Connecting the dots in Asia-Pacific How business leaders are preparing for a world where everything is connected A report from The Economist Intelligence Unit Commissioned by Connecting the dots in Asia-Pacific How business leaders are preparing for a world where everything is connected Contents About the report Introduction Preparation is everything Talent strategies are becoming more aggressive Barriers to adoption For more profitable companies, speed and the complexity of data are the next frontiers A complacent view of cyber security 9 Conclusion 11 © The Economist Intelligence Unit Limited 2014 Connecting the dots in Asia-Pacific How business leaders are preparing for a world where everything is connected About the report Connecting the dots in Asia-Pacific is a report from The Economist Intelligence Unit, commissioned by Cisco It assesses corporate attitudes towards the rise in “connectedness” (see definition, below) across Asia-Pacific and the level of business readiness in the region The report draws on a survey of 532 executives across 11 countries in Asia-Pacific, conducted in May, June and July, 2014  About half (49%) of survey respondents are board members or C-level executives, including 165 CEOs All respondents are based in AsiaPacific with a majority located in India (15%), Australia (14%), China (14%), Japan (10%) and South Korea (10%)  About one-half of the survey respondents (49%) work for companies with annual global revenues exceeding US$500m There are 19 different industries represented in the survey sample, led by manufacturing (15%), financial services (14%), and information technology (IT) and other technology (11%)  The primary functional roles of respondents are general management (46%), strategy and business development (36%), and marketing and sales (25%) The survey findings are supplemented by desk research All figures are in US dollars Kim Andreasson was the author and Charles Ross was the editor The Economist Intelligence Unit bears sole responsibility for the content of this report and the findings not necessarily reflect the views of the commissioning organisation Definition of connectedness For this report, “connectedness” is defined as the unprecedented number of people and devices connected to the internet and to one another; the growth in data these connections © The Economist Intelligence Unit Limited 2014 create, and the ability of organisations to benefit from the opportunities created through the confluence of business trends, technologies and increased insights from connectedness Connecting the dots in Asia-Pacific How business leaders are preparing for a world where everything is connected Introduction connectedness may separate successful firms from failing ones A similarly large majority of executives believe their organisation’s ability to adapt its people, processes and technology is important to take advantage of this greater connectedness (Figure 1) Within the last decade, the number of individuals using the Internet in Asia-Pacific has almost quadrupled—from 344m in 2005 to over 1.3bn users in 2014.1 Meanwhile, the market for big data in the region is forecast to increase fourfold in half the time (from $548m in 2012 to $2.38bn in 2017).2 Thus, companies are increasingly looking to link this rising Internet connectivity and technological development with greater customer insights and internal improvements in their people and processes Nonetheless, perceptions are not always the same as reality The results of our survey set out in this executive summary show that while many companies in the region are investing in connectedness, progress is far from uniform At the same time, as executives look to exploit new opportunities, there are signs of complacency with regard to the risks that come with greater connectedness Such “connectedness” can make a difference in a competitive landscape In the survey conducted for this report, more than 4-in-5 executives in Asia-Pacific agree that investments aimed at capitalising on the potential benefits of greater Figure 1: All change Importance of an organisation’s ability to adapt its people, processes and technologies to take advantage of connectedness (% respondents) Unimportant 3% Undecided 11% 86% Important Source: ITU World Telecommunication/ICT Indicators database; note: data for 2014 projected IDC: http://www.idc.com/ getdoc.jsp?containerId= AP2670103V © The Economist Intelligence Unit Limited 2014 Connecting the dots in Asia-Pacific How business leaders are preparing for a world where everything is connected Five things businesses should know about connectedness in the Asia-Pacific region Connectedness is the difference between success and failure: A willingness to invest in connectedness will separate successful firms from failing ones, say executives Corporate preparations in some countries will create competition for talent: Firms in emerging markets, such as Vietnam, are actively looking to poach