The New Digital Economy: How It Will Transform Business

Oxford Economics (2011). The New Digital Economy: how it will transform business (31 p.) [s.l.
]: Oxford Economics. (100385)
The New Digital Economy

How it will transform business
A research paper produced in collaboration with AT&T, Cisco, Citi, PwC & SAP
The New Digital Economy How it will transform business
Contents
Preface............................................................................................................................................ 1
Executive summary. ............................................................................................................... 2
The virtuous circle of technology and growth. ...................................................... 4
The global digital economy comes of age............................................................... 6

Reaching adulthood................................................................................................................. 7
Sizing the market....................................................................................................................... 9
Industries undergo digital transformation............................................................. 10

Media, entertainment and publishing. ........................................................................ 11
Life sciences and healthcare. .......................................................................................... 12
Financial services................................................................................................................... 13
The digital divide reverses. ............................................................................................. 15
The emerging-market customer takes center stage....................................... 18

Reverse innovation................................................................................................................ 20
Business shifts into hyperdrive.................................................................................... 22

Real-time business................................................................................................................ 23
Early-warning and scenario analysis........................................................................... 24
Firms reorganize to fully embrace the digital economy................................ 26

Globally integrated enterprises....................................................................................... 27
Edge-based organizations. ............................................................................................... 27
CEO imperatives.................................................................................................................... 29
OXFORD ECONOMICS
Preface
This white paper provides insights into how corporations are responding to the
key economic and technology megatrends reshaping the global marketplace.
To ensure the rigor of our research, we undertook a blend of quantitative and
qualitative analysis, including:
n A global survey of 363 c-suite executives representing over $256 billion of
global turnover and covering a broad range of industries, including financial
services, retail and consumer goods, manufacturing, life sciences and TICE
(technology, information, communication and entertainment).
n Oxford Economics’ integrated global economic and industry models to
forecast trends, explore alternative scenarios and gauge economic impact.
n Oxford Economics’ extensive databank containing 25-year forecasts and 30
years of historical data on 190 countries and 85 industrial sectors, as well
as market data and forecasts from secondary research sources such as
eMarketer, IDC and Gartner.
n A series of in-depth personal interviews and panel discussions (in New York,
London and San Francisco) with over 35 senior executives, consultants and
policy makers involved in digital strategy and corporate decision-making,
including heads of marketing, IT, strategy, social media, finance and operations.
We thank all the executives who took part in both the survey and the qualitative
research. We also thank AT&T and Cisco for the use of their Telepresence suites
and advanced virtual technology to host our thought leadership panel discussions.
AT&T, Cisco, Citi, PwC and SAP sponsored our research program. We are grateful
for the inputs of senior staff at each of these organizations, including:
n Bennett Ruiz and Stephane Leyvraz at AT&T
n Stuart Taylor at Cisco
n Gary Greenwald at Citi
n Miriam de Baets, Jan Akers, Bo Parker and Michal Koniec at PwC
n Kevin Cox and Linda Scenna at SAP
Oxford Economics carried out the research. The study is the sole responsibility of
Oxford Economics and does not necessarily represent the views of the sponsors.
June 2011
OXFORD ECONOMICS 1
Executive summary
I
nternational leaders face an era of unprecedented change. The recession and
financial crisis that ended in 2009 caused a seismic shift that has reshaped
the global business landscape. The world economy is now characterized
by sluggish growth in the West, a shift in power to the East, and value-driven
customers and rising risks everywhere. At the same time, the downturn has
hastened the adoption of key technologies—mobility, cloud computing, business
intelligence and social media—that are transforming businesses and sparking a
new wave of wealth creation, particularly in the emerging world.
Economic growth and technology are inextricably linked. Current economic

Current economic
conditions are fostering investment in technology as emerging markets ramp up
conditions are fostering their demand for technology to fuel growth, and advanced markets seek new
investment in ways to cut costs and drive innovation. This becomes a virtuous circle as digital
technology as emerging technologies drive consumer income and demand, education and training, and
markets ramp up their efficient use of capital and resources—leading to increased economic growth,
demand for technology particularly in emerging markets.
to fuel growth, and
Executives must be aware of the new challenges facing their firms as market
advanced markets seek
momentum accelerates. Rising middle classes in places like China and India offer
new ways to cut costs extraordinary potential for companies that understand their needs. Emerging
and drive innovation. markets are also spawning rivals that are unencumbered by legacy systems and
corporate bureaucracy—with their sights set on advanced economies.
Against this backdrop, we foresee six significant shifts firms will need to address
over the next five years:
1 The global digital economy comes of age. The internet has set in motion
a third wave of capitalism that will transform many aspects of the global
marketplace—from consumer behavior to new business models. Mobility,
cloud computing, business intelligence and social media underpin this shift,
which is taking place in both developed and developing economies.
2 Industries undergo digital transformation. As a result of the maturing digital
economy, companies across a range of industries have seen their business
models upended as they contend with the twin forces of technology and
globalization. Over the next five years, many sectors, including technology,
telecommunications, entertainment, media, banking, retail and healthcare, will
continue to be reshaped through the application of information technology.
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3 The digital divide reverses. With economic power shifting to the East,
cash-rich companies in the developing world are now investing heavily in
technology—often outpacing their counterparts in developed markets. CEOs
in advanced economies will need to deal with a new competitive challenge—
aggressive technology-charged firms from emerging countries.
4 The emerging-market customer takes center stage. Rapid economic
growth, along with rising populations and income levels, are putting emerging
markets at the center of corporate growth strategies. Customers in emerging
markets—including the consumer, business and government sectors—offer
huge opportunities for Western companies that can adapt to their needs.
5 Business shifts into hyperdrive. The ever-changing global marketplace,
fuelled by fast-growth economies and new technology, has accelerated the
speed of most business activities, from product development to customer
response. Real-time business intelligence and predictive analysis will be
required not only for faster decision-making, but to cope with unexpected
market risks and opportunities.
6 Firms reorganize to embrace the digital economy. To operate on the global
digital playing field, where new rivals are unencumbered by rigid policies and
thinking, astute Western firms are moving away from hierarchical decision-
making and toward a network structure that is more market-like and organic.
These shifts will have profound implications for corporations in the years ahead.
Our research reveals a number of imperatives for corporate leaders. For example,
executives should have a forward-looking mobile strategy for emerging markets,
where the phone is the primary means for internet access. At the same time, they
must consider how to improve data analytics to anticipate rapid global market
shifts. Remember that in a fast-moving world, the threat of security breaches
increases; companies must build stronger safeguards into their operations.
Finally, while emerging markets are growing quickly, companies should remember
to protect market share in their home countries—rivals in emerging markets will
be looking to play in your backyard.
Survey profile
This global survey of 363 business executives was conducted in December 2010. Of
the respondents, 19% hailed from the US, 20% from the UK, 15% from India, 14% from
Japan, and 8% each from China, Brazil, Mexico and Australia. The survey represented
a broad range of industries, including financial services (26%); manufacturing (19%);
technology, information, communication and entertainment (18%); retailing and consumer
products (15%); and life sciences and healthcare (11%). More than half (52%) of
respondents worked at firms with revenues of more than $1billion; 25% had revenues of
$500 million to $1billion; and 23% had revenues under $500 million. Approximately 46%
held c-level titles; 27% were senior vice presidents, vice presidents or directors; and 27%
were heads of their business unit or department.
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The virtuous circle of

technology and growth
T
ectonic shifts in the world economy, combined with leaps in technology,
are irreversibly transforming the global marketplace. The 2008-09 global
recession accelerated market trends already set in motion by the internet
and other forces: greater consumer cost-consciousness, transformation of
industries, globalization of markets, and greater business uncertainty and risks.
This realignment is overturning conventional thinking on fundamental issues—
where to find growth, how to meet customer needs and how to go to market.
Though sometimes thought of separately, economic growth and technology are

inextricably linked. In emerging markets, industrial expansion, rising wealth and
Though sometimes increasing populations have ramped up the demand for technology. In advanced
thought of separately, economies, meanwhile, the investor’s quest for higher rates of return reinforces
economic growth and the need for cost savings and greater innovation. Regardless of location, firms
technology are looking to grow must engage with the parts of the economy that are flourishing—
inextricably linked. the digital marketplace and the emerging world. This creates a virtuous circle that
is propelling the digital marketplace in both emerging and advanced economies.
In today’s interconnected environment, this virtuous circle can lead to rapid

market transformation unlike anything seen in the past. Historically, most
firms in advanced economies modernized inside the framework of a domestic
strategy, growing first within their own borders and then replicating their business
elsewhere. Today’s emerging economies, however, are doing so at a time when
technology has made it much easier to gain access to global capital, talent and
other resources, allowing them to instantly plan for a global market.
Governments in these countries are nurturing growth by leveraging state-of-the-

