The quest for digital skills

THE QUEST FOR DIGITAL SKILLSA multi-industry executive survey

A report by The Economist Intelligence Unit

Sponsored by:

TM

1© The Economist Intelligence Unit Limited 2016

THE QUEST FOR DIGITAL SKILLS

2 About this research3 Executive summary5 Part One: Time for an enterprise-wide digital skills strategy12PartTwo:Industrybriefings

12 - Health industry explores new partnership models 14 - Financial services industry braces for escalating security

challenges16- Retailersfacebigdataandsmartproductsskillsdeficit18 - Manufacturers hungry for big data

20 Conclusion: Digital feast, skills famine

CONTENTS

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© The Economist Intelligence Unit Limited 2016

ABOUT THIS RESEARCHThe quest for digital skills is an Economist Intelligence Unit report on the supply and demand of digital skills across four industries: financial services, healthcare, retail and manufacturing. The research is based on an online survey of 422 European and US executives, from functions including strategy and business development, marketing, sales and human resources. Survey data is supported by in-depth interviews with senior commentators and experts. We would like to thank the following individuals who were interviewed for this report:

Susana Berlevy, digital HR director, Lloyds Banking Group

Elizabeth Cowper, HR and people-development director, Harvey Nichols

Jessica Federer, head of digital development, Bayer

Robert Mahowald, vice-president, IDC

Rich Pearson, senior vice-president, Upwork

Peter Sondergaard, senior vice-president, Gartner

Rachel Weiss, vice-president of digital innovation and entrepreneurship, L’Oréal US

The Economist Intelligence Unit bears sole responsibility for the content of this report. The findings and views expressed in the report do not necessarily reflect the views of the sponsor. The report was commissioned by Cognizant.



EXECUTIVE SUMMARY From app developers to cyber-security experts, digital skills are among the most highly prized in today’s labour market. Are companies finding the digital skills they need? Where are the gaps and how are organisations overcoming them? How do senior decision-makers predict the ways in which skills gaps will change over the next three years? This report, combining an executive survey with in-depth expert interviews, asked executives across four industries about the digital skills dynamics shaping their sectors.

Key findings

Most companies are worried about a looming skills gap. The vast majority (94%) of executives cite a “moderate” or “severe” digital skills gap. Financial services and manufacturing had the largest enterprise-wide skills deficits, while healthcare and retail survey participants were concerned with department-specific shortages. The top reasons for the skills gap were, in order of consensus, insufficient supply of appropriate talent (49%), internal opposition to creating new digital jobs (49%) and lack of clarity over who is responsible for digital talent acquisition (45%). Respondents also worry about digital workers’ lack of interest in their industry (37%).

Cyber-security and web/mobile development are the most important digital competencies today. “Big data” will top the list by 2018. Four out of ten (41%) respondents rank cyber-security and web/mobile development as the most important digital skills in their business today. Less importance is given to digital strategy (35%) and “smart products” (32%). However, this pecking order looks set to change, with 43% of executives believing that big data will be the top skillset in three years’ time. The shift towards big data was especially marked among manufacturing executives, as they try to excel in so-called Industry 4.0—the age of complex “cyber-physical” systems such as the Internet of Things and smart products.

Half of companies face internal push-back against the creation of new digital jobs. Internal opposition to creating new digital jobs is cited as a hiring obstacle by 49% of respondents. Older workers are more resistant to digital transition than their younger colleagues, the survey shows: 80% of companies face internal resistance to digital transition of processes and work among older members of the workforce. The top reasons for scepticism are confusion about digital technology and the skills it needs (cited by 53%), budget (49%), cultural factors (49%) and lack of a proven business case (48%).

“Digital talent does not want to work for us”. Over one-third of companies (37%) believe that digital workers have no desire to work in their industries. The problem was especially acute in retail, where 43% subscribed to this view. Companies can take measures to address this challenge, however: 45% have sought to improve perceptions of their company as an employer of digital talent, and one-third of executives have raised

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salaries for digital talent. The finance industry expects salaries to play the biggest role in recruitment going forward: 43% of financial services companies expect to increase salaries for digital talent over the next three years, the highest proportion of the industry groups.

