Taking Leadership in a Digital Economy
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The document discusses how the digitization of the Australian economy is continuing at a rapid pace. Key points include: - Australians have widely embraced digital technologies like internet, social media, mobile apps, and e-commerce. Most businesses, including small and medium enterprises, now have an online presence. - Infrastructure investments like the National Broadband Network and 4G networks are expected to further increase bandwidth and digital adoption among consumers and businesses. - The digital economy is projected to grow at 7% annually. Significant additional digital penetration is anticipated in industries like financial services, telecommunications, retail, education, and transport/logistics. - For businesses to succeed, corporate leaders must direct resources to enable the entrepreneur
Taking Leadership in a Digital Economy
- 1. TAKING LEADERSHIP IN A DIGITAL ECONOMY BY TELSTRA CORPORATION LIMITED AND DELOITTE DIGITAL November 2012 deloittedigital.com.au telstra.com
- 2. A NOTE FROM DAVID Consumers and businesses are rapidly embracing digital technology and this is redefining the traditional transaction model. We now have a new generation of globally connected consumers and businesses who behave very differently – and we must all adapt to these changes and take advantage of the new opportunities. By the end of the decade we will have connected just about every device to next generation networks, from smartphones and offices of the future, to educational resources and digital home appliances. The changes we are talking about are transformational. Everything, everyone and every place will be connected. This will make us more innovative and more competitive – and change the way we live and work for the better. The challenge ahead is how to best use the tremendous creativity, innovation and capability of Australians to participate in these new opportunities – whether it be m-commerce, Big Data, robotics or social media. Every part of our economy can benefit from this new era of connectivity. Our role, as Australian business leaders, is to help build a 21st century economy that is locally accessible and globally competitive. As a nation, we can lead the world and create positive change. David Thodey Chief Executive Officer Telstra 1
- 3. A NOTE FROM GIAM The world is changing. The internet has transformed the Australian economy over the last 10 years, and is poised to play an even greater role in our daily lives and businesses as Australia positions itself to become a leading digital economy. The pace of technology change is growing exponentially, and in the digital age, the only constant is change. Disruption can sneak up on you unexpectedly. For your industry, how will you know that disruption is coming before it’s too late? Will you know your competitor in a global market that disrupts existing industry & country boundaries? As a nation, we need to consider whether we are simply building better ways of delivering the same products and services. Or are we creating truly new and different business models? Companies that miss this distinction are at risk of becoming irrelevant in the digital economy. Realistically, digital creates more opportunities than dangers. As leaders, the choices we make will be crucial in whether Australia takes a position of leadership at the forefront of this change. Our country’s future prosperity will depend on visionary leadership, enabling our Australian entrepreneurial spirit, becoming more agile in our decision making and investing in the talent required to support the digital economy. As with all of our work at Deloitte, we hope that this white paper enhances your capacity to act. In the digital age, how quickly and how thoughtfully we act will determine our future. Giam Swiegers Chief Executive Officer Deloitte Australia Taking leadership in a digital economy 2
- 4. INTRODUCTION To some extent, Australia is already Leading our economy and our country well positioned to be a driving force of the successfully through this change requires digital revolution. Our infrastructure is well wisdom, courage and conviction. developed, consumers and businesses are rapidly embracing digital services and we This whitepaper outlines the expected rate have talented people who can innovate of growth in the Australian digital economy and execute. and highlights the choices incumbent corporations face as a result. To fulfil Australia’s potential to take a leadership position in an increasingly Telstra itself is such an incumbent global and digital economy, however, corporate leader and has started its own Australian corporate leaders must accept digital transformation to ensure its future this accountability and direct their success. Through its core business in resources accordingly. mobility, networks and cloud computing, Telstra is also a provider of infrastructure Increasingly, a complex digital ecosystem enablers to the digital economy. consisting of technologies such as web- delivered services, mobile applications, Deloitte advises and implements social media, machine-to-machine (M2M) digital solutions for businesses seeking and many others move centre stage to win in their transformation through creating opportunities for innovators, digital solutions. yet challenging laggards. 3
- 5. CONTENTS The digitisation of our economy continues at pace 5 Immense disruption ahead 9 Incumbents must respond 15 How incumbents win 20 Conclusion 25 Taking leadership in a digital economy 4
