Adapting to change is a long-standing European strength—evident in everything from art and science to industry and institutions. But in an era of relentless disruption, European companies must blend tradition with speed by building agile operations, nurturing AI-ready talent, and scaling tech capabilities. Only by embedding resilience into your reinvention can Europe compete—and lead—on its own terms.

Europe is often called the ‘Old Continent’. This underscores our rich historical, cultural and institutional tradition of reinvention: from The Enlightenment and The Industrial Revolution to French cuisine and Italian art. But it also inspires less flattering connotations of a region that has been slow to adopt new technologies, lost its entrepreneurial zeal and been surpassed by the US and China.

The onus is on business leaders to forge a path between the past and the future, to reinvent for competitiveness without undermining their heritage.

Today, as global volatility accelerates, the onus is on business leaders to forge a path between the past and the future; to reinvent for future competitiveness without undermining their heritage. However, there is readiness gap. While 82% of European executives say they expect change to accelerate in 2026 (vs. 2025), only one-third (37%) feel fully prepared to respond to geopolitical (37%), economic (44%) and talent (52%) disruption.

European resilience is strong—but is not yet driving reinvention

Europe’s companies have shown impressive staying power. According to the third edition of our proprietary Resilience Index, they’ve strengthened financial and operational fundamentals and continue to lead globally on embedding sustainability across their organisations. Given the strong link between resilience and growth, this bodes well for European competitiveness.

However, this resilience is imbalanced. European companies have fallen behind in three critical areas: operational agility, talent readiness, and technological scale. These gaps threaten to dampen regional growth prospects and demand bold action.

Build operations that flex, not fracture

Persistent challenges, such as rising geopolitical complexity, a difficult macroenvironment and ongoing supply chain disruptions have exposed the limits of Europe’s operational models. Indeed, the ability of our businesses to manage risk and cost pressures has deteriorated faster than in other regions.

Farsighted companies are adapting: 63% identify improving forecasting, scenario planning, and risk management as a top priority. But agility remains limited: only 22% are using AI to completely redesign processes, presenting a major untapped opportunity for efficiency gains across the region.

What to do differently:

• Treat volatility as a design principle, not a problem
• Use AI and digital twins to reconfigure core processes, such as supply chains and manufacturing operations
• Build cross-functional, modular operating models that enable rapid scaling and redeployment of capabilities

Accelerate AI skilling before the workforce falls behind

Most European execs (90%) expect employee roles and responsibilities to change moderately or significantly due to AI implementation in 2026. However, just 30 % say their organization has embedded continuous learning related to new tech adoption.

Rigid learning systems, static job models and outdated skill assumptions are holding Europe back. Sharp post-pandemic rises in employee turnover and open vacancies have not been reversed—and are particularly concerning for Europe given ageing populations.

What to do differently:

• Get comfortable with humans and AI learning together through continuous co-learning
• Build AI literacy, flexibility, and autonomy across the workforce
• Redesign roles and success metrics to drive workforce augmentation alongside automation, and to raise human potential

Double down—and scale up—on technology

European companies are investing more in technology but not scaling fast enough. While 90% of execs in the region believe tech advancements positively impacted their organization’s resilience in 2025, the gap in areas such as AI, cyber and tech talent compared to the US remain wide.

The adoption and diffusion of AI, for example, remains tepid. While 84% of European execs plan to increase investments in AI in 2026 (vs. 2025) – more than half (56%) have yet to scale a major AI investment. Europe’s long tail of smaller companies is even further behind.

What to do differently:

• Pursue dynamic adaptability – beyond reliability, to a tech stack that flexes and scales securely under stress, and responds and optimises in real time
• Develop a strategic technology partner ecosystem to rapidly scale your innovations
• Build executive ownership and accountability for technology-driven transformation

Reinventing the European Way

The challenges facing European business leaders remain daunting—and the temptation to simply hedge against volatility is strong. But the path to competitiveness lies in doing the opposite: leaning into disruption as a catalyst for reinvention. Organisations can strengthen performance by diversifying supply chains, adapting products and services, and judiciously employing automation and augmentation to boost productivity. And all the while protecting every facet of their distinctive heritage, from brand and IP to people and purpose.

Rigid learning systems, static job models, and outdated skill assumptions are holding Europe back.

Europe must now strike a better balance between risk and opportunity. Today, the average European worker produces just 76% as much as their American counterpart, down from parity in 1996. If productivity remains stagnant, then one or all of our economic, geopolitical, social and environmental ambitions will have to be scaled back. As the EU Competitiveness Compass reminds us: “Europe’s competitiveness and what Europe stands for are inseparable.”

The choice is not between old and new but rather how to fuse them. By approaching resilience not as a static safeguard, but rather as a dynamic, evolving capability that can build long-term, profitable growth, Europe can transform its heritage into a source of enduring competitive strength.

About the Authors

Mauro Macchi is Chief Executive Officer, EMEA – Accenture

Dominic King is EMEA Lead – Accenture Research

Ladan Davarzani is a Senior Principal – Accenture Research

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By Séverine Mastikian, Maros Mraz and Vikas Dubey

As Europe pursues climate change targets and digital sovereignty, its rail network risks falling behind. Legacy systems, slow moving pilots, and talent shortages are stalling progress. But there is hope. Future Railway Mobile Communications System pilots are showing promise in the drive to lead in the 5G-enabled transport era.

With the EU targeting climate neutrality by 2050, the rail industry stands at a pivotal point in its history. Ambitious EU goals to triple high-speed rail traffic and double freight volumes present a rare opportunity to reposition rail as the backbone of sustainable mobility. But realising that vision will take more than new infrastructure. It calls for reinventing how Europe’s railways communicate, operate, and innovate.

At the core of this transformation is the Future Railway Mobile Communication System (FRMCS), a 5G-based standard replacing the Global System for Mobile Communications—Railway (GSM-R) (figure 1). Developed by the International Union of Railways, it offers faster, more reliable communication to support the European Rail Traffic Management System (ERTMS) and advanced train control (European Train Control System, ETCS level 2+). Unlike standard 5G, FRMCS is designed for mission-critical railway operations, ensuring secure, interoperable communication, while standard 5G can support passenger services, asset monitoring, and station connectivity. FRMCS is the keystone for a digitally connected rail ecosystem, one designed to deliver safer, smarter, more seamless journeys while advancing the EU’s climate goals under its Sustainable and Smart Mobility Strategy.

Figure 1: How GSM-R and 5G-FRMCS stack up against today’s needs.

The stakes: Safety, sustainability, and market share

The case for 5G-FRMCS goes far beyond compliance or modernisation. It’s a strategic race for relevance. As aviation and automotive options become greener, rail must compete not only on sustainability, but also on performance, reliability, and passenger experience.  5G-FRMCS enables that leap. It unlocks capabilities that modernise many layers of rail operations, from real-time diagnostics and predictive maintenance to automated train control and seamless cross-border communication.

As aviation and automotive options become greener, rail must compete not only on sustainability, but also on performance, reliability, and passenger experience.

In fact, 91 per cent of the 800 rail industry executives surveyed cited improved passenger experience as a top expected benefit of 5G-FRMCS (see figure 2). They also highlighted expected benefits such as lower operating costs (87 per cent), increased reliability (82 per cent), better interoperability (80 per cent), and enhanced safety (76 per cent), while more than half (57 per cent) anticipate benefits in revenue growth. In other words, 5G-FRMCS offers value across the board, from traveler satisfaction to network efficiency.

Figure 2: Rail leaders expect 5G-FRMCS to deliver widespread gains, from passenger experience to safety.

Crucially, FRMCS is also a climate imperative. With GSM-R nearing obsolescence, its maintenance is becoming increasingly expensive and resource-intensive. Retiring legacy systems and transitioning to 5G-FRMCS is necessary to cut lifecycle emissions, increase energy efficiency, and help meet the EU’s target of a 90 per cent reduction in transport emissions by 2050.

Yet, despite the overwhelming consensus on its importance, the shift to FRMCS remains sluggish. New research from Accenture (based on a survey of 800 executives across Europe’s rail ecosystem and interviews with senior stakeholders) found that just 24 per cent of respondents feel ready to make the transition. Most projects remain in pilot or early planning stages.

The roadblocks: Complexity and inertia

If the benefits are clear, why the holdup? Multiple, overlapping challenges form a web of resistance. Technologically, FRMCS is still maturing, with limited off-the-shelf solutions. Financially, the return on investment remains hard to quantify; just 17 per cent of executives feel confident estimating implementation costs. Two in three executives cite a lack of international agreement on technical solutions as a major obstacle, while 40 per cent of rail operators admit they are waiting for others to make the first move.

One chief technology officer summed it up: “The practical dimension is still not fully understood. The deployment itself will be a huge challenge.”

Funding uncertainty also weighs on operators. While many have historically depended on EU support, the future is less assured. In fact, 40 per cent of the executives that Accenture surveyed believe that the government will fully fund 5G-FRMCS implementation, and 59 per cent admit they are delaying investments in anticipation of that funding.

The takeaway is clear. Organisationally, fragmented stakeholder interests across operators, infrastructure managers, equipment vendors, and regulators make coordinated action difficult. Yet, no one player can lead this urgently needed push for change at scale.

Proof points from early movers

To break the deadlock, the industry needs evidence and momentum. Fortunately, use cases from around the world are already showing what’s possible.

In China, for instance, Guangzhou Railway has deployed a 5G-powered shunting yard that increased capacity from 8,000 to 10,000 trains per day while reducing staffing needs by 30 per cent. They also introduced AI-assisted suspension inspections that now take two minutes instead of two hours.

FRMCS is designed to deliver safer, smarter, more seamless journeys while advancing the EU’s climate goals.

In Europe, Deutsche Bahn is integrating FRMCS infrastructure into the Hamburg-Berlin corridor renovation, with passive infrastructure made available to telecom providers such as Deutsche Telekom and Vodafone. Switzerland’s SBB has piloted installations along key routes. In the UK, the Connected Heartland Railways project is testing public-private models that extend network benefits to surrounding communities.

These examples show that 5G-FRMCS is no longer theoretical. It’s being deployed, delivering results and creating momentum , especially when paired with broader infrastructure upgrades.

A playbook for moving forward

So how can rail leaders turn intention into action? Accenture’s research identifies five strategic imperatives:

1. Build compelling use cases: Look to global exemplars, not just for mission-critical functions. Passenger-facing and operational innovations like high-speed Wi-Fi and real-time journey information strengthen the business case for funders and boards.
2. Take a strategic approach to migration: Develop rigorous test strategies that ensure reliability, security, and operational continuity. Partner with mobile network operators (MNOs) and technology providers to access skilled talent and accelerate technical readiness.
3. Rethink the operating model: Move from hardware-centric to software-centric architecture. Replace rigid procurement with agile frameworks like innovation partnerships and competitive dialogues. Ensure coordination across operations, IT, and infrastructure to unlock the full potential of data-driven rail operations.
4. Upskill for a 5G-enabled future: Only 28 per cent of operators are prioritising workforce transformation. Success will depend on the right training and making teams fluent in network slicing, cybersecurity, AI, and 5G systems integration.
5. Pursue creative funding models: Just 24 per cent of operators are actively exploring non-traditional funding approaches like green bonds and public-private partnerships, which can help close the investment gap (see figure 3).

Figure 3: Leading operators are adopting innovative funding models to close the investment gap.

Practice should shape policy

Regulation remains a significant variable in the FRMCS equation. The EU’s MORANE 2 project is expected to finalise technical specifications by 2026, but waiting for the paperwork to catch up could cost Europe its lead. As with other frontier technologies, practice must inform policy, not the other way around.

Finland’s Digi Rail initiative offers a useful model. By piloting FRMCS on mobile network-operated infrastructure, it is not only reducing capital intensity but also generating real-world data to shape regulatory frameworks. This early-mover approach is helping Finland test what works, and influence EU-wide guidance in the process.

This test-and-learn approach should be the norm. Industry stakeholders, including rail operators, infrastructure managers, and MNOs, should engage proactively with regulators, sharing pilot results and proposing practical, scalable rules. Europe doesn’t need lockstep conformity; it needs interoperability, safety, and momentum.

The broader stakes are impossible to ignore. FRMCS sits at the intersection of climate ambition, digital sovereignty, and industrial strategy. It offers Europe a rare opportunity to lead not just in transport, but in infrastructure innovation. But that window is closing.

As one executive puts it: “We know we have to move. The question is, do we wait for perfect conditions, or do we help create them?”

The playbook is here. What remains is action – confident, coordinated, and urgent.

About the Authors

Séverine Mastikian, EMEA Transport & Logistics Lead at Accenture.

Maros Mraz, Industry X, Transport & Logistics Lead for Austria, Switzerland and Germany at Accenture.

Vikas Dubey, Global Rail & Transit, Research Lead at Accenture.

The post How 5G-FRMCS Can Accelerate EU’s Rail Transformation appeared first on The European Business Review.

By Matias Pollmann-Larsen and Dominic King

As European companies grapple with severe disruption on multiple fronts, climate risks might seem a distant threat. However, our analysis suggests extreme heat, flooding and other climate hazards could drive business losses of $600 billion annually by 2035. Business leaders must act now to mitigate economic loss, adapt to boost revenues and collaborate to strengthen ecosystems.

Companies in Europe are grappling with severe disruption on multiple fronts: trade tensions and territorial wars, macro and political instability, persistently high energy and living costs. Against this backdrop, the focus for many business leaders is shifting to short-term survival, as opposed to longer-term sustainability. But could deprioritizing climate risk today undermine competitiveness tomorrow?

The threat of inaction is certainly rising. Europe’s summer heatwave saw the hottest June recorded in both Spain and England, as well as wildfires hitting over a million hectares of land. And last year, we witnessed devastating floods across the region, perhaps most notably in Valencia. Almost three-in-five businesses in Europe say extreme heat affected their operations over the last 12 months^[i]; total damages from natural disasters are estimated at €30 billion.^[ii]

As the region warms at twice the global average rate,^[iii] President Ursula von der Leyen noted recently that the “growing burden of climate change [is] impossible to ignore.”^[iv] Responding to the Omnibus package, the European Central Bank noted that climate risks have “profound implications for both price and financial stability.”^[v]

The question for business leaders then is not whether to build climate resilience—but how to gain a competitive edge in doing so.

Businesses facing a $1 trillion bill

Our recent report, Business on the Edge: Building Industry Resilience to Climate Hazards,^[vi] offers a sobering assessment of the mounting threats to business. Produced in collaboration with the World Economic Forum, it explores the risk to fixed business assets in 20 industries from extreme heat, wildfires, drought, water stress, tropical cyclones, coastal flooding and fluvial flooding. When factories lose water supply, or data centres overheat or offices and fields are flooded, business costs rise; for example, through rising insurance premiums, expensive repairs, unfulfilled orders or less productive workers.

We expect these climate-driven losses to reach $600 billion annually by 2035—equivalent to removing Sweden’s economy from global GDP every year. By 2055, losses are projected to exceed US$1 trillion per annum, broadly equivalent to Switzerland’s entire economic output. In Europe, extreme heat, followed by fluvial flooding and water stress, are projected to be the most damaging hazards. The recently released EU ‘Competitiveness Compass’ calls for “improving critical infrastructure resilience [as] a changing climate and extreme weather events increasingly threaten European economic security.”^[vii]

Telcos and utilities in the eye of the storm

Companies cannot afford to wait—especially those in capital-intensive industries. Our analysis finds the average European telecom company faces losses of up to US$573 million per annum due to the sensitivity of data centres and network infrastructure to extreme heat. Expected losses accruing to the average regional utilities (up to ~US$386 million) and energy (~$248 million) companies are also significant.

The scale of the impact should concern all business leaders. However, as they navigate rising costs driven by the energy transition, data center capacity constraints, trade tensions and other disruptions, just how severe is the risk? To answer this question, we compared fixed asset losses against company earnings. This showed that climate-driven costs equate to an average drop in earnings of 6.7–7.5% by 2035 for companies headquartered on the continent, accelerating to 9.4-11.6% by 2055. Once again, the hit in some industries will be much worse. The average telecommunications and utilities company faces losses equivalent to more than a fifth of earnings in 2035.

To put this into perspective, S&P 500 profit margins dropped 15.3% during the depths of the Covid-19 pandemic. However, that was a temporary shock, mitigated by vaccines and government stimulus. In contrast, climate-driven losses will compound every year.

A more resilient, more competitive Europe

Despite mounting risks, there is a tendency to view climate adaptation as a long-term concern, especially given Europe’s focus on economic competitiveness. However, the two are not mutually exclusive: every $1 invested in climate resilience returns an estimated $2 to $19.^[viii] A robust grid failure contingency plan, for instance, can prevent catastrophic business disruptions; pivoting R&D can unlock fresh revenue streams in new, fast-growing sustainable markets.

The Clean Industrial Deal (CID)—the EU’s joint roadmap for competitiveness and decarbonization—provides impetus. By supporting energy-intensive industries and clean-tech manufacturing, redesigning permitting, procurement and taxation rules and reducing external dependencies, CID encourages companies to lower emissions. More importantly, by providing investors with greater certainty on Europe’s climate ambitions, it encourages adaptation, reducing the perceived trade-off between growth and resilience while accelerating demand for green products and services.

Scaling climate resilience with technology

How companies across the region respond to the challenge of climate change will depend on the nature and location of their fixed assets. But any strategy should be underpinned by three pillars: mitigating economic loss, adapting to boost revenues and collaborating to strengthen ecosystems.