Companies are finding skills gap “workarounds”. Companies are seeking solutions beyond conventional hiring. Of all respondents, 55% have embarked on digital training of existing staff, while 47% of companies outsource digital functions. Healthcare companies are increasingly partnering with technology firms, and companies across the board are building cross-functional teams to integrate digital across the business. Companies are also looking externally, such as crowd-sourcing on social media for innovation ideas: 84% said that they would use LinkedIn to crowd-source ideas and 40% would use Twitter. Mergers, acquisitions and “acqui-hiring” will become more popular as a skills strategy going forward: 40% of companies plan such measures by 2018, compared with 21% at present. Lastly, companies are rethinking physical structures: 40% of companies said that, as a result of the rise of remote working made possible by digital, they have a larger number of “spokes” rather than “hubs”, while manufacturers and retailers are building more satellite offices near digital talent hubs.

Industries feel the skills gap differently: Digital skills gaps vary considerably across industries, depending on how digital is reshaping their commercial landscape. Retailers are primarily concerned with smart-product development and web and mobile, as customers expect to research, view and buy goods on an array of platforms. Financial services firms, by contrast, are mainly worried about having adequate cyber-security skills to defend themselves against hackers, while manufacturers struggle with a big data skills gap as they try to produce efficiently in the Industry 4.0 era. Industry responses, therefore, must be tailored to the unique circumstances in each commercial sector.



PART ONE: TIME FOR AN ENTERPRISE-WIDE DIGITAL SKILLS STRATEGYGetting digital right: why it matters

Digital technology offers innumerable benefits to companies today. It yields granular data about consumers, enables faster communications, improves inter-departmental co-ordination, reduces wastage and supports efficiency.

It can drive creativity, too, allowing a freer flow of information among colleagues. It is no coincidence that digital-first companies—including Amazon, Google, Facebook and Alibaba—rank among the world’s most fast-evolving and ambitious businesses. But even older industries like manufacturing are increasingly powered by digital, evidenced in the rise of 3D printing, and ever-greater levels of production innovation. A 2015 Economist Intelligence Unit survey1 of over 200 research and development and product design professionals in Europe, sponsored by Cognizant, found that “smart products” are poised to reinvent customer relationships, and in so doing reshape entire industries.

But digital technology presents challenges in equal measure, especially for long-established companies adapting to a new age. New tools require novel ways of working and fresh skills. Cyber-security, for instance, is one of the most valuable skillsets in today’s labour market, and companies do not feel sufficiently well capacitated: 86% of information technology (IT) professionals in a 2015 poll2 cited a shortage of cyber skills globally. “Big data” and predictive analytics have become integral to 21st-century business, from consumer trend-spotting to genome sequencing. With over 2.5bn gigabytes of data created daily3, companies face the daunting task of understanding, interpreting and reacting to this flood of information.

The consequences of failing to adapt are serious: digital disruption can reshape entire industries and those not ready could be consigned to history. ‘Intrinsically’ digital companies like Uber and AirBnB have transformed the competitive dynamics of their industries (taxis and hospitality, respectively).

To exploit the opportunities of digital, companies need the best skills. This report investigates whether skills supply is currently meeting this explosion of demand. Drawing from an executive survey and in-depth interviews across four industries, it identifies common digital skills needs, challenges and workaround strategies. Part Two explores sector-specific nuances, as revealed by our survey.

1 The Economist Intelligence Unit (2015) Developing smart products. Sponsored by Cognizant.

2 ISACA, 2015 Global Cybersecurity Status Report, January 2015

3 Wall, M. “Big data: are you ready for blast-off?”, March 2014, BBC News.

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Cause for concern

Our survey reveals that remarkably few executives have the digital skills required to compete, thrive and win in a digital era. The overwhelming majority (94%) of respondents said that they did not have the digital skills they need, with 30% describing their skills gap as “severe”.

If digital skills are so vital, why are most businesses struggling? The most common reason, cited by 50% of respondents, is inadequate supply. This has several manifestations. Companies need not only digital skills, but also people who understand their sector. Digital is not an entirely portable skillset: digital workers need to understand the nuances of the industry they are going into. Healthcare companies said that they struggled to find cross-trained individuals who knew about healthcare as well as they understood digital technology.

A second reason for the digital skills gap is “internal opposition to creating new digital jobs”. This was considered an obstacle by 48% of respondents. This inertia is the result of the sprawling nature of digital itself. Rachel Weiss, vice-president of innovation and entrepreneurship at L’Oréal US, says: “We’re consumer-facing as an advertiser, we own retail stores, we are a distributor and a manufacturer. Our business is so broad that digital interacts with every function, every brand, everything that we do.”

