**3. The state of the digital economy in the Czech Republic**

Regarding the current state of the digital economy in the Czech Republic, in *Digital Economy and Society Index* 2016 (DESI), the Czech Republic has an overall score of 0.5 and ranks 17th out of the 28 EU member states (see **Table 1**). An international view of the state of the digital economy in the Czech Republic offers the *Digital Development Index*. The index focuses on the period 2008–2013 and takes into account the four sets of factors: supply, demand, innovation, and institutions [15].

The Czech Republic, according to this index, lags behind the average, especially in the area of innovation and quality of institutions; on the contrary, better than the average result is confirmed in the field of digital infrastructure. By individual countries' results, there is a risk of deepening stagnation in the context of international competition, which the Czech Republic is indeed threatening if the digital economy is not further developed and the state administration will not receive the appropriate attention on this topic.

Therefore, the crucial task is, to sum up, the way of government policy direction and the key measures that individual government officials take to prepare for the development of the digital market. Creating approaches in the form of strategic documents could not replace existing and approved conceptual documents, but preferably cover them. In some areas, the


**Table 1.** DESI ranking.

*Brno*, September 2015, and approved by the Government of the Czech Republic on 24 August 2016. The *Ministry of Industry and Trade* (MIT) plays a vital role in the implementation process. However, there is a robust interdisciplinary cooperation between the ministries, social and

Objectives of the policy are based on the national strategy developing the vision of a fully digital economy toward the real cyber revolution within the Czech Republic. The conceptual proposal is based on data and information collected by the experts and provides recommendations for next steps in several areas. The focus is on building data and communication infrastructure, the adaptation of the education system, introduction of new tools in the labor market, adaptation of the social environment, and financial help for the companies related to the introduction of new technologies and know-hows. There are three primary objectives [9]: first, to enhance the ability of Czech companies to be involved in the global supply chain; second, the implementation of the Industry 4.0 principles will lead to more efficient manufacturing, meaning faster, cheaper, and resource-effective production; third, to enhance the cooperation with R&D and industry association, universities, and Academy of Sciences of the Czech Republic for the development of software solutions, patents, production lines, and

According to *Roland Berger Industry 4.0 Readiness Index* based on industrial excellence (production process sophistication, degree of automation, readiness workforce, and innovation intensity) and value network (focus on high value-add, industry openness, innovation network, and internet sophistication), the Czech Republic is included into "*traditionalists*," that is, countries (for example Slovenia, Slovakia, Lithuania, and Hungary) that benefit from a high-quality industrial base but have not yet introduced initiatives to shift the industry to a new era [10]. Czech businesses benefit from active participation in online trade and belong to the countries with high manufacturing share, but with a low level of readiness to Industry 4.0. Moreover, a significant share of enterprises' total turnover derived from e-commerce contributes to a stable position of the Czech Republic in the area of e-commerce among the EU member states. To sum up, according to Ref. [11], following dimensions show similar tendencies, including digital infrastructure, integration of digital technology, investments, and access to finance and ICT start-ups. On the other hand, Czech Republic faces challenges regarding

The paradigm of Industry 4.0 is essentially outlined by three dimensions [12–14]: (1) horizontal integration across the entire value creation network, (2) end-to-end engineering across the entire product life cycle, and (3) vertical integration and networked manufacturing systems. Based on these dimensions, it can be defined that digitalization creates value for individuals, corporations, and society alike. On the corporate side, it can expand reachable markets for companies both domestically and internationally, increasing sales potential. The business also benefits from the productivity increase that comes with the digitalization of corporate processes, for instance, in digitized supply chains, automated production lines, and digitized distribution systems [8]. Digitalization is a challenge for each country, and Alm et al. [8] represents that

entrepreneurial culture and the supply and demand of digital skills.

**2.1. How digitalization drives value**

industrial partners, and academia [9].

24 Digital Transformation in Smart Manufacturing

export know-hows.

state administration has not yet been prepared, and therefore it will be necessary to prepare a situational analysis on some topics first, which will show which approach is best suited to select. One of the critical elements of the *Czech Digital Agenda* concept [16], which the Czech Republic is also promoting in the EU, is the emphasis on smart regulation based on quality data and arguments assessing the need for regulatory measures. Any state intervention in this sector must not hamper the dynamic development of digital technologies.

