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Connecting Capabilities The Asian Digital Transformation IndexA report from The Economist Intelligence Unit

1. About the report 3

2. Executive summary 4

3. Introduction 7

3.1 Introducing the Asian Digital Transformation Index 8

3.2 Industry differences 9Case study: Working with – rather than against – digital disruptors in fintech 10

3.3 Moving forward 12

4. Digital infrastructure 13

4.1 A heavy hand 15

4.2 The corporate view: Still longing for better digital infrastructure 15

5. Human capital 17

5.1 Turning a challenge into an opportunity 18

5.2 A corporate need for better skills 19Case study: Connecting Capabilities Asia – an international perspective 21

6. Industry connectivity 23

6.1 Evolving technologies 24Case study: Aiming Haier 26

6.2 The opportunity of digital partnerships 28

6.3 Corporate challenges 31

6.4 The Holy Grail 33

7. Conclusion: The future of Connecting Capabilities 35

7.1 The road ahead 36

8. Appendix 37

Connecting Capabilities: The Asian Digital Transformation Index is a report from The Economist Intelligence Unit (EIU), commissioned by Telstra. Kim Andreasson was the author and Charles Ross was the editor. The report is based on three interrelated research efforts.

First, the Asian Digital Transformation Index, which is a quantitative ranking of 11 economies in the region (China, Hong Kong, India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand) and three global comparators (Australia, the United Kingdom and the United States) comprised of 20 indicators across three thematic categories: digital infrastructure, human capital and industry connectedness. The categories, and the individual criteria within them, are weighted according to our assumptions of their relative importance in fostering digital transformation at organisations within countries (for the full methodology see appendix).

Second, the report and Index draws on a survey of 870 executives in the same 14 countries, 660 of whom are in Asia, primarily across six industries: , financial services (including insurance), media (including broadcasting and technology), healthcare, professional services and logistics (including transportation). A survey screener question ensured that all respondents were either extremely (33%), largely (41%) or moderately (27%) familiar with their organisation’s efforts to transform themselves digitally.

Third, the Index and the survey findings were supplemented by interviews with senior executives and experts as well as wide-ranging desk research with the aim of understanding digital transformation in the Asia-Pacific region.

The EIU bears sole responsibility for the editorial content of this report. The findings do not necessarily reflect the views of the sponsor.

Our thanks are due to the following people for their time and insights (listed alphabetically by last name):

• Jerry Black, chief digital officer, Aeon Co, Japan

• Christian Busch, associate director, Innovation Co-Creation Lab, London School of Economics and Political Science, UK

• Neal Cross, chief innovation officer, DBS, Singapore

• Julian David, CEO, techUK, UK

• John Davison, CEO, Zuellig Pharma, Singapore

• Chris Hemstrom, president of Development, Strategy and Innovation, Linfox, Australia

• Michael Hilb, vice president, Group Strategy and Digital Business, DKSH

• Ravi Krishnamoorthi, senior vice president & head of Business Consulting, Digital & Application Services – EMEIA, Fujitsu, UK

• CT Liu, executive vice president, Industrial Technology Research Institute, Taiwan

• Thomas McDermott, interim executive director, Digital Manufacturing and Design Innovation Institute, US

• Stephen Miles, CTO Asia Pacific & Japan, CA Technologies, Singapore

• Tan Hwee Pink, associate professor of Information Systems (Practice) and Director of the SMU-TCS iCity Lab at Singapore Management University, Singapore

• Mike Usher, director, Information Risk and Privacy, Prudential Corporation Asia, Malaysia

• Michael Wade, professor of Innovation and Strategy and Cisco Chair in Digital Business Transformation, IMD, Switzerland and Singapore

• Bruce Weinelt, head of Digital Transformation, World Economic Forum, Switzerland

• George Westerman, principal research scientist, MIT Sloan Initiative on the Digital Economy.

1. About the report

2. Executive summary

Organisations can use technologies to improve processes and create new products, services and channels to market. Digital transformation efforts are therefore top of mind for executives as they can lead to cost savings, greater innovation and can also be used to fend off companies who seek to disrupt entire industries through new business models.

As e-commerce and digital processes become more important to business, especially as new digital native competitors such as Alibaba, Snapchat, Baidu and Flipkart disrupt traditional markets, access to high quality digital infrastructure, human capital and industry technology ecosystems are critical to success and can serve as a global competitive advantage for countries and companies alike.

At the same time, organisational ability to compete is often impacted by the digital environment around them and constraints in terms of legacy systems, processes and mindsets. To assess the overall environment for potential digital transformation within 11 economies (China, Hong Kong, India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand), this report introduces the Asian Digital Transformation Index. It goes beyond a narrow definition of digital transformation at organisations to also assess whether the overall environment is conducive to it across three pillars: enabling ICT infrastructure, pool of relevant talent and willingness to partner with others.

In addition to geographic differences, a survey conducted for this report also captures efforts across six industries: manufacturing, financial services (including insurance), media (including broadcasting and technology), healthcare, professional services and logistics (including transportation). We assess variations in appetite for digital disruption within the confines of the digital environment available to them.

Combined, the Asian Digital Transformation Index and the survey assess overall progress on digital transformation within countries and across industries. The key findings of the research are as follows:

Asian Digital Transformation Index OVERALL SCORE

Average 45.8

1 Singapore 75.6

2 South Korea 72.5

3 Japan 70.7

4 Hong Kong 65.7

5 Taiwan 65.1

6 Malaysia 42.0

7 China 33.9

8 Thailand 23.9

9 India 19.3

10 Philippines 18.8

11 Indonesia 16.0

• Singapore, South Korea and Japan lead the way: Developed economies generally fare better in the Index (Hong Kong is fourth and Taiwan is fifth) and lead their emerging market counterparts in the region on some key measures. The primary reason is that their digital infrastructure is at a more advanced stage, which organisations within those economies can leverage to their advantage in the global marketplace. Without digital infrastructure there cannot be advanced digital transformation, a point clearly acknowledged by survey participants.

• Asia generally lags western markets: While several Asian countries are performing well – in particular Singapore, South Korea and Japan – a comparison with western countries such as Australia, the UK and US shows that the region as a whole lags behind, in particular when it comes to digital infrastructure but also human capital. Although all companies across all geographies suffer from a lack of digital skills.

• The importance of human capital is evolving: South Korea and Japan lead the Asian Digital Transformation Index in this category, however, lower-ranked countries are looking to catch up, including Singapore which is establishing programs to enhance computer science education in schools and bringing the elderly online. Bridging such digital divides is beneficial to a country’s economy, companies and for users.

• Larger emerging markets need to catch up: Although China and India have surpassed the US with the most Internet users and are rapidly developing their

technology eco-systems especially in major cities, both emerging markets face challenges in bringing their entire populations online in part due to uneven development and large geographies and hence face significant challenges when it comes to digital competitiveness on a national level.

• There are differences between industries: Across geographies, the financial services industry often leads the way in digital transformation, followed by manufacturing. One reason may be existing disruptive forces in these industries (fintech and industry 4.0), which are forcing them to change more aggressively. Meanwhile, the logistics and transportation industry is generally behind, but due to decreasing margins is likely to catch up fast.

