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A wave of digital change:Trends in digitalE-nnovation 2013

In association with

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KeynoteKeynote

Introduction

Our trends

Economic Impact

Implications

About us

Social

UX

Payments

Big data

The internet of things

Mobile

Security

Cloud

Just this year, Europe has experienced double digit growth rates, and expects to see sales reach over 300 billion euros by 2016. Electronic and apparel online shopping, particularly cross-border, have been on the rise, trending throughout the continent at rates that are predicted to double by 2015. In the past, Western and Central Europe have taken the lead in B2C markets, but Eastern Europe is quickly gaining speed to its neighbors. With Poland right in the middle of it all, we feel we have the best seat in the house. Our B2C market is more mature than Eastern Europe, though we’re still part “underdog” in comparison to the Scandinavian countries, UK, Germany, Netherlands and France. This autumn, between the 24th and 25th of October, the city of Poznan will become the special place, where the greatest companies, brands and business ventures touching e-commerce come together for the fourth edition of ‘e-nnovation’ confernce. ‘E-nnovation’ channels all parts of the world, bringing together top players of global

e-commerce, in efforts to not only spread industry knowledge and exchange successful practices, but to jump start discussions on the future of the business market we’re all a part of. Global trends will be compared with current developments in the Central and Eastern European markets. The conference provides an ideal meeting place for people who have the greatest influence on the trade in the region, including CEOs and top management of the most important companies in the sector, experts and experienced practitioners of e-commerce, as well as young, creative entrepreneurs engaged in innovative projects. As part of the ‘e-nnovation’, Deloitte, Allegro and PayU have prepared this report – which outlines some of the important digital trends that are currently shaping e-commerce industry and society more broadly. We strongly believe that following the example of the previous editions, the e-nnovation 2013’ will create a space that will help your form new partnerships and cooperation, and will contribute to the rise of new international initiatives.

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IntroductionThe current changes in digital technologies constitute both threats, and significant opportunities for business. This report contains an analysis of how digital currently affects us and the economy, as well as practical examples of what is being done, and what is possible in the digital space.

In writing this report, we hope that it will trigger ideas, inspire, and if necessary, spur to action. For the professionals who contributed, we thank you – and for our readers, we invite you to join the conversation.

It’s been twenty years since Mosaic, the first web browser was released to the public in 1993. Since then, we’ve seen several waves of digital change shift how we live our day-to-day lives. First, we could suddenly access information from around the world, or send e-mail to friends on other continents in an instant. Then, we could download music, do our banking, or trade shares from our PCs. Each time customers changed their behaviour, businesses reacted, and there were both winners and losers. The next great wave of digital change is now with us – and business must take notice.

The first waves of digital change have already hit business. In the beginning we saw the growth, and then the burst of the Dot Com bubble. Afterwards, digital business was more mature – here we saw digital firms disrupt, successfully compete with – and in some cases, outcompete traditional companies. The businesses that adapted to our changing digital habits survived. Those that didn’t struggled. Blockbuster succumbed to the rise of video-on-demand and Netflix: after first rejecting an offer to partner with their digital rival1. Borders did not adapt quickly enough to Amazon and customer desire for a convenient digital channel. And how many of us attended auctions before the advent of Ebay and Allegro?

The next wave of change is now upon us Social media has come into the mainstream, while cloud computing and big data are doing the same. The shift in ways of doing business is perhaps reflected in the bankruptcy of Kodak and the rise of Instagram. The former once employed 62,000 people and filed for bankruptcy in 20122. The latter employed 13 staff and was bought by Facebook for $1 billion USD in the same year3.

The changes we see are underlaid by broader shifts in technology and society. The adoption of mobile means that smartphone and tablet sales have overtaken PCs this year. In the US, the percentage of smartphone owners was 11% in 2007. It’s currently at 31% in Poland – and has grown to around 50% in the US4,5. Cheaper sensors and connectivity means that objects from trucks to handbags are gaining internet connectivity, as the ‘Internet of Things’ expands. The internet is becoming ubiquitous.

Not only does the Internet surround us, it is changing the way we act, what we expect and potentially, how we think. We now check prices on our phones while at the shops, and sit on the couch with our tablet while watching TV. We don’t require physical bank branches (or ATMs) to carry out most of our transactions – and we expect the digital channel to work. Medical

researchers have pointed to the “plasticity” of the human brain, and noted that even in adulthood, we’re constantly adapting, learning and changing – “neuroplasticity is not only possible, but [. . .] it is constantly in action”4. Consequently, arguments have been made that the Internet is changing how we think and reason. Negative perspectives argue that we’re becoming more superficial, and easily distracted. Others point out that we’re capable of both ‘skimming’ and ‘deep diving’ into information, and can now process and analyse information much better than before6. Whichever is the case, the Internet has changed our daily actions and expectations.

We’re also seeing the first generation of ‘digital natives’. This new generation is comprised of people who have grown up with the internet throughout their lives. Digital natives not only want, but expect a great experience in the digital channel, whether it’s in social media, banking, or shopping. Poland is not immune to this generational shift. We have one of the highest social media usage rates in the world – higher than Germany, France or Japan, but also one of the biggest gaps between young and old – and not all areas of business seem to have noticed. The combination of smartphone adoption, ubiquitous internet, and the rise digital natives and our own expectations mean businesses needs to respond, or risk being left behind by those that do.

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Key take-aways from this report

How we use the internet is changingWe’ve reached a tipping point. There are now more smart phones and tablets being sold than there are personal computers – and we are no longer tethered to PCs when accessing the internet. The web comes with us when we’re browsing at a shore, paying for items, or watching TV. Companies can now design for phenomena that merge the physical and the digital, and weren’t commonplace a few years ago: showrooming, social commerce, and mobile payments to name just a few.

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Customers no longer just want digital, they expect itCustomers are becoming used to digital options in their interactions with companies, and have come to expect it them delivered with a sound user experience. Social media is now regularly used for tasks from customer service to recruitment, in addition to advertising and maintaining brand presence. A seamless mobile experience is also becoming ‘expected’ and the production and use of apps around the world has mushroomed, while the payments space in particular is being disrupted by mobile.

Business can adjust to current needs…Big data can help businesses refine their understanding of just what those customer needs are, and inform decision making. Data analytics is cheaper than ever, allowing even smaller businesses to benefit. User Experience and mobile payments are already on the radar for many businesses, while security should not be forgotten as an immediate concern. As the digital channel becomes more and more important, it also becomes a more lucrative target.

… and prepare for new onesAnalysts predict that the Internet of Things could contribute $14 trillion to the global economy by 2022. Though it’s still in its infancy, IoT it is creating a buzz, and is a space to watch. Not only can it help retailers track their logistics and internal processes, it can revolutionise how we interact with our physical space – from products and billboards, to each other. Finally, it’s likely that cloud, will give us access to technologies that aren’t even invented yet – without requiring us to invest in infrastructure. Consequently, businesses should have a sound understanding of cloud to prepare for the future, whatever it may be.

Customers’ expectations in digital are changing, and business needs to respond.

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Our trends

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Implications

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Payments

Big data

The internet of things

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Security

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Big dataData and analytics are at the heart of developing customer insights.

SocialSocial media has gone mainstream – but is business getting the most out of it?

User ExperienceA focus on user experience is no longer an option – it’s a must have.

Payments“Sell and cell” – smartphones will be shaping the world of payments.

Internet of ThingsThe Internet is changing the way we live…again.

SecurityThink you can’t be hacked? Think again.

The Impact of e-commerce on the Polish economyOur analysis of the impact of e-commerce on the Polish economy.

Overall implications for businessA short summary of how businesses can respond.

MobileRetailers have the opportunity to change mobile from a threat to an advantage.

CloudCloud Is bringing us some futuristic technologies without the upfront cost – but integration is challenging.

Our trendsThe report covers eight digital trends and their implications for business.

It also presents an analysis of the impact of e-commerce on the Polish economy.

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Big dataData and analytics are at the heart of developing customer insights – and with Big Data becoming ever cheaper, it’s easier for the little guys to take part.The world’s data is growing at a pace and volume not seen before in the history of the world. In 2013, 500 million tweets are sent each day, and 30 billion pieces of content – including GPS, social interaction, or sentiment data – are shared monthly by Facebook’s 1.15B active users. Companies like Amazon and Wal-Mart have long used this ‘big data’ effectively to develop real customer insights. But there’s a twist. Big data and the analytics that can put it to work are now accessible to small and medium enterprises, not just market giants.

We’re generating a huge amount of information

And with big data easier to acess than ever,

the market is growing...

Then

Size of Amazon data warehouse in 1999

Avg. amount of stored data for each US company with over 1000 staff

Invested in companies focusing on big data in 2012

Sources: 4,7,8,9,10

100TB 200TB $1B

Now

Big data is getting bigger than it used to be

Market size for Big Data

$10B

2012

$48B2015

BIG DATA

Projected year on year growth in Big Data

40%

Resulting in

12TBof data generated on Twitter daily

500Mtweets sent per day

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Over a decade ago, three characteristics were coined as making data ‘Big’: Volume, Velocity, and Variety. All three have grown since then. In the US, the average volume of data stored by a company of over 1000 employees in 2012 was 200TB – More than double Wal-Mart’s data store in 19999. The pace at which data is being generated, as well as the forms it has taken has also skyrocketed. The web of a decade ago did not feature Facebook or Twitter, while clickstreams and geo-tagging were in their infancy. But the point isn’t just that there’s now a lot more data being generated in the world – it’s what we can do with it.

By combining multiple, seemingly unrelated data sources, businesses can draw business insights like never before – and the explosion of data sources available has allowed organisations to do just that. Retailers like Burberry combine their SAP data with social data to make timely adjustments to their supply chain. Wal-Mart uses transactional data, coupled with social media interactions, blog posts, and location information to help gauge business demand when launching new products4. Both Netflix and Amazon utilise ‘recommendation engines’ which can suggest a product that we’re more likely to buy – not just based on our past purchases, but on our online behaviour. The benefits of this are considerable. Some analysts claim retailers can improve their margins by up to 60% through better use of big data11. But supercomputers and number crunching have been around for a long time – so in relation to Big Data, what else is new?

For one, it’s likely big data will become a more integral part of our day-to-day work. Deloitte has predicted that it’s probable that “more users across the value chain will need to be able to consume insights as part of their daily workflow – or risk being left behind”4. Secondly, the speed at which we deal with data and analytics will need to increase – with so much data being generated so quickly, we need to extract insights and signals from data streams in near real-time, instead of storing “everything” for later consideration10.

Day to day use, as well as speedy processing of data were evident at the London Olympic games. The Games’ Organising Committee (LOCOG) established a big data process that delivered a report (mostly from feedback via social media) to major Olympic games venues every morning to action aspects that could be improved for the next day12. This kind of data processing immediacy is just the beginning – and solutions such as real-time

data visualisations, helping human experts gain insights with the aid of number crunching are also gaining use. But big data is not reserved for Industry giants. Small and medium businesses can benefit too. Importantly for them, big data has become cheap8 . Kaggle offers more than 60,000 data scientists4 across the world in a ‘bidding-style’ format that allows even small companies to access high end analytics. Services like Factual, Intuit, or Allegro.pl share location, industry, or sales volume data with customers, allowing them to derive customer insights. Small businesses are taking advantage, using big data to understand ‘who’ customers are, engage them through their preferred channels, and outcompete much larger rivals11. Big data is a powerful business tool, and now it’s for just about everyone.

Retailers like Burberry combine their SAP data with social data to make timely adjustments to their supply chain.

Using big data can lead to big insights – for large and small business

data scientists offered by Kaggle to solve analytics problems

60 000

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In the US, Netflix uses big data not only to recommend products for its customers, but to inform decisions about which shows to invest in.

In a well-publicised case, Netflix made an investment of around $100M to produce 26 episodes of ‘House of Cards’, directed by David Fincher and starring Kevin Spacey based in part on its analysis of big data. The decision has resulted in Nine Emmy nominations and according to Netflix – the most streamed show in the US and 40 other countries13,14.

Netflix gathers viewing data from 30 million “plays” a day, including when customers pause, rewind and fast forward. This is blended with data from social media interactions, web searches, as well as comments generated by thousand of viewers (paid by Netflix) who make notes on genre, mood, and other elements in every moment of screened shows14,15.

Netflix – Selecting investment based on customer behaviour

Big data case studiesLooking at its customer data, Netflix knew that those who had streamed films by director David Fincher also tended to like films featuring Kevin Spacey. Likewise, a significant portion of their audience liked the original BBC “House of Cards” mini-series. Netflix judged a significant enough ‘intersection’ in these groups to determine that the show had a market and was worthy of investment. They then used their data driven confidence to outpace rival bidders by indicating the company would not even require a pilot to be developed before committing to the entire series.

The use of big data went further. Even trailers for the show were delivered depending on data analysis. Kevin Spacey fans saw trailers featuring him, women watching ‘Thelma and Louise’ saw trailers featuring the show’s female characters and serious film buffs saw trailers that reflected [David] Fincher’s touch14.

According to the company’s chief communications officer, the use of big data gave Netflix “confidence that [they] could find an audience”14 for the show. This kind of approach is spreading, and competitors like Amazon are also looking to use a data-driven method to select original content.

Walmart – Launching products with big data As part of its ‘Social Genome Platform’ Walmart uses multiple types of data, including social media updates, blogs, transactional data, images and location data to help the business effectively predict demand and launch products86.

In one case, Walmart launched a new range of spicy chips in California and the South West based on analysis of social media chatter and transactional data of various chip products across the country. Big data was successfully used to identify a market opportunity, and successfully launch a product for a specific geographic area. GE – Improving operationsGE’s ‘Grid IQ Insight’ tool mines social data to help electrical utility companies identify and validate service outages in a timely manner, determine the resources needed to address them, and accelerate the repair process4.

The tool mines social data – including tweets with mention of electrical outages, geo location data and attachments such as photos – to verify and gain more detail on incidents. Photos and videos of the environment, such as fires or downed trees, help personnel select appropriate tools for the task, while ‘clusters’ of social media data can help validate whether an incident has occurred. All of this assists in planning a faster, more effective response.

Netflix made an investment of $100M to produce 26 episodes of ‘House of Cards’ based in part on its analysis of big data.

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Big Data introduces a new generation of technologies and architectures for coping with the size, diversity, and change that characterize data sources in the modern business ecosystem. The possibilities presented by Big Data are numerous and together with advanced Analytics they offer exciting new capabilities for analysing high-volumes of rapidly evolving data streams, particularly unstructured data representing social media, geospatial data or click streams.

However, Big Data is not a magical panacea for achieving business goals like better understanding of customers, enhancing service differentiation, reducing risk or improving performance. Big Data is still data and it should be approached it the same way as any other Enterprise Information Management challenge.

Companies should start with asking the right business questions and then work to find the appropriate choices of data sources and technologies to address their needs. I believe the most important advantages of embracing Big Data today refer to getting to know customers better – where the customers are, what their needs and preferences are or how they want to be contacted. Furthermore, the answers to these questions change dynamically so businesses should work on understanding the drivers and learn to track the changes, so that they’re able to present customers with better tailored products and offers in a timely way.