- 6. THE DIGITISATION OF OUR ECONOMY CONTINUES AT PACE Figure 5: Australian SMEs taking orders for goods and services online, by industry sector, April 2011 Wholesale trade The basics are in place The federal government’s National Broadband Manufacturing Network (NBN) and the Telstra lead 4G mobile Transport/storage Today, Australia has comparable Accommodation/cafes/restaurants are infrastructure investment network rollout, broadband adoption and connection commitments that are expected to facilitate Retail trade speeds to many of its peers in the continued future increases in both bandwidth Finance and insurance developed world. and customer adoption for fixed and wireless Communications/property/business services connectivity. Personal services Whilst not necessarily on top of the league Building/construction this investment is Australia’s An outcome of (yet), broadband adoption has seen 30% year on year growth 1 in 2012, and has relatively high smart phone penetration, Health/community services steadily grown over the past decade or so. which today stands at over 50%4. 0 10 20 30 40 50 60 70 80 Australia already has the 14th largest % of SMEs in Australia number of 3G subscribers of any country in Online Experience of Small and Medium Enterprises 2011, October 2011 Source: Sensis, The the world2 and the OECD places Australia Note: Survey conducted in April 2011 8th by wireless broadband penetration, just Figure 1: Global broadband adoption and connection speed data behind the US, but well ahead of the UK, 100 Spain and France3. South Korea 80 Switzerland Japan Broadband adoption (%) Hong Kong Germany 60 USA UK Russia Israel France 40 Australia Spain 20 China India 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Average connection speed (Mbps) Developed countries Source: Akami 2012 Developing countries 5
- 7. THE DIGITISATION OF OUR ECONOMY CONTINUES AT PACE Consumers are embracing Given our high smart phone penetration, it’s not a surprise that Australians are also digital services establishing a love affair with mobile apps. Australia downloads more than 60 million10 Australian consumers have embraced apps a month making us the fifth largest digital offerings with relish, leaving few per capita consumers of apps anywhere traditional products or services in the world. Globally one billion Android unaffected, including: applications are downloaded each month11. • Internet search Australians are also prolific online buyers • Digital content with the growth in online sales five times • Social media that of traditional retail12. And double digit • Mobile applications growth is forecast for online sales over • E-commerce the next five years13. The number of internet searches by Australians has grown at an annual rate of 30% and a recent Nielsen Figure 2: Australian Google search growth for banking, Figure 3:report highlightedon each usage Average time spent that more than 40% insurance & investment Fi occasion (minutes) of Australians research their purchases 800 online5, making web search a de facto 700 minutes per visit 17.86 e-commerce hub. 600 Google growth index Average a 500 Percenatage According to 9.15 ACMAs Digital Australians the 8.67 400 survey, 33% of Australians watch online 300 video content each month6. 200 Facebook Twitter Linkedin 100 Social media is experiencing Source: Sensis 2012 0 2007 2008 2009 2010 2011 phenomenal growth with 62% of Years internet users reporting they use social Investment Banking Insurance media7. Facebook, of course, has So Source: Google 2011 seen incredible success with over 11M 33 Australians using the service regularly8 Figure 10: Average Net Promoter Score Across Industries Tr spending an impressive 18 minutes on Index Figure 2: Aust ag 5 Figure 3: Average time spent on each usage 4000 insurance & in the site per visit and over 2 20% of all occasion (minutes) 5.8 0 internet time is now spent on 3400 800 5.6 3000 social networks9. 700 minutes per visit 17.86 5.4 -5 600 Google growth index -9 Average South Korea 2000 5.2 NPS 15 Switzerland 500 -10 5.0 Japan 9.15 8.67 400 -15 4.8 -15 Hong Kong 1000 300 -19 4.4 200 Germany -20 15.59 4.2 Facebook Twitter Linkedin 0 100 USA Jan’12 Apr ‘12 Jul ‘12 Oct ‘12 4.0 UK -25 Source: Sensis 2012 Ratio TTM 0 Wal-Mart Stores PE 2007 Banking Health Ins Home Ins Mobile Israel Amazon.com PE Ratio TTM operators Source: Y-charts 2012 Inve ain Insu Source: Engaged Marketing 2010 Source: Goog So 33 Figure 10: Average Net Promoter Score Across Industries Index Taking leadership in a digital economy 6 5 2
- 8. THE DIGITISATION OF OUR ECONOMY CONTINUES AT PACE Businesses have gone digital In some cases, social media and e-commerce have allowed local speciality businesses to The majority of small and medium extend their reach beyond their traditional enterprises (SMEs) are now online, 60% catchment area as well. have a web presence and the majority of those sell goods and services on the web14. For example, Cuckoo Clock Nest (cuckooclocknest.com.au), sells German Australian SMEs are also embracing cuckoo clocks out of their shop in Eagle social media. Approximately 27% of Heights Queensland, but have internet connected SMEs are using some national reach through their web site. Figure 2: Australian Googleof social media in their business form search growth for banking, insurance & investment operations15. The ease to set up a Twitter Figure 4: Proportion of Australian SME’s that are online 800 account or Facebook page coupled with 70% 700 the cost effectiveness of this relatively 60% 600 cheap advertising and customer service Google growth index 50% 500 medium is proving very compelling. Percenatage 40% 400 30% 300 20% 200 100 10% 0 0 2007 2008 2009 2010 2011 1997 1999 2001 2003 2005 2007 2009 Years Years Investment Banking Website Sell online Insurance Source: Deloitte 2011 Source: Google 2011 Figure 5: Australian SMEs taking orders for goods and services online, bydecade: letter volumes Trends over a industry sector, April 2011 Index 140 against delivery points 4000 Bah Wholesale trade 76 Broadband household penetration (%) 5.8 12 3400 120 Manufacturing 3000 5.6 72 11 Qa Transport/storage 5.4 70 10100 Accommodation/cafes/restaurants 2000 5.2 62 Singa 9 5.0 80 Retail trade 59 8 Fr 1000 4.8 Finance and insurance 57 7 Aus 4.4 60 Communications/property/business services 15.59 4.2 57 6 India China 0 Jan’12 Apr ‘12 Jul ‘12 Personal Oct ‘12 services 4.0 56 5 40 1 2 3 4 5 6 7 8 9 0 Building/construction 55 -1 Wal-Mart Stores PE Ratio TTM -0 -0 -0 -0 -0 -0 -0 -0 -1 10 01 02 03 04 05 06 07 08 09 Amazon.com PE Ratio TTM 20 20 20 20 20 20 20 20 20 20 Health/community services 37 20 Source: Y-charts 2012 Delivery points millions Mail items billions 0 10 0 Source: 30 20 40 50 Australia Post 2012 60 70 80 0 2 % of SMEs in Australia Source: Sensis, The Online Experience of Small and Medium Enterprises 2011, October 2011 Note: Survey conducted in April 2011 Develope Developi Figure 1: Global broadband adoption and connection speed data 100 Source: Aka South Korea 80 Switzerland 7 Japan Protecting the c typically more c (%) Hong Kong
