THE HYPERCONNECTED ECONOMY: PHASE HYPERCONNECTED ORGANISATIONS HOW BUSINESSES ARE ADAPTING TO THE HYPERCONNECTED AGE The hyperconnected economy: Phase Hyperconnected organisations Contents About this study Executive summary Introduction Understanding the challenge Organisational adaptation Market disruption 11 Conclusion 13 Appendix: Survey results 14 © The Economist Intelligence Unit Limited 2015 The hyperconnected economy: Phase Hyperconnected organisations About this study The hyperconnected economy is a multi-phase research programme conducted by The Economist Intelligence Unit (EIU) and sponsored by SAP Hyperconnectivity is defined as the sharp increase in the interconnectedness of people, organisations and objects that has resulted from three consecutive waves of technology innovation: the Internet, mobile technology and the Internet of Things (IoT) This report investigates its impact at an organisational level and draws on the following two research methods A global survey of 561 executives Survey respondents were drawn from a range of industries, including 16% from financial services, 13% from manufacturing and 11% from IT and technology One-third of respondents are of C-level seniority or higher; one-third are senior vice-presidents, heads of department or of equivalent seniority; and the remaining one-third are other senior managers representing a range of industries Just over half of respondents (58%) work for companies with annual revenues of up to US$5bn; the remaining © The Economist Intelligence Unit Limited 2015 42% have annual revenues above US$5bn The geographical split is as follows: 30% North America, 30% Europe, 30% Asia-Pacific, and the remainder from the rest of the world A series of expert and executive interviews The EIU interviewed the following experts and executives for this report (listed alphabetically): l Phil Abram, chief infotainment officer, GM l Andrew Brem, chief digital officer, Aviva l Jim Buczkowski, director of electronics and electrical systems engineering, Ford l David McCorquodale, UK head of retail, KPMG l Mark Curtis, chief client officer, Fjord l Davide Strusani, assistant director, economic consulting, Deloitte The Economist Intelligence Unit would like to thank these interviewees for their time and insights The report was written by Michael Kapoor and edited by Pete Swabey The hyperconnected economy: Phase Hyperconnected organisations Executive summary Hyperconnectivity is high on the corporate agenda The majority of executives believe that failure to adapt to hyperconnectivity—the growing interconnectedness of people, organisations and machines that results from the Internet, mobile technology and the Internet of Things—is the biggest risk their organisation faces Executives generally feel positive about hyperconnectivity—most say it presents more opportunities than threats, and they believe they are doing a good job of adapting to it But while experts warn of the need for substantial change to meet the challenges of hyperconnectivity, only about one in five survey respondents expect to restructure “radically” as it intensifies in future These are the findings of a study by The Economist Intelligence Unit, sponsored by SAP The study, which is based on a global survey of 561 executives, examines their views on hyperconnectivity and its impact on their organisation The key findings are as follows: Adapting to hyperconnectivity is a matter of survival, most executives agree Six out of ten survey respondents agree that failing to adapt to hyperconnectivity is the biggest challenge their company faces This view was especially common among retailers, reflecting the considerable disruption seen in this sector in the last decade © The Economist Intelligence Unit Limited 2015 Hyperconnectivity is nevertheless viewed positively, and organisations believe they are adapting well Eight out of ten respondents believe that hyperconnectivity has been beneficial for their organisation, and only one-third say it presents more threats than opportunities This may reflect the fact that its impact within organisations has been broadly positive by boosting collaboration, for example However, the extent to which organisations have adapted is limited Under half of respondents have introduced digital skills training, and while experts predict that it calls for deep organisational change, just under one in five (19%) expect to reshape their business “radically” in response to hyperconnectivity The Internet is still seen as having more potential to be revolutionary than mobile technology and the Internet of Things (IoT) This is true even among industries such as manufacturing, in which embedded IoT connectivity is expected to have far-ranging implications This suggests that companies expect the future impact of hyperconnectivity to be a continuation of historical trends, rather than introducing new and unprecedented changes The hyperconnected economy: Phase Hyperconnected organisations Executives see digital offerings from established competitors—not start-ups—as their biggest source of competitive pressure The threat of disruption by a Silicon Valley start-up is one of the most widely discussed challenges businesses face today, but in fact more respondents say they have felt severe or moderate competitive pressure from the digital strategies of their established competitors © The Economist Intelligence Unit Limited 2015 Hyperconnectivity is seen as important, but there are signs of inertia or complacency Experts interviewed for this report warn of the need for “deep” and “fundamental” organisational