This means that, although IT has traditionally been handled by a single specialist department, it is not yet clear where digitally skilled employees should “sit”—or whose budget should pay their wages. Different senior figures vie for control, including chief executives, heads of marketing, IT and data, and heads of technology. Some 45% of survey respondents said that it is not even clear which department was responsible for hiring digital staff. Evidently, this confusion is preventing organisations from sourcing the skills they need.

Source: The Economist Intelligence Unit.

Which of the following best describes the current situation with regards toskills gaps in your organisation? select one (% respondents)

Figure 1: Quantifying the skills gap

We have no digital skills gap

We have a moderate digital skills gapin some departments but others are

sufficiently equippedWe have a serious digital skills gap in

some departments but others aresufficiently equipped

We have a serious digital skillsgap across the organisation

6%

63%

25%

5%



There is also a cultural challenge, as some workers resist digital transition. Susana Berlevy, digital human resources director of Lloyds Banking Group, says she understands resistance to new ways of working: “I can see this as a tremendous change and why there might be push-back or reluctance to embrace it, because it’s a different way of thinking.” If the finance industry can hire more young workers, she says, it may influence cultural norms to foster more support for digital transitions. Ms Berlevy notes that the entry of “millennials”—those born in or after 1981—into the workforce could be one of the “key levers to change the culture and accelerate digitisation”.

Another problem facing talent acquisition is that many industries are struggling to appeal to digital talent—these workers are more attracted by digitally “native” firms, from Uber to Spotify to LinkedIn, in a booming sector. “Attracting talent to Harvey Nichols means offering something exciting and unique,” says Elizabeth Cowper, the department-store chain’s HR and people-development director. “This is tricky in an ever-evolving, fast-moving digital world, where developments in other businesses seem tantalising and exciting.” Ms Cowper says that her company wants to do more to “proactively market itself to a new breed of digitally savvy applicants…We are actively working to put ourselves on the radar for passive applicants”, she adds. “There are many skilled employees who may not actively be looking for a new role, but would move for the right opportunity that would enhance and grow their career.”

The finance industry, which once attracted the cream of the graduate crop, is also struggling to compete with more appealing technology sectors. “If you think about our ability to attract digital talent, for an organisation like Lloyds Bank that is 250 years old, it is not a small challenge,” says Ms Berlevy. In an environment where technology start-ups are buoyed by rapid growth rates and a fun working environment, those organisations are most likely to attract a wider choice of candidates, and Ms Berlevy says that Lloyds have a “challenge” to cut through the noise and communicate their own digital development opportunities to young candidates.

Digital skills: not created equal

Not all digital skills are valued equally, our survey reveals. The two most important skillsets today, according to survey participants, are web and mobile development (cited as a top digital capability by 42% of respondents) and security/privacy (also cited by 42%). In the next few years, however, respondents see big data skills emerging as the most highly prized, with 43% identifying big data as becoming the most important skillset by 2018, up from 37% currently. Worryingly, big data is also the area in which executives forecast the biggest skills gap: 46% said that this would be the main unmet demand for skills in 2018 (see figure 3).

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Which of the following do you consider the primary reasons why demandfor digital skills is not met? select up to three (% respondents)

Figure 2: Unmet demand

Digital talent expects highersalaries than we can afford

There is insufficient supply of digitaltalent in our local markets

There is internal opposition tocreating new digital jobs

The digital talent we need does notwant to work for companies like usIt is not clear which department isresponsible for hiring digital talent

We do not understand our ownrequirements for digital talent

Other, please specify


32%

49%

49%

37%

45%

30%

3%

Which are the most important digital competencies in your organisationtoday? and what do you expect to be the most important digitalcompetencies in your organisation in 3 years’ time? (% respondents)

Figure 3: Top competencies today, and in 3 years

Security/privacy/risk

Today

Web/mobile development

Digital marketing(SEO, Social Media etc.)

Software development

Analytics/big data

Digital strategy/business modelling

Smart product development


42%

42%

41%

40%

38%

35%

32%

39%

41%

40%

39%

43%

39%

37%

Next 3 years

Working around the skills gap

Although the skills gap is acute, companies are making headway in tackling the problem, our survey finds. The most popular strategy, adopted by 57% of respondents, is guaranteeing opportunities for career development for digital workers. Companies



l Build satellite offices near innovation hubs (Silicon Valley; Austin, Texas; Cambridge UK)

l Increase use of freelancers to access skills on project-by-project basis

l Joint ventures and partnerships with digital firms, to focus on comparative advantage

l Upskill the workforce

l Launch competitions and innovation prizes to utilise outside entrepreneurs

DIGITAL TALENT WORKAROUNDS

Which measures have you already taken in order to address your digitalskills shortage? Which do you plan to take for the first time in the nextthree years? (% respondents)