Very few companies embarking on Big Data programs understand that the strength and quality of Big Data analysis bear little relation

to the tools that have been bought.

Rather than capturing terabytes of data and rushing into large programs, organizations need to focus only on the data needed to deliver well defined and specific outcomes. In many cases it doesn’t immediately require looking at social media or other new external sources of data.

According to big data research by the Economist Intelligence Unit, more than 75% of senior executives from over 500 companies say that they are wasting more than half the data they already hold. Companies need to learn how to make better use of what they already have.

Over the last ten years, companies invested heavily in ERP, CRM or core systems, processing millions of customer transactions daily but are still unable to answer fundamental questions like which customers are most likely to buy specific products, or what is the acceptable price range for a product in a specific market or for a group of customers. Very few have started using the information in their systems to build models approximating customer lifetime value, or discovering events that make customers more interested in specific products. One example of such event from the financial services area might be a situation where a customer without credit card starts traveling abroad (e.g. the bank can infer it from debit card transactions) – It might be a good opportunity to call him or her with a credit card and insurance offer.

Taking a lean approach, defining the right business questions, looking at the internal data available today – as well as opportunities to gradually supplement it with external data sources would allow firms to use data in a more efficient and intelligent way. This will allow them to listen, learn and engage better with their customers in the future.

Dariusz Flisiak, DeloitteDariusz Flisiak is a Director at Deloitte Poland specializing in Analytics, Big Data, Performance Management and Information Management solutions. He has thirteen years of experience in business and IT consulting, with an emphasis on enabling strategic information for clients.

He has developed and implemented Analytics strategies and solutions for Financial, Consumer Goods, Telecommunication and Public Sector companies worldwide.

Dariusz holds an Executive MBA from Warsaw School of Economics and the University of Minnesota, Carlson School of Management.

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Define what you wantBefore you start, define your priorities and opportunities in big data. You can consider selecting a specific domain in which to begin (e.g. customer, product, pricing or risk). Asking yourself questions about ‘sticky’ business issues can help determine your focus – “Who are the next 1,000 customers we’ll lose – and why?”, “What factors most influence our customers’ loyalty?”, “Which facilities are using more energy than they should?”.

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Start small and deliverDon’t try to do too much at once. Instead, start small and aim to deliver a success quickly, while you have momentum. Focus on areas where your organisation has the most expertise, and focus on a tangible, bounded project. Run some experiments to test the data and deliver results. But once the scope is set, don’t limit your data to just one domain. Feel free to investigate seemingly ‘unrelated’ data sets – it’s at the intersection of different types of data that valuable insights often occur.

Invest in talentCombining human expertise with machine learning, data visualisation and other tools can produce timely results with less investment in infrastructure – and gives a higher tolerance for error. Imperfections in data sources and the limitations of machine learning can be counteracted by human insights and domain knowledge. To make big data effective, you’ll first need people to help understand the information assets at your disposal and understand business priorities. Only then can you move to determining technology needs.

Keep your data disciplinedIf you’re investing in big data, you’ll need to invest in data discipline – Core data management, master data management, integration, and stewardship are important, even during your smallest pilot projects. Data discipline is one of the foundations on which your big data investment will be developed, so build it well.

Combining human expertise with machine learning, data visualisation and other tools can produce timely results with less investment in infrastructure.

Implications of big data – and what you can do

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MobileMobile access to the internet is shifting how customers shop – and retailers have the chance to change mobile from a threat to an advantage.Finally, we’ve reached a tipping point – there are now more smart phones and tablets sold globally than there are PC’s. Mobile is changing the way customers purchase, from research, to browsing and payment. A large number of customers are ‘showrooming’ – checking product prices and reviews on mobile devices while in store, before making a purchasing decision. Near field communications have realised new possibilities in mobile payment, and taken location-based marketing possibilities to a new level. Mobile is here, and businesses that don’t take notice may lose out.

Companies are catching up

Future 100 companies have a publically available app

Future 100 companies have mobile enabled websites

WIG20 companies have a publically available app

62%52% 60%

...and habits in Poland are starting to reflect the latest trends

UK US PL (16-30 y.)

PL (avarage)

31% 28% 25%10%

Mobile is overtaking PC

Global market share

Showrooming with a mobile

2009 2013 2017

50%

30%20%

65%

13%

70%

PC/LaptopMobile

But the customer is already there...

customers multiscreen

customers showroom

80% 33%

Sources: 4,10,16, Deloitte

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For Lenovo, the milestone came in August 201317 – the company now sells more smartphones than it does PCs and laptops, and is rebranding itself as a ‘PC Plus’ company. This ascendancy of mobile device numbers is echoed in the strategies of other firms. Furthermore, some researchers claim that it’s not just the amount of devices sold, but the time spent on ‘non-voice’ mobile devices which now exceeds that of PCs18. The hundreds of millions of internet devices now in our hands are changing the way we act – and the way we shop. There are several key mobile trends of which retailers should take note:

Multiscreening – using an internet connected device while watching TV is now a common activity, and it is offering new ways of interacting with brands. Heineken’s UCL “Star Player” and Coca Cola’s ‘Chok! Chok! Chok!’ campaign in Hong Kong provided mobile content matched to TV. The upcoming Zeebox platform goes further, and will allow viewers to buy items inspired by shows, while watching them live19. Multiscreening can be used to lead customers all the way from initial interactions up to purchase.

Research online, purchase offlineMobile devices are even more likely to be used at an earlier stage, for initial product research. The practice of ‘Research Online, Purchase Offline’ (ROPO) has been around since the beginning of e-commerce – Research implies that around 50% of consumers actively research products online before purchase20. And now, we are becoming more likely to look for product

information on an iPad or a smartphone than on a PC. Herein lies the difference – unlike the PC, mobile devices come shopping with us.

Showrooming – Around one third of customers admit to showrooming – going to stores to browse and try out products – before purchasing them somewhere else. Mobile allows customers to search for information and compare prices during their visit – 28% of shoppers in Poland21 showroom with their mobile. Electronics and homewares20 are categories that are particularly affected.

Showrooming constitutes a threat for retailers – In the US, Best Buy and Walmart suffered as customers browsed in their stores, only to complete the purchase elsewhere online. Early attempts to counteract this were unsuccessful – in one well publicised case, an Australian speciality

food store attempted to charge customers $5 for ‘just looking’6.

More mature retailers have responded by treating showrooming as a chance to finalise sales in store by targeting users of mobile devices. This turns showrooming into an opportunity. BestBuy, Target (US), as well as Media Markt and Saturn (Poland) allow customers to compare prices with the competition in store – and some employ aggressive price matching to convince the customer to make the purchasing decision there and then. Walmart goes further, with mobile apps that guide showroomers around their store – and successfully encourage them to use Walmart’s online channel while on the premises.

Mobile is already here – and the businesses that embrace and adapt to new practices stand to gain ground.

One third of customers admit to showrooming. Mature retailers have responded by treating this as an opportunity to finalise sales in store.

A new way of shopping is already here

2012

6M

2013

8M

Smartphones in Poland

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The electronics and appliance categories are amongst those most affected by showrooming. Recently, one of the biggest retailers in the game has responded with a model solution. Best Buy is using the mobile channel to bring customers into the store. The retailer has created an application that makes use of the company’s existing ‘ecosystem’ and works on a number of levels: 1) Using a geo-tagging, the app allows

customers to ‘check-in’ at physical store locations to receive rewards points on their existing loyalty program – Customers are incentivised to come into the brick and mortar stores

2) The app also features ‘deal of the day’ discounts specific to in-store items, further driving foot traffic

3) The above are coupled with an aggressive pricing strategy. Best Buy will match the price of deals customers find online, lowering the relative benefits of leaving to purchase elsewhere. “If I’ve found the

Best Buy – Working with showrooming

Mobile case studies

product I want cheaper on the web, and I can get it for that lower price right here, than why not?”. This way ‘showroomers’ can be directly converted into paying clients on the spot.

These methods have both advantages and pitfalls, but some analysts are already pointing to this strategy helping halt last year’s 3% fall in sales23,24. Whatever the contributing factors, Best Buy’s 2013 sales have remained steady, and the share price has more than doubled in the 12 months from September last year.

Coca Cola – Brand interactionIn Hong Kong, Coca Cola launched what became the territory’s most successful branded app by combining mobile functionality with a TV ad – which featured a Coke bottle being opened and the cap falling off. Viewers could ‘scan’ the caps with their mobile phone as they fell, and capture instant prizes. The results were impressive – sales rose by 11%, and the game was

played over 12 times for every teen in Hong Kong19.

Silvercar – Mobile firstIn the US, Silvercar utilised the increasingly popular ‘mobile first’ approach in designing their online presence. Rather than designing a new website, followed by a mobile version as an ‘add on’, the company built the mobile version first. This allowed the company to start with a small investment and scale up. It also helped design a better user experience (what works on mobile usually works for web – but not the other way around) all while capturing more of the growing mobile channel25.

The showroomer is presented with a list of comparison prices... and can pay and check out directly from their phone.

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“Every once in a while a revolutionary product comes along that changes everything…”.That’s how Steve Jobs began his presentation of the very first iPhone, in January 2007. From today’s perspective it’s still hard to believe what kind of breakthrough this product has made in most of our lives.In the latest Mary Meeker’s Internet Trends presentation, we can see that mobile traffic as a percentage of total internet traffic is growing one-and a half fold per year. This will get faster. The latest Cisco research shows that by the end of 2013 there will be already more mobile connected devices than there are people in the world. From a different perspective, approximately 370 thousand babies are born per day, but in that same time, more than 500 thousand iPhones are sold and around 2.4 million Android devices activated.

So, with the mobile revolution happening in front of our eyes, how do we achieve success? Who is playing this game and what are the rules?The difference between smartphones and other revolutionary devices (the likes of print, radio or TV) is that smartphones are really smart! They are permanently carried, are always on and already have built-in sensor mechanisms that can not only automate lots of our daily activities but also completely reinvent the way we interact with our environment.The way we should think about designing for those devices also needs to be revolutionary. If we journey back to the last twenty plus years for a few examples – Radio was not TV, the Web was not Print and it’s

the same today, Mobile is not a PC. Using the Print vs Web example and referring to the Newspaper Association of America report, Newspapers have lost $40 Billion in advertising revenue since 2000. If you don’t want to lose the mobile game, make sure you are ready for a complete revolution in your product design, in your business orientation and most importantly in your customer behaviour.When we look at the statistics of daily mobile usage, we can see that we do in fact perform a very similar set of activities on a mobile as on a PC: we interact with friends, we play games, we watch videos and we shop. But on a 4-inch screen it’s just a very different experience. And our biggest job is to make all that new interactions effortless. Simple transfer of the big Web into a mobile device is a very common mistake, especially in

eCommerce.The best example of the revolution, online (research) to offline (purchase) and vice versa (showrooming) is happening already. In the 2013 Future of Business Report, Brian Solis states that Millennials already trust strangers over family and friends. They lean on User-Generated Experience to aid purchasing decisions. Look at this, and other similar examples, as an opportunity to reinvent the rules of your business.

To win, drive all your decisions through one goal only: deliver an exceptional customer experience (and the rest will follow). In today’s world this means being able to adopt quickly and also, being able to question all your previous accomplishments. But take that risk, because winners will always be the ones that follow the consumer.

Przemysław Budkowski, SVP Marketplace, Allegro GroupResponsible for managing transaction platforms, Comparison Search Engines and eShop solutions in CEE.He was previously managing director of Allegro – Polish largest marketplace. Before joining Allegro Group he worked as CEE Product Marketing Manager Google in Ireland, US and in Poland as well for Orange Business Services (France Telecom Group) in Ireland.

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Provide a mobile optionWith the proliferation of mobile devices, the chances are that a lot of your customers will want to consume information about your organisation and products via mobile – Or more likely, they already are. Confirm this, and ensure that you’re effectively providing information and functionality through the mobile channel. This could take the form of apps, a mobile optimised website, or other solutions depending on your needs.

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Embrace showroomingIf your brand is affected by showrooming, there are several things you can do. Consider if there are benefits to building a mobile application that rewards shoppers for purchasing in-store or within your own online channel. If your customers are already online while they shop, try to keep them within your own online ecosystem. In addition, make sure that you monitor review websites as well as competitor’s prices online to ensure that you’re aware of what your shoppers see when they are showrooming – and look for ways to differentiate.

Be relevantContext is everything, so map a ‘customer journey’ for your client segments to understand where and how you could use mobile during the purchase process in a way that is relevant to them. Reviews, prices, and deals are currently what shoppers primarily look for on mobile devices – so check if you are providing this information through your mobile channel, and how it fits into your customers’ retail journey. Consider delivering content that is targeted to the customer’s geo-location. This ability is a key differentiator between mobile and PC, and adds relevance for the client.

Go mobile firstWhen considering your online presence or launching new digital services, think about going mobile first – before designing a traditional web solution. Not only are customers consuming more and more information through mobile devices, there may be substantial cost savings associated with first designing a mobile version of the site instead of building a traditional website and ‘tacking on’ a mobile solution at a later date. Mobile design forces you to focus on the elements that are most important to the customer, and if techniques like responsive web design are used, mobile web can be translated to a ‘full screen’ version relatively easily. Starting mobile first generally requires lower investment, is more user focused, scales, and allows you to capture both mobile, tablet and PC customers right away.

Context is everything, so map a ‘customer journey’ for your client segments to understand how you could use mobile during the purchase process in a way that is relevant to them.

Implications of mobile – and what you can do

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CloudBusiness is certainly adopting the cloud – the next challenge may now be integration.Some of the initial concerns regarding cloud (security, remote location of your data) are being resolved, but new challenges are arising for early adopters and their followers.

As a company forays into the cloud with its first cloud-based application for a single department, other business units may follow – each with a cloud solution. So how will you manage a hybrid of all those clouds?

Business is well and truly in the cloud There are a wealth of benefits to be had

Implementation times are quickerAnd the global cloud market is growing

of businesses globally already employ some form of cloud solution

Global cloud market

Project completion times for a sample group of projects

2011

2020

70%Cons

Pros

Increased ROISecurity

Lower up front investment

Control and compliance

Focus core competencies

Faster deployment

Greater scalabilty

One size fits all

On demand (cloud)

On premise

<3 months 3-7 months >7 months

59% 56%

32% 28%

9%11%

$40,7B $241B

Sources: 10, 27, 29

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Cloud computing has created a lot of buzz in recent years – and has caught attention with some advantageous characteristics.

These include:• Flexibility and scalability – assigning computing as needed • Mobility – ubiquitous access and location independence• Resource pooling• Pay-per-use – predictable pricing.

This in turn led to financial benefits such as: cost effectiveness (as one paid only for what was used) and lower upfront investment (as no expensive hardware was required to be purchased). On the other hand, cloud also triggered anxiety related to data security, availability and performance, data control, and provider maturity.

