Emerging Technology Transforming Tomorrow Today Edition 2: Transforming in the Exponential Era

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Emerging Technology Transforming tomorrow today Edition 2: Transforming in the exponential era

Contents

The imperative of transforming in the exponential era 02

How leading organisations are transforming 06

Transforming in the exponential era 10

The ethics of transforming in the exponential era 20

Overcoming transformation inertia 26

Contacts 30

01 Section 1

The imperative of transforming in the exponential era

Transforming tomorrow today 02 The opportunities of the exponential era are not limited to those companies that have been designed to capitalise on its opportunities. There is plenty that more traditional organisations can learn from their non-linear competitors, and lots of opportunity available to them too. The key is in learning how to transform to seize those opportunities.

In the first chapter we looked at In this chapter, we will look at how what the term exponential meant, more traditional organisations, especially in reference to growth, in any sector, can adopt the and the implications of doing characteristics of non-linear business in the exponential era organisations, and transform to set and at the new type of non-linear themselves on a non-linear growth organisations emerging, uniquely path. designed to take advantage of exponential technologies to achieve exponential growth.

The imperative of transforming in the exponential era 03 The opportunity to What is a platform business? create and capitalise In the 21st century – with the abundance of information on new markets available – the preferred business model is to extract a return from accessing assets, rather than Scaling rapidly owning them. Accessing assets is There are certain organisations the process of identifying assets designed to capitalise on the not owned by the organisation proliferation of information and creating value from the asset’s stemming from the digitisation unused capacity. of our world. Whether it’s by For example, Deliveroo’s outcome is harnessing the opportunities feeding people. But their assets are created by Industry 4.0, or by basing not restaurants or food, rather the their business on a platform model, asset is the platform which allows they have been designed to scale them to connect hungry customers closer in line with the technological with restaurants looking for diners. advancement and exponential The asset is the information, rather growth surrounding them. They than the physical restaurant or leverage the crowd and their open food. ecosystems, they capitalise on asset value by accessing the assets (or Creating new markets aggregating them), not by owning As well as the opportunity provided them. by non-linear organisations, Platform businesses make designed to scale rapidly, there up three of the five most valued is the possibility of creating and companies in the world – Apple, capitalising on huge markets. Often, Google and Microsoft – as well disruptive companies who have as seven of the most valuable ‘broken the mould’ in terms of their unicorns (defined as starts ups business models, have done the worth more than US$1bn in their same with the markets they have latest funding round.)i created. The companies created huge demand for a product that didn’t exist yet (e.g. Tesla). Some, by harnessing the best technology and reducing cost, have provided access to huge sections of the market, previously unable to afford this service e.g. online payment service Afterpay opening up the deferred payment market or Canva scaling graphic design solutions. Some have tapped into sweeping

Transforming tomorrow today 04 social change that has created a demand for products or services produced or delivered in a particularly ethical way (e.g. Indigogo, a global crowdfunding platform empowering people around the world to fund projects that matter to them, or Warby Parker, online opticians, who train locals in deprived areas to deliver eye tests and sell low-cost glasses). The size and scale of the market that can now be reached has also been transformed. Five hundred years ago the only people who had the resources to impact a region were kings and queens. One hundred years ago, wide scale impact was restricted realistically to politicians or barons of industry. Today, through the connection provided by the internet, the vast majority of people in the world can reach a huge audience. We can all access capabilities that only the largest corporations and governments had access to 20 years ago. Impacting a billion people would previously have been unthinkable. In 2008, Ray Kurzweil and Peter Diamandis co-founded Singularity University (SU) to enable brilliant graduate students to work on solving humanity’s grand challenges using exponential technologies. Now impacting a billion people is the aspiration of several companies who have emerged from SU.ii

The imperative of transforming in the exponential era 05 Section 2

How leading organisations are transforming

Transforming tomorrow today 06 Contrary to widespread perception, transforming and thriving in the exponential era is not the exclusive domain of start-ups and scale-ups in information-driven sectors. Large established corporations in traditional, asset-intensive industries can and should be thriving in this era. Because in our ‘exponential era’, every industry is becoming digitised, and is rapidly transitioning to be information-driven.