• Embracing disruption: Leading companies are now working with digital disruptors as opposed to trying to compete with them. It is a win-win situation: established companies receive technological know-how from innovative start-ups while disruptors can tap into existing customer bases and knowledge of older firms.

• Evolving technologies: Web portals and web forms still rule digital transformation efforts, however, changes are afoot. In the survey, most companies still rely on traditional technologies but over the next three years, usage of big data and analytics and the Internet of Things (IoT), is expected to rise. This is particularly true among leading companies, notably in the financial services industry.

• Barriers towards digital transformation: Lack of finance is cited as the biggest obstacle overall. Digging deeper it is a bigger issue among smaller companies than larger ones. Among larger companies, a lack of strategy is the main issue, likely because management have money but don’t know how to spend it wisely. To support this point, the biggest hurdle (according to interviews conducted for this report) is changing the cultural mindset within organisations.

• The biggest prize is yet to come: Most companies view digital transformation primarily as an effort to save costs; however, leading companies see the opportunity to change their business models and create new services and products. Hence there is a large gap between current thinking and future potential.

© The Economist Intelligence Unit Limited 2016 Telstra—Connecting Capabilities 05

3. Introduction

Digital transformation is different from traditional business innovation. According to tone report digital transformation is “the use of technology to radically improve performance or reach of enterprises.”1 George Westerman, principal research scientist at the MIT Sloan Initiative on the Digital Economy, explains that previous innovation was often focused on a single technology like ERP automation. “The difference in the digital era is that innovation can be combinatorial, where innovators snap together multiple technologies, software components, and even parts of other businesses, like Lego pieces.” he says. “This combinatorial approach makes innovation faster and broader than in the past, regardless of your industry.” The resulting economic benefits are clear: A 2016 report from the World Economic Forum found that the combined social and industry value of digital transformation across industries may reach US$100 trn over the next decade.

The Economist Intelligence Unit (EIU) survey of 660 executives across Asia-Pacific – with a further 210 executives in Australia, the UK and US for comparison (Case study: Connecting Capabilities Asia – an international perspective) – conducted for this report confirms the benefits. Almost three-quarters (74%) of respondents agree that their investments in digital transformation have already proved their value. Executives who say their companies are stronger than their competitors, in terms of profitability, are even more likely to agree with this sentiment (83% vs 61% among those representing weaker companies).

“ You’ve got to think about disruptive business models and companies often don’t do that until it is too late”

Julian David, CEO, techUK

While there are clear opportunities, there are also challenges in terms of new entrants seeking to disrupt industries digitally. “You’ve got to think about disruptive business models and companies often don’t do that until it is too late,” says Julian David, CEO of techUK, an IT industry association. One common mistake, for example, is to view digital transformation as an IT subject rather than a business one. “Digital transformation is business transformation based on technologies,” explains Michael Wade, professor of Innovation and Strategy and the Cisco

Chair in Digital Business Transformation at IMD, a Swiss-based business school.

3.1 Introducing the Asian digital transformation

The Asian Digital Transformation Index constructed for this report goes beyond a narrow definition of digital transformation at organisations to also assess whether the overall environment is conducive to it within the 11 countries under consideration, based on the three pillars: enabling ICT infrastructure, pool of relevant talent and organisational willingness to partner with others. It is based on the belief that a country’s digital capabilities and technology ecosystem are critical elements in economic success and the ability to attract foreign direct investment.

The Index finds that developed Asian countries lead the way. Overall, Singapore is number one due to strong scores in digital infrastructure and industry connectivity, in particular as it relates to ICT expenditure, percentage of population covered by 4G networks, ICT access and usage, smartphone penetration rate and ICT laws. South Korea ranks second due to its digital infrastructure and human capital achievements. In the former, it excels in broadband penetration, secure Internet servers, and average speed of bandwidth services. Not far behind is Japan, which leads the industry connectivity category due to existence of web portals, strength of digital partnerships and the e-commerce market.

#1 Singapore in the Asian Digital Transformation Index due to strong scores in digital infrastructure and industry connectivity

A mix of emerging and developed Asian countries come next: Hong Kong (4), Taiwan (5), Malaysia (6) and China (7), all of whom find themselves in the middle in most categories, although they show pockets of real success (for example Hong Kong is third in digital infrastructure

and Taiwan reaches the same position in industry connectivity).

Thailand (8), India (9), the Philippines (10) and Indonesia (11) round out the list. One reason is that they lag behind in digital infrastructure, which might in part be due to the fact these countries tend to be geographically large emerging markets.

The only country in this grouping to reach a position higher than eight in any category is India, which is number six in industry connectivity due to strength in its open data availability, which illustrates that there are bright spots within these countries that also extend to the local levels (Bangalore, India, for example, is often at the forefront of the tech industry globally). “Singapore tends to move a little faster than other markets in Asia but less developed countries such as Indonesia and the Philippines are rapidly catching up,” observes Mike Usher, director, Information Risk and Privacy at Prudential Corporation Asia in Malaysia, who oversees the company’s management of risks to information and privacy across the region.

3.2 Industry differences

In addition to geographic differences, the EIU survey conducted for this report also sought to capture variations across six industries (manufacturing, financial services (including insurance), media (including broadcasting and technology, healthcare, professional services, and logistics (including transportation). “One has to understand the marketplace and that each industry is different,” explains Mr Wade. Regulations may differ across industries, and the competitive landscape may also change within them. In a recent book, Mr Wade and his colleagues found that industries most vulnerable to digital disruption were also more proactive in terms of digital transformation.3 “Digital transformation is not a nice-to-have—it is a must-have to remain competitive,” says John Davison, CEO at Zuellig Pharma, a 100-year old healthcare services company which operates across a dozen Asian countries.

“ Digital transformation is not a nice-to-have–it is a must-have to remain competitive”

John Davison, CEO, Zuellig Pharma, Singapore

1 https://www.capgemini.com/resources/digital-transformation-a-roadmap-for-billiondollar-organizations 2 http://reports.weforum.org/digital-transformation-of-industries/ 3 http://www.imd.org/dbt/whitepapers/vortexbook/

06 Telstra—Connecting Capabilities © The Economist Intelligence Unit Limited 2016

The EIU survey also finds that there are differences among those who consider themselves responsible for digital transformation and those who are merely followers. About one-third (33%) of survey takers in financial services say they are responsible for it; almost one-third (32% and 29% respectively) in professional services and manufacturing say the same. (Figure 1) Logistics and transportation fall at the opposite end with only one in 10 saying they are responsible. (Figure 1) “I think there are parts of the industry that are pushing boundaries because the opportunities within the supply chain are substantial but there is also a long tail,” says Chris Hemstrom, president of Development, Strategy and Innovation, Linfox, an Australian-based logistics company that operates in about a dozen countries in Asia. “But this is now changing because margins have been squeezed and it is difficult to survive without major transformation. The only way forward is to take a leadership role.”

Figure 1: Taking responsibilityOrganisation’s approach to digital disruption (% of respondents)

1 https://www.capgemini.com/resources/digital-transformation-a-roadmap-for-billiondollar-organizations 2 http://reports.weforum.org/digital-transformation-of-industries/ 3 http://www.imd.org/dbt/whitepapers/vortexbook/


Case study: Working with – rather than against – digital disruptors in fintech

Several industries are being disrupted by nimble and digitally-savvy new competitors. In response, many “traditional” companies are looking to respond by accelerating their own digital transformation but often struggle to compete on an equal footing. "A lot of banks are moving into digital,” says Neal Cross, chief innovation officer at the Development Bank of Singapore (DBS). “At a very high level there is a misunderstanding, the issue isn’t that banks need to move into digital, it’s that digital is moving into banking. There is certainly a technology component but culture also has to change.”

