Connecting CommerceBusiness confidence in The Netherlands’ digital environmentA report from The Economist Intelligence Unit

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The Netherlands

For a country that regularly features in the top tier of major global technology and competitiveness rankings,1 The Netherlands’ business executives display a fairly limited degree of confidence in their cities’ digital environment. Amsterdam fares almost as well in comparative studies of urban centres,2 yet an overall score of 6.41 on a 1-10 scale provided by its executives places it at 29th in the Digital Cities Barometer. Confidence is considerably lower in Rotterdam, where a 5.83 score translates to 41st place amongst 45 cities.

As with other digitally advanced European cities that register comparatively low barometer readings (such as Berlin and Stockholm), those in Amsterdam may

be viewed more as a sign of frustration with high unmet expectations rather than criticism of the city’s actual level of digital development. Ger Baron, the City of Amsterdam’s chief technology and innovation officer, acknowledges its weaknesses, such as a shortage of talent, but describes it as a young (in terms of its large student population), thriving and entrepreneurial digital hub. Amsterdam has, he says, made enormous strides in the past five years in transforming itself from a city of banks and industrial companies to one of Europe’s leading start-up centres.

6.41 29th

5.83 41st

Amsterdam

Rotterdam

Score (out of 10) Rank (out of 45)

1 For example, the World Economic Forum’s Global Information Technology Report 2016, in which The Netherlands is ranked sixth among 139 countries; or the same organisation’s Global Competitiveness Report 2016–2017, where it stands in fourth position among 138 countries.

2 For example, Amsterdam ranks fifth among 60 cities in the European Digital City Index 2016, which is produced by Nesta, a UK-based think-tank that promotes entrepreneurship; and it features in the top 20 cities (in 19th place) in the Global Startup Ecosystem 2017 Report, an annual ranking generated by Startup Genome, another entrepreneurship advocacy and research group.

Figure 1: Overall barometer readings—Dutch cities

2 Telstra — Connecting Commerce © The Economist Intelligence Unit Limited 2017 3

Amsterdam executives point to big data analytics and the Internet of Things (IoT) as the types of expertise most needed to drive digital transformation in their businesses. The two are in reality closely intertwined, as part of the job of data scientists—using the analytics tools at their disposal—is to analyse the growing volumes of data generated by IoT sensors embedded in all manner of physical objects. Much of the power of “smart cities” rests on these data and the insights derived from its analysis. In cities such as Amsterdam, smart transport, energy, health and other consumer apps and services are built on these foundations.

What specific types of knowledge are required to master the IoT, beyond the technical capabilities of sensors and networks? Advanced data analytics is certainly one, according to Mrs Baron, along with a knowledge of how to build useful services on the back of IoT-generated data. Another component, he says, is cyber security. “The biggest challenge for the IoT over the next two years will be security. It is becoming clear that everything is hackable, and that includes sensors. Any organisation developing applications based on the IoT is running a risk of a security breach.”

Dedicated courses in these and related fields are taught at the Amsterdam School of Data Science, which is a joint initiative of four city universities. The 266 master’s and bachelor’s level courses on offer include dozens relating to data mining, storage and analysis. Also on offer are courses relating to security technologies, processes and techniques; the use of artificial intelligence and

machine learning techniques; and networking, where IoT (and other) technologies are part of the curriculum. Many of the school’s data, security and other programmes are tailored to specific fields of activity, such as healthcare, media, the arts and social welfare.

“Amsterdam has a strong pedigree in data,” says Mr Baron, adding that its large student population is increasingly data-oriented. The graduates of the School of Data Science and other local institutions will help to meet the expertise needs the surveyed Amsterdam executives identify —although probably not, says Mr Baron, in the numbers required.

Figure 3: Digital skills most needed by organisations to support their digital transformation initiatives

Amsterdam Rotterdam

Big data analytics

Internet of Things

Digital security

19%

22%

30%

Studying data science and the Internet of Things

Digital ambitions and constraintsAmsterdam businesses share a characteristic with those in other recognised digital hubs such as London, San Francisco and New York: a strong motivation to use digital transformation as a means not just of achieving cost efficiencies, but of developing innovative new ideas for products and services. In Rotterdam, by contrast, cost savings are by far the primary motivation behind firms’ transformation initiatives, suggesting a more limited view of what digital technology can help them achieve.

The challenges companies face in both cities are numerous, but the most frequently cited amongst these (by 33% of respondents in Rotterdam and 28% in Amsterdam) are funding constraints. Opportunities to finance their digital initiatives appear more ample in Amsterdam, where the chief source of funding is government programmes, a result of the city administration’s long-running efforts to foster technology innovation through Amsterdam Smart City and start-up support programmes (see “When the government takes the lead”, page six).