Losses can be avoided by mapping climate risk exposure, contingency planning and diversifying supply chains. Revenues can be bolstered by understanding changing consumption patterns in a warmer world and tapping into new circular business models. Ecosystems can be strengthened by developing regenerative practices, early warning systems and nature-based solutions.

Emerging technologies such as AI are critical enablers of each pillar of climate resilience. Retrieving asset-level data from extreme weather simulations can inform more robust scenario plans. Imagine working closely with a ‘climate agent’ that autonomously layers climate risk into capital maintenance and investment decisions. AI can also enhance product and service adaptation to evolving consumer needs in a changing climate.

For example, energy companies across Europe are using technology to boost grid resilience as extreme weather events intensify. They are employing AI to predict outages and optimize maintenance schedules, helping ensure a more reliable energy supply. Moreover, energy grid digital twins enable simulations of different operational scenarios to minimize downtime and enhance efficiency.

The stakes are high. As climate hazards intensify, physical infrastructure will deteriorate, supply chains will fracture and markets will shift—jeopardizing both lives and livelihoods. The pressure to prioritize short-term financial performance is strong in Europe today, but companies that fail to embed climate resilience into their strategy will erode their competitive position. Business leaders must act now to mitigate risks, seize new opportunities, and ensure long-term success in a more hostile climate.

About the Authors

Matias Pollmann-Larsen, Global Sustainable Value Chain Lead – Accenture

Dominic King, Research Lead, EMEA – Accenture

References

^[i] Morgan Stanley (2025). Companies See Sustainability as a Way to Create Value. https://www.morganstanley.com/insights/articles/corporate-sustainability-signals-report-2025

^[ii] MunichRe (2025). Climate change is showing its claws. https://www.munichre.com/en/company/media-relations/media-information-and-corporate-news/media-information/2025/natural-disaster-figures-2024.html

^[iii] European Commission (2023). European State of the Climate Report. https://defence-industry-space.ec.europa.eu/2023-european-state-climate-report-confirms-alarming-trend-climate-change-impacts-our-continent-2024-04-22_en

^[iv] https://ec.europa.eu/commission/presscorner/detail/en/speech_25_285

^[v] ESG Today (2025). ECB Warns EU Against Removing 80% of Companies from Mandatory Sustainability Reporting. https://www.esgtoday.com/ecb-warns-eu-against-removing-80-of-companies-from-mandatory-sustainability-reporting/

^[vi] World Economic Forum (2024). Business on the edge. https://www.weforum.org/publications/business-on-the-edge-building-industry-resilience-to-climate-hazards/

^[vii] European Commission (2025). A Competitiveness Compass for the EU. https://commission.europa.eu/document/download/10017eb1-4722-4333-add2-e0ed18105a34_en

^[viii] World Economic Forum (2024). The Cost of Inaction. https://reports.weforum.o0.rg/docs/WEF_The_Cost_of_Inaction_2024.pdf

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By Jens Laue, Matthew Robinson, Monique de Ritter and Michela Coppola

As Europe recalibrates its sustainability regulations, it may seem natural for businesses to ease efforts in collecting and integrating sustainability information. Yet the real opportunity is to move ahead — strengthening data, talent, and technology so that sustainability information becomes a driver of innovation, resilience, and long-term competitiveness.

“Opportunity is missed by most people because it is dressed in overalls and looks like work.”

Thomas Edison’s words resonate stronger than ever today as businesses face growing uncertainty around the future of sustainability regulation in Europe. Yet within the complexity lies opportunity for those willing to engage with regulation as a catalyst rather than as a constraint.

Over the past five years, the EU has set a global benchmark with the EU Taxonomy, the Corporate Sustainability Reporting Directive (CSRD), and the proposed Corporate Sustainability Due Diligence Directive (CSDDD). The direction was clear: mandate detailed sustainability data disclosure to drive transparency, improve risk-management, and steer businesses towards sustainable, resilient models.

But even as rules shift, one signal remains clear: sustainability is becoming a long-term driver of performance and innovation.

Now, with economic headwinds and growing competitiveness concerns, reducing regulatory and administrative burdens is a key priority for governments, industry lobbies, and lawmakers. In this context, the European Commission proposed the Omnibus Simplification Package, which, if adopted in its current form, would significantly reduce the scope and depth of sustainability disclosure and due diligence requirements.

These moves have sparked debate. Is the EU recalibrating or retreating from its Green Deal ambitions? Is this no longer the EU’s “man on the moon moment”? Amid the uncertainty, the challenge for companies is to decide how to treat sustainability data in this shifting context.

The risk lies not in regulatory fluctuations, but in treating the collection of sustainability information as a compliance task rather than a strategic capability. Businesses may be tempted to pause or scale back efforts to collect high-quality sustainability data. But even as rules shift, one signal remains clear: sustainability is becoming a long-term driver of performance and innovation. Those who invest with foresight instead of pausing can gain a competitive advantage.

Accenture’s research shows that three strategic actions can turn sustainability regulation into a business advantage: building intelligent data infrastructure, embedding ESG metrics into core decision-making, and empowering teams to act on sustainability intelligence. Companies that take these steps are best placed to lead, regardless of how the regulatory landscape shifts.

Regulation as a driver of innovation

Leading businesses already recognize that if they embrace sustainability regulation in spirit, not just letter, it can become a source of strategic advantage.

A recent Accenture survey across five major European economies reveals a growing recognition of this mindset. Over half of business leaders already see sustainability regulation as a driver of competitiveness now. The figure rises to 65 percent in the medium term and 72 percent in the long term, evidence that more companies see the broader intent of regulation as a tool for national advantage (see figure 1).

Figure 1: Business leaders view sustainability regulation as a competitiveness driver

This perspective, however, goes beyond the aggregated, national level. Many leaders also recognize tangible benefits for their own organizations. Over half (54 percent) anticipate overall positive outcomes from current and upcoming sustainability legislation. And while rising operating costs are a concern, the top three expected outcomes are all positive: driving innovation, building brand trust, and staying ahead of investor and consumer demands (see figure 2).

Figure 2: Top anticipated outcomes of EU sustainability legislation

By treating sustainability data not as a reporting chore but as raw material for better decisions, companies can unlock powerful value.  Financial and non-financial performance should not be managed in isolation, nor should investment decisions be made in silos, as there is a strong correlation between traditional business decisions and sustainability impacts, and vice versa. Currently, fewer than 30 percent of large European firms integrate non-financial, ESG data into their decision-making processes but that’s changing. Nearly 60 percent expect to do so within three years, indicating that building a “sustainability intelligence” capability is becoming a strategic differentiator.

Turning sustainability data into a business driver: Three strategic actions

Forward-thinking companies are already taking strategic actions to harness sustainability intelligence. Their approach offers clear lessons for others, centered on three actions that deliver both immediate impact and long-term benefit:

1. Build robust, data-driven sustainability infrastructure to turn compliance into insight

For many companies, the challenge is not just a lack of information; it’s also the lack of infrastructure to make sense of it. New regulations are accelerating the demand for high-quality, granular, and auditable non-financial data. Yet most firms treat reporting as a siloed, manual exercise, narrowly focused on compliance. Organizations taking this reactive stance have limited strategic visibility and run the risk of falling behind more data-fluent competitors.

Leading organizations, on the other hand, are:

1. Adopting cloud-based solutions to streamline data management and enable real-time updates
2. Leveraging AI and machine learning to automate data classification, validation reporting, and analysis
3. Integrating sustainability metrics into enterprise resource planning (ERP) systems to enhance reporting accuracy, enable decision making, and generate efficiency.

These technologies are becoming core to how companies track, analyze, and act on sustainability signals.

Ørsted, for example, uses SparkCognition’s AI-powered Renewable Suite to integrate financial, operational, and third-party data—including weather forecasts—onto a single platform. This cloud-based system enhances data quality, enables self-serve models for actionable insights, accelerates fault detection, and fosters collaboration across the enterprise.

UPS spent years developing ORION, an AI-powered logistics engine that optimizes delivery routes in real time. The system not only cuts emissions, it also boosts operational efficiency, turning sustainability into a bottom-line driver.

A robust, connected data ecosystem can transform regulatory effort into an operational edge. By providing real-time insights, it can shift businesses from box-ticking to agile innovation, value creation, and industry leadership.

2. Embed non-financial intelligence into core decision-making

Building infrastructure is just the start; the real edge comes from using sustainability intelligence to guide strategy, operations, and capital allocation.  Few organizations are there yet. Forward-looking companies go beyond compliance, treating non-financial data as a lens for risk, opportunity, and long-term value, embedding ESG insights into core decision-making to anticipate change, seize advantage, and drive sustainable growth. To move from intent to impact, they focus on:

1. Developing integrated dashboards where leadership can access both financial and non-financial KPIs
2. Using AI-powered analytics to forecast risks and opportunities related to ESG performance
3. Aligning sustainability goals with investment and innovation strategies to attract responsible investors and future-proof the business

By embedding ESG metrics into enterprise dashboards and decision architectures, companies gain clearer insight into supply chain resilience, product lifecycles, climate risk, and stakeholder expectations.

Building infrastructure is just the start; the real edge comes from using sustainability intelligence to guide strategy, operations, and capital allocation.

For instance, BlackRock’s Aladdin Climate translates climate science and policy scenarios into climate-adjusted valuations, risk metrics, and financial models, equipping investors to anticipate how environmental risk will reshape valuations across portfolios.

This strategic integration treats sustainability intelligence as a strategic asset and drives better risk-adjusted returns, sharper innovation, and stronger stakeholder alignment.

3. Empower teams to act on sustainability insights

Data and dashboards mean little unless they drive action. Leading companies pair tools with talent and culture, embedding ESG intelligence into operations, adapting models, and bringing together the right skillset to use sustainability intelligence in real time, at scale. Measures include:

1. Upskilling employees in ESG analytics and data-driven decision-making
2. Embedding sustainability expertise across departments, ensuring that non-financial performance is part of business planning and operations.
3. Encouraging cross-functional collaboration between sustainability, finance, and innovation teams.

The answer is not to create isolated ESG teams, but embed sustainability literacy across functions and empower decision-makers—whether in finance, procurement or product development—to act with confidence and speed. This requires new capabilities, new incentives and, often, new governance models that align sustainability goals with operational execution.

Companies that equip teams with the right data, skills, and authority are creating cultures of continuous innovation, where sustainability is not just an objective, but a mindset.

Sustainability intelligence as a competitive advantage

Europe’s regulatory landscape may be shifting, but the direction is clear for businesses: sustainability is a defining force in how value is created, measured, and delivered. It remains a powerful driver of long-term competitiveness and innovation.

The European Competitiveness Compass and amendments put forward in the Omnibus Proposal underscore the need for a balanced approach, but simplification need not undermine the long-term benefits of sustainability initiatives. Organizations that invest in data capabilities, integrate non-financial metrics into decision-making, and build a sustainability-focused workforce will be better equipped to thrive in a rapidly evolving global economy.

The companies that invest with intention will be the leaders. They are building the infrastructure to turn compliance into insight. They are embedding sustainability intelligence into strategic decisions. And they are empowering teams to act on that intelligence, transforming sustainability from a reporting exercise into a source of resilience, efficiency, and growth.

In a time of uncertainty, the biggest risk is inertia. Competitive advantage will flow not to those who wait for regulatory clarity, but to those who use this moment to future-proof their business.

Sustainability is no longer a cost to manage. It is a capability to master.

About the Authors

Jens Laue is a Managing Director and Accenture’s global lead for Sustainability Measurement, Analytics, and Performance services.

Monique de Ritter is the Sustainability Measurement, Analytics, and Performance research specialist within Accenture Research.

Michela Coppola is the global CFO and Enterprise Value research lead within Accenture Research.

Matthew Robinson leads the sustainability team within Accenture Research.

The post Beyond the Regulatory Checkbox: Navigating Europe’s Shifting Sustainability Rules with Strategic Intent appeared first on The European Business Review.

By Mauro Macchi, Matt Prebble, Dominic King and Laura Ann Wright

Closing the competitiveness gap is a central pillar of the European economic reform agenda. AI has the potential to boost productivity—but too few companies are making bold, transformative investments. Regional leaders need to move faster: business capabilities—in areas such as data, cloud and talent—and the regional AI ecosystem must be strengthened to capture the opportunity.

If the European economic reform agenda had a patron, it would be Janus. Like the two-faced Roman god of transitions, Europe appears perennially stuck between the future and the past: forcefully acknowledging the need for change—but often struggling to fully do so. The advent of artificial intelligence (AI) presents a crucial opportunity to revive flagging regional productivity. Businesses and policymakers must move quicker if action is to match rhetoric.

The latest attempt to kickstart European competitiveness came last year from the former head of the European Central Bank, Mario Draghi. His report highlighted AI as a potential solution to Europe’s productivity malaise, citing the technology’s transformative power over industries from automotive and energy to life sciences. The European Commission picked up the baton, releasing the EU AI Continent Action Plan—a roadmap for Europe to become a global leader in the responsible and productive deployment of the technology.

AI is not a silver bullet, but when combined with human ingenuity, it could help mitigate key challenges such as high energy prices. The promise is a new era of productivity growth and greater resilience—both essential if Europe is to achieve ambitious economic, social and environmental outcomes. World-leading companies across the continent are already investing in AI to boost competitiveness. For example, Anders Romare, CIO & Senior Vice President, Digital, Data & IT at Novo Nordisk, told us: “The productivity gains we are beginning to see—for example in drug discovery—are simply irresistible”.

Slow on the uptake

However, our recent paper—Europe’s AI Reckoning: Reinventing Industries for a New Era—reveals many business leaders continue to take an experimental approach. Just 8% of the ‘strategic bets’ we studied—major, transformational and sector-specific generative AI investments embedded into the core of the company’s value chain—are being scaled in Europe. And more than half (56%) of the 800 large European organisations we surveyed have yet to scale even one.

The internal barriers to scaling that respondents identified range from breaking up data siloes and bringing together multi-disciplinary teams to security risks. These are compounded by perennial European challenges, including regulatory complexity, a lack of risk capital and the fragmented single market.

That said, we found pockets of strength in certain industries. In automotive, for example, 70% of companies have scaled at least one strategic bet (with most focused on enhancing product design and customer engagement). Aerospace and defence follows (63%), with companies focusing mostly on improving simulations—such as crash tests and aerodynamics—and providing in-use data analysis. As Graham Smith, head of AI, data science and innovation at NatWest explains, the full potential of AI will only be realised “when you’re completely rethinking the way your business operates.”

Size matters

Our analysis also revealed that size matters when it comes to AI. Nearly half (48%) of European companies with US$10billion+ in annual revenues have scaled at least one strategic bet, on par with their US counterparts but well ahead of smaller peers (US$1 billion- US$9.9 billion) in the region (31%). This is a concern given that the US is home to a third more large companies than Europe.

So, what are the largest companies doing differently? We built an index to gauge the development and deployment of AI capabilities—from talent and data governance to the use of foundation models—that make scaling strategic bets possible.  These capabilities help organisations achieve value from AI investments by unlocking new ways of working that go beyond simply layering technology on top of current processes—rather, equipping organisations with the capabilities to reinvent for efficiency, democratise knowledge and enhance collaboration between humans and autonomous agents. The largest European companies score an average of 54 (out of 100), again equal with US peers; those in the revenue bracket right below score just 39.

These capability gaps weigh on reinvention potential; for example, larger European businesses are 3x as likely to have integrated autonomous AI agents into various functions. There are clear frontrunners in automotive (scoring 57 out of 100) and aerospace and defence (52), while significant opportunities to build the capabilities necessary to scale AI exist in sectors such as industrial—which contributes more than a quarter of European output—and those providing critical infrastructure, such as energy, telecoms and utilities.

Sovereignty rules

The onus clearly falls on companies to invest in AI—to open the door to new ways of working in which processes are reinvented for efficiency, knowledge is democratised and collaboration between autonomous agents and people is seamless. The end-goal is reaching a ‘cognitive digital brain’—a central nervous system for enterprise decision-making and continuous learning that organises, processes and acts on data about businesses and the wider world in real-time.

It’s a vision that will not only require business leaders to upskill their people at scale—but also to recognise that the flipside of continuous technological transformation is greater exposure to external threats such as unauthorized access and cyberattacks. Building a secure digital core to reduce vulnerabilities, redundancy and technical debt is therefore critical.

Another requirement is how to reimagine Europe’s AI ecosystem as geopolitical risks grow. We’ve seen a clear mindset shift since the recent imposition of US tariffs, as companies look to balance critical technology dependencies in terms of control, cost and innovation. To build resilience, European companies should adopt a three-layered decoupling approach that factors in data workload sensitivities:

• Architectural: Use sovereign/private cloud for critical workloads to regain control over data.
• Legal: Operate with European and global trusted entities to reduce exposure to extraterritorial laws.
• Supply chain: Maximise open-source solutions to reduce dependence on proprietary software.

That said, individual company actions will only take Europe so far. Leaders across the public and private sectors need to jumpstart the development of a robust, competitive AI ecosystem that avoids duplications and creates more synergies across major countries. This should focus on the following priorities:

• Help smaller companies level up on AI: Smaller organisations need access to more compute capacity and high-quality data, as well as the funding advice, networking and training to boost adoption of sector-specific AI solutions.
• Nurture a sovereign European AI ecosystem: Foster work with European cloud providers and AI producers, while enabling access to innovation from trusted global players as they develop sovereign solutions and local legal entities.
• Develop a coordinated industrial strategy: A federated AI ecosystem—underpinning a competitive and values-driven AI economy—should be grounded in interoperability, cross-industry and cross-border collaboration and regulatory alignment.