In the survey conducted for this report, almost one-half (49%) of survey takers agree that it is counter-productive to fiercely compete with a technology firm that may disrupt the market. (Figure 2) Respondents from the financial services industry stand out in this regard (58% agree), likely due to the fact that they embrace innovative ideas and instead seek to work with – rather than against – innovative firms. (Figure 2) “18 months ago, banks saw fintech players as a threat to their business,” says Stephen Miles, CTO Asia Pacific & Japan at CA Technologies, a consultancy. “Now, they see them as an opportunity and potential partner that allow banks to focus on what they are better at.”

Figure 2: When it’s better not to competeIndustries that find it counter-productive to compete with a disruptive technology firm (% of respondents)

49% of executives say it is counter productive to fiercely compete with a technology firm that may disrupt the marketDBS, for example, is working directly with fintech companies. “Our bank must move quicker, be more ambitious and act more as a technology company,” says Mr Cross. To achieve this, his unit operates as an innovation group, which means it supports projects rather than owning or delivering them. To change the cultural mindset across the organisation, Mr Cross has created several structured programs. In one, bank executives are challenged during a hackathon to create a fintech company in three days.

Perhaps the most notable program, however, is one in which his team pairs executives from DBS with those at fintech companies and gives them a challenge to work out together, after which they pitch their solution or idea to the CEO. It works internally because it is experimental, hands-on and a team-based approach. “They don’t need to create the next big thing for the bank, the value is in the new way they solve customer problems,” says Mr Cross. What motivates fintech companies to participate is their discovery of the high cost of customer acquisition.

“ The future of the [banking] industry lies as a partnership between banks and fintech companies”

Neal Cross, chief innovation officer, Development Bank of Singapore (DBS)

“The future of the industry lies as a partnership between banks and fintech companies,” concludes Mr Cross. Only by joining forces can they fend off competition from innovative one-stop-shops like Chinese companies WeChat and Tencent that combine social activities with banking services and payments—a new type of digital disruption.

Manufacturing

Financial services

Media, broadcasting or technology

Healthcare

Professional services

Logistics & transportation

Overall

Agree Disagree Don’t know

0 20 40 60 80 100


4. Digital infrastructure

DIGITAL INFRASTRUCTURE

Average 47.9

1. Singapore 80.1

2. South Korea 74.4

3. Hong Kong 70.2

4. Taiwan 66.5

5. Japan 63.5

6. Malaysia 53.7

7. China 36.4

8. Thailand 22.5

9. Indonesia 22.4

10. Philippines 19.2

11. India 17.9

The Asian Digital Transformation Index defines digital infrastructure as the conduciveness of the environment for digital transformation within a country as it relates to, amongst other things, government policy on technology and business, ICT expenditure, telecommunications investment, percentage of the population covered by 4G networks, ICT access and usage, the number of secure Internet servers, ICT laws and average cost and speed of high-end broadband services.

The digital infrastructure category largely mimics the overall ranking, and for good reason: without high quality ICT infrastructure it is difficult to achieve digital transformation. Countries have taken both market-driven and government-led initiatives to improve digital infrastructure.

In South Korea (second here, second overall), the country took the latter approach as it introduced Cyber Korea 21 in 1999, one of the first national government plans to create an information society, which plainly stated that “Korea’s transition to a knowledge-based economy calls for the early establishment of an extensive information infrastructure through a quicker and more advanced telecommunications network. Leveraging an advanced broadband telecommunications network and information technology will not only improve productivity and transparency in government, business and society, but will also allow current industries to develop into knowledge-based industries.” 4

A series of South Korean national master plans for the development of the digital economy have since followed, most recently the current plan for the country’s Ultra Broadband Convergence Network.5 As a result, South Korea is among the top countries in the world for broadband penetration rates, the speed of connections and access is also relatively affordable by global standards, helping businesses to achieve digital transformation.

93% of executives acknowledge that a country’s infrastructure is important to their organisation’s digital transformation

In the survey, nine in 10 (93%) respondents acknowledge that a country’s infrastructure is important to their organisation’s digital transformation. (Figure 3) One of the key policy measures is the development and implementation of a national broadband plan.6 For example, countries with a comprehensive plan are found to have, on average, 2.5% higher fixed broadband penetration and 7.4% higher mobile broadband penetration.7

4 www.kcc.go.kr/download.do?fileSeq=11132 5 https://www.budde.com.au/Research/South-Korea-Fixed-

Broadband-Digital-Economy-and-Digital-Media-Statistics-and-Analyses

6 http://www.broadbandcommission.org/publications/Pages/SOB-2016.aspx

7 www.broadbandcommission.org/documents/reportnbp2013.pdf

ChinaHong Kong

IndiaIndonesia

JapanMalaysia

PhilippinesSingapore

South KoreaTaiwan

ThailandOverall

Important Very Impoartant Neither Unimportant

0 20 40 60 80 100

3.3 Moving forward

Whether companies can succeed in their digital transformation efforts depends in large part on their level of investment, appetite for potentially revising the business model, changing processes and mindsets, as well as the development of new products and services. It also

depends, however, on whether the digital environment in the country is conducive to such transformations.

In an effort to measure the extent to which countries provide an environment for digital transformation

for organisations, this report assesses the potential according to the three underlying thematic categories of the Asian Digital Transformation Index: digital infrastructure, human capital and industry connectivity.

Figure 3: Infastructure is vitalImportance of digital infrastructure to your organisation(% of respondents)


4.1 A heavy hand

As opposed to the more market-driven policies in the west, a number of governments in Asia often take the lead in terms of infrastructure development. In China the big three telecommunications companies are all state-owned enterprises. In India, the government created the National Optical Fibre Network (NOFN) in 2011 to connect all 250,000 villages (Gram Panchayats) with fixed-line broadband through the Bharat Broadband Network Limited (BBNL), a government-led Special Purpose Vehicle (SPV), to which telecommunications companies were invited to join as partners.

In Singapore, a regional and world leader in infrastructure (and first in this category), the government also takes the lead when it comes to infrastructure development but also in new policy initiatives as it relates to digital transformation. In 2014, the country created the Smart Nation initiative, which seeks to transform the island into a place where everyone is empowered by technologies.8 In 2016, the city-state famously allowed the introduction of the first driverless taxis, operated by nuTonomy, on city streets.9

4.2 The corporate view: Still longing for better digital infrastructure

But progress in creating ICT infrastructure across the region remains uneven. Only about one-quarter (27%) of executives say their country has been “very successful” in this regard. About one-half (56%) say their country has been “somewhat successful,” illustrating the need for greater progress. (Figure 4) The key, says Bruce Weinelt, head of Digital Transformation at the World Economic Forum, is for governments to work with companies in areas such as policy regulations. “Governments have to think through the next 5-10 years and identify the roadblocks we are likely going to hit,” he explains. “The big question is: if and when should government step aside and let business take over?”