Integrating cloudAs cloud solutions become more mature and adoption becomes more widespread, corporations have become more willing to make use of IaaS, PaaS or SaaS. Launching non-business-critical applications (such as sales, services, marketing and human resources) into the cloud, can be relatively ‘nice and clean’. However, dealing with complex, applications with sophisticated multilevel user management, which need to be integrated not just with local master data management, but with other SaaS solutions can be a huge challenge. For this reason, business rules management for processes that depend on multiple cloud services will be an important trend.

Hyper-hybrid cloudsAll sorts of organizations have been trending towards hyper-hybrid clouds. This is evident at start-ups, with their cloud-first mentality. As spending is prioritised towards market-facing products, rather than infrastructure, these organizations are setting the standard for the hyper-hybrid environment, using it to guide new operating structures and IT delivery models. Meanwhile, larger enterprises can use cloud to enhance their large legacy system investments and ERP solutions. Core in-house systems can form the foundation upon which emerging technologies are deployed – without sacrificing business compliance and controls. Organizations that can bridge hyper-hybrid clouds with their core systems will be at the forefront of improving business performance with the next wave of digital innovation28.

Security and data integritySecurity and data integrity still remain a concern. Regulators have raised their awareness of cloud-computing and have been introducing regulations regarding data processing, supervision, and ownership. In particular, recent issues regarding “the possibility of the personal data being subject to intelligence gathering or surveillance by third-country authorities”29, provoked discussion of introducing the so-called “Schengen for data” – a law that allows citizens within the euro zone to cross borders without a passport, but does impose hurdles for others. Business may be ‘in’ cloud, but the space continues to evolve.

Cloud computing is a model for delivering on-demand, self-service computing resources with ubiquitous network access, rapid elasticity, and a pay-per-use business model87.

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When Pfizer was considering increasing the utilisation of cloud technologies in its organization it chose to focus on R&D, the core engine that drives success for pharmaceutical companies30.

The R&D department was responsible for analysing, organising and computing large amounts of complex data to provide reliable results back to their scientists as fast as possible. However, Pfizer was not keeping up with the increasing demand for computing power required to process the information at a fast rate and a low cost. Both these factors were critical to Pfizer’s success in the marketplace.

To solve the problem, Pfizer partnered with a provider to create a private cloud solution. Taking advantage of cloud computing compressed compute time from weeks to hours. This enabled the company to make quicker financial and strategic decisions, resulting in gains measured in millions of dollars. Furthermore, the solution freed up scientists’ time to focus on core tasks (rather than on data processing) decreasing Pfizer’s R&D costs by 7%, or $600 million, since the

Pfizer – Reducing R&D costs by $600 million with cloud

Cloud case studiescompany implemented cloud in 2010.The deployment of cloud resulted in adoption and behavioural changes across the R&D group – and boosted Pfizer’s competitive advantage. It also opens possibilities for deploying cloud to other areas of the company – or even using it to collaborate with other areas of industry30.

USA.gov – Savings due to cloud computingThe US General Services Administration has migrated all of the core resources of the USA.gov Web portal to The Enterprise Cloud IaaS solution to enable scalable on-demand resources. The Cloud based solution provided number of benefits and savings: enabling higher transfer volumes and accommodating huge traffic spikes on one side, while avoiding paying for idle capacity on the other. The Office of Citizen Services, has indicated that that the move to Terremark’s cloud platform would “reduce costs by 90%, while improving capabilities”31.

Bambino Gesù Hospital – Improving patient care and lowering costs The Vatican hospital “Bambino Gesù Hospital” is one of Italy’s largest paediatric research and treatment centres. The hospital was receiving complaints from staff about the effectiveness of data sharing between doctors and nurses working in the operating rooms, the clinic, at the office and in their homes. The main issues were related to schedule sharing and management, patient data exchange and communication on treatment related issues. The old ways involved e-mail and other ‘legacy’ methods. In the end, the IT department supported

the implementation of a new cloud based system to deliver improved communication and collaboration services to employees. The rollout and uptake of the system has resulted in:• Savings of approximately 60% compared

with previous IT solution• Saving approximately 100 hours a month

in IT resources time• Better collaboration which helps to

improve patient care32.

Telefónica – Mobile operator goes cloudIn 2011, the Spanish telecommunication provider Telefónica, decided to take advantage of hybrid private-public cloud and to consolidate 27 European data centres containing approximately 18,000 physical servers into extensively virtualized solution of around 6000 servers. Cloud-computing was expected to reduce IT costs by 15%, cut the delivery of server resources to the business from 20 to less than 1 week, and bolster data centre reliability33.

Taking advantage of cloud computing compresses processing time from weeks to hours.

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Cloud computing has been undergoing a rapid evolution in recent years. What started as a novelty quickly became mainstream and it’s hard to imagine a modern enterprise that is not using any cloud services.

However, the term “cloud computing” has became very stretched due to the hype that surrounds the movement. Many quite distinct types of services are labeled “cloud” and sometimes it’s hard to understand why. It’s a little similar to ‘Big Data’ where even firms analyzing a company’s payroll data (hundreds of thousands records, trivial by any contemporary means) are claiming that they provide Big Data services.

Types of cloud companiesFirst, there is a large group of traditional Software as a Service web applications and application suites that have rebranded themselves as cloud applications. Rhese offerings have matured significantly over time, especially given the fact that those types of applications have been present on the market since late nineties. While they offer a compelling replacement for the traditional on-premise applications they remain relatively closed and self-contained.

A new breed of cloud applicationsThe new breed of cloud applications that came later leveraged open protocols and provided the rich APIs that enabled unprecedented possibilities of constructing sophisticated cloud-based solutions based on multiple services provided by different vendors.

An even more dramatic change is happening at the infrastructure level. The movement towards virtual cloud environments is completely changing the way we think about managing infrastructure. On one hand it enables a radical simplification and standardization of the underlying hardware as the capacity of the individual virtual machines are defined in software. On the other hand, for the first time, we can treat our infrastructure not as a hardware with some configuration but purely as software objects that can and should be managed as code. Therefore, an “infrastructure as a code” approach is emerging and it opens up possibilities to bring a rich array of techniques from the software development world to infrastructure. This will enable proper versioning, change management and testing of virtual infrastructure. The emerging software defined networking (SDN) solutions will nicely complement the mix, and ultimately enable the virtualization of the whole environment (data, application and networking).

Challenges and possibilitiesOf course, the cloud is not without its challenges. On the application side, the usual data security and confidentiality issues arise. The recent PRISM scandal was a serious cold shower to the whole industry. Data management and integration is posing as big challenge as with traditional applications. Combined with the relatively slow throughput of an internet connection vs. high-speed internal networks, it creates an interesting challenge for the data intensive enterprises.

On the infrastructure side, the cost equation is not always positive: if your computing power consumption is highly variable then public cloud will be a great way to handle it with the minimal cost. If it has a significant fixed part then you can most probably run it internally (using a private cloud) and it’ll be a financially better proposition. Looking at the current trends, it’s inevitable that companies will eventually adopt a hybrid private-public cloud model and it will enable mix-and-match usage and optimal spending for the services. The vast majority of applications running in today’s companies are not cloud-ready and it’s one of the stumbling blocks on the wide cloud adoption path. However, it’s inevitable that the next generation of apps will support cloud – and this will pave the way for cloud’s wider deployment.

Krzysztof Dąbrowski, CTO, Allegro GroupManagement Board member responsible for IT development and IT operations in the Central and Eastern Europe. For the last two years, Krzysztof is busy transforming Allegro Group into a modern, agile software house. He initiated one of European largest group-wide Scrum transition and is a big proponent of Lean and Agile methods. Being former programmer and engineer by calling he values clean, minimalistic designs and code craftsmanship. Being manager by choice, he tries to change the world for the better by nudging people around him. He previously built and led software development practice at Roche’s shared service center in Warsaw.

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Consider if cloud is right for youIf you’ve never considered applying a cloud solution in your firm, maybe it’s high time to think it over. The benefits can be considerable. Cloud does always present a risk associated with lessened control, but part of this can be mitigated by evaluating cloud based solutions for the non-core functions of your organisation, such as CRM, sales, HR, payroll or collaboration functions.These are points of entry that are often easier to introduce, and can be implemented in a way that makes them seem ‘familiar’ to your workforce, aiding uptake. However, always bear in mind the downsides and security implications – and weight them up with the advantages.

1

2

3

Determine where cloud may be the best fitIf you’ve decided you want to implement cloud solutions, you’ll need to evaluate where cloud services models are suited to solve your business problems – and whether they fit your technical environment. Cloud could be a fit if you require:• Predictable pricing: You want to be charged based on usage, rather than on perpetual licensing or allocation• Ubiquitous network access: The service offered is available wherever and whenever the network is available • Resource pooling and location independence: Multi-tenant, with shared resources that subscribers cannot explicitly specify

or partition • Self-service: The service can be directly accessed by users, features on-demand provisioning, while services are readied in close

to real-time• Elasticity of supply: Ability to scale up or down to meet resource demands28.

Effectively integrate clouds and local infrastructureIf your organisation already has a sizeable cloud footprint and you’re looking to further integrate cloud systems into your business, you should evaluate them first, and see if they’re meeting your original business requirements. Integrating underperforming cloud solutions presents a risk – it will cost money, increase technology dependencies, and complicate future migration strategies.

Consider creating common platforms for identity, access, data correlation and business rules. Separating these out from discrete cloud-based functions may help in the future. Consider cloud-based integration ‘platform-as-a-service’ solutions to complement enterprise integration layers or service buses. These platforms can manage the interactions between in-house enterprise applications and cloud services28.

You’ll need to evaluate where cloud service models are suited to solve your business problems.

Implications of Cloud – and what you can do

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SocialWith around half of the world’s internet users making use of Facebook alone, the power of social media in the digital space is beyond doubt. Social media is ubiquitous, and in business it’s being used for everything from brand promotion to customer service to social shopping. However, getting the most out of social media requires a lot more than using it as an advertising channel, or simply ‘being’ on Facebook and Twitter. Social can open up a wealth of possibilities if used properly. And if you’re not using it to your full advantage, your competition probably is.

Business in Poland is getting on board:

but social media could still be used much more effectively:

and global business is starting to implement it internally:

8,78M

Polish companies on social media

Facebook use in Poland by age

Fortune 500 companies who have or are establishing a social network

2011

2013

2%

but one of the biggest gaps between young and old:

Social media is becoming ubiquitous around the world:

Poland has one of the highest rates of usage in the world:

...and just overtook local service Nasza Klasa

Facebook has

active users in Poland

Rates of social media usage globaly

Facebook

YouTube

Sina Weibo

Twitter

Google

1 billion

503 million1 billion

503 million359 m

Facebook

Keeping up with trends

YouTube

Influencing brand image

LinkedIn

Better understand customers

Google+

Recruitment

Goldenline

Increasing sales

Twitter

Reducing customer-acquisition costs

Blogs

Nasza Klasa

Yammer

86%

18%

30%

10%

38%

15%

23%

8%

20%

UK

13-17 18-24 23-34 35-44 45-54 55-64 65+

USRussia

Poland

France

Italy

Germany

Japan

Greece

52%

38%

50%

30%

50%

34%

40%

29%

39%

62%

70%

90%

59%

35% 28%

25% 11%29%29%

20%5%

9%13%

Sources: 4,10, 34, 35, 36, 37

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Most brands already realise the importance of social media in managing their image, both in terms of brand building and crisis control. Communication with the costumer is no longer unidirectional – a dialogue is possible – and the conversation takes place in the public sphere. Positive, as well as negative experiences can be seen, shared and amplified to a network of millions. In Poland, many companies have realised this – and more than 50% of Polish companies on social media are there to manage their image34.

Social media has also changed the way we relate to brands and products, as consumers rely more and more on reviews and ‘social validation’ online. A Deloitte study found that while older generations were more likely to rely on “tried and tested” brands, younger consumers and are far more likely to engage through the Internet, looking for reviews and recommendations from peers in order to make a judgement on products4. Social validation is now critical for the credibility of products and services. Already, 33%36 of consumers view social media reviews before making a purchase – and ‘businesses like TripAdvisor, UrbanSpoon, Allegro, and eBay all rely on social reviews as a cornerstone of their service.

But social is not just an image tool – it can also be used to drive e-commerce more directly. ‘Social shopping’ services such as Feyt and Pose use social media and sharing to ‘curate’ clothing and accessories specifically to a customer’s needs through a “find out what to wear, then buy it” business model. ‘Social network commerce’ allows

users to buy products while within a social network like Facebook or China’s Qzone36, and firms like Shopify and Soldsie are offering services to facilitate the process. Social media content can even become currency – Services like paywithatweet.com allow companies to ‘sell’ reports and electronic media in return for a user ‘tweeting’ or posting a Facebook message about a product.

Customer service is another area in which social media use is growing, as it provides a relatively low-cost channel through which customer service teams can offer support and triage customer issues. With around 1/3 of customers preferring to contact brands through social media than by phone, it is especially important to offer this channel option. In Poland, ING Bank Sląski, mBank and Dbaj o Zdrowie all offer support through their Facebook sites. Social can even be used to crowdsource customer service. Australian telecommunications firm Telstra and Commonwealth Bank have both created platforms where employees and members of the online community can respond to customer queries and help solve problems.

Finally, organisations can use social to improve their own processes and functions. LinkedIn is regularly used for recruitment. Tools like Yammer (a cross between Facebook and Twitter) have been widely adopted by corporatations. Tasks like standing up and saying “Has anyone ever done…” are no longer limited to the local team sitting in your room – they can be asked across offices, cities, and countries. Deloitte has suggested that companies can transform how they do business by

harnessing social media internally. This is affected not just by ‘bolting on’ social media tools to improve collaboration, but by reengineering whole business processes to overcome constraints like limited context for decision and action, or “same-time, same-place” requirements for employee productivity10. In this area, business has not sat still – By the end of 2013, more than 90% of Fortune 500 will have at least partially Enterprise Social Networks (ESN)4, and while the US is ahead in this regards, the rest of the world will likely follow.

Clearly, social media is a diverse toolkit from which organisations can select the best instrument for the job at hand – and there’s more to choose from than just the hammer of ‘being’ on Facebook.

Social is not just an image tool – its a diverse toolkit from which organisations can select the best tool for the job at hand.

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KLM began using Twitter in 2009 and Facebook in early 2010 – But truly saw the value of social media as a customer service channel following the eruption of the Icelandic volcano Eyjafjallajökull later that year. With call centres jammed, Twitter and Facebook were used to respond to customer service requests and provide regular updates on services. This allowed KLM to maintain high levels of customer service at a potentially damaging time, and resulted in a lot of positive press – leading the airline’s CEO to declare an added focus on investment in social media capabilities38.

KLM has indicated three key factors about their social media strategy38:• KLM strives to deliver excellent

customer support via social media. KLM provides a 24/7 service and aims to respond to every user comment or question within 60 minutes. Each issue must be resolved within 24 hours.

• KLM recognizes that Social is a space where brand is affected Consumers converse about brands on social media, meaning that brand reputation can be affected in a very public manner. KLM choses to engage in that conversation.

KLM – Social care

Social media case studies• Social media is a great acquisition channel.