change, and the risk of “irrelevance” While they acknowledge hyperconnectivity’s significance, most respondents give few signs of this kind of radical action Time will tell if their confidence is merited The hyperconnected economy: Phase Hyperconnected organisations Introduction It is not yet known how many smart watches—a recent high-profile extension of hyperconnectivity— Apple has sold since they were introduced in April 2015 Market watcher Slice Intelligence, which analyses US consumer spending, believes the number to be around 2.5m worldwide, which suggests that annual sales will be around 11m units This is not a bad start for a new product, but it’s a drop in the ocean compared with the 60m-plus iPhones sold in the first quarter of 2015 alone Observers are eagerly watching for clues whether the Apple Watch will be a short-lived toy, with limited functionality and a fierce price tag, or whether it will follow the lead of earlier Apple products, from the iPod to the iPad, and create a new market segment Mark Curtis, chief client officer at service-design consultancy Fjord, is among the believers Sales will be big, he expects, “because you don’t have to take them out of your pocket” It’s the sort of simple advantage that has the potential to change consumer behaviour—and in so doing change the face of business In October 2014 The Economist Intelligence Unit (EIU) published The hyperconnected economy, an examination of how the rapid increase in the interconnectedness of people, organisations and © The Economist Intelligence Unit Limited 2015 objects seen in the last 30 years is affecting the global economy It found that from a global perspective, this hyperconnectivity is a tide that raises all boats—in fact, hyperconnectedness is expected to be especially valuable for developing economies But for organisations, it poses challenges as well as opportunities Look no further than the industries disrupted by online media delivery or mobile apps, such as publishing or camera manufacturing, to see how high the stakes are In the second phase of the hyperconnected economy programme, therefore, we investigate the organisational impact in more detail through a survey of executives and a series of expert interviews (see “About this study”) This reveals that businesses are well aware of the significance of hyperconnectivity—indeed, the majority believe that adapting to it is the key challenge their organisation faces But there are also signs of a degree of complacency The majority of companies believe they are doing a good job of adapting to hyperconnectivity Yet while experts warn of the need for substantial changes, there is little evidence in our survey sample that radical measures are under way The hyperconnected economy: Phase Hyperconnected organisations Understanding the challenge Organisations are well aware of how significant hyperconnectivity is for their future, this study reveals Nearly six out of ten (59%) respondents agree that failing to adapt to hyperconnectivity is the biggest danger faced by their company Predictably, its importance is most keenly felt in those industries that have been most acutely affected by the Internet so far More than twothirds (68%) of retailers say that the need to adapt to hyperconnectivity is their company’s biggest challenge, for example, with a well above-average 44% saying that it “presents more threats than opportunities” (compared with one-third of all respondents) This is not surprising given the disruption caused to their industry over the past decade or more A wave of retailers, from the bookseller Borders to the video chain Blockbusters, has been driven out of business as sales have migrated to the net More recently, retailers have been struggling to get to grips with omnichannel retail, linking different sales platforms such as physical stores, the Internet and smartphones These have often been launched as separate divisions and profit centres, leading to unfortunate outcomes, such as the refusal by a retailer, for example, to accept at a physical store returned items that had been bought online Addressing this situation requires “fundamental change”, says David McCorquodale, head of retail Chart The majority of firms believe that failure to adapt to hyperconnectivity is their organisation’s biggest risk Failure to adapt to hyperconnectivity is the biggest risk that our organisation faces (% respondents) Agree Disagree Don’t know Consumer goods 45 33 21 Financial services 64 24 12 Healthcare, pharmaceuticals and biotechnology 55 33 13 IT and technology 67 29 Manufacturing 60 30 10 Retailing 68 21 12 Source: The Economist Intelligence Unit survey, May 2015 © The Economist Intelligence Unit Limited 2015 The hyperconnected economy: Phase Hyperconnected organisations at KPMG Sometimes, even established retailers are at a surprisingly early stage here UK retailer Marks & Spencer only took control of its own website last year; previously its online sales had been outsourced to Amazon Now, it has relaunched some of its stores to offer omnichannel services, with iPad-wielding sales assistants and Internet kiosks allowing customers to buy items online if they are not available in-store Retail remains one of the starkest examples of the upheaval that can be wrought by rapidly changing consumer behaviour enabled by new connectivity, but the same argument applies to many other sectors Some of these sectors may be underestimating hyperconnectivity’s disruptive potential, the survey suggests Only 45% of consumer goods companies, for example, consider hyperconnectivity to be their greatest threat (see chart 1) In fact, these companies are arguably among the most exposed © The Economist Intelligence Unit Limited 2015 Hyperconnectivity is disrupting the retail channels through which they reach customers It is also assisting the globalisation of manufacturing, which affects the goods they sell, and it is empowering customers to provide feedback over the Internet and social media, which affects everything from branding to marketing Nike, for example, has transformed itself from a sportswear maker to a fitness and lifestyle brand, using social media to foster communities and driving customer engagement through mobile fitness apps Car companies are integrating digital connectivity both into their production and into the products themselves, thereby improving component design and mechanical reliability Most companies have acknowledged the scale of the challenge posed by hyperconnectivity, the survey reveals However, it also suggests that they have not acknowledged how much they will need to change The hyperconnected economy: Phase Hyperconnected organisations Organisational adaptation The three components of hyperconnectivity, as defined in this study, are the Internet, mobile technology and the Internet of Things It is not surprising that for the majority of respondents the first of these—the Internet—has had a revolutionary or significant effect on their organisation so far (84%, versus 71% for mobile and 71% for the IoT) It is surprising, however, that respondents are most likely to say that the Internet will have such an effect in the next three years (80%, versus 75% for mobile and just 57% for the IoT) Even among manufacturers, only 61% believe the IoT will have a revolutionary or significant effect This is especially surprising given the transformational impact that the embedded systems are expected to have both on the manufacturing process and on the resulting products This suggests that respondents might be more focused on the hyperconnectivity trends they know and understand than the ones that are still emerging This helps to explain why respondents are remarkably confident about their progress in adapting to hyperconnectivity Overall, a significant majority (69%) say they are doing a decent job of adapting to hyperconnectivity—even in the least confident sector (healthcare), around two-thirds of respondents reckon they are adapting well This confidence may also reflect the fact that for many respondents, hyperconnectivity has had a © The Economist Intelligence Unit Limited 2015 positive organisational impact so far For example, 45% believe that collaboration, both within and between divisions, has improved as a result of hyperconnectivity The most commonly cited organisational impact of hyperconnectivity is that business processes have accelerated, as identified by 47% of respondents Companies appear to be reacting to this acceleration of pace through automation: the most common organisational response to hyperconnectivity is to have automated business processes (46% of respondents) Nonetheless, respondents’ bullishness masks fairly limited progress For example, only 39% have introduced digital skills training With companies from banks to shops saying that their offerings need to span web and physical stores and manufacturers talking of the importance of digitalisation to improving efficiency, digital skills might be expected to be standard across industries by now Many respondents believe that the continued growth of hyperconnectivity will change power dynamics in the organisation, with 45% saying the control of central management will be reduced This is a positive indication, given the recommendation of Fjord’s Mr Curtis that companies need to become more agile, with less rigid hierarchies, if they are to evolve at the pace of hyperconnectivity Mr Curtis likens the process to the different states of matter Many companies are still in a solid The hyperconnected economy: Phase Hyperconnected organisations On autopilot “Infotainment has become a core source of competitive advantage for the auto industry,” according to Phil Abram, chief infotainment officer at US car manufacturer General Motors Now that engine and component design are increasingly standardised and fuel economy is regulated, in-car information and entertainment systems are among the few ways in which carmakers can differentiate their products these days GM is currently rolling out 4G connectivity across its vehicle range worldwide, offering its customers more rapid Internet access on the move Mr Abram says that “the essential elements of an infotainment system not vary by [geographical] market, although the detail components might” Another iconic US car maker, Ford, gained a competitive edge by launching an effective infotainment system back in 2007, ahead of many of its rivals However, it damaged its reputation with a glitch-ridden upgrade some time later, which is now being replaced by a simpler, more reliable system In reality, both companies are largely outsourcing the work for these infotainment systems to companies like Microsoft, which have developed software that allows people to link their smartphones to the car’s own systems The carmakers themselves are concentrating many of their own resources on the information side, feeding car-performance information to drivers state, stable and predictable but slow to react to change More advanced firms have become fluid, with adaptable structures that can flow into new areas as they emerge The real need, he says, is for companies to become like gas—formless beasts that exist to cater for constantly