Connecting the digital dots
SMEs have an advantage over bigger, legacy- encumbered peers in leading the transformation in Southeast Asia.
The changes brought about by digital disruption have swept away companies of all sizes in all industries. For those that remain, digital transformation is becoming more urgent by the day.
While larger organisations in Asia Pacific are encumbered with the weight of legacy infrastructure, some small and medium enterprises (SMEs) have emerged as digital trailblazers, with a unique opportunity to leapfrog, thanks to their leanness, agility and disruptive mentality.
The most digitally aware companies are slowly moving away from being highly price-sensitive about tech spending to being quality-conscious, especially those that are interested in pursuing new business models based around the data they control.
A recent study released by Cisco reveals that 94% of companies in Southeast Asia are confident that their current digital transformation strategy is appropriate to help them stay competitive. That’s 10 percentage points higher than the overall score for the rest of Asia-Pacific. Of particular note is the fact that small and medium-sized companies are more ready to adopt the relevant technologies than those in large organisations with more than 10,000 employees.
“SMEs are more confident in their digital readiness because they are lean and agile, so they can move quickly. They also tend to be disruptive with the mentality of having everything to gain and nothing to lose. This allows them to be very innovative,” said Naveen Menon, president of Cisco Systems Southeast Asia.
In addition, he said, SMEs typically work in a hyperlocal context so they tend to come across with very clear offers,
zeroing in on customers’ needs right away.
“These factors lead them to be very successful and when they are successful, they become more confident. And when they are confident, they tend to be more successful. It’s a reinforcing cycle.”
Where the drive toward digital adoption is concerned, the technical analysis
firm DCIG uses a different definition of SME from conventional ones based on number of employees or annual sales. It sees an SME as “an organisation that only has a part-time individual managing its data and/or IT infrastructure”.
This person does everything from managing backups, databases and the network to negotiating new technology purchases and support contracts. In some cases, DCIG says, “and the organisation may even outsource this task to a thirdparty contractor”.
Regardless of how they are categorised, small and medium enterprises play a greater role in the Asean economy than in Europe and North America. SMEs generate about 60% of the gross domestic product of Asean countries. In Indonesia, 97% of all employment is generated by SMEs. “This is very uniquely Asean which allows businesses the opportunity to grow off the back of SMEs’ growth,” said Mr Menon.
INFRASTRUCTURE UPGRADES
When it comes to adopting more relevant new technologies, ageing IT infrastructure in many companies remains a major barrier, particularly for larger organisations, according to Vish Iyer, Cisco’s vice-president for architecture in Asia Pacific, Japan and China.
“Modernisation of IT infrastructure is an absolute necessity to succeed in a digital world. Today, 95% of IT operations are still done manually, which means it is very hard and time-consuming for IT (departments) to keep up with the business demands and growing number of users and devices,” he said.
In the same report, which was based on a survey of 1,325 senior IT managers in companies with over 500 employees in
Asia Pacific, Cisco found that while 90% of companies said they had made upgrades to their IT infrastructure in the last three years, not all areas were being covered. Thirty percent said they had not upgraded their systems in areas including networking, data centre and security.
Significantly, almost half of the respondents admitted to having a reactive approach to cybersecurity, pursuing solutions and upgrades only after a
breach. They attributed low adoption rates to budget constraints in their organisations, lack of adequate talent and unfit IT infrastructure.
“Whatever legacy infrastructure they had, they tend to want to run it as long as they can,” said Mr Iyer. “But as more things are being connected and things are coming online, it is absolutely critical for this back-end infrastructure to be upgraded and automated in the
cloud-first world.”
Experts say that budget issues have emerged as the top reason for underinvestment in IT infrastructure and technologies among Asia Pacific companies. IT executives tend to prioritise price over assurance, and even make compromises to bring down the cost of their IT purchases, which later results in regret as the solutions were unreliable.
“SMEs are more confident in their digital readiness because they are lean and agile, so they can move quickly” NAVEEN MENON President, Cisco Systems Southeast Asia
“It’s the trade-offs that buyers do for being price-sensitive. In countries in Southeast Asia, India and China, the key criterion is still cost and the reason for that is they felt manpower is abundant, so they can add more people to solve a problem,” said Mr Iyer.
However, he said, the newer upstarts that are challenging the incumbents all have a lean, extremely automated and agile operating model.
Mr Iyer noted several key criteria for IT purchases including automation, security and harmonisation of infrastructure.
“For any IT investment, companies should look at how much of their infrastructure is running manually and how quickly they can automate. That’s the first criterion,” he said. “You need to have the intelligence of the machine to monitor all of the data flows that are happening inside of your enterprise.”