Only 27% of executives say their country has been “very successful” in creating ICT infrastructure

Overall, the key factors in determining the success of organisational digital transformation over the next three years, will be the availability of ICT infrastructure and services (cited by 35% as “very important”). (Figure 5) Those who say they are stronger than their competitors in terms of profitability are even more likely to say so (56% compared with 12% among weaker competitors), presumably because more advanced infrastructure further helps digital transformation efforts that are likely to be more developed among leading companies.

8 http://www.smartnation.sg/ 9 http://www.wsj.com/articles/worlds-first-self-driving-taxis-hit-the-road-in-singapore-1472102747

0 20 40 60 80 100

China

Hong Kong

India

Indonesia

Japan

Malaysia

Philippines

Singapore

South Korea

Taiwan

Thailand

Overall

Very successful Somewhat successful Neither successful nor unsuccessful

Somewhat unsuccessful Not successful at all

0 5 10 15 20 25 30 35

ICT infrastructure and services

Government policy

Industry-wide standards & guidelines

New digitally disruptive competitors

Our strategy

Level of investment

Digital partners

Figure 4: A good place to transformCountry success in providing an environment for digital transformation(% of respondents)

Figure 5: ICT leads the way, but many factors countFactors that will determine the success of digital transformation(% of respondents)

“ The big question is: if and when should government step aside and let business take over?”

Bruce Weinelt, head of Digital Transformation, World Economic Forum


5. Human capital

HUMAN CAPITAL

Average 46.0

1. South Korea 82.2

2. Japan 80.2

3. Hong Kong 76.1

4. Singapore 74.5

5. Taiwan 68.0

6. Malaysia 42.5

7. China 28.9

8. Thailand 20.6

9. Philippines 16.3

10. India 10.8

11. Indonesia 5.7

The Asian Digital Transformation Index measures human capital by quality of math and science education, the number of tertiary enrolment, extent of citizen e-participation, credit card ownership and Internet usage.

In this category, Hong Kong outperforms (third here, fifth overall). Its strong education system is confirmed by third-party sources, such as the OECD’s Pisa rankings where it scored in the top three globally in both reading and math in the most recent survey.10 South Korea, meanwhile, is number one in the category (second overall) while Japan is number two (third overall). Despite strong scores, however, it is clear that even leading countries suffer from low Internet usage due to digital divides as well as a shortage of specialised digital skills.

5.1 Turning a challenge into an opportunity

Getting some people online is easy, getting all of them to do so is difficult. Digital divides, in the form of a lack of skills, affordability and interest, pose major hurdles to many population groups in terms of accessing and using the Internet. Given the economic benefits of an online population, many governments are seeking to bridge these gaps. In Singapore, for example, there are efforts to specifically target the elderly, disabled, and needy, says Tan Hwee Pink, associate professor of Information

Systems (Practice) and academic director of the SMU-TCS iCity Lab, at Singapore Management University. One reason is that many studies have shown that every offline transaction turned into an online one can save governments millions of dollars a year.11

Companies are also coming to the realisation that bridging digital divides not only brings in more customers, it also allows them to be actively involved in corporate digital transformation efforts. “Involve customers in a design process, rather than making assumptions. Get them in at an early stage and get their feedback,” advises Mr Cross. “Being digital is not about fancy apps, it’s about changing your relationship with customers,” agrees Mr Miles.

“ Being digital is not about fancy apps, it’s about changing your relationship with customers”

Stephen Miles, CTO Asia Pacific & Japan, CA Technologies, Singapore

The rise of open innovation communities, for instance, is one area in which collaboration between businesses and users may thrive. In the survey, about one-fifth (18%) claim their organisation benefits “to a great extent” from involvement in such communities; another four in 10 (42%) say they benefit “to a large extent”. This sentiment is led by financial services (29% and 46% respectively) and is least adopted in logistics and transportation (10% and 37% respectively). (Figure 6)

60% of companies benefit from open innovation communities to a large or great extent

Figure 6: Open to innovateExtent that companies benefit from involvement in open innovation(% of respondents)

“The creation of digital eco-systems, open innovation, and co-creation where companies work directly with users will be more and more common,” says Christian Busch, associate director at the Innovation Co-Creation Lab at the London School of Economics and Political Science, who views such efforts as key to future competitiveness. “Few understand that in the digital world the only way you can build relationships is through information. Information is king and you need that to build relationships to make sure customers feel valued,” agrees Mr Cross. “The winners in the future will be those who have people who don’t work for them but rather volunteer and feed and thereby monetise the eco-system.”

5.2 A corporate need for better skills

One reason for the push to further develop skills is the lack of them as it extends to the corporate world. A 2016 report from the World Economic Forum cites a PwC report in which almost three-quarters (73%) of CEOs cite skill shortages as a threat to their business.12 This sentiment is echoed in the survey conducted for this report. Not even one-fifth (16%) of survey takers say it is “very easy” to find employees with requisite digital skills. Another four in 10 (38%) say it is “easy,” which means almost one-half of all survey takers believe it is difficult. (Figure 7)

10 http://www.bbc.com/news/business-26249042 11 http://parliamentandinternet.org.uk/wp-content/uploads/Final_report.pdf12 http://reports.weforum.org/digital-transformation-of-industries/wp-content/blogs.dir/94/mp/files/pages/files/

digital-enterprise-narrative-final-january-2016.pdf

To a great extent To a large extent To some extentTo a small extent Not at all Don’t know

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Healthcare

Media, broadcasting or

technology

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Manufacturing


Only 16% of companies say it is “very easy” to find employees with requisite digital skills

Figure 7: Good people are hard to findAbility of companies to find employees with required digital skills(% of respondents)

Very easy Easy Neither easy, nor dif�cultDif�cult Very dif�cult

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Healthcare


technology

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Manufacturing

Despite being a leader in this category, this sentiment is anecdotally reflected in Japan. “Talent is a large problem in Japan partly due to supply and partly due to a lack of workplace mobility. Data scientists, for example, are in short supply compared with other countries such as the US, India and South Korea,” says Jerry Black, chief digital officer at Aeon Co, a retailer with operations across 12 Asian countries.

Although finding people with requisite digital skills is generally not easy, there are exceptions. One-quarter (24%) of survey takers in financial services say it is “very easy,” perhaps because the industry generally pays higher salaries. At the opposite end, only 9% of survey takers in logistics and transportation say it is “very easy”. (Figure 7) “Attracting digital talent can be a challenge. Candidates with the right skill set tend to have choices and don’t necessarily want to work for just any company,” says Mr Weinelt. To compound the problem, he says, “most organisations don’t even know what type of skills to look for: 65% of people in the global education system today will end up in jobs that haven’t even been invented yet.”

“ 65% of people in the global education system today will end up in jobs that haven’t even been invented yet”

Bruce Weinelt, head of Digital Transformation, World Economic Forum, Switzerland

What is clear, however, is that digital skills – broadly defined as the ability to use ICTs for productive purposes – are becoming more important in the workplace and countries are therefore working hard to attract talent.

The Digital Malaysia Program, which was launched in 2012 with the aim of supporting the use of ICT across all sectors of the Malaysian economy by 2020, leverages the efforts of the Multimedia Super Corridor (MSC), a Special Economic Zone, to attract ICT talent. The MSC has partnered with Startup Malaysia to launch the Digital Malaysia Corporate Accelerator Program and has been helped by significant investment in ICT infrastructure and education.

