Microsoft Digital Transformation Study 2018

In partnership with IDC Asia/Pacific

How is an
organization being
digitally transformed?
DIGITAL
How is an organization TRANSFORMATION
business model being
digitally transformed?
Every company is a software
company. You have to start
thinking and operating like
a digital company. It’s no
longer just about procuring
one solution and deploying
one. It’s not about one
simple software solution. It’s
really you yourself thinking
of your own future as a
digital company.

SATYA NADELLA
CEO, MICROSOFT
 Unlocking the Economic Impact of
Digital Transformation in Asia Pacific

Digital Digital What sets Digital Digital

Transformation Transformation Transformation Transformation
economic impact economic impact Leaders Apart? Impact on society
on countries’ GDP on organization’s
business
 Unlocking the Economic Impact of
Digital Transformation in Asia Pacific and Australia

Digital What sets Digital Digital

Transformation Transformation Transformation
Digital
economic impact Leaders Apart? Impact on society
Transformation
on organization’s
economic impact
business in
on GDP monetary terms
 Asia Pacific Australia’s
DIGITAL TRANSFORMATION IMPACT ON ASIA PACIFIC GDP (US$ BILLION)

2016 24,498

2021 24,498 6,685 1,161

4.9% CAGR 0.8% CAGR

forecasted growth Digital Transformation
will add to GDP

DIGITAL TRANSFORMATION IMPACT ON AUSTRALIA GDP (US$ BILLION)

2016 1,205
35 0.5% CAGR
Digital Transformation
2021 1,205 will add to GDP

194 3.0% CAGR

forecasted growth

Legend

Forecast additional GDP contribution by DT based on projected GDP (nominal) growth by the World Bank, forecasted based on
revenue growth projections by companies undergoing DT and discounted by percent of companies undergoing DT.
 Unlocking the Economic Impact of
Digital Transformation in Australia

Digital What sets Digital Digital

Transformation Transformation Transformation
economic impact Digital Leaders Apart? Impact on society
on GDP Transformation
economic impact
on organization’s
business
Top Benefits

#1 #3 #5
Improvement in Cost reduction Increased revenue Improved
profit margin from existing customer
products and advocacy and
services loyalty

#2 #4
Increased revenue
Improvement in
from new products and
productivity
services
Base: All respondents (n=94) – respondents who indicated “no strategy but plans to build one” have been removed for this analysis.
A5. What are the top 3 benefits that your organization has observed from their current Digital Transformation initiatives? Please indicate the degree of
improvement for these three.
Top benefits: Improvements now and in three years
• Top 5 benefits of digital transformation contribute significantly to bottom-line today, and will see even greater
improvements by 2020
• By 2020, organizations will see at least 40% improvements tracked in every of the key benefits identified

1.5X 1.4X 1.4X 1.8X 1.7X 1.8X

% improvement in % improvement in % cost reduction % increased revenue % increased revenue % improved
profit margin productivity from new products from existing customer advocacy,
and services products and services loyalty and retention
40% 37%
33% 33% 34%
29%
23% 23% 22% 21%
20% 20%

2017 2020 2017 2020 2017 2020 2017 2020 2017 2020 2017 2020

N=46 N=44 N=36 N=20 N=29 N=25

Base: Respondent counts vary across all options as this is a top 3 question so not all benefits are chosen by all respondents.
A5. What are the top 3 benefits that your organization has observed from their current Digital Transformation initiatives?
A5b: Please indicate the degree of improvement from last year.
A5c: Please indicate the expected improvement in 3 years
Challenges

#1
Lack of skills and resources

#2
Siloed and resistant culture

#3
Lack of advanced analytics to develop actionable insights

#3
Lack of thought leadership in driving digital
transformation
Base: All respondents (n=100)
B1. What are the top 3 challenges your organization has faced or is facing in its digital transformation journey?
 KPIs
Surprisingly, organizations in Australia today are already using non-standard business KPIs to measure digital
transformation outcomes

47% 46% 40% 31.3%

Process/Service Customer Advocacy Employee Advocacy
Effectiveness

Base: All respondents (n=100)

B11. When measuring overall DT journey success, which of the following key performance indicators/metrics (KPIs) are you using? Please select all that apply.
Technology investments for Digital Transformation for 2018

CORE TECHNOLOGIES EMERGING TECHNOLOGIES

17.8% 17.8%
16.9%

9.3% 8.9% 8.9%

6.9%

4.4%
2.8%
2.0%
0.8%

Cloud Mobility Big data Security Social eCommerce AI/ Internet of Next gen Mixed, Blockchain
analytics media Cognitive/ Things interface VR, AR
Robotics (IoT)

Base: All respondents (n=100)

B6. Relating to the use of technology for your DT initiatives, which of the following digital technologies are your organization going to heavily invest on in 2018?
IOT EXPLOSION