In addition, companies should avoid making IT purchase decisions in silos, which often happens as organisations become larger.
“Having integrated infrastructure is extremely critical in the cloud-first, mobile-first world. We have gone from one stack to multiple vertical and horizontal stacks and we realise the huge problem of the complexity of managing all the stacks,” he said.
“When those systems are being bought in a very siloed fashion, the systems usually don’t talk to each other. We need to collaborate on one paradigm.”
The challenge now for some companies is to simplify IT procurement across different organisational boundaries and lines of business, tie all the fragmented pieces together and connecting all the dots, he said.
Ajay Sunder, vice-president of the market research group Frost & Sullivan, agreed, saying that having all business functions actively involved in the procurement process is critical as they will be the main users of the system.
“This is what some of the traditional large enterprises in Asean need to change to make sure that the procurement is not just the responsibility of the CIO (chief information officer),” he said. “It should involve input from different functions of different units within the businesses.
“Before they even talk about the technical requirement and procurement process, they should be able to first decide who should be the stakeholders and who should be part of the procurement process. This is challenging but needed, especially in the large enterprises.”
On the SME side, Mr Menon said legacy infrastructure is less of a problem. Many will start fresh with a brand-new platform, born in the cloud, and will be able to invest in everything they need straight away.
In addition, while SMEs tend to be very cost-conscious, they are becoming more quality-conscious. Some are among the most demanding customers in the IT space, he said.
“They make trials and if they aren’t satisfied, they will switch providers. Once they start doing that, they learn quickly and move toward quality technology. And when they move toward quality, they will be willing to pay and they expect highest level of services,” he added. SECURITY PERSPECTIVE
Mr Sunder observed that the sectors that have a higher level of digital readiness and adoption among Asia Pacific companies are retail, health care and logistics.
“Historically, they have not been fast adopters but they have realised over the past few quarters that the legacy infrastructure is not going to sustain them in the future,” he said. “Market forces have caused them to think differently and adopt much more innovative approaches.”
The Cisco report highlighted that some of the top-of-mind technologies among IT leaders in Asia Pacific are cloud services, cyber security, big data and analytics and automation; however, there are various challenges and complexities related to their adoption.
“As cybersecurity has the ability to affect revenue, market capitalisation, and stock prices of a company, you need strong operational processes to solve incidents when they happen,” Mr Menon said.
Cybersecurity is not just about installing software and upgrading system patches, he said. Ultimately, security is not just a technology issue but technology is the starting point. You can’t secure your enterprise unless you have the right technology that is up to date. This is the fundamental basis for everything.
Mr Menon said that in his view, organisations should consider three areas for digital transformation to be successful: operating process alignment, incident management system, and strategy and governance.
“Technology has to be working in tandem with a seamless operating process which is designed with strategic intent. It has to be a strategy that is signed off on and aligned with the CEO and the board of the company,” he said.
A strong incident management system is critical, he said, because no one is ever safe from an attack. It’s about how to reduce the time needed to respond to a threat. Cisco, for instance, monitors about 20 billion threats a day globally — that’s three times the amount of Google searches per day.
“So when a threat happens, how quickly can companies contain it? How quickly can they put the right resources to stop it from spreading, and how do they protect assets without impacting revenue?”
That brings him to the third point, which is strategy and governance. This requires a strong management team ready to make decisions and deal with issues as they occur without having to wait for higher-level approval. DIGITAL REALISATION
Experts also believe that governments across Asean can do a lot more to promote digital transformation, from creating a vibrant startup ecosystem and making it easier to do business, to enabling workers through education. At the same time, there needs to be a balance between digital-ready infrastructure and privacy protection.
“Governments need to make sure that the market is thriving and that means they need to avoid the creation of a natural monopoly,” said Mr Menon.
This can be done by creating a healthy startup ecosystem where new entrants can come in and challenge incumbents. Governments can balance the needs of large and small companies and make sure that there is a thriving market.
“They also need to ensure that the workers are brought up to the right quality standard to compete in the age of machines,” he said.
“These are difficult issues but once they are fixed, a lot can happen. I encourage governments to work more and be more experimental in their policy approaches — similar to how startups are learning and experimenting policies.”
Mr Sunder of Frost & Sullivan agreed, saying that Asean governments can do a lot more in three key areas including regulation, industry promotion and citizen service.
“For instance, everybody is talking about 5G as a key enabler for the mobile-based era, but how many telecom operators in Asean have a 5G roadmap? I would say none,” he said.
“It’s a big vision but some governments still need to figure out how to reach this vision.”