How Europe rises to the twin challenges of shifting geopolitics and maximising AI potential will shape its growth trajectory in the coming years. Larger companies must embrace AI faster—and smaller peers must follow their lead. It’s time to turn principles into action and create a resilient, inclusive, innovative AI ecosystem.

The current market turmoil presents a fresh, immediate opportunity to accelerate the Europe’s economic reform agenda. Janus—also the god of beginnings—would doubtless approve.

About the Authors

Mauro Macchi is the chief executive officer for Europe, Middle East and Africa (EMEA) at Accenture, the chair of Accenture in Italy and a member of Accenture’s Global Management Committee. He has more than 30 years of experience at Accenture and has held various executive positions, including the Financial Services Europe Lead and the Strategy & Consulting Lead for Europe.

Matt Prebble is the senior managing director for data and AI across EMEA. He works with C-suite executives and boards of the world’s leading organisations, helping them accelerate their data and AI reinvention to enhance competitiveness, grow profitability and deliver sustainable value.

Dominic King is the research lead for EMEA. He is currently focused on how AI and other technologies can drive competitiveness across Europe. Previous work includes building the commercial case for diversity and sustainability with organisations such as the World Economic Forum and International Finance Corporation.

Laura Ann Wright is the public service research lead for EMEA. With a focus on data and AI, technology and digital transformation, she brings deep expertise in emerging technologies and strategic policy to deliver actionable insights that drive innovation and resilience in government and industry

The post Avoiding the Janus Trap: Why Europe Must Commit to AI-powered Reinvention appeared first on The European Business Review.

By Wytse Kaastra, Matthew Robinson, Babak Moussavi and Josh Elkind

The authors would like to thank Rebecca Tan and Dominic King for their contributions to this article.

Europe’s lead on decarbonization has not translated into competitive advantages. But the continent’s policy aims are increasingly to foster growth in new sustainable markets. In response, companies should rethink their market positioning, accelerate decarbonization, and embrace more radical forms of collaboration.

Europe leads on decarbonization. Two-thirds (67 per cent) of the largest European companies are cutting operational emissions—typically by more than 3 per cent annually.^[i] Nineteen per cent have set a date by which their operations will have net zero carbon emissions. But a further 64 per cent of large European companies have set date-bound commitments to be net zero not only in their operations but also in their upstream and downstream value chains.^[ii] This is more than twice that of their non-European peers.

Can Europe translate this climate leadership into competitive advantage? Such a coupling is possible: since 1990, the bloc has cut emissions by 37 per cent while growing GDP by over 68 per cent.^[iii] But it’s not inevitable. Mario Draghi warns that decarbonization “could run contrary to competitiveness” if the transition isn’t affordable for consumers and profitable for businesses.^[iv]

Europe has three key pathways to turn decarbonization into a competitive edge: lowering costs, strengthening geopolitical resilience, and opening new avenues for growth.

It starts with energy. Europe’s reliance on energy imports has left companies facing electricity prices that are 2-3 times those in the US—a massive drag on competitiveness, especially for heavy industry.^[v] The faster Europe can shift to clean, secure, domestic sources of power generation, the sooner companies can escape turbulent energy markets and destabilizing price shocks.

This is happening. The EU sourced 47 per cent of its electricity from renewables in 2024^[vi] at prices not seen since before Russia invaded Ukraine.^[vii] The levelized cost of electricity for solar and wind fell further below that of fossil fuels^[viii] while the share of electricity generated from solar overtook coal for the first time ever.^[ix] This shift is producing real savings and less exposure to volatile energy imports. The EU avoided €59 billion in gas and coal imports thanks to new wind and solar capacity added since 2019.^[x]

The next step is to then translate the transition into long-term growth. It is within this context that the European Commission is betting that simplified ESG reporting and reinforced support for clean industrial production will ensure that decarbonization is an opportunity, not a hindrance. The Omnibus package aims to make Europe a less expensive place to do business by streamlining sustainability compliance requirements and reducing the reporting burden on companies by 25 per cent.^[xi] The stated goal is not to roll back commitments, but rather to address the most widely cited barriers to scaling green solutions—the regulatory landscape and permitting delays.^[xii] The Clean Industrial Deal aims to reinforce the business case for decarbonization by supporting the transition of energy-intensive industries and mobilizing €100 billion towards clean-tech sectors so that domestically produced net-zero technologies can supply at least 40 per cent of the EU’s deployment needs by 2030.^[xiii] Electrification of the power sector will be vital, with at least €1 trillion of cumulative investment needed by 2030 in renewable energy sources, as well as utility-scale batteries and electrolyzers for hydrogen production.^[xiv]

These bloc-level imperatives extend directly to individual European enterprises. To carve out a differentiated position, companies need to review and refresh their growth strategy, specifically to address the following three questions.

1. Which sustainable markets will you serve?

In a decarbonized economy, the typical products and services that companies sell will look very different. Many markets remain dominated by offerings that are set to become obsolete. Consider that European companies are increasingly fighting for a slice of the electric vehicle (EV) market. But in Europe, sales of EVs still only comprised 21 per cent of total vehicle sales in 2023.^[xv] Put another way, most customers were likely sold a car that will no longer be legal to purchase in 2035.^[xvi] The work remains, but so does the growth opportunity; the global market for clean technologies is projected to reach €600 billion per year by 2030.^[xvii]

It’s not just EVs. By 2022, heat pumps, much more efficient than traditional gas boilers, had been installed in 16 per cent of Europe’s building stock—which is to say, many more retrofits are still to take place.^[xviii] Sustainable aviation fuel is still a relatively low share of the fuel mix in planes, but demand will rise as airlines evaluate their few options for decarbonizing. And green cement and steel remain nascent materials, but they represent the better, cleaner products of the future.

Emphasizing the development and production of sustainable technologies at home will allow European companies to compete with Chinese peers in the future.

Europe has signalled that future growth areas are low-carbon. More than one-fifth of clean and sustainable technologies—such as wind turbines and electrolyzers—are developed in the EU.^[xix] Three-fifths of heat pumps sold in Europe are produced domestically.^[xx] Even in the UK, now outside the single market, the decarbonization sector’s total economic value added grew by 10 per cent in 2024 while supporting nearly one million full-time jobs.[xxi] Emphasizing the development and production of sustainable technologies at home will allow European companies to compete with Chinese peers in the future.  Organizations like the European Raw Materials Alliance aim to diversify supply chains and make better use of the resources already available in Europe—whether that be via extraction, processing, or circularity.^[xxii]

It is within this growth context that companies wishing to remain competitive need to reevaluate their core offerings, and pivot where necessary. Most have got the memo; our research found that 84 per cent of the largest European companies are developing new products and services with more sustainable outcomes in mind.^[xxiii] The maturing net zero economy may represent “the economic growth opportunity of the 21st century.”^[xxiv] But realizing it demands innovation.

2. How will you accelerate your own decarbonization?

Portfolio shifts are necessary for companies to remain competitive in a decarbonizing market landscape. But they are not sufficient. Economies and markets will transform—but so must the companies that operate within them. The regulatory signals indicate that businesses that decarbonize will have the advantage. Consider the logic of measures such as the Emissions Trading Scheme and the Carbon Border Adjustment Mechanism. By directly tying carbon to costs, companies that wish to operate under the regulatory aegis of Europe are incentivized to decarbonize. And every unit removed from the production process shows up as less embodied carbon in new or existing products themselves.

But more pertinently, cutting carbon often is cutting costs—over the longer term at least. On-site renewables should lead to lower running costs. Closed-loop systems entail less waste and greater efficiency. Building insulation and LED lighting mean less money leaking out of walls and windows.

This requires capital investment. The trick will be to mobilize investment now by promising strong future returns from clean, competitive energy and industrial products. High upfront costs typically remain a barrier to such decarbonization investments, especially in heavy industries.[xxv] Driving costs down to tipping points—like those reached by solar and wind—will unlock scaling and wider adoption. Long-term financing and a mix of public and private funding, including shared costs and green bonds, are essential to accelerate progress.

Again, most European companies are aware of the benefits of cutting carbon—and are more likely than their counterparts in other regions to be taking tangible action to decarbonize. Across 15 of 21 decarbonization levers that we analyzed, at least half of the largest European companies showed evidence of implementation. Action is not yet happening fast enough, with only 21 per cent of companies on track to reach net zero in their operations by 2050.^[xxvi] But a critical mass is moving in the right direction.

3. How will you take the way you work with others to the next level?

Companies that attempt to decarbonize alone will incur unnecessary costs that will hinder competitiveness. And such an approach is probably futile anyway; the complexities of modern industry mean companies have interdependencies—and Scope 3 emissions—in other sectors and countries. The energy transition itself is dependent on critical materials that are typically sourced from across borders. Ramping up domestic extraction, processing and recycling can mitigate the risk of supply disruption, but cross-border supply chains are unlikely to be disappearing anytime soon.^[xxvii]

Decarbonizing while bolstering competitiveness is especially challenging given the systems-level change that it represents. If entire markets are indeed to be transformed, disparate actors across those markets will need to work together to make that happen.  This means collaboration both within and across industries—think of energy or resource providers aligning with automotive firms, or (regenerative) food producers working with retailers, or manufacturers coordinating with policymakers to roll out new infrastructure. And this isn’t just in pursuit of making new things, but also to make sustainable choices more relevant in customers’ lives, thereby collectively bringing about necessary demand shifts. This will necessitate speaking to a wider set of motivators, such as identity, well-being and affordability.^[xxviii]

If entire markets are indeed to be transformed, disparate actors across those markets will need to work together to make that happen.

The regulatory landscape in Europe is itself increasingly structured to incentivize collaboration. Think of supply chain due diligence requirements for example. Or consider sector-wide emissions targets that induce the pooling of non-competitive data to create benchmarks and share best practice. It’s no surprise, therefore, that 81 per cent of the largest European companies are members of organizations that drive forward collective sustainability goals.^[xxix] Europe’s regulations may not always work as intended, as noted above. But if the Omnibus proposals resolve this, streamlined compliance obligations should not inhibit collaboration and innovation.

Time to get to work

None of this will be easy. Unlocking new growth will require upfront investment, openness to experimentation, and likely even the winding down of previously dominant business lines. But new tools are available—including AI. Accenture’s previous research with the United Nations Global Compact has shown how AI can be a catalyst for achieving bold, sustainable goals.^[xxx] In fact, Europe already holds a slight edge in using AI for decarbonization—with 20 per cent of its largest companies deploying AI for this purpose compared to 14 per cent globally.^[xxxi] Equally important, businesses must remember that only by integrating advanced digital platforms into a dynamic and interoperable foundation can the full advantages of AI be realized.^[xxxii]

Enormous potential remains. By scaling up AI adoption and focusing on its decarbonizing capabilities, European companies can explore and exploit new avenues of sustainable growth faster and more collaboratively. They must seize this opportunity to reignite their competitiveness.

About the Authors

Wytse Kaastra leads Accenture’s EMEA sustainability practice and is the global lead for sustainability services in resources industries. 

Matthew Robinson leads the sustainability team within Accenture Research.

Babak Moussavi is a senior principal within Accenture Research, focusing on net zero.

Josh Elkind is a research specialist within Accenture Research, focusing on sustainability.

References

^[i] Accenture (2024). Destination Net Zero

^[ii] Based on analysis of the largest 2,000 companies globally.

^[iii] European Commission (2024). Climate report shows the largest annual drop in EU greenhouse gas emissions for decades

^[iv] European Commission (2024). https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en

^[v] European Commission (2024). https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en

^[vi] Ember (2025). European Electricity Review 2025

^[vii] European Commission (2024). Market analysis – European Commission

^[viii] International Renewable Energy Agency (2024). Renewable power generation costs in 2023

^[ix] Ember (2025). European Electricity Review 2025

^[x] Ember (2025). European Electricity Review 2025

^[xi] European Commission (2025). https://commission.europa.eu/news/commission-proposes-cut-red-tape-and-simplify-business-environment-2025-02-26_en

^[xii] World Economic Forum (2025). WEF_Delivering_on_the_European_Green_Deal_A_Private_Sector_Perspective_2025.pdf

^[xiii] European Commission (2025). https://commission.europa.eu/topics/eu-competitiveness/clean-industrial-deal_en

^[xiv] Eurelectric (2023). Decarbonisation Speedways

^[xv] International Energy Agency (2024). Trends in electric cars – Global EV Outlook 2024 – Analysis

^[xvi] European Parliament (2022). EU ban on the sale of new petrol and diesel cars from 2035 explained

^[xvii] European Commission (2023). Factsheet: Make Europe home of clean tech industries.pdf

^[xviii] European Heat Pump Association (2023). European Heat Pump Market Statistics Report 2023

^[xix] European Commission (2024). https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en

^[xx] European Heat Pump Association (2024). European Heat Pump Market Statistics Report 2024

^[xxi] CBI (2025). Growth and innovation in the UK’s net zero economy

^[xxii] European Raw Materials Alliance (2025). https://erma.eu/

^[xxiii] Accenture (2024). Destination Net Zero

^[xxiv] The Guardian (2025). Labour’s clean energy plan will not only cut emissions but lift hundreds of thousands out of fuel poverty | Ed Miliband

^[xxv] Accenture (2023). Powered for Change

^[xxvi] Accenture (2024). Destination Net Zero

^[xxvii] European Commission (2023). Factsheet: European Critical Raw Materials Act.pdf

^[xxviii] Accenture (2023). Our Human Moment: Cracking the Code

^[xxix] Accenture (2024). Destination Net Zero

^[xxx] Accenture (2024). Gen AI for the Global Goals

^[xxxi] Accenture (2024). Destination Net Zero

^[xxxii] Accenture (2024). Reinventing with a Digital Core

The post Can Europe Inc. Make Decarbonization its Competitive Edge? appeared first on The European Business Review.

By Laetitia Cailleteau, Philippe Roussiere and Professor Thierry Rayna

With the game-changing explosion of AI into the commercial world, business leaders have, predictably, focused on the technology’s potential to boost their organizations’ pursuit of their business objectives. However, as in any sphere of activity, with great power comes great responsibility. Enter “responsible AI.”

In the realm of artificial intelligence, generative AI (“gen AI”) opens up a range of previously unimaginable possibilities, guiding organizations toward a future filled with innovative solutions to complex problems. However, the unprecedented pace of adoption and fears of unintended harm have intensified the discourse on responsible AI. With regulators stepping up efforts to regulate the development and use of generative AI through legislation such as the EU AI Act, organizations, large or small, need to focus on responsible AI now.¹

Businesses, however, have much catching up to do. Asked, “Do you know where AI is being used within your organization?”, “Do you understand the risks you are exposed to and how to manage them?”, and, “Who is the accountable leader?”, many CEOs today answer “No” to the first question, “In process” to the second and, “It varies” to the third. Only 2 per cent of CEOs self-identified with the leading practices of responsible AI. The good news is that 31 per cent commit to getting there by the end of 2025, propelled by the EU AI Act, which became law in August 2024.²

But they are not alone in grappling with the responsible use of gen AI. Academia, too, has long participated in and informed discussions around the theoretical foundations, ethical considerations, and long-term impact of technology; it’s no different with gen AI. This article aims to present a holistic perspective, juxtaposing solutions that can be implemented today with a vision for more equitable and ethical use of gen AI tomorrow on four key issues: improving reliability and fairness, user experience, impact on workforce, and sustainability.

Improving the Reliability and Fairness of Results

When deciding to use gen AI, enterprises need to consider the suitability of the technology, associated risks, and the cost to deliver responsibly. Gen AI algorithms do not retrieve data; they generate it based on existing data. This is why they are better suited for narratives than for facts; they get the general story right, but not details such as dates or prices.

When using gen AI, some of the techniques below can mitigate the risk of generating irrelevant outputs:

1. Involving a human in the validation or decision process of the AI system. For example, a recent field experiment conducted by Accenture and MIT revealed that introducing cognitive speed bumps, which prompt users to pause and engage in critical thinking, resulted in improved accuracy. However, depending on the frequency and complexity of the task, this can be laborious and not always precise.³  Human oversight is also a requirement of the EU AI Act for high-risk AI systems.
2. Reinforcement learning with human feedback. This approach enables AI to learn through feedback from human trainers or users, online or offline.
3. Customization of pretrained models for specific tasks with specialized data. Such measures minimize hallucinations and errors.
4. Red-teaming. Simulating attacks to test defenses can uncover vulnerabilities that call for preventive measures to avoid the generation of harmful content and data leaks.
5. Responsible AI user interfaces (UI). This could include a “validity score” that gives a higher rating to prompts aiming to generate a (well-known) narrative compared to those that aim to dig into details. A UI that graphically illustrates the random nature of the algorithmic process, such as rolling dice, could help users grasp the probabilistic underpinnings of gen AI outputs.

Apart from reliability, fairness of outputs is also of essence when using gen AI. This is because large language models (LLMs), trained on widely available content (such as news and social media), can also reinforce existing biases and create digital echo chambers that eliminate diverse perspectives.

To improve the fairness of output from gen AI, users can employ several strategies, including advanced prompting, retrieval augmented generation (RAG), and fine-tuning. Companies must involve skilled individuals to ensure quality, and use representative and high-quality datasets to supplement LLM technology. Bias may also be reduced by ensuring data lineage, structured curation, and creating synthetic data (if needed) to provide a trusted LLM context or training.

However, since today’s major gen AI algorithms are subject to randomness, we cannot completely remove bias and hallucinations. Attempts to artificially correct them can backfire. For example, when text-to-image models tried to apply bias mitigation techniques, the output’s signal-to-noise ratio and accuracy declined. Unless we have an intelligent system—symbolic AI—that understands the concept mentioned in the prompt, one that doesn’t rely solely on statistics and probabilities, it’s impossible to completely eliminate bias while maintaining the quality of the output. Being responsible means recognizing that this is not a bug but an integral feature of the algorithm that cannot be resolved but only mitigated. So, it is important to set up alert systems along with human oversight.