- 9. THE DIGITISATION OF OUR ECONOMY CONTINUES AT PACE The digital economy is The most significant additional digital penetration is expected to be in financial poised for 7% pa growth service, telecommunications, retail trade, education and transport and logistics. Assuming an active role of business and government in encouraging the adoption Figure 6: Internet direct contributions to GDP of digital services, the direct contribution 32% SHORT of the internet to the Australian economy of the Australian try economy is forecast by Deloitte to grow at 7% per $50b annum over the next five years, roughly Retail trad double total GDP growth16. 2011 60 And whilst the total direct contribution of 30 54 37 22 25 the digital economy is only $50b, a fraction 34 31 26 Arts and of the26GDP, the indirect contribution to the 34 18 $70b rest of the economy is fundamental. 22 Timing Every industry will be affected 0 44 52 31 51 46 by this change, and all sectors will 48 45 58 43 48 49 60 54 2016 eventually be “more digital than not”. 17% of the Australian ice r d fen r erv fic ing l on e ica dia SHORT F ho sta ish y erv nd ist and lea ent erv nd erv te de ato economy ad se an s ure ices ing s ce g ce s s d f str e Figure 6: n nti Source: Deloitte 2011 ati e s wa ice ice ice nin un me ns sa es la are t, po tio l tr d c tm ty/ istr an an fore te ing us ica cie uc l a care nc cia rv tio Art tai an crui mm on afe in Ed sta ir hn l, s d w or ura nan l e al, h Re d s dm ls , ss co ati so ealth Re an ansp ec iona ele rm an c a ins Fi ult rea ent cia rea d t Info ss H bli Tr ric R ofe Pu rec Figure 7: Digital Penetration by Industry Ag dt Pr an an 100 90 80 60 30 54 70 37 22 25 34 60 10 31 26 Digital potential 26 34 7 2009 14 6 18 50 6 7 40 22 30 51 48 43 55 48 44 52 31 51 46 48 45 58 43 48 49 60 54 20 10 12 0 11 ing g erv tion de on rvi ter d fen r erv fic ing l on e ica dia ho sta ish y erv nd an d lea ent erv nd de ato ad nin se an s s ure ices ing s ce g ce s s d f str ss re an n nti tra cti ati wa ice ce ice ice ice nin tur un me ns sa es la are t, po tio ds a l tr d c tm ty/ istr Mi an fore te ing us ica cie od tru uc nc cia fac rv le tio Art as as, 10 tai an crui ist mm on ca afe in Ed sta ir sa d f mm se ns hn l, s d w or ura nan l e al, h Re d s dm nu ls , d w l, g co ati ole Co so ealth Re an ansp te ec na la Ma an cco ele rm oo an lic a ins Fi an trica ult Wh rea ent 9 d t ssio cia rea d t Info H Tr A ric R b c ofe Pu rec Ag Ele 8 Pr an an Non-digital core 7 Additional digital penetration Current use of digital technologies 6 5 Source: Deloitte 2012 1 -1 10 Taking leadership in a digital economy 8
- 10. IMMENSE DISRUPTION AHEAD Just as the digital economy provides huge benefits to consumers and businesses, it equally poses a threat to hitherto comfortable incumbents, changing goal posts, raising customer expectations and opening the field for new competitors, globally. It’s only a matter of time Eighteen industries are mapped with respect to their vulnerability to disruption from two Virtually every sector can expect to perspectives: the size of the impact and the face changes rivalling those of the imminence of change. industrial revolution. As these changes will play out over many Some industries may face extinction, years, timing of specific changes is hard new sectors are being created, and others to predict. are being transformed beyond recognition. It is eye opening to realise that it took 48 According to Australia’s Digital Future years from the invention of electricity to the to 2050 by IBISWorld17 15 different industry invention of the light bulb, 65 years to the sub-sectors face extinction due to factors invention of the telegraph and 72 years to such as size, international competitiveness, the invention of powered flight. the potential for displacement, and technology. The Internet Protocol (IP) which may be Those 15 sub-sectors include: books and considered the “electricity of the digital magazines, newspapers, directory and age” was invented in 1974, so is only mailing list publishing, software publishing, 38 years old. Google was only launched radio broadcasting, and free-to-air TV 14 years ago and Facebook is only and cable TV. 8 years old. Assessing the timing and severity of We’re only at the beginning. likely impact, Deloitte’s “digital disruption map” classifies about one third of the Australian economy into the most pressing “short fuse, big bang” quadrant. 9
- 11. IMMENSE DISRUPTION AHEAD Figure 8: Digital disruption map 32% SHORT FUSE, BIG BANG LONG FUSE, BIG BANG 33% Impact (% change in business) 50 of the of the Australian Australian economy economy 45 ICT and media Retail trade 40 Finance Education 35 Transport and post Professional services Health 30 Agriculture Recruitment and cleaning Arts and recreation 25 Real estate Government services 20 Utilities Timing (years) 15 0 1 2 Construction 3 4 5 Wholesale trade Accommodation 10 and food services Mining Manufacturing 5 17% 18% of the 0 of the Australian Australian economy SHORT FUSE, SMALL BANG LONG FUSE, SMALL BANG economy Source: Deloitte 2012 Taking leadership in a digital economy 10
- 12. IMMENSE DISRUPTION AHEAD LINKEDIN DISRUPTING THE CORPORATE RECRUITMENT MARKET Globalisation of competition By definition, digital services are more transportable across geographic LinkedIn which as of March 2012, boundaries than their physical equivalents. had more than 3 million members in Therefore domestic operators can expect Australia, and over 500,000 members additional competition from global in New Zealand, is disrupting the digital providers. corporate recruiting market. Relative to the established model No sector is experiencing this at the of using corporate recruiters moment more than Australian retailers. or placed advertising which can both be expensive, inflexible and Already, 29% of Australian online commerce have long lead times, Linkedin is conducted with international providers18. offers an inexpensive, quick and flexible alternative. The proportion of online shoppers mostly buying from overseas websites LinkedIn has seen strong demand has increased from 12 to 19%19. and response for its recruitment and marketing solutions services. The high Australian dollar and increased The company now has over 500 ability of global retailers to ship cost Australian and New Zealand clients effectively to Australia are two factors using its Talent Solutions platform, driving this competition. with new customers including ANZ, John Holland Group, OneSteel and Mission Australia. Over 40 of the Top 200 ASX companies now use LinkedIn’s Talent Solutions to find “passive talent” – where employers can tap employees who may not be actively looking to move. 11
