business leaders appear unwilling to address them.”

The Microsoft study,
Digital Transformation: The Age of Innocence, Inertia or Innovation?, examines how organisations across vertical sectors plan to compete and ‘survive’ in response to this unprecedented pace of change. The research, which was fielded by YouGov on behalf of Microsoft, consolidates the views of more than 1,000 UK business and IT leaders from large UK organisations and represents the most extensive research into the state of digital transformation in the UK.

Speaking about the seismic levels of disruption occurring in the UK and around the globe, Hodson added, “New challengers, many who are digitally savvy start-ups, are disrupting established markets by deploying new technologies quickly, and luring expectant customers away from established competitors. For many larger organisations, the challenge is how to react to this market disruption in a considered way and how they maintain competitiveness in a rapidly shifting landscape.”

Financial Services – a battleground for digital disruption
The financial services sector, which represents a huge contribution to UK jobs and growth, fears that the biggest disruption will come from entirely new market entrants (33%) – significantly higher than other sectors including retail (10%) and manufacturing (10%). As a result, financial organisations are more focused on the future, with two-thirds (64%) stating that they have a formal digital strategy in place.

Public Sector Challenges
Meanwhile, the public sector faces an even bigger hurdle and has been the slowest to apply digital technologies to business challenges, with only a third (35%) saying they have a formal strategy in place and one quarter (26%) actively stating that no such strategy exists at all. Fear of cultural change and leadership are driving this uncertainty – only 35% of public sector respondents believe they have a digitally literate leadership team, despite their belief it is a critical element to implementing a successful digital strategy.

A brave new world
UK business leaders remain cautious of the long term societal impact of rapid digital transformation – 51% say they are anxious it will raise more concerns about privacy and security. Those in the public sector are most worried (56%), compared to those in financial services (48%) and retail (47%), yet the figures are relatively high across industries. In addition, a third (33%) think that older generations of workers will get left behind in some ways, rising to over 40% from those in retail, pointing to cultural change as a potential barrier.

This points to a need for government and business to work together to address privacy and security concerns for the benefit of all, putting people first. Education on how data is used and empowering citizens to take ownership of their data is also fundamental if society is to truly benefit from the promise of digital transformation.
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