staff from competitors A significant minority of companies are disconnected: One-third of executives believe that Asia-Pacific is not well-prepared for dealing with a world where everything is connected Progress across the region is developing at two speeds: Some companies worry about accessing consumer data quickly enough to inform decision making For others, a lack of telecommunications infrastructure is hampering their ability to even reach consumers in the first C-suite executives are switched-on to the revenue potential: Board members and C-level executives see greater opportunity for improved revenue growth from connectedness than other less senior executives © The Economist Intelligence Unit Limited 2014 Connecting the dots in Asia-Pacific How business leaders are preparing for a world where everything is connected Preparation is everything The perceived importance of connectedness varies across industries Respondents in datadriven sectors like IT and technology (51%) and healthcare, pharma and biotech (50%) are far more convinced that their organisation’s ability to adapt its people, processes and technologies to take advantage of the potential value of increased connectedness is very important than those in traditional industries like construction and real estate (28%) and manufacturing (33%) The biggest expected benefits of connectedness cited by survey respondents are greater access to customer data and better understanding of customer habits (42%), followed by enhanced products or services (39%) and improved internal efficiency (37%) In addition, almost all (93%) executives agree that an increase in connectedness is likely to spur a new wave of innovation in terms of products and services Board members and C-level executives see greater opportunity for improved revenue growth (37%) than other executives in the survey (22%), although most executives acknowledge the difficulties in attempting to value the return on investment resulting from greater connectedness (Figure 2) Figure 2: Broad agreement on benefits from top to bottom C-suite and below expected benefits of increased connectedness (% respondents) Non C-level C-level Reduced cost 50% Improved internal efficiency 40% Enhanced products or services 30% 20% Improved revenue growth 10% Better understanding of customers 0% Increased innovation Improved organisational regulatory compliance Improved transparency Decreased rates of fraud and abuse © The Economist Intelligence Unit Limited 2014 Connecting the dots in Asia-Pacific How business leaders are preparing for a world where everything is connected So what changes executives plan to make in order to make the most of these opportunities? When it comes to technology, the single largest group of executives cite mobile devices as the most important trend today But this is all set to change During the next three years, the focus for technology investment will shift to big data and analytics (Figure 3) This trend is particularly strong among data-reliant sectors such as professional services (53%), IT and technology (47%), and financial services (43%) compared with traditional industries like construction and real estate (35%) and manufacturing (39%) Overall, fewer organisations cite additional investment in mobile devices (33%), which suggests a maturation of connectedness— moving beyond the initial stages of connecting with customers to focussing on the secondary benefits of what such connectivity can bring: more customer data But exploiting greater connectedness goes beyond technology Internal organisational improvements to people and processes must also be made When asked in which of five areas their organisation will focus to reap the potential benefits of greater connectedness, the leading answer—cited by 49%—is enhancing employee productivity (i.e achieving the same output with fewer man hours) Geographically, this is a particularly strong trend in Singapore (cited by 69%), Australia (58%), and the Philippines (58%) But executives not expect this to be easy, since raising employee productivity is also the second most (24%) cited challenge facing organisations (surpassed only by the customer experience at 25%) In terms of business processes, most respondents believe in improving coordination between departments (38%); however, among companies with stronger corporate profitability, there is a tendency to also focus on improving coordination up and down the management structure (38% Figure 3: Investing in information Technology trends which companies will invest in now and over the next years to prepare for increased connectedness (% respondents) Now In years 33% 36% Cloud computing 41% 41% Big data and analytics 17% 17% The Internet of Things Mobile devices 33% Social networking 20% 17% Cyber security Software-defined networking (SDN) 8% 7% © The Economist Intelligence Unit Limited 2014 24% 21% 44% Connecting the dots in Asia-Pacific How business leaders are preparing for a