kpmg: the us digital economy - reality in hungary
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The US Digital Economy – Reality in Hungary
April 10, 2017
The Fourth Industrial Revolution: Rethinking innovation and businessSteve Hill, Global Head of Innovation & Investments, KPMG LLP
April 10, 2017
2© 2016 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 537977
3© 2016 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 537977
4© 2016 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 537977
5© 2016 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 537977
6© 2017 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.
Cognitive technology is the “steam” of the digital age…
Cognitive systems mimic human brain functions
Intelligence augmentationA new partnership between humans and machines
Physician Nurse WealthAdvisor
AcademicAdvisor
SalesAdvisor
LegalAdvisor
TaxAdvisor
Auditor ServiceAdvisor
InsuranceAdvisor
Machine learning
Deep learning
Artificialintelligence
Natural languageprocessing
Predictive analytics
Text analytics
Image recognition
Voice recognition
…and will reshape the workforce of the future
Perceive(interpret sensory input beyond traditional data)
Reason(hypothesize, weigh supporting evidence)
Learn(improve confidence levels with experience)
1 2 3
Part of a new Industrial Revolution?
1800sSteam, water, mechanical production equipment
1900sDivision of labor, electricity, mass production
1960sThe Information Age -Electronics, IT, Mass Communication, Internet
AI, nanotech, biotech, cyber-physical systems, digital labor
Today
The “4th industrial revolution” (cyber-physical systems) is beginning and its impact is profound according to the World Economic Forum founder, Klaus Schwab
8© 2017 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.
Non-linear adoption will challenge internal clock speed
150 Yrs 35 Yrs 15 Yrs 5 Yrs ?
Cognitivesystems
New leverage model(“Digital Labor”)
Mechanicalsystems
Industrialproductivity
Productionengineering
Informationsystems
Processimprovement
Processre-engineering
Internetsystems
Costarbitrage
Globally integratedenterprise
Cloud andthe internetof things
Big data &analytics
Smarterenterprise
Enterpriseinnovation
9© 2017 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.
Digital Labor represents a spectrum of intelligent automation capabilities from RPA through Cognitive
Examples:
Data ingestion “bots”
Financial statement closing “bots”
“Bots” that provision new Virtual Machinesin a data-center
Examples:
Schwab’s Intelligent Portfolio (RoboAdvisor)
Amazon Alexa
IPSoft Ameilia
BofA’s Erica virtual assistant
Examples:
Memorial Sloan Kettering’s Watson OncologyAdvisor
Autonomous vehicle decision algorithms \\
Financial services fraud detection
Cyber security
Digital Labor (Intelligent Automation)
Rules Learning Reasoning
Robotic Process Automation (RPA) Cognitive Automation
Automation based on documented process rules
Recognize patterns from unstructured data; automation
based on accuracy ratings
Hypothesis based reasoning; automation based on
confidence ratingsMacro based
Unstructured Data
Natural Language Processing
Knowledge Base
Adaptive Alteration
Predictive Analytics
Machine Learning
Reasoning Large scale Processing
Big Data Analytics
Macro based
Unstructured Data
Natural Language Processing
Knowledge Base
Adaptive Alteration
Predictive Analytics
Machine Learning
Reasoning Large scale Processing
Big Data Analytics
Macro based
Unstructured Data
Natural Language Processing
Knowledge Base
Adaptive Alteration
Predictive Analytics
Machine Learning
Reasoning Large scale Processing
Big Data Analytics
The evolving Digital Labor marketplaceSpectrum of labor automation to knowledge augmentation…
The tools used range from traditional automation software to new cognitive platforms which make automation tools intelligent and help augment and leverage human knowledge
The digital labor marketplace is maturing rapidly
14.9billion
$
1.7billion
$
The global market for robots and artificial intelligence is expected to reach $152.7 billion by 2020. The adoption of these technologies could improve productivity by 30 percent.