How leading organisations are transforming 07 Case study: Capitalising on new The proliferation of connectivity, opportunities networks and sensors has It is common for transformation accelerated the adoption of the to be perceived narrowly as just a Internet of Things (IoT) which driver of operational productivity is driving rapid digitisation in – fulfilling current objectives, but these previously analogue, asset- faster and in new ways. A recent intensive industries. The shift to an Deloitte survey on Industry 4.0 information-driven sector – and the revealed that only 50% of Global ability to innovate your business CEOs indicated the importance of model to capitalise on it – presents transformation to maintain, or drive an abundance of opportunities. profitability and growth.iv Rolls Royce – the 112-year-old, multi- Transformation – and the national industrial conglomerate attempt to achieve non-linear that spans aerospace, engines growth or return on investment – is and power systems – applied not about the implementation of IoT, predictive data analytics and the latest and greatest technology business model innovation to shift for the sake of it. The driver behind from selling aircraft engines, to non-linear transformation in the selling engine uptime, reliability exponential era is the attempt to and predictive maintenance, the meet an evolving customer need ‘core’ needs of the airlines, by (or create a new market), solve a implementing key organisation fundamental problem in the system design options; including aligning underpinning a sector, or capitalise price with use, turning products on an adjacent or transformative into product platforms and opportunity space created by implementing a virtuous and exponential change. circular business model.iii In our exponential era, successful transformation is about pivoting and redesigning your business model around the new opportunity, and using the application of emerging technology as an enabler. Innovation – whether business model, organisational configuration, product and service or experience innovation – is the core driver of organisational transformation.

Transforming tomorrow today 08 Innovating and 2) 3M: 3M has long empowered transforming at the edge its researchers (or ‘Scouts’) with The focus of a large majority of autonomy to find and solve transformation attempts is on the problems at the edge of the core of an organisation. The issue organisation. In an attempt to solve with this is that the core is fiercely a problem, the near- ubiquitous protected by loyal ‘corporate change Post-It note was created (albeit antibodies’, and broad internal unintentionally). change is an exhausting, multi-year 3) Google X: In 2010, Google X was long, and an intensely expensive formed to “create radical new endeavour. technologies to solve some of the To avoid these common world’s hardest problems”. Waymo – transformation challenges, John the self-driving car project is Google Hagel III and the Deloitte Centre X’s first moonshot project that has (C4TE) for the Edge designed the become its own Alphabet company. ‘Scaling Edges’ methodology. This Transforming and scaling an approach to transformation helps edge offers a pragmatic pathway businesses focus on low investment, to achieving broad internal high-growth-potential opportunities change, and redefining the core – ‘edges’ – with fundamentally of an organisation in our different business practices that can fast-paced exponential era. ultimately transform the core of Transforming and scaling an the organisation.v edge offers a pragmatic pathway to achieving broad internal change, Notable companies who and redefining the core of an have successfully innovated, organisation in our fast-paced transformed and scaled the exponential era. edge include; 1) Apple: The secret to Apple’s Different by design successful approach to new product In the context of the exponential development and innovation has era, the characteristics of a 20th been to empower a small team to century business model – asset- design new products at the edge ownership, closed ecosystem, and of the organisation. In 2012, 80% centralised, top-down bureaucracy of revenue at Apple came from – will hinder growth. products that were launched within The ability for an organisation the last five years.vi to become information-driven, and scale without constraint, in line with the exponentially accelerating pace of information requires an entirely new set of organisational design options.

How leading organisations are transforming 09 Section 3

Transforming in the exponential era

Transforming tomorrow today 10 Adopt a proactive and offensive mindset

Deloitte research has revealed that the majority of transformation initiatives in the exponential era are still focused on productivity and operational goals (50% and 47%, respectively), i.e. the application of technology to help their organisation do the same things, but better. Comparatively, only 36% and 23% of initiatives were driven by changing customer requirements and an increased desire for innovation.vii Executives are continuing to view transformation as protection in the face of change, rather than a growth opportunity. Successfully transforming in our exponential era requires organisations and executives to adopt a new mindset when approaching transformation – a shift from reactionary and defensive, to proactive and offensive.

