diffusion the key to harnessing intelligent automation...so far diffusion has been minimal *frontier...
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Diffusion – The key to harnessing Intelligent Automation
Constance L. Hunter
Chief Economist, KPMG
@constancehunter
constancehunter@kpmg.com
September 25, 2018
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
• The future might be farther away than you think
• Diffusion matters
• U.S. economic outlook
Outline
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
What is Intelligent Automation?
Intelligent Automation
Robotic process
automation
Enhanced/
machine learning
Cognitive
intelligence
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
Recurring phases of each technological revolution
Source: KPMG Economics, Based on Carlota Perez, “Technological Revolutions and Financial Capital: The Dynamics of
Bubbles and Golden Ages”, p. 48, (2002)
MATURITY
De
gre
e o
f d
iffu
sio
n o
f th
e te
ch
no
log
ica
l re
vo
lutio
n
IRRUPTION
Techno-economic split
FRENZY
SYNERGY
Next
Great
SurgeFinancial bubble(s) time
Golden Age
Socio-political split
Big-bang CrashInstitutional
recomposition Next big-bang
Previous
Great
Surge
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
Five successive technological revolutions
Technological
revolution
Popular name for the
periodCore country or countries
Big-bang initiating the
revolutionYear
1stThe 'Industrial
Revolution'Cromford, Britain Arkwright's mill opens 1771
2ndAge of Steam and
Railways
Britain (spreading to Europe
and USA)
Test of the 'Rocket' steam
engine for the Liverpool-
Manchester railway
1829
3rdAge of Steel, Electricity
and Heavy Engineering
USA and Germany forging
ahead and overtaking Britain
The Carnegie Bessemer steel
plant opens in Pittsburgh,
Pennsylvania
1875
4th
Age of Oil, the
Automobile and Mass
Production
USA (with Germany at first
vying for world leadership),
later spreading to Europe
First Model-T comes out of
the Ford plant in Detroit,
Michigan
1908
5thAge of Information and
Telecommunications
USA (spreading to Europe
and Asia)
The Intel microprocessor is
announced in Santa Clara,
California
1971
Source: Carlota Perez, “Technological Revolutions and Techno-economic Paradigms”, p. 6, (2009)
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
Intelligent Automation needs a full ecosystem
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
Two computers communicating are more valuable than 1
1 Connection
Metcalfe’s Law of Connectivity:
V = n(n-1)/2
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
The greater the diffusion the greater the value of the technology
45 Connections
Metcalfe’s Law of Connectivity:
V = n(n-1)/2
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
So far diffusion has been minimal
*Frontier Firms are the top 5% of firms in terms of labor productivity gains
Source: KPMG Economics, OECD, Andrews et al, “The Global Productivity Slowdown, Technology Divergence and Public Policy: A
Firm Level Perspective”, (2016)
90
100
110
120
130
140
150
90
100
110
120
130
140
150
2001 2003 2005 2007 2009 2011 2013
Manufacturing
Frontier (Top 5%) Laggards
90
100
110
120
130
140
150
90
100
110
120
130
140
150
2001 2003 2005 2007 2009 2011 2013
Services
Frontier (Top 5%) Laggards
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
The participants of the WEF survey think diffusion is on the rise
42%
29%
58%
71%
0% 20% 40% 60% 80% 100%
2022
2018
Share of Task Hours Performed
Machine Human
Source: KPMG Economics, World Economic Forum, “The Future of Jobs Report”, (September 2018)
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
Technology has historically enabled greater leisure time
0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
U.S. Average Weekly Hours1870-2017
2017: 34 Hours
Per Week
1900: 57 Hours
Per Week
Source: KPMG Economics, Haver Analytics, Huberman & Minns, “The times they are not changing’: Days and hours of work in Old and New
Worlds, 1870-2000”, (2007), BLS
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
Not all workers see same benefits from growth
0% 25% 50% 75% 100%
Doctoral degree
Professional degree
Master's degree
Bachelor's degree
Associate's degree
Some college
Only high school
Less than high school
Labor Force Share by Occupation and Educational Attainment2016
Management and professional ServiceSales and office Natural resources and constructionProduction
Source: KPMG Economics, BLS
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
Those with greater education face below 5% chance of job loss
55.0
40.0
17.5
10.0
5.01.5 1.0
0
10
20
30
40
50
60
Primary orLess
LowerSecondary
UpperSecondary
PostSecondary
Short-cycletertiary
Bachelor Master/PhD
Share
of W
ork
ers
at H
igh R
isk(>
70%
)
High Automatability by EdRiskionShare of Workers at High Risk, %
Source: OECD, “Automation and Independent Work In a Digital Economy”, (2016)
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
How do challenges and plans intersect?
