If there's one thing that can be said with certainty, it's that the computer sits at the heart of the world today. Remove it and you'll see modern civilization crash on itself. From air traffic controllers managing thousands of flights every day to the global supply chain monitoring systems keeping track of thousands of cargo ships on the ocean, global satellite networks responsible for communication and information transfer, and defense agencies monitoring global developments - every crucial industry or government function relies on the computer for effective performance.
Over the past couple of decades we have seen several industries go through digital disruption. Digitization of money was perhaps the biggest trend in this space and progress in this domain still has a long way to go. A policy brief from Georgetown Law argues that while the dollar is still the world's reserve currency, its popularity is slowly ebbing away. Having a currency as the world's reserve enables America to keep interest rates low and still stave off inflation, and the solution to maintain this privilege is by digitizing the dollar. They argue that a consistent demand for the dollar enables America to enjoy significant advantages in the global marketplace and that a digital dollar will cement this advantage further as people all over the world will be able to gain access to the dollar when they can - a fact that will ensure that the dollar's demand remains stable even as other such as China try to challenge American hegemony.
On the industry side of things, digitization has already ushered in a vast number of benefits. Before we get to that though, it is important to first understand what the term entails. Simply put, digitization is the conversion of analog data to digital. So in the context of a firm managing its supply chain operations, digitization would see the company keep digital records of lead times, variability, demand, order quantities, node capacities, and other variables. In today's age of high powered computing, this opens up the avenue to run countless analyses on the data to generate insights that are unfeasible when attempted manually.
A crucial study from McKinsey shares the true potential of digitization. It analyzes productivity and output growth across American states and outlines that by improving productivity, America can add $10 trillion to its economy by 2030. McKinsey believes that by analyzing the compounded annual growth rate (CAGR) of industries in America in tandem with their rate of digitization, we can determine whether the former is linked or dependent on the latter. It shows that there is a 70% correlation between productivity growth and digitization and that sectors that lead in digitization also lead in productivity growth. Highlighting the pitfalls of being slow towards digitization, the research firm shares:
In contrast, a group of services-led sectors (for example, accommodation and food services, healthcare) are badly lagging on productivity growth while also being among the least-productive industries. These sectors also provide a disproportionate number of jobs: while they contribute only 24 percent of economic output, they are responsible for 37 percent of hours worked. Worse, these sectors have accounted for more than two-thirds of employment growth since 2005, creating headwinds for overall productivity as more workers shift into less-productive work. These sectors tend to adopt technology more slowly than highly productive sectors do, attract lower-skilled workers, and operate more prominently in local value chains, with limited exposure to global markets.
Building on this, and taking a look at the massive benefits offered by digitization, it's unsurprising that the industry of digital transformation itself has growth rates in the double digits. A research report from Grand View Research sheds more light on the matter. It highlights that the digital transformation market was worth a stunning $731 billion in 2022 and is expected to add more than a billion dollars in market value by the end of this year and be worth $880 billion. As if this weren't enough, Grand View Research goes on to add that from 2023 until 2030, the industry will grow at an outlandish CAGR of 26.7% and sit at an unbelievable $4.6 trillion by the end of the forecast period.
Mind you, the digitization industry is not predominantly composed of hardware rich products that attract higher prices and therefore lead to higher valuations by default. The research report shares that 74.9% of the total market in 2022 was composed of professional services which involve consultants offering firms the opportunity to avail professional services on their road to digital transformation. In terms of growth, Asia Pacific will unsurprisingly outpace the broader market and post a growth rate of 29.4% over the forecast period since not only is the region untapped but it is undergoing a rapid transformation towards industrialization and development.
Finally, and particularly looking at the unbridled optimism shared around digital transformation above, it's unsurprising that the industry continued to do well even during the current high rate and inflationary environment. At least that's what the crux of the matter was during Accenture plc (NYSE:ACN)'s latest earnings call where executives shared:
Let me share a few highlights and value we created in our continued disciplined execution. I am very pleased with our record bookings for Q2 at $22.1 billion, our highest ever including 35 clients with quarterly bookings greater than $100 million, our second highest quarter on record for such bookings, representing the continued trust that our clients have in us. We delivered revenues of $15.8 billion, representing 9% growth in local currency, bringing us to $31.6 billion of revenue at 12% growth through H1 and we continued gaining market share, growing approximately 2x the market.
With these details in mind, let's take a look at some of the top industries that are ripe for digitization.
10 Least Digitized Industries That Are Ripe for Digital Transformation
Our Methodology
To compile our list of the least digitized industries that provide a significant growth opportunity, we used McKinsey's MGI Industry Digitization Index of 22 industries to select the bottom ten performers in digitization. Industries that are broadly undigitized but have some digital leaders are mentioned first, and the completely undigitized sectors follow. For more on digitization, you can also look at Top 15 Digital Transformation Companies in the U.S.
Least Digitized Industries That Are Ripe for Digital Transformation
10. Transportation and Warehousing
The transportation and warehousing industry sits at the heart of supply chain management. According to data from the Labor Department, there are more than 21,000 warehouses in America, making the sector ripe for digital transformation. Digitization in a warehouse covers several areas. These include using robots for basic operations such as picking, packing, and sorting to advanced conveyor belts that automatically identify products. Warehouse floor plans can also be designed through optimization techniques such as integer programming to ensure the optimum distance between entry and exit points and racks for products in high demand.
9. Hospitality
Hospitality is one of the broadest sectors in the economy. It covers facilities ranging from restaurants, hotels, fast food joints, and more. Digitization in hospitality ranges from automating check in and check out processes to save costs and increase efficiency to enabling guests to make online reservations.
8. Personal and Local Services
This industry covers services provided in an individual capacity to earn a wage rather than becoming part of a firm or an organization to contribute efforts at developing a product or service for sale. Digitization can enable service providers to tap into larger markets and streamline their compensation among other benefits.
7. Chemicals and Pharmaceuticals
The chemicals and pharmaceuticals sector contributes to several industries such as semiconductor fabrication and healthcare. It is a research intensive sector that stands to benefit from digitization in the manufacturing process.
6. Basic Goods Manufacturing
Basic goods manufacturing, like other manufacturing segments, is ripe for digitization since sectors like steel manufacturing are heavily reliant on manual processes.