changing customer demand Indeed, hyperconnectivity calls for “deep organisational change”, according to Mr Curtis However, only 19% of survey respondents believe © The Economist Intelligence Unit Limited 2015 and dealers to allow for timely maintenance, and to their own development teams so that real information continuously informs product development and production According to Jim Buczkowski, Ford’s director of electronics and electrical systems engineering, one challenge is the need to sieve the mass of information now available from in-car sensors to extract that which is usable Ford hired in a chief data and analytics officer at the end of last year to co-ordinate these efforts in what Mr Buczkowski describes as a “company reorganisation” In other words, these companies are putting some “meat on the bones” of theories of smart production and product development as they start to get to grips with analysing the wealth of data they can now generate They are also keeping a keen eye on developments from tech competitors such as the search engine Google, which has a project to develop a driverless car GM has worked with Google (and Apple) on bringing phone integration to its vehicles Phone integration allows users to interact with select applications from their smartphones through the vehicle systems (steering wheel controls, touch screen, etc.) “We make sure that we can change with the market by building platforms,” he says, adding that driverless cars could completely change the market for everything from commuter cars to taxis Rather than fighting to protect its existing customer base, GM plans to ensure that it has the products to sell to the new type of customer they will have to restructure “radically” The same proportion (19%) has introduced a chief digital officer (CDO) There is some evidence to suggest that appointing an executive to lead digital activities is a growing trend: the CDO Club (a global network of chief digital officers) says that the number of CDOs is doubling each year—to 1,000 worldwide in 2014 and an expected 2,000 this year US motor giant General Motors, for example, The hyperconnected economy: Phase Hyperconnected organisations Market disruption Much has been written about the disruptive potential of digital companies, from big retailers such as Amazon and eBay to person-to-person platforms such as Airbnb, a site allowing people to rent out their houses to people who might otherwise choose a hotel The impact of these companies has been strong, driving scores of shops, magazines and indeed hotels to the wall as they lose sales to online competitors Nonetheless, our survey finds that executives are more concerned with competition from existing companies than with being wiped out by a wave of new-tech upstarts: some 57% say that they have faced notable competitive pressure from digital products launched by established companies, compared with less than half who feel pressure from digital start-ups Respondents expect competition on both fronts to grow in future This is not as surprising as it might seem at first glance While the likes of Amazon and Airbnb are highly visible owing to their novelty, in many industries established players remain dominant In these sectors, the main contribution of digital start-ups has been to force companies to adopt digital practices Supermarkets offer an example In many countries, online groceries were first launched by Internet-only brands, such as Ocado in the UK As time went on, supermarkets launched their own Internet-based grocery services Online sales still account for only a small proportion of grocery shopping, but the big supermarket chains, from 11 © The Economist Intelligence Unit Limited 2015 Carrefour in France and Asia to Walmart in the US, are spending heavily on their own online offerings These operate in parallel with services such as Click & Collect, which exploit their big store networks and provide an advantage over Internet-only retailers such as Amazon The strategic significance of such moves online is evident in the fact that supermarkets appear to be underpricing this service According to HSBC’s retail analyst Dave McCarthy, the true cost of a home delivery is around £20 (about US$30), whereas supermarkets typically charge £3-4 In the UK alone, he estimates that this underpricing costs the major supermarket chains £100m a year Clearly, though, supermarket retailers consider this burden to be preferable to the losses suffered by rivals which are only now struggling to break into the online market It is a similar story in other sectors International banks, from HSBC to Citibank, have started to offer smartphone apps allowing people to make payments and complete other transactions from mobile devices Other sectors of the financial services industry are following suit Insurance, for example, has lagged behind banking to date, but that is beginning to change as the sector is waking up to the competitive consequences of hyperconnectivity says Mr Brem at Aviva “It’s only a matter of time before a digital disrupter hurts insurers,” he says, pointing to the impact of digital start-ups from PayPal to the taxi The hyperconnected economy: Phase Hyperconnected organisations Chart Respondents are more likely to see digital offerings from traditional competitors as sources of severe or moderate competitive pressure than start-ups How you expect the following to affect competition in the next three years? (% respondents) Will create severe competitive pressure Will create moderate competitive pressure Start-ups driven by digital technology 25 Will create limited