- 13. IMMENSE DISRUPTION AHEAD Figure 9: Top 15 online shopping sites accessed by Australians from home during June 2011 33% of the Australian eBay 4,297 economy Amazon 1,623 Woolworths 1,359 Gumtree 905 BIG W 784 GetPrice Network 767 Shopping.com Network 737 Lasoo.com.au 721 DealsDirect.com.au 662 Catch of the Day 655 Myshopping.com.au 620 JB Hi-Fi 609 Kmart Australia 608 18% Ozsale.com.au 573 of the Australian economy FlyBuys 545 0 1,000 2,000 3,000 4,000 5,000 Source: ACMA 2011 Number of site users (000s) Further innovation in business models and logistics is expected to continue to globalise online retailing. Tarazz (tarazz. com) for instance aggregates US online retailer sites into one interface and one shopping cart, then consolidates the goods into one shipment in the US and ships that consolidated shipment to Australian customers for one fixed fee. Taking leadership in a digital economy 12
- 14. IMMENSE DISRUPTION AHEAD FLICKR COMPETING WITH FREE Stuck in the middle The digital economy lowers the barriers to entry to a point where several hundred million people create content and software The pioneering image hosting and apps for free, or at least well below normal photo sharing site Flickr, offers users rates of remuneration. the ability to release images under a creative commons license allowing Every minute, users upload almost other users to freely reuse an image. 100,000 tweets on Twitter, 7,000 images on Flickr, over 600 videos on YouTube20, Flickr, which has more than and there are now over 1 million smart 50 million registered members22 phone apps available21. and hosts more than seven billion photos23 enables local photographers, Increasingly, domestic incumbents of many working on a part time basis many sectors may find themselves stuck with minimal gear and few overheads, with high fixed cost structures between to compete on a completely different global, massive scale digital competitors on cost base with the likes of Getty images one hand and a large number of individual which has offices and employees in contributors working on a totally different over 20 countries. economic basis on the other hand. 13
- 15. IMMENSE DISRUPTION AHEAD SURFSTITCH It’s not about what you own but what you do In the old economy a company’s value tends to be proportional to the value of Surfstitch.com is an online speciality its assets. Whilst intangibles were always retailer founded in 2008. SurfStitch. present, the majority of commercial activity com provides shoppers with over required capital goods that could be valued 20,000 items and 318 brands including and held on a company’s balance sheet. unique and hard to get labels, providing significantly more choice than many A digital business model on the other hand proprietary surf wear and is much more reliant on the capability of department stores. its people. The company’s value is more likely to be a direct function of the value Surfstitch is on track to reach revenues it generates for its customers. In a digital of $30 million24 and in 2009 Billabong business model, there are few structural International Ltd acquired a minority advantages and lasting organisational value is rare. interest in the organisation. Many incumbents are still obsessed with According to Experian Hitwise, building, buying and owning tangible assets Surfstitch is one of the country’s and derive comfort from the perception of most highly trafficked e-commerce “lasting value”. site, clocking up 30 million site visits and over 250 million page It requires a significant mind shift to views since launch. appreciate the value of a business model where the “assets” walk out of the door every day and corporate leaders have to create a work environment those assets choose to return to the next morning. Taking leadership in a digital economy 14
- 16. INCUMBENTS MUST RESPOND Today’s corporations must respond on three levels to ensure their future: transforming their core business to become more efficient; access new revenue sources; develop new business models. Allocating resources effectively requires The profound change is apparent when good timing which is difficult in fast comparing a traditional above the line changing markets. Due to the digital campaign with Search Engine Marketing transformation of the economy the changes (SEM). The former has long planning lead facing large corporations play out over times, involves several agencies (strategy, many years, so are beyond typical planning creative, and media buying) is inflexible, cycles and most CEO tenures. One thing has a relatively high minimum spend and is for certain, though, being too late is delivers measurable outcomes only after more costly than being too early. the majority of expense is already committed. SEM, in contrast, can be deployed in real Making the core business time by sales teams themselves with minimal upfront cost, maximum flexibility and little more efficient risk of failure. Gone are the days when corporate Overall, the cost of acquisition can be executives could expect their operating dramatically lowered for a digital pathway budgets to increase year on year to keep compared to the traditional model. Telstra, pace with inflation and business growth. for instance, has experienced up to 70% Nowadays, leaders are expected to deliver lower acquisition costs for a new mobile more with less for the foreseeable future. subscriber in its digital channels compared And digitisation only accelerates to commission driven third party channels. these pressures. Digital sales and marketing Most sales and marketing departments now have an eye on online sales and digital marketing. However, few have come to grips with the fact that they need to undergo a deep change which means that every marketer is now a digital marketer, and sales models must be optimised for digital channels despite the fact that only a minority of sales are currently delivered by those means. 15
