Applegate-BrunelDigitisation Index2015A research collaboration on digital activity in UK businesses

ABDI | 2015

Key Findings

E-marketing tools

61%55%

34%

Email Marketing Social Media Pay per Click Online Display

31%

44% of businesses spend over half their marketing budget online

Twice as many businesses consider email marketing important as consider display advertising important

Businesses report double the growth in turnover and profitability to job creation

7%Turnover

6%Profitability

3%Employment

Average growth levels

5% 98% 2%

88% 12%

Website

80% 20%

53% 47%

46% 54%

18% 82%

Online Banking

E-government filing

Remote Access

Intranet

E-commerce

make over half their purchases

online

45%

64%of businesses find over half their suppliers online

Businesses with / without

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Executive Summary

The Applegate-Brunel Digitisation Index, published now for the first time, is the result of an extensive research study in which over eight hundred UK businesses participated. With a score of 50 representing the midpoint between entirely undigitised and completely digitised, the index overall stands at 56.9, providing an indicative representation of the adoption of digital technology and processes across British businesses. There is appreciable regional variation, with the East Midlands leading at 60.8 (London, surprisingly, languishes in third place on 59.3) whilst the North West, at 54.0, has the furthest to go. Corporates score higher than SMEs.

Two decades on from the launch of graphical browsers, 98% of businesses now have websites, but only 17% use them to sell their products online. Firms are more likely to identify suppliers online – a quarter of companies finding over 90% of their suppliers on the web – than they are to buy online, suggesting that digital technology is still more a supplementary tool than core to business processes. There has been rapid take-up of some new channels – 41 % have adapted for smartphones and tablets, 53% consider social media important in marketing – but older digital technologies such as email marketing are important to far more businesses (61%) than newer approaches like pay-per-click (34%) and online display advertising (31%).

The strongest area of digitisation is in management processes. Government and banks have pushed companies into online tax filing (used by 80% of businesses) and online banking (88%) and this may well have prompted the automation of connected finance processes. Two fifths of businesses, however, still receive significant volumes of cash and cheques, chaining them to manual transactions and data entry – with the concomitant risks of error, fraud and graft.

The research looked at business performance solely to assess correlations with digitisation. Notably, however, it found average growth in turnover (7%) and profitability (6%) significantly outstripping employment (3%).

These initial findings from the study are shared now to highlight some of the key emerging messages. Further evaluation will be undertaken by the research team, with the intention of publishing academic papers providing more detailed analysis of the data in due course. The study will be repeated annually, both to track trends over time and also to support more substantive conclusions as a robust pattern of data emerges.

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Contents

The Applegate-Brunel Digitisation Index

Prof Zahir Irani

Dr Kawaljeet Kapoor

Dr Christina Scandelius

Prof Vishanth Weerakkody

Dr Dorothy Yen

Dr Ruth Dixon

Prof Jim Norton FREng

Gareth Parker

Advisory PanelResearch TeamBrunel University London

05

06

07

Company size

08

09

10

11

12

14

Regions

Buying

Selling

Innovating

Managing

Business performance

Implications

Oxford Univeristy

BCS, The Chartered Institute for IT

Russell Indexes

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The Applegate-Brunel Digitisation Index

Brunel University London and Applegate Marketplace Ltd have formed an academic-business collaboration to facilitate academic research, inform public policy debate and provide valuable analysis for the business community.

At its core lies the establishment of the Applegate-Brunel Digitisation Index, a new measure against which companies can benchmark themselves, that also provides a national gauge to assess take-up and use of digital technologies by businesses. This index will be published annually, to track both overall movement and also changes in different regions and types of business.

Applegate, which maintains an extensive database of businesses independent of its commercial relationships, contacted 87,440 businesses by email or telephone. Of those 1,030 opted to participate in the study and meaningful data was obtained from 830. Whilst there was no identified selection bias or claims of statistical significance, the participants were mapped against the distribution of businesses in Britain by size and by location, and were found to be a broadly representative sample.

Brunel led the design of the study, following review of pertinent academic literature, and analysis of the results. Participants were asked to respond to a series of questions using a seven point scale. In accordance with the advice of authorities in index design, minimal manipulation was applied to the resultant data, solely weighting responses to give equal emphasis to the four categories of business activity (Buying, Selling, Innovating and Managing). A score of 50 would equate to a mid-point response to every question.

