The dazzling evolution of digital technologies is changing the face of the economy and the social sphere. Some Russian sectors — such as the manufacturing industry and financial services — are well-aligned with the global trend, while some others are lagging behind, thereby creating risks for the country's economy. A team of HSE ISSEK researchers examined current approaches to measuring digital transformation and focused specifically on its uptake by a few key sectors of the Russian economy and services, benchmarking them against the global situation. The study findings were presented in the report 'Digital Transformation of Industries: Starting Conditions and Priorities' at the XXII April International Academic Conference co-organised by HSE University and Sberbank.
It would appear that the concept of digital transformation does not need extensive explanation. However, the study authors note an absence of clear-cut definitions both in academic literature and in international statistical guidelines or government documents.
While digital transformation (DT) is a broad and multifaceted concept, its specific meaning depends on the context. 'In companies, digital transformation involves production, support and management processes; in economies, it facilitates interaction among economic agents, and in societies, it enables new communication formats and solutions', according to the HSE ISSEK researchers. Within each of these broader contexts, there can be further variations and sectoral specifics affecting what is understood by DT. Many researchers conceptualise DT as continuing change (transformation) of established economic and social institutions driven by the penetration of digital technologies.
The study authors propose defining digital transformation as a series of digital technology-led qualitative changes in business processes or business models, with significant socio-economic implications.
Given that the evolution of digital technology has been extremely rapid and largely unpredictable, the authors admit that it is virtually impossible to forecast its potential long-term effects, as well as measuring and describing the overall process of digital transformation.
In Russia, the public discussion of DT is mainly about the government's policies to bring DT to the key economic and social service sectors. DT is officially one of Russia's national development goals for the period up to 2030, and the following four performance targets are being used to monitor the country's progress towards this goal.
According to the study authors, the above indicators are too limited in scope to enable a meaningful quantitative assessment of digital transformation and its effects on all spheres of life. As an example of a comprehensive description and measurement of DT, the authors refer to the OECD study Measuring the Digital Transformation: A Roadmap for the Future , in which the progress of digital transformation is measured by the adoption of digital technologies such as the Internet of Things, AI, Blockchain, cloud-based solutions, and others. There is a separate focus on the collection and analysis of available information (including Big Data) and on the changing demand for certain digital skills.
An evidence-based approach to decision-making requires quantitative data on the following aspects of digital transformation.
Each of these aspects, in turn, can have its own indicators and metrics.
The authors stress the importance of accurate description and measurement of digital transformation in today’s world amidst growing concerns over personal data protection and digital privacy, as well as the mentioned uncertainty about DT’s long-term effects.
Over the past few decades, the vast majority of sectors have made step-by-step progress in digital technology integration — from the early adoption of computers and industrial automation to home PCs and broadband access. There are a few specific aspects of DT at its current stage, five of which the study authors highlight in their paper.
Advanced technology such as AI, robotics, blockchain, virtual and augmented reality have driven this new stage of DT, creating unique opportunities and solutions and attracting more investment in ICT.
'The share of investment in advanced digital technologies has been growing and could reach 23.4% by 2023', according to the report. A further 16% increase in investment in advanced technology was reported in 2020 in the context of the Covid-19 pandemic, alongside a 3% drop in investment in traditional ICT soft- and hardware.
Today, 46% of CEOs in Russia intend to increase their companies' use of digital technology, and one in three plan to do so over the next five years. Worldwide, 56% of CEOs of major companies, according to the 2021 data, share similar plans.
The authors observe that the soaring demand for new digital solutions has dramatically accelerated their advancement from laboratory to industrial use. Quantum technology is perhaps the best example: its breakneck progress anticipated over the next 3-5 years might take the speed, reliability and security of computing and data transmission to a new level.
Changes in consumer and company needs amidst the Covid-19 pandemic give a powerful impetus to the development of technology. Over a few months of the pandemic, certain industries made as much progress in the digitalisation of their internal processes and product lines as they had in the previous 3-4 years.
In addition to its positive effects, digital transformation also comes with substantial risks, cybersecurity being perhaps the greatest challenge. In particular, the transition to remote workplaces has led to a 40% increase in the number of personal devices accessing corporate data without adequate protection.
Other risks include loss of jobs to automation, algorithmic discrimination, improper data collection and monitoring employee movement, among others.
