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KPMG Intelligent Automation Symposium, San Diego

Phil Fersht, CEO & Chief Analyst, HFS Research@pfersht

25 September 2018

© 2018, HFS Research Ltd

The Triple-A Trifecta defines future business operations…

“The unification of digital business models, intelligent automation, analytics and creative talent is

happening before our very eyes.”

Cost still dominates C-suite directives, but the way to get there is driven by the smart management of data How critical are the following C-suite directives/objectives to your operations strategy?

Predictive Data, Automation, AI

and OneOffice –gateway to new cost / operating

models

Source: HfS Research in Conjunction with KPMG"State of Operations Study”, 2018

Sample: Global 2000 Enterprise Leaders = 381

Q. Can you estimate the proportion of structured v unstructured data in your organization?

Unstructured data plagues enterprises

Only 22% of organizations have more

than half their data structured

Source: HfS Research, 2018“Intelligent Operations Study”Sample: Global 2000 Enterprise Leaders = 460

Digital disruption is rampant: 29% have already seen their top 2competitors change in just past 3 years

Source: HfS Research, “Journey to the OneOffice, 2018” Sample: n=395 Digital Decision Makers (Global 2000)

How far are you behind or ahead of most of you competitors now? How do you expect to compare over the next two years?

Majority of enterprises are deer in headlights, waiting to get flattened by digitally-savvy competitors

52%

43%

51%

20%

34%

37%

40%

60%

-10%

-10%

-6%

-15%

-4%

-9%

-2%

-5%

In the next 2-3 years

Now

In the next 2-3 years

Now

Hig

hes

tP

erf

orm

ers

Lo

west

Perf

orm

ers

Slightly ahead Well ahead Slightly behind Well behind

Source: HfS Research, “Journey to the OneOffice, 2018” Sample: n=395 Digital Decision Makers (Global 2000)

Q. What are your greatest challenges holding back your journey to achieve the Digital OneOffice Framework?

Making the Leap to Digital OneOffice: IT Lacks Talent, Business Lacks Mindset…

12%

10%

23%

29%

21%

0%

23%

25%

6%

35%

8%

8%

6%

13%

6%

6%

We’re held hostage by legacy technology

Lack of talent internally

Legacy thinking / lack of a “digital mindset” from IT

Legacy thinking / lack of a “digital mindset” from biz functions

We’re held hostage by legacy technology

Lack of talent internally

Legacy thinking / lack of a “digital mindset” from IT

Legacy thinking / lack of a “digital mindset” from biz functions

Rank 1 Rank 2

IT

C-Suite

Busines

s C-Suite

Source: HfS Research 2018Sample: C-Level Enterprise Executives = 100

How enterprises can achieve the Digital OneOffice…

• CX is not just fancy UI. Make CX the core of all your business operations from front to back.

• Cost reduction is not a strategy. Drive metrics that measure value creation, versus only cost reduction.

• Stop kicking the intelligent technology can down the road. It’s all here and now you need to make

decisions on where you go with it

• Weed out the people unprepared to change. Invest in an inclusive talent strategy, based on people who

want to learn and share.

• Build co-innovation relationships and shed legacy relationships. The partners who got you here may not

be the ones to take you where you want to go.

• Stop thinking about the Future of Work. It’s already here… act now!

How Intelligent Automation will Power the Hyper-Connected

Economy

• Flips the traditional model on its head

• Has social causes at the core of its mission

• Leverages AI to create competitive advantage

• Reduces fraud by social impact

• Massively disruptive

People left these insurance companies to join Lemonade:

31%Assurant, Farmers,

Homesite, Progressive,

Stillwater & more….