art technologies as they build out their “hard” infrastructure—from high-speed
transport systems to ultra-fast wireless networks. Of course, these nations often
still struggle with building the effective “soft” infrastructures seen in the West,
such as transparent regulation and accountable public administration. But new
digital technologies, especially mobile communications, are helping firms and
their customers steer around such bottlenecks.
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Against this backdrop, it is no surprise that executives who participated in our

research believe the world market is undergoing radical change. Specifically, our
study identifies six dramatic shifts for which firms will need to prepare:
n The global digital economy comes of age.
n Industries undergo a digital transformation.
n The digital divide reverses.
n The emerging-market customer takes center stage.
n Business shifts into hyperdrive.
n Firms reorganize to embrace the digital economy.
This report examines these shifts and what they will mean for businesses over the
next five years. It concludes with a checklist of imperatives for senior management.
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The global digital economy

comes of age
T
hroughout history, economies have been reshaped by revolutionary
inventions. These breakthroughs—such as the telegraph, railroads and the
automobile—each sparked a virtuous circle of growth for the economies
that could take advantage of them. The difference with the internet is that it is
inherently global, benefitting both developed and developing economies.
Says John Sviokla, the business leader for PwC’s strategy and innovation advisory
“The internet is triggering
group: “The internet is one of the most complex things ever created. It takes
a third wave of capitalism human organization to another level.” As such, the digital economy is “triggering
that will transform a third wave of capitalism that will transform business and government, and lead
business and government to extraordinary wealth creation” around the world.
and lead to extraordinary
The best description of the internet, he says, comes from David Reed, one
wealth creation.”
of its early framers. The internet, according to Mr. Reed, consists of three
John Sviokla, Partner, conceptual “clouds”: the connectivity cloud, for the transfer of information; the
Strategy and Innovation resource cloud, for the storage of data; and the social cloud, for networking
Advisory Group, PwC and collaboration. These clouds, which can be public, private or semi-private,
provide the infrastructure for the digital economy. They enable the creation of
new markets, and provide the conduit for the fluid movement of resources and
demand. As a result, firms and individuals worldwide can participate in innovation,
wealth creation and social interaction in ways never before possible.
Dr. Sviokla compares this third wave of capitalism to two earlier stages. The first
wave came from the creation of the shared stock company, in which owners
could spread the risks and rewards of setting up new ventures. The second wave
arose from the twin innovations of the telegraph and railroad, which created a
communications and coordination platform for large-scale industry.
Like previous incarnations, this third wave provides a unique platform for the collective
absorption of risk, self-organization of resources and wealth creation. But in Dr.
Sviokla’s opinion, because of Reed’s law—which postulates that the value of a self-
organizing network increases exponentially as the number of network members grow
(2N, where N is the number of network participants)—this third wave can propel rapid
and exponential growth. And unlike the first two waves, both of which occurred first
in the West and later in the East, this third wave—because of its digital backbone—is
happening simultaneously everywhere across the globe. Indeed, this new wave will
get a turbo boost from the billions of new mobile customers in emerging markets.
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Reaching adulthood
While the digital economy has been operating for several decades—few
companies today operate without an e-commerce platform—our survey identifies
four key technologies that are now bringing it into adulthood: mobility, cloud
computing, business intelligence and social media.
Figure 1: Digital megatrends

Which do you believe will have the greatest positive impact on your business over the
next five years?
Mobile technology
Business intelligence
Cloud computing
Social media
0% 10% 20% 30% 40% 50% 60%
A majority of respondents (57%) say that mobile technologies will have the
greatest positive impact on their business over the next five years. The mobile
phone offers a valuable new marketing channel, particularly in emerging markets.
According to the World Bank, for example, every 10 additional mobile phones
per 100 people in a typical developing nation results in GDP growth of roughly
0.8%. Survey respondents across companies of all sizes see mobility as a game
changer, and more than half of respondents within each industry say their firms
will invest heavily in mobile technologies over the next five years.
Currently, eMarketer estimates that 4.3 billion of the world’s population use
mobile phones (Africa is the fastest growing market) and expects that figure to
swell to 5.8 billion (72% of the total population) by 2015. As a sign of the times,
in 2010 eBay customers bought and sold more than $2 billion in goods over their
phones, up from $600 million in 2009. Juniper Research, the technology advisory
firm, expects mobile payment transaction volume to reach $630 billion by 2014.
Following mobility, business intelligence is expected to provide the greatest

business benefits, according to our survey (37%). Business intelligence now
underpins nearly every aspect of business operations, from supply chain and
risk management to marketing and product development. To succeed on the
digital playing field, where speed to market is critical, global companies must
move closer to operating in real time. As such, the ability to analyze information
rapidly to inform decision-making will be essential. Emerging developments such
as in-memory analytics, in which summary data is stored in RAM rather than
databases, may help in this effort.
Our survey reveals a number of ways in which firms benefit from business
intelligence. Approximately 61% of executives cite its importance in better
understanding their customers and their businesses. A similar proportion
indicates it helps them make strategic decisions and react in real time to market
events. These benefits transmit to all aspects of operations—including reaching
new customers, reducing costs and improving supply chain management.
OXFORD ECONOMICS 7
Meanwhile, 36% of executives say that cloud computing gives them more
flexibility to respond to market opportunities, improves the accessibility of their
brand, and makes it easier to do business.
As a result of these benefits, 46% of companies in our survey plan to invest

heavily in cloud computing in the future. Tellingly, executives in emerging markets
are far more enthusiastic about the cloud than their counterparts in advanced
nations. Our survey figures show that 71% of firms in the developing world
are re-appraising their computing platforms to take advantage of the cloud,
compared with only 46% of firms in the developed world. In fact, technology
research firm Gartner estimates that the global public cloud computing market
(including software as a service, platform as a service and infrastructure as a
service) will grow from $68.3 billion in 2010 to $148.8 billion by 2014, with half of
those revenues to come from outside the US.
Figure 2: Where executives will invest in technology

Which do you believe your company will be investing in most over the next 5 years?
Financial Life Retail &

Total Manufacturing TICE*
Services Sciences Consumer
Mobile technology 57% 51% 66% 52% 70% 59%
Business intelligence 39% 44% 26% 50% 38% 30%
Cloud computing 38% 39% 29% 49% 17% 47%
Social media 29% 17% 42% 15% 51% 33%
Collaborative technologies 23% 28% 26% 22% 17% 23%
Telepresence technology 14% 21% 11% 13% 8% 8%
* Technology, Information, Communication and Entertainment
Social media, meanwhile, has become a cultural phenomenon. Facebook now

has over 650 million users, and Twitter’s volume of visitors is rising at over 80%
a year. Despite this, our survey reveals a debate among executives over the
business value of social media. Thirty-one percent of respondents believe social
media will have the greatest impact of any technology on their business—yet
35% consider social media to be irrelevant.
Our survey uncovered a growing number of firms—such as GE Energy, Forbes

and security software provider AVG—that are using social media to build brand
awareness and customer loyalty, especially in emerging markets. “All customers
want is to be able to talk to you,” says Jas Dhaliwal, head of communities at AVG.
“They want to be able to connect with you, to share what they like and dislike.”
Listening to that feedback, he says, is a key to success.
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Sizing the market

How big will the digital economy get? According to eMarketer, an estimated 1.8
billion (nearly 27%) of the world population now uses the internet, and that number
According to research will grow to almost 2.8 billion (about 38%) by 2015. Not surprisingly, the biggest
firm IDC, the size of spike will be in Asia, which will account for more than half of world’s internet
total worldwide users by 2015. At the same time, J.P. Morgan expects business-to-consumer
e-commerce will be e-commerce (excluding travel) to jump from $572 billion in 2010 to over $1 trillion
by 2014. However, these figures do not include business-to-business and online
$16 trillion in 2013.
travel sales, which constitute the far bigger slice of the e-commerce pie.
Figure 3: Internet users worldwide

3000
Asia-Pacific North America Middle East & Africa 2,786
Europe Latin America 2,613 215
2500 2,436 205 285
Number of internet users (millions)
2,246 193 278