Given that customers are more likely to be influenced by peers than by ‘traditional’ marketing messages39, KLM sees that by proactively monitoring and influencing the conversation around the brand, they are carrying out valuable marketing work.

In pursuing these benefits, KLM has expanded its social media team to over 100 people serving customers in 9 languages on a variety of platforms20, and is recognised as a global leader in social customer care.

Danone Poland – Brand promotion with Mały GłódIn Poland, Danone effectively used a ‘brand hero’ (a promotional character) in conjunction with social media to directly increase sales and improve brand recognition. The company launched a brand promotion which revolved around an “invasion” of the country by millions of “Little Hungers”. ‘Little Hunger’ toys were bundled with Danone’s dairy products and physically delivered to stores, with the campaign then being driven primarily through Facebook, where consumers were encouraged to interact with the ‘Little Hunger’ invasion narrative, both on the web, and in ‘real life’ locales.

The campaign resulted in 57,000 Facebook fans, extending to 170,000 fans after a follow-up campaign. More importantly, sales to the target group rose by 7% – and brand reputation improved by 15% after the campaign, in what was one of Poland’s most social media campaigns at the time41,12.

GE – Collaborating through socialIn order to dismantle organisational siloes and improve collaboration, GE has implemented Colba – an internal, ‘Facebook-like’ platform for staff. Beyond standard functions such as displaying profiles and messaging, the system also allows users to file-share in the cloud, as well recall the context in which the files were used through recorded conservations, attached meeting notes, and collaboration history. The platform has been a success, with subscription growing from 0 to over 120,000 users in a year, and with strong support from the CEO, more features are being planned10.

Deloitte Australia – Engaging for recruitment Deloitte Australia has long used people networks for recruitment, and has taken to social media as a natural extension. Graduate recruitment efforts are aided by an active “Your Future at Deloitte Australia” Facebook site, where graduates can ask questions about Deloitte, its people, career opportunities, and the application process. This is further backed by Deloitte’s “Join Us’ iPhone app which streams video and photo content from Deloitte YouTube and Facebook accounts, as well as other relevant information. The approach has seen Deloitte named the ‘top graduate recruiter’ in Australia for 2011, as well as a series of other recruitment awards37.

KLM has expanded its social media team to over 100 people serving customers in 9 languages.

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As far as social media in business, we’ve come a long way, and have a long way to go. The below is just a sample of my social ‘journey’ in the workplace.

Years ago, when I had started at Deloitte in Australia, the entire practice was expected to check their voice messages each morning. Our CEO and other senior staff would leave us firm-wide voicemail to share news – we jokingly called it the weather report, as every message would begin with something like “It’s a cloudy day in Sydney, and I’m calling to tell you about…”. The communication was unidirectional, and cumbersome. There was no real way to engage. Fortunately, the winds of change blew. After staff took up Facebook and Twitter, the firm didn’t look up in alarm, but tried to realise some benefits. We introduced Yammer – an internal social network. Its use was led by none other than the CEO himself – a social media skeptic turned true evangelist.

The Australian firm established what was one of the biggest active Yammer networks in the world – and now Deloitte has a much wider, global network. In practice, the effects are amazing. In a 20-person firm, I could stand up and say: “Has anyone ever…?” and mention a topic – and whoever was in the room could drop me a helpful hint. Now I can do this online across buildings, offices, or countries, targeted to the groups I need to reach. Engaging staff from Warsaw to Melbourne, or London in conversation – and getting results – is simple. It’s not unusual to see a post from the CEO saying “I’m off to see client X tomorrow to talk about social media – what are the top three things

I should tell them?”, and see a flood of responses, including case studies, statistics, and customer quotes social works. Deloitte now also uses social media for recruitment, even building an iPhone app for graduates to disseminate relevant information.

A lot of businesses have been making a similar transition with regards to social media. First resistance, then acceptance, then a growing realisation of what could be done – though we’re still a little lacking on the latter. We need to understand that using social media effectively is a lot more than ‘being’ on Facebook. Need to lower the cost of customer support? Why not consider a Facebook or Twitter support channel? Replies to problems you solve are shareable, and can be seen by many – which can mean less load on your support staff – and

customers will appreciate a channel they can access anytime. In Australia, I’ve observed Australia Post make a real effort in ‘social’ customer care this way. Poland is quite a ‘social’ country, and I see organisations like Poczta Polska, Generali or mBank are realising the benefits and getting on board. Of course, social care is the tip of the iceberg. There are other prospects too – from better targeting and the use of big data, to direct sales, brand monitoring, or improving internal processes by utilising systems like Yammer.

The opportunities in social are substantial. But the landscape is always changing, so regularly check to how you could leverage social media to improve the way you do business. Remember – even I was using a landline to check my business communications six years ago.

Marcin Łaszkiewicz, DeloitteMarcin is a manager at our Warsaw practice. Prior to his transfer from our Melbourne office, he worked with our Deloitte Digital team in Australia, and helped define digital strategies for some of Australia and New Zealand’s most significant organisations.

Marcin focuses on the intersection between business and IT, but has almost a decade of experience across a broad spectrum of technology projects. Prior to Deloitte, he worked in positions involving network and system administration, IT security, coding, and even cultural studies research into the impact of computer games on society.

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Don’t wait – and do not ignore the cost of inactionDon’t be an ostrich and bury your head in the sand. If you’re not already using social media, examine what your competition could be (or already is) doing, and what you may be set to lose out on. If you’re already on Facebook or Twitter, make sure you re-examine your social strategy on a regular basis. It’s a rapidly changing field, so regularly check up to see if how you’re using the medium is still appropriate - and whether new opportunities to improve how you do business have arisen.

Define your social media goalsOne thing we consistently hear from social media leaders is ‘don’t act without a plan’. To start, select an area of the business which could be disrupted if viewed through a social media lens. Are there any customer areas where a natural community exists, but has not yet been tapped? Are there any customer pain points that could be solved through better communication – or connections to experts and peers? What are you trying to ‘solve’ in your business? Think through your business objectives and then act.

Look at both customers and yourselfIn investigating how you could use social media, look inside and outside the organisation. Would your customers benefit from an online customer service channel, and does it make sense for them to engage with your brand online? Perhaps they’d like to engage with others about your brand?Likewise, don’t forget your internal processes – Can you break down silos, simplify decision making, or speed up internal processes by connecting your people differently?

Pick your toolsOnce you understand your goals and needs, it’s time to pick the right tools. Twitter for running social care? Instagram to promote a visual identity? What about some social monitoring tools to keep tabs on what the Internet is saying about your brand? How about integrating it all with a CRM that will allow you to track your customer interactions? Ensure that you select your system methodically, and consider support and staffing needs - not just the acquisition costs.

It’s a rapidly changing field, so regulary check up to see whether new opportunities to improve how you do business have arisen.

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User experienceGood user experience is ceasing to be just an option and is becoming a requirement.User experience (UX) is the sum of a user’s experience with a company, including its services, products, and customer facing interactions. In the digital context, it dictates how a customer perceives the experience of using an application or device, based not just on ‘look and feel’, but on the customer’s perception of ease of use12, efficiency, and whether they can accomplish the tasks they want to.

In the digital space, UX has become a battleground for competing brands. Ease of use, appeal, and functionality play key roles in determining success15. Thanks to leading organisations such as Apple or Google, customers have come to expect a clean and elegant customer experience regardless of what platform they’re using. Moreover, customers don’t just expect a great user experience from industry giants, they expect it from whoever they’re dealing with13 – and organisations need to be ready.

And the benefits to business are real

62% of customers based future

purchases on past experience

A major internet retailer – saw gains of

through improved UX

User experience is importantfor custormers

User experience is also important for developers

of UX problems can be solved

by testing with

5 users

of users leave a website of poorly designed UX

68%

Wells Fargo reported a

50% increase in online loan applicationss

after UX improvements to the home page

$300M

85%44%

of shoppers will tell friends about a bad online experience

$

Sources: 43, 44, 45, 46, 47

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A brief introduction to UXThe practice of user experience design typically involves tasks like ethnographic research to understand customer needs, visual design to define the look and feel of the interface, information architecture design to define how information is organised on an interface, and elements such as interaction design and usability disciplines.

Retailers in particular have become increasingly adept at designing user experiences that take customers on an efficient journey through the sales process. Good UX ensures relevant product information is provided at appropriate points, with customers being helped through critical steps in the process - particularly around payment and delivery. Mature retailers have also become adept at providing useful and engaging search options, with products returned in search results displayed graphically and often accompanied by contextually relevant filtering options.

But in addition to these practices, several other items have been ‘trending’ in UX recently.

Trends in UX techniquesThere are several techniques currently impacting on UX practice.

Mapping the customer journey – The use of ‘customer journey maps’ to show how customers interact with a brand across channels and through their customer lifecycle is becoming more and more universal. Journey maps help visualise a customer’s experience – and the pathways they may

take through the content and functionality of a digital service or product. They focus on users’ experiences including how they feel, what they’re thinking and any issues or concerns they may have.

Responsive, adaptive and predictive design – are also competing for ‘attention’ in the UX world. Responsive design allows websites and apps to scale and change depending on the device they’re displayed on (allowing design once for multiple devices), while adaptive design couples the aforementioned with user needs – so that websites look and feel ‘similar’ across various platforms. Predictive design goes further, and is aimed at discovering or understanding a user’s needs and patterns, then modifying the user experience accordingly. Organisations need to understand which of the above fits their capabilities and users’ needs best.

Gesturing - is also being increasingly explored. This involves interacting with devices not just by ‘pressing’ buttons on a touch screen, but by using broader range of interactions with the device48. Users can already ‘shake’ an iPhone to undo typing, or gesture with their body to control the Xbox Kinect. Google’s Gesture Search, replaces typing with simple hand gestures.

Calm technology – As we are bombarded with more and more information, the use of ‘calm technology’ is also becoming more prominent. The technique focuses on cutting down the “digital noise” and reducing distractions to users without losing functionality49. Google uses this to filter emails, displaying only the most urgent for

our immediate attention – both in Gmail and its Google Glass prototype.In addition to these individual trends, organisations are finally considering Digital as part of a broader ‘multichannel’, or ‘ominchannel’ experience, where users can seamlessly switch between channels to perform an action. A customer may research a product on their mobile, and order online from their PC, before picking up and paying at a physical store.All this means that companies must design increasingly complex but consistent experiences that extend beyond just the physical space.

UX comes to the heart of the enterpriseMore broadly, UX as a discipline is being given more and more weight by organisations around the world. Companies in the private sector are putting increased focus on UX skills, and banks from Ceskomoravska Sporitelna, in the Czech Republic to Commonwealth in Australia are boosting their UX teams. Elements of the private sector are following suit, and the UK government’s reorganisation of their web presence has seen strong internal user experience capabilities built at Gov.uk.

Customer journey maps help visualise a customer’s experience – and the pathways they may take through the content and functionality of a digital service.

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Even the biggest internet retailer in the world can benefit from better UX – In the case of one, the benefit of a few simple changes was estimated to have delivered the company up to $300M46.

Analysis found that users were abandoning purchases. Subsequent UX research found that a major reason for this was that the users resented having to ‘sign up’ before completing the purchase. Repeat customers often couldn’t remember their user ID and password combination, and requested password resets – of these, only a small portion continued shopping. In the meantime, new users didn’t want to sign up at all. During testing, one customer captured this attitude in the phrase “I’m here to buy something, not to enter into a relationship”.

The UX team responded by shifting the registration option to after the user had checked out. This allowed customers to complete the core task of buying the product, while still allowing those who wanted to sign up afterwards.

The UX change saw an immediate jump in sales. The number of customers purchasing

Major Internet retailer – The $300M button?

User Experience case studieswent up by 45%. Revenues increased by about $6 million in the first week, which remained roughly constant, while password reset requests dropped by about 80%. The investment in UX testing most certainly paid off44,46,47.

Time magazine – responsive designWith increasing number of readers using mobile devices like smartphones, iPad, and other tablets to visit its website, Time magazine utilised responsive design in order to better reach its readers.

The redesign team utilised responsive design, which allowed content to scale and change depending on what device readers were using. Furthermore, they paid particular attention to performance, search engine optimisation, and the use of photography (so critical to the TIME brand).

After the redesign, mobile and tablet traffic went up from 15% of total traffic to 25%, but more importantly, the engagement with users improved. Readers view more pages per visit than before, across PC, tablet and mobile (a 23% improvement on the latter) and time spent on the homepage has also increased by almost 10%50.

Bankwest – UX inspiration from retailIn redesigning its website in line with its “Happy Banking” initiative, Bankwest chose to break with its industry peers. The site would not look like that of other banks – instead, interactions would be based on internet shopping experience.

As a result, the bank decided to employ a highly simplified homepage, with a straightfoward search interface that allowed their customers to bypass navigation and get their answers quickly, whether they were looking for products information or support.

The approach paid off. Since launching, Bankwest saw a 25% increase in new visitors in the first 3 months since launch, and the website won the Interactive Media Awards for the ‘Banking’ category in 201151. Since then, other banks have also adopted a more graphical, user centric approach – examples include UBank Australia, and mBank in Poland.

After the redesign, mobile and tablet went up from 15% of total traffic to 25%.

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Design thinking means taking the time to immerse yourself in client problems.

When we are looking for something, today we have grown accustomed to simply googling it and a world of information is at our fingertips. In essence, we now simply expect information on everything to be instantly and readily available, on any device, wherever we are.

This immediacy results in significant challenges for product and service organisations. Consumers have increasingly high expectations of intuitiveness, richness and engagement in the products and services they use. Today it is no longer enough to be functional or feature rich. In addition, we also expect everything to be easy to use, integrated, and personalised to our needs. We expect this in all contexts, even as employees using internal systems of large corporations.

Expedia, an online travel portal, suffered from a lack of customer focus, costing them $12 million dollars a year. The culprit for this loss was a single form field, which confused customers when trying to pay for a holiday they had selected online. Once they removed it, the booking numbers rose almost overnight. UX pays.

Investing in user experience design for your products and services is not optional, but essential if your organisation is to be competitive and have a differentiated offering in the marketplace. Focused user experience design facilitates the creation of solutions and products that are tailored to your specific target audience and meet or exceed their expectations. The side effects of applying user experience design often lead to your organisation also becoming more effective, efficient and crucially – innovative. In our experience of working with organisations large and small, we frequently encounter the following common challenges:• Inefficient internal systems – every minute

that an employee spends trying to use a non user-friendly internal system costs the business money

• Inability to innovate – large organisations in particular sometimes find it hard to think ‘out of the box’ due to long standing practices.

• Undesirable user interfaces – are also less likely to generate demand for third party licensing or ‘white labeling’ of the system – thus cutting off a potential revenue stream

• Costly workarounds – Undesirable user interfaces are not used as much as they should be – users find workarounds

which are often costly to the business, e.g. calling support helplines or deliberately mis-entering information

• Design is seen as a nice to have – instead of a must-have. An engineering driven design process results in products for engineers in the same way that a marketing driven process results in products customers need to be convinced to use.

