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Accelerating Digital Ecosystem Development through Strategic Alliances

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Page 1: Accelerating Digital Ecosystem Development through ... · PDF fileAccelerating Digital Ecosystem Development through Strategic Alliances. ... Source: Bernd Leger, “20 fresh mobile

Accelerating Digital Ecosystem Development through Strategic Alliances

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Contents

Foreword 3

Digital Ecosystems – The new basis for competition 4

Key capability sets 10

Capability development options – Build, Partner, Acquire 13

Learnings from the marketplace 17

Key risks and potential mitigation approaches 20

Potential approach to develop digital ecosystem 23

About Monitor Deloitte 26

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Foreword

Mohit MehrotraStrategy Consulting LeaderMonitor Deloitte [email protected]

In our recently published study “Digital era for ASEAN conglomerates - Hype or reality?” we established that the digital economy provides significant opportunities for ASEAN organisations. To say that digital play requires a paradigm shiftfrom “business-as-usual” is a cliché in today’s time. Its global penetration has pushed industries to develop their own digital ecosystem. The top 5 most valuable companies are digital companies. In Asia, the digital economy is expected to grow at 21% y-o-y, which is 3X the growth rate of the physical economy. The winners are those who have a broader view of the digital economy, have a winning strategy to capitalise on these opportunities and able to mitigate the underlying threats to drive growth and sustain shareholder returns.

The pace of change is phenomenal – we have observed 9 key patterns of disruption, which are driving multiple paths to displacement for existing incumbents. We have also witnessed that a selective investment driven model adopted by incumbents for their digital initiatives, have failed to generate any material impact. Therefore, a differentiated “value creation” approach is required to leverage connected ecosystems. .

This will require a fundamental refresh of the mindset, culture and capabilities. Given, there are hardly any secrets in the digital world, speed-to-scale defines success or failure. What then, are the options for the incumbent to build digital capabilities that are fast-to-scale yet flexible enough to accommodate the changing digital ecosystem?

This paper attempts to answer several of these aforementioned questions. We believe that opting for a strategic alliance model is the optimal way for traditional businesses to enter and thrive in the digital economy. Priorities and choices of the alliance model differs by industry verticals, capability build objectives and geography. A recent analysis of more than 125 recently formed alliances suggest three interesting new trends: (a)~50% of recent alliances formed were to accelerate new product design/development; (b) TMT sector dominating the alliance landscape, contributing to almost ~50% of all alliances being formed and (c) cross industry collaboration is becoming the new norm, particularly between the TMT industry and the financial services industry and between TMT and Consumer and Industrial products sectors. However, these alliances are easy to form, but extremely hard to sustain. Significant risks exist across the entire alliance lifecycle that need to be identified and mitigated through a planned approach. We hope that through this paper we are able to show that businesses need to rethink their capability development strategy for their digital play.

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Digital Ecosystems –The new basis for competition01

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Digital economy is scaling up faster than the physical economy

Winners will be those who do not solely focus on digital plays, but build their business models to leverage on both the physical and digital economies.A digital economy is a global network of economic and social activities that are enabled by information and communications technologies, such as the internet, mobile and sensor networks

Asia Physical Economy (USD Bn)

Asia Digital Economy Estimate (USD Bn)

2015 Asia Digital vs. Physical Economies (USD Bn)

742 11,385

1,393

4,116

2,183

873

294

374

313

434

147

142

57

31

24

20

2020

1,883

+21%

2015

4,880

8% 15%As %of GDP

24,240

20202015

+7%33,824

Sele

ct A

sian

cou

ntri

es

Digital Physical %

6.5%

31%

3.6%

6.5%

6.5%

11%

6.5%

6.5%

Source: IMF WEO GDP Forecasts; WEF NRI 2015; Monitor Deloitte analysis

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Digital natives are at the forefront of value creation and value appropriation

Top 5 publicly traded companies by market cap (USD Bn)

2001

#1

GE Microsoft Exxon Citigroup Walmart

2011 Exxon Apple PetroChina Shell ICBC

#2 #3 #4 #5

2006 Exxon GE TOTAL Microsoft Citigroup

2016 Apple Alphabet Microsoft Amazon FacebookDigital

Physical

Source: Visual Capitalist

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9 key patterns of disruption are driving multiple paths to displacement for existing incumbents