2,041 178 260 294
2000 278
1,844 163 239
272 547
1,666 148 217 265 530
135 197 509
258
1500 175 483
250
457 1,445
241 1,320
429 1,203
1000 402 1,080
945
820
713
500
0
2009 2010 2011 2012 2013 2014 2015
Note: Individuals of any age who use the internet from any location via any device at least once per month;
numbers may not add up to total due to rounding
Source: eMarketer, March 2011
According to research firm IDC, the size of total worldwide e-commerce, when
global business-to-business and consumer transactions are added together,
will equate to $16 trillion in 2013. When added to the global market for digital
products and services—which IDate, the French technology research firm,
estimates at $4.4 trillion in 2013—the total size of digital economy is estimated
at $20.4 trillion, equivalent to roughly 13.8% of all sales flowing through the
world economy. Given the magnitude of these numbers, it is clear that the digital
economy is coming of age.
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Industries undergo digital

transformation
T
he virtuous circle is not just restructuring the world economy; it is leading to
a new phase of industrial transformation. Indeed, to compete on the global
stage, and reap the benefits of the digital marketplace, executives agree
that industries will continue to see sweeping changes over the next five years,
particularly in IT (72%); telecommunications (66%); entertainment, media and
publishing (65%); retail (48%); banking (47%) and life sciences (38%). “There
is wishful thinking that if we can just ‘get through this,’ things will go back to
normal,” says Bruce Rogers, Chief Brand Officer of Forbes. “Those days aren’t
coming back. That is the nature of technology, for both good and bad—it destroys
old ways of operating that aren’t as powerful anymore.”
Figure 4: Industries most affected by digital transformation

In your view, which of the following business sectors will be most transformed (for the better) by
information technology over the next 5 years? (% stating “greatly transformed”)
IT and technology
Telecommunications
Entertainment, media and publishing
Retailing and consumer products
Financial services—retail and commercial banking
Life sciences
Education
Financial services—capital markets
Financial services—asset management
Financial services—insurance
Financial services—other
Healthcare services
Manufacturing
Government/public sector
0% 10% 20% 30% 40% 50% 60% 70% 80%
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While new firms will embrace the digital marketplace straight away, established
firms will need to transform how they sell, price, produce and deliver products and
services. Executives indicate this digital metamorphosis ultimately will help their
firms provide more responsive customer care (60%), reduce the time required to
complete tasks (60%) and improve employee productivity (58%).
For executives whose companies are undergoing this shift, the first order of business
is to become a truly digital company inside the firm’s existing footprint. Companies
in a number of industries have already made the leap. The section below explores
how the rise of the digital marketplace will affect three key industries: media,
entertainment and publishing; banking; and life sciences and healthcare.
Media, entertainment and publishing

The new digital playing field has all but obliterated the old working models for the
music, publishing and film industries. Movies and television shows can stream
on demand to any digital device, and news, books and other publications are
moving to mobile phones and tablets. In fact, Amazon.com announced in May
that it now sells more ebooks than hardcover and paperback books combined.
With information becoming a commodity, some media firms are switching from
subscription fees to “freemium” pricing, a business model that combines free
services with paid-for premium services.
To maintain relevance in an era where anyone can be a publisher, and to reach

new switched-on segments in emerging markets, companies need to rethink
“We have virtually
their approach. At Forbes, that meant throwing out the old way of producing
re-architected our whole magazines and adopting a new operating model. Two years ago, according to Mr.
product perspective Rogers, Forbes had separate editorial teams for print and online. “The thinking
around the internet.” was that the print writers needed to go away for two months and write a story,
Bruce Rogers, Chief Brand while the web writers needed to write 10 stories per day.” This, he admits, was
Officer, Forbes an antiquated way of thinking. “You can do incredibly in-depth, investigative
reporting and still have a voice on the web. The best writers create a constant
content stream around their expertise.” Editors also realized that readers wanted
to be more engaged with Forbes’ content and authors.
As a result, says Mr. Rogers, “We have virtually re-architected our whole product
perspective around the internet.” To make the shift, the company redesigned
its web site, hired a new chief product officer and invested in a new content
management system built with social media in mind. Readers can now follow
their favorite authors and create their own content. Writers are encouraged to
respond to readers’ feedback and participate in reader conversations. Using the
“Called Out Comment” feature, writers can encourage debate by highlighting
readers who offer particularly insightful feedback.
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Figure 5: New directions in worldwide media advertising (in billions)

2009 2010 2011 2012 2013 2014
Online ad spending $55.2 $61.8 $68.7 $79.0 $87.4 $96.8
% change 2.0% 11.9% 11.1% 15.0% 10.6% 10.8%
% of total media ad spending 11.9% 12.8% 13.9% 15.1% 16.1% 17.2%
Note: Includes banner ads, search, rich media, video, classifieds, sponsorships, lead generation and e-mail;
excludes mobile ad spending
Source: eMarketer, June 2010
Still, the transformation was not an easy one. Forbes now has fewer on-staff writers
than it did two years ago, opting instead for a larger network of contributors—
approximately 500 to date, with plans to expand to 1,000 by the end of this year.
Figuring out how best to cede control of online content was also an initial concern.
“To be effective on the web, you have to be in the moment, and write about what’s
happening right now on the topic that matters to you. But you still need quality
control,” says Mr. Rogers. But it’s a strategy that has paid off—with 18 million
monthly unique visitors to its site, 30% of which comes from outside the US.
“Ironically,” Mr. Rogers adds, “our digital footprint helps us grow our print and
conference business outside the US.” Forbes now has 16 international editions,
“With all this technology,
including China, India, Russia and Poland. Mr. Rogers says the new approach has
some marvelous things
generated more site traffic globally—that equals more revenues.
are happening in
healthcare.”
Life sciences and healthcare
Dr. Richard Popiel, President
& COO, HHI The global need for affordable healthcare makes medical care a prime target for
technological transformation. The emerging world has long suffered, and partly
due to the recession, many citizens in the developed world can no longer pay for
proper healthcare. Waste alone is a massive drain on resources. In the US, as much
as 30% of annual spend on healthcare—which was $2.5 trillion in 2009—goes to
unnecessary procedures, fraudulent claims and duplicative tests. Reducing that
figure by even a fraction can mean significant improvements in care.
Change isn’t easy for the healthcare industry. This is why Horizon Blue Cross Blue
Shield of New Jersey created a separate subsidiary to lead a transformation in
New Jersey’s healthcare. The new entity, Horizon Healthcare Innovations (HHI),
is tasked with rethinking how health insurance companies work with providers,
patients and other stakeholders. Its mission is to collaborate with others to change
and improve the healthcare system, creating new models of care designed to
improve quality, affordability and patient experience while leveraging technological
advancements. This includes the use of new technology to remotely monitor the
chronically ill. Since its launch in September 2010, HHI has focused on several
areas: mobile health, remote monitoring, care coordination and payment reform.
Already, five pilot programs have been rolled out, according to Dr. Richard Popiel,
its president and COO. “With all this technology, some marvelous things are
happening in healthcare,” he says.
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Improving patient outcomes and greater efficiency hinges on coordinating patient

care, sharing information and engaging patients. Several of HHI’s pilot programs
aim to help physicians access data more easily by sharing it in a user-friendly,
timely fashion. Dashboards that record patients’ wellness and risk factors like
body mass index and chronic health conditions give physicians a valuable big-
picture view of their patient population. Similarly, HHI is leveraging technology in
a consumer engagement pilot focusing on remote patient monitoring to promote
self-management and timely treatment. Bluetooth-enabled scales to monitor
weight, and pulse oximeters to measure oxygen levels are placed in the homes
of congestive heart failure patents. This technology immediately transmits those
results to a dashboard monitored by Horizon nurses. If a patient is well, it’s noted.
But if oxygen levels are off and weight is inconsistent, the advanced system sends
an alert requesting patient and physician notifications.
Some may view this as unconventional, but improving care coordination and
engaging consumers through the use of innovative technology will improve patient
care and ease the mammoth financial burden that everyone shares. “We’re not at
the top yet,” says Dr. Popiel. “But by improving quality outcomes using technology,
we can begin to extract significant waste and inefficiency from the system.”
Financial services
Technology has always been critical for back-end operations in financial services.
Now it is moving front and center as a way to acquire and maintain customers
while providing them with improved financial services. Mobile commerce and
peer-to-peer lending is forcing the banking industry to reinvent itself, particularly in
emerging markets. According to Berg Insight, a Stockholm-based research firm,
the number of mobile banking users is expected to reach 894 million by 2015—
the majority of whom will hail from Asia, Africa, the Middle East and Latin America.
For evidence of digital transformation, look to Saxo Bank. A tiny brokerage firm
19 years ago, today it is one of the world’s top 20 foreign exchange trading firms.
Tapping into a Scandinavian appetite for early adoption—and foreseeing that
globalization and the digital economy would take hold—Saxo began streaming
real-time foreign-exchange data to customers who executed trades by phone.
By popular demand, Saxo added online execution to the mix. Almost overnight,
it went global.
Saxo’s digital approach resonates with emerging market investors—more than

According to Berg four in 10 customers hail from the developing world. Says Albert Maasland, CEO
Insight, the number of of the London branch that covers the UK, North America, Sub Saharan Africa
mobile banking users is and India: “We see a higher proportion of people in markets that experienced
expected to reach 894 rapid growth prepared to manage their own money, as opposed to giving it to
million by 2015—the third parties.”
majority of whom will
Over the past decade, Saxo extended its online trading capabilities to other
hail from Asia, Africa,
asset classes, including equities, futures and “contracts for differences” (CFDs).
the Middle East and A single pool of cash collateral allows customers to take online positions in any
Latin America. asset under Saxo’s virtual roof. Real-time analytics allow customers to trade any
asset at any time at current prices. Leverage capped at 100 to one (for foreign
exchange) means that $1 million in collateral can support up to $100 million in
invested assets, though accounts very seldom approach that lofty ratio.
OXFORD ECONOMICS 13
According to Mr. Maasland, one of the most dramatic shifts in banking is

happening with client acquisition. Rather than making cold calls, Saxo finds
new customers through referrals, online marketing initiatives and social media.
Sophisticated tracking software follows every customer click on Saxo, from
the first passing visit. “We see that social communities are often the last touch
before clients open an account,” he says. As a result, Saxo purchased a stake in
Euroinvestor, a listed online investor portal with more than one million customers
who log into its forum to exchange investment ideas. “People trust each other
more than they trust institutions,” Mr. Maasland says.
As testament to the merits of an online strategy, business flourished in 2010.

