Almost nine in ten UK businesses to invest in AI by 2020

11 December 2017 Consultancy.uk

While just over a fifth of UK businesses have already invested in Artificial Intelligence (AI), more than eight in every ten executives will do so over the coming years. According to the latest analysis, half of all UK organisations will have sunk over £10 million into digital technology by 2020, as companies look to avoid being left by the wayside amid a period of major innovation. However, concerns regarding a digital skills shortage are hampering efforts to get the most out of AI.

A new study from Deloitte has examined the opinions of 51 executives from the UK’s most influential companies and public sector entities – worth a combined market value of £229 billion – regarding the implementation of AI in their businesses. The findings of Deloitte’s Digital Disruption Index showed that 85% of the leaders responsible for digital technologies intend to invest in AI by the turn of the decade.

The top priority for investment among executives has been cyber-security, following a troubling year that has seen top organisations including the NHS and Deloitte hit by high-profile cyber-attacks. 78% of respondents have already invested in upgraded defences, while a further 13% are investing immediately in that aspect of business. Similar numbers are currently prioritising cloud, although AI is fast becoming the next major frontier for UK executive spending.

25% of executives polled are investing, or will have invested, by the rapidly approaching close of 2017. Over the coming years, a further 38% say they will have put money toward the implementation of AI changes by 2020. Another 16% will look to invest in the technology, but are unsure as to when they will do so. No executives stated that they would never invest in AI, contrasting with robotic process automation, which 9% of the respondents said they had no interest in.Actual and expected investment in digital technologiesThe results reflect a study from McKinsey & Company earlier in 2017, which suggested that as many as 60% of all work activities could be automated by 2055. This means that while robotic automation might well be leveraged extensively in manual labouring and manufacturing roles, it will not have the same permeation that AI may well see. Robotics are far less applicable to an office environment, whereas every sector of work features at least a minimal level of back-office administration, something that AI will increasingly be leveraged for.

Investment lags

By 2020, 53% of companies look set to sink over £10 million into digital technologies. With AI seemingly being the next major trend for UK business investment, a sizeable portion of this will likely be devoted to solutions including machine learning and automated data analysis. On top of this 30% of UK organisations will have invested more than £10 million in these technologies this year alone, according to respondents to the Big Four firm’s survey.

However, when compared with corporate IT budgets, this presently represents a rather modest amount of investment.  According to separate Deloitte research, the majority of IT functions have budgets of over £20 million, while a quarter of corporate IT functions spend more than £75 million annually. As a likely consequence, only nine per cent of executives at this stage believe that UK companies are world-leading at exploring and implementing digital technologies and ways of working. Planned investment in digital technologies and ways of workingMeanwhile, a number of business leaders polled are notably concerned about an emerging digital skills gap. Commitment to large investment in AI and digital remains reserved, as only 20% of respondents to this survey believe that there are enough school leavers and graduates entering the labour market with the appropriate digital skills and experience to support their digital needs in the future. In other words, there is little point in investing in technology that you will be unable to staff adequately.

Paul Thompson, UK Digital Transformation Leader at Deloitte, said that business have not engaged with digital to their fullest capacity, stating,  “Strategies are not coherent, investment levels are modest and the relevant skills are in short supply.  As a result, the UK isn’t living up to its digital potential.”

Rise of AI

While 28% said that AI would have the greatest impact on their business (the top answer to the question) and 77% of leaders expect AI will disrupt their industries, fewer than half expect their workforce to get smaller as they adopt AI. Furthermore, just 8% believe AI will directly replace human activity. The perceived skills shortage, which was exemplified by revelations last month that the majority of UK schools do not offer Computer Science GCSEs, could be exponentially more problematic in this case. This is likely to be exacerbated by a fall in the number of skilled EU migrants residing in the UK following Brexit. Impact of Artificial Intelligence on day-to-day activitiesWhen asked what they believed AI would be practically used for, if not completely replacing human labour, over a third believe that AI will be used to augment expertise, with a focus on improving human decision-making. However, the slow progress made by the UK Government in fostering new digital skills among its future workforce seems to have hampered this potential.

Speaking on these particular findings, Paul Thompson concluded, “The UK has the opportunity to be a market-leader in harnessing and exploiting the opportunities digital brings, including increased productivity and driving growth.  But it’s clear that digital skills, at all levels, are in short supply and high demand.  In our view, digital represents both a business and public policy issue which needs educators, policymakers and business to work more closely together, in order to meet the current and future demands of the UK’s economy.”

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Four ways digitalisation is transforming car brands and dealers

16 April 2019 Consultancy.uk

From changing expectations from the customer to new stakeholders entering the industry, the digital transformation of global automotive industry means it is facing the wholesale transformation of its business model. In a new white paper, global consulting partnership Cordence Worldwide has highlighted four major digital trends that are transforming the relationships between car brands and dealers with consumers.

With digital transformation drives booming across the industrial spectrum, automotive groups are no different in having commenced large digital transformation programmes to improve productivity, efficiency, and ultimately profitability. Falling sales figures mean the automotive sector is facing an increasingly difficult road ahead, something which means companies in the market are even more hard pressed to find new ways to improve their bottom lines.

While it offers major opportunities, the industry’s move to digitalise is not without complications. It has triggered a series of major internal changes, which have presented automotive entities with the challenge of becoming a “customer-oriented” industry. A new report from Cordence Worldwide – a global management consulting partnership present in more than 20 countries – has explored how automotive companies are navigating the rapidly changing nature of digital business.