Source: Bernd Leger, “20 fresh mobile trends,” Localytics, May 13, 2013, http://www.locaytics.com/blog/2013/mobile/2013/mobiles-statistics “Patterns of disruption - Anticipating disruptive strategies in a world of unicorns, black swans, and exponentials “, Deloitte University Press

The 9 patterns of disruption are prominent The pace of change is phenomenal

Television

Internet

Facebook

Twitter

Instagram

Angry Birds

Radio

38 years

13 years

4 years

3.5 years

9 months

6 months

35 days

Expand marketplace reachConnecting fragmented buyers and sellers - whenever, wherever

Unlock adjacent assetsCultivating opportunities on the edge

Turn products into platformsProviding a foundation for others to build upon

Connect peersFostering direct, peer-to-peer connections

Distribute product developmentMobilising many to create one

1 6

2 7

38

4

5

9

Unbundle products and servicesGiving you just what you want, nothing more

Shorten the value chainTransforming fewer inputs into greater value outputs

Align price with useReducing upfront barriers to use

Converge productsMaking 1 + 1 > 2

Time to reach 50 million users

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A differentiated “value creation” approach is required to leverage the connected ecosystem

Source : Monitor Deloitte Analysis; News Articles

… the era of heavy business conglomerates is gone. The economy of today and tomorrow will rely on a platform & ecosystem approach.

Competition should be strengthened for technologies that power ecosystems such as the 3D ecosystem

By providing all manner of services and content on (our) platforms, we aim to create a comprehensive ecosystem

Investor in physical economy

(Bolt-on digital offerings)

• Minority investments –

difficult to exert control

(Coordinated planning to build bolt-on digital offerings)

• Partnership-model allowing

some degree of control

(Focus on building own interconnected ecosystems)

• Open Ecosystem build approach allows a quicker and less investment centric pathway

Investor in digital economy

Business builder in digital economy

Value addition Value creation

Alibaba.com

SoftBank MakerBot

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Source: Deloitte article, titled: Business Models for A New World – A new perspective on strategy and business model development, September, 2016

The connected ecosystem based business models require organisations to have an evolved mindset and an urgent capability refresh

Ecosystem Thinking to Frame Business Models

Supply Exchange Demand

Money

Data3 Business Model Archetypes of Today

Win the customer

Own the platform

Activate the data

WIN THECUSTOMER

Improve utility

• See what customers really need and fulfill it completely

• Make it easy for customers to use their offerings and to get things done

Enhance experience

• Connect with customers’ sense of identity and purpose

• Enhance their sense of self

• Confer status and meaning to customers

OWN THEPLATFORM

Trade

• Identify under-exploited assets such as untapped demand and/or fragmented supply

• Define rules for their exchange

• Connect these buyers and sellers

Co-create

• Enable collaborators to find each other

• Provide the context & tools for collaboration

• Facilitate commercialisation of outputs

ACTIVATETHE DATA

Augment decision making

• Harness powerful insights through IoT and big data technologies

• Help customers make better choices than they could alone

Guarantee outcome

• Use data to manage the performance of the assets and guarantee outcomes

• Sell solutions instead of assets

New Business Model Archetypes

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Key capability sets02

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3 key organisational capabilities are required to succeed in the digital ecosystem model

New business model archetype 3 key organisational capabilities required to succeed in the digital ecosystem

Win thecustomer

Activate the data

Own theplatform

• Strategic capabilities serve as the basis for competitive advantage

• These are ‘must build’ capabilities for companies to be competitive

• Must be distinctive from competitors and meaningful to customers

• Platform and data ownership are critical requirements for strategic capabilities

• Core capabilities impact customer choice and/or shape the economic profit proposition

• They are not a defensible source of advantage and focus on effectiveness

• Platform ownership and ‘win’ the customers are core for economic success

• Foundational capabilities are not distinctive nor do they impact customer choice

• Required in order to be a viable competitor; focus on efficiency to maintain threshold levels of performance

• Digitisation is essential for achieving efficiencies and supporting digital platforms

Definition

Core

Foundational

Strategic

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To successfully execute, many of these capabilities and underlying building blocks need to be institutionalised in parallel

Organisational capabilities

Foundational

Innovationmission

Identify innovation champions

Identify drivers of innovation across

organisation’s hierarchy

Training and development of

management

Encouraging innovation across

organisation

Celebrate the ‘failures’

...