These challenges can be overcome by investing in UX, applying design thinking and a user centred design approach. Design thinking means taking the time to immerse yourself in client problems and brainstorm – rather than trying to retro-fit a ready made solution. The three key benefits of applying Design Thinking are:1. Improved Efficiency of Use2. Increased Desirability and Adoption3. Innovation on Demand

Efficiency is a simple measure– it is essentially how easy is it for your users to do what they want / need to do. Desirability is especially important for consumer products – it drives whether your customers want to use your products and in future will remain loyal to it.Innovation on demand becomes a part of the organisational culture – once accustomed to having the right tools to create, the freedom to experiment and fail, employees are more likely to think outside the box even for day to day challenges.All of this leads to happier customers and employees, and ultimately generates profit and saves costs.

Philip Bonhard & Amanda Salter, Newt IdeaPhilip and Amanda are directors and co-founders at Newt Idea, a design consultancy based in London. PhilipDriven by curiosity about how people and technology interact, Philip has been designing people friendly tech for more than 10 years. He loves rapid prototyping.

AmandaAmanda is passionate about taming complex problems through good design. She is an agile UX coach and advocate of lean UX.

My Perspective – Design thinking pays off

Inspiration• Immersion• Empathy• Understanding

Ideation• Brainstorm• Create ideas

Prototyping• Low-Fi prototypes• Hi-Fi prototypes

Deployment• Create• Deploy

Design Thinking Process

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Start with the userTake a user-centric approach to your products and to your organisation. Before starting projects, take time to understand who the stakeholders are, how they live and work, what their needs are, and what problems you’re trying to help them solve. Investing in ethnographic research can help achieve this, and the use of a ‘persona based’ approach can help embed user centricity in your project, from design, through to development, and service.

1234

Test early, and test oftenLeaders in the UX space have a real commitment to trialling and testing. Winning designs are rarely found by accident – they are the result of a methodical testing process, employed from the earliest phases of the project. Techniques like using low-fi prototypes will help solicit feedback from users before coding has even begun. A/B and multivariate testing can be used to choose whether one variation of a design is more effective than another – and can be carried out on a live system, with the results coming directly from real customers.

Ensure consistencyConsistency is a key element of successful UX. Investing in UX standards, guidelines and tools like content libraries will help organisations deliver a consistent experience across digital touch points and beyond. Remember that ‘consistent’ does not mean ‘identical’, so adjust user interactions where required. User needs may be different when they use a PC compared to when they use a smartphone – and the difference may be more substantial than just clicks and scrolls becoming taps and swipes.

Continue to invest in User Experience If you are serious about providing outstanding customer service, you need to invest in building and maintaining a user experience capability. This can take the form of bringing in UX experts or building a UX capability internally. If you do build this capability, embed it in the heart of the business, so that it can shape concepts through the lifecycle of a project, from initial concepts, right through to implementation and improvement.

Winning designs are rarely found by accident – they are the result of a methodical testing process.

Implications of UX – and what you can do

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PaymentsSmartphones are shaping a new world of payments.While there’s a lot happening in the world of payments at the moment, the key trend in the area is Mobile. Mobile payments are attracting attention throughout the world due to their capacity to improve user experience for customers and provide new opportunities for financial institutions, mobile operators, third-party processors providers, merchants and application developers. Driven by a growing customer demand for rapid payments and the growth of e-commerce, mobile internet and smartphone usage, mobile payments are attracting more attention from new players other than „traditional” financial institutions. According to Gartner, the number of mobile payment users globally will reach 384 million by the end of 2015 – that’s more than four times more than it was in 2009 and almost 80% more than in 2012.

A global battle for market share is being fought out in mobile payments. The market is growing, and a tremendous range of mobile payments innovations have sprung up around the globe. Only time will show which of them will come to dominate.

Young consumers are leading the trendThe mobile payments market is growing

2009 2012 2015

70M

212M

384M

2009 2012 2015

$26B

$171B

$472BValue of global mobile payments

Gen Y / millenials(18-26)

39%

Gen X(27-39)

31%

Young boomers(40-50)

18%

Old boomers(51-61)

9%

Seniors(62+)

3%

Who is using mobile payments? (source BBVA)

And industry is getting on board

32%

Mobile carriers

Fraud Institutions

Merchants

64%

Deployed / ready to

deploy

Trialling or planing

No interest so far

30%

66%

17%

64%

9%

Global mobile payment user base

5% 3%

Sources: 52, 53

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Over the past few years, consumers have made smartphones their preferred mobile devices. Like POS, ATMs and online banking services before them, smartphones are giving consumers greater convenience and more options than older technologies. Customers are now able to bank wherever and whenever they want, carry out transactions and access account information without physical access to bank branches, ATMs, or even computers. What is more, they’re now starting to expect this convenience54.

Users driving the changeWhile members of Generation Y (Millennials) are the frontrunners in adopting all things mobile, Deloitte expects baby boomers and older consumers to increase their usage of mobile banking as it becomes an established and familiar channel. In fact, it’s likely that mobile banking will surpass online banking as the most widely used banking channel by 2020 – if not sooner.

Most large banks around the world have already gone mobile or are just about to invest there. Smaller financial institutions aren’t far behind, and on top of that mobile network carriers, credit card processors and third-party payment processors offering web-based and mobile solutions are also fighting for their market share.

Smartphone applications (leveraging NFC, Bluetooth Low Energy (BLE) and geo-location capabilities) enable the provision of innovative real-time payment solutions to end users. Apps currently on the market support transferring money to individuals (P2P) and to retailers (B2C), regardless of

whether the transaction is conducted in close proximity or remotely. This moves the focus from premium SMS based transactional payments and direct mobile billing models to mobile web payments, mobile app payments, and contactless payments.

Opportunities for local firms existMobile payment offerings around the world vary in terms of solution maturity and market penetration. While global players are pushing to build their own standards, the diversity in local markets is still huge. Local market players are taking different business and technological approaches with their offerings – and must often develop various alliances to build business models that are suited to their specifics of their own markets.

With the rapid increase in smartphone penetration, the marketplace is crowded with competition from a variety of sources. As is the case with many emerging markets, the speed of change is rapid, and firms must be prepared to adapt accordingly. A window of opportunity may exist for early adopters to establish a leadership position in the market, but they will need to act quickly54.

A crowded marketplace – and whole lot of innovationThe payments space has already seen several ‘waves’ of payment innovations. The NFC technology first widely used in credit cards was recently adopted on smartphones, and may now be succeeded by BLE and location-based solutions which focus on enhancing proximity payment experience (e.g. PayPal beacon or Placecast). Banks are introducing mobile-wallets (in Poland:

iKO by PKO BP or PeoPay by Pekao S.A.), as are third-party payment processors. Global leaders have introduced Google Wallet, Amazon Payments, and Apple’s Passbook. Local players have responded with their own solutions – sQuid in UK, Beam in Dubai, mPay or skycash in Poland. Local mobile carriers are also building their own mobile-wallet solutions (eT-Mobile in Slovakia; O2 wallet and EE in UK; ISIS by T&T Mobility, T-Mobile USA and Verizon Wireless; mBank MasterCard Orange Cash in Poland and T-Mobile MyWallet in Poland). Mobile POS solutions like ANZ’s Fastpay are proliferating, and some vendors are offering services that involve appending hardware devices to smartphones to enhance proximity P2P and C2B transactions without traditional POS – like PayPal Here, Square, GoPayment, ROAMpay.

It’s clearly a busy time in mobile payments and with so much innovation occurring, consumers are sure to benefit.

The payments ecosystem may require different industries to work together to bring mobile payments services to the market. However, many of the key players…do not share the same interest.

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In September this year, PayPal introduced PayPal Beacon – a Bluetooth Low Energy device allowing merchants with PayPal compatible POS to connect with customers using their mobile phones. The device works across multiple platforms, doesn’t require internet connectivity, uses little battery power and claims secure operations for users and merchants. By using Bluetooth LE, the device detects when a customer with a PayPal app is nearby and allows them to start their own personalized experience. For instance, it can:• Initiate an interaction with the customer by

displaying a targeted offer,• Identify and display the customer on POS

so the seller may greet them by name and access information about their preferences and purchase history (CRM-like experience),

• Support a proximity payment of up to 50 m removing the need of to wait in queue

• Conduct a hands-free payment – using just verbal and visual confirmation is enough for payments from identified customers, for POS payments to go through.

Moreover the platform is open for developers – and could accept other methods of payments than PayPal55,56.

PayPal Beacon – hands free payments

Payments case studiesiKO Plus – A unified standard for Polish Banks? After first introducing its own ‘IKO’ payment application in March 2013, PKO BPO (Poland’s largest bank) teamed up with five of it’s other major competitosbanks: BRE Bank, Bank Zachodni WBK, ING Bank, Millennium and Alior Bank (while Pekao S.A., the second largest, deployed its own solution – PeoPay) to deliver iKO Plus – a unified platform supporting all of the partner banks, and serving around 70% of bank customers in Poland57. The solution provides customers with a mobile payment option. All that’s required is a smartphone app and an internet connection – integration with local carriers or NFC is not required. In addition to user adoption, overall success of mobile payments depends on degree of merchant support, which may be impacted by the planned decrease in the interchange fee charged for payment cards transaction.

ISIS – unified platform from mobile operatorsISIS, is a joint venture between AT&T, Verizon, and T-Mobile. It provides several payment related features through a smartphone app. NFC payments, mobile wallet and payment cards support for major issuers. Visa, MasterCard, American Express and Discover, as well as merchants loyalty cards are supported. The ISIS pilot commenced in October 2012 and is accessible in the USA58.

Starbucks goes into mobile step by stepNot only has Starbucks developed their own mobile wallet application but it has also signed a partnership with the third-party

processor Square. Starbucks’ mobile wallet allows customers to pay in their coffee-shops and collect points – customers receive benefits, while Starbucks collects loyalty data. In the meantime, Square provides payment solutions and its own mobile wallet, allowing customers to pay using QR code scanning, credit card payment, or an NFC enabled mobile pack that can be used appended to most smartphones and tablets. Square is to become a payment option in around 7000 Starbucks stores – expanding its already significant footprint in US mobile payments52,59,60.

The device permits hands free payment – using verbal and visual confirmation is enough for payments from identified customers.

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Payment is a crucial stage of the shopping process. Frequently, a decision whether to finalise or abandon a transaction depends on how easily a payment is made – so it should be quick and simple. Therefore, when considering new solutions, the main focus should be placed on the convenience of payments and their simplification to ensure they are easy on any device, be it a computer or a smartphone. This is the right direction to take to realise higher conversion rates and an increase in sales.

In terms of convenience, payment cards are the most advanced instrument in Poland. If a card is saved in a safe application or in a system offered by a supervised payment institution, a payment can be made within seconds. In the case of e-transfers, a huge challenge is to limit the number of login steps. Online shopping by instalments is also gaining in popularity. It is a very convenient payment method, with loans obtained without signing any paper agreements, and fully online. However, even this area offers much room for improvement with regards to making payments easier. Soon, a customer with a credit history should be able to get a loan online on this basis with the time for a credit decision shortened to a few seconds.

The above solutions will surely progress payments. The world today keeps on becoming more “e”-like (or should I rather say more “m”-like?) and in a few years’ time we will only talk about the quick, easy and safe finalisation of transactions irrespective of the device used to request them. Ideally, a merchant’s system should be integrated

with a payment system so that a purchase can be completed with just one click of the buyer. Such solutions are already offered globally. In Poland, we are still working on making them available to all users, not only customers of selected banks. However, notwithstanding the level of market development in various parts of the world, we envisage that m-commerce will be the future of e-shopping.

Real shopping via smartphone will be carried out through transactions that can be conveniently carried out on screens of only a few inches. At the same time, we must remember that mobile payments are not only those that support e-commerce. This notion is much wider and includes payments that are made by phone but still support traditional trade. The key to success is working out a standard to be applied in both these areas, which can become a driving

force for a mobile shopping revolution. This challenge should be faced by both the industry, which PayU represents, and by banks with which it cooperates.

The market sees many different visions of the phone as a payment instrument. We could even say: the more players, the more ideas. Unfortunately, this fact leads to a huge fragmentation of offers, with buyers still not provided with a single convenient option which could enable easy transactions via phone without having to switch between applications, rewrite and memorise 6-digit codes and confirm payments with 4-digit PINs. We acknowledge this great need for a new and convenient mobile payments solution. The issue is now being consulted with our merchants and banks, which share our view of its significance for buyers. Soon we will be able to see the results of our cooperation.

Wojciech Czajkowski, Head of PayU PolandWojciech Czajkowski is Managing Director at PayU S.A. He has been contributing to the company since July 2012. Previously, he worked for Allegro Group, including serving as Regional Director in Russia and Ukraine, and as Business Support Managing Director for International Operations. At present, he focuses on the e-payments segment and on applying e-payments in e-commerce. He graduated from the University of Warsaw. He is passionate about new technologies which he tests eagerly, inspiring him in his everyday work.

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Wait and see what happens?In a field that’s rapidly changing, one option open to merchants is waiting. With many potential payment options available, it may be worthwhile waiting to see which solution emerges to dominate the market – instead of jumping into one and having to change it later down the track. This option has its disadvantages too. Your customers may already be expecting a mobile payment solution, so look at things from their perspective before making your decision.

Evaluate your optionsIf you do decide the benefits to you and your customers are significant enough to invest in mobile payments, evaluate your options. Depending on your market, various solutions may exist: from base cost, higher overhead systems (which allow you to get started quickly but cost more to run), to systems that require a higher investment (or sales volume) but cost less per transaction. There may also be various technologies for you to choose from – should you use NFC, Bluetooth, or web based payments? Which mobile devices should you allow users to pay with first? Evaluate which option is right for you – and get help to do so if required.

Start accepting mobile paymentsWith your decision made, rolling out mobile payments is a project in itself. It’s not just a matter of purchasing some technology – you’ll need to deploy the software and hardware, and you may need to integrate with your existing POS (and CRM) to gain the most from your new solution. Don’t forget staff training. The first few times your people accept mobile payments can be testing, and you’ll want to minimize any negative impact on your customers.

Don’t forget staff training. The first few times your people accept mobile payments can be testing.

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The Internet of Things and beyond

The Internet is changing the way we live. Again.The Internet of Things can seem like a catch all phrase – it encompasses everything from RFID sensors, to Internet-enabled smartphones, smart meters in our homes and medical sensors in our bodies. Simply put, the Internet is no longer tethered to PCs – it can be connected to just about any object, which can then transmit and receive data – creating an “Internet of Things”. This inter-object connectivity is being touted as an enabler of the next great industrial revolution. Companies like Cisco and GE have predicted that billions of web-connected devices could have an economic impact of up to $14 trillion by 202261,62.

Think back to 1995 – you’re connecting to the Internet with a dialup modem. Internet shopping is in its infancy, and Napster is four years away. Fast forward to 2003. By now, you may have been shopping online, but probably hadn’t yet tried Facebook. Now, you’re checking your emails and sharing photos on your phone. Advances in the Internet have constantly affected what we do in our everyday lives – So how can the Internet of Things change the way we live again?