Level of digitisation

57.1 55.5 53.3

Buying Selling Innovating Managing

63.5

56.9 Overall Index

ABDI | 2015 06

Company size

56.9

SMEs

68.3

With a 20% higher score, corporates are – predictably – ahead of SMEs in digitising their businessesCorporates – defined as businesses with 251 or more employees - participating in the study achieved on average an ABDI score 20% higher than SMEs. Whilst this is not surprising, it underlines the challenges smaller businesses can face in implementing new technologies and business techniques.

The graph below charts participants in the research study against all UK businesses, by number of employees (source: Business Population Estimates for the UK and Regions 2013, Department for Business Innovation and Skills). The majority of participants were micro-businesses with fewer than ten employees – just as are the majority of UK businesses.

Company size (Employees)

63%

81%

28%

15%7%

/ Employees0-10 11-50 51-250 251 +

1%

SMEs are significantly behind corporates in digitising their businesses

3% 2%

Corporates

Research participants

All UK businesses

Index score

ABDI | 2015 07

GVA £117bn

56.0

GVA £45bn

56.4

56.9

55.4

59.6

56.4

54.9

60.8

59.3

GVA £130bn

GVA £227bn

GVA £338bn

55.8GVA £101bn

GVA £88bn

GVA £113bn

GVA £52bn

GVA £110bn

54.0GVA £141bn

The highest ranked region – the East Midlands - has an ABDI score 13% higher than the lowest – the North West. Different regions led in the separate categories of business activity: the East Midlands on Buying, Wales on Selling, the South West on Innovation and the North East on Managing.

Index scores do not correlate strongly to regional Gross Value Added (GVA).

Regions

Region rankingsEast Midlands 60.8South West 59.6London 59.3East of England 56.9North East 56.4Wales 56.2

Yorkshire & Humberside 55.8South East 55.4West Midlands 54.9North West 54.0

Scotland 56.0

Overall Index 56.9

ABDI | 2015 08

Buying

Proportion of suppliers sourced online

5%

8% 8%7%

6%

% Suppliers sourced online

0 10 20 30 40 50 60 70 80 90

11%

15%

17%

Businesses are far more likely to find a supplier online than to complete a purchase50% of businesses source 70% or more of their suppliers online, only 32% make that proportion of purchases online.

Proportion of purchases made online

Half of businesses source 70% or more of their suppliers online

8%

6%7%

100

5%

21%

12%

9%

6%

% Purchases made online

0 10 20 30 40 50 60 70 80 90

7%

10%12%

7%6%

3%

100

ABDI | 2015 09

Selling

17%

/ Websites

2%9%

72%

E-marketing tools

61%55%

34%

Email marketing Social media Pay-per-click Online display

31%

98% of businesses have a website Only 17% operate transactional e-commerce websites.

61% of businesses consider email marketing importantSocial media is also important – to 54% of businesses – but only 34% consider pay-per-click important, only 31% display advertising.

Don’t have a website

Detailed product and/or service information

Company information only, no products and/or services details

E-commerce website, transactional

41% have adapted

websites for tablets and

smartphones

% considering the following an important tool for their business

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Innovating

More businesses research their competitors online than their customers

66%Monitor competitors online

52%Research customers’ requirements online

29%Conduct online surveys

15%Use Beta tools

Two thirds of businesses look up competitors, half look up customersPassive use of online information is widespread. It is not clear whether more businesses research their competitors because they focus more on them than their customers, or because it is easier to gain insight into customers from speaking with them directly.

Active engagement with customers online is rarerUnder a third of businesses survey their customers online. This may potentially be less relevant for some businesses with small, discrete customer bases. Similarly, fewer than one in six conducts online Beta testing of new ideas and innovations. Whilst such techniques have been adapted to test a wide range of products and services, they may be less pertinent to some business sectors.

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Managing

Managing is the most digitised category of business activityThe ABDI score for “Managing” is 19% higher than that for “Innovating”. Strong pull-factors from government and banks are in part responsible, with exceptionally high numbers reporting that they make extensive use of online banking and electronic communication with government (such as to file tax returns).