19%Allstate

10%Liberty Mutual

16%State Farm

14%Travelers

10%Gelco

• Started in the U.K., now expanding into the U.S. and Australia

• Leverages AI to identify & target specific customers via social media and direct ads

• Success hinges upon how quickly AI algorithms can target customers and sell properties

• Fixed fee model only viable if customer acquisitions continue to increase

But few have created true shifts in their business model – Yet……

“Traditional” companies are taking on the challenge of integrating AI to improve their Digital Customer Experience

Deployed artificial intelligence in deciding personal injury claims after trials showed processing time was significantly reduced. Cut the processing time from an hour to just seconds, its chairman said. Claim they have “saved 40,000 work hours, while speeding up the claim processing time to five seconds”

Siemens Healthineers has developed a portfolio of AI solutions that help automate and standardize complex diagnostics.

Using Watson’s API, the company transformed its Easy Button into a cognitive ordering ecosystem that customers can use to order supplies from a variety of devices using voice, text or email.

© 2018, HFS Research Ltd

Hurtling into the Hyper-Connected Economy

OffshoringGlobalization

Shared Services /Nearshoring

Centralization

The Internet

Client/ Server

ERP

Six Sigma

LEAN

Basel II

Private Cloud

Open Source

Digital Business Models

IOT

Public Cloud

eBusiness

Digital Marketplaces

ASPs

Sox

Y2K

Euro Currency Conversion

VOIP

3G

RPA

Enterprise IT dressed up as

Digital

Intelligent Automation

Machine Learning

AI

Blockchain

5G

The Guerrilla Sharing

Economy

Brexit?

OutsourcingAnalog

Basic DigitalResponsive

Digital OneOfficeAnticipatory

2020+

Autonomous Supply Chains

Super-Intelligent Cognitive Assistants

Quantum Computing

Hyper-Connected Enterprises

Interactive

Value levers, such as offshoring, rapidly embedding into the fabric of Hyper-Connectedness

Q. To what extent is your use of offshoring is likely to change in the next 2 years across the following functions?

22%

13%

18%

20%

23%

12%

15%

19%

15%

-1% -2%

5%

12%11%

6%

1%2%

8%

1%3%

4% 5% 5% 5% 4%5%

4%

Finance andAccounting

HumanResources

Procurement IT applicationmaintenance &development

IT and Networkinfrastructure

support

CustomerService / Sales

Support

Supply Chainand Logistics

Industry-specific Marketing

2014 2016 2018

Increase

Decrease

Source: HfS Research in Conjunction with KPMG, "State of Operations and Outsourcing” Surveys 2014, 2016 and 2018 Sample: Global 2000 Enterprise Leaders = ~400

2018 Investment intentions: “Humans-plus-Bots” now the norm

63%

58%54% 53% 53% 52%

50%

39%

33%

40%

10%

20%

32%

24%

20%

10%

29%

19%

Telecom Insurance Retail/CPG Energy Travel (H&L) Manufacturing BFS Utilities Healthcare

Significant Investment in RPA Significant Investment in Outsourcing

Source: HfS Research in Conjunction with KPMG, "State of Operations and Outsourcing 2018"Sample: Global 2000 Enterprise Leaders = 381

Big $ for the big bets. Significant IA investments are on the table

0%

5%

10%

15%

20%

25%

Less than $1M $1-5M $5-10M $10-50M $50-100M $100-250M $250-500M More than $500M

Pe

rce

nta

ge

re

sp

on

den

ts

What level of Intelligent Automation-related investment is your enterprise making today?

Source: HFS Research in Conjunction with KPMG, State of Intelligent Automation, 2018 Sample = 590 Business Leaders including 100 C-level executives

Over 30% enterprises are

already investing over

$50M in IA technologies

20 © 2018, HFS Research Ltd

Time to dispel some myths…

RPA Replaces People: Incorrect.

Source: HfS Research in Conjunction with KPMG, "State of Operations and Outsourcing 2018Sample: Global 2000 Enterprise Leaders = 381

7%

22%

24%

27%

33%

35%

36%

41%

FTE reduction

Enabling processes to flow end-to-end

Improves employee motivation byrelieving them of rudimentary tasks

Relieves management time to focus oncustomers

More actionable data for operationalinsights

More actionable data for customerinsights

More workforce agility – giving operations the ability to scale

Better quality of operations

33%

28%

40%

27%

33%

30%

Adopt/invest in cognitivetechnologies and machine

learning to drive morevalue from labor

Drive down operatingcosts

Adopt/invest in processautomation and robotics

to reduce reliance onlabor

5 - Very satisfied 4 - Satisfied

70%

61%

60%

Satisfaction of C-suite to deliver Expected Benefits from Automation

RPA can scale rapidly to have a dramatic impact on enterprises in months. Incorrect.

