While the overall scenario in Asia-Pacific is one of confidence, there’s a divide between larger and smaller organizations, with those employing 10,000 or more showing lower confidence in their digital transformation strategy than their smaller counterparts. Seventeen percent of the nearly 228 large organizations said they didn’t think their company’s strategy was adequate, compared with less than 10% of the 440 smaller companies (those with less than 1,000 employees). The difference was starker when asked whether their companies were adequately prepared to adopt the relevant technologies: 19% vs 7%. (See Figure 1)
Figure 1
The divide can also be found between industries: IT managers for larger organizations in education (13%) and public sector (14%) said they had no digital transformation plan, while 20% of those in the public sector who said there was a plan expressed it was inadequate to support future digital needs. And while Japan (see below) was the most pessimistic, large organizations in other countries were also gloomy: nearly 30% in Malaysia and 11% in Thailand said the plans were inadequate. This suggests larger organizations feel more challenged about their digital transformation strategy and what should be done – which is probably not surprising. Many larger organizations have legacy infrastructure, some of it stretching back to the 1980s. Indeed, a McKinsey report indicates that by 2020 65% of companies’ infrastructure will still be legacy even though they aim high to adopt digital technologies, such as cloud or analytics, as also shown in this Cisco survey. Another McKinsey study commissioned by Cisco adds that companies in Asia-Pacific spend US$11 Billion every year running their networks – a result of lack of modernization.
But it’s not just about IT, it’s a cultural issue. A 2018 report by the Boston Consulting Group found that successful companies were five times more likely than less successful ones to have focused on changing their culture to prepare employees for the digital transformation. Over the longer term – three years or more – the gap was even wider.1 The larger the company, the more devices, products, markets and processes have to be adapted to connect to the industrial IoT. Much of this, PwC points out, sits among plants and processes that "have remained little altered for decades," but now must be connected to "robots, conveyor belts, smart meters, generators, substation equipment, transformers and the like and information technology such as back-office systems and software." For those at big organizations, it can be a daunting challenge.
1It’s Not a Digital Transformation Without a Digital Culture, BCG, April 13, 2018
"As with any great bargain, there is a price. In enterprise technology, most great deals mean an implicit trade-off – maybe it is not the newest technology, it has a shorter warranty, it’s manufactured with less durable parts, or it doesn’t offer security. No matter how you look at it, lower cost means you are getting something less. As the role of technology – and the CIO - shifts to being a greater contributor to an organization’s revenue, it is more critical than ever to consider carefully the trade-offs in the IT buying decision. More than the technology itself, CIOs and IT decision-makers overall must look beyond the price and consider the entire ecosystem: do the different parts of the IT infrastructure integrate with each other? Is the environment secure? Is IT able to scale as users and things do too? Can the technologies deliver the expected business outcome? Only by looking at all this will businesses position themselves to reap the valuable rewards of their digital journey. As many companies who treat technology purchases as a cost decision have learned, the lowest cost rarely delivers the best outcome." – Brink Sanders
Brink Sanders – Managing Director, Software and Network Transformation, Cisco Asia-Pacific, Japan and China
Budget is the key reason why organizations, large and small, are not upgrading their IT infrastructure. More than three quarters of mid-sized companies and two-thirds of smaller organizations blamed money. These numbers were significantly higher than other reasons they gave, particularly among big companies. The larger the organization that had not upgraded in the past three years, the less likely they were to have plans to upgrade in the near future: 42%, compared with 29% of mid-sized organizations and 25% of small ones.
Almost all IT leaders in every country expressed regrets about the trade-offs they had made in their IT decisions, but that’s most evident in Vietnam, Indonesia and Thailand. In particular, they had foregone after-sales support and continued innovation in an effort to make their budgets go further. Vietnamese executives were twice as likely as their counterparts in China, Korea or Singapore to tradeoff after-sales support to bring down costs; Thais were twice as likely as their Australian colleagues to having to ditch continued technology innovation to shave costs. (See Figure 2)
This meant IT managers had to invest in other technology layers or had difficulty integrating with existing systems. More than 80% of Vietnamese managers who admitted making trade-offs said they had to invest in other layers to compensate, double the average; nearly two thirds of Thais and Indonesians complained they had problems integrating their purchases into existing systems.
Figure 2
At the same time, these are all the same countries that have invested heavily in upgrades, particularly in data centers, in the hope of acquiring additional capabilities and adopting new technologies. Yet, at least in manufacturing, the problem may not simply be solved by bolting on new technologies. McKinsey’s study of 'Industry 4.0' - a term that covers the same technologies as this survey -reported that many Southeast Asian manufacturers' IT systems date back to the 1980s, and have been gradually added to as technology evolved. The result, the report said: "processes and data became isolated in siloed systems."