The HSE ISSEK researchers examined the current status of digital transformation in Russia's seven major economic sectors — manufacturing, fuel and energy, agriculture, construction, transport and logistics, finance, and healthcare — and benchmarked their performance against their international counterparts.
An expert survey conducted by the HSE in 2020 revealed an uneven uptake of digital technology across Russia's economic and social service sectors. The highest demand for DT was found in the fuel and energy, finance, and healthcare sectors.
Most sectors of the Russian economy and social sphere are still in the early stages of digitalisation. 'The cost of hardware remains dominant in the structure of investment across the organisations which account for two-thirds of all domestic spending on digital economy', the report says.
There is a digital divide both among sectors and between leaders and laggards within sectors. The following factors, according to the authors, determine the rates and patterns of digital transformation in different industries.
In Russia, the manufacturing industry has been a digitalisation leader compared to other sectors, with a BDI (Business Digitalisation Index) of 36 percentage points out of 100, according to the HSE ISSEK. Globally, however, Russia ranks 21st of the 27 countries with available data on industry digitalisation. In 2019, investment in digital technology in Russia's manufacturing industry, in particular mechanical engineering and metallurgical complex companies, totalled 158.2 billion rubles.
According to HSE ISSEK estimates, digital transformation can result in a 20.2% increase in productivity (cumulatively) in Russia's manufacturing industry by 2030.
According to the authors, while the vector of digitalisation in Russian manufacturing companies is generally aligned with global trends, its pace lags substantially behind that of global leaders. 'In terms of digital technology adoption, Russia lags 5 to 10 years behind, according to various estimates — due, among other things, to the negative impact of sanctions which are hindering the country's access to advanced foreign technologies', the report says.
The authors affirm that digital transformation in Russia's fuel and energy complex is generally aligned with global trends, citing in particular the worldwide tendency, also increasingly observed in Russia, whereby energy companies join forces with organisations in other sectors to create innovative digital solutions, e. g. in the sphere of energy service delivery and billing.
One of the Russian government's declared priorities is to establish a universal digital platform to enable the creation of an inventory for keeping track of the use of all types of energy resources by public and municipal authorities and by housing and utilities providers. According to the report, current plans include 'development and implementation of intelligent centralised energy management systems and, in particular, upgrading the generating capacities of thermal, nuclear and hydro power plants'.
The authors also emphasise that in many countries, the fuel and energy sector's digitalisation is going hand in hand with fostering green growth and mitigating climate change.
In terms of digital technology adoption, Russia’s agriculture lags behind global leaders and ranks the lowest among Russian sectors, according to the HSE ISSEK's Business Digitalisation Index.
The main constraints include the digital divide between urban and rural areas (e. g. only 74.3% of Russian agricultural enterprises have broadband access) and an acute shortage of digital skills in the sector.
According to the authors, digitalisation in agriculture follows an irregular pattern and favours standalone digital solutions with shorter payback periods. As the report says, 'particularly popular are satellite-based positioning systems for farm machinery and equipment, quality control and monitoring technology, and resource inventory and management solutions'.
According to HSE ISSEK estimates, digital transformation can result in a 15.6% increase in productivity (cumulatively) in Russia's agricultural sector by 2030.
A major constraint to digital transformation in agriculture is the digital divide between urban and rural areas. Only 74.3% of agricultural enterprises in Russia have broadband internet. Another constraint is the acute shortage of digital skills in the industry.
More than 50% of construction operations in industrially developed countries use Building Information Modelling (BIM) technologies, often encouraged by forward-looking government regulations. BIM integrates multiple layers of data on various aspects of a construction project, including materials, specifications, cost, schedule, functional and performance characteristics, and even environmental conditions.
According to the Russian Ministry of Construction, only 5%-7% of Russian companies used BIM in 2017, mainly in urban 'mega-projects'. The authors note, however, that the number of construction projects using BIM has grown substantially over just a couple of years — with approximately one in five investment and construction companies having adopted the technology — in response to supporting regulations, a growing market demand and lower implementation costs.
Aside from BIM, other digital city modelling solutions, construction site drones and robotics, and other technologies used elsewhere have not yet been fully adopted by Russia's construction sector.
The Russian agenda for digital transformation in transport follows global trends, but the country's size and diversity of landscapes and climate conditions create some unique challenges. While implementing remarkable projects such as the Northern Sea Route and Eurasian transport corridors and developing its Arctic territories, Russia has experienced uneven progress with DT in its transport sector.