Figure 4: Tackling the skills gap

Provide additional training to existing staff

Today

Outsourced digital functions and processes

Taken measures to improve perceptionof your company as an employer of

digital talentTaken measures to guarantee opportunities

for career development for digital talent

Focus on head-hunting

Formally audited the availability ofdigital skills within your organisation

Opened new offices in locations witha better supply of digital talent


Next 3 years

Raised salaries for talent

Undertake M&A i.e. “acqui-hire”

Scaled back the ambition ofyour digital strategy

55%

47%

45%

41%

34%

34%

32%

41%

49%

44%

57%

37%

36%

38%

30%31%

22%40%

21%23%

are also trying to improve perceptions of their brand as a digital employer (an active measure by 45% of respondents), providing training to existing staff (55%) and raising salaries for digital workers (30%). In future, however, companies will increasingly look to mergers and acquisitions (M&A): 40% of executives said that they would look to M&A and “acqui-hiring” by 2018 to solve the gap in digital talent, up from just 21% that have already done; the largest forecast increase in remedial measures.

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One common trend among survey participants was their openness to exploring unconventional ways of accessing digital skills, beyond trying to hire more digital employees. The M&A strategy is one workaround: 39% of firms will pursue M&A to bridge skills gaps in the next three years, compared with just 21% of companies that have done so to date.

Partnerships and outsourcing can help, allowing companies to focus on their comparative advantage and bring in specific skills when needed. The healthcare industry has been particularly active here. A Swiss pharmaceutical firm, Novartis, is investing in early-stage digital healthcare companies through the subsidiary of a joint investment company, Qualcomm4, and has partnered with the Walgreens pharmacy group to recruit clinical-trial participants from its 100m-strong customer database.

Jessica Federer, head of digital development at Bayer, says her company has been concentrating investment in their core health skills, not digital technology. “We have developed our core competency in molecular processes, while technology companies have, for example, developed machine learning and artificial intelligence. Creating competencies requires a lot of time and money, experience and expertise.” Partnerships and joint ventures can help to address this and Ms Federer advocates engaging technology companies in areas far from the comfort zones of the company. “Bayer’s management has been very clear that we don’t have ambitions to be a technology company, we’re a life sciences company. We’re going to partner with the best digital companies,” she explained.5

Retailers, meanwhile, are turning to freelancers to develop apps and mobile products. “Businesses are trying to be more agile,” says Rich Pearson, a senior vice-president at Upwork, a freelance matchmaker website, where mobile and app development are among the fastest-growing skills needs in retail. “The demand for freelancers in mobile app development is palpable in places such as London, San Francisco and Paris, where it could take three months to hire a full-time developer.” Working with freelancers means that companies can often access skills without taking on the high overheads that such people would cost if brought in-house.

Consumer brands are experimenting with innovation competitions to attract creative ideas from entrepreneurs. “What we’re doing a little differently is starting with outside entrepreneurs,” says Ms Weiss at L’Oréal. “We know that a lot of the skills we need internally are going to take time to build, and there’s great talent outside that wants to collaborate with us.” And manufacturers are opening satellite offices closer to the locations where digital workers can currently be found.

But not all the digital talent is going to be external—companies must not underestimate the benefits of training existing staff. This can be profoundly effective in improving in-house capabilities, and helps staff to future-proof their skillsets in a digital era. This is especially the case in manufacturing, owing to a long-term trend of companies

4 Bain & Company, Getting the dose right: a digital prescription for the pharma industry, March 2016

5 Shah, N.D. and J. Pathak, “Why healthcare may finally be ready for big data”, Harvard Business Review, December 2014,



pulling technology skills back in-house, according to Peter Sondergaard, senior vice-president at Gartner. “We are jumping from a world with relatively long product cycles into one where development is iterative, meaning you have to have people who can continuously evolve a product.” Finding skilled people who can cope with both structured development work and constantly changing parameters is “very difficult”, he says. Having those skills within the organisation gives manufacturers a critical lead.

In summary, the survey found a large digital skills gap, especially in web/mobile product development, security and big data. The reasons for this are primarily lack of supply of appropriate skills and internal opposition to creating new digital jobs. Companies are also struggling to appeal to digital workers flocking to start-ups or technology behemoths, from Google to Facebook, Airbnb to Uber. But the survey also revealed practical workarounds being deployed, such as joint ventures and partnership models, M&A, the use of freelance talent, innovation competitions and “crowd-sourcing”. Lastly, companies are realising that digital skills can be acquired by their existing workforce, and in-house training remains an effective measure to future-proof organisations.


