Digital transformation to contribute more than US$1 trillion to Asia Pacific GDP by 2021; AI is primary catalyst for further growth

  • IDC study commissioned by Microsoft predicts that approximately 60% of Asia Pacific’s GDP will be derived from digital products or service by 2021.
  • By 2021, Digital Transformation is expected to add 0.8% CAGR GDP growth annually.
  • Digital Transformation brings increased profit margins, productivity, customer advocacy, revenue from new products & services and more cost reductions. These benefits will also improve by approximately 50% in three years.
  • Leaders in Digital Transformation reap double the benefits compared to followers.
  • Digital Transformation in Asia Pacific will ultimately benefit citizens with smarter and safer cities; higher value jobs and potential increment to personal income.

Asia Pacific, Singapore, 21 February 2018 – By 2021, digital transformation will add an estimated USD1.16 trillion to Asia Pacific’s GDP, and increase the growth rate by 0.8% annually, according to a new business study released today. The research, entitled “Unlocking the Economic Impact of Digital Transformation in Asia Pacific[1]”, was produced by Microsoft in partnership with IDC Asia/Pacific.

The study predicts a dramatic acceleration in the pace of digital transformation across Asia’s economies. In 2017, about 6% of the region’s 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).  This is expected to surge to around 60% of Asia GDP by 2021.

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.

“Digital transformation has a positive and measurable impact on Asia Pacific’s economy, and it is widely regarded that every organization needs to be a digital one. In fact, organizations are seeing tangible improvements from their digital transformation initiatives between the ranges of 15% to 17% today, which shows that digital transformation is no longer an idea, but a reality,” said Ralph Haupter, President, Microsoft Asia.

Respondents to the study identified five key benefits to their bottom line from digital transformation:

Business leaders expect to see more than 50% improvements in those key areas by 2020, with the biggest jump expected in customer advocacy.

READ: How Asia Pacific is transforming digitally

“We see AI as a primary catalyst for further growth. Our customers across Asia are already demonstrating a strong sense of urgency to integrate AI into their business as part of their digital transformation initiatives. The Study shows that AI is top of mind when it comes to investing in emerging technologies today,” added Haupter.

By 2019, IDC predicts that 40% of digital transformation initiatives will be supported by Artificial Intelligence/ Cognitive capabilities[2] providing timely, critical insights for new operating and monetization models in Asia Pacific (excluding Japan).

Digital Leaders in Asia Pacific to Gain Lion’s Share of Economic Opportunities

While 85% of organizations in the region are in the midst of their digital transformation journey, only 7% can be classified as Leaders. These are organizations that have full or progressing digital transformation strategies, with at least a third of their revenue 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 60% of Asia/Pacific GDP will be digitalized, 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 rearchitect their technology platform,” said Daniel-Zoe Jimenez, Research Director Digital Transformation Practice Lead, IDC Asia/Pacific.

The Study identified key differences between leaders and others 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 Artificial Intelligence 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 abilities to ride on the digital transformation wave from an organizational culture perspective. The Study found that Leaders have these traits:

Digital Transformation in Asia Pacific to boost cities, jobs and incomes

According to the business leaders surveyed, digital transformation will deliver three top social benefits:

  1. Smarter, safer and more efficient cities
  2. Creation of more higher value jobs
  3. Potential increment to personal income through freelance and digital work

“The study found that 85% of jobs will be transformed in the next three years, half of which will be redeployed to higher value roles, or reskilled to meet the need of the digital age. And, what is encouraging is that two thirds of respondents are confident that their young employees already have future ready skills that will help them to transition to new roles,” said Haupter.

While there is also concern about job displacement, the Study found that 26% of new jobs are expected to be created from digital transformation, which is about the same number to be automated, or about 27%; in other words, the effect will be neutral.

“Despite the impact on jobs being mitigated, organizations should still work on partnering with governments and education institutions to provide feedback, training and reskilling programs so that the workforce is equipped with future-ready skill sets,” added Haupter.

READ: How Asia Pacific is transforming digitally

Riding the Wave of Digital Transformation

Organizations in Asia Pacific need to accelerate their digital transformation journey to reap the full benefits from their initiatives, and to address the invisible revolution brought by the mass adoption of AI.

“For organizations to gain the benefits of digital transformation, they need to develop a data-driven culture and build up a strong digital ecosystem – from employees, to customers, to partners. This will grow a value chain by gaining new insights through new data sources, expanding their digital products and services, and ultimately building their data as a capital asset,” said Haupter. “Microsoft is uniquely positioned to help organizations in Asia to succeed in their digital transformation journeys today through our agile platforms and solutions that prioritize flexibility, integration and trust. As an organization that has also undergone digital transformation, we understand what organizations will need to make their journeys successful.”

Microsoft recommends organizations to adopt the following strategies to become a digital transformation leader:

  1. Create a digital culture: An organization needs to build a culture of collaboration where it is connected across business functions. It should have a data strategy in place and begin with the end in mind, having a plan with clear outcomes. Importantly, a proper data strategy will allow businesses to start their AI initiatives to identify connections, insights and trends. Data capitalization would be key for all organizations to succeed in the digital economy.
  2. Build a digital ecosystem: Digital transformation will not be optimized if organizations do not collaborate with their external customers and partners. The key to becoming a leader is for organizations to enable data sharing and collaboration internally and externally in an open yet trusted manner.
  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 bigger and bolder digital transformation initiatives.
  4. Bet big on AI: Organizations need to integrate AI into its business and identify areas where it can be used to augment higher-value activities.
  5. 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 study[3] outlines the ABCs of digital talents required for future economies in the region – artificial intelligence, big data and cloud computing.

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[1] Unlocking the Economic Impact of Digital Transformation in Asia Pacific conducted with 1,560 respondents in 15 markets:

  • 15 Asia Pacific markets were involved: Australia, China, Hong Kong, Indonesia, India, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam.
  • Business and IT leaders from organizations with more than 250 staff were polled.
  • Industries polled included education, financial services, government, healthcare, manufacturing and retail.

Respondents are decision makers involved in shaping their organizations’ digital strategy.

[2] IDC, IDC FutureScape: Digital Transformation 2018 Predictions – Asia/Pacific (Excluding Japan) Implications

[3] LinkedIn, The Digital Workforce of the Future. Data as of August 2017.