APIs

Service Oriented Architecture

DevOps

Digital Platforms

Straight Through Processing

Blockchain

...

360° Customer Insight

Type of capability Illustrative list

Behavioural Analytics

Big Data/ Social analytics

Predictive analytics

Customised offerings

...

Performance measured on effort and outcomes

Number of innovative concepts

Number of concepts commercialised

Number of successful 3rd party partnerships

Assessment of customer satisfaction

...

Redefining skill requirement

Attracting innovative

technology talent

Retaining innovative technology talent

Building an innovation mindset

Digital & innovationlearning

Training and upskilling programs

...

Innovation vision and mission

Innovation strategy

Innovation & culture transformation

Partner development & management

...

Strategic

Skilled talent

Core

Leadership

Foundational

Adequatetechnology

Core

Insights

Strategic

Measure performance 1 2 3 4 5 6

Source: Monitor Deloitte Analysis

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Capability development options —Build, Partner, Acquire03

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Speed to scale defines success or failure - Inorganic growth provides required acceleration

Speed vs. Risk Profile for Capability Growth Pathways

High

HighLow

Tim

e to

suc

cess

Risk profile

Partner –Strategic Alliance

Buy –Acquisitions

Build –Organic Growth

Advantages Disadvantages

Build

Organic growth

Partner

Strategic alliance

Buy

Acquisition

• Lower up-front investments

• Highest strategic control

• Ownership of IP & technology

• Expedited ramp-up

• Stable cash-flow with captive market share/customer base

• Readily available product/IP

• Highest up-front investment cost

• Integration and execution risk due to complexity

• Reduced profitability due to sharing

• Less control over strategic direction

• Difficult to hold partner accountable

• Shorter time to market

• Leverage complementary capabilities and product bundles

• Longest duration to develop digital capability

• Challenges from traditional mindset and culture not fitted to digital change

Key Focus of this study

Source: Monitor Deloitte Analysis

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Strategic Alliances emerge as relatively risk free alternative –4 distinct archetypes exist

O O O O O O

• Clear Orchestrator who drives the interactions required to achieve the objective

• Participants generally only interact with organiser

• Traditional supply chain or distribution system with a high-level Orchestrator

• Participants may interact with upstream or downstream players

• Primarily Participant-driven with multiple, complex interaction patterns

• Orchestrator defines governance and interaction protocols only

• Purely Participant-driven

• No Orchestrator and typically includes grassroots systems and pack systems with no defined standards, forums, or barriers to entry

AT&T Foundry

• Exposes AT&T’s API to developers to promote mobile app innovation

• Product development cycle time has improved from 18 months to 6 months

General Motors

• The GM supply chain across parts manufacturers, suppliers, assemblies and etc. is an example of traditional Sequenced Model

AMEX Open Forum

• Online forum for small business owners to interact, ask questions, advise and exchange information

Linux and Android OS

• Linux has seen success with its open-source philosophy

• Android, a Linux-based mobile O/S, dominates with market share of ~82%, or 1.4 billion users worldwide

Centralised

O O O

Sequenced

O O O

Facilitated Self-organised

Type

s Ex

ampl

es

Source: “Performance Ecosystems: A decision framework to take performance to the next level”; Deloitte Center of the Edge,

OrchestratorO Participant

4 Archetypes for Strategic Alliances in the Digital Ecosystem

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Suitable application of critical building blocks varies significantly by Strategic Alliance Archetype

Key Building Blocks Applied to Strategic Alliance Archetypes

Construct Tightly controlled or loosely coupled partnership models

Investment ProfileHard (dollars or assets) or soft investments (people, methods, processes)

