The Perils of the Digital Divide. December 7, 2017

Transcription

1 The Perils of the Digital Divide December 7, 2017

2 MIT CISR gratefully acknowledges the support and contributions of its Research Patrons and Sponsors PATRONS AlixPartners LLP Avanade Huawei Technologies Co., Ltd. ISACA LTI Microsoft Corporation PricewaterhouseCoopers Advisory Services LLC SPONSORS Aetna, Inc. Akamai Technologies Allstate Insurance Company ANZ Banking Group Ltd. Australia Post Australian Securities & Investments Commission (ASIC) Australian Taxation Office AustralianSuper B2W Companhia Digital Banco do Brasil S.A. Bank of Queensland Barclays BBVA Bemis Company, Inc. Biogen, Inc. BMW Group BNP Paribas BNY Mellon The Boston Consulting Group, Inc. BT Group plc Canadian Imperial Bank of Commerce Cardinal Health, Inc. Caterpillar, Inc. CEMEX Chevron Corporation CHRISTUS Health Cochlear Limited Commonwealth Bank of Australia CPPIB CSBS DBS Bank Ltd. DentaQuest El Corte Inglés Equifax ExxonMobil Global Services Company Fairfax Media Ferrovial Corporacion, S.A. Fidelity Investments FrieslandCampina General Electric Genworth Financial GlaxoSmithKline Hanover Insurance Group Hitachi, Ltd. Howden Joinery Group plc Insurance Australia Group Iron Mountain Johnson & Johnson (J&J) LKK Health Products Group Ltd. LPL Financial Marathon Oil Corporation Markel Corporation McGraw-Hill Education National Australia Bank Ltd. National Disability Insurance Scheme New Zealand Government GCIO Office Nielsen Nomura Holdings, Inc. Nomura Research Institute, Ltd. Nordea Bank Northwestern Mutual OCP S.A. Orange S.A. Org. for Economic Co-operation and Development (OECD) Origin Energy Owens Corning PepsiCo Inc. Pioneer Natural Resources USA Inc. Principal Financial Group Procter & Gamble QBE Raytheon Company Reserve Bank of Australia Royal Bank of Canada Scentre Group Schindler Digital Business AG Schneider Electric Industries SAS Standard Bank Group State Street Corp. Suncorp Group Swinburne University of Technology Sydney Water TD Bank, N.A. Teck Resources Limited Tenet Health Tetra Pak Trinity Health USAA Westpac Banking Corporation WestRock World Bank 2

3 What is digital business transformation? Customer experience Increasing NPS Transformed Traditional Integrated experience Customer gets an (simulated) integrated experience despite complex operations Strong design and UX Rich mobile experience including purchasing products Silos and spaghetti Product driven Complex landscape of processes, systems and data Perform via heroics Future ready Both innovative and low cost Great customer experience Modular and agile Data is a strategic asset Ecosystems ready Industrialized Plug and play products/services Service enabled crown jewels One best way to do each key task Single source of truth Traditional Operational efficiency Improving operating margin Source: MIT CISR 2015 CIO Digital Disruption Survey (N=413 and 2016 interviews) and 2016 company interviews. Customer Experience=effectiveness on customer knowledge+omnichannel capability+customer experience projects+customer experience performance. Operational Efficiency=effectiveness on automation and employee productivity projects+% of core capabilities with APIs+cost of operations performance. Quadrants are splits at 2/3 along each axis. 3 Transformed

4 Retail banking is a good transformation example Business is changing Born digital companies have emerged Traditional banking model We call this Silos and Spaghetti Competitive threat to traditional companies Traditional companies must digitally transform Digital banking model...and create digital platforms 4

5 Digitally stood-up businesses in established industries How do traditional companies compete with digitally born companies given demographic changes and often times lower pricing? Online platform Key product Industry disrupted Apple ios mobile platform PC operating systems Google Ad-supported search Ad-supported media Facebook Ad-supported network Ad-supported print media Amazon Amazon Marketplace Malls and department stores Uber Ride-sharing app Taxi and limousine companies Airbnb Home or room daily rentals Hotels and booking sites Snapchat Messaging app Traditional communications Expedia Online bookings Travel agents Turbo Tax Tax return preparation Tax accountants 5

6 Future-ready firms have the best margins compared to competitors Customer experience Increasing NPS Transformed Traditional Integrated experience Future ready 15% % 16.0 Silos and spaghetti Industrialized 51% % 4.6 Traditional Transformed Percentage firms Operational efficiency Improving operating margin Percentage points above or below industry average net margin Source: MIT CISR 2015 CIO Digital Disruption Survey (N=413) and 2016 company interviews.. Net Margin is relative to industry average 6