ARTIFICIAL
INTELLIGENCE
INTELLIGENT CLOUD

ADVANCED
ANALYTICS

INTELLIGENT EDGE
 Unlocking the Economic Impact of
Digital Transformation in Asia Pacific

Digital Digital Digital

Transformation Transformation Transformation
economic impact economic impact What sets Digital Impact on society
on GDP on organization’s Transformation
business Leaders Apart?
NOTE: No country breakdown for
this section as leaders only formed a
total of 103 respondents in the total
sample
 7%
LEADERS

93%
FOLLOWERS

Base: All respondents (n=1560)

A1. Which of the following best describes your organisation’s digital transformation strategy?
A6. What % of your revenues / fees / incomes / fundings are derived from digital products and/or services?
A5. What are the top 3 benefits that your organisation has observed from their current Digital Transformation initiatives? Please indicate the degree of
improvement for these three.
 full digital transformation strategy
ecosystem centric approach
• Almost half of all Leaders have a full digital transformation strategy in place
• Leaders also benefit from an ecosystem-centric focus on customers, employees and partners

% of Organizations with Full Digital Transformation Strategy

47.6%
• A full strategy refers to having
mature and developed digital
processes, people readiness, and
support systems in place.

• This enables new & timely ways of

engaging with customers,
employees and partners; enabling
17.3%
continued growth & innovation
and ultimately, reap higher
benefits as a truly digital
organization.

Leaders Followers
 Highest Digital Transformation Improvements
• Leaders experience double the benefits of followers, and these improvements will be even more pronounced for leaders by 2020

2017 2020

% improvement in % improvement in % improvement in cost % improvement in profit % increased revenues

customer advocacy, productivity reduction margin from new products and
loyalty and retention services

46% 45% 45%

41%
39%

33% 33% 33%

30%
28%
27%
23% 23%
2.2 X 2.1 X 22% 2.4 X 22%
1.9 X
2.5 X
15%
14% 14% 13% 14%

Leaders Followers Leaders Followers Leaders Followers Leaders Followers Leaders Followers

Base: Respondent counts vary across all options as this is a top 3 question so not all benefits are chosen by all respondents.
A5. What are the top 3 benefits that your organization has observed from their current Digital Transformation initiatives? Please indicate the degree of improvement
for these three.
 competitors emerging
disruptive technologies
While all respondents shares similar concerns, leaders are more concerned about competition and
emerging disruptive technologies.

KEY DIFFERENCES IN BUSINESS CONCERNS

Emergence of disruptive technologies

More competitors entering my market

Leaders Followers

Base: Leaders (n=103), Followers (n=1457). Respondent counts vary across all options as this is a top 3 question so not all business concerns are chosen by all
respondents.
A2. What are your CEO’s/organization’s top 3 business concerns other than meeting financial goals?
 business agility culture of innovation

TOP 3 PRIORITIES TO ADDRESS CONCERNS

Improving employee productivity and profitability

Developing a culture of innovation and continuous learning

Improving business agility to respond quickly to market trends and opportunities

Leaders Followers

Base: Leaders (n=103), Followers (n=1457). Respondent counts vary across all options as this is a top 3 question so not all priorities are chosen by all respondents.
A3. To address these concerns, which of the following will be your organization's top 3 priorities for 2018?
 Data Strategy
Leaders place a greater emphasis on data and leveraging it to improve business decision-making, enhance product &
services and create new business models. Leaders Followers

Business KPI Technology Investments

Data as a capital asset for growing Big Data Analytics will form the foundation
revenues, business model and productivity for AI/Cognitive/Robotics implementation

51% 43% 18.6% 15.8% 11.7% 9.9%

Base: All respondents (n=1560)

B11. When measuring overall DT journey success, which of the following key performance indicators/metrics (KPIs) are you using? Please select all that apply.
B6. Relating to the use of technology for your DT initiatives, which of the following digital technologies are your organization going to heavily invest on in 2018?
Five Organizational Traits

CULTURE & CHANGE ORGANIZATIONAL DIGITAL LEADERSHIP & BUDGETS

BEHAVIOR TRANSFORMATION STRUCTURE
APPROACHES

41% 31% 78% 61% 80% 65% 84% 68% 70% 50%

“…are less risk-adverse and “…display higher maturity “…display higher “has a key person “…have allocated
characterized by having in collaboration and agility organization-wide leading their digital budget for digital
transient organizations that in change cycle. Instead of alignment in their DT transformation efforts transformation as a
adapt to changing needs, focusing on individual efforts.” with an independent permanent part of
often automatically and efforts, teams self-organize standalone digital the P&L to maximize
without management “Their strategies and
across groups to achieve business unit or with resources, ensure
intervention.” metrics are interlinked to
organizational success.” digital leads assigned to organisation-wide
deliver digital products,
“They embrace fail/ services and experiences to each LOB and functional alignment and better
learn-fast approaches.” customers.“ groups to drive efforts” governance“