IoT has an impact on the economyThe internet of things is growing fast

Projected number of internet devices globally

Street lamps adjusting lighting based on current conditions and your preferences

Medical sensors - sending information back for analysis by physicans

Cars that send back diagnostic information

Smart buildings that feed power usage data to utilities... and adjust their own usage

tablets

phones

$750m invested in 100 IoT companies in 2012

current benefits are significant

and the potential impact on the global economy is huge

98% reduction in billing errors

reported by US utility after rolling out a smart meter program

Estimated impact of the internet of things on global economy by

2020

Raised

$2,6M from 49,586 customers to etablish an Internet

Lost-and-found

20000

Internet enabled servers to be placed on buses and other

locations around Serbia to monitor air quality

$14 TRILLION

2012 2016

2020

We may soon be surrounded by internet connected devices

and IoT devices are already here

8,7B 10B 50B

$

Enviromental sensors checking air and water quality

Tile

Sources: 61, 63, 64, 65, 66

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For the first time, building an ‘Internet of Things’ is economically feasible. Sensors, networking, and analytics are all cheaper than ever before. Sensors are now small and robust enough to be placed in environments that range from the inside our body to the inside of a jet engine61. Data processing costs have also fallen. It’s no longer expensive for a company or entrepreneur to build thousands of small, intelligent, and connected devices and process the data they gather. This opens up IoT possibilities of a scale never seen before.

The built environmentThe built environment is already being improved with sensor technology. Traffic, lighting, and power supply can all benefit from ‘smarter’ monitoring. Boundless possibilities exist in making ‘smart buildings’ that can optimise their energy use based on sensor data, and smart lighting is already being used to adjust how light sources are used – conserving power in the process.

One industry that affects us all – power – can benefit hugely from IoT. Facing increasing demand, constrained distribution networks, and a growing imperative to address the needs of the environment, working ‘smarter’ is critical. Various incarnations of ‘smart grids’ (power grids enabled with smart meters) are already in place around the world, reducing manual meter reads, billing errors and resulting in other operational savings. But smart metering can do a lot more – Imagine a system which can optimise supply and demand of power, shifting ‘energy intensive’ activities to times when there is more spare capacity available. Now throw something

like electric cars into the mix. How will charging a city full of these affect its power grid? Can the batteries of parked vehicles be used to balance problems with a lack of accumulation capacity? Making smart use of sensor data can offer solutions.

The natural environmentWe can now do more to monitor our natural environment. Air and water quality are both being checked at a more granular level than before. Sensor projects in Santander, Belgrade64, and Ostrava monitor air quality – both to inform municipal planners – and to let citizens know when they may need to take precautions. Researchers in Valencia are monitoring waterways, analysing water quality, temperature and flow, and are evaluating their system’s capabilities to provide early warning of flooding – and improve water management. Global water consumption has tripled since 195067, so getting smarter with how we use our limited water resources will be critical.Of course, millions of new sensors also pose problems – how can we safely release sensors into the environment, without creating waste once they break? Can sensors be biodegradable? Can power consumption of devices be lowered further? These challenges must be overcome to ensure the Internet of Things can help us be more ‘green’.

BusinessThe Internet of Things can transform how we do business. Logistics companies are already using IoT technology to monitor their fleets, and optimise their supply chain – Radio Frequency ID (RFID) enabled warehousing

has been in place for a long time61. On the consumer front, IoT is only now beginning to be seen – but it’s making up ground quickly. Billboards in Japan change their content if they sense passers-by fit a certain consumer profile, the first testers are using Google Glass on the world’s streets, and consumer devices like Tile are already selling out.

BodiesEven our bodies can benefit from becoming internet-connected sites. Wearable sensors may allow defense forces to monitor the physiological condition of individual soldiers68 – and prescribe advice via the Internet. Ingestible medical sensors with internet connectivity open up the possibility of experts being able to diagnose patients based on continuous, real time data – data which can be reviewed around the world, regardless of where patient and physician are.

The Internet of Things does come with its challenges – in particular privacy, given its capacity for surveillance and monitoring. But there are enormous advantages to be had as well. It seems the Internet can change how we live our lives. Again.

Sensors are now small and robust enough to be placed in enviroments that ranged from inside our body to the inside of a jet engine.

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The startup, operating between Kraków and California is aiming at revolutionising a branch of industrial design. Estimote is a platform that enables multiple sensors – attached to objects – to be tracked very, very precisely. The location data generated by them to be acted on in real time, allowing systems to respond depending on the interaction that’s occurring32.

If an Estimote sensor is attached to a door or a product on a shelf, it can cause personalised data to be sent to the user based on their actions – if it’s detected that you’ve picked up a box of cereal, or tried on a specific piece of clothing, it could cause nutritional information, or a range of matching accessories to be displayed on your smartphone. Likewise, if you carry a sensor yourself, a ‘smart building’ could adjust lighting, temperature or music based on your personal preferences. While Estimote provides the platform, it’s up to developers and entrepreneurs to decide what actions to design based on sensor data.

While still at the startup stage, Estimote has already secured its first rounds of funding

Estimote – Helping develop an Internet of Things

Internet of Things case studies– and may be well on the way to changing how we interact with our immediate physical environment69,70.

Tile – Finding what we’ve lostLaunched using an internet crowd funding platform in 2013, the systems slogan is ‘The world’s largest lost and found’. The system comprises of a network of thousands of small, Bluetooth-enabled ‘tiles’, which can be attached to objects – like laptops, keys or handbags. Each tile transmits its location, and can be tracked via smartphone apps. Users within 100m of the tile can see their approximate distance to the tile – which can help track and find your lost, tile-attached valuable. What’s more, the tile’s range can be extended almost indefinitely by connecting to any other tile in the area – so, as long as there’s enough tiles between it and an access point it can be tracked. The idea has been a consumer hit – 49,586 people placed pre-orders valued at $2,681,297 so far71.

EkoBus – Monitoring air quality and staying on timeDeveloped in collaboration with Ericsson, the EkoBus project monitors air quality and other environmental parameters over a large area by utilising sensor platforms placed on buses and other public transportation vehicles. Deployed in Belgrade and Pancevo, the sensors send live data back for processing via radio and GPRS connectivity for analysis. What’s more, their GPS data is also used to improve customer service and provide commuters with arrival times of their next bus64.

NEC – Billboards that can tell who you areTrialled at Shinagawa train station in Tokyo, NEC has created digital signage on vending machines which uses a camera to detect who is looking at it. The system identifies gender, approximate age group and other characteristics, in order to display a ‘recommended’ drink for the customer to buy. It also gathers anonymysed data about which customer groups purchase which products, allowing marketers to refine their assumptions with real sales data72.

Real Madrid and Cisco – Transforming the fan experienceReal Madrid’s football stadium, the Santiago Bernabeu is being transformed into the ‘Ultimate Bernabeu’: A high density WiFi network is being deployed to allow fans to use their mobile devices to engagage with live action in new ways73. Apps will deliver live video and statistics, enable sharing of content through the Internet during a game, and the system will also be integrated with other functions, like ticketing74. Advertisers will also be able to make use of new digital media opportunities, with content on both mobile devices and digital signage around the Bernabeu customised to the location around the stadium and even synchronised with live events on the pitch.

If an Estimote sensor is attached to a door or a product, it can cause personalised data to be sent to a user based on their actions.

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How we shop has been constantly changed by the Internet. Some habits stay the same (many of us still like going to farmer’s markets), but new habits have also been built, as evidenced by the growth of e-commerce. It’s likely that Internet technology will once again change our shopping experience – as interactions between physical and digital are transformed by the Internet of Things.

Picture the following. Twenty years ago, you probably didn’t have access to the Internet – and even if you did, shopping was very much separate from your computing (or if you were very lucky, Internet) experience. ‘Checking out’ probably involved going to the cashier, and paying with a wad of cash.

Ten years ago, the iPhone was still four years away. You could now shop online, but the Internet was most likely tethered to your PC. Its involvement in your shopping experience was limited to research prior to purchase, or buying products from e-commerce sites like Amazon, eBay, and Allegro. The Internet and your physical shopping experience were separated.

Today, the physical and digital worlds are becoming enmeshed. We already ‘showroom’ in store, looking at product reviews, or comparing prices before we buy. Some retailers are starting to accommodate our ‘always on’ connectivity, by offering price matching, or using apps to guide us around their store, but this is only the beginning.

In my opinion, cheaper sensors and

ubiquitous internet connectivity can transform the retail experience. With platforms like Estimote, retailers will be able to map our interactions with the retail space in real time – and program appropriate responses. Imagine consumer goods – like a packet of cereal, a pair of pants, or a tennis racquet that ‘know’ if they’re being picked up, and who by. Is the customer inspecting it closely, or just glancing? Are they allergic to gluten? Is it their son’s birthday this week? Given multiple sources of data, and the fact that we can program a physical environment to respond creates thousands of new possibilities for retailers. Some may be relatively simple – we can quickly show a customer where the product they urgently need (say, an umbrella) is located. But there are more complex tasks – we could automatically adjust audio advertising in

a particular area of the store to effectively target a majority of customers. If we know a customer has picked up certain items for a long time, and quickly dismissed others, we can offer suggestions (seems like you’re looking for gluten free products?), or send a member of the sales team, armed with information to help. The use cases are still being designed – but the technology to make them work is becoming available.

A lot still depends on the cost of the solutions in place, but it’s almost certain that our retail experience will be changing shortly – and the Internet of Things will be part of it.

Łukasz Lachowicz, Deloitte Łukasz is a senior consultant at Deloitte’s Warsaw Technology practice. He possess 6 years of consulting experience, earned during strategic and operational IT projects carried out in banking, insurance, energy, e-commerce and public sector industries.

Łukasz has strong project management background gained while acting as project manager, project auditing in terms of compliance with Prince2, defining portfolio management approach, processes and scoring model, estimation benefits of the project management approach. His projects included IT strategy development, IT mergers, Enterprise Architecture development, software selection and implementation.

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Check how your business could be disrupted The Internet of Things is one of the more ‘disruptive’ digital trends right now, but also the one that’s seen less of the mature solutions entering the market – which may give you a little more time to act. Have a think about how IoT could disrupt the way you do business, and be ready to disrupt it first.Strategic questions to consider may include whether to focus on increasing customer service, improving brand recognition, reducing costs, or increasing revenues. Could IoT be used to gather more granular data about your customer’s preferences – or give you more information about your internal processes? Could you use telemetry to give you detailed updates on your assets and their maintenance needs? Is there a set of data you need that could help you make better business decisions in real time? In brainstorming potential solutions, think about how you (or competition) could use existing data assets, and augment them with IoT capabilities to create business value.

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Consider security and your responsibilitiesAs personal devices, homes and even bodies become internet-connected data sources, privacy stakes become ever higher. Maintaining cyber security is paramount, but both technological and non-technological implications of your ‘part’ of the Internet of Things need to be thought through. Organizations may need expert help to create security tailored to new IoT initiatives so that sensitive business and personal data is protected. Companies also need to consider the legislative – and ethical questions that may come with gathering and utilising data and connecting it to an information network.

Secure the right skills for integrationWith an IoT initiative or pilot in place, you’ll need to decide which systems need to be connected (or created) to make the whole ensemble work.At the moment, the Internet of Things technology ecosystem is highly fragmented. The marketplace for various supporting technologies is often crowded, and competing standards may exist. Solutions often need to be assembled using components from multiple providers, including sensors, communications networks and end-user applications. Then there’s the data side. The value of IoT often comes from the insights you gain from the information you receive – so don’t forget about analytics. It’s a complicated jigsaw to pull together, so ensure you have the right help in selecting the components and integrating them into a working solution.

Think about how IoT could disrupt the way you do business, and be ready to disrupt it first.

Implications of Internet of Things– and what you can do

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SecurityThink you can’t be hacked? Think again.Despite some awareness of risks and the consequences of cyber security breaches, many companies still do not quite appreciate the scale of changes and current trends in threats that need to be addressed to minimise risk to their business. There is no such thing as “hacker-proof” and new threats appear every day – today’s best approach and knowledge may be obsolete tomorrow. In the wild frontier of cyber security, the only constant is ‘change’.

Attacks are on the riseThe threat landscape is revolving rapidly

Business

Tech

nolo

gy Threats

Business is faced with multiple threats accross many dimensions of technology

Deloitte research shows there are 3 top reasons for threats

Growing number and type of third

parties

78%Increased usage

of mobile devices

74%Lack of sufficient

employee awareness

70%

Cloud

Mobile

Social

Analytics

Virtualization

Shared Services

Nation States

Criminal Syndicates

Hactivists

Patch Failure

Insiders

of businesses reported a breach

59%

And the avarage cost of recovering from worst-case breaks is substantial

of business disruptionand

3-6 days

$700K-$1320Kof total damages

Espionage

Sources: 75, 76, 77

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Cyber security today requires companies to guard against a broader range of challenges than ever before. Your potential sources of risk comprise people (including your staff as well as your business partners), business processes and technology. All of these are dynamic, and only a comprehensive and constantly updated approach to cyber security comprising management, detection and prevention areas will help protect you from serious consequences.

As for security breaches and their consequences, there are many, they are happening now, and you may not even have heard about many of them. Victims don’t usually advertise attacks – or may even be unaware of them themselves. The loss of the reputation due to content changes on your website, the denial of a service to you, your clients or your employees are just the tip of an iceberg. Loss of data (including financial data, sensitive client data, and details on newly developed products or services) may impact your share prices and revenue, and even lead to financial sanctions.

Risks are becoming more complex. New and emerging technologies, trends in mobile usage, the professionalization of attackers, and round-the-clock attacks, have all changed the game.

CloudNotwithstanding the many benefits of cloud, the technology must be used wisely. Outsourcing physical assets means giving away hands on access to servers and data to a third party, which creates a source of potential threats. In particular,

it is often difficult to know where cloud data is physically stored and what national and local regulations apply to it. Not having the physical access and control of the hardware and software installed may lead to security breaches, insufficient business continuity management issues or services level issues. While having adequate SLA’s secured in contracts is a good practice, it will only allow you to execute compensation after the milk has been spilt.

Rogue ITThere is an increase in the occurrence of “rogue IT” by enabling individuals or groups within the business to easily gain access to software applications that are managed outside of IT and standard security policies – leaving IT and security departments unaware. When your business passes over the rules and starts to take advantage of self-developed applications or cloud based tools and manage them internally, your organisation may have a serious problem.

Bring Your Own DeviceToday’s mobile devices enable employees to work anywhere, anytime. They are powerful enough to handle most business activities and can store sensitive business data, including email, contacts and business documents. This intermingling of ‘personal’ devices and applications with access to business data means mobile devices constitute a significant source of risk. Not only do mobile devices provide new entry points for attack and constitute a prime target for hackers, they are also easily lost or stolen.

The professionalization of attackersPotential threats are evolving. They can range from the accidental discovery of vulnerabilities or malware, through to hobbyists, frustrated ex-employees, ex-customers and ex-administrators as well as your competitors, “hacktivists”, hacker groups and criminal organizations. Current studies show that over 80% of cybercrimes are conducted by or with the support of well organised groups of professionals. Do you have the required tools and solutions? Are they being they applied correctly? Are your people being trained? Do you continuously develop your approach?