competitive pressure 33 Digital offerings from our traditional competitors 23 Will create no competitive pressure Don’t know / not applicable 20 17 43 Established companies that are using digital technology to enter our market(s) for the first time 22 35 20 25 13 Source: The Economist Intelligence Unit survey, May 2015 service Uber “With Uber, it’s one click and your car is on its way You can see it approach on a map You know who your driver is No cash, no hassle People will start to resent firms that not offer this [kind of] convenience.” He points out that digital has already transformed many areas of finance, from payments to lending and investing, but that insurance has yet to embrace the change Customers now expect a choice of ways to interact with their insurer or broker, in person, over the phone, online or through chat rooms That means insurers must join up their services in the same way as omnichannel retailers Mr Brem adds that “we have a mass of data allowing us to personalise offerings to customers” Motorists can use data from their cars to show that 12 © The Economist Intelligence Unit Limited 2015 they are safe drivers, reducing premiums, while homeowners and people buying health insurance can be monitored to show their risk levels, allowing them to take out cover tailored to their needs and lifestyles “It’s a great opportunity—and we will become irrelevant if we don’t take it.” Fortunately, just as hyperconnectivity exposes companies to new sources of competition, it also allows them to exert some pressure of their own Nearly half of respondents (47%) say their organisations have reacted to the competitive pressure resulting from hyperconnectivity by entering new markets—far more than those who have lowered prices (28%) or exited the market (18%), for example Meanwhile, 41% say hyperconnectivity has allowed them to identify new markets that are suitable for them to enter The hyperconnected economy: Phase Hyperconnected organisations Conclusion Our study shows that companies are well aware of the significance of hyperconnectivity The unprecedented uptick in interconnectedness that began with the Internet, was extended by mobile technology and now continues with the Internet of Things is not just a technological trend—it is one of the era’s defining characteristics It’s little wonder that companies see adapting to it as their greatest challenge Their confidence in their ability to that should not be dismissed out of hand Compared with the aftermath of the dot-com crash, when anyone making grand claims about the Internet was treated with suspicion, there is now widespread acknowledgment of the significance of digital technology It stands to reason, therefore, 13 © The Economist Intelligence Unit Limited 2015 that organisations have made some progress in putting it to use However, the consensus among experts in the field is that gradual progress will not be enough to meet the growing competitive pressure that companies will encounter as hyperconnectivity intensifies They believe radical restructuring is in order—and yet only one in five survey respondents expect to undertake such an endeavour This implies a deficit in leadership Whether or not they appoint an executive with specific responsibility for digital business, organisations will only effect substantial change if it is led from the top The hyperconnected economy calls for hyperconnected leaders The hyperconnected economy: Phase Hyperconnected organisations Appendix: Survey results Percentages may not add to 100% owing to rounding or the ability of respondents to choose multiple responses In which of the following business functions does the Internet play a crucial role at your organisation? Select all that apply (% respondents) Finding new customers 80 Communicating with customers 80 Working with suppliers 73 Managing internal operations 73 Developing and delivering products and services 73 Collaborating internally 72 In which of the following business functions does mobile technology play a crucial role at your organisation? Select all that apply (% respondents) Communicating with customers 68 Collaborating internally 68 Managing internal operations 53 Developing and delivering products and services 53 Working with suppliers 50 Finding new customers 42 14 © The Economist Intelligence Unit Limited 2015 The hyperconnected economy: Phase Hyperconnected organisations In which of the following business functions does the Internet of Things (IoT) play a crucial role at your organisation? Select all that apply (% respondents) Developing and delivering products and services 46 Working with suppliers 41 Managing internal operations 40 Collaborating internally 37 Finding new customers 32 Communicating with customers 32 In which functions you expect the Internet to play a crucial role in three years’ time? Select all that apply (% respondents) Finding new customers 77 Communicating with customers 77 Working with suppliers 75 Developing and delivering products and services 74 Collaborating internally 73 Managing internal operations 73 In which functions you expect mobile technology to play a crucial role in three years’ time? Select all that apply (% respondents) Communicating with customers 74 Collaborating internally 67 Managing internal operations 61 Working with suppliers 60 Developing and delivering products and services 59 Finding new customers 57 15 © The Economist Intelligence Unit Limited 2015 The hyperconnected economy: Phase Hyperconnected organisations In which functions you expect the Internet of Things (IoT) to play a crucial role in three years’ time? Select all that apply (% respondents) Developing and delivering products and services 59 Managing internal operations 50 Communicating with customers 49 Working with suppliers 49 Finding new customers 45 Collaborating internally 45 How would you describe the impact that the Internet, mobile technology and the Internet of Things (IoT) have had on your organisation so far? (% respondents) Revolutionary impact Significant impact Limited impact No impact Don’t know / not applicable Internet 44 40 11 Mobile 24 47 18 IoT 18 23 27 12 20 What impact you expect them to have over the next three years? (% respondents) Revolutionary impact Significant impact Limited impact No impact Don’t know / not applicable Internet 34 46 13 Mobile 33 42 14 IoT 31 26 18 18 Do you agree with the following statements? (% respondents) Agree Disagree Don’t know / not applicable Hyperconnectivity has been beneficial for my organisation 86 7 Hyperconnectivity has been beneficial for my industry 83 Hyperconnectivity presents more threats than opportunities 30 56 13 Failure to adapt to hyperconnectivity is the biggest risk that our organisation faces 59 30 11 My organisation is doing a good job of adapting to hyperconnectivity 69 16 © The Economist Intelligence Unit Limited 2015 18 13 The hyperconnected economy: Phase Hyperconnected organisations To what degree have the following factors placed competitive pressure on your firm in the last three years? (% respondents) Have created severe competitive pressure Start-ups driven by digital technology 17 Have created moderate competitive pressure Have created limited competitive pressure 32 Have created no competitive pressure 23 Digital offerings from our traditional competitors 17 Don’t know / not applicable 22 40 29 Established companies that are using digital technology to enter our market(s) for the first time 14 35 27 10 18 And how you expect them to affect competition in the next three years? (% respondents) Will create severe competitive pressure Start-ups driven by digital technology 25 Will create moderate competitive pressure Will create limited competitive pressure 33 Will create no competitive pressure 20 Digital offerings from our traditional competitors 23 17 43 Established companies that are using digital technology to enter our market(s) for the first time 22 35 Don’t know / not applicable 20 25 13 How has your organisation adapted to the competitive pressure resulting from hyperconnectivity? Select all that apply (% respondents) Lowered prices 28 Lowered margins 28 Entered new markets 47 Exited markets 17 Divested divisions 19 Acquired one or more competitors for their digital capabilities 26 None of the above 14 Don’t know 17 © The Economist Intelligence Unit Limited 2015 The hyperconnected economy: Phase Hyperconnected organisations Which of the following strategies have you adopted as a result of hyperconnectivity? Select all that apply (% respondents) Diversified our channel partners 38 Used digital channels to enter new markets (ie, sell new categories of product or service) 38 Launched products or services that are only available through digital channels 35 Adopted dynamic pricing for sales through digital channels 29 Sold directly to customers for the first time 25 Offered prices that are only available through digital channels 25 None of the above 12 Don’t know How you think the continued growth of hyperconnectivity will affect your organisation’s position within your industry in the future? Select all that apply (% respondents) Digital channel partners will become the dominant force in our markets 34 We will acquire one or more digital start-ups 31 Our market share will be significantly reduced as a result of digitally-enabled competition 19 We will merge with a more digitally capable organisation 17 We will divest or close production and focus on distribution 15 We will divest or close distribution and focus on production 14 None of the above 19 Don’t know What impact has hyperconnectivity had on global competition in your industry? Select all that apply (% respondents) Hyperconnectivity has: Lowered barriers to entry for foreign companies in the developed economies in which we operate 33 Lowered barriers to entry for foreign companies in the developing economies in which we operate 30 Boosted local competition in the developing economies in which we operate 35 Boosted local competition in the developed economies in which we operate 32 Helped us identify new markets that are suitable for us to enter 40 None of the above 11 Don’t know 18 © The Economist Intelligence Unit Limited 2015 The hyperconnected economy: Phase Hyperconnected organisations What impact has hyperconnectivity had on your supply chain so far? Select all that apply (% respondents) Hyperconnectivity has: Improved our ability to find suppliers from around the world 34 Improved our ability to select suppliers competitively 39 Improved our ability to work with international suppliers 38 Reduced our supply costs 35 Increased the range of materials we can purchase through our supply chain 27 Increased visibility into our supply chain 33 Increased the complexity of our supply chain 20 Improved the reliability of our supply chain 26 None of the above Don’t know What impact you think the continued growth in hyperconnectivity will have on your company’s global business and its supply chain? Select all that apply (% respondents) Declining barriers to market entry will help us grow internationally 34 Declining barriers to market entry will place us under increasing pressure in our established markets 39 An increasingly globalised