Indonesia

Overview

Indonesia ranks 11th and last amongst its regional neighbours in the Asian Digital Transformation Index. The country exhibits distinct weaknesses in each of the three Index pillars, although digital infrastructure (9) provides a few bright spots. With both the human capital required for digital transformation, and industry connectivity–firms’ digitally-focused partnerships with other organisations, networks and communities– Indonesia scores below all but one other country in the region. These weaknesses are compounded, according to one expert interviewed by the EIU, by a deficit of understanding amongst the leadership of Indonesian businesses regarding the nature and requirements of digital transformation.

Overall Score

Average 45.8

1. Singapore 75.6

2. South Korea 72.5

3. Japan 70.7

4. Hong Kong 65.7

5. Taiwan 65.1

6. Malaysia 42.0

7. China 33.9

8. Thailand 23.9

9. India 19.3

10. Philippines 18.8

11. Indonesia 16.0

The environment for digital transformation

Despite its 9th place ranking in the digital infrastructure pillar of the Index, the ICT networks and services that companies in Indonesia have access to are not vastly inferior to those of its more advanced neighbours in all aspects. For example, the relative cost of broadband services in Indonesia is not significantly higher than in other Asian countries. One-third of Indonesia-based business executives surveyed by the EIU cite insufficient or costly broadband connectivity as a major impediment to transformation–a substantial enough share but of lesser importance than other impediments, such as lack of strategy and management support (see charts on following page).

Ardi Sutedja, chairman of the Indonesia Chief Information Officer Forum, believes the infrastructure available to Indonesian companies is adequate to support digital information networks. This includes not just high-speed networks he says but also access to advanced digital technology, such as data analytics tools and cloud computing services. Some sectors are, he says, moving ahead much more quickly than others. “The financial industry is leading the way with investments in digital infrastructure, such as data storage capacity, data analytics, cloud computing capabilities, mobile technology and in cyber security. They are preparing for digital payments to go mainstream in the next few years.”

Other factors are doing more to hold digital transformation back, Mr Sutedja believes. One is the shortage of talent with advanced digital skills. “We have plenty of engineers, but employees’ digital skill levels are low,” he says. He notes that the universities

Index performance

Survey highlights

• 42% store all or most of their business unit’s data in the cloud

• 70% say their chief benefit from digital transformation thus far is expanded reach into new markets; 62% say it is more innovative ideas for new products and services

• 95% believe their organisation must become better at leveraging their digital partnerships

#11

Overall

#9Digital

infrastructure

#11 Human capital

#10

Industry connectivity

are starting to train people with the right skills, but even those coming into the workforce haven’t yet “had the opportunity to test themselves in today’s high-tech environment.”

Other countries in the region, including Singapore, are fighting similar battles, says Mr Sutedja, but in Indonesia the human capital difficulties run deeper. “The biggest critical mass of problems that we face with digital transformation–90% of them–relate to the human factor. Only 10% relate to technology.”

The frontline: digital transformation of businesses

To judge by the survey results, Indonesian businesses are convinced of the virtues of digital transformation and are reaping its rewards. More than nine in 10 (92%) of survey respondents from Indonesia–a substantially higher percentage than from Singapore, South Korea, Taiwan or Japan–say their firm’s investments in digital transformation “have already proved their value”. An even higher share, 95%, claim to have made changes to their business model as a result of their transformation initiatives.

In stark contrast to most other countries in the study, whose respondents cite cost savings or productivity improvements, Indonesia executives point to expanded reach into new markets and innovative ideas for new products and services as the chief benefits they are currently obtaining from their digital transformation efforts.

When it comes to technologies, social media has been the major focus of companies’ digital transformation initiatives in Indonesia. Mobile devices and infrastructure have also figured prominently, which is not surprising given the proliferation of smartphones and the population’s strong preference for using these rather than fixed connections to access the Internet.

Mobile devices and apps will remain a focus of digital initiatives in the future, judging by the survey. There is a warning sign, however, in the apparently limited intention of firms surveyed to focus future digital transformation efforts on data analytics. This is the reverse of attitudes demonstrated by respondents in all of the Index leaders, where there is an understanding that companies’ ability to remain competitive in the future will hinge partly on how well they leverage their customer and other data.