7 What is digital business transformation? Customer experience Increasing NPS Transformed Traditional Integrated experience Customer gets an (simulated) integrated experience despite complex operations Strong design and UX Rich mobile experience including purchasing products Silos and spaghetti Product driven Complex landscape of processes, systems and data Perform via heroics Future ready Both innovative and low cost Great customer experience Modular and agile 3 Data is a strategic asset Ecosystems ready 2 4 Industrialized Plug and play products/services Service 1enabled crown jewels One best way to do each key task Single source of truth Traditional Operational efficiency Improving operating margin Source: MIT CISR 2015 CIO Digital Disruption Survey (N=413 and 2016 interviews) and 2016 company interviews. Customer Experience=effectiveness on customer knowledge+omnichannel capability+customer experience projects+customer experience performance. Operational Efficiency=effectiveness on automation and employee productivity projects+% of core capabilities with APIs+cost of operations performance. Quadrants are splits at 2/3 along each axis. 7 Transformed

8 Choose your pathway to future ready Choose a pathway Where are you today? What is the digital disruption threat level? 1. Path 1 if your customer experience is ok and threat is not high. 2. Can t wait to improve your customer experience or new scary competitors. Path Can t wait to improve customer experience but a few initiatives will make a big difference (e.g., a great app). Start with those and then focus on operations and repeat in small steps. Path High threat and can t see a way to change the culture, customer experience and operations fast enough. Path 4. 8

9 B2B companies are more future ready than B2C companies Silos and spaghetti Integrated experience Industrialized Future ready Manufacturing 40% 12% 12% 36% Heavy industry 38% 23% 5% 35% IT, telecom, and media Education and healthcare 41% 19% 16% 24% 70% 6% 8% 16% Retail 68% 18% 0% 14% Financial services 65% 11% 13% 11% Services 63% 20% 9% 8% 9

10 Digital financial mindsets are also key Antiquated IT department Improve Duplicative efforts business Keeping the lights on Crisis Costs to run business Transformed IT department Enabling business value Routine operations and maintenance Invest to Improve business Costs to run business Manage IT spend like an investment portfolio Labor Hardware Software Outsourcing Consulting Run Improve Protect IT spend necessary to perform ordinary course business processing Investing in technology that enables better business performance Managing cybersecurity, disasters, and system performance MINIMIZE SPEND MAXIMIZE ROI INVEST ENOUGH BUT NOT TOO MUCH 10

11 Succeeding at digital requires more infrastructure IT investment 1993 to % 46% 53% 63% 57% 54% 47% 37% Digital investment % 41% Prior to MIT CISR s 2015 survey, IT investment was total IT spending in the enterprise operating expenses plus capital depreciation including all IT, technology, services, data, outsourcing, and people dedicated to IT. For the purposes of MIT CISR s 2015 survey, we expanded the definition of IT infrastructure to include all digital infrastructure; digital investment was total digital spending in the enterprise operating expenses plus capital depreciation including all IT, technology, services, digitized information, outsourcing, and people dedicated to IT. Applications Infrastructure Source: MIT CISR Surveys 11

12 Succeeding at digital requires more infrastructure (cont d) More investment in digital infrastructure is correlated with desirable outcomes that include more revenues from innovation and higher margins Figure 2: Top performers spend more on infrastructure and connectivity Measure Percentage of IT investment spent on infrastructure Percentage of core capabilities that are service enabled via APIs for internal use Percentage of IPaddressable assets Top-performing companies Bottomperforming companies 55% 37% 51% 27% 48% 30% 12

13 Digitalization is taking the world by storm transforming numerous functions Re-imagining payments Re-imagining contracts Re-imagining customer service Re-imagining meeting people Re-imagining money Re-imagining photography Re-imagining navigation Re-imagining news Re-imagining education 13

14 A high level view across industries Media Retail Consumer products File sharing (Napster) brought new consumer demands Social/mobile made content easy to get The main disruptor has been the consumer itself a secular shift in consumer preferences Demand for CP companies products has fragmented Consumers fickle and empowered by internet Source: PWC (retail survey) 14

15 A high level view across industries (cont d) Banking Automotive Manufacturing Digital orientation of consumers is rapidly evolving And is a big factor in decisions to switch banks Connected Autonomous Shared Electrified Networked plants Real-time transparency into supply chains Maintenance and asset tracking costs slashed with IoT methods Mass customization production Factory of the Future - Automation, wearables, mixed reality, 3D printing Connected business and enterprise architecture Internet of Things (IoT) and Connectivity Digital automation Collaboration and social networks 15

16 Digital business is driving two distinct transformations Digitized = operational excellence The transformation involves: Instilling discipline around core transaction and back office processes Digital = rapid business innovation The transformation involves: Empowering people to experiment, release, and constantly enhance digital offerings Source: Ross, Beath, Sebastian, Digital Digitized, MIT CISR research briefing, Oct

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