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Taking leadership in a digital economy


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This whitepaper outlines the expected rate of growth in the Australian digital economy and highlights the choices incumbent corporations face as a result.

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Taking leadership in a digital economy

  2. 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 Telstra1
  3. 3. A NOTE FROM GIAMThe world is changing. The internet has transformed the Australian economy over the last10 years, and is poised to play an even greater role in our daily lives and businesses asAustralia 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 thatdisruption is coming before it’s too late? Will you know your competitor in a global marketthat disrupts existing industry & country boundaries?As a nation, we need to consider whether we are simply building better ways ofdelivering the same products and services. Or are we creating truly new and differentbusiness models? Companies that miss this distinction are at risk of becoming irrelevantin the digital economy.Realistically, digital creates more opportunities than dangers. As leaders, the choices wemake will be crucial in whether Australia takes a position of leadership at the forefront ofthis change.Our country’s future prosperity will depend on visionary leadership, enabling our Australianentrepreneurial spirit, becoming more agile in our decision making and investing in thetalent required to support the digital economy.As with all of our work at Deloitte, we hope that this white paper enhances your capacity toact. In the digital age, how quickly and how thoughtfully we act will determine our future.Giam SwiegersChief Executive OfficerDeloitte Australia Taking leadership in a digital economy 2
  4. 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. 5. CONTENTSThe digitisation of our economy continues at pace 5Immense disruption ahead 9Incumbents must respond 15How incumbents win 20Conclusion 25 Taking leadership in a digital economy 4
  6. 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 countries5
  7. 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 Averagea 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 NPS15 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 PE Ratio TTM operators Source: Y-charts 2012 Inveain 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. 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 (, 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 serviceGoogle 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 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. 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 Australiantry 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 anan 100 90 80 60 30 54 70 37 22 25 34 60 10 31 26 Digital potential 26 347 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 -110 Taking leadership in a digital economy 8
  10. 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. 11. IMMENSE DISRUPTION AHEADFigure 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 economySource: Deloitte 2012 Taking leadership in a digital economy 10
  12. 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. 13. IMMENSE DISRUPTION AHEAD Figure 9: Top 15 online shopping sites accessed by Australians from home during June 201133%of theAustralian eBay 4,297economy Amazon 1,623 Woolworths 1,359 Gumtree 905 BIG W 784 GetPrice Network 767 Network 737 721 662 Catch of the Day 655 620 JB Hi-Fi 609 Kmart Australia 60818% 573of theAustralianeconomy 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. 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. 15. IMMENSE DISRUPTION AHEAD SURFSTITCHIt’s not about what youown but what you doIn the old economy a company’s valuetends to be proportional to the value of is an online specialityits assets. Whilst intangibles were always retailer founded in 2008. SurfStitch.present, the majority of commercial activity com provides shoppers with overrequired capital goods that could be valued 20,000 items and 318 brands includingand held on a company’s balance sheet. unique and hard to get labels, providing significantly more choice than manyA digital business model on the other hand proprietary surf wear andis much more reliant on the capability of department stores.its people. The company’s value is morelikely to be a direct function of the value Surfstitch is on track to reach revenuesit generates for its customers. In a digital of $30 million24 and in 2009 Billabongbusiness model, there are few structural International Ltd acquired a minorityadvantages and lasting organisationalvalue 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’sand derive comfort from the perception of most highly trafficked e-commerce“lasting value”. site, clocking up 30 million site visits and over 250 million pageIt requires a significant mind shift to views since launch.appreciate the value of a business modelwhere the “assets” walk out of the doorevery day and corporate leaders have tocreate a work environment those assetschoose to return to the next morning. Taking leadership in a digital economy 14
  16. 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. 17. INCUMBENTS MUST RESPOND TELSTRA CROWDSUPPORT TRANSFORMING SERVICE THROUGH THE CROWDDigital customer serviceDigital technologies promise radically lowercost and more effective customer servicethan traditional means.Even with the rapid rise of the mobile web In 2011, Telstra launched itsthere is still a lot of life left in the traditional Crowdsupport customer servicecorporate website, provided it is designed platform, a community forum wherefor customer service. Most corporate sitesstarted life as “digital brochure racks” with users, including Telstra customers andlittle real transactional service functionality. others, answer questions and helpProviding customers with rich, real time and each other. Crowdsupport enticeseasy to use functions can both reduce cost community members with elementsand improve service by putting customers of “gamification”, including badges,more in control of their affairs. status levels and user awarded “kudos” points. The fast growingMobile applications and social media service already attracts over 60,000platforms can provide effective extensions unique visitors per week, saving costto web based service portals. Aggressive and improving customer service.adopters see significant reductions in theircall centre volumes and an overall drop in crowdsupport.telstra.comservice cost as a result.CollaborationIn addition to customer facing tools,digital platforms can enhance howemployees collaborate and work moreeffectively to service their customers.The “social corporation” has been subjectto extensive debate and in some waysthere is no ideal model quite yet. Onething is for sure, though, if an incumbentdoes not already experiment with internalnetworks and digital collaboration tools,it will be too late to catch up later. Taking leadership in a digital economy 16
  18. 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