- 17. INCUMBENTS MUST RESPOND TELSTRA CROWDSUPPORT TRANSFORMING SERVICE THROUGH THE CROWD Digital customer service Digital technologies promise radically lower cost and more effective customer service than traditional means. Even with the rapid rise of the mobile web In 2011, Telstra launched its there is still a lot of life left in the traditional Crowdsupport customer service corporate website, provided it is designed platform, a community forum where for customer service. Most corporate sites started life as “digital brochure racks” with users, including Telstra customers and little real transactional service functionality. others, answer questions and help Providing customers with rich, real time and each other. Crowdsupport entices easy to use functions can both reduce cost community members with elements and improve service by putting customers of “gamification”, including badges, more in control of their affairs. status levels and user awarded “kudos” points. The fast growing Mobile applications and social media service already attracts over 60,000 platforms can provide effective extensions unique visitors per week, saving cost to web based service portals. Aggressive and improving customer service. adopters see significant reductions in their call centre volumes and an overall drop in crowdsupport.telstra.com service cost as a result. Collaboration In addition to customer facing tools, digital platforms can enhance how employees collaborate and work more effectively to service their customers. The “social corporation” has been subject to extensive debate and in some ways there is no ideal model quite yet. One thing is for sure, though, if an incumbent does not already experiment with internal networks and digital collaboration tools, it will be too late to catch up later. Taking leadership in a digital economy 16
- 18. INCUMBENTS MUST RESPOND NIKE+ DIGITAL EQUIPMENT Access new revenue sources Different approaches are described below depending on a company’s risk appetite. As industries transform, and traditional sector boundaries shift, incumbents encounter opportunities to generate Nike is a global sports equipment new revenue. A manufacturer, for instance supplier which has built its success on may start producing software that is product innovation and brand building. complementary to its goods, and telco’s Nike has successfully innovated, move into areas such as home security investing early in social networking and “carrier billing”. platforms to support the 2006 World Cup. Initially, these opportunities are likely to be relatively obvious and quite adjacent to the core business. In 2010, Nike created a new digital division, Nike digital sport, under the However, the more exciting opportunities Nike+ brand. Nike+ which has grown are likely to be less evident, and therefore to 7M customers launched innovative require a specific effort and slightly higher products including its flagship Nike risk appetite to be pursued successfully. fuelband which allows a user to compare their activity to other contacts Above all, it is important that an via the Nike+ social network, the organisation’s customer base is open to fuelband retails for $US150 and sold adopt new services under the same brand. out within days of its launch25. So, a healthy core business is a necessary foundation for the expansion into new revenue sources. 17
- 19. INCUMBENTS MUST RESPOND SCHIBSTED FROM PRINT TO DIGITAL Develop new business models Many incumbents can expect their Founded in 1839 the Norwegian core business model to be challenged publisher Schibsted has transformed in the course of digital transformation. itself from a traditional publishing High prices, that were once justified by business making 100% of its revenue high cost structures of physical assets through print to a business that today and sustained by limited competition, makes 35% of revenue and 55% of will collapse as low cost, intense gross operating profit online26. It was just competition enters a market. Most 12 years ago that Schibsted made its often this occurs through substitutes. foray into digital through an online A powerful example is the rise of classifieds venture. email rapidly replacing physical mail. Australia Post has seen a dramatic Schibsted is utilising its established decline in letter volumes of close to expertise in content to move from being 9% over the last four years driven by an established reporter of news to a electronic substitution.28 supplier of content that helps users make commercial decisions. Business model innovation is difficult and requires bold leadership but the Businesses include lendo.se a finance rewards for success can be material. broker and Letsdeal.se which brings the Groupon model to Swedish consumers. Harvard Business Review analysis suggests that 11 of the 27 companies “Online services areas are charged with founded in the last quarter century and having entered the Fortune 500 finding new revenue beyond the media in the past 10 years did so through house and online classifieds businesses – business model innovation. However, though it keeps those linkages in mind”. this type of innovation is also relatively – Ken Doctor, Nieman Journalism Lab27 rare with no more than 10% of global corporate investment being focused on developing new business models29. Taking leadership in a digital economy 18
- 20. INCUMBENTS MUST RESPOND AMERICAN EXPRESS MULTISIDED BUSINESS Examples of new, digitally enabled business models include the following: Multisided Business: Offers different solutions to multiple categories of With over 90 million cards across customers. LinkedIn provides advertising 125 markets, American Express realised opportunities to publishers as well as the it had a wealth of valuable transactional ability for consumers to pay to promote data that could be leveraged for the their vocational profiles. creation of a commercial insights business. Housed within the American Outside – In: This is where an Express Global Merchant Services unit, organisation makes its own resources the Business Insights division was set available to customers. The Amazon up in 2009 in the United States and EC2 cloud service (a cloud solution sold to has now expanded to the UK. third parties) is based on insight developed by Amazon around the cost of maintaining Business Insights draws upon four a reliable, scalable infrastructure in a billion transactions that take place traditional multi-data centre model. every year as the foundation for analysing data while also using Collaborative Consumption: publicly available market data Economic model based on sharing, to provide valuable business advice30. swapping, bartering, trading or renting access to products as opposed to “We think about the American Express ownership. A recent high profile example network as a community of relationships AirBnB (airbnb.com) matches people between consumers, merchants, seeking vacation rentals and other small businesses, corporate clients short-term accommodation with hosts and issuing partners. Connecting these who have an unused space to rent. communities, and using our resources and capabilities for their benefit, has become American Express’ true competitive advantage.” - ujata Bhatia, vice president of American Express S Business Insights31. 19