The pace of digital adoption depends on the mode of transport, with air transportation being the most digitalised segment. According to the report, 'leading airlines use a variety of digital solutions on the ground and in the air, including cloud services, wireless crew communication systems, automated data management, and more'. Russia's Aeroflot ranks fourth among the world's air carriers in terms of digitalisation.
Russia is also one of the few countries testing autonomous vessels for the maritime industry. In 2020, a series of solutions for automated navigation was approved, creating a technological framework for testing unmanned vessels.
According to the 2020 Autonomous Vehicles Readiness Index, Russia is one of the world's 30 leaders (ranking 26th), although the country still has a relatively low access to the latest technology. There is significant interest in improving the country's AV readiness and relevant regulatory framework.
According to HSE ISSEK estimates, digital transformation can result in a 20.04% increase in productivity (cumulatively) in Russia's transport and logistics by 2030.
'True digital transformation in the transport industry requires the involvement of most industry actors, including SMEs', the authors conclude.
Both in Russia and worldwide, the finance sector is the fastest adopter of digital technology. In Russia, it is also the country's absolute leader in the use of broadband and cloud-based solutions.
According to the study authors, Russian financial sector companies are actively investing in building their digital ecosystems. Sberbank, one of the pioneers in this sphere, invested about a billion dollars, or 3% of its profits, between 2016 and 2019 in purchasing assets for its digital ecosystem, which now comprises of several dozen operations such as DomClick online mortgage gateway, SberMobile virtual network operator, Okko online cinema, and others.
According to HSE ISSEK estimates, digital transformation can result in a 14.07% increase in productivity (cumulatively) in Russia's finance sector by 2030.
In 2020, investment in fintech start-ups by venture funds alone stood at 21.9 billion rubles. The country's entire fintech market, according to some estimates, was worth $940 million in 2020. This, according to the report, places Russia — where 82% of the citizens use various fintech services — among the top three leading countries with the highest rates of fintech penetration.
The COVID-19 pandemic has further accelerated the digital medicine boom in Russia. Telemedicine has been used for healthcare delivery since 2018, and in 2019, 697,000 remote consultations were held using telemedicine, including more than 100,000 case conferences and some 400,000 patient appointments leading to hospitalisation.
According to HSE ISSEK estimates, digital transformation can result in a 22.19% increase in productivity (cumulatively) in Russia's healthcare sector by 2030.
In 2020, regional telemedicine centres were set up to deliver care remotely to COVID-19 patients, including remote patient monitoring in the home environment and remote consultations with physicians.
Starting in 2021, digital maturity monitoring has been launched in the healthcare sector at the federal level, covering the following areas.
The researchers warn that digital transformation is a complex, unconventional and largely unpredictable process which requires certain fundamental conditions such as technological and managerial readiness across organisations and markets.
Only a few sectors in Russia are ready for digital transformation, according to the HSE ISSEK experts. 'Trying to implement DT without proper preparation is likely to doom it', they emphasise. At the start of 2021, certain government agencies were instructed by the Russian President to design digital transformation strategies for the key sectors of the country's economy and social sphere. The HSE researchers expect to see resulting strategies which are varied in terms of ambition, and some may 'fail to live up to their title' due to extremely uneven levels of digitalisation across industries and to some other factors.
In particular, the authors point out the role of the state in successful digital transformation experienced by some countries worldwide. In most of these cases, the state initiated the first steps, sometimes by launching and implementing demonstration projects, but soon stepped aside to allow the market to select effective solutions. In Russia, however, there are persistent attempts to 'organise' digital transformation within the public sector using a limited range of tools and outdated approaches.
The HSE ISSEK experts are convinced that digital transformation should focus on promoting and disseminating best practices, developing and training human resources, and providing an enabling regulatory framework.
Based on the report 'Digital Transformation of Industries: Starting Conditions and Priorities'. Academic editors: L.M. Gokhberg, P.B. Rudnik, K.O. Vishnevsky, T.S. Zinina. Authors: G.I. Abdrakhmanova, K.B. Bykhovsky, N.N. Veselitskaya, K.O. Vishnevsky, L.M. Gokhberg, A. Yu. Grebenyuk, T.S. Zinina, D.D. Maksimenko, A.A. Nazarenko, L.N. Proskuryakova, S.G. Privorotskaya, P.B. Rudnik, A.B. Suslov, N.N. Tarasova, Yu.V. Turovets, K.E. Utyatin, P.O. Shparova.