Enterprises want to scale up adoption 2 years …but don’t know how

3%

5%

26%

29%

22%

No plans or unsure

Within the next 5years

Within the next 2years

Within the nextyear

We are alreadythere

When will your adoption of Intelligent Automation (IA) be scaled-up and industrialized?

Need more scale with IA to achieve objectives

Uncertainty about the financial investment needed in IA

Lack of organizational clarity and accountability for driving IA

Change management concerns over the effect on employees

Concerns about changes in governance and risk management

Lack of quantifiable benefits/inability to build strong business case

Understanding the need and resources to train cognitive systems

Non-standard or incomplete end to end processes

Lack of in-house talent to support IA

Deficiency in overall data quality

Lack of current of as-a-service options for RPA and Cognitive/AI

Lack of senior management mandate and vision to deploy IA

Lack of end-end processes

10%

10%

11%

11%

10%

14%

13%

12%

12%

10%

16%

14%

13%

10%

14%

12%

4%

6%

7%

8%

8%

6%

5%

5%

2%

7%

6%

7%

3%

3%

7%

3%

3%

5%

7%2%

34%

31%

30%

28%

26%

24%

24%

23%

22%

22%

17%

11%

6%

What are the top three inhibitors that are holding you back from achieving strategic AND operational goals?

Rank 3Rank 2Rank 1

Source: HFS Research in Conjunction with KPMG, State of Intelligent Automation, 2018 Sample = 590 Business Leaders including 100 C-level executives

RPA drives enterprise automation solutions that remains siloed and piecemeal

38%35%

16%

11%

We are primarily focusing on oneIntelligent Automation technology

right now

We are using multiple IntelligentAutomation technologies, but most of

the implementations are piecemeal

There is emerging alignment betweendifferent Intelligent Automation

solution elements

We are leveraging integratedsolutions that combine the power of

automation, analytics, and AI

How well are you able to develop integrated solutions leveraging multiple Intelligent Automation technologies to solve business problems?

While 60%+ enterprises are leveraging multiple IA technologies, only 11% are leveraging an integrated solution approach

Source: HFS Research in Conjunction with KPMG, State of Intelligent Automation, 2018 Sample = 590 Business Leaders including 100 C-level executives

AI is not one market, but AI should be seen as a set of technologies and building blocks

AI

NeuralNetworks

Autonomics

VirtualAgent

MachineLearning

ImageRecognition

MachineReasoning Natural

LanguageProcessing

Chatbot

DeepLearning

ComputerVision

SpeechRecognition

KnowledgeRepresen-

tation

The center of gravity for AI is around the mega-ISVs – Microsoft, Google, AWS, and IBM

AI

Data

Algorithms

Platform

Compute

Google TensorProcessing Unit

NVIDIA Volta

SAP Leonardo

SalesforceEinstein

Google NeuralMachine Translations

Google WaveNet

Google TensorFlow

Amazon Machine Learning

Google CloudMachine Learning

MicrosoftCognitive Services

OracleData Cloud

Oracle Adaptive Apps

IBM WatsonData Insights

IBM WatsonAPI Explorer

HIROKnowledge Core

HIRO Engine

WiproHolmes

TCS ignioIBM Watson

Knowledge Studio

Google DeepMind

Celaton Instream

Loop AI

CortanaIntelligent Services

Azure Machine Learning

SAPData Hub

AWS PublicDatasets

InforColeman

AmazonRekognition

AmazonLex

IBM WatsonVirtual Agents

IntelMovidius

AmazonConnect

Fujitsu DLU

AMD/GloFlo

OracleIntelligent Bots

IntelLoihi

AdobeSensei

HFS’ Intelligent Automation Maturity Model

Objective Singularly cost / efficiency focused

Mainly cost / efficiency focused

Cost + value Radical transformation

Scope Task(s) Multiple tasks End-to-end process Enterprise-wide

Solution Piecemeal solution Dominant IA solution element (limited alignment)