Prevention is an important first step; however, no organization can be 100% safe from attack. Robust detection and advance preparation and planning may help stop a breach from turning into crisis.

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In March 2005, for almost one year since Summer Olympic Games 2004 in Athens, the mobile phones of 107 prominent Athenian citizens were imperceptibly bugged. On the 8th of March, a local carrier disabled malware that was installed in an unauthorized manner, one day later one of its engineers – employed for 11 years – was found dead, hanged in his flat. None of the perpetrators of these incidents were identified78,79.

The malware, written in a dedicated, very uncommon programing language, was identified to be up and running on all four of the carrier’s telephone exchanges which were high-end, highly guarded servers. The malicious software had to be installed by someone having physical access to the server, and the source code was modified leaving neither information in log files nor any alerts. The list of bugged numbers was stored in a pocket of isolated memory that was blocked and invisible to regular software. On top of that, the malware overwrote original procedures to hide its existence.

Nevertheless, the list of bugged mobiles included the Greek Prime Minister and

Summer Olympic Games bugged?

Security case studieshis wife, the Mayor of Athens, a Greek UE Commissioner, senior officials from the Ministry of Defence; Ministry of Foreign Affairs; police; army and special services, as well as journalists and businessmen.

In the end, though the bugging was uncovered, the ultimate source of the attack or the destination of the data were never discovered78,79.

Adobe – source code and customers data breach discovered accidentlyAdobe’s breach was discovered at the beginning of October 2013 during the assessment of other server suspected of being utilised for another cybercrime. During analysis, researchers identified huge repositories of uncompiled and compiled code that appeared to be source code for ColdFusion and Adobe Acrobat. After reporting it to Adobe, the company confirmed that their servers were breached several days earlier in September. Apart from the source code, hackers accessed the data of 2,9 million customers including logins, passwords and credit card numbers (in encrypted form)80.

Sony – Sony’s PlayStation Network A breach of Sony’s PlayStation network in April 2011 led to $171 million in outage costs and a $400 thousand penalty from the British Information Commissioner’s Office. The breach affected more than 77 million user accounts and was one of the biggest in the history. Data accessed included: account usernames, passwords, home addresses, email addresses, and 12.3 million unencrypted credit card numbers.

Sony indicated that it had hired an “outside recognized security firm” to investigate the breach, but the downtime and recovery lasted 24 days. The penalty applied by British Information Commissioner’s Office noted that “the attack could have been prevented if the [security] software had been up-to-date, while technical developments also meant passwords were not secure”81,82.

Scandinavian bank security breach unreportedIn April 2013, one of the co-founders of the torrent website Pirate Bay was charged with hacking several mainframe servers including those of a Swedish IT firm that provided tax services to the Swedish government and one of the Scandinavian banks. The hacker was able to download the customer database and order the processing of four unauthorized money transfers. While $9 million in ‘suspicious’ transfers were blocked, one transfer for $ 38 800 was successful. The purpotrator’s involvement in the breach was only discovered during another investigation as the bank, after blocking suspicious transactions and access to its systems, had closed the case without reporting the breach to police83,84.

The breach affected more than 77 million user accounts and was one of the biggest breaches in history.

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I have no doubt that rapid changes in technology and the evolution of how we take advantage of it in our everyday life and work have a negative impact on our security. The progressive digitalisation of our lives, enterprises and business processes exposes us to potential threats. The digital security world is transforming rapidly. Individual cyber criminals have formed groups, which in turn are becoming more professional and specialised – creating an effective network of sub-contractors who can render services to one another. Meanwhile groups can turn into criminal syndicates, much like those in ‘real’-life – thay may even fight one another for their own competing interests.

The world of organized cyber-crime has already noticed Poland. Polish banks have been dealing with the problem for some years, but organized cyber-threats are now becoming a serious threat to other sectors of the economy.In terms of dynamically changing threats, an alternative approach to data security is becoming more and more relevant. The safety mechanisms which are currently in place may be sufficient for traditional threats, which were mostly internal but we need to look further. Internal threats have not lessened – but the world beyond the enterprise has changed, which means the security tools used prior may no longer be sufficient.

The primary change which we must make in securing our business processes is to move on from a reactive approach (based on patiently waiting for an attack) to a proactive one. In practice, it means that

today, businesses should proactively search for information about new threats – either themselves or with the help of external partners (like other firms active in the same sector).

The primary sources of information which can be useful to business during such investigations include:• Industry-related web-forums which

contain information about threats that have impacted organisations similar to ours. ‘Similar’ can include the technology dimension, as well as the risk profile of the organisation

• Anonymous networks (Like the TOR network) which are a common communication platform for novice cyber-criminals

• Our own infrastructure – Carefully monitoring our own systems can help us to gather and correlate seemingly uncorrelated security incidents.

Observing the dynamic change in both threats and countermeasures, it is relatively straightforward to indicate the path which proactive detection of threats may take. In my opinion, in the near future,

business will focus on developing methods of automated detection and counteracting security breaches. These tools will automatically correlate data from many sources, in a much more effective way than is done now by commercial software used for tasks like combining consumer confidence assessment with contextual analysis. In response, organised cyber-crime groups will likely professionalise and specialise further – and will escalate attacks.

To conclude, the path to cyber-resilience is based on the following foundations:• Making the assumption that every

organization was or will be attacked by cyber-criminals

• Effectively preparing to react quickly to incidents – allowing your organisation to survive during a potential attack

• Continuous education, evolution and training – which supports organizational readiness for potential threats

• Cooperating with your business partners, enabling knowledge sharing and taking advantage of other’s experience. These foundations enable an effective, well organised response.

Cezary Piekarski, DeloitteCezary is a Senior Manager at Deloitte’s Polish practice, focusing on in IT risk management, IT security and management projects. He is an experienced instructor, and has delivered many professional training sessions on information systems security, cryptography, and new technologies.

Cezary is a certified Information Systems Auditor (CISA), Certified Information Security Manager (CISM), ISO 27001 Lead Auditor and Certified Information Systems Security Professional (CISSP). He also holds numerous technical and project management certifications including Red Hat Certified Examiner (RHCX) and Professional Project Manager (PMP).

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Use intelligence methodsAs attackers became more professional and their methods became more complex, advanced and professional approaches should be used. It’s important not just to react to security risks, but to attempt to stay ahead. Analysis of information and signals (both from the inside and the outside of your organization) sharing knowledge, and monitoring current trends and ‘day 0’ threats should be conducted constantly. On top of that, you can cooperate with established agencies and organizations dedicated to security. Some of these are even able to penetrate the underground to forestall planned attacks.

Manage incidents promptly As the scale of threats has changed and the probability of an eventual security breach comes closer and closer to 100%, old approaches of ‘prevention only’ may be obsolete today. By making the assumption that a breach will happen, you can take a proactive approach and develop comprehensive cross-organizational response scenarios and plans. This approach should include the development of a complete toolset based on processes, methods, tools and people so they will be able put into action immediately to contain any damage when the time comes.

Enhance your security knowledgeUp to date knowledge of security trends and current hot topics, may only have the value if this knowledge is properly propagated throughout the whole organization. Your challenge is to keep the security policies – and practices – up to date. This involves being comprehensive on one hand and simple and straightforward on the other so all your employees and business partners can comply. A policy is only useful if it is acted upon.

A traditional approach may only be sufficient for internal use – but it may not be enough for external threats.

Implications of security – and what you can do

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The impact of e-commerce on the Polish economy

The Internet economy in the country has doubled in the last six years, reaching 93 billion PLN.

The Internet is a technology which has revolutionized nearly every area of human life, both directly and indirectly. It has already transformed enterprises and households in the private sector - and it’s about to change the operations of the state and public sectors. We are probably still only at the dawn of the “Internet revolution”.

A ‘pre-taste’ of this revolution may be e-commerce, which has evolved from traditional trade, and heralds changes yet to come. In human history, trade has always been a measure of advancement and the fastest evolving area of socio-economic life, as implementing the latest innovations was critical to optimising the exchange of goods and services and gaining a competitive advantage.

According to Deloitte Business Consulting Poland, the Internet economy in the country has doubled in the last six years, reaching 93 billion PLN, and accounting for 5.8 per cent of the GDP in 2012. Moreover, it is double the cost of servicing public debt, and three times the country’s personal income tax inflows for 2012. These estimates concerning the Internet in Poland are comparable to those reported in other economies. For instance in Australia, Internet business accounted for 3.6 per cent of the GDP in 2010 (Deloitte Access Economics, 2011). In Great Britain it was 7 per cent of the GDP in

2009 (BCG, 2010), while in G7 and BRICS members, the Internet economy generated between 0.8 per cent and 6.3 per cent of the GDP. In the US, studies indicate that Internet economy reached 2 per cent of the GDP (Hamilton Consultants, 2009).

Historically, the evolution of the Internet may be compared to the development of electricity. To follow this analogy, we are now at the stage of connecting select households to the electricity network of a city, in which we are constrained by the limited number of light bulbs. It should be noted that it was only mass electrification, which made it possible to realise the full economic and social benefits of the invention. The second stage of the Internet’s development is probably only just beginning, with the widening of broadband and mobile access.

It’s now spreading across cities, countries and continents, just like electricity 100 years before. Broadband and mobile Internet are of key importance for e-commerce, ensuring immediate access to unlimited information, including the ability to search and compare prices of goods and services along with their geographical location, as well as allowing mobile payments in many forms (e.g. payment cards, bank transfers and e-payments). The third stage of the electric era included the development and popularization of new machines, devices and professions. The next stage of Internet development is difficult to imagine, as the rapid changes taking place mean that even a few years in the Internet space is like an eternity. Still, like at the two previous stages, e-commerce is likely to set new economic trends.

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E-commerce is a diverse and dynamically growing market, inclining us to evaluate its participation in the Polish economy as a whole. The analysis covered two aspects: (1) E-commerce share in the value added of trade, and (2) its share in the value added of industrial sector. This is a ‘gross’ estimate, which does not account for any adjustments for possible alternatives in line with the assumption that “if e-commerce did not exist, individual industries would sell their products elsewhere and through other channels”. In our opinion, it is the presence of products and services on e-commerce sites, and the ability to buy products quickly and easily in meaningful volumes which drives consumer demand, while the net estimate (which is particularly difficult to estimate in practice) would not be considerably lower than the gross estimate.

Both publically available Polish Central Statistical Office (CSO) data, as well as Allegro data were used for the purposes of the analysis. Datasets of the latter were used as a ‘proxy’ for e-commerce as a whole, where more granular analysis was required.

E-commerce versus trade in generalThe Polish Central Statistical Office estimates the value added for the entire ‘Wholesale and retail trade’; ‘repair of motor vehicles and motorcycles’ section. In 2012 the sector generated 18.7 per cent of the entire gross value added of the Polish economy. The activities classified as part of the sector include wholesale as well as retail trade and repair of motor vehicles.

According to PBI research85, the e-commerce share in Polish retail sales alone reached

2.5 per cent in 2010, versus 10.7 per cent in Great Britain (which leads Europe) or 8 per cent in Germany. However, the role of e-commerce is growing in Poland. According to PBI data, its value reached 21.5 billion PLN in 2012, and its share in retail trade accounted for 3.8 per cent. Using the data published by the Central Statistical Office on retail sales the share of e-commerce in retail sales has increased from 4 per cent in 2010 to 4.7 per cent in 2012.

Assuming that e-commerce’s share of value added within the total value added of the entire sector was the same, then the value added generated by e-commerce reached approximately 4.7 billion PLN. E-commerce is growing faster than Trade as a whole; hence its share in the sector has increased from 1.5 per cent to 1.8 per cent in the last two years.

2010 2011 2012

1037,9 1169,6 1216,0

643,7 437,6 462,1

2,1 1,9 2,0

242,2 251,2 264,6

15,5 17,5 21,5

1,5 1,5 1,8

1,5 1,5 1,8

3,6 3,8 4,7

In Poland, e-commerce sales reached 21.5 billion PLN in 2012.

Participation of e-commerce in the Polish economy

Wholesale and retail trade; repair of motor vehicles and motorcycles

Sales revenue of the section

Total wholesale

Total retail sale

Repair of motor vehicles

Value added of the section

E-commerce

Total sales

- percentage share in the sales of the Trade section (based on GUS data)

- percentage share of the value added of e-commerce in the value added of Trade

Value added of e-commerce * Estimates do not account for repair and maintenance of motorcycles and repair and maintenance of motor vehicles carried out by households, or companies employing less than 10 persons.

Source: PBI and Central Statistical Office, Deloitte Business Consulting.

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Brief outline of the methodologyTo analyse the participation of e-commerce in generating the value added in the Polish industrial sector, online sales on Allegro were used as a ‘proxy’ for e-commerce as a whole. While this is only an approximation of e-commerce in Poland, it does allow for the recognition of broader trends.

ResultsIn 2012, value added generated in the Polish industry as a result of e-commerce reached PLN 2.6 billion. In the last two years, this amount has grown by 1/3 (from PLN 2.0 billion in 2010). E-commerce in the Home and Garden category contributes the highest share, followed by Clothes, Shoes and Accessories and children’s products.

Industries which use e-commerce as their distribution channel most intensively on the local market include: manufacture of sports goods (1/3 of domestic sales), manufacture of bicycles and wheelchairs (including bicycles, car safety seats and prams: 1/4 of domestic sales), manufacture of kitchen furniture (1/5 of domestic sales), and manufacture of non-electric domestic appliances (less than 1/10 of domestic sales).

Participation of e-commerce in the Polish economyPredicted impact of e-commerce on the economy in PolandOur analysis presents the impact of e-commerce on the Polish economy with the respect of sale and manufacture of goods sold through e-commerce. The total added value generated by e-commerce is estimated at 7.3 billion PLN – over 0.5 per cent of the gross added value generated by the whole Polish economy in 2012. The share of the value added generated through e-commerce is on the increase (estimated at 0.45 per cent of the gross added value total in 2010), which is a result of online sales growing faster than the rest of the economy. This impact comes mainly from trade (a 2/3 share). The impact of e-commerce on the Polish industry is diminished by the fact that some of the goods and services sold online are imported; nevertheless it is still significant and on the increase. This indicates that the number of domestic manufacturing companies, which sell their products online, is growing. Maintaining relationships with customers in this way offer their clients easier access to products offered – and PBI research shows that customers appreciate home delivery, time saved while searching for a product, the ease of comparing products and prices and the possibility of placing their orders at any time.

Trading on the Internet can also generate savings for retailers (lowering the need for extensive retail outlets) and improve their competitiveness (products can be offered with a low or negligible retail margin). As we have mentioned above, Internet trade plays a role in driving consumption. This, combined with the rapid development of the e-commerce market, can create a buffer stabilising consumption in times of economic downturn. Furthermore, by giving manufacturers more room to compete, Internet trade facilitates reallocation of both the labour force and capital in the economy. As service activity is currently less ‘mobile’ than trade, the share of services in e-commerce is currently negligible.