supply chain will allow us to reduce costs significantly 45 An increasingly globalised supply chain will expose us to greater risk 26 Increasing demand from global markets through digital channels will require us to expand globally 27 Increasing automation of supply chain transactions will expose us to greater risk 16 What impact has hyperconnectivity had on your relationship with customers? Select all that apply (% respondents) Customers mostly hear about us online 29 Customers typically check online reviews or social media before purchase 38 Our online reputation is the biggest influence on customer perception of our company 34 We are reaching customers around the world for the first time through digital channels 31 Digital channels allow us to search proactively for customer demand 35 Digital channels have allowed more direct contact between customers and employees 39 Digital channels are our principal means of communicating with prospects and customers 20 19 © The Economist Intelligence Unit Limited 2015 The hyperconnected economy: Phase Hyperconnected organisations Which of the following measures have you adopted as a result of hyperconnectivity? Select all that apply (% respondents) Taken efforts to improve our visibility and reputation on social media that have improved our business 49 Used digital processes to customise products and services to individual customers 40 Fed customer information from digital channels into product development 37 Embedded digital functionality into our products to measure customer use and/or improve customer service 37 Built an integrated view of our customer interactions across all digital channels 33 Boosted customer privacy as a way to differentiate our products and services 30 What impact you think the continued growth of hyperconnectivity will have on your interactions with customers in the future? Select all that apply (% respondents) Products and services will be increasingly tailored to customers’ individual needs 51 Input from customers will be deeply integrated into product development 41 Customer service will be mostly automated 33 A more globally diverse customer base will challenge our ability to communicate with and engage with customers 33 Our business will be more vulnerable to negative online publicity 32 Mobile will become our primary customer interaction channel 31 What impact has hyperconnectivity had on your organisation? Select all that apply (% respondents) Business processes have accelerated 47 Collaboration within divisions and geographies has improved 45 Collaboration between divisions and geographies has improved 45 Organisational strategy has become more data-driven 42 The pressure we are under to innovate has increased 33 Our ability to innovate has increased 32 Organisational strategy has become more effective 29 20 © The Economist Intelligence Unit Limited 2015 The hyperconnected economy: Phase Hyperconnected organisations What organisational measures has your company introduced as a result of or to derive greater benefit from hyperconnectivity? Select all that apply (% respondents) Automated business processes 46 Adopted agile development and/or project management techniques 39 Introduced digital skills training 39 Outsourced functions to accelerate digitisation 33 Flattened the organisational hierarchy 25 Appointed a chief digital officer 19 How you think the continued growth of hyperconnectivity will affect your organisation in the future? Select all that apply (% respondents) Our ability to effect substantial organisational change will increase 39 We will reduce our staffing levels as more work is automated 38 We will match employment opportunities to candidates faster and more effectively 37 Information overload will damage the wellbeing of our employees 24 Our organisation will have to radically restructure 23 Ability of central management to control the organisation will be reduced 22 How does your organisation’s performance compare with the average in its industry? (% respondents) Better than average Worse than average Don’t know Profit 73 18 Revenue growth 71 21 Innovation 63 25 12 Organisational agility 52 21 © The Economist Intelligence Unit Limited 2015 35 13 The hyperconnected economy: Phase Hyperconnected organisations What are your organisation’s annual revenues in US dollars? What is your primary industry? (% respondents) (% respondents) $500m or less Financial services 16 Manufacturing $500m to $1bn 13 22 IT and technology $1bn to $5bn 11 36 Healthcare, pharmaceuticals and biotechnology $5bn to $10bn 14 Consumer goods $10bn or more 28 Retailing Energy and natural resources In which region are you based? (% respondents) Aerospace and defence North America Automotive 30 Asia-Pacific 30 Western Europe 30 Latin America Chemicals Professional services Telecoms Middle East Transportation, travel and tourism Construction and real estate Logistics and distribution Which of the following best describes your job title? (% respondents) Education Board member Government/Public sector 2 CEO/President/Managing director Agriculture and agribusiness CFO/Treasurer/Comptroller Entertainment, media and publishing CIO/Technology director CMO/Head of marketing COO/Head of operations CDO (Chief digital officer) CXO (Customer experience officer) Other C-level executive SVP/VP/Director 12 Head of business unit Head of department 19 Manager 31 Other 22 © The Economist Intelligence Unit Limited 2015 The hyperconnected economy: Phase Hyperconnected organisations What is your main functional role? (% respondents) Finance 11 IT 11 Sales 11 General management 10 Human