Delivering a Safer, Better User Experience

Gen AI is reinventing the user experience by predicting and adapting content to users’ needs in real time. This can help provide a hyper-personalized experience, which is critical for inclusive design. Executives recognize the opportunity to forge more natural human-product interactions, but good intentions do not always translate into good outcomes, as consumers are sometimes frustrated with technology that fails to understand their intentions accurately.⁴

“Gen AI + human”  is the ideal when it comes to delivering a hyper-personalized experience.

Organizations will need to rethink their customer experience to be more human-centered and reevaluate their processes and information systems. While gen AI improves, streamlines, and accelerates technical implementations, it does not address outdated systems or process-driven experiences that must integrate with rigid back-end systems to trigger transactions.

“Gen AI + human”  is the ideal when it comes to delivering a hyper-personalized experience. The technology is good at producing customized, ordinary results, but it cannot understand intent, symbols, and concepts or read between the lines. Humans, who can provide symbolic knowledge, need to be in the loop.

From a regulatory point of view, the EU AI Act offers safety protection through a risk-based approach. It bans AI systems that carry unacceptable risks, such as the use of subliminal or manipulative techniques, and mandates heightened requirements for high-risk use cases, such as having a quality and risk management system in place. It also imposes transparency obligations on AI systems intended to directly interact with human beings. For instance, chatbots need to declare to users that they are interacting with a machine, rather than a real person.

Preparing the Workforce for a Gen-Ai-Enabled Workplace

Gen AI can reduce drudgery, but workers are worried. In one study, 58 per cent of workers cited job displacement as a concern, despite 95 per cent of executives agreeing that gen AI will create net new jobs. The reality is that roles will change. Industry will need to help workers acquire the skills required to make the best use of this technology.⁵

A bigger concern is deskilling, where heavy dependence on machines will result in a drop in human intellectual abilities. Even when used for routine tasks, AI can deskill experts when their expertise comes partly from performing these routine tasks. Responsible AI means taking this into account and forcing humans to run tasks manually, similarly to how pilots are forced to occasionally fly without autopilot to maintain their skills.

We found that the most advanced organizations — “Reinventors”, as we call them—are almost twice as likely as others to prioritize soft skills development around gen AI (problem solving, creativity, and critical thinking) alongside AI.⁶

Training programs focused on the ethics of data and prompt engineering are necessary to prepare the workforce for their future jobs with gen AI. Organizations are off to a good start: although only 5 per cent have trained their entire workforce on gen AI, 63 per cent have trained at least half of it.⁷  Providing responsible AI training will also help organizations fulfill the AI literacy requirement from the EU AI Act, which requires people dealing with the operation and use of AI systems to be trained properly.

Deploying Gen Ai for a Sustainable Future

We need to consider “AI for green” and “green AI” holistically. Picture two separate lines on a chart; the first one plots AI’s role in deploying sustainable solutions, like low-carbon cement, and the second depicts the consumption of resources by data centers, like electricity and water. The depletion of resources as a result of AI use becoming more ubiquitous could grow exponentially. Industry must aim for a scenario where the first line grows much faster than the second.

On the one hand, gen AI can play a role in the collection, analysis, and reporting of ESG data that informs decisions on sustainable business models. Use cases include accelerating and refining Scope 3 emission calculations and creating comprehensive sustainability reports and consumer information with a focus on net zero targets and ESG metrics. As businesses in Europe grapple with new reporting requirements coming from the Corporate Sustainability Reporting Directive (CSRD), AI can help organize data and fulfill regulatory expectations.

On the other hand, gen AI might pose threats to sustainability, and that is why AI regulations such as the EU AI Act also put sustainability center stage. The Act requires LLM developers to meet a basket of obligations by August 2025, which includes sustainability-related requirements, such as technical documentation including disclosure of energy consumption, copyright policies, and detailed training data summaries. This will aid users in selecting their gen AI model provider and mitigating downstream risks. With the advent of open source LLMs, such as Llama, it may no longer be necessary to train LLMs from scratch, cutting down on the most energy-intensive aspect of gen AI. However, execution could become a key issue if everyone starts using LLMs instead of the front end of search engines. Responsible solutions include designing gen AI to redirect such requests to a search engine and saving and resurfacing typical responses for frequent queries. Local AI, such as device-bound gen AI that relies on neural chips, could help. While these may use less energy-hungry resources, they still require energy to run. Training people on responsible and appropriate usage is critical.

What should you do now?

The risks and issues we have outlined above seem to cast a shadow on the outlook for gen AI. The reality is that gen AI has much to offer, and the future could be promising if we address the potential drawbacks of the technology. Regulators around the world already recognize this, so they are stepping in and proposing a number of regulations in the space. But the road map for executives does not begin with compliance; it begins with gaining a thorough understanding of what gen AI is and how to use it. The first step is to create an inventory of the organization’s AI systems and how they are used.

With this in place, the next step is to:

1. Establish clear governance principles.
2. Assess risks according to the EU AI Act (or another applicable framework such as NIST AI Risk Management Framework or ISO 42001).
3. Systematically test prototypes in critical areas such as fairness, explainability, transparency, accuracy, and safety.
4. Continuously supervise AI compliance while in production.
5. Embrace the full impact, both on the workforce and the environment.

In doing so, organizations not only align with emerging global regulatory trends but also contribute to an ecosystem where gen AI can thrive responsibly and sustainably, creating value for all stakeholders.

About the Authors

Laetitia Cailleteau is the Responsible AI & Generative AI Studios Europe lead at Accenture.

Philippe Roussiere is Innovation and AI Global Lead at Accenture Research.

Professor Thierry Rayna is a Professor of Innovation Management at Ecole Polytechnique, a fellow of CNRS i3-CRG (Management Research Centre, Innovation Interdisciplinary Institute), and leads the Chair Technology for Change of the stitut Polytechnique de Paris.

References:

1. AI Meets Regulation – Driving Innovation Within The EU AI Act by Jean-Marc Ollagnier, Forbes, 25 March 2024; see also LinkedIn blog by Arnab Chakraborty, March 2023.

2. Jack Azagury, et al., Reinvention in the age of generative AI, Accenture, 12 January 2024.

3. Nudge Users to Catch Generative AI Errors, MIT Sloan Management Review, Summer 2024 Issue.

4. Paul Daugherty, Adam Burden and Michael Blitz, Technology Vision 2024: Human by design, Accenture Technology Trends 2024 | Tech Vision | Accenture, 9 January 2024.

5. Ellyn Shook and Paul Daugherty, Work, workforce, workers: Reinvented in the age of generative AI, Accenture.

6. Jack Azagury, et al., Reinvention in the age of generative AI, Accenture, 12 January 2024.

7. idem.

The post Navigating the Ethical Landscape of Generative AI appeared first on The European Business Review.

By Mauro Macchi, Dominic King, and Ladan Davarzani

Europe’s economy shows promise, but stock market turbulence, political uncertainty and war could disrupt it any time. Resilience hinges on investing in continuous reinvention.

Is the European economy turning a corner? Business has been battered in recent years, first by the pandemic and supply chain disruption, then by the energy crisis and rising prices. Yet, recent economic data looks slightly healthier: inflation across the Eurozone is down to 2.0%;^[i] gas storage levels are at record highs, which should keep prices down;^[ii] and growth in the EU is expected to tick up from 0.5% in 2023 to 0.9% this year and 1.7% in 2025.^[iii]

This more positive economic outlook has boosted business confidence. Our survey from August found 79% of business leaders expecting revenue growth in Europe in 2025. More than a quarter (27%) of the 2,694 CXOs surveyed anticipate more than 5% growth in the region.^[iv] Only in the US were they more bullish about achieving this level of growth (32%).

The key lesson from the COVID-19 pandemic is that companies must hedge against uncertainty by building resilience.

That said, stock market turbulence, fractious elections and the ongoing Russia-Ukraine war all show that nothing can be taken for granted. The key lesson from the COVID-19 pandemic is that companies must hedge against uncertainty by building resilience. This means committing to continuous reinvention and making the right investments at the right pace to sustain high performance.

The price of efficiency

However, the turmoil of recent years has seen many European companies take their eye off long-term value creation. Instead, they prioritized efficiency: streamlining operations, reducing headcount, and optimizing supply chains to minimize risk, take out cost and maintain profitability.

This short-term “firefighting” mindset was a perfectly rational response to a challenging economic environment. But it has come at a cost. A third (32%) of Europe’s top financial performers from 2019 dropped into “low revenue growth” over recent years; that compares to 27% of peers globally.^[v] Even many of those European companies that are growing profitably today are under-investing in resilience (36%) compared with peers in other regions (26%).

As investments in innovation and expansion have been delayed, long-term growth prospects have declined. The share of “long-term profitable growth” companies in Europe is now 25% below where it should be (ceteris paribus), while the US share is 60% higher. This has seen a wide performance gap open up: more resilient European companies are expected to grow revenues and profits more than seven percentage points faster than their less resilient rivals over the next three years.^[vi]

As Ursula von der Leyen, President of the European Commission, said recently when proposing a new European Competitiveness Fund to develop and manufacture strategic tech in Europe: “…our competitiveness needs a major boost. The fundamentals of the global economy are changing. Those who stand still will fall behind. Those who are not competitive will be dependent.”^[vii]

Underinvestment in tech: a familiar story

Europe ranks below the US and Asia for spending on cloud, data & AI and, cyber, as well as for AI VC M&A Investment, on Accenture’s Resiliency index.

The European resilience story is nuanced. The continent’s companies score well overall but remain 34pp behind their US counterparts in the key area of technology maturity—a composite measure of investment in applications, infrastructure and cybersecurity.

As noted in previous reports, Europe ranks below the US and Asia for spending on cloud, data & AI and, cyber, as well as for AI VC M&A Investment, on Accenture’s Resiliency index.^[viii] The continent’s businesses do score much better for tech skills, board TQ and cyber talent. But as the returns on tech investment accelerate, European competitiveness will suffer if our engineers, developers and others are starved of resources.

As Mario Draghi observed recently when launching his Future of European Competitiveness report: “The EU remains weak in the emerging technologies that will drive future growth… [this] will not only rob it of the growth opportunities of the coming AI revolution. It will also hinder innovation in a wide range of adjacent sectors—such as pharmaceuticals, cars and defence.”^[ix]

Could generative AI change the narrative?

“The EU remains weak in the emerging technologies that will drive future growth… [this] will not only rob it of the growth opportunities of the coming AI revolution. It will also hinder innovation in a wide range of adjacent sectors—such as pharmaceuticals, cars and defence.”

It’s encouraging, therefore, to see the continent enthusiastically embracing today’s inescapable technology: generative AI. Most European executives see generative AI as key to their reinvention strategy (80%) and expect it to significantly improve performance (72%).^[x] Indeed, 86% say they have received material financial benefits from using generative AI—ranging from 90% in Germany to 77% in Italy, with telecoms and technology (90%) and financial services (84%) companies most positive.^[xi]

But perhaps more importantly, the advent of generative AI seems to be prompting a mindset shift in Europe: 78% of executives say that these investments are driving revenue growth, against 22% who see them as more beneficial for cost reduction. This trend could help businesses on the continent find a better balance between efficiency and resilience, thereby boosting long-term growth prospects.

Reinvention relies on the digital core

This shift in focus is important – but to realize the full value that employing generative AI at scale could unlock, European companies need a secure, integrated digital core. This combines the digital platforms, data and AI backbone and digital foundations – from cloud infrastructure to cybersecurity – necessary to drive continuous reinvention. Indeed, our research finds that companies with industry-leading digital cores plan to reinvent twice as many functions with gen AI compared to competitors and expect to create twice as much value.^[xii]

However, we have uncovered significant readiness gaps across the continent: for example, under half of European companies say AI is embedded into all business processes (49%).^[xiii] Executives say they are constrained by three main barriers: data strategy (36%), cloud infrastructure (35%), and change management (34%).^[xiv] Overcoming each will serve to realize the potential of generative AI while simultaneously boosting tech resilience and long-term continental competitiveness.

Data quality is a prerequisite for realizing the potential of generative AI. A company without a data strategy is like an airplane without a refueling plan: it won’t be in the air for long. High-quality proprietary data, perhaps pulled together in public-private partnerships, could offer businesses in the region a competitive advantage. A large, European banking group worked with Accenture to build a new knowledge application that provides specific answers to users’ regulatory questions by searching through its vast and growing collection of data and documents. The tool increases accuracy and compliance and saves the user time and manual effort.

A robust data strategy must be underpinned by a mature cloud infrastructure to take advantage of generative AI capabilities. Companies operating in a connected cloud environment can scale solutions more efficiently than their unconnected competitors. For example, AXA worked with Accenture to migrate its public claims system to the public cloud to boost agility, speed and transparency, and to lower costs. Client-centric innovations include AI-powered self-service portals that shorten claims registration and settlement times.

Nothing changes if our people don’t

Most European workers (95%) see the value in working with generative AI, but many (60%) are worried about accuracy and job displacement.

While the technology is clearly critical, so are the people using it. New generative AI tools will fail to build resilience and drive reinvention if people don’t use them. Most European workers (95%) see the value in working with generative AI, but many (60%) are worried about accuracy and job displacement. This highlights the need for companies to adopt a people-centric approach. Business leaders must reskill their people – for example to work hand-in-glove with virtual agents – but also themselves, given 33% are not yet using generative AI tools regularly (i.e., once a week).^[xv] Fail to incorporate training into the roll-out, and Europe stands to lose out on a collective €2.3 trillion of economic growth over the next 15 years.^[xvi]

In today’s ever-changing environment, European companies must also develop a new muscle: the ability to anticipate and manage constant change. They have experience – 96% have undergone 2+ transformations in the past three years – but just 33% (falling to 26% in Ireland and 22% in Sweden) feel confident about their change capabilities.[xvii] Accenture’s generative AI “GPS” can help by pinpointing how leaders need to adapt both themselves and their organizations.^[xviii]

The speed and complexity of change is undoubtedly a challenge for European companies. They will need to tap into their ecosystem of partners to accelerate reinvention by moving from experimenting with generative AI to scaling solutions effectively. But in doing so, they will boost the tech maturity of their organizations, increase resilience and help shift Europe back onto the path to long-term, sustainable growth.

The authors would like to thank Ana Ruiz Hernanz and Corbin Lazier for their contributions to this article.

About the Authors

Mauro Macchi is Chief Executive Officer, EMEA – Accenture

Dominic King is EMEA Lead – Accenture Research

Ladan Davarzani is a Senior Principal – Accenture Research

References

^[i] Eurostat (2024). https://ec.europa.eu/eurostat/en/web/products-euro-indicators/w/2-31102024-ap

^[ii] European Commission (2024). https://energy.ec.europa.eu/topics/energy-security/gas-storage_en

^[iii] European Commission (2024). https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/winter-2024-economic-forecast-delayed-rebound-growth-amid-faster-easing-inflation_en

^[iv] Accenture Pulse of Change Quarterly C-suite survey, August 2024; N=2,694 executives globally

^[v] https://www.accenture.com/content/dam/accenture/final/accenture-com/document-2/GrowYourReturnResilience.pdf

^[vi] Accenture Research analysis of 1,615 companies (excluding public sector); n=395 public companies in Europe

^[vii] https://neighbourhood-enlargement.ec.europa.eu/news/statement-european-parliament-plenary-president-ursula-von-der-leyen-candidate-second-mandate-2024-2024-07-18_en

^[viii] Accenture (2024). https://www.accenture.com/content/dam/accenture/final/accenture-com/document-2/GrowYourReturnResilience.pdf#zoom=40

^[ix] The Economist (2024). https://www.economist.com/by-invitation/2024/09/09/mario-draghi-outlines-his-plan-to-make-europe-more-competitive

^[x] Accenture Reinvention survey, October 2023; N=1500 executives of globally, of which N=390 from Germany, France, Italy, and the UK

^[xi] Accenture Pulse of Change Quarterly C-suite survey, August 2024; N=2,694 executives globally

^[xii] Accenture (2024). https://www.accenture.com/content/dam/accenture/final/accenture-com/document-2/Accenture-Digital-Core-Chapter-1.pdf

^[xiii] Accenture survey of 1,500 global C-Level IT executives (n=400 in Europe); conducted in November 2023. For more details see https://www.accenture.com/content/dam/accenture/final/accenture-com/document-2/Accenture-Digital-Core-Chapter-1.pdf

^[xiv] Accenture Pulse of Change Quarterly C-suite survey, May 2024; N=2710 executives globally

^[xv] Accenture Pulse of Change Quarterly C-suite survey, August 2024; N=2,694 executives globally

^[xvi] Accenture analysis; for method, see Accenture (2024), “Work, Workforce, Workers: Reinvented in the Age of Generative AI”; https://www.accenture.com/content/dam/accenture/final/accenture-com/document-2/Accenture-Work-Can-Become-Era-Generative-AI.pdf

^[xvii] Accenture (2024). https://www.accenture.com/content/dam/accenture/final/accenture-com/document-2/Accenture-Change-Reinvented-Report.pdf

^[xviii] Accenture 2024). https://www.accenture.com/content/dam/accenture/final/accenture-com/document-2/Accenture-Work-Can-Become-Era-Generative-AI.pdf

The post How European Companies Can Drive Reinvention and Resilience through Generative AI appeared first on The European Business Review.