Bank of America Merrill Lynch
A recent study by HfS Research and KPMG LLP reports that 55 percent of North American enterprises are looking at new opportunities available with RPA systems.
MarketsandMarkets estimates that the AI, or cognitive computing marketplace, will generate revenue of
According to Quid, from 2010 to 2014, private investment in AI has grown from $1.7 billion to $14.9 billion, and was on track to grow nearly 50 percent year-on-year in 2015 alone.
Gartner predicts that by 2020, smart machines will be a top five investment priority for more than 30% of CIOs.
McKinsey research suggests that smart robots will replace more than 100 million
knowledge workers—or one-third of the world’s jobs—by 2025.
billion152.7
Recent research fromLondon School of Economics suggests a return on investment in robotic technologies of between 600% and 800% for specific tasks.
ROI800and
600%%
billion by 201912.5$
$
55 %
Top
Businessimplications ofdigital labor
Platform Deliveryvs. Human Labor
Depending on business model, ratio of technology investments will change
Geographic Deployment
Location criteria must consider a digital model vs a labor intensive model
Risk Reduction
Expected reduction in mistakes, accidents, regulatory violations and fraud
Security
Misuse of digital labor can extend the reach and capabilities of malicious operators
Innovation
Frees up human talent to innovate and create
Why now?
Frictionless access
Exponential technology
Humanknowledgeshared freely
Globaldemographicshifts
to technology by more than 2 billion people (mobile, cloud)
improvement growing at more meaningful baselines
on the internet is giving context and meaning to digital content
reduction in working age population and need for talent
29© 2017 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 537977
Facial recognition software can now surpass humans
0%
5%
10%
15%
20%
25%
2011 2012 2013 2014 2015
Error Rates on ImageNet Visual Recognition Challenge, %
Human LevelSource: KPMG Economics, ImageNet, Stanford Vision Lab
14© 2017 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.
Demographic changes
There are clear areas of concern in routine cognitive jobs
But the global population is aging and departing the workforce which is causing over-leverage of pensions and benefits regimes
In developing countries, the source of recent growth is subject to automation
15© 2017 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.
What are the current CEO plans for Labor-Capital substitution?
0%5%
10%15%20%25%
Sales force Technology Marketing Engineering Finance Manuf./ oper. R&D Strategy
Percentage of CEOs who report moderate to significant skills gaps in thesejob functions
CEOs seegrowing skillsgap…
0%25%50%75%
Sales force Technology Marketing Engineering Finance Manuf./ oper. R&D Strategy
Odds that automation/machine learning will replace at least 5% of workforcein each job function in next three years
that couldfilled bydigital labor
Source: 2016 Global CEO Outlook, KPMG International
19© 2017 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 537977
Employment growth in the U.S. reflects job polarization
Source: KPMG Economics, Rob Valletta, San Francisco Fed, BLS
-2.0% -1.0% 0.0% 1.0% 2.0% 3.0%
Non-routine Cognitive
Non-routine Manual
Routine Cognitive
Routine Manual
Annual Change in U.S. Employment by Occupation Category
1984-2000 2001-2007 2008-2015
18© 2017 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 537977
The traditional wages and salaries chart tells a disturbing story
151005009590858075706560
52
50
48
46
44
42
52
50
48
46
44
42
Wages and Salaries as a % of GDP
Source: KPMG Economics /Haver Analytics
20© 2017 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 537977
Where do government revenues come from?