In Singapore too, efforts are under way to stimulate digital skills. The Ministry of Education is currently revamping the curriculum for computing – in essence recognising current limitations – with plans to introduce the subject as a requirement (it is currently optional). A high level of digital skills among the population is crucial to seizing the full benefits offered by ICT. The development of these skills depends to a significant extent on the quality of a country’s education system, and the extent to which curriculums and qualifications are in-line with the demands of the ICT sector. It is a global trend: in 2016, Sweden introduced a new educational program to make ICTs an integral part of learning in an effort to enhance digital skills across the board, among students and teachers alike. (Also see box on global comparators.)


Case study: Connecting Capabilities Asia – a global perspective

In addition to the 11 Asian economies in the Index, three comparators (Australia, the UK and the US) were also assessed to determine how the regional economies compare at a global level. Had western countries been included in the Index, the US would have been number one overall due to strong scores in digital infrastructure. The survey conducted for this report reinforces the notion that western countries have an edge in existing digital infrastructure: Four in 10 executives (38%) in Australia, the UK and the US say their country has been “very successful” in this regard compared with only about three in ten (27%) in Asian economies, hence giving them an edge in Connecting Capabilities.

Having very good digital infrastructure gives Australia, the UK and US (38%) the edge over Asian economies (27%)

Overall Singapore would have been the only Asian country to break into western dominance in a hypothetical second place – due to the fact the city-state ranks first in the digital infrastructure category – while Australia and the UK would have been third and fourth due to their strengths in human capital and industry connectivity respectively. Despite this, human capital remains a global challenge.

A lack of talent, everywhere

“Our biggest challenge is not enough talented people with the skills for the blooming development in digital economy,” describes CT Liu, executive vice president at the Industrial Technology Research Institute in Taiwan. Asian companies are lagging their western counterparts in this area. Not even one-fifth (16%) of Asian executives say it is “very easy” to find employees with requisite digital skills compared with one-quarter (23%) of western ones. (Figure 7)

“ Our biggest challenge is not enough talented people with the skills for the blooming development in digital economy”

CT Liu, executive vice president at the Industrial Technology Research Institute, Taiwan

Despite this, western countries are concerned about a skills shortage too. “If we look at infrastructure and skills, these are where the challenges are,” says Mr David. “The UK has done well where it has invested but it is not doing enough.” In 2015, his organisation published 11 recommendations to deal with the digital skills challenge in the country, starting with inspiring young people in the classroom in order to create a curiosity for technologies.13 “Companies need to take responsibility for the development of digital skills,” argues Mr David. “They haven’t done enough in this regard because they need to engage more with educational institutions.” As an example, he cites the number of computer science degrees churned out by the education system, yet about one-half remain unemployed because they do not have the skills that businesses need.

A need for partnerships in education too

“How do you introduce digital transformation and upskill the workforce at the same time?” says Thomas McDermott, interim executive director at the Digital Manufacturing and Design Innovation Institute in the US. He suggests stronger corporate ties to the education system, including technical colleges and universities, to provide future requirements for industry to meet this challenge. “It is a red herring to say industry can resolve this, it has a responsibility but it is not solely theirs,” he adds.

Whether with educational institutions or corporate entities, the survey shows that digital partnerships are essential in the future, and this is particularly the case in Asia. Among Asian executives, seven in 10 (70%) say companies going it alone (without digital partnerships) will soon be a thing of the past compared to only five in 10 among western respondents (56%). There is also a difference among geographies as to what benefits such partnerships may bring: in Asia 45% of survey takers say they have “greatly” enabled their organisation to achieve the benefits of digital transformation when it comes to developing more innovative ideas/IP for new products/services compared with only 35% who say so at western entities, illustrating that while Asia may lack digital infrastructure it may well be ahead in seizing new opportunities.

“Many governments are looking to catch up by creating innovation hubs, as seen in the UK fintech area,” says Ravi Krishnamoorthi, senior vice president & head of Business Consulting, Digital & Application Services—EMEIA at Fujitsu, a Japanese IT equipment and service company.The UK is seeking to attract fintech talent by providing an enabling environment for them to succeed. A report from global consultancy E&Y concluded that “the UK has the strongest FinTech policy environment, with the most supportive regulatory regime.”14 In July 2016, the Bank of England also launched a fintech accelerator program to further support this effort.15

13 https://www.techuk.org/insights/reports/item/5077-techuk-proposes-11-recommendations-to-meet-the-digital-skills-challenge

14 https://www.gov.uk/government/publications/uk-fintech-on-the-cutting-edge 15 http://www.bankofengland.co.uk/publications/Pages/speeches/2016/914.aspx

OVERALL SCORE

Average 74.7

US 77.3

Australia 74.3

UK 72.6

DIGITAL INFRASTRUCTURE

Average 70.9

US 77.1

Australia 69.7

UK 65.9

HUMAN CAPITAL

Average 76.5

Australia 80.4

US 78.1

UK 71.0

INDUSTRY CONNECTIVITY

Average 83.2

UK 93.2

Australia 79.4

US 77.0


6. Industry connectivity

INDUSTRY CONNECTIVITY

Average 39.7

Japan 78.9

Singapore 64.7

Taiwan 57.8

South Korea 55.2

Hong Kong 40.4

India 33.6

China 33.3

Thailand 31.9

Philippines 20.5

Indonesia 11.0

Malaysia 9.2

The Asian Digital Transformation Index defines industry connectivity broadly as the ability to draw on resources external to the organisation and measures this in terms of the existence of web portals, strength of digital partnerships, size of the e-commerce market and open data availability.

In this category, Japan (first here, third overall) and India (sixth here, ninth overall) both outperform. One reason is their strength in digital partnerships (first and sixth, respectively). India, however, excels in open data availability, an indicator in which it is second overall (behind only Taiwan). Globally the country ranks 17th in this measure, according to the Global Open Data Index.16 One reason is the country’s Open Government Data Platform, which contains more than 42,000 resources that have resulted in more than 400 APIs (application program interfaces), which developers can tap into when creating apps. 17

6.1 Evolving technologies

Web portals remain an important platform for most companies. In the survey, the most commonly used digital channel for online services is a web form (cited by 65% of survey takers), followed by social media (61%), apps (53%), and live chat (35%). (Figure 8) About three-quarters (78%) of organisations say they offer customers the opportunity to make enquiries online. About one-half also say they provide the opportunity to buy services or products (54%), send complaints (53%) and provide suggestions (50%). (Figure 9)

Figure 8: Web and social preferenceOnline channels customers typically use(% of respondents)

0 14 28 42 56 70

Live chat 35%

Social media 61%

App 53%

Web form 65%

Figure 9: Doing it onlineActivities customers can perform online(% of respondents)

0 10 20 30 40 50 60 70 80

Provide suggestions 50%

Send complaints 53%

Make enquiries 78%

Buy services/products 54%

“We have a lot of traction in consumer e-commerce, which provides high value,” explains Michael Hilb, vice president, Group Strategy and Digital Business at DKSH, a Swiss-based Market Expansion Services provider operating throughout Asia with nearly 30,000 specialists. In addition to consumer e-commerce, DKSH is also leveraging the Internet to provide a web platform for business customers, called DKSH Connect. “In the past, sales people had to take orders and finance had to check invoices, now increasingly more is done online, including via smart phones, which provides greater efficiency and leverages our strong capillary distribution networks.”