European automakers face growing competition from Chinese and U.S. electric vehicle (EV) manufacturers. While they still dominate their home market, their real challenge lies in markets beyond Europe. To stay ahead, European OEMs must capitalize on their heritage brands, get their EV manufacturing basics right by refining supply chains, batteries, and vehicle manufacturing, and adopt a customer-centric, software-first approach to future mobility.

The global automotive industry is undergoing a seismic shift. Traditional automakers, especially in Europe, are facing mounting pressure as electric vehicles (EVs) upend the status quo. Recent tariffs on Chinese EVs might offer European automakers temporary relief, but these barriers won’t hold forever. The reality is that Chinese original equipment manufacturers (OEMs) are playing the long game, with at least four planning to establish production capacity in Europe by 2027.

While the competition is real, European automakers must recognize that Chinese OEMs represent just one of many competitive forces, and the time to sharpen their long-term competitive edge is now. In this article, we suggest how European OEMs should think about their past, present, and future to build a unique value proposition from their strengths.

Domestic disruption, global gaps

European automakers still dominate their domestic market, maintaining over 60 per cent market share—nearly double that of US OEMs (33 per cent) in their home market[i]. However, complacency is not an option. European OEMs are at risk of disruption from US entrants like Tesla, established Chinese OEMs like BYD, and emerging Chinese EV start-ups like Li Auto, forcing them to compete on new battery and software skills.

Although there has been a recent slowdown in EV sales in the European market, electrification remains the future of the industry, with fundamental advantages such as higher energy efficiency, upcoming regulations, and technology investments having reached a tipping point. Yet EVs are precisely where new competitors are ahead of European OEMs on key customer criteria, including, but not limited to, price.

While European OEMs face growing competition at home, their real challenge lies in markets beyond Europe. In China, for instance, German automakers’ share of the passenger vehicle market shrank to 19 per cent in the first half of 2024, a significant drop from 25 per cent in 2020^[ii]. The EV segment tells an even starker story: German OEMs collectively hold a meager 4 per cent of the market, while Tesla alone commands 7 per cent. Meanwhile, Chinese OEMs dominate, with 87 per cent of the local EV market^[iii].

China is not just another battleground; it’s critical for mass EV adoption, with penetration rates surpassing 50 per cent for the first time in July 2024^[iv]. Furthermore, in emerging markets, where 24 per cent of new cars were sold in 2023^[v], Chinese OEMs are rapidly gaining ground. By 2030, their global market share could double to 33 per cent, up from 17 per cent in 2023^[vi]. North America presents another uphill struggle, with European automakers’ market share declining from 21 per cent in 2020 to 18 per cent in 2023^[vii], accelerated by the US Inflation Reduction Act and strong local competition.

While these challenges are daunting, they also present significant opportunities. It is not too late for European automakers to rethink their approach and secure a sustainable competitive advantage, drawing on their past, capitalizing on the present, and preparing for the future.

Learning from the past: Leveraging heritage brands

One of the greatest strengths of European automakers is their heritage. European OEMs have a well-established reputation for brand strength and reliability, not just within Europe, but globally. New competitors may be driving down prices, but heritage brands can adopt a differentiation strategy instead of a race to the bottom.

These heritage brands are known for their engineering, manufacturing excellence, design, and long-term quality, features that resonate with customers and are difficult for newcomers to replicate. For instance, consider how BMW has recently overtaken Tesla in Europe^[viii], highlighting that traditional brands can outperform even the most disruptive newcomers. By focusing on their legacy and unique value propositions, European OEMs can both defend their market positions and expand into emerging markets.

Winning in the present: Master the fundamentals and stand out in services

Despite some doubts around EV adoption, the EV penetration rate in Europe has reached 20 per cent, while global penetration stands at around 18 per cent^[ix]. This marks a critical transition point, where EVs are no longer a niche product but have entered the mainstream market. Our research found that more than 80 per cent of drivers in the EV mainstream market name reliability, safety, and price as the most relevant purchase criteria for buying an EV, whereas early adopters showed comparatively higher preferences for the latest technology and performance^[x].

To cater to this broader market, European OEMs need to get the basics right. This includes refining supply chains, batteries, and vehicle manufacturing to bring costs in line with internal combustion engine (ICE) vehicles. For example, Volkswagen is targeting a 40 per cent cost reduction with its locally developed China Main Platform, a vital step in achieving cost parity with local competitors^[xi].

Additionally, while digitization can enhance customer experiences, traditional factors like dealership interactions and workshops still play a significant role. Around 54 per cent of customers prefer dealer contact, and 61 per cent still value workshop support^[xii]. European OEMs have an extensive support ecosystem built over the last century, which provides added residual value for their customers, a known issue for EV owners.

The opportunity for European OEMs is to now add a digital layer connected to their physical ecosystem to deliver superior omni-channel experiences. Several market leaders, including BMW, Mercedes Benz and Volkswagen, have begun to introduce generative-AI-based voice assistants for better customer interaction and engagement^[xiii]. 

Building the future: Prioritize new power trains and software

Looking ahead, European automakers must both address their weaknesses and build new competencies to stay competitive. Software is a critical area where many European OEMs lag behind. Start-ups have an advantage here, as they are unencumbered by legacy hardware-focused thinking. To close this gap, European automakers need to adopt a software-first mindset, which will require significant changes in corporate culture, engineering design, procurement, and product life cycle management.

Meanwhile, transitional technologies like advanced ICE, hybrid electric vehicle (HEV) and plugin hybrid electric vehicle (PHEV) could continue to hold appeal in specific markets. For example, Toyota’s hybrid electric vehicle (HEV) technology has proven successful, while Chinese start-up Li Auto has made significant progress with range-extended EVs (REEVs) in China. Another opportunity is drop-in replacements such as hydrogen or other e-fuels, which OEMs such as Toyota and BMW are currently pursuing^[xiv].

Rather than following these examples exactly, European OEMs need to be selective and focus on “no-regret” strategic bets that align with their strengths and customer needs. They must remain agile and responsive to market shifts, leveraging their flexible manufacturing capabilities to adapt to new demands. Stellantis, for instance, is developing BEV-centric platforms that can accommodate multiple power train configurations.

Reinvent or fall behind

To thrive, European automakers should not be playing defense, but instead leverage their existing strengths. While Europe will remain an important market, the global stage is increasingly where the battle for leadership will be fought.

European OEMs are already making progress in the EV race. However, to regain the dominance they once had in the ICE era and set the performance frontier, they must shift from a hardware-first mentality to a customer-centric, software-first approach. This reinvention will require strategic partnerships across the ecosystem, including suppliers, technology providers, and mobility operators. By breaking down silos and building a robust digital core that leverages cloud, data, and AI, European OEMs can drive the reinvention they need to succeed.

The road ahead is paved with opportunity. With bold vision and swift action, European OEMs can rise to the occasion and redefine the future of mobility. Now is the moment to take the lead.

About the Authors

Juergen Reers is a Senior Managing Director and Global Automotive and Mobility Lead at Accenture. He is dedicated to driving innovation, digitization, and efficiency for clients worldwide. Juergen is an expert on large-scale transformation programs aimed at achieving software-enabled and sustainable mobility. He is based in Munich, Germany, and has worked for seven years out of the United States.

Marcello Tamietti, Automotive and Mobility EMEA Lead, Accenture has over 30 years of experience in the technology and consulting industry, with deep expertise in automotive supply chain, after sales, sales and marketing, and R&D. Marcello has helped automotive companies to transform and reinvent their business leveraging technology, data, and AI. Marcello is based out of Turin, Italy.

Philipp Kupferschmidt leads Accenture’s industrial business in the German-speaking markets. He has 20 years of experience serving automotive industry clients around the globe, spending several years working exclusively in the Chinese market. His focus lies on large-scale digital and performance transformations. Philipp is based out of Dusseldorf, Germany.

Stefan Hattula is the Global Automotive and Mobility Research Lead at Accenture, with over 15 years of experience in corporate strategy and market intelligence. He applies his strong analytical expertise to driving innovative research and strategic insights for the automotive and mobility sectors. He is based in Munich, Germany.

Sheryl Yaping Yu is the Mobility+ Research Manager at Accenture Research. She has 20 years of experience in strategy and research across various industries. In recent years, she has primarily worked in the automotive sector, focusing on thought leadership in consumer trends, strategy, and digital transformation. Sheryl is based in Shanghai, China.

References:

i. 2024, Light Vehicle Sales Database, S&P Global Mobility

ii. 2024, China Passenger Vehicle Market Report – June, CPCA; 2020, China Passenger Vehicle Market Report – Dec, CPCA

iii.2024, China New Energy Vehicle Market Report – July, CPCA

iv. 2024, China New Energy Vehicle Market Report – July, CPCA

v. 2024, Light Vehicle Sales Database, S&P Global Mobility, (Note: Emerging markets include ASEAN, Central Europe, Eastern Europe, the Indian Subcontinent, the Middle East and Africa, and South America.)

vi. 2024, Q-Series Redux “Short and medium term China threat”, UBS Research

vii. 2024, Light Vehicle Sales Database, S&P Global Mobility

viii. James Morris, 2024, BMW overtakes Tesla in Europe, Fortune Media

ix. 2024, Global EV Outlook 2024, IEA

x. 2024, “What Electric Drivers Want” Survey, Accenture

xi. 2024, Volkswagen Group takes the offensive in China by strengthening tech capabilities and reducing costs

xii. 2024, “What Electric Drivers Want” Survey, Accenture

xiii. Press Releases, 2024, Generative AI, Augmented Reality and Teleoperated Parking – the Digital Experience in the BMW of the Future at the Consumer Electronics Show (CES) 2024., Mercedes-Benz heralds a new era for the user interface with human-like virtual assistant powered by generative AI, ChatGPT01 is now available in many Volkswagen models

xiv. Press Release, 2024, Hydrogen Pioneers: BMW Group and Toyota Motor Corporation take collaboration to the next level to offer Fuel Cell Electric Vehicle (FCEV) options for passenger cars

The post Shifting Gears: How European Automakers Can Survive the EV Disruption appeared first on The European Business Review.

Could generative AI breathe new life into the old continent? Europe’s technology deficit with North America is well-documented; last year our research explored how the region’s lower technology maturity poses a threat to business reinvention efforts.^[i] The advent of generative AI, however, presents a chance to catch up, by boosting the creativity and efficiency of Europe’s large cohort of knowledge workers. We estimate that generative AI could raise the forecast rate of economic expansion across the region by 0.6 percentage points per annum over the next 15 years.^[ii]

Europe’s technology industry is dwarfed by that of the US, which is home to nearly five (4.5) times as many of the world’s 100 largest technology companies.^[iii] What is more concerning is that companies headquartered in Europe tend to be less tech-savvy than their peers across the Atlantic. Accenture’s latest Resiliency Indexiv finds that European companies rank 30 percentage points below their North American competitors on technology maturity—a composite measure of investment in applications, infrastructure and cybersecurity.^[v] 

European executives recognise that these technology shortfalls are affecting performance: more than one in five say enterprise systems deficiencies have a large negative impact on competitiveness. This compares with one in eight executives globally.^[vi]   

New tech, new value

How can generative AI help to close the gap? We estimate that globally, generative AI has the potential to impact 36% of working hours either through automation or augmentation. Given Europe’s relatively high proportion of knowledge- and language task-based workers, 44% of hours could be transformed here.^[vii]  

This, in turn, would free up workers to focus on higher value-add activities. Indeed, by adopting generative AI responsibly and at scale, organizations could boost economic output across the 10 European countriesviii we studied by €2.3 trillion by 2038. This would raise the forecast rate of regional economic expansion by more than half—a major boon in today’s low-growth environment.^[ix]

The pivotal question is, are European companies primed to seize this opportunity?

The early signs are promising. The proportion of “Reinventors” in Europe – companies ahead of the pack in using new technologies and new ways of working to reach a new performance frontier – doubled to 11 per cent over the past 12 months.^[x] Moreover, 84 per cent of European executives (vs 80 per cent of those in other regions) say that generative AI is key to their reinvention strategy. And 72 per cent (vs 59 per cent) expect it to significantly improve performance.^[xi]

Thus, Europe sits at a competitive crossroads. Will it become a “maker” of the rules, governing everything from people to responsibility, and shape this new AI-powered business environment to its advantage? Or will it be simply a “taker”, following the lead of China and the US? That will depend on how companies address the five imperatives we explore below.

1. Lead with value

We are still in our infancy in terms of recognising and realising the potential of generative AI. Companies, therefore, need to adopt a value-led approach that fully accounts for the risks and returns when determining which business capabilities to reinvent through generative AI investments. This should include both “no regrets” investments (that offer efficiency and productivity improvements) and strategic bets (that promise a distinct, even industry-shaping, competitive advantage).

Early applications have focused on narrow use cases in functional processes that sit across industries. The top three components of the business to which European organisations plan to make fundamental changes using generative AI over the next three years are IT (74 per cent), marketing (47 per cent), and finance (43 per cent). The companies that gain a competitive edge will increasingly pivot from these “no regrets” applications to addressing critical areas of their industry’s value chain.

In doing so, the continent can play to its strengths in areas such as engineering and manufacturing in industrials, and capital project management in the renewables sector. The region can also leverage its diversity of cultures and languages to build models that are less prone to cultural and linguistic bias. For example, the multilingual model built by French start-up Mistral AI, which recently secured investment from Microsoft, is better able to overcome the English-language bias apparent in many of the models developed by US competitors. ^[xii]

2. Develop an AI-enabled, secure digital core

Companies with legacy systems and siloed data will struggle to realise the potential of foundation models, large deep-learning models that can be adapted to support multiple purposes. This is a particular concern in Europe, given that its businesses spend less in key IT areas such as cloud, mobility, data, and AI compared with their North American counterparts.^[xiii]

To move faster from piloting to scaling initiatives, European companies need to build a strong data and AI “backbone” into their digital core, a secure, cloud-based technology capability that both creates and empowers reinvention. They need to develop both a robust architecture for integrating diverse foundation models, and new capabilities to handle unstructured and synthetic data.

Building data products (high-quality, ready-to-use data formatted so that people and systems across an organisation can easily access it) and developing data pipelines are essential for assimilating the diverse data sources required for generative AI. Half of European companies recognise that they will need to make significant changes to their data strategy as a result.

Business leaders should also challenge their teams to use generative AI as an accelerator. Among European executives, 74% expect it to fundamentally reinvent their IT function (vs 60 per cent of peers globally). A case in point is Unilever’s global AI lab “Horizon3 Labs”.^[xiv] Here, the consumer goods multinational is working with Accenture, drawing on assets from our AI Navigator and proprietary model “switchboard”, which allows users to select a combination of models to address the unique business context.^[xv] The collaboration aims to surface new applications to enhance productivity, drive efficiencies, and accelerate disruptive and AI-powered innovations at scale.

3. Reinvent talent and ways of working

Generative AI is set to trigger the most significant shift in work since the agricultural and industrial revolutions. Anders Romare, Chief Digital and Information Officer at Novo Nordisk, captures the magnitude of the opportunity succinctly: “The data we generate from clinical trials is just enormous: it’s starting to be beyond the human capability to actually sort and understand and digest.” He says that generative AI can help aggregate and summarise the vast information to deliver a much “higher quality output”.^[xvi]

But if organisations adopt generative AI hastily – primarily to cut costs – it is likely to significantly reduce the potential economic gains outlined above. Companies must not overlook the need to reskill or upskill employees at scale. The full potential of generative AI will only be realised through a people-centric approach, in which employers focus on how to apply the technology to boost employee productivity and well-being.^[xvii]

In this context, Europe can capitalise on existing strengths. Companies across the region enjoy.^[xviii] As AI expands into more areas, individuals will need to reskill and upskill more often. European companies’ leading capabilities in people enablement could therefore be a source of significant competitive advantage.

4. Close the gap on responsible AI

To win people’s trust, the unparalleled potential of generative AI must be counterbalanced with an unwavering commitment to responsible innovation. Current limitations, such as “hallucinations”, IP infringement, and data explainability, are holding some companies back from investment. Employees, too, are apprehensive; they are three times as fearful as their bosses on the accuracy of tool output, and more than twice as likely to worry about job displacement.^[xix] Such concerns mean that 77 per cent of European business leaders are approaching associated investments with more caution, compared with 59 per cent of peers in North America.^[xx]

European companies must move swiftly to earn trust, for example by ensuring that algorithms and underlying data are as unbiased and as representative as possible. The incoming EU AI Act helps by providing a clear, consistent responsibility framework.^[xxi] The Act will support standardisation of responsible AI efforts across Europe, which will translate into easier collaboration and faster development times between companies, as well as enhanced experiences for customers. For example, Vodafone’s generative AI chatbot, now in pilot, improves user experience through an AI safety framework that protects customers.^[xxii]

5. Drive continuous reinvention

Just as species continuously adapt to survive, so too must business leaders. Reinvention is not a one-and-done endeavour. Most European executives (59 per cent) say they are at least somewhat effective in executing new strategies and performance goals continuously, but only 22 per cent say they are doing so “very effectively”. The companies that build the organisational capability to continuously reinvent, and take advantage of new technologies such as generative AI to do so, will be those best positioned to succeed.

In recent years, European companies have rapidly transformed to meet challenges ranging from the pandemic and supply chain disruption to the energy crisis and high inflation. Generative AI has the potential to bolster reinvention efforts and open new performance frontiers, but only if companies double down on technology, talent, and trust. It’s an opportunity that Europe must seize.

The authors would like to thank Mike Moore, Ana Ruiz Hernanz, and Jakub Wiatrak for their contributions to this article.

About the Authors

Jean-Marc Ollagnier is the Chief Executive Officer of Accenture in Europe and a member of Accenture’s global management committee.

