One of the goals of the Digital Compass 2030, adopted by the European Commission in March 2021, which sets out the main directions for digital transformation, is to significantly increase the use of information and communication technologies (ICT) by businesses in the European Union. This is expected to increase the competitive advantage of European companies, as well as support their environmental transformation and improve sustainability. A tool for monitoring progress in this regard is the annual "Digital Economy and Society Index" (DESI). In this article, you will read how European companies are doing in light of the DESI 2021 report.

W Digital Compass assumes that by 2030 at least 90 percent of small and medium-sized enterprises in the European Union will reach a basic level of digital technology use, and 75 percent of all businesses will use more advanced solutions - artificial intelligence, cloud computing, big data.

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Looking at current data, it may prove challenging to reach the targets. Admittedly, some countries are already close to meeting these targets. But many others are lagging behind, underperforming the EU average.

Integration of digital technology - basic information

The digital technology integration index in the DESI 2021 report consists of three components - "level of digitization," "digital technologies for business" and "e-commerce." The first reflects the percentage of SME companies that use ICT at least to a basic degree. The second reflects companies' use of advanced technologies, electronic structured invoices and carrying out eco-friendly activities using ICT. And the third element shows how many SMEs are selling online and the scale of their sales.

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Level of digital technology integration in EU member states

(scale of 0-100)

Source: European Commission, DESI 2021

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Digitalization of the activities of European SMEs

A company's level of digitization is determined by DESI based on how many of twelve selected criteria the company meets. Among them are:

• having a website and whether it is for informational purposes only or whether orders can be placed through it, for example,
• Internet connection with a speed of min. 30 Mbps,
• The use by min. 50 percent of employees use computers with Internet access for business purposes,
• Hiring IT specialists,
• Online sales account for at least 1 percent of turnover,
• Use of 3D printers, industrial robots, etc.

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Companies with a basic level of digitization are considered to be those that meet at least four of all twelve criteria. The average for the entire European Union was 60 percent.

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The best results in this regard are shown by the Scandinavian countries of Denmark, Finland and Sweden, where more than 80 percent of companies have already reached the required level. In addition, the first two also have the highest percentage (more than 5 percent) of companies with very high levels of digitization, i.e. those that meet a minimum of ten of the criteria.

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At the other extreme are Bulgaria and Romania, where less than 35 percent of SMEs have achieved a basic level of digitization of their operations.

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SMEs with at least a basic level of digitalisation in EU member states

(percent of SMEs)

Data for Greece (EL) were deemed unreliable.

Source: European Commission, DESI 2021

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Hiring ICT specialists

The creators of the DESI 2021 report point out that there is a large disparity in the percentage of companies employing ICT specialists, depending on their size. They also emphasize that there has been little change in this regard over the past few years. Currently, ICT specialists are employed by 76 percent of large ones (more than 250 employees), 42 percent of medium ones (50-250 employees) and only 14 percent of small ones (10-49 employees).

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Companies employing ICT specialists in the EU

(percent of companies, 2014-2020)

Source: European Commission, DESI 2021

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Digital technologies in business

As one might expect, the adaptation of ICT solutions is being implemented most quickly and fully by large companies. They are using more and more sophisticated ICT tools in their operations.

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The disparity between the largest companies and the SME sector means that despite the former's extensive use of cutting-edge solutions, the average for all EU companies is relatively low. With the rest, a similar disparity is also apparent with less advanced technologies.

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Adaptation of digital technologies by companies in the EU

(percent of companies)

Source: European Commission, DESI 2021

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For example, when it comes to Enterprise Resource Planning (ERP, from Enterprise Resource Planning) software, they are used widely in the largest companies, with 80 percent of them using them. At the same time, only 35 percent of small and medium-sized companies have adopted such solutions. This brings the average for the European Union as a whole to 36 percent.

Big data, AI, cloud computing

According to EU plans, by 2030 the use of the most advanced solutions, such as artificial intelligence, cloud computing and big data, should become 75% of businesses. But for the moment, these percentages are much lower.