Do you agree/disagree with the following statements?(% respondents)

Figure 5: Skills acquisition - Top obstacles

Financial services Healthcare, pharmaceuticals and biotechnologyManufacturing

It is not clear which department isresponsible for hiring digital talent

We do not understand our ownrequirements for digital talent

There is internal opposition tocreating new digital jobs

The digital talent we need does notwant to work for companies like us

Digital talent expects highersalaries than we can afford

There is insufficient supply ofdigital talent in our local markets

Retailing

29% 31% 29% 41% 40% 60% 50% 47%

33% 38% 34% 43%47% 44% 49% 56%

33% 49% 40% 60% 34% 27% 37% 22%

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PART TWO: INDUSTRY BRIEFINGSOur survey found common trends across industries, but also revealed industry-specific nuances. Not all sectors are affected by digital skills gaps in the same way, or to the same extent. The second part of this report delves into these nuances.

Health industry explores new partnerships models

In the 18th century new statistical techniques and technology revolutionised healthcare, revealing how diseases such as tuberculosis spread and which treatments worked. The industry is arguably now embarking on a similar leap forward, as the sheer volume of data available to doctors and researchers is exploding.

The recent outbreaks of Ebola and Middle East Respiratory Syndrome (MERS) underscore the importance of big data analytics to monitor health threats. Digital gadgets such as wearable fitness trackers put individuals in greater control of their health and create a wealth of data that could treat patients. It should be of concern for us all, then, that of the four industries included in this survey, the digital skills gap is most severe in healthcare; 99% of respondents expressed concern about their digital skills capabilities, describing the deficit as “moderate” to “serious”.

Big data and analytics skills are the most sought after competency among healthcare executives today, with 49% of survey respondents placing it as a top need. Looking to the future, 46% of healthcare executives surveyed worry about a shortage of “digital strategy” skills in three years’ time, while 40% foresee a security and privacy skills shortage by 2018.

What are the obstacles? Six out of ten (60%) respondents cite a “lack of appropriate talent” as the primary reason their digital skills gap is not met. The challenge is in finding people who not only have digital expertise, but also strong healthcare knowledge.

One popular measure to meet this need is training existing employees in digital skills (57%). Involving clinicians in internal or industry-led digital courses is another approach.6

However, many acknowledge the need to widen their net: 50% plan to open an office nearer to where the digital talent exists, and 64% will consider remote working for specific roles. Some 48% are attempting to improve how they are perceived by digital talent.

Partnerships and joint ventures can also help. As part of its Grants4Apps programme, for example, Bayer has selected five digital healthcare companies, which will each receive €50,000 (£36,000) to advance projects and work with the company in its so-called Co-Laborator unit in Germany to incubate their ideas. Bayer sees such crowd-sourced, open digital innovation as a way to establish relationships with digital partners and generate new ideas.7

6 Terry, K. “IT talent shortage hitting healthcare hardest”, CIO, August 2014, and 2014 HIMSS Workforce Survey, June 2015

7 PR Newswire, Bayer HealthCare launches ‘Grants4Apps’ 2015 Accelerator Programme, August 2015 and Schmitz, A. Digital transformation at Bayer, SAP, May 2015.



Other forward-looking pharmaceutical firms are doing the same, including Teva, the world’s largest manufacturer of generic drugs. The company is working with a US-based firm, Microchips Biotech, to develop implantable, digital drug-delivery technology that releases medicine on a specific schedule. It also has a joint team with IBM to conduct machine learning-based research into disease treatments, while a US pharmaceutical company, Merck, is working alongside digital firms in data, voice and clinician technology, and Johnson & Johnson is partnering to develop software to help cardiac rehabilitation.8 This partnership approach is clearly a popular strategy for healthcare companies to gain access to frontier skills while focusing on their core competency.

8 Sources including Teva, IBM and McKinsey

Couple up: Digital skills joint ventures and partnerships in healthcareBayer Serona

MediKeep

Sendinaden

Oregon Health and Science University Intel

Teva Microchips Biotech

IBM

What form of internal resistance do you face? Healthcare,pharmaceuticals and biotechnology (% respondents)

Figure 6: Resisting change

Inability to acquire digital skills/confusionover digital technologies

Lack of proven business case

Budgetary

Cultural

Legacy costs of change

Resistance from senior stakeholders tochange staff's existing common practices

Buy-in from senior management


59%

56%

49%

47%

47%

45%

39%

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2: Financial services industry braces for escalating security challengesFrom stocks and shares to hedge funds, from retail banks to institutional investors, financial services are already highly digitised. Internet banking, like online travel booking, is a norm for many consumers. Such trends mean that financial services companies have long been comfortable with digital technologies.