What does the future Operating income jumped by 50%, topping $653 million. Net income more
hold for financial than tripled, to more than $126 million. Assets under management and clients’
services firms? collateral deposits nearly doubled, to $12.2 billion.
The biggest challenges
What does the future hold for financial services firms? The biggest challenges are
are legacy systems—
legacy systems—and legacy thinking, says Mr. Maasland. “There are banks with
and legacy thinking.
a range of service models desperately trying to convince people to keep paying
high fees to be able to face a person. I’m not sure that’s sustainable.”
Technology as a revenue driver

For many companies, technology is taking on a new role—as a driver of revenue and
enabler of new business models. Our research has shown many variations on the theme—
from the emergence of new cloud-based businesses to the use of mobile phones to reach
new clients. One of the best examples of building a new business from a technological
advancement is location awareness—the use of GPS sensors in mobile phones to
create location-based services. Three years ago, the concept of location awareness was
mainly limited to GPS systems in automobiles—drivers used such systems to navigate
complicated street routes and find their way out of traffic jams. That all changed in March
2009, when a new service called Foursquare made its first appearance at South by
Southwest Interactive, an annual music festival held in Austin, Texas.
With more than eight million users worldwide, 2.5 million check-ins per day and more
than 250,000 participating merchants, Foursquare has quickly developed an ecosystem
that has yet to be matched by its competitors, most notably Facebook, Twitter and Google.
Its founders Dennis Crowley and Naveen Selvadurai credit the success of the platform to
its game-like approach—users earn points and “mayorships” for their check-ins, and are
ranked on a leader board with their friends. Most recently, Foursquare added an “explore”
function to its service that allows users to search for businesses that are close in
proximity—restaurants, shops, bars and entertainment venues. The idea is to help users
not only announce where they are, but decide where they are going to be: “You’re walking
down the street and normally you eat lunch,” said Mr. Crowley during a recent speech at
the Where 2.0 Conference in Santa Clara, California. “Foursquare will tell you that you’re
close to a sandwich place you read about in the New York Times three weeks ago. And
that’s what you want to try.”
OXFORD ECONOMICS 14
The digital divide reverses
D
ue to globalization, the virtuous circle is reshaping the world’s markets in
Across almost all
a way we have never seen before. Developing economies now have easier
measured indicators, access to capital, talent, intellectual property and other resources that were
our survey reveals that unavailable to them in the past. And because they were not as hard hit by the
firms in emerging economic downturn, they are in a stronger position for growth. As a result, our
markets are more study shows that firms in the emerging world are more likely to engage in—and
willing to adopt digital benefit from—the virtuous circle than their counterparts in advanced economies.
technologies than their
In fact, the traditional digital divide favoring the “haves” in the industrial world
counterparts in
over the “have-nots” in developing markets now seems to be swiftly reversing.
industrial nations. According to Tim Weber, the BBC’s business and technology editor, “Emerging
markets now have the scale, investment and focus to make use of the digital
economy.” As a result, he adds, “We are going to see a lot of leapfrogging of
technologies, where countries bypass normal technological states of development
because they don’t need them.”
Across almost all measured indicators, our survey reveals that firms in emerging
markets appear more willing to adopt emerging digital technologies than their
counterparts in industrial nations. There is a greater openness to shift practices,
try new technologies and take greater risks. In the view of Mr. Rogers of Forbes,
it comes down to entrepreneurial spirit: “The need to get ahead is stronger in the
developing world than the developed world. It’s just human nature.”
Figure 6: Technology adoption in emerging vs. developed world

(% planning to increase expenditure by over 20% over the next five years)
Cloud computing
Emerging
Developed
Business intelligence
Mobile technology
Collaborative technologies
Social media (e.g. Facebook, LinkedIn, Twitter etc.)
Telepresence technology
0% 10% 20% 30% 40% 50% 60%
OXFORD ECONOMICS 15
The difference in attitude between the West and East is reflected in their disparate
views on digital transformation. For example, two-thirds of executives in emerging
markets believe that mobile devices will become the standard method for web
applications over the next five years, compared with only one-half of executives
in advanced economies. Similarly, two-thirds of emerging market executives
expect businesses to embrace social media and networking; just one-third of
their industrial-market counterparts share this view.
Figure 7: Mobile phone users worldwide (millions)

2009 2010 2011 2012 2013 2014 2015
China 574.9 671.1 762.8 851.9 926.7 996.0 1,062.1
India 358.6 516.2 618.4 698.9 781.3 840.7 901.2
Japan 102.9 104.0 105.0 105.9 106.8 107.7 108.5
South Korea 40.3 40.9 41.2 41.5 41.9 42.2 42.5
Australia 14.6 14.9 15.3 15.7 16.1 16.5 16.9
Other 519.0 557.4 600.5 639.2 677.9 717.8 758.4
Asia-Pacific 1,610.4 1,904.4 2,143.1 2,353.2 2,550.7 2,720.9 2,889.7
The number of mobile
Germany 61.4 62.7 64.3 65.6 66.8 68.2 69.6
users in China will jump
UK 51.5 52.4 52.9 53.5 53.9 54.4 54.7
from 671.1 million in France 45.7 47.3 48.8 50.0 51.3 52.2 53.0
2010 to over 1.06 billion Italy 43.5 45.3 47.0 48.4 49.8 51.2 52.0
in 2015. Spain 33.5 34.4 35.3 36.1 36.9 37.6 38.3
Other 1,142.8 1,177.2 1,220.2 1,248.5 1,280.3 1,303.9 1,321.1
Europe 1,378.3 1,419.2 1,468.5 1,502.1 1,538.9 1,567.4 1,588.7
Middle East & Africa 343.4 381.6 422.5 460.0 496.6 526.7 563.3
Brazil 91.4 100.6 109.9 119.3 128.9 136.6 146.5
Argentina 29.0 31.0 32.2 33.3 34.5 35.3 36.0
Mexico 50.0 55.1 59.1 63.2 67.4 71.6 75.4
Other 161.0 167.9 174.3 180.3 184.8 189.1 192.8
Latin America 331.5 354.6 375.5 396.2 415.6 432.7 450.7
US 224.6 231.5 236.6 241.2 245.9 250.6 254.7
Canada 18.0 19.1 20.3 21.4 22.3 23.3 24.2
North America 242.6 250.6 256.9 262.6 268.2 273.9 278.9
Note: Individuals of any age who own at least one mobile phone and use the phone(s) at least once per
month; numbers may not add up to total due to rounding
Source: eMarketer, April 2011
Executives in emerging markets are not just paying lip service: Twice as many
companies in developing economies than advanced markets plan to increase
expenditures in the latest digital technologies by over 20%. This holds true for
nearly every technology included in our study, including mobile devices, social
media, business intelligence, collaborative tools and telepresence systems.
The rapid adoption of new digital technology in emerging markets is evident in
global mobility trends. Latest statistics from the International Telecommunication
Union (ITU) estimate about 5.3 billion mobile subscribers in the world, with about
73% (3.8 billion) located in the developing world. China and India are fuelling
most of the growth: These markets added 300 million new mobile users in 2010
alone—a figure greater than the US’s entire mobile subscription base. And with
mobile costs falling, China and India are likely to see continued meteoric growth.
According to eMarketer, the number of mobile users in China will jump from 671.1
million in 2010 to over 1.06 billion in 2015; India’s will leap from 516.2 million to
901.2 million over that same period.
OXFORD ECONOMICS 16
The number of people accessing the internet over their mobile devices is also
skyrocketing. The ITU expects web access via mobile devices to exceed desktop
web access by 2015. Conservative estimates show the world’s current 500 million
mobile internet users doubling to over one billion by 2015. Much of this growth
will come from emerging markets, where the cost of fixed broadband remains
prohibitively expensive. Despite lower internet penetration rates, emerging
markets—owing to the size of their population—now even enjoy a greater internet
user base than industrial economies. For example, the number of web users
stands at 642 million in the BRIC countries, compared with only 409 million in the
four top industrial nations (US, Japan, Germany and France).
Figure 8: Global mobile subscriptions as of 2010 (in millions)
Developed
nations
1,436
Global
5,282
Developing
nations
3,846
Source: ITU
The likelihood of emerging markets bypassing older technologies adds yet