Jack Azagury, Group Chief Executive – Accenture Strategy & Consulting and a member of Accenture’s global management committee.

Dominic King, EMEA Lead – Accenture Research.

References

1. Accenture (2023), “Accelerating Europe’s path to reinvention”; https://www.accenture.com/content/dam/accenture/final/accenture-com/document/Accenture-Accelerating-path-reinvention-Europe.pdf
2. Accenture analysis; for method, see Accenture (2024), “Work, workforce, workers: Reinvented in the age of generative AI”; https://www.accenture.com/content/dam/accenture/final/accenture-com/document-2/Accenture-Work-Can-Become-Era-Generative-AI.pdf
3. By market capitalisation; https://companiesmarketcap.com/tech/largest-tech-companies-by-market-cap/, accessed on 1 May 2024
4. Accenture (2023), “Reinventing for resilience: A CEO’s guide”; https://www.accenture.com/gb-en/insights/strategy/reinventing-resilience
5. European companies rank in the 41^st percentile on average. North American companies in the 71^st percentile.
6. Accenture Pulse of Change Quarterly C-suite survey, October 2023; N=1500 executives of globally, of which N=390 from Germany, France, Italy, and the UK
7. Accenture analysis; for method, see Accenture (2024), “Work, workforce, workers: Reinvented in the age of generative AI”; https://www.accenture.com/content/dam/accenture/final/accenture-com/document-2/Accenture-Work-Can-Become-Era-Generative-AI.pdf
8. Germany, UK, France, Italy, Spain, Switzerland, Sweden, Norway, Denmark, Finland; these 10 countries account for ~67 per cent of regional GDP.
9. Accenture analysis; for method, see Accenture (2024), “Work, workforce, workers: Reinvented in the age of generative AI”; https://www.accenture.com/content/dam/accenture/final/accenture-com/document-2/Accenture-Work-Can-Become-Era-Generative-AI.pdf
10. Accenture (2024), “Reinvention in the age of generative AI”; https://www.accenture.com/gb-en/insights/consulting/total-enterprise-reinvention
11. Accenture Pulse of Change Quarterly C-suite survey, October 2023; N=1500 executives of globally, of which N=390 from Germany, France, Italy, and the UK
12. Sifted (2024), “Microsoft takes stake in French AI startup Mistral to push its multilingual models”; https://sifted.eu/articles/mistral-microsoft-multilingual-model
13. Accenture (2023), “Innovate or Fade”; https://www.accenture.com/content/dam/accenture/final/accenture-com/document/Accenture-Innovate-Fade-3July2023.pdf
14. Accenture (2023), “Unilever and Accenture Collaborate on Next Generation AI”; https://newsroom.accenture.com/news/2023/unilever-and-accenture-collaborate-on-next-generation-ai
15. Accenture (2023), “Accenture Launches Specialized Services to Help Companies Customize and Manage Foundation Models”; https://newsroom.accenture.com/news/2023/accenture-launches-specialized-services-to-help-companies-customize-and-manage-foundation-models
16. CDO Magazine (2023), “We Can Have More Innovation Capacity With Generative AI – Novo Nordisk Chief Digital and Information Officer”; https://www.cdomagazine.tech/talent-development/emea-video-we-can-have-more-innovation-capacity-with-generative-ai-novo-nordisk-chief-digital-and-information-officer
17. Accenture (2024), “Work, workforce, workers: Reinvented in the age of generative AI”; https://www.accenture.com/content/dam/accenture/final/accenture-com/document-2/Accenture-Work-Can-Become-Era-Generative-AI.pdf
18. European companies rank in the 59^th percentile on average. North American companies in the 44^th percentile.
19. Accenture (2024), “Work, workforce, workers: Reinvented in the age of generative AI”; https://www.accenture.com/content/dam/accenture/final/accenture-com/document-2/Accenture-Work-Can-Become-Era-Generative-AI.pdf
20. Accenture Pulse of Change Quarterly C-suite survey, October 2023; N=1500 executives of globally, of which N=390 from Germany, France, Italy, and the UK
21. Arnab Chakraborty (2024), “The EU AI Act: Are you ready for regulated AI?”; https://www.linkedin.com/pulse/eu-ai-act-you-ready-regulated-arnab-chakraborty-levy-chakraborty-8fgzc/
22. Vodafone (2024), “Vodafone youth brand VOXI launches large language model generative AI chatbot to enhance customer experience”; https://www.vodafone.co.uk/newscentre/press-release/voxi-launch-ai-chatbot/

The post Europe Must Invest in Technology, Talent, and Trust to Realise the Potential of Generative AI appeared first on The European Business Review.

Europe is currently undergoing a generative AI-driven transformation in the world of work. While leaders are confident this is a win-win for everyone, workers are more cautious. The onus lies on leaders to establish conditions that reassure workers and affirm the pivotal role they can play in this evolution.  

KEY TAKEAWAYS

Generative AI (Gen AI) is set to transform vast swathes of industry in Europe when it comes to how, where and by whom work is performed. Customer service executives, banking employees, writers, art directors, legal assistants, coders, health providers, everyone will need to learn to work differently — hand-in-hand with Gen AI tools.   

Success hinges on how organizations will reinvent work and prepare workers for a Gen AI-infused workplace. However, a recent study by Accenture shows that workers lack complete trust in their organizations to deliver positive outcomes.^[i] How can leaders close this trust gap? A group of organizations, that are at the forefront of enterprise-wide reinvention, can offer valuable insights into earning workers’ trust. Specifically, on how to lead and learn in new ways, reinvent work, reshape the workforce and prepare workers, responsibly. At the core of it all is prioritizing people throughout.

While industries in the financial services sector — capital markets, insurance and banking in particular — have the highest exposure to Gen AI, no industry is likely to remain untouched. And, while former transformations focused primarily on productivity, in the age of Gen AI, entire value chains and business processes are ripe for reinvention, dramatically impacting work, how work flows through an organisation and how workers experience it. Done right, Gen AI opens up a trifecta of opportunities — economic, business and human. 

• Economic:  Comparative analysis of global Gen AI adoption and innovation scenarios shows the potential to add 2.3 trillion euros in economic value by 2038 (+14.1%) if
• Business: An overwhelming 96% of European CxOs surveyed by Accenture^[ii] believe Gen AI will positively impact their market share. Our research identifies a group of organizations we call “Reinventors”^[iii] comprising just 11% of our global sample that are swiftly executing their strategy aiming to establish a new performance standard with technology as the cornerstone of their reinvention journey. They are twice as likely to anticipate workforce productivity gains of 20% or more in the next three years. By intentionally involving their people in the change, Reinventors are also increasing their chances to reinvent at speed and scale by 1.7x and 1.6x respectively.
• Human: Two-thirds of Reinventors strongly agree that Gen AI will make work more meaningful and fulfilling. Technology that is “human by design” can enable people to contribute in new ways while enhancing productivity, creativity and human potential. 

Are Workers ‘‘Net Better Off’’ with Gen AI?  

Gen AI is an opportunity to involve workers in determining how to reshape their work and roles – instead of the change being imposed on them from above. Organisations will need to help workers interact with it as part of their daily routine, and thus adapt to it.    

Yet, while 95% of workers in Europe see value in working with Gen AI, they don’t trust organisations to ensure positive outcomes for everyone.  

In the age of Gen AI, trust hinges on transparency, open communication and listening. And it’s up to leaders to create the conditions for people to feel “net better off,” to meet four fundamental human needs that can unlock two-thirds of workers’ potential: market relevant skills, purposeful work, strengthened well-being and sense of trust.^[iv] 

Our latest research shows that when people feel net better off, they are more trusting, comfortable and ready to work with Gen AI.^[v]  The journey towards trust could begin with setting right some misaligned perceptions between leaders and workers that are listed out in Figure 1. 

Figure 1: Misalignment between workers’ and leaders’ perceptions when it comes to the adoption of Gen AI and upskilling workers. 

It’s up to leaders to close the gap, but our research shows that only 28% of Europe organisations have comprehensive strategies in place to ensure positive worker outcomes and experiences. Based on insights from this research and our experience on 700 client projects, we chart a path for leaders to lead and learn in new ways that revolve around three accelerators: reinvent work, reshape the workforce and prepare workers.  

• Lead and learn in new ways. Leaders are key to a Gen AI-driven reinvention of work. But are they ready for it? Our research shows they have a long way to go. One in three leaders believe they lack both the technology expertise and the ability to create a compelling change narrative. About 38% have the skills and capabilities needed to reinvent, 37% have technology expertise and 37% can communicate an inspiring narrative for change. Leaders need to understand where work will change and make choices about how it will change, considering what work they want humans to do in their business and how to make an inclusive and equitable transition for colleagues to new work and new skills. This is a chance for leaders to build on Europe’s heritage of worker rights, good work and social consultation to build trust and dialogue during this period of change.  

Some organisations are taking the first steps. Training, coupled with learning in the natural flow of work to create immersive and contextual experiences, is the way forward.  

1. Reinvent work, not jobs. How Reinventors go about reinventing work is telling. Instead of focusing on the job or task, they study the value chain to determine how core processes and work itself need to change. This broader view allows them to reallocate work and change it with the intent of better-serving customers, achieving business outcomes and creating better employee experiences. 
2. Reshape the workforce. The speed at which Gen AI is capable of transforming work calls for a nimble approach from both humans and machines. Predictive insights enabled by integrated data across the organisation can play a key role. So can a strong skills architecture to pivot the workforce with agility, matched with equally nimble talent strategies, practices and policies.   
3. Prepare workers. As organisations invest in helping workers acquire market-relevant technical skills and the capability to collaborate with machines, they will also need to focus on soft skills. A teach-to-learn model is emerging to equip workers to teach the machines. Along this journey, leaders also need to listen and involve their people at every step of the way to strengthen trust.

Prospects: The best outcomes are ours to shape  

Europe stands at a pivotal juncture, uniquely positioned to lead the Gen AI revolution. The path forward for organisations based here is both clear and challenging. Succeeding with Gen AI starts with leaders who are willing to learn new ways to scale the technology responsibly, create value and ensure that work improves for everyone. Our research, which covers 26 countries (11 in Europe) and 19 industries, shows that an organisation’s success in harnessing Gen AI not only relies on a robust data foundation but also on transformative leadership that embraces new learning paradigms.  

As leaders, we are lucky if we have one opportunity in our careers to identify a genuine catalyst for monumental change. Gen AI is that opportunity. By leading and learning in new ways, we have the power to create economic and business value in ways that lift people and society, while building the resilience needed to navigate what’s next. Ultimately, the question remains: Are business and government leaders prepared to step up and seize this opportunity?  

About the Authors 

Tim Good – Senior Managing Director – Lead Talent & Organization, EMEA, Accenture 

Andrew Young – Financial Services Talent and Organization Lead, Accenture 

Mamta Kapur – Talent & Organisation, Europe Research Lead, Accenture 

References:

1. Accenture, “Work, Workforce, Workers Age of Generative AI Report,” Jan. 16, 2024  
2. Accenture, “Pulse of Change: 2024 Index,” 3,400 C-suite surveyed, Jan. 12, 2024
3. Accenture, “Reinvention in the Age of Generative AI,” Jan. 12, 2024
4. https://www.accenture.com/content/dam/accenture/final/a-com-migration/r3-3/thought-leadership-assets/accenture-care-to-do-better-report-uk.pdf
5. Accenture, “Work, Workforce, Workers Age of Generative AI Report,” Jan. 16, 2024  

The post Leading the Gen AI Revolution: Building Workers’ Trust to Reinvent Work in Europe appeared first on The European Business Review.

By Ram Ramalingam, Teresa Tung, Nitu Kaushal & Shalabh Kumar Singh

Edge is an essential component of the cloud computing model and has the potential to help enterprises increase speed of action, reduce network costs and boost efficiency. But rapid adoption or higher investment is not enough to get the best value from edge computing. Integration of edge with the enterprise’s overall cloud adoption strategy is the way forward.

KEY TAKEAWAYS

1. 83% of our survey respondents believe that edge computing will be essential to remaining competitive in the future but only 65% are using edge today.
2. Super Integrators—edge adopters that tie edge to business in transformation adoption—comprise just 6% of edge adopters across the globe and 5.5% of those in Europe, but gain the most in terms of efficiency, cost reduction and capitalising on revenue opportunities.
3. Our three-step framework for optimal edge adoption includes strategising for edge, scaling edge across the enterprise and strengthening allied capabilities such as operations and human resources.

Edge computing, in step with an overall cloud strategy, can play a major role in bending enterprises’ innovation curve. Much of innovation today comes from companies that adopt solutions informed by the staggering amounts of data generated in branch offices, on individuals’ health trackers, retail stores, remote oil rigs, manufacturing plant sites, hospitals and even satellites. In most cases, it is inefficient to move all of this data back to a central data centre for real-time analysis. And real-time complex analytics right where the data is produced – be it on the factory floor, on an individual’s health tracker or at the store checkout counter – have the potential to drive the next wave of performance improvement across industries.

We see several examples of edge adoption in many industries. Take the case of a UK-based international energy services company that designs, builds, operates, and maintains oil, gas and renewable energy assets. It wanted to increase efficiency, productivity and safety at its project sites during the critical construction and commissioning phases. The Internet of Things (IoT) enabled the collection of data from sensors, equipment and workers. Edge computing enabled onsite analysis of this data to drive real-time improvements in operations, resiliency, worker safety and security.

In retail, Starbucks combines in-store IoT capabilities with cloud computing to run real-time analytics on the machines used by baristas for personalising orders and for predictive maintenance.¹

In auto and transport, Tesla has created its own chipset to custom-build a supercomputer that trains the AI systems within the car, which will rely on data from at-scale AI training across its fleet.² Heathrow Airport is experimenting with AI combined with 3D scanning on edge to prevent wildlife trafficking.³ 

For our research report, “Leading with Edge Computing,⁴” we surveyed 2,100 C-level executives across 18 countries to explore the extent of edge adoption and factors that influence success. We found that while enterprises are convinced about the possibilities edge enables, adoption is yet to reach optimal levels — 83% of our survey respondents believe that edge computing will be essential to remaining competitive in the future but only 65% are using edge today.

However, as we have seen, enterprises across industries are rapidly adopting edge computing to improve performance and reduce latency, essential for deploying levers of reinvention such as AI, including generative AI. While the trend is recent, it is catching up, as our research below shows, and European companies are keeping pace with the rest of the world.

Global spending on Edge is expected to be $208 billion in 2023, a 13.1% jump from 2022. Enterprise and service provider spending on hardware, software and services for Edge is forecast to sustain this pace of growth through 2026 when spending will reach nearly $317 billion.⁵

Edge in Europe 

For European companies, the enhanced data security that edge entails is a major attraction. Concerns about data privacy, supply chain vulnerabilities and uncertainty about where critical data is stored and processed in the cloud are driving many countries to treat digital sovereignty as a regulatory, responsibility and reputational matter. An increasing number of European companies are considering sovereign cloud investments to comply with numerous regulations, but also find it complex to implement.⁶  

Edge is one way to help companies meet data protection regulations, such as GDPR, by restricting the sharing of data over cloud for specific requirements and across limited servers—all with the consent of the user. Accenture’s Sovereign Cloud Survey revealed that to ensure cloud sovereignty, 40% of European enterprises have taken actions to secure their sensitive data at the edge, while 55% have plans to do so in the next 2-3 years.

As Europe focuses on taking manufacturing to the next level by establishing smart factories, edge computing can come into play in many ways. It can improve quality assurance by fine-tuning automation and reducing variation in output through onsite analysis of data. Manufacturers that need to locate computing closer to the site of production to enable smart, connected systems – which can be cumbersome and expensive – could look to edge computing for a solution. Edge is also critical for incorporating artificial intelligence, including generative AI, in industry, enabling data analysis in real or near real-time and delivering key business insights.

Edge computing is also a step towards sustainable computing. Data centres and transmission networks consume a significant 1-1.5% of the world’s electricity produced today, and their energy use continues to grow.⁷ While data centres are moving towards greener practices such as more efficient cooling mechanisms and renewable energy usage, edge can contribute too by reducing unnecessary data traffic between devices and the cloud.⁸ Gartner predicts that with edge computing, just 25% of enterprise data will need to be uploaded to the cloud by 2025.⁹

Aiming for an integrated approach to edge adoption 

Getting the most out of edge requires more than mere installation and investment. Accenture’s research shows that edge adoption challenges conventional management wisdom. The fast adopter doesn’t necessarily have the greatest advantage overall. Half of the companies we studied adopted edge as a standalone technology on ad-hoc projects (following the Ad-hoc or Tactical approaches in the figure below) to achieve quick improvements to their bottom line and address immediate pain points rather than strategic improvements. While this enables learning and some smaller, faster outcomes, these are not the companies that achieved the best results. Our cluster analysis shows that neither early adoption led by a centralised digital team nor higher investments to address specific business needs led to optimal outcomes. 

The other half, which applied edge across all parts of their business (the Integrated or Super Integrated approach), saw better outcomes. They operated with a view that edge increases the value of their digital core and enables the integration of artificial intelligence into their core business. Edge helped them accelerate innovation and reduced costs, improved efficiency, led to new revenue opportunities and enabled better customer experience. The differentiating factor was the strategic approach to edge adoption and its integration with a broader cloud strategy.

Unsurprisingly, the Super Integrated approach delivered the best results. Super Integrators comprise a small group of companies – 6% of edge adopters across the globe, and 5.5% of those in Europe.  Our research shows that Super Integrators are 4x more likely to achieve accelerated innovation, 9x more likely to increase efficiency and nearly 7x more likely to reduce costs than those that follow the Ad-hoc approach.