Success MetricsShared KPIs, financial metrics, Operational SLAs and incentives

Product ScopeJoint Product Roadmap, bundling and pricing, marketing and branding

ExclusivityDegree of exclusivity and rules of engagement (geographies, clients, products)

Solution ScopeSimple alliance (e.g. GTM or channel alliance) vs. capability development

C S F O

Tightly Controlled

Loosely Coupled

C S F O

“Hard” Investments

“Soft” Investments

C S F O

Well-defined KPIs

Limited definition of KPIs

C S F O

Structured offerings

Loosely structured offerings

C S F O

High Exclusivity

Non-exclusive C S F O

Capability Development

“Simple” Alliance

C S F O

Centralised Sequenced Facilitated Self-Organised

Source: Monitor Deloitte Analysis based on previous client engagements

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04 Learnings from the marketplace

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Digital alliances focus on enhancing product design and development, with TMT dominating the alliance landscape

15%

29%

50%20%

18%

5%

4%1%

Improve operations

New market/customer segments

New product design/development

C&IP

FSI

LSHC

TMT

TMT & C&IP

TMT & FSI

Cross Industries Others

3%

56%

Figure 1: Global Partnerships by Capability Build

Figure 2: Global Partnerships by Industry Vertical

• Product development partnerships appear to focus on synergising complementary core competencies

• Meanwhile, sales partnerships are formed to target new or specific customer segment

• TMT’s dominance in the partnership landscape is clear due to its central position in the digital space

• Cross-industry partnerships are primarily made of TMT-FSI and TMT-C&IP collaborations – 51 out of 58 cross-industry alliances

• The diversity of these TMT-FSI partnerships suggest a breadth of opportunities: from mobile money, payments, insurance services, and lending

Source: Monitor Deloitte Analysis. Sample size = 137 partnerships across Americas, EMEA, and APAC

C&IP: Consumer and Industrial ProductsFSI: Financial Services IndustryLSHC: Life Science and HealthcareTMT: Technology, Media and Telecommunications

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Improve operations

New market/customer segments

New product design/development

APAC Europe

Figure 3: Geographic nuances on digital alliances

Multipleregions

NorthAmerica

29% 31%

31%

38%56%

28%

16% 12%

32%

56%71%

Improve operations

New market/customer segments

New product design/development

C&IP FSI LSHC TMT TMT &C&IP

TMT &FSI

MULTIPLEINDUSTRIES

OTHERS

Figure 4: Capability build objectives by industries

25%

25%

50%

100%

19%

30%

52%

29%

17%

54%

14%

86%

9%

35%

56%

20%

60%

20%

However, unique patterns exist across geographies and industries in terms of the alliances scope

Source: Monitor Deloitte Analysis. Sample size = 137 partnerships across Americas, EMEA, and APAC

• In APAC, partnerships are geared towards developing new products or solutions

• Contrast this to Europe, where partnerships are formed to target both external and internal improvements

• Being at the core of Digital, TMT-exclusive partnerships focus most on design, development, and new topline growth

• The majority of cross-industry partnerships are between TMT-FSI and TMT-C&IP – of which, the key focus area is new and convergent digital offerings

• C&IP-exclusive partnerships show a higher propensity to target new market or segments for the offerings

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05 Key risks and potential mitigation approaches

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Scalability of existing platform to partnershipPartner Identification & Selection

Exit Stage

Negotiation & Deal Structuring

Alliance Execution

Wait until existing offerings are at a minimum maturity to be shared with a potential partner

Over-engineering – too prescriptive & comprehensive clauses limiting productivity

Start by ‘seeding’ a few critical rules and allow the rest to develop through natural interaction

Unfavourably negotiated deal terms favouring one side over the other

Adopt “win-win” approach that puts accountability and rewards on both partners

Lack of management attention and focus Appoint “Champions” from senior leadership in both parties to drive management focus

Underperformance due to over-ambitious targets set initially

Institute quarterly review committees to assess and reset goals if necessary

Cultural clash impacting collaboration Develop “gateway” managers who can bridge the two cultures in a partnership

Potential loss of continuity across all stages of the partnership lifecycle

Deploy processes for knowledge transfer to keep integrated alignment across lifecycle