But digitisation is entering a new era. Algorithmic trading, “robot” financial advisers and big data are the modern tools of the trade. A subindustry of financial technology (“FinTech”) has emerged, and the rise of “crypto currencies” like bitcoin has opened up a new technology frontier. But digitisation also brings new threats. Cyber-criminals have powerful tools to wreak havoc, requiring banks to strengthen their capabilities continually.

Against this backdrop, the mood of the industry is one of concern: 90% of respondents to our survey said that they had either a “moderate” or “severe” digital deficit, and 7% stated that the gap was severe “across the organisation”, while the rest identified department-specific shortages. Security was ranked as one of the most important digital competencies by 43% of participants.

Web and mobile development was the other competency viewed by a large majority of respondents as being of “primary importance”, elected by 44% of those surveyed. Consumer expectations of their banks are on the rise and a bank’s attractiveness is in part defined by how user-friendly its technologies are. Helpful apps for checking bank balances and monitoring spending, with graphics to help customers monitor their finances, are among the products made by the most consumer-friendly banks. Building them requires expertise in app and mobile development.

Which are the most important digital skills in your organisationtoday? Financial services (% respondents)

Figure 7: Top-ranked skills

Web/mobile development

Security/privacy/risk

Analytics/big data

Software development

Smart product development

Digital marketing(SEO, Social Media etc.)

Digital strategy/business modelling


44%

43%

40%

37%

32%

31%

31%



Flood of big data

Respondents predict an increase in the importance of big data: 48% believe that this will be their most important digital skillset in three years’ time, up from 40% at present.IDC estimates that in 2015 US$1.8bn was spent by banks on work related to big data. Big data is essential to monitoring financial activities but equally important for understanding customers, so much so that it now has regulatory implications. The European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority have all warned banks that they are investigating the privacy-related ramifications of collecting and using big data.

Internal opposition and brand perception

The industry is making considerable outlays in “digital transformation” (see Table 1). Despite such investments, our survey reveals concerns about skills deficits. The biggest constraint is internal opposition to creating new digital jobs: 47% of respondents believe this to be one of their primary hiring constraints.

The transition to digital may result in job losses. Roles amenable to automation, such as data entry and processing, are under threat. To minimise opposition to new technologies, financial institutions must encourage employees to take on more creative and interpersonal tasks, which are the most protected from the march of technology, such as customer-facing interactions, product development, strategy and marketing.12

Internal opposition is only one of the problems facing the industry’s need for digital skills acquisition—the second is brand perception. Millennials have grown up using digital technology and are comfortable with such tools. But attracting younger workers is not as easy as it once was for the finance industry. Before the 2008-09 global financial crisis, the sector was able to pick the cream of the crop from the graduate pool. Today, the industry is no longer as appealing. Banking has become a less desirable profession owing

Table 1: Banking’s big data investments - IDC Financial Insights said that by the end of 2015 US retail banks would have invested US$16.6bn directly into “digital transformation” initiatives aimed at better customer engagement, improving technical processes and complying with regulations.

- Lloyds is working on a £1bn digital transformation plan focusing on big data, marketing and digital products, and is creating a digital training academy.- RBS is embarking on a £3.5bn digital plan, including establishing a “global scouting network” for talent and building an outpost in Silicon Valley. - Deutsche Bank, as part of a new effort led by its first-ever chief digital officer, JP Rangaswami, is upgrading its big data capabilities.- The Commonwealth Bank of Australia is using big data to analyse business customer risk and provide early warnings of cash-flow problems. - The Spanish banking giant, BBVA, uses big data for risk analysis, to advise on product creation and branch location, and to spur the development of new apps with external partners.

12 T Olanrewaju, The rise of the digital bank, July 2014, McKinsey & Company.

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to the poor conduct of the industry in the lead-up to the subprime mortgage crisis, and later scandals such as the Libor rate controversy.

Financial services companies still prefer to hire from the top of the university graduate pool. Ms Berlevy of Lloyds adds that highly technical roles, such as system architecture and data science, require very specific expertise that has to be rigorously taught. “For the hardwired digital skills,” she notes, “we are still very focused on traditional degrees including [systems] engineering.”