- 21. HOW INCUMBENTS WIN Organisations set to win in the digital Increasingly though, the shift from economy share 5 characteristics: physical to digital assets such as customer and operational data, makes “lateral” 1. hey invest in new capabilities T capabilities become more important. over old business models 2. hey treasure their customer T These tend to be industry agnostic relationships and include for example: 3. hey have become fast and agile T 4. hey know their true competitors T • Real time pricing and risk management 5. They invest in talent • Personalised offer creation • Proactive customer needs identification Whilst the natural starting position for • ulti-channel sales and service M most incumbents is problematic, there are management emerging examples of success providing • API-based technology platforms guidance for others. • Online community management • Knowledge Management Invest in new capabilities • Social collaboration not old business models Telstra, as part of its digital sales and service program, has actively invested in For most corporations, the majority of online community management by starting capital spending is still funnelled into a dedicated 24x7 moderation team, that existing business models. Management operates Telstra’s social service platforms, is comfortable with the lower risk, more Crowdsupport (crowdsupport.telstra.com.au), immediate payback of such investment. Facebook (facebook.com/telstra24x7) and Twitter (twitter.com/telstra). Taking leadership in a digital economy 20
- 22. HOW INCUMBENTS WIN TESCO UNLOCKING CUSTOMER DATA Treasure your customer Customer relationships are the lifeblood of any organisation. But in the old economy Off the back of its Club Card where switching and search costs for offer Tesco has built an impressive customers are relatively high, this is too analytics capability that it uses to often forgotten. Incumbents are often generate targeted discounts, design tempted to improve profits the lazy way product expansions and perform by adding extra fees and increasing prices inventory and store planning. without enhancing the value they add to their customers. Tesco tracks approximately 6 million tesco clubcard transactions a day Therefore it doesn’t come as a surprise and acquired 53% of shopping that large sections of the Australian economy information company Dunhumby has negative Net Promoter Scores making for £30M in 2001, upping their stake customers less open to new products and to 83% in 2006. services from their providers. Figure 2: Aust Figure 3: Average time spent on each usage insurance in “When I started at Tesco, Recognising this important gap, David occasion (minutes) 800 we couldn’t even get hold of Thodey declared customer service Telstra’s 700 our data. We developed a wealth of minutes per visit number one priority after his appointment 17.86 600 Google growth index customer information through Korea South the Average Switzerland to CEO in 2009. Since then 40% of Telstra 500 Tesco Clubcard loyalty program. senior executives annual bonus depends on Japan 9.15 8.67 400 This provided tons of data to monitor Hong Kong the company’s customer feedback. More 300 shopping habits and movements of recently Telstra launched a new company 200 Germany the customer. The card could even USA wide net promoter program called the “buzz” Facebook Twitter Linkedin 100 predict insurance purchasing habits Source:includes extensive customer feedback, 0 UK just on what items they buy. which Sensis 2012 2007 Israel This created a club of Clubcard customer surveys, regular customer team Inve ain holders that increased customer review sessions as well as an enterprise wide Insu loyalty, giving them a sense of continuous improvement framework. Source: Goog community by shopping at Tesco” 33 Figure 10: Average Net Promoter Score Across Industries – Terry Leahy Former CEO Tesco32 (1997 – 2011). Index 5 2 0 -5 -9 NPS 5 6 7 8 9 10 11 12 13 14 15 -10 -15 Average connection speed -15 -19 -20 Jan’12 -25 Wal-Mart S Banking Health Ins Home Ins Mobile Amazon.co operators Source: Y-ch Source: Engaged Marketing 2010 21
- 23. HOW INCUMBENTS WIN KODAK TOO SLOW TO RESPOND Become fast by becoming agile The pace of the digital economy can be staggering. It took Facebook only 9 months The inability to make tough to reach one million users and the popular decisions in the face of the increasing Draw Something app only 9 days34. threat from digital competition are laid bare – with the benefit of hindsight Unfortunately, traditional corporate – by the demise of Eastman Kodak processes and tools are not designed for which focused doggedly on their frequent, rapid decision making. traditional business model. Investment decision tools were designed “Wise business people concluded that in the industrial age. As an example, Net it was best not to hurry to switch from Present Value and other risk based return making 70 cents on the dollar on film evaluation frameworks penalise innovation to maybe five cents at most in digital,” and longer term investments but rarely – Larry Matteson, Former Kodak Executive. consider the opportunity cost of not acting and leaving a new field to a competitor. Kodak management did not display Annual planning processes focused the agility of its rivals Rosabeth Moss primarily on performance over the financial Kantor of Harvard Business School year and against a predetermined budget who advised the firm suggests provide little room to react to new insight executives “suffered from a mentality and new competitors throughout the year. of perfect products, rather than the high-tech mindset of make it, Telstra’s digital sales and service program launch it, fix it”35. uses an Agile delivery approach, bringing together traditionally siloed technology and business functions and benefits from specific “Agile Coaches”. As a consequence Telstra is able to respond quicker to customer needs and commercial opportunities. Taking leadership in a digital economy 22