This is because Super Integrators made the best use of the digital core’s range of technologies – cloud, data, AI, applications and platforms – using edge to make quick innovation decisions. They could also enhance digital capabilities with human talent.

Not all companies can or need to aspire to be Super Integrators, but any level of integration provides future-proof resilience as their tech footprint and digital core expand.

How to unlock the value of edge 

Edge implementations often begin with relatively narrow objectives but should be designed with broader applications in mind.

The oil and gas enterprise mentioned earlier believes that edge will be a key part of its broader strategy in the future, which includes AI and blockchain. With these technologies, it hopes to achieve its goal of being a net-zero energy business by 2050.

It realised early on that though deploying edge had to initially be geared towards local conditions where the use case would be customised to factors such as geographic location and weather, the successful use case would need to be scaled across multiple locations globally.

The company has created a horizontal function that focuses on standardising use cases and now has approximately 40 edge assets. It used multiple providers for cloud services as well as outside consultants for edge implementation and turned to key technology original equipment manufacturers (OEMs) for edge-related systems and devices.

The result: reduced unplanned downtime, which can cost the company up to 10% of its revenues.

It also launched its edge talent strategy by working with a leading systems integrator while simultaneously establishing an edge Centre of Excellence to build a pool of relevant internal talent. This approach gives the company the flexibility to adjust the internal/external talent ratio as conditions warrant.

A three-step framework

The future of edge 

Current trends indicate that edge adoption is gaining momentum globally. By 2028, 38% of the edge infrastructure footprint will be in Asia Pacific, with 29% in Europe and 21% in North America.¹⁰ The full potential of technologies like IoT and AI can only be harnessed through the simultaneous strategic deployment of edge computing. This is a major opportunity for European enterprises to be at the forefront of technology deployment and establish themselves as lead players in their respective industries.

Most of the companies that participated in our research believe that edge will be a transformative force—one that leads to innovative business models over the next three years.

However, the right approach is an important distinguishing factor between making the most of this technology versus using it in stop-gap solutions. Aligning edge with the business strategy, integrating it with the digital core and garnering support from all stakeholders is the key to successful adoption.

The authors would like to thank Jai Bagmar, Toms Bernhards Callahan and Ramani Moses for their contributions to this article. 

About the Authors

Ram Ramalingam is the senior managing director and global lead for software & platform engineering and intelligent edge at Accenture. 

Teresa Tung is managing director and global CTO of Cloud First, data and AI, at Accenture. 

Nitu Kaushal is managing director and Europe practice lead, intelligent edge, at Accenture.

Shalabh Kumar Singh is the principal director and global lead for sustainable technology and cloud-related thought leadership at Accenture. 

References

1. ¹ Starbucks Turns to Technology to Brew up a More Personal Connection with its Customers, Microsoft, https://news.microsoft.com/source/features/digital-transformation/starbucks-turns-to-technology-to-brew-up-a-more-personal-connection-with-its-customers/ 

2. ² Tesla Starts Production of Dojo Supercomputer to Train Driverless Cars, The Verge, July 2023, https://www.theverge.com/2023/7/19/23800854/tesla-driverless-dojo-supercomputers-production

3. ³ HRH The Duke of Cambridge Visits Microsoft’s UK Headquarters to Learn about Project SEEKER as Part of His Work with The Royal Foundation, Microsoft, November 2021, https://news.microsoft.com/en-gb/2021/11/18/first-of-its-kind-multispecies-ai-model-to-detect-illegal-wildlife-trafficking-is-ready-to-roll-out-to-airports/#:~:text=HRH%20The%20Duke%20of%20Cambridge%20met%20Microsoft%20UK,work%20with%20The%20Royal%20Foundation%E2%80%99s%20United%20for%20Wildlife.

4. ⁴ Leading with Edge Computing. Accenture. https://www.accenture.com/content/dam/accenture/final/accenture-com/document-2/Accenture-Leading-With-Edge-Computing.pdf#zoom=40′

5. ⁵ New IDC Spending Guide Forecasts Edge Computing Investments Will Reach $208 Billion in 2023, IDC, February 2023, https://www.idc.com/getdoc.jsp?containerId=prUS50386323

6. ⁶ Sovereign Cloud Comes of Age in Europe, Accenture, https://www.accenture.com/content/dam/accenture/final/accenture-com/document/Accenture-Sovereign-Cloud-PoV-Short-2023-24-May-FINAL.pdf#zoom=40

7. ⁷ Data Centers and Data Transmission Networks, IEA, https://www.iea.org/energy-system/buildings/data-centres-and-data-transmission-networks

8. ⁸ Uniting Technology and Sustainability, Accenture, Uniting Technology and Sustainability | Accenture https://www.accenture.com/content/dam/accenture/final/a-com-migration/pdf/pdf-177/accenture-tech-sustainability-uniting-sustainability-and-technology.pdf#zoom=40

9. ⁹ Computing on the Edge Can Be Transformative – But Look Before You Leap, Forbes, March 15, 2021, https://www.forbes.com/sites/forbestechcouncil/2021/03/15/computing-on-the-edge-can-be-transformative—but-look-before-you-leap/?sh=64836186f3a5

10. ¹⁰ LF Edge’s State of the Edge 2021 Report Predicts Global Edge Computing Infrastructure Market to be Worth Up to $800 Billion by 2028, the Linux Foundation, March 2021, https://www.linuxfoundation.org/press/press-release/lf-edges-state-of-the-edge-2021-report-predicts-global-edge-computing-infrastructure-market-to-be-worth-up-to-800-billion-by-2028 

The post Edge Computing in Europe: A Key Driver of Business Innovation  appeared first on The European Business Review.

As Europe sets out to deliver on its second digital agenda, companies will need to equip themselves with a modern network that can enable next-generation technology solutions. However, our research shows that mere investment is not enough. Enterprises need to value modern network as the foundation of digital transformation, sync network strategy to C-Suite agenda, close the talent gap through creation vs. only recruiting, and most importantly refocus budget in favour of new modern networks instead of repairing legacy ones.

Europe is continually at the forefront of advancing the region’s digital infrastructure and accelerating the digital transformation of businesses. The first 10-year digital agenda for Europe (2010-2020) identified for the first time the key enabling role of information and communication technologies (ICTs) in reaching the region’s goals and setting out specific provisions to ensure a fair, open, and secure digital environment. Now, Europe is rolling out the second digital agenda (2020-30), setting itself challenging targets in various digital domains for 2030. It calls for advancements in areas such as quantum computing, blockchain, human-centric and trustworthy AI, semiconductors, digital sovereignty, cybersecurity, gigabit connectivity, 5G, and 6G. These are critical for the region’s digital transformation and to maintain its global competitiveness.

Modern connectivity is the foundation on which the realisation of this vision will rest. Companies across the globe acknowledge that a modern network is a prerequisite for transforming the business, enabling better outcomes for companies’ workforce, customers and partners. Our latest Accenture research “Modern networks: How to fast track competitive advantage in the digital future”¹ shows that leading global companies are making sizeable investments in networks. European companies are spending close to 24% of their total IT budget to bolster network connectivity. Looking into the future, 73% plan to grow network investments by 6% or more during 2022-25, as compared to 46% during 2021-22. This aligns with the vision of Europe’s second digital agenda.

However, our research shows that these investments do not translate into improved network performance; more than half of European enterprise executives continue to face issues with their legacy networks, with a significant impact on the company. These include security breaches, high cost of deployment, inconsistent availability and low capacity. The impact of these network issues cascades across all business domains of an enterprise, leading to significant risk exposure.

Our analysis in Figure 1 shows that even companies investing a higher percentage of their ICT budget in network are still exposed to significant business risks attributable to network deficiencies.

About two-thirds of European enterprises in our study are exposed to risks in six areas: technology effectiveness, business efficiency, customer experience, workforce, trust and privacy, and sustainability. This means that network issues are not only obstacles to achieving business goals; they pose a significant risk in multiple domains.

Interviews with experts in European enterprises also confirm these challenges, which will only increase as businesses’ network requirements grow in the future. One of the executives said, “We’re in an urgent moment right now. We have a lot of aging network and wireless access points, and the need for bandwidth is going to be increasing for us within the next year. So, are we going to be able to meet that demand and is that going to have a negative impact on the service?”

So the question now is: If network spending is increasing, why is the network-associated company risk factor still so high?

The answer is that a majority of this investment goes towards the maintenance of legacy networks. Evaluation of the maintenance and modernisation budget for the last four years shows that while the share of investment in network maintenance activities is on the decline, the pace of change is too slow, and maintenance still accounts for almost half of the overall network budget of companies.

So, simply investing more is not the answer. Companies must refocus the budget in favour of new modern networks instead of repairing old, legacy ones. A good example of how a company benefited from flipping the budget in favour of new, modern networks instead of repairing old, legacy ones is that of British Sugar.

The company wanted to implement Industry 4.0 for better production efficiency. However, it soon realised it was not possible with ad-hoc legacy network fixes. Thus, in 2022, it decided to switch to a private mobile network, spanning multiple factory sites across a large geographical area. Wi-Fi could not be used as it presents challenges in an environment with a lot of metal: metal reflects, refracts or even absorbs wi-fi signals due to their frequency. The private mobile network not only helped the company mitigate Wi-Fi challenges but also provided other advantages such as:

• Dedicated and secure 4G connectivity for all British Sugar manufacturing facilities as part of a major ‘‘factories of the future’’ upgrade. Flexible and controlled mobile broadband connectivity in a complex factory setting with lots of metal.
• Facilitation of next-generation manufacturing techniques at its sites, including automated production lines, enhanced worker safety solutions, mobile asset tracking, autonomous guided vehicles and connected drones that can monitor tall structures such as silos and lime kilns remotely. This measures areas aimed at increasing productivity, boosting efficiency and improving health and safety on site.
• A future-ready network that is quickly upgradable to 5G. This will help British Sugar benefit from the higher speeds and lower latency of 5G while fully embracing the Industry 4.0 ecosystem, with more than 15 different digital manufacturing use cases in plan.

This approach of having a unified network strategy and dedicated investments in a modern network will result in several benefits, creating a significant impact across the enterprise.

First, reallocating budgets towards network modernisation reduces capital and legacy network operational costs. Continuing to invest in the maintenance of legacy networks, on the other hand, leads to a downward spiral of technology debt, limiting innovation and causing ad-hoc issues and security holes, thereby escalating overall legacy network costs. Investing in modernisation results in high-performing networks, which eventually reduces the resources tied up in managing tactical issues arising from legacy networks.

Our econometric analysis indicates that companies that shift spending away from maintenance of legacy systems see a decrease in their total annual network spend over the long run. Our modelling shows that a 30 percentage-point shift in spending away from the maintenance of legacy systems towards network modernisation over three years can help a typical company reduce its annual network spend by up to 21%. The specific reduction varies by industry, ranging from 12% to 21%, depending on the dynamics of capital and operational costs for each vertical industry.

Secondly, the right network modernisation investments can drive innovation-led growth in the future. We found that companies that shifted their network spend towards modernisation by 50 or more percentage points are 2.4 times more likely to be top industry spenders on innovation than their peers — the top 25% in an industry in technological innovation spend-to-revenues ratio. In essence, companies that shift towards modernisation are more likely to be the top innovators amongst their industry peers, assuming a top industry spender in innovation is a proxy for a top innovator.

While flipping the budget, enterprises need to align their strategy, technology and talent imperatives as well to transform their network from a position of tech debt to competitive advantage:

1. Sync the network strategy with the C-suite agenda: The first step in modern network planning is to align a company’s network strategy with the overall vision of the business; network can be the anchor that helps companies achieve their business objectives.
2. Create an elastic, configurable and consumable cloud-first network infrastructure: Software-defined, cloud-based architecture is the foundation of a modern network, as it enables flexibility and agility in network infrastructure and helps manage connectivity across multiple clouds. Automation and security are built on top of this cloud-first network infrastructure with unique benefits.
3. Build future network talent and operational model enablers: For the full value of network transformation to be accomplished, modern network technical enablers should be closely intertwined with appropriate operating models and process transformation. It also requires a workforce equipped with modern network engineering skills either through training or by working with partners.

While the challenges surrounding network transformation may appear formidable, companies can progress on the network maturity journey by shifting budgets towards network modernisation and focusing on these three imperatives. A modern network will help businesses forge a path that will not only reduce capital and operational costs but also improve business resiliency and help them drive innovation-led growth in the future.

The authors thank Ramani Moses and Taniya Chandra from Accenture Research for their contributions to this article.

About the Authors

Jefferson Wang is the lead author of the best-selling book, “The Future Home in the 5G Era.” He is Accenture’s Cloud First Global Technology Convergence Lead, focused on the harmonization of modern networks, edge, cloud, data, AI and security to create new user experiences and reinvent the back office. Jefferson is a regular speaker at Mobile World Congress (MWC) and Consumer Electronics Show (CES) and has appeared on CNN, CBS, NBC, ABC and Mobile World Live TV. His perspectives are featured in publications, including The Wall Street Journal, USA Today, Forbes, Fortune, New York Times and Washington Post.

Michele Marrone is Accenture’s market lead for the Europe Cloud First Network organization which equips our cross-industry clients with next-generation products and services, including technologies like 5G, software-defined networking (SDN), network function virtualization (NFV), Edge Computing and Media Cloud—all which key enablers of the hyperscale revolution. He is part of the Europe Executive Committee for Communications, Media & Technology and ICEG Executive Committee. He was also in charge of the Mobility Managed Services Unit start-up within the Accenture New Business organization.

In her role as research lead for the communications and media industry, Swati Vyas drives research and thought leadership across a number of topics in the industry. Having spent over 14 years in research, Swati has skills in thought leadership, next generation networks research, communications and media industry research, technology research, financial analysis and econometric value analysis. She has co-authored various Accenture thought leadership pieces. Two of her recent publications are “Modern networks: How to fast track competitive advantage” and “Start at the center: network-led transformation for growth.”

Reference:

1. Modern networks: How to fast track competitive advantage, 2023, Accenture, https://www.accenture.com/ch-en/insights/cloud/modern-network
   

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By Jean-Marc Ollagnier, Svenja Falk, and Surya Mukherjee

Increasing leaders’ technology quotient is critical for European companies to adapt to a business landscape that is rapidly evolving, driven by technological advances. Embracing a higher technology quotient can help European companies unlock fresh opportunities for adaptability in the face of future challenges and pave a new and dynamic path towards a digital era.

In Brief

• To maintain global competitiveness, European companies must master adopting and absorbing technology by building strong digital leadership.
• Embracing a technology-driven business transformation can help European companies potentially generate an additional revenue of US$3.2 trillion by the end of 2024.
• Managements with adequate technology quotient are likely to be more open to technology implementation.

There is no shortage of innovation and business in Europe today, as exemplified by pioneering companies such as Mercedes Benz in the automotive sector, Airbus in aerospace, AstraZeneca in pharmaceuticals, and L’Oréal in cosmetics. To maintain global competitiveness, European companies must master adopting and absorbing technology by building strong digital leadership, finds Accenture’s latest report, “Innovate or Fade” .

European companies are thriving in productivity enhancement but falling behind their US peers in generating profitable growth. From 2018 to 2022, European companies saw a 10 per cent five-year average margin, placing them ahead of Asia Pacific’s 7.5 per cent but behind North America at 12.5 per cent. Accenture’s January 2023 report titled “Accelerating Europe’s Path to Reinvention” posited that the key factor weighing down the growth prospects of average European businesses was inadequate adoption of technology, also called the “tech deficit”. Fewer than half of European companies stand above the global average for technology penetration and mastery, two measures of technological maturity based on self-assessments in Accenture’s Business Strengths survey.

Accenture’s latest report, “Innovate or Fade” , builds upon that finding and confirms that the tech deficit remains entrenched, risking a return to relatively weak economic growth in the long term. To investigate how best to address Europe’s tech deficit, Accenture assessed where companies are strong and where they are falling short with a survey of 1,000 European executives, the scanning of more than 100,000 patents and 10 in-depth interviews with key decision-makers and thought leaders in the industry (see figure 1).

European companies need to step up investments in technology adoption, R&D, and patent creation

Europe emerges as a leader in several areas such as pervasive skilling programmes, green technology adoption, and open ecosystems, but lags behind in tech investments, R&D investments, and patent creation. These critical areas of lag create a cumulative deficit that is dragging down Europe’s future competitiveness.

The stakes are high. While Europe’s revenue growth forecasts are improving today, closing the technology deficit and embracing a technology-driven business transformation can help European companies potentially generate an additional revenue of US$3.2 trillion by the end of 2024. Bridging the gap is also essential for sustaining and enhancing Europe’s commendable track record in sustainability and inclusion. The establishment of new revenue streams driven by technology would be crucial for companies to fund transition to a sustainable energy system. But any solution designed for Europe must account for Europe’s unique circumstances, addressing workforce decline, high energy costs, regional harmonisation, and aspiration for carbon neutrality.

It’s not just the technology sector that would benefit from this. Technology is central to the future of every industry: in automotive to create mobility services of the future, in oil and gas to accelerate the transition to renewables, in consumer goods and retail to improve consumer experience. Also, to build the industry of the future, which many governments across Europe and the European Commission are fostering, mastering technology such as artificial intelligence (AI), next-generation networks, edge computing, and digital twins will be critical.

Today, all strategies lead to more technology.

The widespread influence of technology across all sectors globally demands that Europe continue to focus on them or risk compromising its traditional strongholds in industries such as chemicals, materials, and fashion. This is accelerated by technologies that cut across multiple domains, such as AI, quantum computing, and cloud.