But beggars can’t be choosers. Some banks are discussing new approaches to widen their hiring net. Lloyds still requires a 2.1 degree for digital roles, but is considering other candidate attributes, such as business values, motivation and working style. “Some companies are starting to champion removal of a 2.1 degree-level requirement [to apply], and we are having the debate ourselves,” says Ms Berlevy.

3. Retailers face big data and smart-products skills deficitToday’s customers research, view and buy goods on an array of platforms, from brand websites to social media. As consumer-facing companies, retailers have to excel in digital technology. But across the retail industry, the two biggest digital skills gaps cited by survey respondents are big data and smart-product development.

Tapping social media has been a game-changer, but interpreting that data is far from straightforward, and customers’ expectations for a seamless online experience mean that web and mobile development skills are an increasingly important skills: 54% of retailers predict that this will be a top digital competency in three years’ time.

How, if at all, does your organisation intend to strengthen its digital assetsover the next 3 years? Financial services (% respondents)

Figure 8: Bridging the skills gap

Increasing the use ofcontractors/outsourcing

Building cross functional teamsto support digital

Recruiting key staff in specific hotspots

Building a standalone digital division

Acquiring another business

Running hackathons

We do not intend to strengthenour digital assets


58%

56%

52%

38%

22%

21%

5%

13 Moth, D. “Does Harvey Nichols’ new site match up to its luxury reputation?”, April 2014, and Econsultancy, “Harvey Nicks recruits Google chief”, August 2014.



Harvey Nichols sees digital as relevant to most consumer-facing parts of the business, but digital capabilities are present “mainly within the technology, marketing and trading teams,” says Ms Cowper. However, the skills needed by the company now stretch across its operations. The retailer has digital teams with a wide array of skills, “ranging from developers, user experience and user interface, and agile scrum masters [a form of rapid product development] to search engine optimisation, digital marketing, social media engagement, and using analytics and insights on daily trades and competitive analysis.”

Such skills have been vital for developing Harvey Nichols’ mobile site, for enabling information collection from disparate sources to understand customers and for adding live stock levels of products to websites. Additionally, its user-interface developers have created facilities such as instant “web-chats” with fashion advisers, and a “click and try” service, where customers can reserve items and test them in store. Meanwhile, as it attempts to improve search-engine rankings and social-media engagement, the digital marketing teams have been adding and tagging large amounts of fashion content across online channels.13

Attracting the best: the retailer’s struggle

While Harvey Nichols stands out for its joined-up digital skills strategy, the industry as a whole is not keeping up with demand: 91% of respondents cited a moderate to severe digital skills gap.

The first challenge is internal. Of all respondents, 60% were “unclear” which department was responsible for hiring digital talent. In financial services, by contrast, only 33% cited such uncertainty. The second most commonly cited challenge is opposition to creating new digital jobs, cited by 56% as a key obstacle.

Yet the hiring problem is not only internal—digital workers do not seem to want to work in retail, or at least so retailers believe. A sizeable number (43%) of respondents say that the digital talent they need “does not want to work for companies like us”. This is a considerably higher percentage than the other industries facing this problem (33% in financial services, 34% in manufacturing and 38% in healthcare). No surprise, then, that a recent report by a government agency, the UK Commission for Employment and Skills, called on the retail sector to improve its image to digital candidates. Furthermore, the US National Retail Federation has called on the industry’s chief executives to demonstrate that their sector is just as rewarding as those found in Silicon Valley.14

Out of those surveyed in the retail industry, 61% said that they had taken measures to improve the perception of their company as an employer of digital talent, a far higher percentage than the other three industries (50% in healthcare, 44% in manufacturing and 34% in financial services). If this charm offensive is successful, the benefits could be considerable.

14 UK Commission for Employment and Skills, Digital skills high on retail’s shopping list, according to new UKCES report, July 2015.

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4: Manufacturers hungry for big data Of all industries covered by our survey, manufacturers had the highest number of respondents describing their digital skills gap as severe “across the entire organisation” (11% described their company as systemically deficient, compared with 1% and 2% in healthcare and retail, respectively, and 7% in finance).