another competitive threat to Western companies. Legacy systems in the form of
physical networks, software, and supplier and support contracts potentially tie
developed markets to their existing infrastructure. Going straight to ultra-high-
speed mobile is the most obvious example of leapfrogging in emerging markets.
Says Mr. Weber of the BBC: “When the G20 summit was in South Korea, a lot
of Western delegates found that their phones didn’t work because they were too
old-fashioned. They didn’t work on South Korea’s 4G networks.”
OXFORD ECONOMICS 17
The emerging-market customer

takes center stage
T
he double helix of high economic growth and fast digital adoption in emerging
markets is putting their customers at the center of most corporate growth
strategies. In markets like China and India, disposable income growth is
soaring at 8%, as opposed to just 2% in the US and 1% in Japan. As a result,
more consumers in the developing world are entering the middle or upper-middle
income class—further fuelling the virtuous circle. Flush with higher wages and
greater wealth, consumers are buying more phones, appliances and other products
and services, both online and offline. At the same time, they are also altering their
lifestyles and improving their education. “Consumer attitudes in the emerging world
are very upbeat,” says Andrew Curry, a director at the Futures Group.
Massive demographic shifts are powering emerging-market economic growth.

With 3.3 billion people, the E7 now has almost 2.6 billion more people than the
In markets like China
G7. With the E7’s population growing twice as fast as the G7’s, this gap will
and India, disposable widen to over 2.8 billion by 2020, according to our forecasts. And while industrial
income is soaring at 8%, markets are aging, emerging markets are seeing a rapid rise in well-educated,
as opposed to just 2% in working-age segments.
the US and 1% in Japan.
Figure 9: Rate of population growth since 1980
170
Forecast
160 G7
E7
150
Population (1980 = 100)
140
130
120
110
100
90
0
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
20
8
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
Note: Where G7 population of 615 million in 1980 equals 100, and E7 population of 2.2 billion equals 100.
OXFORD ECONOMICS 18
Cash-rich from rapid growth and largely free of debt, many emerging markets are
poised to become economic powerhouses. By 2020, the E7 (Brazil, Russia, India,
China, Mexico, Indonesia and Turkey) will hold a greater share of world GDP than
the G7, and a new tier of emerging markets, such as Vietnam, Colombia, South
Africa and South Korea, will take off in their slipstream. Reflecting the enormity
of the economic power swing, our forecasts show that China will surpass the US
in 2018 to become the world’s biggest economy, when measured by purchasing
power parity (PPP).
Figure 10: Global GDP growth
Canada UK Germany Russia

2000: 2.1% 2000: 3.5% 2000: 5.0% 2000: 2.6%
2010: 1.8% 2010: 2.9% 2010: 3.9% 2010: 3.0%
2020: 1.6% 2020: 2.4% 2020: 3.1% 2020: 2.9%
Japan
France
2000: 7.5%
2000: 3.6%
2010: 5.7%
2010: 2.9%
2020: 4.3%
2020: 2.2%
Italy
2000: 3.2%
USA 2010: 2.4% China
2000: 23.1% 2020: 1.8% 2000: 7.0%
2010: 19.5% 2010: 13.5%
2020: 17.2% 2020: 19.1%
India
2000: 3.7%
Brazil 2010: 5.4%
2000: 2.8% 2020: 7.5%
2010: 2.9%
2020: 2.8%
2000 = 48.0% 2020 = 32.3%

Declining share of world GDP
among the G7 group
of countries 2010 = 24.7%
2010 = 39.0%
Economic balance
shifting towards BRIC
2020 = 32.6% 2000 = 16.1% economies
But the consumer is only part of the emerging-market story. Fast-growing businesses
in the developing world are generating extraordinary growth opportunities for
Western firms. With corporate profits and cash positions rising, companies in
emerging markets are investing heavily in their future growth. For many firms,
this means expanding into new markets through greenfield investments or
acquisitions. For others, it involves investment in existing operations to move their
business up the value chain and improve its competitive position. In particular,
our study shows that local companies are investing in a range of technologies
to boost productivity and meet the needs of local consumers. Spending is not
limited to the private sector; government organizations are also pumping huge
amounts into infrastructure and development programs.
OXFORD ECONOMICS 19
Figure 11: Increase in private and public spending between 2010 and 2015
120
100
% change in spending
80
60
40
20
0
Japan France Germany US Brazil Russia India China
Tailoring products for buyers in emerging markets

While emerging markets offer enormous growth potential, companies must be fully attuned
to local customer needs. Best Buy’s recent closure of shops in China is a vivid example of
how a Western approach can fall flat on its face in an emerging market.
One company that got it right is MediaTek, a Taiwanese chip manufacturer founded in
1997. In a classic example of how a firm can create products and services specifically for
emerging markets, MediaTek realized in early 2000 that the mobile phone market in China
was hampered by the high cost of phones offered by international brands.
To create a more level playing field, the company distributed a set of reference guides
and software along with its mobile chip, designed to make customizing phone service
much easier. MediaTek’s novel approach made it easy for local manufacturers to enter the
lucrative mobile phone industry in Asia. In fact, many of the firm’s early customers had
little or no experience in the phone industry and sometimes just a handful of staff.
While many of its original customers were small operators producing generic mobile phones,
MediaTek’s business has increasingly shifted to better-known manufacturers in the Chinese
mobile market. The company shipped 500 million chips last year, more than half of which were
exported to markets around the world. Being sensitive to local needs has enabled MediaTek to
become the biggest supplier of chips to China. It now has its sights set on the West.
“If GE’s businesses are
to survive and prosper In emerging markets, even the low-wealth-income segment represents a growing
in the next decade, they market opportunity for firms. “In the last five years, the consumption of the very
must become as adept poor has increased,” says Isabelle Lescent-Giles, a professor of International
at reverse innovation as Business at the San Jose State University. “Now we are hearing about micro-
they are at glocalization.” franchising, with companies really building a whole new business model. It is
interesting because it is serving a huge market in India and China—a market of
Jeff Immelt, CEO, GE
people who are the ‘have-nots.’”
Reverse innovation
As emerging-market customers move to center stage, Western companies
are increasingly turning to reverse innovation, whereby products and services
are created first for customers in emerging markets and then rolled out to the
developed world. Reverse innovation is the opposite of “glocalization,” where
companies develop products at home and then tailor them to the needs and
budgets of customers in emerging markets.
GE was an early pioneer in reverse innovation. As Jeff Immelt explained in a 2009

Harvard Business Review article, “If GE’s businesses are to survive and prosper
in the next decade, they must become as adept at reverse innovation as they are
at glocalization.”
OXFORD ECONOMICS 20
Peter Evans, director of global strategy and planning for GE Energy, explains:
“We are now living in a multispeed world, with some regions of the world growing
relatively slowly and others very quickly. Over the next decade we expect
a significant portion of the world, about one-third centered in the emerging
economies, to grow faster than 5% per year. These markets have different
dynamics so you are beginning to see a shift from where we design and launch
our products. In addition to our traditional markets in North America, Europe and
Japan, we are now actively localizing in these high-flying markets.”
To support this effort, GE has global research centers in emerging markets

like China and India; it recently announced plans to launch another in Brazil.
“That’s where our science and engineers for our longer-term projects and very
specialized capabilities reside,” says Dr. Evans. One example in GE’s healthcare
business is the GE MAC 800, an ECG machine developed for poorer populations
in emerging markets. The machine carries a price tag of $1,000, a fraction of the
cost of machines sold in the US. This low-priced option has proven valuable for
accident sites and emergency rooms in GE’s mature markets.
Dr. Evans says that a deep connection to the local market is critical in supporting
reverse innovation. “We have 13,000 engineers. Under the traditional frameworks,
connections between those engineers were challenging because of the transaction
costs. Digital technologies allow us to overcome that, and collaborate in ways we
couldn’t otherwise have done. And that accelerates innovation.”
Advanced economies: Don’t write them off yet

Economic growth in emerging markets may be burgeoning, but don’t write off the
advanced economies just yet. It will take decades for average living standards in
developing economies to catch up with those in the West. Even in 2020, average GDP
per capita (in PPP) in the US will be more than 3.5 times higher than in China and Brazil,
and over nine times higher than in India. And many low-income segments in advanced
markets, particularly rural areas, will be upping their use of new digital technologies,
creating a parallel opportunity in the West to sell to the “bottom of the pyramid.”
Figure 12: GDP per capita