Emerging alignment between IA technologies

Integrated solution at the intersection of the Triple-A Trifecta

Management Not applicable Business unit driven Functional / regional COEs Global COEs for emerging technologies

Talent No skills Limited skills, engaging third-parties

Investing in building skills Programmatic approach to reskilling, hiring externally, engaging third-parties, and crowdsourcing

Adoption Proof of Concept (POC) POCs, pilots POCs, pilots, in-production POCs, Pilots, in- production, industrialized scale

Level 1. ExperimenterTrying out new ideas, methods, or activities

Level 2. TinkererTrying to improve something in a casual or desultory way,

often to no useful effect

Level 3. ExplorerCharting out new territories

Level 4. DisruptorRadically changing the status

quo

Defining ourselves in the Automation Revolution…

A retraining tsunami is coming: Nearly half of enterprise leaders believe that more

than 20% of their current workforce will be significantly impacted by IA

12%

36%

38%

14%

More than 50%

21-50%

11-20%

Less than 10%

What proportion of your current workforce do you expect to be significantly impacted (i.e., partial or complete job automation resulting in loss of job or change in job profile) by Intelligent Automation in the next 2 years?

Source: HFS Research in Conjunction with KPMG, State of Intelligent Automation, 2018 Sample = 590 Business Leaders including 100 C-level executives

How will your enterprise deal with displaced people as a result of Intelligent Automation implementation?

12%

36%

21%

22%

14%

Retain to specialize in an industryor process domain

Retrain them to work on new bizneeds (exception handling,customer facing roles, etc.)

Retrain them on ML or other AI

Retrain them to deal with data

Let them go

A “Digital Labor Strategy”: More Emphasis on the LABOR Please!

Focus is on the Right-brain, not the Left!Q. What are your top workforce requirements required today?

Less Critical Skills: Operational experts

to enable smart execution

Critical Skills:

Creative thinkers who reach across

the business ecosystem to

define and design businesses solutions.

Change is the norm

3%

2%

4%

10%

14%

18%

32%

3%

7%

8%

13%

9%

22%

9%

Understanding business processes and usingautomation and AI to improve business…

Improving end-to-end processes

Analytical prowess to improve operations /productivity

Vision and ability to drive change

Defining business outcomes

Creative, entrepreneurial spirit & curiosity forinnovation

Exploring new ways of partnering across theservices ecosystem

Ranked First Ranked Second

Source: HfS Research, 2018“Intelligent Operations Study” (Conducted with Accenture)Sample: Global 2000 Enterprise Leaders = 460

State of Intelligent Automation (IA) 2018 – The story of ambitious goals,

impatient timelines, cocktail solutions, scaling pains, and retraining storms

• Ambitious objectives. Enterprises are looking at IA to drive top line growth (#1 strategic objective), not reduce FTEs

• Big $s for the big bets. Significant IA investments are on the table. Over 30% enterprises are already investing over $50M in IA technologies

• Cocktail (blended) solutions. There is no silver bullet. There is a growing realization that adoption across all emerging IA technologies is required to achieve the ambitious goals. Only 20-30% enterprises are not considering or are unsure about IA and adoption pattern across the IA technology spectrum is similar

• Siloed approach. Despite the frenetic experimentation across triple-A trifecta (automation, analytics, and AI), solution approach continues to be piecemeal. Enterprises are managing IA initiatives with a process and/or functional lens, but an enterprise-wide approach to IA is rare

• The unanswered industrialization question. Enterprises want to scale up adoption in the next 2 years but don’t know how. Scaling up is the biggest challenge to realize the promise of IA

• The retraining tsunami. Nearly half of the enterprise believe that more than 20% of their current workforce will be significantly impacted by IA. The displaced workforce will need to be re-trained with data, domain, technical, and creative skills