High dependency on one partner’s capability hindering the speed and ease of the exit

Define a disengagement process that includes transfer of critical assets, people, technology

Alliance Lifecycle Key Risk Potential Mitigation

Significant risks exist across alliance lifecycle – Proactive mitigations will ensure ‘Sustainability’

Source: Monitor Deloitte Analysis

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Partner Identification& Selection

Negotiation &Deal Structuring

Alliance Execution Exit Stage

04 Shared KPIs and SLAs – a measurable and enforceable way to ensure accountability on both parties, and to deliver the best service to the customer05 Exclusivity and IP – marking clear boundaries on exclusivity06 Termination – providing for an exit clause that allows a safe and de-risked termination should the occasion arise

07 Product/solution scope –product roadmap and development08 Customer scope – customer segmentation and rules of engagement09 Preferred Partner benefits – special discount clauses, first-class support, etc

Revenue/profit targets

1Incentives and disincentives

2Capability, asset, and

technology investments

3

Shared KPIs and SLAs

4Exclusivity and IP

5Conditions for

termination

6

Customer scopeProduct/solution scope

8Preferred Partner

benefits

9

Ensuring Success through critical negotiation elements with the potential partner

Critical terms must be negotiated to “secure” the Execution phase of the Alliance given the high potential for risk

01 Revenue/profit targets – agreeing on a common goal that is reasonable and credible, but that generates high sustainable value02 Incentives and disincentives – risk/reward mechanisms to encourage collaborative behavior03 Capability, asset, and technology investments – having “skin in the game” will ensure

a deeper level of commitment to the success of the alliance

7

Success needs to be ensured through critical negotiation elements with the potential partner

Source: Monitor Deloitte Analysis

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Partner Identification& Selection

Negotiation &Deal Structuring

Alliance Execution Exit Stage

04 Shared KPIs and SLAs – a measurable and enforceable way to ensure accountability on both parties, and to deliver the best service to the customer05 Exclusivity and IP – marking clear boundaries on exclusivity06 Termination – providing for an exit clause that allows a safe and de-risked termination should the occasion arise

07 Product/solution scope –product roadmap and development08 Customer scope – customer segmentation and rules of engagement09 Preferred Partner benefits – special discount clauses, first-class support, etc

Revenue/profit targets

1Incentives and disincentives

2Capability, asset, and

technology investments

3

Shared KPIs and SLAs

4Exclusivity and IP

5Conditions for

termination

6

Customer scopeProduct/solution scope

8Preferred Partner

benefits

9

Ensuring Success through critical negotiation elements with the potential partner

Critical terms must be negotiated to “secure” the Execution phase of the Alliance given the high potential for risk

01 Revenue/profit targets – agreeing on a common goal that is reasonable and credible, but that generates high sustainable value02 Incentives and disincentives – risk/reward mechanisms to encourage collaborative behavior03 Capability, asset, and technology investments – having “skin in the game” will ensure

a deeper level of commitment to the success of the alliance

7

06 Potential approach to develop a digital ecosystem

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Map the Ecosystem

Design the Model

Drive the Change

Optimize existing alliances

Partner Identification

Negotiation and Deal

Structuring

Alliance Execution Exit

Evolve toa new alliance

archetype

Develop an archetype for

alliances

Develop scope of alliances

Management practices to improve performance

A practical approach

Existing ecosystems

Key ecosystems relevantto performance gaps

Performance gaps

Risks and CapabilitiesObjectives

Select resultingecosystem types

2. Adopt anew ecosystem

1. Enhance existingecosystem

A practical approach to build a digital ecosystem

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Monitor Deloitte Playbook – “Strategic Alliance in a Box”

Partnership Strategy: Where do we need a partnership, and why?

Negotiations & Contracting

Long-listing & Initial Screening:Who are all the potential candidates for a partnership?

Launch Preparation & Mobilisation

Proof-of-concept, short-listing & Final Alliance Model:Who is the partner?What would the alliance look like?

Program Management Support: Market launch, Ramp-up, etc.