**1.** Connectivity—fixed broadband, mobile broadband, broadband speed and prices

**3.** Use of Internet—Citizens' use of content, communication, and online transactions

Over the last year, the country progressed in *digital public Services*, remained stable in *human capital*, and worsened its ranking in the other dimensions. The country performs best in *integration of digital technologies by Businesses*, mostly because many SMEs embrace e-commerce. The Czech Republic is well positioned regarding *4G coverage* (94%), but overall performance in the *connectivity* dimension is stagnating. The country's highest challenge is to improve the use of Internet services, in particular for e-government, entertainment, and social purposes. These problem areas are the result of a not-too-active government that is supposed to create the conditions for broader use of the Internet and the digitization of public services. The Czech Republic belongs to the *medium-performing cluster of countries* (the group consisting of Latvia, Czech Republic, Slovenia, France, Portugal, Spain, Lithuania, Malta,

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The Czech Republic's overall performance in the *connectivity* dimension has been stagnating relative to the EU average, with insufficient progress since the previous year. While the *fixed broadband* full coverage target has almost been met, *NGA coverage* has not improved much, keeping the Czech Republic in 20th position across the EU. The relative increase in the fixed broadband price might explain the decreasing number of fixed broadband subscriptions.

On a more positive note, the country is well positioned regarding *4G coverage* (9th place), and progress in the assignment of the harmonized spectrum is promising in this respect. Take-up is growing more slowly. The growth of subscriptions to fast broadband is achieved mainly in the (well-developed) urban areas. In the rural areas, the lack of infrastructure is expected to be tackled through structural intervention cofinanced with EU funds within the *Operational* 

More generally, however, the actual level of competition has hardly stimulated *FTTB/FTTH* (fiber laid all the way to the building/home) deployment. While ESIF funds are used for deployment of NGA in rural areas, it remains to be seen whether the current approach is sufficient to achieve *digital agenda* targets. The regulatory support to NGA deployment is not entirely in place as the transposition of the *Cost Reduction Directive* is subject to significant delays. Finally, next to funding in areas of market failure, targeted policies and measures

In the *human capital* dimension, the Czech Republic ranks 13th, a stable position compared with last year. In 2016, more people are online and use the Internet regularly compared to 2015. However, there is a slight decline in the level of the population's digital skills. In an economy

*Program Enterprise and Innovations for Competitiveness* (OPEIC).

might also be useful to increase user demand.

**4.** Integration of digital technology—business digitization and e-commerce

**2.** Human capital—Internet use, basic and advanced digital skills

**5.** Digital public services—e-government

Germany, and Austria) [15].

Consequently, to maintain the synergy effect, it is necessary to create the role of *coordinator* for the purpose to oversee and link governmental activities to support the digital agenda and to ensure intensive cooperation within public administration and communication with the professional and nonprofessional public. The following are among the umbrella principles that will be linked to all the activities of the coordinator and will be at the core of the entire coordination activity [16]: (1) digital by default—support for modern public administration, which takes priority of digital means of communication, both inside and outside of the authorities, (2) supporting the digital economy by setting up a legislative environment that does not impede the dynamic development of this sector promotes fair and equitable market conditions and protects consumers' rights, (3) reduces administrative burdens for citizens and entrepreneurs, (4) openness of public administration, which the digital age allows well making data accessible to the public not only helps to increase the transparency of the state apparatus but also supports the development of innovation, which builds on open state data.

#### **3.1. Digital progress**

We employed the results of the *Europe's Digital Progress Report* [15] (EDPR) that tracks the progress made regarding their digitization, combining quantitative evidence from the *Digital Economy and Society Index* (DESI) with qualitative information on country-specific policies. A comparison of the subfactors is shown in **Figure 1**, which contains European countries, including the European average (EU). EDPR is structured around five chapters [15]:

**Figure 1.** Digital Economy and Society Index 2017 ranking. Source: Europe's Digital Progress Report (EDPR) 2017, Country Profile Czech Republic (CZ).