Transforming in the exponential era 11 Adopt a new approach – It may seem counterintuitive Speculate, design, and scale to solve our inability to predict the The current approach to future five years out by focusing on transformation – a five-year strategy a 10+ year perspective. However, that waterfalls into a multi-year it is the structure and discipline implementation that promises a ‘big that Deloitte’s approach has bang’ impact – is broken. The ‘set built around the speculative and and forget’ transformation strategy experimental nature of innovating immediately puts organisations and applying emerging technology into a reactive mode. Weak ‘edge that circumvents this challenge. Our signals’, dismissed at the time, can approach forces an organisation often accelerate at an exponential to continually revisit and iterate rate, proving fundamental its strategic direction – based on transformation assumptions sensing and speculating on the incorrect. impact of key emerging technology In an era of exponential change, ‘edge signals’ at the 10 year horizon organisations need to focus on two – and balance that with actionable radically different perspectives, and initiatives within a 12 month take an iterative and experimental timeframe that deliver tangible and approach to transformation. measurable benefits, and progress Leading organisations ‘zoom the organisation towards the future out’ and speculate on the future of opportunity space. the sector in 10+ years to identify an opportunity space. Then, they design an innovative solution that would thrive in that scenario. Next, they ‘zoom in’, and focus on three or four crucial initiatives in the next 6–12 months that could drive and scale the organisation the furthest towards the speculated future opportunity space. (See Figure 1)

Transforming tomorrow today 12 Figure 1

Zoom out Zoom in 10+ year perspective 1 year perspective

Speculate Design Scale the opportunity the solution the transformation

Transforming in the exponential era 13 Step 1 — Speculate on the future opportunities within 10+ years

When ‘zooming out’ to speculate on future opportunities, there are four individual change drivers, that individually or through convergence, create speculative future opportunity spaces:

1) Macro disruption: Opportunities exist when individual macro change factors (social, technological, economic, environmental, political, legal and ethical) converge and exacerbate one another, fundamentally altering our global economy and markets. 2) Market disruption: Opportunities exist when fundamental conditions of an industry structure or the underlying system are changed due to macro disruption, opening the opportunity for patterns of disruption to change the market. 3) Evolving customer needs: Opportunities exist when customers’ needs of a market evolve and are not sufficiently met. 4) Internal business issue: Opportunities exist by resolving foundational issues preventing your organisation from responding to the above change factors, and attempting any degree of business model innovation via the application of emerging technologies.

Transforming tomorrow today 14 Step 2 — 4) Innovate your configuration: Design the solution Redesign your profit model, network, structure and processes. The design options are not mutually With a speculative ‘hunch’ about exclusive, and an organisation has the future of your sector, there are a higher chance of winning in the two sets of transformation design exponential era by targeting an options to experiment with at the innovative growth ambition that is core or edge of your organisation: underpinned by innovation within two or more of the categories. 1) Decide upon a growth ambition, and innovate your Apply emerging business model, offering and technology as an enabler experience accordingly. Deloitte research has identified 2) Apply emerging technology as seven emerging technology trends the enabler of the growth and – all of which are composed of innovation options. individual information-driven technologies that are advancing Growth ambition at an exponential rate. These and innovation options technologies are expected to The application of Doblin’s have a profound and ultimately Innovation Ambition Matrix, incomprehensible impact on and the Ten Types of Innovation our world (due to our linear framework present four options for perspective and mindset): organisations to grow in the face of exponential change: 1) Advanced computing: The increasing power of computational 1) Decide upon a growth ambition: systems and processing capacity, Expand into ‘new to the company’ i.e. quantum computing. or ‘new to the world’ markets by 2) Artificial Intelligence (AI): The capitalising on the patterns of ability for machines and computers disruption within your market, to think, analyse, reason, act and and by targeting or creating ultimately imitate a human brain, i.e. new markets based off evolving machine learning and deep learning. customer needs. 3) Connectivity, networks & sensors: 2) Innovate your offering:Redesign Enabling connectivity technologies, the performance of your product and a distributed network of and build an ecosystem around it. sensors that digitises, connects 3) Innovate your experience: and exchanges data derived from a Redesign your service, channel, network of physical assets, i.e. cloud brand and customer engagement. computing, the Internet of Things (IoT), blockchain, drones and 5G network.