18000
US
16000 Eurozone
Russia
14000
China
Brazil
12000
GDP per capita ($ppp)
India
10000
8000
6000
4000
2000
0
0
04
10
16
22
28
34
8
20
20
20
19
19
19
19
20
20
20
OXFORD ECONOMICS 21
Business shifts into hyperdrive
B
ecause of today’s symbiotic market linkages, the virtuous circle is also
speeding up the pace of change. To compete in a market fraught with
greater volatility and uncertainty, all companies need to be nimble and
fast. Global firms, in particular, will need to speed up their business and adjust
processes, strategies and business models as events unfold. In a world where
markets are in perpetual flux, product development and sourcing strategies must
realign more quickly. While digital technology is disrupting market dynamics, it
also holds the solution for firms that need to operate at warp speed.
Traditional hierarchical decision-making is too slow for the realities of the new
digital market. But most knowledge management and reporting systems are
not geared to support high-speed decision making. According to our research,
corporate organizations and their customers now require real-time tools capable
of providing insight and actionable information at just the right time—in fact, 61%
of survey respondents agree that huge increases in data volumes will require
a new type of business intelligence. Increasingly, competitive advantage and
customer value will come from gathering market information from a wide array of
sources, including social networks and web-based analytical tools.
According to our survey, 57% of respondents believe that business intelligence

Fifty-seven percent of
will be important to react in real time to market events. For some industries, such
respondents believe that as technology, media, retail and consumer goods, the figure is even higher. Says
business intelligence Dr. Sviokla, “The increasing amount of data on the business environment gives
will be important to you the ability to monitor like you’ve never monitored before.” Executives are
react in real time to taking hold of this view: Spending on business intelligence systems increased
market events. 13.4% in 2010, to $10.5 billion, according to Gartner.
Despite the need to operate in real time, our survey shows that over one-third
of companies still do not have the proper business intelligence tools to do so.
In fact, many firms (over 40%) in the fastest-moving industries, such as financial
services and retail and consumer goods, say the lack of real-time tools is one of
the biggest risks to their business intelligence strategies.
OXFORD ECONOMICS 22
Figure 13: The risk of not having real-time tools to BI strategy

Respondents stating “large” or “significant” risk
Financial Services
Life Sciences
Manufacturing
Retail and Consumer
Technology, Information, Communication and Entertainment
Developed Markets
Developing Markets
0% 10% 20% 30% 40% 50%
Real-time business
Sixty percent of respondents believe digital technology will help them speed up the
completion of various tasks. Business intelligence in particular will be important in
helping companies react to events in real time, say 57% of respondents. For some
sectors, such as technology, information, communications and entertainment
(70%), and the retail and consumer sectors (64%), the figures are even higher.
Our research uncovered many real-time applications.
For industrial enterprises, such as GE Energy, one big initiative now is to more
fully embed sensing software and controls throughout the energy product and
service offerings. Dr. Evans explains: “A lot of what we do is to provide the core
technology for converting fuels into more useful forms of power.” The primary
form, he adds, is electricity. As emerging markets continue to grow, “electricity,
as part of the energy mix, just will continue to increase.”
Generating electricity is a very expensive process. Using data monitoring on a

historic and real-time basis optimizes performance and reduces costs. “There is
a huge wave of activity that is taking place now around data collection,” says Dr.
Evans. “We are putting in place the frameworks for better decision-making about
how to run these plants at higher performance.”
Figure 14: The importance of reacting to events in real time

Respondents stating “very” or “extremely” important
Financial Services
Life Sciences
Manufacturing
Retail and Consumer
Technology, Information, Communication and Entertainment
Developed Markets
Developing Markets
0% 10% 20% 30% 40% 50% 60% 70% 80%
OXFORD ECONOMICS 23
Another interesting project is to leverage the data and intelligence that can be
obtained from GE Energy’s global fleet of over 1,000 gas turbines. “We remotely
monitor in real time operational data from those gas turbines,” says Dr. Evans.
“So we are putting together the ability for customers who use those units to
understand what’s happening in the fleet as a whole so that they can benchmark
themselves to improve performance.” Dr. Evans points out that GE Aviation is
doing the same with jet engines it sells to airlines.
For financial institutions, real-time operations not only provide security—it

creates competitive advantage. For instance, at Denmark-based Saxo bank,
customers anywhere, at any time, can trade any asset at current prices. State-
of-the-art analytics keep tabs on accounts that stretch credit limits too far, and
automatic stop loss orders preserve Saxo’s credit and reputation. Full automation
that skips cadres of brokers keeps transaction fees low—and that attracts new
business. “We regularly see ultra high-net-worth clients moving cash to us from
world-class private banks,” says Albert Maasland, CEO of the London branch
that covers the UK, North America, Sub Saharan Africa and India.
For retailers like Zara, the Spain-based clothing outlet, speed is not only critical,
it’s a core value: It takes the firm just four weeks to turn an idea into merchandise,
and items spend no more than two weeks on store shelves. To ensure the approach
is a successful one, the company relies on business intelligence and analytics to
help manage inventory and make sure that products are being distributed to the
right locations based on consumer preferences. This is no small feat: Zara has
5,000 locations in 77 countries. Decisions must be made—and actions must be
taken—in an instant.
It’s an approach that has certainly appealed to customers. The average shopper
visits a clothing store about three times a year—for Zara customers, the average
is 17 visits. And a real-time approach to inventory creates another advantage—
scarcity. Zara only discounts about 18% of its stock.
As a result of these efforts, Zara saw a 14% increase in net sales in 2010. Its
parent company, Inditex, plans to open as many as 500 new stores in 2011,
and recently launched an e-commerce site that is now operating in 16 European
markets—the US and Japanese versions are to come online in a few months. In
yet another bold move, Inditex announced in April that it will invest $342 million
to build a new flagship store in New York City, to open in late 2011.
Early-warning and scenario analysis

But real-time monitoring is just one side of the coin. Companies are also applying
tools to provide executives with invaluable early-warning and predictive analysis
of market risks and opportunities. Companies are extending such tools to predict
future trends, identify resource gaps and stress-test their businesses under
alternative market scenarios.
Such predictive tools are very important to GE Energy, for example, as it works to
improve the world’s electricity grids. Being able to predict peak times of energy
use for specific geographic regions will greatly boost service delivery. In addition,
says Dr. Evans, “the long-term vision of the smart grid is to allow consumers to
have more information and control of their energy use.”
OXFORD ECONOMICS 24
To plan for risks, GE Energy and other GE units are now doing more sophisticated
scenario framing and modeling as part of their global strategy process. Dr. Evans
offers examples of scenarios he is working on: “I’m interested in the ‘what if Asia
stumbles’ case. Part of scenario planning is to challenge conventional wisdom;
conventional wisdom now is that Asia is invincible. So I like to run downside
cases and see what the consequences are.”
Often Dr. Evans needs to provide quick analysis as events unfold, as recently
“Part of scenario happened with the devastating earthquake and tsunami that hit Japan. “We
planning is to challenge don’t know the long-term consequences yet. We know the immediate impact on
conventional wisdom; the numbers of gigawatts that have been lost in Japan, but we don’t yet know
conventional wisdom how this plays out through the political process, or in the Middle East. There
now is that Asia is are a range of regions that had plans to build out nuclear energy. Will recent
invincible. So I like to events mean a delay of three weeks, five years, or will those efforts shut down
run downside cases permanently? We are doing that analysis now and preparing for the implications.”
and see what the Despite the need for better business analytics to deal with a more volatile
consequences are.” marketplace, a significant number of companies (33%) do not have a clear
Peter Evans, Director of business intelligence strategy in place. While the vast majority of firms (83%) in
Global Strategy and Planning, emerging markets have already developed proper BI strategies, a surprisingly
GE Energy high degree of companies (43%) in advanced economies are still doing without
them—which could weaken their ability to compete.
Staying secure in a real-time digital world

