By 2021, digital transformation will add an estimated US$8 billion to the Philippines’ GDP, and increase the growth rate by 0.4% annually, according to a new business study released today.
The research, “Unlocking the Economic Impact of Digital Transformation in Asia Pacific1”, was produced by Microsoft in partnership with IDC Asia/Pacific.
The study predicts a dramatic acceleration in the pace of digital transformation across Asia Pacific economies. In 2017, about 3% of the Philippines’ GDP was derived from digital products and services created directly through the use of digital technologies, such as mobility, cloud, Internet of Things (IoT), and artificial intelligence (AI).
“The Philippines is clearly on the digital transformation fast track. Within the next four years, we expect to see approximately 40% of the Philippines’ GDP to be derived from digital products and services,” said Hans Bayaborda, Managing Director of Microsoft Philippines. “At the same time, organizations in Asia Pacific are increasingly deploying emerging technologies such as artificial intelligence as part of their digital transformation initiatives, and that will accelerate growth even further.”
The survey conducted with 1,560 business decision makers in mid and large-sized organizations across 15 economies in the region highlights the rapid impact and widespread disruption that digital transformation is having on traditional business models.
The study, which included 100 respondents from the Philippines, identified five key benefits to their bottom line from digital transformation:
According to the research findings, organizations are seeing significant and tangible improvements from their digital transformation efforts across these benefits in the range of 6% to 12% today. Business leaders expect to see more than 50% improvements in those key areas by 2020, with the biggest jump expected in profit margin and productivity.
Digital Leaders in Asia Pacific to Gain Lion’s Share of Economic Opportunities
The study indicates that while 93% of organizations in the Philippines are in the midst of their digital transformation journey, only 7% in the entire region can be classified as Leaders. These are organizations that have full or progressing digital transformation strategies, with at least a third of their revenue derived from digital products and services. In addition, these companies are seeing between 20 - 30% improvements in benefits across various business areas from their initiatives.
The study indicates that Leaders experience double the benefits of Followers, and these improvements will be more pronounced by 2020. Almost half of Leaders (48%) have a full digital transformation strategy in place.
“The pace of digital transformation is accelerating, and IDC expects that by 2021, at least 48% of Southeast Asia’s GDP will be derived from digital products and services, with growth in every industry driven by digitally enhanced offerings, operations and relationships. The study shows Leaders seeing double the benefits of Followers, with improvements in productivity, cost reductions, and customer advocacy. To remain competitive, organizations must establish new metrics, realign organization structures, and re-architect their technology platform," said Daniel-Zoe Jimenez, Research Director Digital Transformation Practice Lead, IDC Asia/Pacific.
The Study identified key differences between Leaders and Followers in Asia Pacific, which contribute to the improvements tracked:
Leaders are more concerned about competitors and emergence of disruptive technologies: The digital economy has also given rise to new types of competitors, as well as emerging technologies such as AI that have contributed to the disruption of business models.
Business agility and culture of innovation are key goals: When addressing business concerns, Leaders are focused on creating a culture of agility and innovation to counter competition. Followers, on the other hand, are more focused on improving employee productivity and profitability.
Measuring digital transformation successes: Organizations across Asia Pacific are starting to adopt new key performance indicators (KPI) to better measure their digital transformation initiatives, such as effectiveness of processes, data as a capital, and customer advocacy in the form of Net Promoter Score (NPS). As organizations realize the potential of data as the new oil for the digital economy, Leaders are much more focused on leveraging data to grow revenue and productivity, and to transform business models.
Leaders are more aware of challenges in their digital transformation journeys: In addition to skills and cybersecurity threats as key challenges, Leaders have also identified the need to bolster their data capabilities through the use of advanced analytics to develop actionable insights in fast-moving markets.
Leaders are looking to invest in AI and Internet of Things: Emerging technologies such as AI (including cognitive services and robotics) and IoT are areas where Leaders are investing in for 2018. Besides these emerging technologies, Leaders are also more interested in investing in big data analytics to mine data for actionable insights than others.
What sets Leaders apart from others are their ability to ride on the digital transformation wave from an organizational culture perspective. The study found that Leaders have these traits:
“There is a pressing need for organizations to adopt a leaders’ mindset to fully build their digital ecosystem—from employees, to customers, to partners—in order to grow their value chain,” said Andrea Della Mattea, President of Microsoft Asia Pacific. “In this regard, Microsoft is uniquely positioned to help organizations across Asia Pacific succeed in their digital transformation journey. We say this with confidence because we, as an organization, have also undergone digital transformation, and we understand what it takes to make these digital initiatives successful.”
Digital Transformation in the Philippines Will Ultimately Benefit Citizens
According to the business leaders surveyed, digital transformation will bring about these top three benefits to society:
1. Potential increment to personal income through freelance and digital work
2. Creation of more higher value jobs
3. Increased educational and training opportunities
Respondents in the Philippines felt that 92% of jobs will be transformed in the next three years due to digital transformation, and 65% of the jobs in the market today will be redeployed to higher value roles, or reskilled to meet the needs of the digital age.
“The rise of digital transformation in Asia Pacific economies will affect the labour market where many types of jobs will evolve and change. What is encouraging is that 84% of respondents are confident that their employees already have future ready skills that will help them to transition to new roles,” said Bayaborda.
In the Philippines, Microsoft recently partnered with UnionBank to support its digital journey with blockchain technology on Azure, one of the first Southeast Asian banks to conduct such trials. Microsoft's technology allows the bank to have wider coverage at a lower cost, lower risk, and greater efficiency. This will allow the bank to reach a big under-served market in rural areas of the Philippines. This blockchain technology will enable UnionBank to offer a more open and transparent system, which will help promote greater financial inclusion in the Philippines.
Riding the Wave of Digital Transformation
Organizations in Asia Pacific need to accelerate their digital transformation journey to reap the full benefits of their initiatives, and to address the invisible revolution brought about the mass adoption of AI. More importantly, companies need to focus on capitalizing their own data in order to gain new market insights, create new digital products and services, and monetize data through data sharing securely, and in collaboration with its ecosystem.
Microsoft recommends organizations to adopt the following strategies to become a digital transformation leader:
1. Create a digital culture: An organization need to build a culture of collaboration where it is connected across business functions, and has a vibrant and mature ecosystem of customers and partners. Data can then be embraced across organization and functions, where better decisions can be made and ultimately serving the needs of customers and partners better.
2. Build an information ecosystem: In a digital world, organizations are capture more volumes of data internally and externally. The key to becoming a leader is for organizations to be able to convert data into capital assets, and enable data sharing and collaboration internally and externally in an open yet trusted manner. In addition, a proper data strategy will allow businesses to start their AI initiatives to identify connections, insights and trends.
3. Embrace micro-revolutions: In most cases, digital transformation efforts do not start with widespread change, but a series of micro-revolutions. These are small, quick projects that deliver positive business outcomes and accrue to a bigger and bolder digital transformation initiatives.
4. Develop Future Ready Skills for Individuals and Organizations: Organizations today must relook at training and reskilling its workforce so that workers are equipped with future ready skill sets such as complex problem solving, critical thinking and creativity for the digital economy. More importantly, they need to rebalance the workforce to attain and attract key digital talents, as well as be open in creating a flexible work source model where they tap into skills-based marketplace. From a digital skills perspective, LinkedIn’s latest study2 outlines the ABCs of digital talents required for future economies in the region – artificial intelligence, big data and cloud computing. In the Philippines, the top in-demand skills are big data, cloud computing, and mobile development.
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