The emergence of newer technologies, such as data analytics and smart embedded devices, as well as improvement in traditional technologies, such as enterprise resource planning (ERP) systems, are key to future digital transformation, according to the MIT Center for Digital Business and Capgemini Consulting. 18

The shift in technology focus is also evident in the survey conducted for this report. In the past, social media (cited by 48%) and mobile devices or infrastructure (32%), were the major areas of focus. Looking into the future, however, big data and analytics (33%) is set to become the most important area. “Certain technologies are linked to certain benefits,” explains Mr Wade. “Cloud computing can reduce cost, data analytics can help understand customers, and embedded sensors can improve the operating environment.”

33% of senior executives say big data and analytics will be the most important focus in the future

Despite the potential benefits, the survey shows that only about one-fifth (21%) of business units utilise data analytics software or tools to a great extent today. Usage is led by professional services (27%), followed by financial services (25%); at the opposite end – it is least used “to a great extent” in the healthcare (9%) and logistics and transport (11%) industries. In the healthcare industry, which is highly regulated, there are both privacy and security concerns, notes Mr Davison. Data analytics is also uncommon in the logistics and transportation industry, says Mr Hemstrom, although for a completely different reason. When Linfox was looking for a custom solution in 2009, there was none available. “We had to develop our transport forecasting system ourselves,” he explains. Although still being refined, he believes it gives the company a competitive advantage in a crowded industry.

16 http://index.okfn.org/ 17 https://data.gov.in/ 18 https://www.capgemini.com/resources/digital-transformation-a-roadmap-for-billiondollar-organizations


Case study: Aiming Haier

Executives in manufacturing are more likely to say that their investments in digital transformation have already proved their value (78% compared with 74% for the overall survey sample). (Figure 11) One reason is likely attributed to the fact that it is easier to improve (and measure) efficiency at a plant than at a hospital, for instance.

Figure 11: Reaping the rewardsInvestments in digital transformation have proved their value(% of respondents)

Manufacturing

Financial services


Healthcare



Overall

To a great extent To a large extent To some extent To a small extent Not at all

0 20 40 60 80 100

Haier, a Chinese multinational headquartered in Qingdao, exemplifies the opportunities. The company develops, manufactures and sells consumer electronics and home appliances and has the world’s largest market share in white goods. In 2015, the company had some 70,000 employees and global revenues amounted to US$30.3bn. In June 2016 the company also announced aggressive expansion plans as it acquired GE Appliances from General Electric, an American conglomerate.

At the surface, such a behemoth would be unlikely to lead the way in digital transformation, but it is. Moving away from being a traditional manufacturer of appliances, such as refrigerators, the company has developed into an Internet company in which appliances take centre stage, using artificial intelligence to order food automatically once it expires and leveraging the Internet of Things to coordinate household devices and getting instant user feedback. The reason behind this transformation, says Mr Busch, is the core belief that a company that is not user-focused will eventually not survive.

“Haier is seeking to completely digitise the company,” says Mr Busch, who visited the company earlier this year. “It is looking to build a digital ecosystem around users in which this traditional manufacturer becomes an IoT company.” By extension, he views the company’s “micro entrepreneurs”

as incubators in their own right. “Rather than having the company make all the decisions, we see micro entrepreneurs who collaborate directly with others.”

“ (Haier) is looking to build a digital ecosystem around users in which this traditional manufacturer becomes an IoT company”

Christian Busch, associate director, Innovation Co-Creation Lab, London School of Economics and Political Science, UK

Recognising the potential of employees, Haier spent more than a decade to create a culture of innovation.19 For instance, the company encourages autonomy and empowerment of employees by allowing them to make important decisions. Haier then rewards employees by promoting those with better decision-making.20 In addition, the company encourages open innovation by mandating that employee teams within the organisation must find external partners to develop ideas. “The ecosystem approach is a reversal of the traditional business model, where the ordinary hierarchy is turned on its head, and these micro-entrepreneurs are measured by their success in serving users,” elaborates Mr Busch.

To enable further external collaboration efforts, Haier has created the Haier Open Partnership Ecosystem (HOPE) platform, which is an online portal to enable technology exchange and innovation. It brings together a global network and by 2014 had nearly 200,000 registered users.21

More recently, the company CEO, Zhang Ruimin, started looking to big data and analytics to gain an additional competitive advantage. “If we don’t challenge ourselves, someone else will,” he was quoted as saying in The Economist.22 In 2014, Fast Company, an American business publication, named Haier as one of the most innovative companies around. 23

The survey backs up his point: those who say they are stronger than their competitors in terms of profitability are also almost three times as likely to say that their business unit is using data analytics to a great extent today (35% compared with 12% among weaker competitors).

Current usage is also in its infancy when it comes to using embedded sensors. Only about one-fifth (18%) of survey takers say their organisation currently utilise them in their products or elsewhere in their operations to a great extent. Fifteen percent say they utilise them “to a small extent” or not at all with the remainder of respondents falling in between the two. Again, the use of sensors is another area that can come to separate leaders from laggards.

Manufacturing

Financial services


Healthcare



Overall

To a great extent To a large extent To some extent To a small extent Not at all

0 20 40 60 80 100

19 http://www.wipo.int/wipo_magazine/en/2015/04/article_0006.html 20 http://reports.weforum.org/digital-transformation-of-industries/haier/ 21 http://www.wipo.int/wipo_magazine/en/2015/04/article_0006.html 22 http://www.economist.com/news/business/21587792-radical-boss-haier-wants-transform-worlds-

biggest-appliance-maker-nimble 23 http://www.haier.com/uk/newspress/pressreleases/news2014/201404/t20140418_217219.shtml

Figure 10: It’s all about the dataExtent to which companies use data analytics(% of respondents)


6.2 The opportunity of digital partnerships

Japan and Singapore top this category in part due to their strength of digital partnerships, an indicator in which the two are far ahead of other countries. Such partnerships are important to Connecting Capabilities as they allow companies to fend off emerging digital disruptors.

Six in 10 (60%) of survey takers say that three years from now, almost every industry will have been digitally disrupted. As a result, there is strong recognition that partnerships are necessary. Seven in 10 (70%) say companies going it alone (without digital partnerships) will soon be a thing of the past. (Figure 12) “It’s a new world and there are no best practices to draw upon,” says Mr Miles. “Leaders therefore try innovative approaches, which includes collaborating and co-creating with other businesses.”

Figure 12: Better togetherCompanies going it alone will soon be a thing of the past(% of respondents)

70% of companies say going it alone (without digital partnerships) will soon be a thing of the past

In the survey, more than four in 10 (45%) respondents say such partnerships have “greatly” enabled their organisation to achieve the benefits of digital transformation when it comes to developing more innovative ideas/IP for new products/services. (Figure 13) This is led by the financial and professional services industries where one-half (51%) say this has been the case, closely followed by manufacturing (47%). “One reason is a change of mindset,” says Mr Liu. “Traditionally everyone tries to protect their information, but in the digital economy everyone must share their knowledge – even IP – in order to create value and enable co-creation. As the new economy moves forward, cross-boundary collaboration will be very important,” he says and concludes that we will see a paradigm shift in this area over the next 5-10 years.