Transforming in the exponential era 15 4) Digital reality: A spectrum of Solution test: Patterns of technologies that digitally connect, disruptive organisations augment, enhance or simulate Deloitte research has identified a physical environment, i.e. eight traits that are common across augmented reality (AR) and virtual disruptive organisations. Your reality (VR). organisation can stress test the 5) Synthetic biology: The design transformation solution that you and construction of new biological have designed against these entities such as enzymes, genetic eight traits: circuits, cells and biological systems, i.e. biotechnology and genomics 1) Circular business model: The 6) Energy technology: Technology business model drives a virtuous that extracts, captures, converts, cycle whereby the data created by transports, stores or uses energy, the operation of the business is i.e. solar, battery, biofuel, and used to continually optimise the nuclear technology. operations, experience and offering. 7) Advanced manufacturing: The 2) Platform-enabled: The ability to convergence of advanced materials, derive value from the aggregation robotics and next-generation of people, , data and assets onto a manufacturing techniques, marketplace platform. i.e. nanotechnology, industrial 3) Open ecosystem: The ability to robots, humanoids and additive leverage the insights, and collective manufacturing. intelligence of a proportion of the 2.9 billion people connected to The application of emerging the internet. technology as an enabler of 4) Access-to-assets: The ability to transformation, is predicated on the access assets (and everything for presence of modern, integrated and that matter) as a service (Xaas), scalable core technology systems circumventing the impact of the and platforms. long-term decline in Return A transformation solution is on Assets. successful if there is a high degree 5) Insight-driven: The ability to of mutual reinforcement between leverage advanced Artificial the growth and innovation, and Intelligence (AI) and predictive emerging technology options. The analytics capabilities, and application of technology must information dashboards to be issue-led, and the impact is empower everyone in your exacerbated when the application organisation to access key market, enables innovative changes to operational and customer insights your configuration, experience or in real time. offering.

Transforming tomorrow today 16 6) Scalable-processes: The ability to leverage advanced automation capabilities to scale processes and operations in line with exponentially growing information and customer acquisition. 7) Emerging technology-enabled: The ability to apply a diverse selection of emerging technologies to enable the adaptive strategy, operational performance and innovative business model. 8) Autonomous and augmented workforce: The ability to empower a distributed workforce with autonomy, and merge Human Intelligence (HI) with Artificial Intelligence (AI) within day-to-day operations.

Transforming in the exponential era 17 Step 3 — Scale the transformation

Depending on the ambition and complexity of your transformation response, and your organisation’s current digital maturity, your organisation has three scales of transformation that it can pursue:

1) Scale #1 – Renew the core: Prepare to apply emerging technologies by modernising the core technology platforms and systems of your organisation. 2) Scale #2 – Refine the core: Enhance the productivity and efficiency of your organisation by applying specific innovative design traits and emerging technologies at the core. 3) Scale #3 – Redesign the edge: Shift your organisation to non-linear growth by applying a convergence of multiple innovative design traits and the application of emerging technologies to transform and scale the edge of your organisation.

Having decided upon which transformation scale to initially pursue, your organisation needs to ‘zoom in’ on the three or four key initiatives that will drive your organisation the furthest to the future position – the one that will survive, and win in your speculated future.

Transforming tomorrow today 18

Section 4

The ethics of transforming in the exponential era

Transforming tomorrow today 20 We’ve shown that there are advantages to be gained for different types of organisations, from different sectors and with different maturity levels, if they can adopt some of the qualities of a non-linear organisation and transform. As has been the case with any major technological advancement in modern history, there are also downsides, or unintended consequences to be considered. Both non- linear organisations, and more traditional organisations who have adopted emerging technologies are finding their way through some ethical grey areas. From concerns over the correct use of data and protection of privacy, to the perceived threat to democracy from misuse of targeted content, there is a significant obligation on organisations developing and implementing these technologies to consider the wider implications of their misuse or misapplication.