Leaders Followers % indicate respondents in group who agreed with statements

 Unlocking the Economic Impact of
Digital Transformation in Australia

Digital Digital What sets Digital

Transformation Transformation Transformation
economic impact economic impact Leaders Apart? Digital
on GDP on organization’s Transformation
business Impact on society
 Benefits to Society
The creation of higher value jobs, smarter, safer and more efficient cities, and enhance healthcare through better
prediction and management of individual health were seen as top 3 benefits

#1 #2 #3
Smarter, safer and Enhance healthcare
Create more higher
more efficient cities through better
value jobs in the
prediction and
future for individuals
management of
individual health

Base: All respondents (n=100)

C2. in your opinion, which of the following areas do you think DT initiatives by companies and government has benefited citizens? Rank top 3.
Jobs Transformation

Retrained and
upskilled
30% Outsourced,
automated or made
redundant

83% 29%

of jobs in the
next 3 years will
66%
be transformed are confident that
young professionals
New roles created
due to digital Unchanged
already have future
transformation
investments
17% ready skills that will help
24% them to transition to
new roles.

Base: All respondents (n=100)

C3. To address the lack of skillsets in your organization, what percentage of your organization’s jobs in 3 years will be: a) Outsourced, automated or made redundant,
b) New roles created given digital transformation investments, c) Retrained and upskilled
#C3a:- Do you think young professionals within your organization (aged 25 year-old and below) have future ready digital skills to meet the demands of digital
transformation.?
Unlocking the Economic Impact of
Digital Transformation in Asia Pacific

Recommendations
Why do Organizations in Asia Pacific Need to Accelerate their Digital
Transformation Journeys?
IMPROVEMENTS IN
BUSINESS PERFORMANCE
• Leaders who have a full digital
transformation strategy enjoy double
the benefits compared to Followers.
• Embracing a full digital transformation
strategy enables organizations to see
improvements of up to 30% in:
• Productivity
• Profit Margins
• Customer Loyalty
• Revenue Growth
• This will grow to close to 50% in a
3-year horizon
INVISIBLE REVOLUTION
• 2018 will mark the year of mass
adoption of Artificial
Intelligence. Leaders are focused
on building the foundation for this
emerging technology today by
investing in big data analytics.
• Companies need to focus on:
• Capitalizing on own data
• Data-sharing in an open
and secure manner
How to Become a Digital Transformation Leader?

CREATE A DIGITAL CULTURE BUILD AN INFORMATION EMBRACE MICRO-REVOLUTIONS

ECOSYSTEM

• Address organizational structure shifts
required for digital transformation
success
• Encourage the use of data across all
work processes and operations within
the enterprise;
• Begin with the end in mind and include a
plan with clear outcomes.
• Facilitate Data Capitalization across the
Enterprise and with Ecosystem partners.
• Focus on small, quick projects that deliver
positive business outcomes and accrue to a
bigger and bolder digital transformation
strategy
• Enabling quick investments and trials in
emerging technologies, especially AI

• Create a digital ecosystem–mindset with • Create a balance scorecard that combines

data-sharing with partners and third parties.” standard and new metrics for DT success.

LEVERAGE AI TO ACCELERATE DIGITAL TRANSFORMATION

OF THE ENTERPRISE AND ECOSYSTEM
 ENGAGE YOUR EMPOWER YOUR
CUSTOMERS EMPLOYEES
in a personal and To deliver
relevant way differentiated service

ECOSYSTEM SECURITY

OPTIMIZE YOUR TRANSFORM YOUR

OPERATIONS PRODUCTS
To evolve forecasting And deliver new value
and react faster to customers
Addressing Skills Needed for Digital Transformation

Future skillsets ABCs of Digital Skills*

• Complex problem solving • Artificial Intelligence
• Critical thinking, system analytics • Big Data
• Creativity, active learning • Cloud computing
• People & communication skills,
INDIVIDUAL cultural agility

• Focus on rebalancing the workforce to attain key digital talent.

• Place higher emphasis on attracting and retaining the best
talent, and retraining and outsourcing others in the workforce.
• Focus on creating a flexible work source model

ORGANIZATION

*Source: LinkedIn, The Digital Workforce of the Future. Data as of August 2017.
 Australia

100 (250–999 employees)

(>1000 employees)

67% C and C-1 levels

(C–level i.e. CIO, COO, CEO MANUFACTURING RETAIL FSI
C-1 level i.e. VP/Director)

33% C-2 level

GOVERNMENT EDUCATION HEALTH
(i.e. senior managers)
Microsoft Asia Digital Transformation Study 2018

In partnership with IDC Asia/Pacific