Figure 13: Driver of innovationMain company benefits from digital partnerships(% of respondents)

0

10

20

30

40

50

More agile response to new

com

petition

Access to new

data

Enhanced brand

awareness and reputation

Better support for existing

customers

Faster speed to market

Productivity im

provements

Greater cost savings

New

customer segm

ents

New

markets

More innovative ideas

Therefore, more can be done. Three-quarters (77%) of survey takers agree that their organisation needs to become better at leveraging digital partnerships. Manufacturing and financial services executives are most inclined to agree with this (83% and 80% respectively), potentially due to the disruption by smart manufacturing and fintech competition on those industries. (Figure 14)

Figure 14: Getting better at being togetherOrganisations need to become better at leveraging digital partnerships(% of respondents)

Manufacturing

Financial services


technology

Healthcare



Overall

0

20

40

60

80

100

Agree Disagree Don’t Know

“Relationships will be more and more important and you have to build them and potentially change them as you move along,” notes Mr Hilb, whose company has recently invested in two e-commerce companies in China and Thailand to bring a new perspective to its business. “The challenge has been to change our mindset – we mostly worked offline for 150 years and these companies tend to change direction every month. It was sometimes challenging in the beginning but since the very beginning we have seen it as mutually beneficial as they come to understand our core business and we adapt to their agility,” he says.

0

20

40

60

80

100

China

Hong K

ongIndiaIndonesiaJapanM

alaysiaP

hilippinesS

ingaporeS

outh Korea

Taiwan

Thailand

Overall


“ ..in the digital economy everyone must share their knowledge – even IP – in order to create values and enable co-creation”

CT Liu, executive vice president at the Industrial Technology Research Institute, Taiwan


6.3 Corporate challenges

The greatest impediment to digital transformation at companies is a lack of financing (cited by 41% of survey takers). “We have just scratched the surface,” says Mr Krishnamoorthi. “There is so much transformation and investment is microscopic,” a reason he attributes to a lack of confidence, based on a survey conducted by his company. 24

Figure 15: Overcoming obstacles Greatest impediments to digital transformation (% of respondents)

41% of senior executives cite lack of financing as greatest impediment to digital transformation

According to The EIU survey, there is also a marked difference depending on organisational size. While lack of financing (47%) was seen as the leading obstacle at small companies, amongst large companies it was a lack of strategy and/or new ideas (40%), potentially indicating that large bureaucratic organisations face a different set of challenges. (Figure 15) “Digital transformation is extremely piecemeal at the moment but you have to take a big holistic view and be willing to make changes across the value chain,” explains Mr Wade. “I’ve come to the conclusion it’s the mindset and the culture that are the biggest organisational barriers.” In

essence, companies go digital but don’t change their traditional processes and hence end up carrying the costs of both approaches.

Lack of management support (33%) was the third-most cited challenge and appeared to be a particular issue in the financial services industry (40%). “The number one obstacle is a lack of leadership from the top of the company,” says Mr Westerman. “Everyone recognises that digital transformation has to happen but it is difficult to change internal culture and business models,” agrees Mr Weinelt. “Leadership is not typically inclined to do that.”

In spite of this, there appears to be an improvement in understanding. Eight in 10 (87%) of survey takers say their own understanding of digital transformation has improved over the past three years, which may help tackle challenges moving forward. For instance, eight in 10 (83%) said that their digital transformation has led their organisation to change their business model. (Figure 16) “People are trying to figure out how to change their business models but they don’t know how it will create value,” says Mr McDermott. “But then again, if you’re not trying, you’re definitely falling behind.”

6.4 The Holy Grail

The main benefits organisations are currently getting from digital transformation efforts include greater cost savings (45%), expanding their reach into new markets (42%) and productivity improvements (42%). More innovative ideas/IP for new products/services (36%) and access to new data (19%) fall further down the list, indicating the current focus remains on reinventing current processes rather than the development of disruptive ideas and utilising big data and analytics. (Figure 17) “There are great examples of IoT impact in terms of cost savings but more important are new models of value-creation,” says Mr McDermott.

Figure 16: Doing things differentlyDigital transformation has led us to change our business model(% of respondents)

Figure 17: Money trumps innovation, but only justChief benefits companies gain from digital transformation (% of respondents)

Indeed, those who say they are stronger than their competitors in terms of profitability, are more likely to say that the chief benefits are more innovative ideas/IP for new products/services (46% compared with 29% of weaker competitors). Conversely, they are less likely to cite greater cost savings as the chief benefit (40% vs 53%), indicating that they have already reaped those benefits and have moved to the next stage in terms of digital transformation.

“If you compare our industry to leading ones, we’re behind,” acknowledges Mr Davison to exemplify this digital journey. “Having said that, there is huge investment in personally-managed health apps and devices at the moment.” He cites the development of iHealth, the Apple app, and wearable devices to monitor health – sometimes in collaboration with a physician – as areas of critical future importance, not only to the industry but also to society and people’s health, a potential outcome he labels as “the Holy Grail.”

24 https://sp.ts.fujitsu.com/dmsp/Publications/public/br-fujitsu-digital-tightrope-report-em-en.pdf

Overall

Logistics &

transportation


Healthcare

Media, broadcasting

or technology

Financial services (including insurance)

Manufacturing

0

20

40

60

80

100


More innovative ideas

New

markets

New

customer segm

ents

Greater cost savings

Productivity im

provements

Faster speed to market

Better support for existing custom

ers

Enhanced brand aw

areness and reputation

Access to new

data

More agile response to new

competition

0

10

20

30

40

50

Fear of failure

Lack of talent

Lack of ICT infrastructure

Dif�

culty from a regulatory

perspective

Lack of technology solutions w

ithin the organisation

Lack of �nancing

Lack of managem

ent support

Lack of strategy and/or new

ideas

0

10

20

30

40

50

Small company (1-249 employees)

Large company (250+ employees)


7. Conclusion: The future of Connecting Capabilities

As digital processes become more important, access to high quality digital infrastructure, human capital and industry technology ecosystems is therefore critical to success and can serve as a global competitive advantage for countries and companies alike. Digital transformation is therefore currently at a meeting of minds between government, business and consumers. This can be illustrated through the digital partnerships category of the Asian Digital Transformation Index, which includes open government data, e-commerce and social innovation.

Underpinning the rise in digital transformation is digital infrastructure and its importance is set to rise. The key factors in determining the success of organisational digital transformation over the next three years, are availability of ICT infrastructure and services (cited by 35% as “very important”), organisational level of investment (33%) and strategy (32%) closely followed by digital partnerships (31%). (Figure 18)

Figure 18: Future successDeterminants of digital transformation success in the next 3 years(% of respondents)

#1 digital infrastructure’s importance in determining the future success of digital transformation

At the same time, organisations are recognising that evolution is necessary in order to compete in the marketplace. Four in 10 (43%) executives say digital transformation will be “very important” to their organisation over the next three years; whereas another four in 10 (45%) say it will be “important”. Leading the way among those who say “very important” are financial services (49%) and manufacturing (47%).