Manufacturing’s largest skills gap is big data: 46% of respondents expect this to be a top digital need in three years’ time, compared with 31% currently. That increase outstrips any other industry’s predictions about their future big data skills requirements. This is largely a response to Industry 4.0—the convergence of physical and digital manufacturing. Big data is not only the preserve of the traditional manufacturing industries of automotive, machinery, technology and industrial processing. Consumer companies are also manufacturers. L’Oréal requires big data skills for its production work, says Ms Weiss: “We’re seeing specialisation [of skills], in different functions, that maybe didn’t exist in companies like L’Oréal before. When we talk about big data, we’re really talking about people with deep understanding around statistics, maths and how software is evolving.” Similarly, food company Danone uses big data to analyse its manufacturing efficiency, reduce inventory and cut product waste, and Belgian beverages firm Anheuser-Busch InBev relies on big data to optimise its supplier base.

The location legacy

The largest share (50%) of respondents say that the talent pool is not large enough to satisfy their needs. Part of the problem is location. Manufacturers mostly operate through fixed-site production facilities, which bear little relationship to the locations of digital workers. Moreover, manufacturers, as with other industries, cannot compete with high-profile social-media and technology firms. Some 34% of manufacturers said that the digital workers they need are not interested in working for their company.

Manufacturers are working to increase their appeal. L’Oréal has bases in technical hubs such as New York, and is working with start-ups and business “accelerators”, such as the city’s Grand Central Tech.15 It invests in companies where it sees the opportunity to pilot a good idea. As part of its Women in Digital programme, the company has a competition for female innovators. Winning projects have led to developments in robotics, social media analytics and mobile beauty apps.16 “What we’re doing a little differently is starting with outside entrepreneurs,” Ms Weiss says. “We know that a lot of the skills we need internally are going to take time to build, and there’s great talent outside that wants to collaborate with us.”

Within three years, 55% of manufacturers plan to recruit talent from key digital “hot-spots” and 37% say that they will open offices wherever the best digital talent resides. Some forward-looking companies are even looking to open offices in the true heartlands of digital talent. In January 2015 a US car manufacturer, Ford, opened an Innovation

15 King, L. “Why L’Oréal has eyes for the new innovators”, Forbes, March 2015.

16 King, L. Women are the foundation of beauty tech breakthroughs, Forbes, November 2014.



Centre in Silicon Valley to help to support its work in autonomous and connected vehicles.17

Another option is to “upskill” workers. Part of the rationale for working with the existing workforce is a longer-term trend in which manufacturers are pulling technology skills back in-house, rather than outsourcing, according to Mr Sondergaard at Gartner. “We are jumping from a world with relatively long product cycles into one where development is iterative, meaning you have to have people who can continuously evolve a product.” Finding skilled people who can cope with both structured development work and constantly changing parameters, is “very difficult”, he says.


Do you use, or would you consider using, any of the following tools tocrowd-source a solution to a digital problem? LinkedIn(% respondents)

Figure 12: Crowd-sourced innovation

Healthcare, pharmaceuticalsand biotechnology

Manufacturing Financialservices

Retailing

91% 91% 85% 67%

17 The Wall Street Journal, “Ford wants to sharpen big data skills at its Silicon Valley Innovation Centre”, January 22nd 2015.

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CONCLUSION: DIGITAL FEAST, SKILLS FAMINEDigital skills are among the most sought after in today’s labour market. But the supply-and-demand dynamics vary by industry. This report has identified commonalities and industry-specific nuances and revealed differing moods among executives.

Across the board, there are serious digital skills deficits, with over 90% of executives citing a “moderate” or “severe” skills gap, for reasons including lack of supply, internal opposition to creating new digital jobs and lack of clarity over who should lead digital talent acquisition. Looking ahead in the period to 2018, these skills gaps are expected to change: big data and web/mobile development will be the most crucial digital skills in three years’ time. Although web and mobile development is also a top skills gap at present, the other main current gap—security—is forecast to close in the future.

Despite these skills gaps, companies across all four industries are experimenting with workarounds. In healthcare, companies are partnering with technology firms so that each can focus on their comparative advantages. Retailers are increasing their use of technical freelancers to develop apps and mobile platforms. Manufacturers are opening satellite offices nearer to the locations where digital workers can be found, and all companies are trying to address brand perception and make themselves an ‘employer of choice’ for digital talent. Companies are also increasing their M&A activity in the coming three years as a way of acquiring skills. Finally, retooling the existing workforce is not to be underestimated. Digital training initiatives for current staff can be profoundly effective in raising in-house capabilities, as well as helping staff to future-proof their own skillsets in a digital era.

While every effort has been taken to verify the accuracy of this information, The Economist Intelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in this report.

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The quest for digital skills

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