Another major challenge to firms’ digital ambitions in both cities is talent shortages. Mr Baron confirms that companies based in Amsterdam cannot find enough technology talent to meet their demand. He adds, however, that Amsterdam is no different in this regard than any other city. “As elsewhere, skilled digital specialists are scarce,” he says. “We are developing new industries with new types of services, and the types of expertise needed to deliver them are also relatively new. Our universities educate a lot of people, but there are never enough data scientists, programmers or other specialists.”

The survey respondents offer a modest appraisal of the ability of their local educational institutions to train students with the digital skills that businesses need. In Amsterdam, 44% of respondents say their universities and schools are “very” or “generally” effective in this regard, but a larger share, at 47%, say they are no better than “partly” effective. In Rotterdam, 55% say their establishments are at best “partly” effective at producing digital talent.

Mr Baron is more complimentary of Amsterdam’s educational institutions. “They have made tremendous progress in the last three to five years. Their curricula used to be extremely academic, but under new leadership digital programmes are

now prominent at all of them.” The city administration has provided financial backing to a programme launched in May 2017 by three Amsterdam universities—the Digital Society School—which plans to equip 12,000 students over next few years with a combination of technology, design and creative skills.3 (See also “Studying data science and the Internet of Things”.)

3 “New educational initiative: Digital Society School”, published May 19, 2017 on the website of the Amsterdam University of Applied Sciences; and “New HvA Digital Society School”, published August 4, 2017 on the website of the Amsterdam School of Data Science. The other two institutions behind the initiative are the Vrije Universiteit (VU) Amsterdam and the University of Amsterdam.

Figure 2: Organisations’ chief motivations for pursuing digital transformation initiatives

31%

28%

31%

Amsterdam

41%

37%

52%

30%

Rotterdam

Develop innovative ideas for new products/servicesReach new customer segmentsCost savings

© The Economist Intelligence Unit Limited 2017 54 Telstra — Connecting Commerce

All in all, business executives expect the role of city support for their digital transformation to grow in importance in the next few years. The ASC, the IoT Living Lab and other government-sponsored data-sharing initiatives are doubtless factors in fuelling such expectations. When it comes to data, says Mr Baron, “we collaborate with almost every large company and many small companies in the city. They are all very involved in Amsterdam’s digital transformation.”

The next step in the latter process, according to Mr Baron, is the full-scale digitisation of the city administration itself. The aforementioned projects and other experiments have helped it to learn much about what digital services citizens and businesses need from government. The time for experiments is over, however, says Mr Baron. “Now it’s time to use digital to redesign the government.”

Figure 4: The most helpful external groups in assisting firms’ digital transformation efforts

25%

22%

28%

Amsterdam

11%

22%

31%

Rotterdam

30%

Business associations and eventsGovernment programmes and eventsInnovation labs and centres

4 See “The iBeacon Living Lab’s ambition to grow the internet of things”, The Guardian, February 5, 2016.

When the government takes the leadThe city administration is a major player in Amsterdam’s digital ecosystem. Its main role is that of a facilitator (rather than a provider of direct financial support to start-ups, for example, a role that is left to national government agencies). The most prominent facilitator of digital initiatives is Amsterdam Smart City (ASC), a public-private partnership launched in 2009 between the municipal government, the Amsterdam Economic Board, a telecoms company (KPN) and a power grid operator (Alliander), amongst others. As the city’s chief technology officer, Mr Baron presides over the ASC’s operations.

The ASC describes itself as a digital innovation platform connecting dozens of partners such as municipal agencies, research institutes, start-ups, individual developers and inventors, as well as large companies. The purpose of the platform is

to enable idea and data sharing amongst all these stakeholders—with the help of an open-data portal and APIs (application programming interfaces)—which result in new apps and digital services. The roughly 100 products developed thus far through the ASC span a variety of uses such as energy monitoring, waste recycling, bicycle and car sharing, parking, route planning, and many others. The products (and the revenue they generate) are the assets of the organisations that develop them, although the data they generate are generally shared through different parts of the ASC platform.

Another city government initiative with similar objectives is the IoT Living Lab, an open infrastructure environment located in the city centre, powered by stationary beacon devices (which detect signals from mobile devices via Bluetooth) and

a low power wide area network (LoRaWAN), which allows start-ups and individual developers to test new mobile applications.4

Amsterdam businesses make considerable use of data made available from these and other government-affiliated programmes. Over half (53%) of surveyed executives there say open government data are important to their business, and 44% say their firms make periodic or frequent use of it. (The corresponding figures in Rotterdam are 48% and 41%.) In both cities, pursuing “new business opportunities” is a major reason they use such data. At the same time, majorities in both cities (56% and 52% respectively) believe their governments could make much better use of the data that they collect.

6 Telstra — Connecting Commerce © The Economist Intelligence Unit Limited 2017 7