world where everything is connected vs 25%) and centralising decision-making (20% vs 12%) The presence of such counteracting forces illustrates the complex challenges facing companies trying to adapt to a new reality and shows that there is no silver bullet to adoption companies plan to take to plug skills gaps can vary from market to market Most organisations believe in enhancing internal development of current staff (53%) In Australia, for instance, two-thirds of executives prefer internal development, much more so than hiring people away from competitors (7%) By contrast, in Vietnam, one-third of executives plan to take the latter approach (Figure 4) Across the survey sample, leading organisations tend to take a more aggressive approach: companies with stronger corporate profitability are twice-aslikely than their less profitable counterparts to say they will hire people away from competitors (21% vs 12%) three years from now Talent strategies are becoming more aggressive As companies prepare for greater connectedness, with new technology, working practices and business processes, executives recognise the need to develop the requisite knowledge and skills among their workforce Three years from now only 11% say their hiring policies will remain the same as today, although the route that Figure 4: Talent strategies vary across Asia-Pacific People issues organisations will focus on in the next three years to prepare for greater connectedness (% respondents) Hiring people from abroad 64% 7% 10% China 10% 53% 12% 15% Indonesia 7% 56% 13% 14% Malaysia 46% 29% 3% 67% 9% 9% 53% 6% 25% South Korea Vietnam 39% 24% Japan Thailand 45% 22% India Singapore Hiring people away from competitors 12% Australia Philippines Enhancing internal development of current staff 52% 29% 8% 61% 16% 20% 32% 44% © The Economist Intelligence Unit Limited 2014 Connecting the dots in Asia-Pacific How business leaders are preparing for a world where everything is connected Barriers to adoption Despite uneven Internet adoption rates across Asia-Pacific, greater consumer connectivity is viewed only as the fourth greatest challenge overall One reason could be that with a lack of infrastructure in the first instance, companies have low expectations for online adoption among consumers However, among companies who consider themselves ready to seize the potential opportunities of connectedness, about twice as many cite consumer connectivity as a particular challenge This may indicate that companies ahead of the curve are unable to seize the full benefits without greater digital inclusion among consumers There are numerous external and internal challenges for companies seeking to leverage the advantage of greater connectedness Overall, the most commonly cited ‘external’ barriers to organisations are technology infrastructure and standards (40%) (Figure 5) Digging deeper, however, this is less of a problem in developed economies such as Japan (cited by 26%) compared to emerging markets, such as Thailand (55%), India (49%) and Vietnam (48%) Although this points to differences in existing infrastructure, it also suggests many developing economies have a tremendous opportunity if they can bridge such gaps Figure 5: Poor connection Barriers to taking advantage of greater connectedness (% respondents) People: employee technology skills Finance: revenue opportunities People: remote connectivity and mobility 32% 28% 15% Finance: budgeting 26% 21% Processes: production of products or services 21% 37% Technology: data analytics 40% Technology: infrastructure and standards © The Economist Intelligence Unit Limited 2014 Processes: business process management (eg internal efficiency) Connecting the dots in Asia-Pacific How business leaders are preparing for a world where everything is connected For more profitable companies, speed and the complexity of data are the next frontiers This is reinforced by the notion that more profitable companies are far more likely to view accessing information in a timely manner as their biggest challenge (48% compared with 37% for less profitable companies) while less likely than average to see extraction of information as a challenge in making use of data (30% vs 37%) or in analysing it (32% vs 39%) The primary ‘internal’ challenge facing organisations in terms of harnessing greater connectedness to make better decisions are complexity of data (37%), cost/funding (34%), organisational culture (34%), and lack of employee skills (32%)(Figure 6) However, companies with stronger corporate profitability are less likely to say organisation culture is a primary challenge (cited by 29% compared with 40% for those from less profitable companies) Instead, more profitable companies are more likely to cite the volume of data (24% vs 14%) and complexity of data (40% vs 32%) as their primary challenges to make better decisions This means they have likely ventured beyond the initial barriers frequently cited by others and are now