It is also notable that over half of businesses provide staff with remote IT access and almost half have an Intranet. Given the predominance of small businesses, the latter seems surprising. However only 14% have a transactional Intranet – even fewer than the 17% who have transactional customer-facing websites.

53% of businesses provide remote IT access to staff

Have an Intranet

46%

Intranet

Don’t have an Intranet

54%

88%80%

Online Banking E-government

Businesses make extensive use of...

£

38% receive significant volumes of cash and cheques

£££

ABDI | 2015 12

Businessperformance

45%39%

22%

Social Media Pay per Click

-12% -10% -8%

Turnover and profitability are growing faster than employment

7%Turnover

6%Profitability

3%Employment

Average growth levels

Turnover

Profitability

Employment

Increasing

Decreasing

ABDI | 2015 13

63%Customer satisfaction

33%Employee satisfaction

57%Turnover

56%Profitability

Businesses expect digitisation to improve

Almost two-thirds of businesses expect digitisation to benefit customers; only one-third, their employees

Twice as many companies are growing turnover than increasing jobsAverage growth in both turnover and profitability is also over double that in employment. The average level of growth in revenue exceeds that in profit, suggesting that costs are rising faster than revenue.

Digitisation is expected to bring benefits, chiefly to customersMore businesses expect digitisation to increase customer satisfaction (63%) than to grow revenue (57%) or profitability (56%). Only one in three businesses expect it to boost employee satisfaction – even though almost half have already provided staff with an Intranet.

One in five firms depend on the government for over half their revenueA third of businesses receive no custom from the public sector, a further 51% receive less than half their turnover from government, 18% are dependent on it for over half their revenue.

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Implications

The Applegate-Brunel Digitisation Index has been launched to provide a benchmark against which companies can measure themselves and a national gauge to assess corporate digital activity.

Although the research collaboration is only at an early stage, it has already presented some fascinating initial findings.

• A substantial majority of businesses now make use of digital technologies – operating their own websites, interacting with government and banking online.• Relatively few - 17% - sell their goods online via a transactional website.• Businesses are markedly more likely to source a supplier online and then complete the purchase offline than they are to complete the purchase online.• They are more likely to use the web to research their competitors than their customers.• Twice as many expect digitisation to benefit their customers than to benefit their employees.• On average businesses are seeing twice the growth in profitability than in employment. Further research is required to understand the implications of these findings. The initial results raise several questions which the currently available data cannot answer.

• Relatively few businesses buy or sell online. The data does not support analysis as to which side of the market drives this.• Stronger growth reported in turnover than in profitability implies costs are rising faster than revenues. With employment rising at under half the rate of either, wages are unlikely to be the source of the extra costs. This might be due to increasing investment – but it could equally stem from inefficiency.

Applegate and Brunel hope that this research will promote debate and further study in this important area. In January 2016 the second iteration of the index will be published, tracking progress towards digitisation and changes in business performance. Further information can be found at www.applegate.co.uk/abdi.html.

ABDI | 2015

Applegate Marketplace is the UK’s leading means for business buyers to source the tools, components and services they require, detailing over 17 million products and 400,000 companies.

Over 300,000 buyers a month use Applegate, and thousands of businesses publish their product information on the site. Applegate assists both buyers and sellers, providing an efficient information marketplace. The company is ISO 9001 certified and has established broad expertise in assisting firms to grow their business online.

Applegate has close links with the engineering sector, funding industrial heritage charity Grace’s Guide (www.gracesguide.co.uk) and promoting British design and manufacturing.

Brunel University London is a dynamic institution with 13,500 students and 1,700 academic and related staff operating in a vibrant culture of research excellence. Brunel comprises three colleges and three Research Institutes, conducting ground breaking studies.

Brunel maintains close links with industry in teaching, research and technology transfer, embracing an ethos of collaboration to develop investigative programmes that make substantial contributions to the body of business and management knowledge.

Brunel Business School was named “Business School of the Year” in the 2013 Times Higher Education Awards.

Brunel University LondonApplegate Marketplace

ABDI | 2015

© Applegate Marketplace Ltd 2015

Published by Applegate Marketplace Ltd, Riverside Road, Barnstaple, Devon EX31 1LSwww.applegate.co.ukenquiries@applegate.co.uk0845 600 7177