While the digital economy creates significant opportunities for companies, it also escalates
the threat of breaches in cybersecurity, misuse of intellectual property and reputational
damage from open communication on the web.
The increasing number of mobile devices, for example, creates risks around the protection
of sensitive information such as customer data or intellectual property—in fact, over 60%
of respondents consider the security of information as a very or extremely significant risk,
much greater than those concerned by, for example, speed or consistency of connectivity.
Similarly, executives remain concerned about the risks inherent in putting their data into the
cloud, a fear cited by almost half of respondents. “Regardless of how you approach it, security
cannot be overlooked,” says Bennett Ruiz, executive director of global segment marketing for
AT&T. “Often in the rush to get to the cloud, some organizations look only at the internet, and
that can be risky for mission-critical applications.” Private clouds add an extra layer of security.
Business intelligence, meanwhile, carries with it the threat of making decisions based
on inaccurate or irrelevant data. As Dr. Evans of GE Energy is quick to point out, “Access
to the information has improved, but the ability to sort through that and think about the
interrelationship between the policy, economics and technology—that still resides in
expertise, in judgment. You have to balance speed with the downside risk of being too quick.”
Arguably the technology that creates the greatest angst for executives is social media.
By its nature, social media connects customers more closely, forcing firms to cede a
certain amount of control over brand messaging. It is perhaps for this reason that so many
executives have not yet thought about how to incorporate social media into their strategies.
Executives are right to be concerned: Gartner predicts that at least one G20 nation’s
critical infrastructure will be disrupted and damaged by online sabotage by 2015. This
underscores the need for executives to ensure their digital strategies are safeguarded by
strong cybersecurity measures, and clearly articulated policies and processes.
OXFORD ECONOMICS 25
Firms reorganize to embrace

the digital economy
T
oday’s digital playing field, with its liberalized trade barriers and real-time
market linkages, allows firms to quickly become global competitors. Unlike
most traditional companies in advanced economies whose growth strategies
were first domestic and then multinational, many of today’s startup firms—
particularly those in emerging markets—operate globally from their inception.
To operate in a fast-changing marketplace, where new rivals are unencumbered

Astute Western firms by rigid policies and thinking, astute Western firms are moving away from
are moving away from strict hierarchical decision-making and closer to a network structure that is
strict hierarchical more market-like and organic, not unlike the internet itself. The challenge for
decision-making and today’s large multinationals will be to create an organization that maintains the
closer to a network advantages of size while remaining agile enough to stay ahead of competitors.
structure that is more “The better businesses,” says Dr. Sviokla of PwC, “will be those that figure out
market-like and organic. how to organize their production and people to mirror the new structure.”
Although the benefits will be significant, it won’t be easy: more than one-third of
survey respondents indicate that the complexity of existing infrastructure makes
transformation impractical. And 35% say their firms lack the visionary skills to
define the right strategy.
Figure 15: Obstacles to reorganizing operations

Key To what extent do you consider the following factors as risks to the Digital Transformation
Significant risk of your business? (% respondents)
Large risk Lack of necessary visionary/innovative skills within firm to define the right digital strategy
10 25 36 20 9
Moderate risk
Difficulty finding the skills to implement
Slight risk 5 26 40 23 6
No risk Escalating costs
9 30 40 19 2
Lack of willingness to cannibalize existing revenue streams and business models
10 27 40 17 6
Change management process including related costs (e.g., staff training)
8 24 45 17 6
Complexity of existing infrastructure making Digital Transformation impractical
8 25 44 17 6
Excessive risk in changing technology platforms and infrastructure
9 27 42 17 5
Lack of understanding of the potential benefits
9 24 40 19 8
While one size does not fit all, there are two organizational forms emerging as
successful structures for the new digital playing field.
OXFORD ECONOMICS 26
Globally integrated enterprises

Globalization and technological progress are making the old multinational
structure obsolete. A multinational firm that simply links together a collection
of national businesses under a global umbrella has become anachronistic.
In its place, large international corporations are creating globally integrated
organizations that can locate functions anywhere in the world to take advantage
of low costs, availability of skills or access to natural resources. Advances in
business analytics and information technology also make it possible to monitor
performance and market developments more closely than in the past.
Because of their size, multinational firms are adapting to market change not
through revolution, but evolution. Back in the early part of the decade, IBM
was quick to see how the rise of emerging markets and technological change
would transform client needs. So, Chairman and CEO Sam Palmisano began the
transformation of Big Blue into what he calls the “globally integrated enterprise.”
His first step was to impose a consistent set of processes and standards worldwide
to find efficiencies and foster collaboration. The company then created “global
resource centers of excellence” drawing on the best talent and skills around the
world; for example, financial processing is run out of Brazil. The combination of
an integrated information system with centers of excellence beyond corporate
headquarters allows for more effective decentralized decision-making.
The ROI has been enviable: According to IBM, the move to global integration has
According to IBM, the
already saved the company $5 billion by removing redundancies. The change
move to global integration also has given the century-old firm a new spring in its step: It responds quicker
has already saved the to market shifts, provides higher-quality service and even manages risks better.
company $5 billion by
removing redundancies. To make the new organization work, IBM needed to build up a set of core workforce
capabilities, and relied on technology to get its global teams on board. The firm used
its intranet and social networks to share knowledge and encourage collaboration. For
example, the firm hosted a series of companywide “jam” sessions on its intranet—
two- to four-day, around-the-clock brainstorming events that attracted up to 50,000
employees worldwide to exchange views on predefined topics. Moderators helped
facilitate the online discussion and ensure a good cross-pollination of ideas.
Several years ago, IBM added another twist to its global organization by creating
a “growth markets” group. Headquartered in Shanghai, this unit’s mandate is to
drive growth in emerging markets. The unit has already almost doubled the size
of its operations in key emerging markets such as China, Brazil and India. With
emerging markets now accounting for 21% of IBM’s revenue, the growth markets
group aims to reach 30% by 2015.
Edge-based organizations
But some firms are pushing their organizations beyond global integration to an
even more flexible networked structure: an edge-based organization. Under this
organizational structure, executives and their teams are empowered at the edge of an
organization, where the firm interacts with the market. These edge-based companies
are characterized by their ability to self-organize, widely distribute decision-making
and quickly adapt to market changes. Dr. Sviokla of PwC likens these organizations
to “special force” units, where “everyone has situational awareness, skills to take
action, shared values, and decision rights to empower the edge to take action.”
OXFORD ECONOMICS 27
According to Dr. Sviokla, President Obama was the first politician to use the
internet to create an edge-based organization—and thereby raise more money
than any politician in history and sweep 364 electoral votes. Dr. Sviokla says
that Mr. Obama used the internet to provide his campaign organization with all
the tools needed to self-organize and to get out the message effectively through
digital means.
The Obama campaign sent its constituents constant alerts and updates on
the issues and progress in individual states—complete situational awareness.
Says Dr. Sviokla: “By providing the proper tools to the edge of the organization
to assemble gatherings, send mailings, gather information and coordinate
messaging, campaign managers gave out decision rights that normally would
have been kept closer to the center.” Of course, he adds, “those at the edge of
the fight for Obama had the same shared values as those inside.”
Social media is an important catalyst for the creation of edge-based organizations

Edge-based companies
because it forces executives to rethink how they connect with their clients
are characterized by their and generate demand. Netherlands-based AVG, a software antivirus firm, is
ability to self-organize, one example. Executives realized in early 2009 that social media would be an
widely distribute decision- important part of its strategy, says Jas Dhaliwal, the firm’s head of communities.
making and quickly AVG already understood the power of viral marketing and word-of-mouth—the
adapt to market changes. company was the first to offer a free online antivirus product, and now boasts 110
million users worldwide.
Mr. Dhaliwal is not only responsible for ensuring that communities are active; he
must make sure that the insights gleaned from those discussions find their way
back to the appropriate departments inside the company so that strategies can
be re-evaluated. “It’s my job to go to the executives and internal members of the
team and evangelize social media—really explain how it can help with each part
of their business,” says Mr. Dhaliwal.
That strategy has three legs: feedback, advocacy and support. Feedback opens
two-way communication between AVG and its customers, inciting them to share
opinions regarding product improvements and security issues. Engagement is
a critical source of early-warning business intelligence that hones product and
marketing strategies. Advocacy reinforces online community relationships. It
hinges on learning who customers are, what it is they want and how AVG can
provide solutions. The third leg, support, marshals AVG’s resources to implement
solutions expeditiously. “Today, our customer service teams are fully engaged
within social media, as are our marketing and product teams,” says Mr. Dhaliwal.
The approach has seen some important results. Late in 2010, AVG’s online
community began buzzing about a bug in a separate online security program that
compromised the effectiveness of AVG’s software. AVG’s internal teams sprang
into action immediately, working with the company in question to resolve the
issue. Mr. Dhaliwal says the company is now looking into other ways to embed
social media and analytics into other parts of the business to further support
distributed decision-making. “There are finance- and expectation-based models
we’d like to apply,” he says. “That’s the next stage in our journey.”
OXFORD ECONOMICS 28
CEo imperatives
S
enior executives around the world agree that the recession has accelerated
the transition to a digital marketplace where emerging economies will
increasingly become a center of gravity. These executives need to fully
understand the one-time event we are all witnessing—the creation of a new global
playing field arising from the virtuous circle of technology and emerging market
growth. The winners in this new marketplace will be companies that challenge
their conventional thinking on product innovation, customer engagement,
corporate organization, strategy, business models and the role of technology
within their enterprise. The benefits of global digital transformation are myriad—
yet not without their organizational and business obstacles. But inaction can be
catastrophic to the future of your business.
As the digital economy expands, there are a number of key action points the
The benefits of digital
C-suite should consider to succeed in a future fraught with uncertainty—and
transformation are remarkable opportunity.
myriad—yet not without
their organizational and n Prepare for the East, but protect the West. In 2020, the E7—Brazil, Russia,
business obstacles. India, China, Mexico, Indonesia and Turkey—will account for a greater share
of global GDP than the G7. Companies that do not have strong positions in
But inaction can be
these and other fast-growing markets may fall far behind the curve. These
catastrophic to the
regions are not only producing new potential customers—they are creating
future of your business.
new rivals, many of whom will have a better sense of how meet the specific
needs of low-income and rising middle classes.
These new competitors aren’t content to remain local—the digital economy
enables all companies to be global. As Dr. Sviokla of PwC says, “Everybody
thinks they are going to grow in someone else’s backyard.” Despite their
sluggish growth, the US, Europe and Japan remain the world’s most
stable markets—an attractive target for growing companies in developing
economies. Largely free of legacy infrastructure and blessed with an outsider’s
perspective, competitors from emerging markets can often be more nimble
and responsive—and deliver more affordable products and services.
OXFORD ECONOMICS 29
n Remember that every company today can be a digital competitor.

