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15 July 2017

Steering through the Technological Jungle

Tag(s): Technology, Business
I recently attended a PwC update for NEDs on technological trends and thought I’d share some of their insights with some of my own. They say that industry is facing a revolution. Customers are demanding much more because they increasingly know, or think they know, what is possible. Decision makers are now in technology roles as well as on the front line. Jamie Dimon, Chairman and Chief Executive of JPMorgan Chase, is quoted as saying that “JPMorgan Chase is a technology company.”

Most companies probably understand the need to respond and adapt to the evolving use of technology by their customers and other key stakeholders. What they do not realise is how little time they have to address these changes.

It took more than 70 years for telephones to reach 50% household penetration in the US, compared with 28 years for radio, 18 for colour TV, 14 for cell phones and 10 for internet access. [i] This trend continues to accelerate although it will not reach the absurd infinitum of 100% penetration in hours. In 2011 Google + reached 10 million users in 16 days and 90 million by the end of the year. But then it is is used more across other Google applications and it is difficult to verify the number of genuinely active users.

The real imperative in a world where everything is digitised is that businesses need to pursue innovation to disrupt their own business model before the competition does. This is increasingly difficult for established companies where the business model may involve a legacy of long term investment in infrastructure and systems, while start-ups can avoid these things and use the agility of other peoples’ assets and resources.

PwC have identified 10 key technological forces:
  1. Fintech will drive the new business model, not just aspects of it. Management has to organise third party services.
  2. The sharing economy will not just consist of cars and hotels. Peer-to-peer lending is an example where there will be direct linkages between providers and users of capital thus disintermediating traditional lenders.
  3. Blockchain can’t just be seen as a spectator sport. It has the capacity to eliminate traditional models such as audit or land register. The key question will be what is the user case?
  4. All things digital become mainstream.
  5. Customer intelligence will be the most important predictor of revenue growth and profitability. To win you must grasp data analysis and own data lakes.
  6. Advances in robotics and Artificial Intelligence (AI) will lead to re-shoring and localisation. Millennials, if that is how we should still call them, are happy to talk to robots.[ii]
  7. The public cloud will be the dominant infrastructure model. Again this gives advantage to the start-up who can easily access Amazon or IBM cloud services rather than convert a whole legacy system.
  8. Cyber security is the top risk. Security is only as good as the weakest link. A key question will be 'how to audit?' (but c.f. Blockchain.)
  9. Asia will increasingly be the key centre of technology driven innovation. There is a hugely growing, digitally savvy middle-class population with the capacity to leapfrog levels of technology development.
  10. Regulators will have to develop their own tool kit, using machine learning and data analytics.
PwC then recommend six practical priorities for growth:
  1. Update the IT operating model across all areas of the business strategy; product development, marketing, sales etc.
  2. Reduce work by simplifying the legacy systems. Adopt robotics and AI. Today HR, compliance and CRM should be in the cloud. Tomorrow, most of everything else. You should have a private cloud for high risk data. Learn to fail fast. The aim should be for better services at lower cost.
  3. Collect big data from multiple sources.
  4. Prepare to connect to anything, anywhere. Know and grow with your customer.
  5. Address cyber security before it’s too late. Reported incidents are growing at 30% - 40% a year.
  6. Gain access to the necessary skills.
And what is the role of the board in all this? PwC suggest three areas for focus:
  1. Identify expert teams to catalyse change
  2. Ensure a holistic approach to innovation
  3. Focus on achievement of real outcomes.
There will be considerable disruption to many existing businesses and professions and it may go much wider than most people think. The challenge for businesses is to face the implications of digital change: in particular the loss of control over customer relationships, increased competition and threat of commoditisation, and the need to engage digitally not just with customers, but also with suppliers, partners and employees.

The starting point is a structured approach that assesses your digital maturity based on an understanding not just of the technology but a much wider, holistic view of exactly what digital engagement means to the business.

Digital applications are becoming increasingly influential in our lives but don’t play by the same rules as traditional companies. Some technology companies are not job creators but job destroyers. Google is seven times the size of General Motors but employs fewer than 25% of its workers; WhatsApp is worth $19bn but has 55 employees; Instagram was worth $1bn when Facebook bought it and had 12 employees at the time.

The issue of work displacement will have profound effects on society, particularly when ironically technology is also enabling instant and unfiltered information. Economists argue that while AI will lead to machines taking over more and more jobs new ones will be created. This is no doubt true but not necessarily for those who lose their jobs. The Industrial Revolution destroyed many cottage industry jobs. New jobs were created in the factories but the skilled workers whose jobs were replaced either had to accept lower paid unskilled work or did not work at all.

Technology does not always mean progress. Even when it does it can lead to losers. For example Sir Joseph Bazalgette’s marvellous development of London’s sewage system in the 19th century was undoubted progress. Prior to that London’s sewage flowed openly into the Thames and cholera was rampant. In one year alone 14,000 Londoners died of cholera. But the men who used to collect the night soil never worked again.

AI will destroy 6% of all jobs in the US by 2021, according to research by Forrester, which shows the biggest effect will be in transportation, logistics, customer service and consumer services. A study by Oxford University suggests the top five jobs at risk of automation are loan officers, reception and information clerks, paralegals, retail salespeople and taxi drivers and chauffeurs.

Newspaper stories focus on dramatic changes like driverless cars and speculate as to what will happen to taxi, van and lorry drivers who will lose their jobs. But they should consider their own position. Much of the news could be edited by machines. Roles that involve a high level of social intelligence and original ideas are less likely to be replaced by machines, but in the total world of employment these kinds of jobs are in the minority.

Career development will be an issue. A barrister might learn his profession by working on analysis and preparing cases for his seniors to handle in court. But if this preparatory work is done by machines how does the barrister ever become a senior practitioner? Similarly an accountant will start his career on low grade number crunching on audits and other low level book keeping. When this is all done by machines and Blockchain how does he ever get to become a partner?

At the very least to prepare for this revolution people should read up on the subject and look into improving their technical skills. Young people should see the ability to write code as equally essential as the ability to write English. We need to stay on top of the technology and not let the machines design the jobs. By all means if a machine can be more accurate or safer or substantially quicker and cheaper then the machine should do the work. But in making decisions about cost we must look to the wider question of the cost to society at large of a workforce dependent on the gig economy to pick up the odd jobs that don’t suit the machines.

Sources: Technology: a platform for growth. PwC UK 2017
Artificial Intelligence. Marketing Week 12 January, 2017
The digitization of everything. Yunus Ozler & Pippa Thomas. EY Performance Volume 4 issue 3


[ii] But this conflicts with widespread evidence that these same millennials think that robots will take their jobs.




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