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The worst situation is with the use of big data. In Europe, only 14 percent of all companies (34 percent of the largest) do so. The leader in this area is Malta, where more than 30 percent of companies analyze large data sets. It's not much worse (27 percent) in Denmark and the Netherlands. On the other hand, as many as 13 countries in the community have levels below 10 percent.

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In contrast, the adoption of artificial intelligence and cloud-based solutions looks somewhat better. Already ¼ of companies in the European Union use at least two AI-based tools. The Czech Republic achieved the best result in this regard with a percentage of 40 percent. In addition, in eight more European countries more than 30 percent of companies use at least two such tools. Ireland (14 percent), Slovakia and Estonia (15 percent each) round out the list.

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Companies using two or more AI technologies in EU member states

(percent of all companies)

Data for Cyprus (CY) and Malta (MT) not available.

Source: European Commission, DESI 2021

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As for the use of cloud computing, the report's creators considered mid- to high-end solutions, such as the hosting of company databases, the use of accounting applications, customer relationship management (CRM, from Customer Relationship Management) software and computing power. In Europe, 26 percent of companies, including 48 percent of the largest and 25 percent of SMEs, are already using these business-improving and cost-cutting solutions.

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Leading the way in the use of cloud solutions are the Scandinavian countries, which are the only ones to score higher (and significantly so) than 50 percent. In Finland, 62 percent of companies use them, in Sweden 59 percent, and in Denmark 57 percent. At the opposite end of the scale is Bulgaria with a score of 8 percent.

Double transformation

One of the results of the ongoing digitization of European businesses is expected to be that the economy will develop in a more sustainable way. This process has been called a double transformation - climate and digital. This is also reflected in DESI 2021.

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The report's creators analyzed whether ICT has helped companies achieve any of the following ten activities:

• lower energy consumption;
• Lower consumption of raw materials, equipment or consumables;
• Virtualization of products or services;
• facilitating remote work;
• limitation of business travel;
• Offering sustainable transportation alternatives;
• Generating less waste;
• Implementation of ecological design principles;
• recycling of equipment or products;
• measuring environmental impact.

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Three levels of ICT use for sustainable development were established: low - implementation of 0 to 4 activities; medium - 5 to 7 activities; high - 8 to 10 activities. The percentage of companies that succeeded in performing at least five of these activities while increasing the degree of digitization of their operations (medium and high levels) was included as another component of the "digital technologies for business" element.

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Across the European Union, companies carrying out green activities through the use of ICT account for 66 percent of the total. How this looks in each country is shown in the table.

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Companies that have achieved at least an average level of environmental activities implemented using ICT in EU member states

(percent of all companies)

Data for Cyprus (CY) and Malta (MT) not available.

Source: European Commission, DESI 2021

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E-commerce

The final component of the digital technology integration index is "e-commerce." It applies to companies in the SME sector, and consists of the percentage of companies that conduct business through e-commerce (they must achieve a minimum of 1 percent of their turnover from this source), the percentage of turnover from online sales in the global turnover of these companies, and the percentage of companies that sell online to other European Union countries.

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The DESI 2021 report shows that 17.5 percent of small and medium-sized companies in Europe are engaged in e-commerce activities. Their turnover from this is just under 12 percent. Including the largest companies in this calculation, it would be 20 and 18 percent, respectively.

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SMEs trading online and their turnover from it in the EU

(percent of SMEs and percent of SME turnover, 2015-2020)

Source: European Commission, DESI 2021

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Only 8 percent of SMEs in the entire community sell to other EU countries. But in Ireland it's as high as 18 percent, and in Austria, Belgium and the Czech Republic it's about 15 percent. Most of them face no additional difficulties in doing so. But 37 percent of companies say they face at least one obstacle to trading across borders. In a large proportion of cases, these are the high costs of shipping and eventual return of goods, which 27 percent of companies encountered. And 11 percent encountered difficulties related to unfamiliarity with foreign languages and local regulations, causing additional problems when resolving complaints or disputes with customers.

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SMEs trading online in EU member states

(percent of all SMEs)

Source: European Commission, DESI 2021