Strategic alliance in box Value

1 2 3

4 5 6

• Leverage existing Playbook to provide a tried and tested toolkit

• Leverage Monitor Deloitte’s existing relationships in the region for “agile acceleration”

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About Monitor Deloitte07

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Monitor Deloitte provides unique insights & ideas focused on delivering business impact

Monitor Deloitte combines the strengths of both practices including thought leadership, talent, resources, and global reach; allowing the firm to provide clients with unique insights, leading edge ideas and methods, actionable analysis and recommendations, and extensive hands-on implementation experience – all firmly grounded in deep industry knowledge and focused on business impact

Strategy Thought Leadership

• World-class thought leadership

• Action-oriented

• Customised solutions

• Solid analytical capabilities

• Leading-edge methodologies

• Global experience

• Consumer & Industrial Products

• Financial Services

• Travel, Hospitality and Services

• Technology, Media & Telecommunications

• Public Sector & Economic Development

• Life Sciences & Health Care

• Energy & Resources

• Tier 1 strategy consulting capabilities

• Presence across 150 countries

Deep Industry Expertise Global Capabilities

Monitor

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We are thought leaders in key disciplines of business and strategy…

The Art of theLong View

by Peter Schwartz

Powerful Times: Rising to the Challenge of Our

Uncertain Worldby Eamonn Kelly

Playing to Win: How Strategy Really Works

by A.G. Lafley and Roger Martin

Ten Types of Innovation: The Discipline of Building

Breakthroughsby Larry Keeley and others

The Power of Pullby John Hagel

The Strategy Paradoxby Michael Raynor

The Innovator’s Solution and The Innovator’s Manifesto

by Michael Raynor

The Strategy and Tactics of Pricingby Tom Nagle and

Joe Zale

Managing Your Innovation Portfolio

by Bansi Nagji and Geoff Tuff

Competitive Strategy: Techniques for Analysing

Industries and Competitorsby Michael E. Porter

Moments of Impactby Chris Ertel and Lisa Kay Solomon

Brand Resilienceby Jonathan Copulsky

Pricing and Profitability Management

by Julie Meehan

Multi-channelBrand Experience

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… and are at the forefront of research on digital transformation and acceleration, globally and in ASEAN

Strategy not technology drives digital

(Co-authored with MIT)

Blockchain(Co-authored with WEF)

Future of Financial Services (Co-authored with WEF)

Accelerate performance of Digital Ecosystem

(Global perspective)

Digital era for ASEAN conglomerates

Brighter shade of FinTech

Igniting the new Telco Value Engine – B2B Markets (Global

and ASEAN focus)

Digital Ecosystems(Global perspective)

Deloitte Indonesia survey on Fintech

Innovate Silicon Valley way

TMT Predictions 2016(Global and ASEAN focus)

Digital Identity(Co-authored with WEF)

Patterns of disruption

Global Mobile Consumer Survey 2016 (SEA focus)

Finance-as-a-Service:API Playbook

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Mohit MehrotraStrategy Consulting LeaderMonitor Deloitte [email protected]+65 9452 9432

Eugene HoConsumer & Industrial Products Industry LeaderDeloitte Southeast [email protected]+65 9670 2040

Ho Kok YongFinancial Services Industry LeaderDeloitte Southeast [email protected]+65 6216 3260

John GoeresTechnology, Media and Telecom Industry LeaderDeloitte Southeast [email protected]+65 8233 9412

Lee Chew ChiatPublic Sector Industry LeaderDeloitte Southeast [email protected]+65 5224 8228

Mark EdmundsEnergy & Resources Industry LeaderDeloitte Southeast [email protected]+65 6224 8288

Mohit GroverLife Sciences & Healthcare Industry LeaderDeloitte Southeast [email protected]+65 6531 5207

Contact us

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Acknowledgements

Mohit MehrotraStrategy Consulting LeaderMonitor Deloitte [email protected]

Piyush JainDirectorMonitor Deloitte [email protected]

Djoko SoehartonoManagerMonitor Deloitte [email protected]

Kuok Shern NgManagerMonitor Deloitte [email protected]

Vikas Gupta ManagerMonitor Deloitte [email protected]

Samrat BoseManagerMonitor Deloitte [email protected]

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