Samer Bohsali, Rawia Abdel Samad, Sevag Papazian, Osama Eid, Benjamin Schroeder, Katharina Hatz
December 6, 2016
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.
At Siemens, this is our future. We believe that digitalization is a catalyst for new business models and optimized processes. It will drive significant change in markets and strategy. Identifying the right digital applications with appropriate implementation strategies will enable companies, industries, and countries to reach the next level of productivity, and therefore competitiveness.
There are tremendous opportunities. The GCC is taking great strides toward economic diversification. Knowledge, industrialization, and sustainable energy are in focus. Cities are becoming smarter, infrastructure increasingly connected, and efficiency gains are being sought across all sectors. Digitalization is driving these transformations.
But it is a long journey, and it won’t happen overnight.
Our intention is that this report, by Siemens and Strategy&, serves to highlight the opportunities, address the challenges, and give a clear picture of the status of digitalization in the GCC. It is for our customers and partners to inspire reflection on their own businesses, and for us to help understand how we can use our technology and experience to best support the transition to a digital future in the GCC.
CEO, Siemens Middle East and UAE
Executives in the GCC1 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 Similarly, there is a gap between aspiration and implementation, with outdated technology and a talent shortage hampering progress.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).
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
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.
Governments in the GCC region have acknowledged the economic and social benefits that going digital can bring, and have developed ambitious plans and strategies.
Executives in the GCC understand the value of digitalization. Practical steps forward, however, can often be beset by internal obstacles, be they cultural, organizational, people-related, or financial. An unhelpful external environment can also put a brake on the best of intentions.
With so many challenges, decision makers can easily feel paralyzed, no matter how much they believe in the potential benefits of digital. However, the situation offers great opportunity. The GCC is in a position to fully embrace the disruptive potential of digitalization across all sectors, driving the transition toward Industry 4.0, globally competitive businesses, and next-generation smart cities. By following the structured way forward set out in this report, decision makers can take control, track specific steps in a measured way, and see those benefits coming one by one to fruition.
1 The GCC countries are Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and the United Arab Emirates.
2 Bahjat El-Darwiche, Mathias Herzog, Milind Singh, Rawia Abdel Samad, Jad El Mir, Roshni Goel, “Connecting the world: Ten mechanisms for global inclusion,” Strategy& 2016.
3 Statista, “Market capitalization of the biggest internet companies worldwide as of May 2016 (in billion U.S. dollars),” 2016.
In May and June 2016, Siemens Global Marketing Services led a survey of 306 executives, asking them questions concerning digitalization at their companies. Of these executives, 206 were located in the UAE, and 100 in Qatar. Almost half (48 percent) were from medium-sized companies. Meanwhile, 36 percent of the executives were from large companies, and 16 percent from small companies. Respondents were also split along industry lines, with executives interviewed from the utilities, oil and gas, construction, IT, transportation, manufacturing, and mining industries, among others, and also from government. More than half of the interviewees were middle managers (53 percent), technicians represented 39 percent, and 8 percent were senior managers (see Exhibit 14).