- 24. HOW INCUMBENTS WIN OSCAR HOW COMPETITORS CAN BECOME PARTNERS Know your true competitor All too often incumbents forget to look beyond their traditional boundaries and thus Traditionally competitors, stand to miss the most important competition the UK’s leading three mobile of all, that of substitutes. operators, have been given permission to team up on Project Many times substitutes are free or much Oscar, a digital wallet scheme. lower cost to customers than traditional The green light from EU regulators products, and they tend to be written off by means Everything Everywhere, O2 incumbents as “unsustainable”. and Vodafone will jointly develop the product. In the digital economy past competitors may also become future partners, and current The venture these companies customers may become future competitors, will form aims to release a unified as traditional value chains that were held smartphone-based service offering together by physical limitations dissolve as an alternative to cash, credit cards and new, networked based competition forms. and loyalty cards. Barclaycard, Visa, Paypal and Google are among those with rival schemes. Remember that good people do good work In the digital economy, talent is even more important than in traditional sectors. And many of the skill sets that are all of the sudden front and centre, did not exist only a few years ago. Employees with experience in digital roles are often tempted by the excitement of overseas technology hubs, making retention of those an important goal. 23
- 25. HOW INCUMBENTS WIN Figure 11: Recruitment difficulty 30% 28% 25% 20% Difficulty (%) 17% 16% 15% 15% 15% 14% 13% 10% 8% 7% 7% 6% 5% 3% 0% a ity g ) ild g ) g t g t ng ch PC en en at tin tin tin tin tiv bu si ar /d pm em (P ke ke ke ke rti ac se d ar ar ar ar ve ag ch lo s an ic ia al m m m lm ve ad ar an yt ed ur gn de nt ile te se al ai m at y m si ia te la an ob Em /n id ps ity de fil sp al on M Pa EO eb Af un Ap ci Di C te So W (S m si om eb n io W C at is tim op ne gi Which digital-related areas are the most challenging to recruit for? en ch ar Se Source: E-consultancy 2012 Those who seem to get it right include “Technical digital talent. Engineers, the locals, Qantas, BHP Billiton, software developers, Product Managers, Commonwealth Bank and Lonely UX developers, Dev Ops, from Australia Planet as well as internationals such as continue to remain in strong demand for Google, Virgin Group, Apple and Microsoft US companies. The quality of the above – all of which are ranked in the top 20 of in relation to US companies, specifically the Dream Employers survey of 201136. technology companies in San Francisco is high and well recognised” Top reasons for ranking highly were pay, – Phaedon Stough, Managing Partner, Mitchell Lake benefits and conditions; work-life balance; and the organisations culture. There are of course significant differences across generations with “Y” ranking work culture as the most important attribute, “X” citing work life balance and “Baby Boomers” caring most about pay, benefits and conditions. Taking leadership in a digital economy 24
- 26. CONCLUSION Australian organisations who continue to Sure, sometimes timing can be off, new make the most of their current business products fail or take longer to take foot. model, but also invest in new capabilities But as long as these failures can be digested and future business models will thrive as by an organisation’s leadership and customer our economy becomes ever more digital. base, they do not become material set-backs. Those winners are not afraid to invest ahead of consensus, and may well be If Australia’s corporate leaders heed the rewarded with surprise successes whilst opportunities rather than fear the change, their more cautious peers may be Australia is in for a prosperous future. left behind struggling with a high, inflexible cost base that is no longer supported by a leaner, faster economy. Customers will reward those who invest in line with their needs and expectations and punish those who believe it’s enough to rest on past laurels. 25
- 27. APPENDIX 1 Akami, State of the internet Report, Q2 2012. http://www.akamai.com/dl/ whitepapers/ akamai_soti_q212.pdf?curl=/dl/whitepapers/akamai_soti_q212. pdfsolcheck=1WT. mc_id=soti_Q212 2 Meeker, M, 2012 Internet Trends, Retrieved from http://www.kpcb.com/insights/2012- internet-trends 3 OECD, OECD Broadband Portal, Retrieved from http://www.oecd.org/internet/ broadbandandtelecom/oecdbroadbandportal.htm 4 A demonstration of this investment can be seen reflected in Australia’s high smart phone penetration, which today stand at higher than 50%. 5 Nielsen 2012, Four in ten Australian Consumers Conduct Shopping Research Online, Retrieved from http://www.nielsen.com/content/dam/corporate/au/ en/press/2012/ Nielsen%20Global%20Digital%20Shopping%20Report%20AUSTRALIA%20 Aug312012%20media%20release.pdf 6 ACMA 2011, Digital Australians – Expectations about media content in a converging media environment, Retrieved from http://www.acma.gov.au/webwr/ _assets/main/ lib410130/digital_australians-complete.pdf 7 Sensis 2011, Social Media Report, What Australian people and businesses are doing with social media, Retrieved from http://about.sensis.com.au/IgnitionSuite/uploads/ docs/FinalYellow_SocialMediaReport_digital_screen.pdf 8 Social Bakers 2011, Australia Facebook Statistics, Retrieved from http://www.socialbakers.com/facebook-statistics/australia 9 Sensis 2011, Social Media Report, What Australian people and businesses are doing with social media, Retrieved from http://about.sensis.com.au/IgnitionSuite/uploads/ docs/FinalYellow_SocialMediaReport_digital_screen.pdf 10 News.com.au 2012, A billion apps in Aussie pockets, Retrieved from http://www.news. com.au/technology/a-billion-apps-in-aussie-pockets/story-e6frfro0-1226357243036 11 Information Week, Apple Ahead of Google with 25B App Downloads, http://www. informationweek.com/mobility/smart-phones/apple-ahead-of-google-with-25b-app- downl/232601991 12 NAB 2012, NAB Online Retail Sales Index, Retrieved from http://www.nab.com. au/ wps/wcm/connect/3baae1004c8864d5bb06bb58cbc838f7/NAB-Online-Retail- Index- July2012.pdf?MOD=AJPERESCACHEID=3baae1004c8864d5bb06bb58cbc838f7 13 Forrester Research, Inc., April 2012, Asia Pacific Online Retail Forecast, 2011 To 2016 14 Deloitte 2011, The Connected Continent, Retrieved from http://www.deloitte. com/ assets/Dcom-Australia/Local%20Assets/Documents/Services/Corporate%2Finance/ Access%20Economics/Deloitte_The_Connected_Continent_Aug_2011.pdf Taking leadership in a digital economy 26
