Dubai One interviews Strategy&’s Samer Bohsali to discuss the Ideation Center insight entitled “Preparing for the digital era: The state of digitalization in Gulf Cooperation Council (GCC) businesses.
Our world is becoming ever more digitalized. Billions of devices and machines are generating massive amounts of data; the real and virtual worlds are merging. The ability to capture this data, analyze it and use it to drive real value will shape the future of globally competitive business, industry, and infrastructure in the Gulf Cooperation Council (GCC) countries.
Dietmar Siersdorfer – CEO, Siemens Middle East and UAE
Executives in the GCC are excited by digital. They recognize its benefits, such as stronger customer orientation and increased efficiency — vital in an era of budget constraints. However, GCC usage of digital technology and the implementation of strategic digital initiatives generally is not at the same level as some other parts of the world.
The process of going digital is often considered simply the adoption of a specific technology, rather than a transformation journey. Similarly, there is a gap between aspiration and implementation, with outdated technology and a talent shortage hampering progress. Many organizations are gradually building technology capabilities. However, they lack vision and the leadership to drive digital transformation and a nascent national digital ecosystem —insufficient infrastructure, inadequate regulation, a lack of digital skills — restrains them.
Instead of simply importing best digital practices and technology, GCC organizations should approach this challenge holistically by creating the building blocks for digital transformation. First, organizations need a business strategy for the digital era. This requires assessing digitalization’s impact on their industry and its fit with their ambitions. Second, they must identify those areas of their business where digitalization can help the most, and how. Third, digital change requires senior sponsorship and proper governance. Digitalization should be an organization-wide collaborative effort, not the sole preserve of information technology (IT) or marketing. Fourth, they must develop digital skills, in IT and across the organization. Fifth, they should collaborate with stakeholders across the ecosystem, embracing open innovation, learning from international players, and reaping benefits from various government initiatives. Sixth, they should invest more wisely, as opposed to spending more, thereby mitigating investment risk.
These steps can bring GCC industries up to speed in digitalization, and enable them to become global leaders. Manufacturing, for example, with its skilled labor and willingness for diversification, could become a leader in Industry 4.0 (the new wave of intelligent automation).
The GCC digitalization imperative
Digitalization harnesses the power of technology to solve problems, reimagines the customer experience, inspires trust, accelerates change, and reinvents business models. Going digital has thus become a key differentiator for companies when competing in today’s industries.
The last two decades have witnessed phenomenal growth in digitalization, illustrating its central position in the modern economy. At the end of 1995, the market capitalization of the top 15 public Internet companies was US$16.7 billion.2 By May 2016, the valuation of the equivalent top 15 companies had increased more than 125 times and mushroomed to $2.1 trillion.3
Governments in the GCC region have acknowledged the economic and social benefits that going digital can bring, and have developed ambitious plans and strategies.
Digital companies have usurped the energy sector’s previous dominance in the global economy. Five of the top 10 companies worldwide, in terms of market capitalization, are digital companies (Apple, Alphabet, Microsoft, Amazon, and Facebook). Just 10 years ago, only one digital company (Microsoft) appeared in that same list, which was dominated by oil and gas companies. Moreover, even businesses in traditional industries are going digital.
Governments in the GCC region have acknowledged the economic and social benefits that going digital can bring, and have developed ambitious plans and strategies. Examples include Saudi Arabia’s Vision 2030 and National Transformation Plan 2020 (which covers the digital space), Smart Dubai, Qatar’s Connect 2020 ICT Policy, and Oman’s digital strategy (e-Oman). The Global Manufacturing and Industrialisation Summit, hosted by the UAE Ministry of Economy, is evidence of the perceived importance of digital technologies within the manufacturing industry.
As for companies, digitalization can bring myriad benefits. It can allow them to become more efficient in their operations and decision making, a major advantage given current budget constraints in the region. It can enable them to grow their business by adding digital products and services to their portfolio, or selling existing products and services through digital channels. This benefit is particularly relevant for GCC countries, where consumers are among the most tech-savvy in the world, and demand much more personalization and customization in their products and experiences. Bahrain, Qatar, and the UAE have more than 100 percent smartphone penetration. Young people in the GCC are particularly keen on such personalization and customization, seek to influence the design of new technologies, and are famously early adopters. Finally, digitalization can open up opportunities for companies to enter new business areas where value is being created within or outside their industry, while defending their business from disruption.
However, as this report shows, many companies in the region have not been as quick to seize the potential of digitalization as their governments and their sophisticated customers. A limited understanding of digital transformation has run in tandem with a similarly restricted perception of its potential benefits.
This video animation discusses the recent report by Siemens and Strategy& which assesses the state of digitalization in the GCC.
The study shows that while most GCC companies are well aware of the benefits of digitalization, more implementation work needs to be done – and quickly – to keep up with international counterparts.
Strategy& partnered with Siemens to assess how companies in the GCC are using digital technologies and how ready they are to go digital. The joint study proposes a practical approach for companies in the region to go on their digital transformation journey.
The report is based on a survey covering 306 companies across all major industries in Qatar and the UAE.
The video provides a brief overview of the report and some of its key findings.
77% of surveyed companies associate digitalization with the adoption of one specific technology. A minority think of digitalization more broadly, along a spectrum of activities ranging from realizing efficiencies, to growing the existing business model, to completely reimagining and disrupting the industry.