resources Marketing Procurement Strategy and business development Supply-chain management Operations and production Customer service Information and research Risk R&D Legal Other 23 © The Economist Intelligence Unit Limited 2015 The hyperconnected economy: Phase Hyperconnected organisations Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this white paper or any of the information, opinions or conclusions set out in the white paper 24 © The Economist Intelligence Unit Limited 2015 London 20 Cabot Square London E14 4QW United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8476 E-mail: london@eiu.com New York 750 Third Avenue 5th Floor New York, NY 10017 United States Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 E-mail: newyork@eiu.com Hong Kong 6001, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: hongkong@eiu.com Geneva Boulevard des Tranchées 16 1206 Geneva Switzerland Tel: (41) 22 566 2470 Fax: (41) 22 346 93 47 E-mail: geneva@eiu.com [...]... a mass of data allowing us to personalise offerings to customers” Motorists can use data from their cars to show that 12 © The Economist Intelligence Unit Limited 2015 they are safe drivers, reducing premiums, while homeowners and people buying health insurance can be monitored to show their risk levels, allowing them to take out cover tailored to their needs and lifestyles “It’s a great opportunity—and... Whether or not they appoint an executive with specific responsibility for digital business, organisations will only effect substantial change if it is led from the top The hyperconnected economy calls for hyperconnected leaders The hyperconnected economy: Phase 2 Hyperconnected organisations Appendix: Survey results Percentages may not add to 100% owing to rounding or the ability of respondents to. .. banking to date, but that is beginning to change as the sector is waking up to the competitive consequences of hyperconnectivity says Mr Brem at Aviva “It’s only a matter of time before a digital disrupter hurts insurers,” he says, pointing to the impact of digital start-ups from PayPal to the taxi The hyperconnected economy: Phase 2 Hyperconnected organisations Chart 3 Respondents are more likely to see... Nevertheless, there are signs in the survey data that on an organisational level, companies are overly confident of their ability to weather the hyperconnectivity storm When asked about how it has affected their competitive stance, the story is quite different The hyperconnected economy: Phase 2 Hyperconnected organisations 3 Market disruption Much has been written about the disruptive potential of digital... burden to be preferable to the losses suffered by rivals which are only now struggling to break into the online market It is a similar story in other sectors International banks, from HSBC to Citibank, have started to offer smartphone apps allowing people to make payments and complete other transactions from mobile devices Other sectors of the financial services industry are following suit Insurance,... that are suitable for them to enter The hyperconnected economy: Phase 2 Hyperconnected organisations Conclusion Our study shows that companies are well aware of the significance of hyperconnectivity The unprecedented uptick in interconnectedness that began with the Internet, was extended by mobile technology and now continues with the Internet of Things is not just a technological trend—it is one of the. .. that companies see adapting to it as their greatest challenge Their confidence in their ability to do that should not be dismissed out of hand Compared with the aftermath of the dot-com crash, when anyone making grand claims about the Internet was treated with suspicion, there is now widespread acknowledgment of the significance of digital technology It stands to reason, therefore, 13 © The Economist Intelligence... retailers such as Amazon and eBay to person -to- person platforms such as Airbnb, a site allowing people to rent out their houses to people who might otherwise choose a hotel The impact of these companies has been strong, driving scores of shops, magazines and indeed hotels to the wall as they lose sales to online competitors Nonetheless, our survey finds that executives are more concerned with competition... 9 56 8 13 Failure to adapt to hyperconnectivity is the biggest risk that our organisation faces 59 30 11 My organisation is doing a good job of adapting to hyperconnectivity 69 16 © The Economist Intelligence Unit Limited 2015 18 13 The hyperconnected economy: Phase 2 Hyperconnected organisations To what degree have the following factors placed competitive pressure on your firm in the last three years?... development 7 Supply-chain management 5 Operations and production 4 Customer service 3 Information and research 2 Risk 2 R&D 2 Legal 1 Other 3 23 © The Economist Intelligence Unit Limited 2015 The hyperconnected economy: Phase 2 Hyperconnected organisations Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd nor the sponsor of this report ... reveals that businesses are well aware of the significance of hyperconnectivity—indeed, the majority believe that adapting to it is the key challenge their organisation faces But there are also signs... measures are under way The hyperconnected economy: Phase Hyperconnected organisations Understanding the challenge Organisations are well aware of how significant hyperconnectivity is for their... change the market for everything from commuter cars to taxis Rather than fighting to protect its existing customer base, GM plans to ensure that it has the products to sell to the new type of customer