facing the next wave of challenges towards greater connectedness A complacent view of cyber security Being prepared to reap the benefits of greater connectedness is only one half of the equation, however Failing to address the associated risks of greater connectedness could ultimately prove more costly Following a spate of high-profile incidents, the importance of cyber security has risen rapidly on global corporate and policy agendas in recent years In the survey conducted for this report, three-quarters of executives in the Asia-Pacific region agree that security concerns limit the full potential of increased connectedness Figure 6: More profitable, different challenges Challenges faced in leveraging the value of greater connectedness vary by profitability (% respondents) Less profitable More profitable Organisational culture 40% Lack of organisational connectivity 29% Volume of data 24% Lack of country infrastructure 16% 22% 15% 14% 40% Complexity of data 32% 18% 14% Lack of technology standards 30% 13% 15% 23% 24% 23% 25% 26% Regulation Risk 35% Lack of employee skills 25% Lack of senior management awareness 28% 30% 39% Lack of processes Cost/funding © The Economist Intelligence Unit Limited 2014 Connecting the dots in Asia-Pacific How business leaders are preparing for a world where everything is connected Even so, only one-fifth rate cyber security as a key area in which their organisation will invest over the next three years Similarly, cyber security is considered one of the least important technology trends by organisations in Asia-Pacific (see Figure 3) This widespread complacency could prove costly Although a lot of attention so far has been on cyber attacks affecting large US companies, Microsoft predicts the world’s highest enterprise losses from such incidents will come in the AsiaPacific region in 2014 (estimated at $138bn).3 Microsoft: http://www microsoft.com/apac/news/ PlayItSafe.aspx 10 © The Economist Intelligence Unit Limited 2014 In part, the complacency surrounding cyber security concerns in Asia-Pacific may be attributed to a lack of awareness For instance, executives representing data-reliant sectors such as financial services (49%) and professional services (40%) are far more concerned about external data intrusions than those in traditional industries like construction and real estate (31%) and manufacturing (29%) Yet, as companies from all sectors become more data-reliant the current level of cyber security complacency in Asia-Pacific is concerning In a world where connectedness is the norm, securing it must be a priority Connecting the dots in Asia-Pacific How business leaders are preparing for a world where everything is connected Conclusion Companies in the Asia-Pacific region are aware of the opportunities of connectedness The focus is shifting to data, although there is a gap in implementation which is particularly evident between companies that are more profitable and their counterparts A lack of prioritisation appears to be a root cause of slow adoption, while complacency about cyber security issues that come with greater connectedness is a concern moving forward, particularly among traditional industries At a broader level, the private sector must work with the public sector to improve ICT infrastructure and digital inclusion in order to reap the full benefits of the information society The opportunities to compete in a global environment are simply too great to be of low priority 21 © The Economist Intelligence Unit Limited 2014 11 While every effort has been taken to verify the accuracy of this information, The Economist Intelligence Unit Ltd cannot accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in this report This report was commissioned by Cisco To learn more about the Internet of Everything, click here LONDON 20 Cabot Square London E14 4QW United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8500 E-mail: london@eiu.com NEW YORK 750 Third Avenue 5th Floor New York, NY 10017 United States Tel: (1.212) 554 0600 Fax: (1.212) 586 1181/2 E-mail: newyork@eiu.com HONG KONG 6001, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: hongkong@eiu.com GENEVA Rue de l’Athénée 32 1206 Geneva Switzerland Tel: (41) 22 566 2470 Fax: (41) 22 346 93 47 E-mail: geneva@eiu.com SINGAPORE No Cross Street, #23-01 & 04 PWC Building, 048424, Singapore Tel: +65 6534 5177 ... securing it must be a priority Connecting the dots in Asia- Pacific How business leaders are preparing for a world where everything is connected Conclusion Companies in the Asia- Pacific region are. . .Connecting the dots in Asia- Pacific How business leaders are preparing for a world where everything is connected Contents About the report Introduction Preparation is everything Talent strategies... transparency Decreased rates of fraud and abuse © The Economist Intelligence Unit Limited 2014 Connecting the dots in Asia- Pacific How business leaders are preparing for a world where everything