The chief benefits currently being gained from digital transformation initiatives (top responses)

1. Digital Infrastructure

Average 47.9

1. Singapore 80.1

2. South Korea 74.4

3. Hong Kong 70.7

4. Taiwan 66.5

5. Japan 63.5

6. Malaysia 53.7

7. China 36.4

8. Thailand 22.5

9. Indonesia 19.3

10. Philippines 18.8

11. India 17.9

2. Human Capital

Average 46.0

1. South Korea 82.2

2. Japan 80.2

3. Hong Kong 76.1

4. Singapore 74.5

5. Taiwan 68.0

6. Malaysia 42.5

7. China 28.9

8. Thailand 20.6

9. Philippines 16.3

10. India 10.8

11. Indonesia 5.7

3. Industry Connectivity

Average 39.7

1. Japan 78.9

2. Singapore 64.7

3. Taiwan 57.8

4. South Korea 55.2

5. Hong Kong 40.4

6. India 33.6

7. China 33.3

8. Thailand 31.9

9. Philippines 20.5

10. Indonesia 11.0

11. Malaysia 9.2

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0

10

20

30

40

50

60

70

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70%

35%33%

28%

62%

37%

Expanded reach into new

markets

Greater cost savings

Productivity im

provements

More innovative ideas / IP for new

products / services

Faster speed to market (i.e. reduced tim

e it takes to develop and launch a new

product)

Developm

ent of new custom

er segments

This response serves indirectly to confirm Ardi Sutedja’s belief that the biggest impediments to digital transformation lie less in infrastructure shortcomings and more in management attitudes toward digital. (See ‘The mindset challenge’). The survey respondents appear to agree. Nearly half (47%) say the toughest obstacle firms face in pursuing digital transformation is a lack of strategy or new ideas. Another 42% point to a lack of management support.

The greatest impediments to digital transformation at respondents companies (top responses)

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40

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47%

42%

35%33%

27%

Lack of strategy and/or new ideas

Lack of managem

ent support

Lack of ICT infrastructure, e.g. broadband

connectivity or affordability

Fear of failure

Digital connections

Indonesian companies in the survey appear to have a penchant for forming digital partnerships, in which they share ideas and information with other companies, networks and communities. Seventy percent of respondents say they have more than five such partnerships. They cite numerous benefits their companies are gaining from the digital partnerships, such as more innovative product and service ideas and expanded reach into new markets.

The Index results suggest that companies’ digital partnerships are somewhat weaker than portrayed by the survey. Indonesia, for example, receives the lowest possible score–and the lowest of all Index countries–for the strength of its partnerships. There is hope, however, in the surveyed executives’ overwhelming (83%) agreement that their digital partnerships will be central to the success of their digital transformation efforts. After all, going it alone, they think–without digital partners–will eventually become impossible.

The mindset challenge

Indonesia and its businesses have the building blocks in place to support digital transformation, believes Ardi Sutedja, who chairs the Indonesia Chief Information Officers Forum (and is also founder of the country’s Cyber Security Forum). Companies no longer suffer from the network or other infrastructure weaknesses that hampered them in the past, he maintains, at least in the major cities. Although talent with advanced digital skills is scarce, this is true across Asia, and Indonesian universities and institutes provide at least an ample supply of skilled engineers, developers and other technical specialists to local businesses.

From Mr Sutedja’s perspective, however, very few established Indonesian companies have managed to push digital transformation forward in a major way. The problem, he believes, has to do with management mindsets–a dearth of understanding at the top about what digital transformation means and what it requires. “All the infrastructure for digital transformation is there. We have the broadband networks, we have the data technologies, we have the cloud services. But there’s still a long way to go before the business community realises that this technology will actually help them change the way they do business, and how it can do that.” Many senior

corporate managers, he points out–even CIOs–still consider IT as purely a cost and not as an investment.

Mr Sutedja’s advice to Indonesian CIOs or heads of technology looking to pursue digital transformation of their organisations sounds elementary. “The first thing I would tell them is ‘go back to school.’ To push through transformation you have to learn the basics, to recognise the human talent and the capabilities you will need to achieve this. It cannot be done by talking to technology vendors. Also, learn from your people–your IT staff, your managers and frontline staff elsewhere in the organisation.”

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