state administration has not yet been prepared, and therefore it will be necessary to prepare a situational analysis on some topics first, which will show which approach is best suited to select. One of the critical elements of the *Czech Digital Agenda* concept [16], which the Czech Republic is also promoting in the EU, is the emphasis on smart regulation based on quality data and arguments assessing the need for regulatory measures. Any state intervention in this

Consequently, to maintain the synergy effect, it is necessary to create the role of *coordinator* for the purpose to oversee and link governmental activities to support the digital agenda and to ensure intensive cooperation within public administration and communication with the professional and nonprofessional public. The following are among the umbrella principles that will be linked to all the activities of the coordinator and will be at the core of the entire coordination activity [16]: (1) digital by default—support for modern public administration, which takes priority of digital means of communication, both inside and outside of the authorities, (2) supporting the digital economy by setting up a legislative environment that does not impede the dynamic development of this sector promotes fair and equitable market conditions and protects consumers' rights, (3) reduces administrative burdens for citizens and entrepreneurs, (4) openness of public administration, which the digital age allows well making data accessible to the public not only helps to increase the transparency of the state apparatus but also supports the development of innovation, which builds on open state data.

We employed the results of the *Europe's Digital Progress Report* [15] (EDPR) that tracks the progress made regarding their digitization, combining quantitative evidence from the *Digital Economy and Society Index* (DESI) with qualitative information on country-specific policies. A comparison of the subfactors is shown in **Figure 1**, which contains European countries,

**Figure 1.** Digital Economy and Society Index 2017 ranking. Source: Europe's Digital Progress Report (EDPR) 2017,

including the European average (EU). EDPR is structured around five chapters [15]:

sector must not hamper the dynamic development of digital technologies.

**3.1. Digital progress**

26 Digital Transformation in Smart Manufacturing

Country Profile Czech Republic (CZ).

Over the last year, the country progressed in *digital public Services*, remained stable in *human capital*, and worsened its ranking in the other dimensions. The country performs best in *integration of digital technologies by Businesses*, mostly because many SMEs embrace e-commerce. The Czech Republic is well positioned regarding *4G coverage* (94%), but overall performance in the *connectivity* dimension is stagnating. The country's highest challenge is to improve the use of Internet services, in particular for e-government, entertainment, and social purposes. These problem areas are the result of a not-too-active government that is supposed to create the conditions for broader use of the Internet and the digitization of public services. The Czech Republic belongs to the *medium-performing cluster of countries* (the group consisting of Latvia, Czech Republic, Slovenia, France, Portugal, Spain, Lithuania, Malta, Germany, and Austria) [15].

The Czech Republic's overall performance in the *connectivity* dimension has been stagnating relative to the EU average, with insufficient progress since the previous year. While the *fixed broadband* full coverage target has almost been met, *NGA coverage* has not improved much, keeping the Czech Republic in 20th position across the EU. The relative increase in the fixed broadband price might explain the decreasing number of fixed broadband subscriptions.

On a more positive note, the country is well positioned regarding *4G coverage* (9th place), and progress in the assignment of the harmonized spectrum is promising in this respect. Take-up is growing more slowly. The growth of subscriptions to fast broadband is achieved mainly in the (well-developed) urban areas. In the rural areas, the lack of infrastructure is expected to be tackled through structural intervention cofinanced with EU funds within the *Operational Program Enterprise and Innovations for Competitiveness* (OPEIC).

More generally, however, the actual level of competition has hardly stimulated *FTTB/FTTH* (fiber laid all the way to the building/home) deployment. While ESIF funds are used for deployment of NGA in rural areas, it remains to be seen whether the current approach is sufficient to achieve *digital agenda* targets. The regulatory support to NGA deployment is not entirely in place as the transposition of the *Cost Reduction Directive* is subject to significant delays. Finally, next to funding in areas of market failure, targeted policies and measures might also be useful to increase user demand.

In the *human capital* dimension, the Czech Republic ranks 13th, a stable position compared with last year. In 2016, more people are online and use the Internet regularly compared to 2015. However, there is a slight decline in the level of the population's digital skills. In an economy close to full employment and where demand for professional profiles is high, recruitment of ICT specialists is increasingly tricky: in 2016, 66% of enterprises reported having had difficulties in hiring ICT specialists, the highest level in the EU and up from 47% in 2012.