- 28. 15 ACMA 2011, Communications report 2010–11 series Report 1 – E-commerce marketplace in Australia: Online shopping, Retrieved from http://www.acma.gov. au/ webwr/_assets/main/lib410148/cr_comp_report1-e-commerce_marketplace_in_ australia.pdf 16 Deloitte 2011, The Connected Continent, Retrieved from http://www.deloitte. com/ assets/Dcom-Australia/Local%20Assets/Documents/Services/Corporate%20Finance/ Access%20Economics/Deloitte_The_Connected_Continent_Aug_2011.pdf 17 Ibis world 2050 : Ibisworld, A snapshot of Austlrais Digital Future to 2050, Retrieved from http://www-07.ibm.com/au/pdf/1206_AustDigitalFuture_A4_FINALonline.pdf 18 NAB 2012, NAB Online Retail Sales Index, Retrieved from http://www.nab.com. au/ wps/wcm/connect/3baae1004c8864d5bb06bb58cbc838f7/NAB-Online-Retail- Index- July2012.pdf?MOD=AJPERESCACHEID=3baae1004c8864d5bb06bb58cbc838f7 19 ACMA 2011, Communications report 2010–11 series Report 1 – E-commerce marketplace in Australia: Online shopping, Retrieved from http://www.acma.gov. au/ webwr/_assets/main/lib410148/cr_comp_report1-e-commerce_marketplace_in_ australia.pdf 20 Every minutes creators: NASSCOM CRISIL, Big Data the next big thing, Retrieved from http://crisil.com/global-offshoring/gra-nasscom.html 21 1 million smart phone apps : The Next Web, Smartphone apps set to pass the 1 million mark next week, Retrieved from http://thenextweb.com/mobile/2011/12/02/smartphone- apps-set-to-surpass-the-1-million-mark-next-week/ 22 Yahoo, Photo Sharing Passions, retrieved from http://advertising.yahoo.com/article/flickr. html 23 Techcrunch, With 7B Photos, Flickr Debuts New Speedy, HTML5 Image Uploader; Drag And Drop Interface, And More, Retrieved from http://techcrunch. com/2012/04/25/with- 7b-photos-flickr-debuts-new-speedy-html5-image-uploader- drag-and-drop-interface- and-more/ 24 Power retail 2012, Surfstitch: How to Build a High-Growth Online Surf Store, Retrieved from http://www.powerretail.com.au/case-profiles-studies/surfstitch-how- to-build-a- high-growth-online-surf-store/ 25 S old out within days of launch...: The reformed broker, The iPod of Fitness? Nike sells out of Fuelbands, Retreived from http://www.thereformedbroker.com/2012/01/29/the- ipod-of-fitness-nike-sells-out-of-fuelbands/ 26 Schibsted 2012, Quarterly Results, Retrieved from http://hugin. info/131/R/1611242/512419.pdf 27
- 29. 27 D octor K, Nieman Journalism Lab 2012, Feb. 14, 2012, 10 a.m.Looking to Europe for news-industry innovation, Part 2: Schibsted’s stunning classifieds and services business, Retrievedfrom http://www.niemanlab.org/2012/02/looking-to-europe-for-news-industry- innovation-part-2-schibsteds-stunning-classifieds-and-services-business/ 28 Australia Post Annual Report 2010-11 29 Harvard Business Review 2008, Reinventing Your Business Model, Retrieved from http:// hbr.org/2008/12/reinventing-your-business-model/ar/1 30 Payments News 2009, American Express Creates New Unit to Provide Consulting, Retrieved from http://www.paymentsnews.com/2009/11/american-express-creates- new-unit-to-provide-consulting.html 31 American Express 2011, American Express Business Insights Brings the Power of Consumer Spending Analytics to the UK, Retrieved from http://about.americanexpress. com/news/pr/2011/ukinsights.aspx 32 SAS, The Knowledge Exchange 2012, Nine management lessons from Terry Leahy, former CEO of Tesco PLC, Retrieved from, http://www.sas.com/knowledge- exchange/business-analytics/building-an-analytical-culture/nine-management- lessons-from-terry-leahy-former-ceo-of-tesco-plc/index.html 33 Engaged Marketing, Engaged Marketing: NPS Benchmarks 2010, Retrieved from http://www.engagedmarketing.com.au/nps-benchmarks-2010.html 34 Business Insider, The Future of Mobile, Retrieved from http://www.businessinsider. com/the-future-of-mobile-deck-2012-3?op=1 35 The Economist 2012, The last Kodak moment?, Retrieved from, http://www. economist.com/node/21542796 36 Dream Emploers survey of 2011. Dream Employers, Dream Employers Uncovered 2011, Retrieved from http://www.insyncsurveys.com.au/media/33121/dream_ employers_uncovered_2011_report.pdf All trademarks used are the property of the respective owners Taking leadership in a digital economy 28
- 30. BIOGRAPHIES GERD SCHENKEL STEVE HALLAM Executive Director, Telstra Digital Partner, Deloitte Digital +61 (0) 424 287 600 +61 (0) 412 922 723 [email protected] [email protected] @gerdschenkel @sahallam Gerd established Telstra Digital in March Steve is a Partner at Deloitte Consulting 2011 to commence Telstra’s customer and is the Practice Leader of the Deloitte driven digital transformation. Digital team in Melbourne. Prior to joining Telstra, Gerd launched and Steve is an expert in digital emerging managed UBank (ubank.com.au), technologies, such as mobile, eCommerce, an internet direct bank for National social media, portals and web content Australia Bank, and held several other management. senior leadership appointments in the financial services industry. Steve specialises in the delivery of consulting services across the In his earlier career, Gerd was a telecommunications, utilities, financial Management Consultant with The Boston services and retail industries where he has Consulting Group, based in Sydney, led many digital-related projects across Los Angeles and New York where he strategy, design and development. advised blue chip corporate clients on their business strategy and growth agendas. Steve holds an MBA from Melbourne Business School and a Bachelor of Gerd has a Master degree in Engineering Engineering from the University (Robotics) and an MBA from the Columbia of Melbourne. Business School in New York. 29
- 31. Taking leadership in a digital economy 30
- 32. This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively the “Deloitte Network”) is, by means of this publication, rendering professional advice or services. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte has in the region of 200,000 professionals, all committed to becoming the standard of excellence. About Deloitte Australia In Australia, the member firm is the Australian partnership of Deloitte Touche Tohmatsu. As one of Australia’s leading professional services firms, Deloitte Touche Tohmatsu and its affiliates provide audit, tax, consulting, and financial advisory services through approximately 6,000 people across the country. Focused on the creation of value and growth, and known as an employer of choice for innovative human resources programs, we are dedicated to helping our clients and our people excel. For more information, please visit Deloitte’s web site at www.deloitte.com.au. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited © 2012 Deloitte Touche Tohmatsu.