The ethics of transforming in the exponential era 21 Algorithms can reflect the biases Big-data practitioners understand of datasets and human data that large, richly detailed datasets workers (though they are often less of the sort that Amazon and other biased and more accurate than the corporations use to deliver custom- humans they are replacing). They targeted services inevitably contain perceive the world as represented fingerprints of protected attributes through their datasets, and take like skin colour, gender, and sexual on the implicit values of the and political orientation. humans making design decisions The decisions that algorithms in collecting, selecting and applying make on the basis of this data can, data. In addition to pre-existing invisibly, turn on these attributes, in biases, biases can also arise from ways that are as inscrutable as they technical constraints (e.g. failure are unethical.viii under certain conditions, limitations of tools in formalising human constructs such as judgment or Amazon same day intuition) or emerge from new delivery service contexts of use (e.g. unintended What does bias in/bias out look audiences, unexpected correlations like? In 2015, Craig Berman, Vice between datasets, self-reinforcing President of global communications feedback loops). at Amazon, responded “we don’t The problem of bias in machine know what our customers look like” learning has become more to allegations that the company’s widespread as the technology is same-day delivery service adopted by more industries. It's discriminated against people of likely to become more significant as colour. In the most literal sense, the technology spreads to critical Berman’s defence was truthful: areas like medicine and law, and Amazon selects same-day delivery as more people without a deep areas on the basis of cost and technical understanding are tasked benefit factors, such as household with deploying it. Algorithms may income and delivery accessibility. already be subtly distorting the But those factors are aggregated kinds of medical care a person by ZIP (postal) code, meaning that receives, or how they get treated in they carry other influences that the criminal justice system. have shaped—and continue to shape—cultural geography. Looking at the same-day service map, the correspondence to skin colour is hard to miss.

Transforming tomorrow today 22 Those on the other side of the And the regulation is coming from argument contend that regardless government too. The European of the bias inherent in algorithms, Commission will present ethical it will always be much less than guidelines on AI development, the inherent bias of humans, based on the EU’s Charter of who have been proven to make Fundamental Rights before the poorer decisions than algorithms, end of 2018.xi In the UK in April, the repeatedly. However the impact of House of Lords select committee getting it wrong when it comes to on AI urged the UK government algorithms and machine learning, and industry to focus on ethics. It as we’ve learned, is exponential. recommended that ethics should And isn’t the point of progress that be put at the centre of artificial we should be doing these things intelligence adoption to ensure it’s not just a bit better, but multiples developed for the common good better – exponentially better? The and benefit of humanity.xii question is whether the net effect of machine learning-enabled systems is to make the world fairer and more efficient or to amplify human biases to superhuman scale. Companies are beginning to taking the need to get this technology right seriously. Googleix and IBMx both announced new toolkits for mitigating bias in AI in September 2018. These join similar recent launches from Facebook and others as part of a set of technology-oriented efforts that complement the ongoing work on AI ethics and risk assessment frameworks.

The ethics of transforming in the exponential era 23 Case study – conduct in financial services A good way to imagine potential future issues from biased algorithms is in the context of the recent Banking Royal Commission in Australia and the instances of immoral practices directed at customers, particularly the vulnerable. In this case, companies and the Commission are trying to get to the bottom of where this conduct originated from and the practices and cultures around how it was allowed to happen. In the future, many of the interactions between customers and the systems that manage their financial arrangements will be driven by bots and machine learning, instead of frontline staff. If not implemented in the right way and bias is present in the information taken by these algorithms, then there will be bias in the output. This may result in the same, or potentially more widespread impact on customers, and the same problems for executives.

Transforming tomorrow today 24 What can organisations do? •• Develop processes and Companies can manage ethical approaches, aligned with the considerations, and specifically governance structure, to address algorithmic risk by developing and the entire algorithm lifecycle – e.g. adopting new approaches that handling of unexpected boundary build upon the lessons learned conditions, implementing hard- from ‘conventional’ enterprise risk coded rules to prevent extreme management, e.g.: negative outcomes, protection against adversarial input from •• Elevate responsibility for risk malicious actors seeking to skew management around emerging models. technologies from the server •• Establish ongoing monitoring room into the board room. of data and algorithm results – Executives need to be across all testing data inputs, workings, and potential risks from the beginning. outputs, monitoring results, and •• Companies also need a single seeking independent reviews of owner of risk management and it algorithms. can’t be a shared responsibility. •• Like cyber security, emerging Ultimately, when data and technologies are primarily an technology culture meet customer engine for growth. A solid risk culture it means that we must foundation is crucial to ensuring embed controls into the design that growth potential can be of new initiatives to ensure reached. that the outcomes we produce •• Develop an algorithmic risk are consistent with customer strategy and governance experience goals. structure, including policies, risk assessments, training, compliance, and complaint procedures. •• Prepare a strong inventory of key algorithms that have been tested and ‘risk-rated’ to enable focus on algorithms that pose the greatest risk and potential impact.