Source: KPMG Economics, Haver Analytics
85.6%
2.6% 11.7%
U.S. Government Revenue by Tax
Individual Income & Estate Taxes Excise Taxes Business Income Taxes
15
0
100
200
300
400
500
600
Republicof Korea
Japan Germany U.S. China
Number of Robots per 10,000 Manufacturing Employees
World Average
Robot density in largest destinations of robot supplies
© 2017 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 537977
Source: KPMG Economics, IFR World Robotics, 2015
3© 2017 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 537977
Automation Anxiety Machines would “exclude the labour of thousands of the human race, who are usefully employed . . .” Thomas Mortimer, 1772
“For the moment the very rapidity of these changes is hurting us and bringing difficult problems to solve. . . . We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come—namely, technological unemployment.” Maynard Keynes, 1930
“The present outlook is for the rate of displacement of labor to exceed the rate of reabsorption...” Ewan Clague, 1945
“The number of jobs lost to more efficient machines is only part of the problem. What worries manyjob experts is that automation may prevent the economy from creating enough new jobs…In the past, new industries hired far more people than those they put out of business. But this is not true of many oftoday’s new industries.” Time Magazine, February 1961
“Digitization is creating new types of economic disruption. In part, this reflects the fact that as computers get more powerful, companies have less need for some kinds of workers. Even as it races ahead, technological progress may leave some people—perhaps even a lot—behind.”
Erik Brynjolfsson, 2014
16© 2016 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 537977
Human value will remain unparalleled
17© 2016 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 537977
The next 3 yearsmore disruptive than the last 50?
18© 2017 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 537977
21st Century EnterpriseMany have pointed to a “perfect storm” of change facing firms around the world driven by a
wide range of economic, social, political and technical disruptors. Given the scope of change, deeper questions must be asked:
Is the enterprise of the past century still fit for purpose in this century?
What does it take to be a frontier firm amidst these changes?
How will today’s leaders transform their business models, organizational structures andoperations to thrive today and in the future?
21st Century EnterpriseInflection point
20st Century Enterprise
Time
Profitable growth
Today
19© 2017 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 537977
World’s largest enterprises
Source: Fortune Global 500, 2016
Revenue US $27.6 trillionProfits US $1.5 trillionEmployees 70 million
2016 Fortune Global 500What firms will move to the frontier globally and nationally?
20© 2017 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 537977
Problem: Firm productivity gap is growingChanges in labor productivity in manufacturing and services between top “frontier” firms and the rest
Percentage difference in labor productivity levels (Index, 2001 = 0)
Source: Frontier Firms, Technology Diffusion and Public Policy, OECD, 2015
5% per annum
0.3% per annum
3.5% per annum
1.7% per annum
21© 2017 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 537977
Pillars of the 21st Century EnterpriseGiven the scope of change occurring across industries and functions, we must help our clients understand and respond to four key pillars of the enterprise…
Customer Engagement
Changing Nature & Value of Assets
Everything asa Service
Workforce of the Future
Personalization, Customization,
Co-creation & Collaboration
A 21st Century Enterprise delivers the best customer
experience, leveraging data collected from
customers to learn & personalize experiences.
Data-as-an-Asset, Intellectual Property, Shared Assets,
Networks & Alliances
A 21st Century Enterprise unlocks value from non-traditional assets - data,
alliances, networks, agility, and other intangibles.
Services vs products, subscribing to what you need, Process-as-a-
Service
A 21st Century Enterprise is more nimble and scales
infinitely faster by accessing services versus growing internal functions and
infrastructure.
Automation & augmentation, Talent gaps, contingent
workforces, collaboration
A 21st Century Enterprise is lean, utilizes digital labor and
accesses skills on demand through platforms and
alternative employment models.
22© 2017 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 537977
TimeSame ClientsSame Bus ModelSame WorkforceSame IP/ServicesFaster WorkflowHigher Quality
Effort/ Value
DIGITIZATION PLATFORMIZATIONINDUSTRIALIZATION
The Journey to become a 21st Century Enterprise will be enabled by Digital Transformation
More ClientsSame Bus ModelSame WorkforceNew IP/ServicesReengineered WorkflowHigher Quality
More Clients and MarketsNew Bus Model(s)Evolved Workforce/New SkillsNew IP/Services/Revenue ModelsReduced WorkflowsHigher Quality
23© 2016 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 537977
Thank you
The US Digital Economy –Reality in Hungary
April 10, 2017
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