7.1 The road ahead

“Over the last few years, the focus around digital technologies has been social media, big data and analytics, and cloud computing. The next wave will be connected devices, which will lead to autonomy,” explains Mr Wade. “The Internet of Things is going to be huge, machine learning and AI [artificial intelligence] as well as VR [virtual reality] can transform value added work.”

Looking ahead to the next three years, customer service (51%), IT (46%) and marketing and sales (41%) are seen as the departments that will most likely benefit from digital transformation. Strategy and business development (18%), R&D (18%) and operations and production (29%) fall much further down the list, again indicative that understanding of digital transformation is still nascent and focuses on cost savings instead of innovation. (Figure 19)

Figure 19: Everybody wins Departments likely to benefit from digital transformation over the next three years (% of respondents)

“While digital transformation need not be led by the IT unit, it shouldn’t be done without including IT leaders,” suggests Mr Westerman. Similarly, Connecting Capabilities cannot be achieved in isolation of progress in digital infrastructure, human skills and industry connectivity, which are all necessary to creating an organisational transformation environment that can benefit all. The challenge will be for countries and companies to come together in creating such an environment and to work together for other stakeholders – citizens, customers and potential competitors or other businesses and industries – in seizing the full potential of digital partnerships.

“ While digital transformation need not be led by the IT unit, it shouldn’t be done without including IT leaders”

George Westerman, principal research scientist, MIT Sloan Initiative on the Digital Economy, US

Availability of ICT infrastructure and services

Governm

ent policy

Industry-wide standards and guidelines

Disruptive com

petitors

Organisation's strategy

Level of investment

Digital partners

0

5

10

15

20

25

30

35

Legal

Strategy & business development

Supply-chain management

R&D

Risk

Procurement

Operations and production

Marketing and sales

IT

Information and research

Human resources

General management

Finance

Customer service

0 10 20 30 40 50 60



8. Appendix

The Asian Digital Transformation Index assesses the country and business environment that enables digital transformation. The Index covers 11 Asian countries, with Australia, UK and US included as countries for comparison. The Index scores countries across three categories – Digital Infrastructure, Human Capital and Industry Connectivity. There are 20 indicators and five sub-indicators. The indicators fall into two broad categories:

• Quantitative indicators: 15 indicators are based on quantitative data – for example, total country ICT expenditure and percentage of population covered by 4G networks

• Qualitative indicators: 10 of the indicators are qualitative assessment of a country’s enabling environment for digital transformation, for example, “Government policy on technology and business” which is assessed on a scale of 1-7, where 1=comprehensive policies do not exist and 7=comprehensive and well-implemented policies exist

Data sources

The Economist Intelligence Unit’s research team collected data for the Index from August 2016 to September 2016. Wherever possible, publicly available data from official sources are used for the latest available year. The qualitative indicator scores were informed by publicly available information (such as government policies and reviews) and published survey results. Qualitative indicators scored by The Economist Intelligence Unit are often presented on an integer scale of 1-7 (where 1=worst, 7=best).

Indicator scores are normalised and then aggregated across categories to enable an overall comparison. To make data comparable, we normalised the data on the basis of:

Normalised x = (x - Min(x)) / (Max(x) - Min(x))

where Min(x) and Max(x) are, respectively, the lowest and highest values in the 14 countries (Asian countries and Australia, UK and US are normalised together) for any given indicator. The normalised value is then transformed into a positive number on a scale of 0-100. This was similarly done for quantitative indicators where a high value indicates a better environment that supports social innovation.

Categories and weights

The EIU research team assigned category and indicator weights after consultations with internal analysts and external technology experts. We assessed 20 indicators and five sub-indicators across three thematic categories: Digital Infrastructure, Human Capital and Industry Connectivity.

The Digital Infrastructure category is allocated a weighting of 55% of the Index. This category is the most heavily weighted of the three categories, underlining the importance of a country-level environment and government commitment to enabling digital transformation. The Human Capital category is allocated a weighting of 25% of the Index. The category assesses the potential for citizens to either support businesses’ digital transformation as knowledge workers, or as digitally-savvy consumers of products and services sold through the Internet. The Industry Connectivity category is allocated 20% of the Index. Indicators in this category assess business and industry-level potential to achieve digital transformation. Our research finds that factors such as a web presence, strong digital partnerships, making open data available and tapping into an e-commerce market underline such potential.

The following table provides a brief description of indicators, data and weights:

Indicator Unit Year Source Weight Description

Digital Infrastructure – 55%

Government policy on technology and business

EIU rating 2014-2016

World Economic Forum (WEF), EIU Business Environment Rankings

10% The comprehensiveness and success of government’s policy towards technology and business. This is comprised of two sub-indicators: the importance of ICTs to government vision and effectiveness of policy implementation.

Business-use ICT product tariff

EIU rating 2014 Information Technology and Innovation Foundation (ITIF), EIU analysis

5% Tariffs on imports of ICT products for business use.

ICT expenditure $ per person

2015 IDC, EIU 10% ICT expenditure from enterprise, public sector and consumer segments per person.

Telecommunications investment

% of GDP 2015 Informational Technology Union (ITU)

10% Telecommunications investment as % of GDP.

Number of submarine communications cables

Number of cables per 1,000

people

2016 Submarinecablemap.com

5% Number of submarine cables landing in the country.

Percentage of population covered by 4G networks

EIU rating 2015 ITU; EIU analysis 15% Proportion of population covered by 4G networks


Indicator Unit Year Source Weight Description

ICT access and usage% of

population2015 EIU, eMarketer 10%

Composite indicator of: PC penetration rate, smartphone penetration rate, broadband penetration rate.

Secure internet servers

Number of servers

per million

2015 World Bank 10% Number of secure internet servers per million.

ICT laws Rating 2014-15 WEF 5%Based on survey question from World Economic Forum’s Global Information Technology Report on development of country’s ICT laws.

Cost of broadband services

US$ 2014OECD; Google Broadband Pricing Database

10%Monthly broadband charge (households) for broadband services with download speeds of at least 100 Mbps.

Speed of broadband services

Mb/s 2016 Akamai 10% Average connection speed (Mb/s)

Human capital – 25%

Quality of math and science education

Rating 2015 WEF 17.5% Based on survey question from World Economic Forum’s Enterprise Opinion Survey on quality of math and science education.

Tertiary enrolment % 2013 EIU; national statistics 25% Ratio of enrolment in tertiary education to the population of the corresponding age.

Citizen e-participation

Rating 2016 UN E-government survey

12.5% Availability of e-information – provision of information on the Internet, e-consultation – organising public consultations online, and e-decision-making – involving citizens directly in decision processes.

Credit card ownership % of population

2014, or latest

available

UNCTAD; EIU analysis 22.5% Percentage of population owning at least one credit card

Internet usage % of population

2014, or latest

available

UNCTAD 22.5% Percentage of population using the Internet

Industry connectivity – 20%

Existence of web portal

Rating 2016 OECD, national surveys 25% Web presence of enterprises with at least 10 employees.

Strength of digital partnerships

EIU rating (survey)

2016 EIU customised survey 25% Based on EIU’s customised survey on number of ideas from digital partnerships firms surveyed had commercialised.

E-commerce market % of population

2014, or latest

available

UNCTAD 25% Proportion of internet shoppers as % of population.

Open data availability Score 2015 Global Open Data Index

25% The availability of government data through digital means.


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