2010

3,6

2,0

5,6

0,45

2011

3,8

2,1

5,9

0,44

2012

4,7

2,6

7,3

0,52

Value added in the economy generated by e-commerce (in PLN billion)

Trade section

Industry

TOTAL

Share of gross value added of the total economy (in per cent)

Source: Allegro and Central Statistical Office, Deloitte Business Consulting.

Home and garden

Manufacture of sports goods (33%)

Manufacture of bicycles and wheelchers(25%)

Manufacture of kitchen furniture (20%)

Top 3 e-commerce categories in terms of value added

Industries which use e-commerce most intensively as a percatage of domestic sales

Clothes, shoes and accesories

Children’s products

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Economic theory explaining the links between e-commerce and investments The interrelationship indicated by the data seems obvious if we assume that businesses earmark a portion of the capital expenditure on their fixed assets directly for the expansion and development of their business on e-commerce marketplaces like Allegro.

There is also an indirect relationship between the two. In the mid and long-term, effective investments in fixed assets improve the production capacity of businesses. Due to the inertia of investment processes, it takes some time before a growth in the production capacity translates into a growth in the production output. Consequently, the production output results in an increase in sales as long as the power of absorption of the goods and services offered grows in parallel. The use of e-commerce platforms offers relatively low costs of distribution and the ability to reach new market segments, including the global market. A lot of developing companies therefore choose to include this sales channel in their business model even if the aforementioned capital expenditure was not part of their development plan at first.

The analysis of trends of online sales allows one to observe the current fluctuations in the overall economic situation of the country (before the publication of official data by the Central Statistical Office).

E-commerce as a barometer of the Polish economyTaking Allegro as a proxy for broader e-commerce in Poland, it seems that online sales and some macroeconomic indicators are strongly interrelated.

Changes in the growth rate of online sales can predict some changes in economic trends. In the case of some of those indicators, the response is almost instant (i.e. changes to the growth rate of online sales and macroeconomic indicators take place in the same period), and as regards others, there is a delay in the impact of changes of the indicators on e-commerce trade in Poland. Hence, the analysis of trends of online sales allows one to observe the current fluctuations in the overall economic situation of the country (before the publication of official data by the Central Statistical Office), and short-term economic forecasts can be derived on this basis. A few key macroeconomic indicators describing processes occurring in the real economy, i.e. household consumption, investments in fixed assets, as well as processes related to employment and prices (inflation) were used in the analysis.

Investments Investments (gross capital expenditure on fixed assets) are strongly linked to the growth rate of online sales, but the relationship is clearly one-sided. Changes in the growth rate of investments do have an impact on the growth rate of e-commerce (a one per cent increase results in 0.5 percentage point growth in online sales), whereas an increase in the latter does not result in any increase in capital expenditure. Investments have the strongest impact on trade online after about four quarters, which results from the inertia of investment processes – their impact on various sectors of the economy is usually spread out over time. The impact of an investment impulse usually influences e-commerce for about 10 quarters, which shows that the number of companies whose investments are directly or indirectly linked to the development of online marketplaces as sales channels is big enough to be discerned on the macro scale.

Graphically, these relationships can be illustrated using the impulse function which shows a curve presenting changes to one indicator over time in response to a single change to another indicator.

Sensitivity of the growth rate of online sales to a single impulse sent by the growth rate of investmentsSource: Allegro and Central Statistical Office, Deloitte Business Consulting

Directions and strength of relations between online sales and macroeconomic variables (a one per cent change in the growth rate in online sales triggers changes accordingly)

Source: Deloitte Business Consulting.

Participation of e-commerce in the Polish economy

0 5 10 15 20 25

Online sales

Consumption 0.5 p.p.

in the same month

Unemployment0.02 p.p.

after 1 month

Investments 0.5 p.p.

after 4 quarters

Inflation 5 p.p.

after 1 month

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Economic theory explaining the links between e-commerce and inflationE-commerce marketplaces reduce the negative effect of a decrease in the purchasing power of cash caused by higher inflation, because it offers an alternative to buying goods and services from traditional retail channels. On one hand, an increase in demand for cheaper products acquired on e-commerce marketplaces positively impacts and reduces the drop in consumption, but on the other hand it can have an adverse effect on household

InflationThe relationship between inflation and e-commerce trade is exceptionally strong. The response is almost instantaneous (on the macroeconomic scale) – material changes in the growth rate of online trade as a result of changes in the inflation can be observed after a month. A one per cent increase in the rate of inflation results in a 5 percentage points growth in online sales a month later which is a very significant value.

Participation of e-commerce in the Polish economyConsumptionThe results of our analysis also show that there is a link between the growth rate of household consumption and trade online. It turns out that a one per cent change in online sales immediately translates into a 0.05 percentage point change in households’ consumption. In other words, e-commerce can be a ‘barometer’ for gauging consumer sentiment, and inform the market about upcoming changes on the macro scale – that is, changes to the whole Polish economy.

Unemployment The registered unemployment rate is the last indicator found to be strongly linked to online sales based one our analysis of available data. The unemployment rate is also sensitive to changes in the growth of online sales. A jump in online sales by one per cent coincides with a drop in unemployment by 0.02 per cent a month later with the effects gradually diminishing over the year. Hence, an e-commerce platforms are a good gauge of the labour

Sensitivity of the growth rate of online sales to a single signal sent by inflationThe horizontal axis represents the number of quarters elapsed since the impulse.

Source: Allegro and Central Statistical Office, Deloitte Business Consulting.

0 10 20 30 40Source: Allegro and Central Statistical Office, Deloitte Business Consulting.

0 10 20 30 40

Unemployment rate sensitivity to the growth rate of online sales The horizontal axis represents the number of quarters elapsed since the impulse.

Source: Allegro and Central Statistical Office, Deloitte Business Consulting.

0 2 4 6 8 10 12

Sensitivity of the growth rate of consumption to a single signal sent by the trade growth rate of online salesThe horizontal axis represents the number of quarters elapsed since the impulse.

savings. In the long-term, higher household savings increase the investment resources of the economy, which is important to its development in the long run.

Economic theory explaining the links between e-commerce and household consumptionE-commerce marketplaces like Allegro are most closely aligned to the ‘perfect competition’ model of the market. Due to relatively low margins, a lack of geographical barriers and lack of barriers to entry and

exit, neither the buyer nor the seller have any influence on the price, supply or demand on the market, because these are dictated by the current state of the economy. As a consequence, the volumes of trade on e-commerce marketplaces very similar to the volume of consumer demand for the goods and services available on the e-commerce marketplace. This means that the changes in trade are a reflection of changes in individual consumption trends.

Economic theory explaining the links between e-commerce and unemploymentA revival of e-commerce trade has a direct influence on the increase of jobs and reduces the unemployment rate as a consequence. However, additional multiplier analysis shows that the impact is relatively small – a 1 per cent growth in the rate of online sales, with all other ratios unchanged, results in the decrease in the unemployment rate of 0.02 per cent at most.

market because it predicts changes in the unemployment rate in advance – a positive sales figure on Allegro heralds a drop in unemployment, whereas a negative impulse is always followed by an increase in the unemployment rate.

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SummaryE-commerce is changing the Polish economic landscape – in the short term, it can reduce the negative impact of changes in the overall economic situation, and in the long term it facilitates development.

The total value added generated by e-commerce is estimated at 7.3 billion PLN – over 0.5 per cent of the gross added value generated by the whole Polish economy in 2012. The share of the value added generated through e-commerce is on the increase (estimated at 0.45 per cent of the gross added value total in 2010), which is a result of online sales growing faster than the rest of the economy. This indicates that the number of domestic manufacturing companies which sell their products online, is growing, because of efficiency gains in terms of utility and costs.

Taking Allegro as a proxy for broader e-commerce in Poland, it seems that online sales and some macroeconomic indicators are strongly interrelated, as there is a strong

link econometric link between these two sets of data. Also, there is some strong theoretical economics behind these econometric results. E-commerce trade has an evident effect on two macroeconomic variables: household consumption and the unemployment rate. In the meantime, online sales can be significantly impacted by investment dynamics and changes in prices or inflation.• A link between the growth rate of

households’ consumption and trade online is almost instant – a one per cent change in online sales translates into a 0.5 percentage point change in households’ consumption in the same month.

• The unemployment rate is also sensitive to changes in the growth of online sales – a jump in online sales by one per cent coincides with a drop in unemployment by 0.02 percentage point a month later, with the effects gradually diminishing over the year.

• Changes in the growth rate of investments have an impact on the growth rate of e-commerce after about four quarters with impulse to last for about 10 quarters

– a one per cent change in the growth rate of investments translates into 0.5 percentage point change in online sales.

• The relationship between inflation and e-commerce trade is exceptionally strong and the response occurs within a month – a one per cent increase in the rate of inflation results in a 5 percentage points growth rate of online sales a month later.

Internet trade plays a role in driving consumption. This, combined with the rapid development of the e-commerce market, can create a buffer stabilising consumption in times of economic downturn. Furthermore, by giving manufacturers more room to compete, Internet trade facilitates reallocation of both the labour force and capital in the economy. As service activity is currently less ‘mobile’ than trade, the share of services in e-commerce is currently negligible – but this can change rapidly in the near future, giving online trade even more economic power.

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Define your goalsInvesting in Digital is important. But before doing so, start with the business priorities of your organisation and its units. Then identify the opportunities to further those priorities using the digital channel. To achieve them, what services should you release to the market? What capabilities will you need to build? And how will the digital channel be governed? Having a digital strategy which answers these questions is critical to planning your response. Remember that plans should be action focused, and not look too far out. The days of rigid 5 year strategies are over – the digital space is changing far too quickly for them to be effective.

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Consider User ExperienceIf you’re investing in Digital during tough times, UX can actually help you on both the cost and revenue side. Utilising user testing early will help spot design flaws before they hit the build stage – where they would become much more expensive to fix. Good UX can also aid in the retention of customers, and improve conversion rates in e-commerce businesses. Does your product sign up form take five minutes to fill out on a PC, or can customers complete it in half the time on smartphone, while standing in a queue? How does the competition compare? Remember to choose specific areas for UX teams to address, and use measurement and testing to validate design.

Keep up with mobileMobile is officially selling out PCs, and is becoming a preferred channel for at least some of your customers – yet outside the US, many firms still don’t have mobile optimised websites, or apps with good mobile UX. Consider providing a mobile option, and if you’re a retailer, think about how you can work with showrooming. If you are undertaking a redesign of your digital assets, consider designing for mobile first – it can save you time and money in the long run, and keep you focused on user needs. Finally, keeping up with mobile means keeping up with mobile payments, so don’t forget about these either.

Use social rightMany businesses are on social, but they’re not sure what to do with it. Apart from monitoring your brand, social can also be used to deliver customer service to provide social validation for your products as a vehicle for recruitment, or even as a direct sales channel. Remember that Social is also a great source of big data. Likewise, analysing big data could help you advertise, and sell to the right customers – perhaps even through Social.

Remember securityAs more customer transactions, customer and company data flows through digital channels, they become increasingly lucrative targets. Attackers have become more professional than before, and the explosion in mobile devices and the ‘bring your own device’ trend offers even more opportunities for our data security to be breached. You must invest in securing your digital channels. Remember that this involves training your people as well as investing in technology – and understanding how to contain damage, as well as prevent it.

There is no such thing as a silver bullet, or catch-all advice.

However, there are some general guidelines for businesses to consider in adapting to a changing digital world.

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Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte’s approximately 200,000 professionals are committed to becoming the standard of excellence.

Deloitte Central Europe is a regional organization of entities organized under the umbrella of Deloitte Central Europe Holdings Limited, the member firm in Central Europe of Deloitte Touche Tohmatsu Limited. Services are provided by the subsidiaries and affiliates of Deloitte Central Europe Holdings Limited, which are separate and independent legal entities. The subsidiaries and affiliates of Deloitte Central Europe Holdings Limited are among the region’s leading professional services firms, providing services through more than 3,900 people in 34 offices in 17 countries.

Allegro Group is a multinational e-commerce company operating in 25 countries around the world, but mainly in Central and Eastern Europe. Allegro Group’s activities are focused on e-commerce platforms for consumers enabling easy and safe online transactions in four business segments: marketplaces, retail, classifieds, and payments. The company’s direction is to be the leading ecommerce and payment player in CEE by delivering outstanding customer propositions and sustainable growth beyond market. Allegro Group has always been connected with Poznan in Poland – this is the place of its origins when everything began. Company was founded in 1999 when Allegro.pl – currently the biggest Polish e-commerce player – started its operations and it has grown rapidly during next years both organically and by acquisition. Currently Allegro Group owns and operates over 100 e-commerce related websites and employs over 6500 Europeans. Since 2008 Allegro Group is a part of the Naspers Group.

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Marcin Łaszkiewicz Marcin is a manager at our Warsaw practice. Prior to his transfer to Poland from our Melbourne office, he worked with our Deloitte Digital team in Australia, and helped define digital strategies for some of Australia and New Zealand’s most significant organisations.

Marcin focuses on the intersection between business and IT, but has almost a decade of experience across a broad spectrum of technology projects. Prior to Deloitte, he worked in positions involving network and system administration, IT security, coding, and even cultural studies research into the impact of computer games on society.

Email: malaszkiewicz@deloittece.comPhone: +48 (22) 348 36 33

Łukasz Lachowicz Łukasz is a senior consultant at Deloitte’s Warsaw Technology practice. He possess 6 years of consulting experience, earned during strategic and operational IT projects carried out in banking, insurance, energy, e-commerce and public sector industries.

Łukasz has strong project management background gained while acting as project manager, project auditing in terms of compliance with Prince2, defining portfolio management approach, processes and scoring model, estimation benefits of the project management approach. His projects included IT strategy development, IT mergers, Enterprise Architecture development, software selection and implementation.

Email: llachowicz@deloittece.comPhone: +48 (22) 511 00 16

Thanks to our contributorsJustyna Grzyl, Przemysław Budkowski, Wojciech Czajkowski, Krzysztof Dąbrowski, Paweł Klimiuk, Dariusz Flisiak, Cezary Piekarski, Daniel Martyniuk, Steve Carlisle, Amanda Salter, Philip Bonhard, Dawid Gutowski, Ewa Rzeczkowska, Katarzyna Swat.

Rafał Antczak Is a board member of the Polish Deloitte practice. He is one of the most recognised economists in the country, and is a trusted advisor to both the public sector and private enterprise. In addition to the economic analysis contained in this report, he has also written on a range of related topics, including the impact of broadband internet on the Polish economy.

Besides his work at Deloitte, Rafał has also acted as an expert for the Center for Social and Economic Research (CASE), lectured macroeconomics at the management faculty of Warsaw University, and was the chief economist at PZU, one of Central and Eastern Europe’s largest insurance groups.

Email: rantczak@deloittece.comPhone: +48 (22) 511 00 43

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Keynote

Introduction

Our trends

Economic Impact

Implications

About us

Social

UX

Payments

Big data

The internet of things

Mobile

Security

Cloud

58

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Keynote

Introduction

Our trends

Economic Impact

Implications

About us

Social

UX

Payments

Big data

The internet of things

Mobile

Security

Cloud

59

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