The US$1.16 trillion reason to take digital transformation & AI seriously in 2018

By Ralph Haupter, President, Microsoft Asia

If you were asked in 2010 whether every organization would be a digital one in the near future with Artificial Intelligence (AI) at the center of everything we do, would you have agreed? Fast track to 2018 – what would be your answer?

Digital transformation is the mainstay of boardroom and even governmental agenda today. There is an acknowledgement now that digital transformation brings forth a competitive advantage to organizations and even nations in a fast-evolving digital world.

This is especially exciting with the emergence of AI as the cornerstone of digital transformation efforts. A good example of this is Ricacorp Properties in Hong Kong. Ricacorp has launched Rica+, an AI-powered service to help its property agents take advantage of predictive capabilities to provide better real-time recommendations to customers. The company expects AI to significantly increase the conversion rate from prospect to sale which will result in a 40%-50% increase in profits in 2018. (Read case study here)

So, while we are seeing companies and even nations gaining a competitive edge with digital transformation, what’s the tangible economic impact that it can bring to Asia Pacific?

The US$1.16 Trillion Opportunity

Microsoft recently partnered with the leading technology advisory firm IDC to assess the digital transformation landscape across the region. Titled “Unlocking the Economic Impact of Digital Transformation in Asia Pacific”, the study involved 1,560 business and IT leaders from 15 economies[1].

Through an economic modelling exercise by IDC, the study aimed to find out the economic value that digital transformation can unlock in Asia Pacific. What’s interesting is that digital transformation of economies and companies in Asia Pacific could contribute an additional US$1.16 trillion to GDP by 2021.

The top 5 digital transformation benefits that organizations experienced already last year: Improvements in (1) profit margins; (2) productivity; (3) customer advocacy, loyalty and retention; (4) cost reduction; and (5) increased revenue from new products & services.

Overall, organizations are already seeing significant and tangible improvements from their digital transformation efforts across these benefits in the range of 15% to 17% in 2017. What’s interesting is these benefits will grow by 50% or more in three years.

READ: How Asia Pacific is transforming digitally

From my conversations with CEOs in the region, most of them understand that digital initiatives and a new data culture are needed to drive growth. However, they underestimate the technological and organizational disruptions that are truly needed to transform.

The study has clearly shown that there will be widespread disruption to the traditional business and operations models of all organizations. By 2021, approximately 60% of Asia Pacific’s GDP will be derived from digital products or services created through the use of technologies, which is a ten-fold increase from just 6% today.

CEOs need to commit today to digitizing more than half of their current businesses or create new ones. This requires significant transformation to the leadership, capabilities, culture and technologies required, while continuing to run their traditional businesses in the meantime.

CEO’s Priorities in a Digital World

There are three things that the CEO need to focus on in order to transform their organizations successfully and be competitive in a new digital world:

1. AI will go mainstream this year and it can only be enabled by the cloud & data
What’s exciting this year is that AI has stepped forth as the most transformational technology in accelerating our progress to a digital world. With large amount of data now made ubiquitous by cloud, AI now has the ability to go mainstream. IDC predicts that by 2019, 40% of digital transformation initiatives will be supported by AI/ Cognitive capabilities[2] providing timely, critical insights for new operating and monetization models in Asia Pacific (excluding Japan).

2. CEOs need to reskill jobs & transform the organization’s digital ecosystem
Our Study shows that 85% of jobs in Asia Pacific will be transformed in the next three years. I expect organizations to partner with governments and education institutions to massively reskilling their workforce so that talents are equipped with future-ready skill sets such as data-oriented complex problem-solving, critical thinking and creativity for the digital economy.

CEOs also need to ensure that their organizations’ ecosystems, such as supply chain, is digitally transforming too. Growing this ecosystem is crucial for organizations to increase speed to market, share data and insights to fully realizing their digital transformation ambitions.

3. CEOs need to create a data-driven culture and one that accepts micro-revolutions
An organizational culture that embraces data is needed to optimize digital transformation initiatives. Digital transformation leaders are more focused on using data as a capital asset. Leaders understand the importance of data capitalization and are obsessed with their data analytics capabilities. As such, leaders have listed in the study that the lack of advanced analytics to develop actionable insights as one of their biggest digital transformation challenge. Every AI or IOT story is about leverage Data. Companies truly need to further invest in this.

Lastly, CEOs need to create a culture that embraces micro-revolutions, which are small, quick wins that deliver positive business outcomes, and at the same time accrue to bigger and bolder digital transformation initiatives. Fail-fast and learn-fast attitude is needed to reap the benefits from emerging technologies such as AI.

At the end of the day, CEOs need to understand that they are swimming upstream in what the World Economic Forum has pegged as part of the Fourth Industrial Revolution. Those who will succeed are the ones that act with urgency.

Adding context to why there needs to be a sense of urgency with organizations accelerating their digital transformation efforts, Claus Schwab, Founder & Executive Chairman of World Economic Forum Geneva, recently said: “The challenge, however, is that we don’t have a decade to slowly shift mindsets before moving to act on the challenges surfaced by the Fourth Industrial Revolution. The speed, scale and scope of change that is underway today, coupled with the fact that entrepreneurs, companies and policy-makers are already creating rules, norms, techniques and infrastructure around new technologies, means that in 10 years it will be too late.”[3]

Read more about how Asia Pacific is transforming digitally:

[1] Microsoft partnered with leading IT industry analyst firm IDC to study the state of digital transformation in Asia Pacific. The “Unlocking the economic Impact of Digital Transformation in Asia Pacific” was conducted with 1,560 business and IT leaders in 15 markets, including Australia, China, Hong Kong, Indonesia, India, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam. These respondents were from medium- to large-sized organizations with more than 250 staff and above.

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

[3] World Economic Forum Blog Post: “The urgency of shaping the Fourth Industrial Revolution

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