New business models

The level of change likely to be wrought on the automotive industry by digitalisation is hard to overstate. Automation could well lead to significant reductions in the number of accidents, higher vehicle utilisation and lower pollution levels, while leading to a $2.1 trillion change in traditional revenues, with up to $4.3 trillion in new revenue openings arising by 2030.

As a result of this colossal opportunity, it is easy to see why almost all automotive groups now have digital departments, with generally strong communication within the digital transformation and the customer approach. The changes to society which this may have are potentially distracting automotive firms from the change it is leading to in its own companies though, according to Cordence’s paper.

The automotive market is dead, long live the mobility market

Because of this, the sector’s business model is set to transform over the coming decades. With digitalisation speeding up the appearance of concepts such as car-sharing, a subscription package model will likely become more palatable. At the same time, car and ride-sharing models will cater to the sustainability criteria of millennials, who will rapidly become one of the automotive market’s leading consumer demographics in the coming years.

Antoine Glutron – a Managing Consultant with Cordence member Oresys, and the report’s author – said of the situation, “These ‘old school industries’ are now working on creating new opportunities, but in so-doing are facing challenges and threats: new jobs, new technologies, new ecosystem of partners, necessary reorganisation, different relationship with customers, and even new businesses. The customer approach topic is in fact a real challenge for car companies as it implies changing their business model and adjusting their mind-set to address the customer 4.0: from product-centric to customer-centric, from car manufacturer to service provider.”

Digital customer experience

In the hyper-competitive age of the internet, even top companies face an uphill challenge when it comes to holding onto customers through brand loyalty. Digital disruption has resulted in changes to consumer behaviour, which is forcing a range of marketing strategists to reconsider their old, possibly out-dated strategies. As modern customers wield an increasingly impressive array of digital tools and online databases, they and are now able to quickly and conveniently compare prices, check availability and read product reviews.

The automotive sector is no exception to this trend, according to the study. In order to adapt to the needs of the so-called ‘customer 4.0’, car companies will increasingly need to change their business model and move away from product-centric companies to customer-centric ones, from car manufacturers to service providers.

Glutron explained, “As an automotive company, you can no longer expect customer loyalty simply with good products; you must conquer and re-conquer a customer that “consumes” your service. The offer now has to be global, digital and personalised. Your offer has to be adapted to this customer’s needs at any given moment. A key issue related to data control is to build customer loyalty by creating a customer experience 'tailored' throughout the cycle of use of the 'car product': purchase, driving, maintenance and trade-in of the vehicle.”

One way in which the sector may be able to benefit from this desire for a tailored experience is via connectivity. Consumers are generally positive about new connective features for automobiles, and many are even willing to pay upfront for infotainment, emergency and maintenance services. Chinese consumers, where the connected car market is set to hit $216 billion, are already particularly interested in paying a little more for navigation and diagnostic features in their future new car. This can also enable automotive companies to exploit a rich vein of customer data, enabling them to rapidly tailor their offerings to consumer behaviour.

New automotive segments

Digital transformation has also brought with it the rise of completely new application areas. As mentioned earlier, the most well-known example is the autonomous or self-driving car, where the last steps forward were not taken by major automotive groups but by technology companies such as Tesla. While this may have given such firms the edge in the market briefly, a number of keystone automotive names will soon be set to take the plunge into the market themselves, leveraging their car manufacturing prowess and huge production capacities to their advantage.

Before companies rush to invest in this market, however, it is worth their while to remember that the readiness and uptake for such vehicles differs greatly geographically. For example, following a study published in 2018, 92% of Chinese would be ready to buy an autonomous car, compared with only around 35% of drivers in France, Germany and US. Meanwhile, the infrastructure of different nations will also be significantly less accommodating of the new technology.

Use digital for steering thr activity

Elsewhere, Cordence’s analysis has suggested that hooking the cars of tomorrow into the Internet of Things is also likely to see a rapid change in the business model for car maintenance, providing real-time diagnostics for problems. This presents chances for partnerships to improve the connectivity of cars, especially with tech companies; for example, PSA partnered with IBM for a global agreement on services in their vehicle. Meanwhile, data could also be sold to other parties with an interest in this data, such as the government, which could use it to manage traffic levels, or ensure that only adequately maintained vehicles take to the road.

Glutron added, “With the increase in the amount of client data and connected opportunities, the recommendation is to set up data-centric approaches. The value is now in the customer data. The general prerequisites are to rework the data model and the Enterprise Architecture and generally build up a data lake including data from all sources (internal and external, structured and unstructured).”

From automotive to mobility

Relating further to the idea of connectivity, the report claimed that automotive firms must now adjust their models in line with the provision of end-to-end mobility, rather than treating the sale of a car as an end point in their relationship with the customer. In order to realise this transformation, transformations are likely to become more and more important.

A network of partner companies means automotive firms can provide a global mobility experience. As the vehicle is increasingly connected to its environment, new partners can also be cities, governments, and other service providers within the global mobility services industry in which the car brands want to take part.

According to the study, the target is clear. Companies must look to a holistic transport service, offering to move customers from A to B in a unique and pleasant way – otherwise they might as well take public transport. At the same time, they should extend the services reachable “on-board” (especially the enhancement of the connectivity between the car and smartphones or other connected devices), and reach high standards in terms of user experience (online sales, online payment, customised experience during and after the use of the car).

Concluding the report, Glutron stated, “These mobility market transformations could be considered a threat for the car manufacturers. Quite the opposite: if they take up the challenge and review their business model so that they become the service provider – communicating no longer to a driver but to a ‘mobility customer’ – they can then take advantage of their expertise and their position as a historical player. The most convenient means of transport are cars, and building a car is highly-skilled work.”