The ethics of transforming in the exponential era 25 Section 5

Overcoming transformation inertia

Transforming tomorrow today 26 Transforming in the exponential era is difficult, and Australian executives are the least confident in the world about their organisations’ readiness for the exponential era. A Forbes Insights and Deloitte Global survey on Industry 4.0 found that only 14% of Global CXOs are highly confident that their organisations are ready to fully harness Industry 4.0’s changes; only 2% of Australian CXOs were highly confident. When facing a plethora of options and exponentially accelerating change, executives and organisations – weighed down by choice overload, short term pressures and ‘corporate change antibodies’ – opt to mirror their digital transformation plans based on their current position and objectives, or worse, do nothing.

Overcoming transformation inertia 27 Tactics to overcome the inertia 4) Experiment: Adopt a lean and Our research has identified experimental culture and approach common tactics that leading to iteratively designing, testing and organisations have employed to scaling transformation solutions for overcome transformation inertia: the identified opportunity spaces. Make resources – i.e. time, money, 1) Educate: Use experience- support – ‘scarce’ to reduce the team’s based education to change linear dependency on the core, and increase mindsets. Put emerging technology their ingenuity and resourcefulness. in employees’ hands and take them 5) Engage: Engage with the 2.9 billion out of their 9–5 to submerse them minds in the world. Engage the existing into innovation hotspots (whether crowd, community and business that is your local start-up co- ecosystem that is passionate about working space or the big global tech your problem and opportunity space. hubs in San Francisco and Israel). 2) Empower: Empower ambitious, As the founder of the XPRIZE curious and naturally ‘non-linear’ Foundation, Peter Diamandis states, “If thinkers to work with autonomy you’re relying on innovation solely from at the edge of the organisation. within your company, you’re dead”. Note; beware of the ‘expert’ – the person who can only tell you why something cannot be done. 3) Empathise: Don't make assumptions, get out and empathise with the customer, end user, or stakeholder to understand how their needs are evolving (and where the opportunity space lies).

Transforming tomorrow today 28 Conclusion

For traditional organisations, the exponential era provides as much potential for them as it does for their non-linear competitors. What separates both types of organisations is the appetite for transformation, a redefining of the purpose of transformation, and how it should be actioned. Our methodology on how to redefine transformation within organisations, supported by the potential of emerging technologies, provides a practical blueprint for how to begin to capitalise on opportunities within the exponential era.

Overcoming transformation inertia 29 Contacts

Kevin Russo Brad Milliken Partner, Consulting Partner, Consulting [email protected] [email protected]

Paul Jackson Thomas Mitchell Partner, Consulting Manager, Consulting [email protected] [email protected]

Writing and editorial support provided by Louise Kelly, Editorial lead, MCBD. Design by Ellie Nuss and Anthony Skujins, MCBD.

References ihttps://hbr.org/2016/05/what-platforms-do-differently-than-traditional-businesses iihttps://www.diamandis.com/blog/10-9-companies iiihttps://www.rolls-royce.com/media/our-stories/discover/2017/totalcare.aspx ivhttps://www2.deloitte.com/insights/us/en/focus/industry-4-0/challenges-on-path-to-digital-transformation/innovation-paradox.html vhttps://www2.deloitte.com/us/en/pages/center-for-the-edge/articles/shift-index-exponential-technology.html vihttps://www.bloomberg.com/news/articles/2012-12-06/tim-cooks-freshman-year-the-apple-ceo-speaks viihttps://www2.deloitte.com/insights/us/en/focus/industry-4-0/challenges-on-path-to-digital-transformation/innovation-paradox.html viiihttp://nautil.us/issue/55/trust/are-algorithms-building-the-new-infrastructure-of-racism ixhttps://ai.googleblog.com/2018/09/the-what-if-tool-code-free-probing-of.html xhttps://www.siliconrepublic.com/machines/ibm-fairness-360-ai-bias xihttps://www.computerweekly.com/news/252439988/European-Commission-unveils-15bn-AI-funding xiihttps://www.computerweekly.com/news/252438994/Ethics-key-to-AI-development-says-Lords-committee

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