2015 Annual Review

Digital frontiers

Companies across industries are testing the technological bleeding edge in an effort to create new value and shield themselves and their customers from cyber attacks.


Financial institutions embrace blockchain's disruptive potential

Blockchain, the technology behind the cryptocurrency bitcoin, was one of the hottest topics in the financial sector in 2015. Dozens of large financial institutions, including major banks, launched initiatives to explore blockchain's potential.

As applied in the bitcoin context, blockchain is a decentralized, public ledger that contains the details of every bitcoin transaction that has ever been completed. Due to a number of innovative technical protocols, the ledger has proven to be exceptionally accurate and secure (it has never been breached).

Interest in the technology exploded when it became clear that blockchain can be used to document the transfer of any digital asset; record the ownership of physical and intellectual property; and establish rights through smart contracts, among other applications. By automating complex labor-intensive processes, the technology can enable organizations to operate both faster and more cheaply.

Financial institutions are exploring opportunities to use blockchain to improve and enhance currency exchange, supply chain management, trade execution and settlement, remittance, peer-to-peer transfers, micropayments, asset registration, correspondent banking and regulatory reporting (including applications related to "know-your-customer" and anti-money laundering rules).

Highlighting the potential for banks, Santander issued a report in 2015 estimating that blockchain "could reduce banks' infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance by between US$15 and 20 billion per annum by 2022." And there is reason to believe the actual figure may be higher.

For most large financial institutions that are exploring blockchain opportunities, 2016 will probably be a year of experimentation. But their activities are likely to set the stage for profound changes throughout the financial sector.


Digital health shows transformative potential

Digital health, the convergence of life sciences and technology, showed tantalizing potential in 2015 to transform medicine while revolutionizing global markets. We surveyed US-based senior-level technology and life sciences executives responsible for their companies' digital health strategies and found enthusiasm for innovation, an interest in collaboration and wariness about several major challenges.

A rapidly expanding sector, digital health could lower healthcare costs, provide high-quality healthcare for people living even in distant areas and process information from thousands or even millions of individuals, thus improving patient health outcomes.

Consistent with these vast opportunities, our survey found striking optimism about digital health:

  • Ninety-three percent of respondents said that digital health plays a key role in their overall business strategy
  • Ninety-two percent of life sciences and 96 percent of technology companies planned to increase their investment in digital health over the next 18 months

93% life sciences and 92% tech companies responded digital health is key in current strategy

To succeed in digital health, collaboration is necessary:

  • But, 85 percent of life sciences and 82 percent of technology companies worried that their business cultures are "incompatible"
  • Still, approximately half of respondents believed the best route for entering and succeeding in digital health would be partnering or joint ventures between technology and life sciences companies
  • And, each sector said the other's strengths would encourage them to work together

Digital health innovators face significant legal challenges, with respondents focused on the absence
of standard global privacy rules and intellectual property issues seen as barriers to growth. Nonetheless, the vast majority said they would be likely or very likely to continue their digital health strategy, even if they knew they might not receive full patent rights in the United States and other developed markets.


Rise in cyber crime requires vigorous countermeasures

Ninety percent of companies worldwide recognize that they are insufficiently prepared to protect themselves against cyber attacks, according to the Global Risks 2015 report by the World Economic Forum. The Center for Strategic and International Studies has revealed that cyber crime costs the global economy more than US$400 billion annually. Furthermore, a 2015 Ponemon Institute global study found that the annualized cyber crime cost for 252 benchmarked organizations worldwide was US$7.7 million per year, with a range from US$0.31 million to US$65 million.

"Similar to financial and reputational risk," the US National Institute of Standards and Technology warns, "the cyber security risk affects a company's bottom line."

The warning is not lost on corporations and governments worldwide, that together have pushed cyber risk to the top of the international agenda.

In response, companies are doing more to identify and reduce security risks, such as installing malware protection, securing networks and monitoring users. They are also upping their scrutiny of vendors, an often overlooked threat.

Governments are responding too, tightening laws to ensure organizations take greater responsibility not only for safeguarding data, but also for reporting failures to do so. In the United States, 47 states have enacted laws that require reporting of security breaches, and the US Congress is considering a national breach notification law. The European Union is developing regulations to replace and harmonize current data protection legislation, including hefty fines for noncompliance.

Still, most cyber crime incidents go unreported, and many go undetected. And emerging technologies such as the Cloud, Big Data and machine-to-machine communication are only increasing the threat. As a result, forward-thinking companies will continue to prioritize the adoption and refinement of practices for reducing their exposure to cyber crime.