Advances in cloud computing have made technology far more accessible,
both for customer-facing and back-office operations. It is no longer necessary
to make massive investments in proprietary systems—companies can now
access such resources through the cloud. The rise of on-demand computing
has greatly reduced the capital costs—and therefore the barriers to entry—
associated with becoming a digital company. Be prepared for small companies
in peripheral locations that can compete with your firm by leveraging new
hardware and software with minimal fixed investment.
According to Bennett Ruiz, executive director of global segment marketing
for AT&T, executives will likely adopt a hybrid cloud computing strategy that
combines both private and public clouds. He suggests adopting a policy of
“try, buy and scale,” gradually integrating cloud services into existing internal
processes and IT services. Larger corporations, however, should more rapidly
explore the cloud’s potential for reducing cost, raising flexibility and improving
data flow to compete with a new range of cloud-enabled competitors.
n Make sure you have a forward-looking mobile strategy. The explosive
growth of mobile telephony will open a huge market opportunity for companies
in the years ahead. This is especially true in emerging markets, where the
smart phone will allow many to move straight to the mobile internet just as
the cell phone leapfrogged fixed-line telephone connections. Remember
these mobile digital consumers will in many cases be inaccessible through
traditional, PC-based web environments.
This is not merely about creating a new app. Mobile marketing opens up an
In shifting the focus important revenue channel and helps firms penetrate a new set of emerging
market customers—many of whom do not have access to the internet through
from West to East,
other means. Mobility even promises new ways to connect to the physical
executives may
world. Location-based services, for example, can increase foot traffic to a
discover new
brick-and-mortar store. In just a short time, Foursquare brought together
approaches to
online social networking, product comparison and gaming to amass a traffic-
organization and generating customer base that could soon exceed one billion.
process innovation.
n Think innovatively about innovation. Innovation is no longer just about
making new discoveries in a Western lab, introducing them in high-income
markets and then diffusing them to emerging markets when the costs come
down. In a global economy where the East is taking center stage, companies
need to re-evaluate the way they approach product and service development.
Reverse innovation can help firms design products and services for poorer
economies and then roll them out in cost-conscious developed markets.
At the same time, however, do not lose sight of the rapid growth of the high-
net-worth segment in emerging markets. For example, Lamborghini expects
China to be the biggest market for its luxury sports cars in 2011. In shifting
the focus from West to East, executives may discover new approaches to
organization and process innovation. IBM, for example, cut costs and boosted
sales from relocating specific functions to emerging markets. Such thinking
can drive greater efficiencies and performance across the firm.
OXFORD ECONOMICS 30
n Embed social media into all parts of your business. Many executives
still do not understand the various uses of social media. Even worse, some
think it is irrelevant to their business. This is a blind spot in the industrial
world, where only one-third of executives believe mobility and social media
will become a standard tool in five years, compared with two-thirds of their
counterparts in emerging markets.
Social media is a versatile tool that can improve product development,
facilitate internal collaboration, mitigate risks and boost customer sales
and retention. As firms like AVG and Forbes have learned, taking a holistic
approach to social media can reap substantial rewards not only in raising
customer goodwill and loyalty, but in tangible bottom-line increases. In today’s
networked environment, customers follow the advice of online colleagues far
more readily than corporate marketing messages. Executives must ensure
that insights gleaned from virtual conversations find their way back to the
departments who can most benefit.
n Anticipate global market shifts—in real time. As the pace of business
accelerates and the cost of data storage falls, business analytics can dig
deeper into data for early identification of market trends. Equally important,
such tools can now help executives stress-test and even future-proof their
Gartner predicts that at businesses through scenario and predictive analysis.
least one G20 nation’s Successful business analytics depends on the quality of the data fed into
critical infrastructure the system. Timely and reliable systems for capturing, pooling and cross-
will be disrupted and checking data are an essential prelude to mining them for patterns and trends.
damaged by online If your business intelligence system does not actively draw on the internet, or
sabotage by 2015. How leaves data in silos, you risk falling behind your competitors.
safe is your corporation? n Install safeguards to manage next-generation business risks. The shift
of economic power from West to East brings with it higher uncertainty.
Mired under the biggest debt burden since World War II, advanced markets
are struggling to avoid continued high unemployment, further economic
slowdowns and even sovereign defaults. While emerging markets are in
far better shape, their fast-growth trajectory ushers in economic worries of
overheating and asset bubble bursts, along with concomitant geopolitical,
regulatory and infrastructure risks.
The rise of the digital economy also exposes companies to the escalating threat
of breaches in cybersecurity, misuse of intellectual property and reputational
damage from open communication on the web. Consider this: Gartner predicts
that at least one G20 nation’s critical infrastructure will be disrupted and
damaged by online sabotage by 2015. How safe is your corporation?
OXFORD ECONOMICS 31
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Oxford Economics (2011). The New Digital Economy: how it will transform business (31 p.) [s.l.

]: Oxford Economics. (100385)

The New Digital Economy

Executive summary. ............................................................................................................... 2

The virtuous circle of technology and growth. ...................................................... 4

The global digital economy comes of age............................................................... 6

Industries undergo digital transformation............................................................. 10

The digital divide reverses. ............................................................................................. 15

The emerging-market customer takes center stage....................................... 18

Business shifts into hyperdrive.................................................................................... 22

Firms reorganize to fully embrace the digital economy................................ 26

Economic growth and technology are inextricably linked. Current economic

The virtuous circle of

Though sometimes thought of separately, economic growth and technology are

In today’s interconnected environment, this virtuous circle can lead to rapid

Governments in these countries are nurturing growth by leveraging state-of-the-

Against this backdrop, it is no surprise that executives who participated in our

The global digital economy

Figure 1: Digital megatrends

0% 10% 20% 30% 40% 50% 60%

Following mobility, business intelligence is expected to provide the greatest

As a result of these benefits, 46% of companies in our survey plan to invest

Figure 2: Where executives will invest in technology

Financial Life Retail &

Mobile technology 57% 51% 66% 52% 70% 59%

Business intelligence 39% 44% 26% 50% 38% 30%

Cloud computing 38% 39% 29% 49% 17% 47%

Social media 29% 17% 42% 15% 51% 33%

Collaborative technologies 23% 28% 26% 22% 17% 23%

Telepresence technology 14% 21% 11% 13% 8% 8%

* Technology, Information, Communication and Entertainment

Social media, meanwhile, has become a cultural phenomenon. Facebook now

Our survey uncovered a growing number of firms—such as GE Energy, Forbes

Sizing the market

Figure 3: Internet users worldwide

2,246 193 278

Industries undergo digital

Figure 4: Industries most affected by digital transformation

Entertainment, media and publishing

Retailing and consumer products

Financial services—retail and commercial banking

Financial services—capital markets

Financial services—asset management

0% 10% 20% 30% 40% 50% 60% 70% 80%

Media, entertainment and publishing

To maintain relevance in an era where anyone can be a publisher, and to reach

Figure 5: New directions in worldwide media advertising (in billions)

Online ad spending $55.2 $61.8 $68.7 $79.0 $87.4 $96.8

% change 2.0% 11.9% 11.1% 15.0% 10.6% 10.8%

% of total media ad spending 11.9% 12.8% 13.9% 15.1% 16.1% 17.2%

Improving patient outcomes and greater efficiency hinges on coordinating patient

Saxo’s digital approach resonates with emerging market investors—more than

According to Mr. Maasland, one of the most dramatic shifts in banking is

As testament to the merits of an online strategy, business flourished in 2010.

Technology as a revenue driver

The digital divide reverses

Figure 6: Technology adoption in emerging vs. developed world

Social media (e.g. Facebook, LinkedIn, Twitter etc.)

0% 10% 20% 30% 40% 50% 60%