The Czech government has launched in 2016 the *Initiative 202020*, which aims to make the Czech Republic one of the top 20 countries in Europe for the use of e-government services by 2020. The initiative—jointly run by the private sector and the Czech authorities—focuses on the promotion of existing e-government services and support for the development of new services. Despite the progress in both demand and supply of e-government services over the past year, the performance of *Czech Digital Public Services* remains below EU average. Also, the drawdown of available EU funds for the development of e-government services has been low so far. The actions put in place by the country to improve availability, quality, and promotion

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We also employed the *Digital Transformation Scoreboard* [11], which is part of the *Digital Transformation Monitor* (DTM). The DTM aims to foster the knowledge base on the state of play and evolution of digital transformation in Europe. A clustering analysis of enabling conditions and outcomes of digital transformation was performed with the objective of grouping countries based on their similarities regarding enabling conditions leading to digital transformation. This analysis helped define four principal groups of countries based on their enabling conditions: best enabling environment; good enabling environment; moderate enabling envi-

Geographic clustering of EU digital transformation enabling environments and the Czech Republic is included into "*moderate*" enabling environment (the group consisting of Cyprus, Estonia, Italy, Lithuania, Portugal, Slovakia, and Slovenia) [11]. Developed *Digital Transformation Enablers' Index* (DTEI) indicates that, in general, the higher a member state ranks in the DTEI, the higher it is likely to rank in the *Digital Technology Integration Index* (DTII). In **Figure 2**, we can rank the Czech Republic with a higher score for the DTII and slightly lower DTEI, meaning that there is potential for development of enablers but needs to

of e-government services could contribute to improvements in this dimension.

ronment; modest enabling environment [11].

improved digital technology integration.

**Figure 2.** Digital transformation scores as a function of enabling condition cores.

Beyond formal and informal training, digital literacy of Czech citizens is also promoted through the *Digital Literacy Strategy* for 2015–2020 to prepare people to exploit the potential of digital technologies for their lifelong development. *The Action Plan of the Digital Literacy Strategy 2015–2020* was approved in 2016, and it details the thematic actions to be implemented by the end of 2020. These include equipping workers with the digital competencies needed to enter the labor market and retraining employees facing changes due to digitization and globalization. Actions also target training of employees of SMEs and self-employed, civil servants, as well as employers for the introduction of teleworking and remote work. The digital literacy strategy and in particular its strategic competitiveness goal count on employers' active collaboration for the implementation of the measures. On 24 October 2016, the "*National Coalition for Digital Jobs*" was signed by the Ministries of Education, Labor and Social Affairs, Industry and Trade and the Czech ICT Alliance (ICT sector representatives). The successful implementation of the actions above will significantly benefit the country's human capital.

Regarding the propensity of individuals to use *Internet services*, the Czech Republic over the last year made little progress and fell from rank 21 to rank 22. Although well above the EU average, in 2016, there were fewer Czech Internet users reading news online (82%) than in 2015. Czech Internet users performed banking transactions online more than other Europeans (63% compared to 59%) and increasingly shopped online, although still not in line with the EU average (57% compared to 66%). They used the Internet for entertainment (music and video) and communication (social networks) less than the average European. Video on demand use was unusually low, placing the country at the bottom of the ranking in the EU.

The Czech Republic over the last year made little progress in the dimension concerning the *integration of digital technology by businesses*. However, this is the dimension where the country performs best. Czech enterprises increasingly take advantage of the possibilities offered by online commerce: one-quarter of SMEs sell online, half of them cross the border, and they are second in the EU for e-commerce turnover. However, RFID, use of e-invoices, social media, and cloud are below EU average. To catch up with digital technologies, an open laboratory-testing facility will be established to support SMEs at the *Czech Technical University* (CTU). The representatives of Germany and Czech Republic met to sign an agreement on cooperation on the Industry 4.0 project. Czech Republic was represented by the *Czech Institute of Informatics, Robotics and Cybernetics*, while Germany was represented by the *German Research Centre for Artificial Intelligence* (DFKI).

