This article first appeared in Forum, The Edge Malaysia Weekly on September 25, 2023 - October 1, 2023

Digital technology has helped energise Malaysia’s business ecosystem in recent years. The traditional levers of success are changing as innovative digital technologies unlock new paths to growth.

Competitive levers are shifting from the physical to the digital, making tech innovation the primary engine of growth. Boston Consulting Group (BCG) and its tech build and design unit, BCG X, explored this evolving landscape in Malaysia in their recent report “Harnessing the Power of Technology: Building a Strong Digital Economy for Malaysia’s future” published in collaboration with the Malaysia Digital Economy Corporation (MDEC).

This ground-breaking report was unveiled in Kuala Lumpur recently — in conjunction with the launch of BCG X in Malaysia — at an event co-hosted by BCG and MDEC. The launch was officiated by Deputy Minister of Communications and Digital Teo Nie Ching.

The report reveals the value that Malaysian businesses could unlock through reenergised adoption of digital technologies, with tech-enabled markets projected to deliver a 10 times growth advantage over traditional markets in the next five years.

Winning companies will deliver dramatically better outcomes, with the most advanced digital companies already achieving 2.9 times greater total shareholder return (TSR) indexed against the S&P Global 1200 Index.

Malaysia’s own digital economy outpaced broader economic growth in the decade from 2010 to 2021, with total value almost tripling to RM359 billion. Covid-19 further supercharged growth between 2019 and 2021, driven by accelerated e-commerce adoption.

While a top-down picture of digital economic activity is encouraging, levelling up Malaysia’s digital landscape will require a nuanced view of digital maturity across the business ecosystem.

BCG’s Build for the Future (BFF) Framework is designed to help address the future-readiness of companies across the globe, informed by three years of research into over 2,500 global companies. Companies building for the future typically sit in one of four categories — stagnating, emerging, scaling and future-built.

With strong early digital foundations, and accelerated adoption driven by the Covid-19 pandemic, Malaysia must energise its own opportunity to build for the future in this increasingly digital landscape.

Digital investments have been instrumental in generating economic benefits across Malaysia’s economy. Investments by companies under MDEC’s strategic Malaysia Digital initiative reached a value of approximately RM46 billion by 2021. BFF provides a framework to assess the impact of such investments, providing an informed look at Malaysia’s digital landscape.

The reality is that future-ready companies unlock widespread benefits compared to their stagnating counterparts. That includes significant improvements in TSR, improved talent retention and perception, increase in AI-related patent innovation of up to eight times, and improvement in environmental, social and governance (ESG) scores of up to five times.

BCG and MDEC have undertaken a survey of companies across Malaysia’s business system to benchmark their BFF performance. The survey dives into the firm-level digital maturity to assess the performance of Malaysian companies against their counterparts, scored on a scale of one to 10.

Malaysian companies demonstrated important progression across the digital journey, but many are not set up to successfully deliver digital transformation ambitions. The BCG-MDEC survey revealed four key learning points.

(1) Malaysian companies are falling behind the curve, with just 17% of companies successfully setting up to deliver on digital transformation ambitions, compared to almost half (47%) of Southeast Asian companies as a whole, and one-third (35%) of companies globally.

(2) There is an urgent need to introduce and scale up AI adoption, which offers a powerful tool to uplift enterprise opportunity. It is critical that Malaysian companies rapidly scale this potential. Malaysian respondents had an average score of 4.7 on the measure of AI adoption, significantly below regional (7.1) and global (7.4) average scores.

(3) Incumbent companies lag digital natives in their BFF performance, but still show impressive performance that offers hope for future digital opportunities. The gap between incumbents and digital natives is relatively small, and can be bridged if they start implementing digital transformation initiatives now.

(4) Digital natives are not advancing as fast as they could and are at risk of being overtaken by ambitious incumbent players. While Malaysia’s digital native companies reflect the global trend of being ahead of incumbent peers, the share of these enterprises in stagnating or emerging stages indicates a clear need to catalyse forward momentum through digital transformation.

Delivering on the digital adoption imperative is a multi-stage journey enabled by two distinct approaches.

Stagnating and emerging companies can be said to be in early digital transformation stages, requiring a programmatic approach to fix the core and build a foundation for future innovation.

Scaling and future-built organisations are at the stage of continuous innovation, embedding and scaling cross-functional attributes to leverage AI at scale, new business build, and advanced digital ecosystems. Enterprises should embrace key next steps to progress their digital maturity.

Purposeful leadership underpins everything. Malaysian companies should align leadership around the corporate purpose, and build depth beyond the C-suite.

People advantage should focus on building an employee value proposition to attract the best digital talent. Place greater emphasis on upskilling to drive development and retention. MDEC’s Digital Skills Training Academy offers training programmes to support this effort.

Agile operating models will be critical, supporting fast, iterative learning and risk-taking. Try not to make trade-offs between speed of innovation and building platforms to scale. Address incentives and align with measures that drive value for the business.

Innovation-driven culture will be the engine to progress transformation. Commit to that entrepreneurial culture to generate innovation across the organisation. Test programmes such as eUsahawan offer a pathway to developing critical entrepreneurial skills.

Modern tech and data platforms will underpin change efforts. From our experience guiding clients through transformation, we’ve found it’s critical for companies to drive a business-led technology agenda that harnesses new technologies such as cloud and open architecture. Equally important is to avoid fragmented data systems by committing to robust data governance. AI adoption will offer further transformational opportunities, and companies should now begin exploring how to embed capabilities across the value chain.

Digital transformation is set to supercharge Malaysia’s future economy, but companies must act now to unlock this strategic advantage.

MDEC and other government agencies are actively supporting this vital transition, with national strategic initiatives such as Malaysia Digital positioned to empower companies to play a leading role in the nation’s dynamic digital economy. Program Mangkin Malaysia Digital (PEMANGKIN) is another encouraging initiative through which MDEC seeks to catalyse large-scale creation of digital value.

Digital transformation can uplift enterprise opportunity and energise national economic growth. Launching our BCG X technology offering in Malaysia reflects BCG’s own belief in the power of digital transition to unlock value for the nation, investing in deepening tech talent, AI and agile capabilities.

It’s time for Malaysian businesses to embrace and engage a value-adding digital transformation.

Ching-Fong Ong is managing director and senior partner at Boston Consulting Group. Hanno Stegmann is managing director and partner at BCG X.

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