Machine Learning > 75%
Information & Communication Technologies
Automotive, Aerospace, Supply Chain &
Transport
Consumer
Global Health & Healthcare
Aviation, Travel & Tourism
Energy, Utilities, & Technologies
Source: KPMG Economics, World Economic Forum, “The Future of Jobs Report”, (September 2018)
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
How do challenges and plans intersect?
Don’t Understand Opportunities> 60%
Consumer
Global Health & Healthcare
Energy, Utilities, & Technologies
Chemistry, Advanced Materials & Biotech
Mining & Metals
Oil & Gas
Source: KPMG Economics, World Economic Forum, “The Future of Jobs Report”, (September 2018)
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
How do challenges and plans intersect?
Machine Learning > 75% & Don’t Understand Opportunities> 60%
Consumer
Global Health & Healthcare
Energy, Utilities, & Technologies
Source: KPMG Economics, World Economic Forum, “The Future of Jobs Report”, (September 2018)
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
Productivity growth in services is critical for wage growth
Contribution of Each Sector
Global*, 2000-2015
SectorShare
employment
Share R&D
spending
Share
productivity growth
Agriculture 2% 1% 33%
Manufacturing 17% 65% 42%
Services 81% 34% 25%
* Sample of 24 countries
Source: KPMG Economics, OECD, Federal Reserve Bank of St. Louis, Santacreu & Zhu, “Manufacturing and Service Sector Roles
in the Evolution of Innovation and Productivity”, (2018)
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
Productivity growth in services is critical for wage growth
Contribution of Each Sector
Global*, 2000-2015
SectorShare
employment
Share R&D
spending
Share
productivity growth
Agriculture 2% 1% 33%
Manufacturing 17% 65% 42%
Services 81% 34% 25%
* Sample of 24 countries
Source: KPMG Economics, OECD, Federal Reserve Bank of St. Louis, Santacreu & Zhu, “Manufacturing and Service Sector Roles
in the Evolution of Innovation and Productivity”, (2018)
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
The case for capital substitution is well established
r = 0.81
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
U.S. growth is solid and rates are normalizing
Source: KPMG Economics, Natixis, BEA, BLS, Federal Reserve Board, Haver Analytics
`
-4%
-2%
0%
2%
4%
6%
8%
Determinants of the Natural Rate of Interest
Inflation GDP 10 Year Yield Fed Funds Rate
ForecastRecession
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
The outlook is becoming bifurcated
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Dec 2018 June 2019 Dec 2019 June 2020 Dec 2020
August WSJ Survey: Fed Funds to 10-Year Bond Spread
1st 2nd 3rd 4th
Source: KPMG Economics, WSJ Economic Forecasting Survey, August 2018
Quartile:
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 742851
• Diffusion of a variety of technologies is
required to fully realize intelligent
automation’s potential
• The time horizon to the Golden
Age/Synergy phase is peppered with
challenges for diffusion
• Advancements in productivity, especially
in the services sector is key to maintaining
healthy growth rates
• The current U.S. economic backdrop
is steady with low inflation and low
interest rates
• However, the long expansion may only have
1-2 more years to run given growth dynamics
Conclusion
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