The area of *digital public services* is the dimension where the Czech Republic has progressed the most, although it is still below average in all indicators: it ranks 22nd among EU countries. Online interaction between public authorities and citizens is one of the lowest in the EU: only 15% of Czech Internet users actively engage in the use of e-government services, although this figure has improved. The increase in the use of e-government services suggests that measures taken to improve their supply are having a positive impact: the availability of prefilled forms and the level of online service completion have indeed also increased.

The Czech government has launched in 2016 the *Initiative 202020*, which aims to make the Czech Republic one of the top 20 countries in Europe for the use of e-government services by 2020. The initiative—jointly run by the private sector and the Czech authorities—focuses on the promotion of existing e-government services and support for the development of new services. Despite the progress in both demand and supply of e-government services over the past year, the performance of *Czech Digital Public Services* remains below EU average. Also, the drawdown of available EU funds for the development of e-government services has been low so far. The actions put in place by the country to improve availability, quality, and promotion of e-government services could contribute to improvements in this dimension.

close to full employment and where demand for professional profiles is high, recruitment of ICT specialists is increasingly tricky: in 2016, 66% of enterprises reported having had difficul-

Beyond formal and informal training, digital literacy of Czech citizens is also promoted through the *Digital Literacy Strategy* for 2015–2020 to prepare people to exploit the potential of digital technologies for their lifelong development. *The Action Plan of the Digital Literacy Strategy 2015–2020* was approved in 2016, and it details the thematic actions to be implemented by the end of 2020. These include equipping workers with the digital competencies needed to enter the labor market and retraining employees facing changes due to digitization and globalization. Actions also target training of employees of SMEs and self-employed, civil servants, as well as employers for the introduction of teleworking and remote work. The digital literacy strategy and in particular its strategic competitiveness goal count on employers' active collaboration for the implementation of the measures. On 24 October 2016, the "*National Coalition for Digital Jobs*" was signed by the Ministries of Education, Labor and Social Affairs, Industry and Trade and the Czech ICT Alliance (ICT sector representatives). The successful implementation

Regarding the propensity of individuals to use *Internet services*, the Czech Republic over the last year made little progress and fell from rank 21 to rank 22. Although well above the EU average, in 2016, there were fewer Czech Internet users reading news online (82%) than in 2015. Czech Internet users performed banking transactions online more than other Europeans (63% compared to 59%) and increasingly shopped online, although still not in line with the EU average (57% compared to 66%). They used the Internet for entertainment (music and video) and communication (social networks) less than the average European. Video on demand use

The Czech Republic over the last year made little progress in the dimension concerning the *integration of digital technology by businesses*. However, this is the dimension where the country performs best. Czech enterprises increasingly take advantage of the possibilities offered by online commerce: one-quarter of SMEs sell online, half of them cross the border, and they are second in the EU for e-commerce turnover. However, RFID, use of e-invoices, social media, and cloud are below EU average. To catch up with digital technologies, an open laboratory-testing facility will be established to support SMEs at the *Czech Technical University* (CTU). The representatives of Germany and Czech Republic met to sign an agreement on cooperation on the Industry 4.0 project. Czech Republic was represented by the *Czech Institute of Informatics, Robotics and Cybernetics*, while Germany was represented by the *German Research Centre for Artificial Intelligence* (DFKI). The area of *digital public services* is the dimension where the Czech Republic has progressed the most, although it is still below average in all indicators: it ranks 22nd among EU countries. Online interaction between public authorities and citizens is one of the lowest in the EU: only 15% of Czech Internet users actively engage in the use of e-government services, although this figure has improved. The increase in the use of e-government services suggests that measures taken to improve their supply are having a positive impact: the availability of prefilled forms

ties in hiring ICT specialists, the highest level in the EU and up from 47% in 2012.

28 Digital Transformation in Smart Manufacturing

of the actions above will significantly benefit the country's human capital.

was unusually low, placing the country at the bottom of the ranking in the EU.

and the level of online service completion have indeed also increased.

We also employed the *Digital Transformation Scoreboard* [11], which is part of the *Digital Transformation Monitor* (DTM). The DTM aims to foster the knowledge base on the state of play and evolution of digital transformation in Europe. A clustering analysis of enabling conditions and outcomes of digital transformation was performed with the objective of grouping countries based on their similarities regarding enabling conditions leading to digital transformation. This analysis helped define four principal groups of countries based on their enabling conditions: best enabling environment; good enabling environment; moderate enabling environment; modest enabling environment [11].

Geographic clustering of EU digital transformation enabling environments and the Czech Republic is included into "*moderate*" enabling environment (the group consisting of Cyprus, Estonia, Italy, Lithuania, Portugal, Slovakia, and Slovenia) [11]. Developed *Digital Transformation Enablers' Index* (DTEI) indicates that, in general, the higher a member state ranks in the DTEI, the higher it is likely to rank in the *Digital Technology Integration Index* (DTII). In **Figure 2**, we can rank the Czech Republic with a higher score for the DTII and slightly lower DTEI, meaning that there is potential for development of enablers but needs to improved digital technology integration.

**Figure 2.** Digital transformation scores as a function of enabling condition cores.

The Czech Republic performs in line with the EU member states average in three (*integration of digital technology*, *changes in ICT start-up environment*, and *investments and access to finance*) out of seven dimensions (the remaining four ranks are *entrepreneurial culture*, *supply and demand of digital skills*, *e-leadership*, and *digital infrastructure*). Despite high marks in *e-leadership* at the national level, in comparison to the EU partners, the country is still slightly below the EU average. In the dimension entrepreneurial culture, the country scores significantly below the average of EU member states, to be precise 36% lower. Similarly, there is a shortfall regarding supply and demand of digital skills, the country's performance is around 18% below the EU average. The Czech Republic scores slightly above the average of the EU member states regarding investment and access to finance. Overall, the country performs broadly in line with the EU average. However, there is room for improvement in entrepreneurial culture and supply and demand of digital skills.

• *Regulate for the future*—review data protection legislation, push for a European digital single market, promote and creatively approach the sharing economy and new business models, increase labor market flexibility, simplify legal conditions for SMEs and start-ups,

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• *Build the skills and talent of tomorrow*—rethink primary and secondary education, promote equality and integration throughout the educational system, differentiate tertiary education and launch cross-disciplinary programs, launch visa programs aimed at entrepre-

Many of these topics could be implemented on a cross-national basis, either as agreed upon best practices or with one nation taking inspiration from another. This recommended overview for the creation of national digital agenda framework is then added by a realistic reflec-

The updated *Action Plan on the Development of Digital Market* [16] includes the initiative "*Society 4.0*," which is an umbrella for the various sectoral strategies, e.g., in education, labor, and industry. The emergence of the so-called FIR will increasingly lead to significant changes not only in manufacturing but also in an intertwined way in the labor market, education, and other areas. These changes are associated with the development of the Internet of things, the

Therefore, innovation in each of the above sectors must be carried out simultaneously and in a coordinated manner, and it is necessary to examine the issue in its social dimension, as "*Society 4.0*." On 15 February 2017, the Government approved the establishment of the Alliance Society 4.0, whose primary task will be to ensure coordination of agendas related to FIR. The *Alliance* will act as a coordination mechanism allowing the involvement of economic and social partners and representatives of the academic and scientific communities. At the end of June 2017, the *Alliance Society 4.0* will submit to the government an *Action Plan for Society 4.0*, which will include actions in specific areas of industry, education, and the labor market. Regarding priority areas, the *Digital Agenda* identified six headings under which individual measures are identified and developed, namely the following six areas. The first is so-called cross-cutting priorities, including, for example, legislation on legislation and assessment of its impact on the *Digital Agenda* for the *Company's activities 4.0*. Other priorities are e-skills, e-commerce, e-government, and e-security. The last round is e-challenges that include open data or shared economy measures.

• Analytical activity—cooperation in updating Study Czech Internet Economy; extending the membership of relevant working committees on law professionals and digital agenda processes; extension of the RIA membership base; creating a submethodology for drafting legislation and assessing the impact of regulation from a digital agenda point of view.

neurs, perform strategic workforce planning for digital at the national level.

use of digitization, and the Internet in all areas of economic and social life.

For the coordinator's role, the following priorities were set [16]:

support and allow for experimentation with new technology.

tion that already exists in the Czech Republic.

**4.1. Czech digital agenda**

**1.** *Cross-border priorities*