For example, despite Europe’s current leadership position in the automotive industry, there is a risk of its falling behind when it comes to autonomous vehicles. A key contributing factor is Europe lagging behind in the development and implementation of software technology that is critical for autonomous vehicles, such as AI-based neural networks and deep-learning technology.

The role of decision-makers in creating a strong digital core that enables reinvention

Increasing investment in technology helps, but the wider and more contentious issue is where to invest and how. Exploring new revenue models, building a solid digital core that supports new technologies, R&D, tweaking strategy to embrace new technologies, all play a role. European companies must aim for Total Enterprise Reinvention, which sets new performance frontiers (goals) for companies and, in most cases, the industries in which they operate. Centred around a strong digital core, it helps drive growth and optimise operations.

Take generative AI for instance. Companies that are best positioned to take advantage of this technology are those that already have a strong digital core; otherwise, they will need to leapfrog.

A great way to begin this transformation is to enhance leadership’s tech knowledge, a key first step that sets the stage for other moves like more tech investment, fresh revenue models, a strong digital base, adapting strategies, higher R&D spending, and tech patents commitment.

Decision-makers at the highest level – the board – need to have enough knowledge about technology to gauge, analyse and envision how it can propel the organisation – what we call “technology quotient” or TQ. Managements with adequate TQ are likely to be more open to technology implementation, a trait essential in making investment decisions.

European businesses thriving due to their strategic reliance on technology in recent years have some lessons to offer. One example is IKEA, the Swedish-based global leader in the furniture and home décor industry. A management open to technology steered the company to focus on online retail and e-commerce through a user-friendly website for global customers. The integration of augmented reality (AR) and virtual reality (VR) allows customers to visualise products before purchase, enhancing satisfaction. Additionally, investments in supply chain optimisation streamlined operations, reduced costs, and improved efficiency.

Conversely, companies whose board and management fail to adapt run the risk of extinction. Consider the prominent Europe-based music retailer HMV. It was once a global giant but delayed technology investment meant that it could not compete with the likes of digital downloads and streaming services such as iTunes and Spotify.

IT skills of technology workforce vs. the board

Accenture’s research shows that European companies, on average, tend to have less tech expertise at the board level. Only 14 per cent of board members in major European organisations possess the expertise or background necessary to influence technology-driven business strategies, in contrast to nearly 22 per cent in North America. Similar trends emerge when analysing the experience and expertise of CEOs. Only 11 per cent of European CEOs possess technology experience, compared to 17 per cent of North American CEOs.

On the other hand, European leaders are not as concerned as APAC and the United States about the availability of technology skills among workers within the region. Only 43 per cent expressed concerns, compared to 56 per cent in APAC and 58 per cent in the United States. This indicates that technology skills among the workforce are perhaps less of a concern than those of the board. Companies simply need to tap into their technology-trained talent pool and elevate technology-experienced personnel to have a voice on the board.

The Netherlands leads with the most technologically adept boards at 19.1 per cent, followed closely by Ireland at 18.9 per cent, and the United Kingdom at 18.8 per cent.

Lower TQ can have several long-lasting effects, including a cautious approach to embracing emerging technologies. European companies lack sufficient digital expertise at the executive level, which influences their strategic direction.

A top executive at a European pharma company told us, “[The US] … is where new technologies and new ideas are coming from and then slowly are jumping onto Europe. We’re mostly fast followers and not champions.”

This is clear when looking at technology investment data, where US companies consistently out-invest European companies in foundational technologies such as cloud, big data analytics, and AI. Another indicator is in patents data, a good sign of investment in the future, which also shows that only 60 per cent of the European companies that are likely to file AI patents actually do, compared to 77 per cent of US-based companies and 89 per cent of APAC companies. However, there is good news as well. Europe is accelerating patents in generative AI, with the fastest-growing patent filings (+53 per cent increase between 2016 and 2021), driven by industries such as high tech, software, life sciences, industrial, and mobility. The strong focus on industrial and life sciences (highest share compared to the other regions) is an indicator of Europe’s strength in applying and integrating these new technologies.

How to increase the technology quotient at the top

To reduce the technology deficit, European businesses need to do multiple things, with strong technology leadership and the mindset and expertise to drive innovation. This is not a call for over-representation of deep-tech experts on boards. What is required is an increase in the TQ of the board, which enables organisations to make informed decisions, create value from technology, and remain at the forefront of innovation. It is crucial for enterprises that technology skills are given the required importance, extending beyond IT departments into all functions. How can they go about increasing TQ? There are five things we found leading European companies practising.

• Institutionalise tech advisory in the form of a tech panel or committee
  A tech panel or committee with control and responsibility to ensure that the board is up to date on the latest trends in technology, at the same time ensuring that the use of technology follows the local regulatory framework and privacy laws, could help bridge the tech gap. It is important that the panel be resourceful, accessible to all board members, and diverse in terms of access to a range of perspectives on technology. German multinational software company SAP SE has a 10-member tech panel, called “The Technology and Strategy Committee”, which guides the executive board in setting the company’s strategic direction on matters related to technology development, software and solutions, and product strategy.
• Educate the board on technology
  The executive team and boards can take up technology training to develop a culture of continuous learning and to highlight the importance of technology in the organisation. Additionally, the training will enable the board to understand the risks and benefits of technologies that inspire employees to prioritise their own technology skill development and foster a learning culture across the organisation. Institutes like the International Institute for Management Development, based in Switzerland, provide targeted courses like “Digital Transformation for Boards”. This two-day course equips participants with the knowledge to use technology effectively in achieving their business objectives.
• Set measurable learning goals for all employees
  By setting measurable learning goals and KPIs for all employees, including board members, and through continuous learning initiatives, the organisation can enhance the skill development process. For instance, Accenture offers continuous learning modules to our extensive employee base, using insights from behavioural science and gamification models to engage and motivate learners.
• Increase gender diversity in boards
  As per Accenture’s report “Innovate or Fade”, European businesses currently have 18 per cent women with technology expertise or backgrounds on their boards, whereas North America boasts 26 per cent. Achieving greater gender diversity on boards can help bridge the technology gap. In 2018, IKEA recruited Barbara Martin Coppola as the chief digital officer to lead its digital transformation drive. At the time, she had over 20 years of experience in the technology industry, working for companies such as Samsung, Google, and Texas Instruments. During her tenure with IKEA until 2022, IKEA stores transformed to fulfilment centres. She was instrumental in tripling the company’s e-commerce levels in three years.
• Enable networking among board members interested in technology Networking with other board members who are interested in technology can help board members learn about the latest trends in technology and get advice from other board members who have experience in this area.

Conclusion

The rapidly evolving business landscape calls for European companies and their leaders to prepare for the future and comprehend the potential of emerging technologies. Increasing the technology quotient of leaders is a critical step in that direction. It helps unlock fresh opportunities for adaptability in the face of future challenges. Embracing a higher technology quotient also encourages boards to foster technology inclusivity, which, combined with their valuable expertise and insights, could pave a new and dynamic path towards a digital era.
Companies with the right tech leadership on boards then need to follow a multi-pronged approach involving investment in enterprise-wide technology dissemination, digitisation of operations and supply chains, development of innovative digital services and business models, reconsideration of data strategies, and adoption of generative AI to build new growth. These actions can help create new opportunities, thereby positioning European companies as market leaders in key industries.

About the Authors

Jean-Marc Ollagnier is the Chief Executive Officer of Accenture for Europe, Middle East and Africa, and a member of Accenture’s global management committee.

Svenja Falk is Managing Director and leads Accenture Research, Europe. She is also deputy chairwoman on the Council on Digital Sovereignty in Germany and honorary professor at the Justus Liebig University Giessen.

Surya Mukherjee is a Senior Principal at Accenture and Head of Technology Research in Europe. Surya explores the transformative impact of technologies on industries, companies, and brands.

References

1. Accenture, “Innovate or Fade”, 3 July 2023
2. Source: Accenture, Business Strengths Survey, 2022
   (Oct-Nov). Europe respondents total n=1450. Denmark,
   Finland, Germany, Italy, Netherlands, Norway, Spain,
   Sweden, Switzerland, UK. China respondents n= 250, US n=300
3. Accenture, “Innovate or Fade”, 3 July 2023
4. Harvard Business Review, “Inside IKEA’s Digital Transformation”, 4 June 2021
5. CNN Business, “What’s behind collapse of veteran record store HMV?”, 16 January 2013
6. WirschaftsWoche, “4 Grafiken zeigen, warum Europa den Anschluss an die USA und China verliert”, 3 August 2023
7. SAP, “SAP SE Corporate Governance: Technology and Strategy Committee”
8. IMD, “Digital Transformation for Boards”
9. CNBC, “’Amazon is a threat’ but Ikea’s digital chief says she has a plan”, 21 March 2019

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Leaps in quantum technology and hybrid approaches are shortening the time to Q-Day, when adversaries can use quantum computing to break cryptography and threaten data safety for all organizations. It’s hard to predict exactly when this will happen. But given the pace of the development of quantum computing, experts agree that companies need to start implementing a post-quantum defense now.

KEY TAKEAWAYS

Quantum computers will crack encryption – but when?

Today’s hyperconnected world of trade and finance stands on the trust that digital information is protected and can be stored and exchanged safely across the globe. However, even as cyber-attacks become more sophisticated and the security landscape more difficult to navigate, a new and more foreboding threat is on the horizon: quantum computers that have the potential to break cryptography.

Quantum computers will bring many benefits but also pose a serious threat to today’s digital security due to their ability to factor numbers into primes much faster than classical computers.

How immediate is this threat? On January 4, 2023, a group of Chinese scientists claimed that RSA encryption (the public-key cryptosystem widely used for secure data transmission – see inset box “Math problems affecting the real world to know more) could be broken using a quantum computer with only 372 qubits¹, a task that experts estimate classical computers would take 300 trillion years. After 48 hours of tension, when companies felt vulnerable and unprotected, other international cryptographers discovered faults in the specifics of the math. Despite the failure of this approach, it highlighted both the international race as well as clever new ways to use early-stage quantum computers for decryption and emphasizes the urgency to get ready.

Math problems affecting the real world

Two proven algorithms – Shor’s and Grover’s – provide the mathematical foundations for quantum computers’ threat to current encryption. While Shor’s algorithm could be used to target asymmetric key cryptography, Grover’s could impact symmetric key cryptography (see figure 1). Both algorithms were developed in the 1990s when quantum computers could only be envisioned in pen and paper. Only recently have quantum machines become a reality, posing a real threat to businesses.

Public-key encryption schemes

RSA-based encryption makes it possible to exchange data via the cloud, deliver digital products and services and communicate with customers.
ECC-based encryption serves to secure the communication on the Internet of Things.

Year 2030: An estimate for Q-Day

The error-prone quantum computers available today do not have the scale to break encryption, but this technology is advancing so fast that things are expected to change soon.

An estimate from experts in post-quantum cryptography (PQC), led by mathematician Professor Michele Mosca, suggested it would take an average of 15 years before quantum computers break the security.² The calculation first emerged in 2015, so the estimate hits the calendar in 2030.

In Professor Mosca’s³ useful framework to help organizations determine a plan, the urgency to initiate the migration depends on a company’s evaluation of three simple parameters:

1. is shelf-life time: The number of years business data must be protected.
2. is migration time: The number of years needed to safely migrate a business security system.
3. is threat timeline: The number of years until large-scale quantum computers become available.

This simple theorem suggests that if A+B > C, then businesses will be at risk.

The timeline for C is, therefore, not set in stone: 2030 could be too early or too late depending on how fast quantum machines evolve.

Even if the threat seems unpredictable, businesses need to get ready now. Not only because we see quantum getting closer, but also because there is the real danger that someone can store encrypted data today and then decrypt it when such a quantum computer becomes available. In fact, the uncertainty surrounding the precise date makes it hard for businesses to discern the right time to act.

How soon do we need to worry? Not wasting any time, the Cloud Security Alliance⁴ took 2030 as a valid date for Q-Day and set a countdown clock. At of the time of publication, businesses in the cloud have six years, 260 days, 16 hours and 30 minutes to migrate to quantum-safe security.

Year 2024: Post-quantum cryptographic standards

In all this ambiguity, only one thing is certain – new crypto algorithms are needed to protect our systems against the quantum threat.

Professor Mosca’s theorem published in 2015 formed part of the justification for the US National Institute of Standards and Technology’s (NIST) to begin identifying PQC algorithms that could protect data following the advent of quantum computers. After six years of careful consideration and several rounds of competition, the NIST⁵ recently announced four candidate algorithms for standardization (see figure 2).

Between now and 2024, NIST will continue to assess technical considerations for the four selected PQC algorithms while identifying alternative options in case advances in cryptanalysis threaten their long-term viability. Lattice-based cryptography is a favorite because no one has developed a quantum algorithm that breaks these crypto primitives – at least not yet.

What’s the case for European standards?

Although the NIST is setting US standards, its actions are of worldwide concern. In fact, many global institutions are deeply involved in and contributing to NIST standardization work. In the EU, the European Union Agency for Cybersecurity (ENISA) has developed guidelines and recommendations fully aligned with NIST. Still, the question remains whether the EU will form one block or there might be country-specific differences. For the moment, certain government agencies – e.g., Germany’s Federal Office for Information Security (BSI) and the National Cybersecurity Agency of France (ANSSI) – stated they will support NIST-selected schemes but might extend the list of standardized algorithms with certain other algorithms.6 Outside of the EU, the UK’s National Cyber Security Centre (NCSC) is following the NIST’s standardization work closely. Its guidance for quantum-safe algorithms will follow the outcome of the NIST process, recommending specific algorithms for representative use cases.⁷

Regulatory compliance against national, supranational and industry-specific security standards will significantly influence the right timeline for each European business. Nevertheless, some organizations may wait (either deliberately or inadvertently) until they are obliged to act. The ETSI Quantum-Safe Cryptography specifications and the EU’s Cybersecurity and Cyber Resilience Acts will drive enterprise adoption of post-quantum security.

Now: Build an action plan

Even if fully published standards will not be available until 2024, companies should not wait until then to start on their PQC roadmap (see figure 3). Now that the initial recommendations have been released, there are common practices for businesses to follow, purchasing decisions to be made, and expertise to be developed to avoid future pain.

What to do then? First, build a well-considered strategy that appreciates the specifics of your enterprise, risks and stakeholders. Second, pragmatically and efficiently discover each instance of vulnerable encryption to be updated both in your enterprise and all the related ecosystems and supply chains it interacts with. Third, decide on a new crypto architecture. Fourth, begin the multi-year process of testing, implementing, and promulgating new quantum-resistant security throughout the extended enterprise.

A strong and proven strategy helps businesses find the delicate balance that’s needed between moving ahead and taking care to avoid introducing new risks. PQC deployments should initially run in parallel with current encryption methods, using post-quantum technology to add security on top of existing crypto systems (not dismantling them) where timing and resources permit.

In the new paradigm that is urgently needed to address the quantum security challenge, crypto agility presents itself as the best alternative. Setting a course for crypto agility will allow businesses to easily change the encryption method in case advances in cryptoanalysis threaten the viability of the adopted system as stated in Accenture’s latest piece, The race to crypto-agility.⁸

Leading European organizations are not waiting until 2024

Large European organizations across every industry are working on their post-quantum security agenda, not waiting until the release of 2024 standards to begin implementing solutions.

Financial institutions are first in line, since RSA-2048 and higher are standards in the conventional banking system. The Financial Services Information Sharing and Analysis Center’s (FS-ISAC) post-quantum cryptography working group is collaborating with global member institutions, including major European banks, to start implementing quantum-resistant measures as soon as possible.⁹ According to the World Economic Forum, Spain’s largest bank has started implementing cryptographic agility by developing “cryptography-as-a-service” to enable the bank to move services over to post-quantum cryptography.¹⁰

National governments are taking this threat seriously. The US National Security Agency (NSA) has already set itself a deadline of 2035, and has specified guidance and timelines.¹¹ However, Europe is still behind in setting the deadline for this critical infrastructure’s migration. The experimentation phase, however, continues. The French Embassy in the United States, for instance, recently transmitted its first encrypted diplomatic message to Paris using post-quantum cryptography.12

The high-tech industry is also moving fast, since some devices that are produced today will potentially still be operating 10 years from now.

The same logic applies to the automotive industry. A connected vehicle lifetime of roughly 10 years means that a car developed today will likely still be on the road after 2032. One leading manufacturer of automotive components¹² started revisiting the security of its vehicle component business almost a year ago, experimenting with PQC technology in various fields such as in-vehicle payment service, vehicle to everything (V2X) and an over-the-air (OTA) wireless solution.

The list of private and public organizations that have begun working with PQC is growing. Some industries such as health, financial services, communications, high-tech, government and automotive are advancing faster, but every single industry needs an action plan. As quantum machines continue to evolve, it is important to understand how they will impact cybersecurity, and when the threat could potentially materialize, based on each industry’s risk profile.

About the Authors

Tom Patterson is Managing Director for Emerging Technology Security, Accenture, and the global lead for quantum and space security. He oversees the development of quantum security assets and teams that drive proven customized client solutions to defend against the coming quantum threats.

Laura Converso is a Thought Leadership Senior Principal for Emerging Technologies at Accenture Research. She focuses on technology incubation and innovation projects and leads the quantum computing research agenda.

References

1. Factoring integers with sublinear resources on a superconducting quantum processor https://arxiv.org/pdf/2212.12372.pdf
2. M. Mosca, “Cybersecurity in an Era with Quantum Computers: Will We Be Ready?,” IEEE Security & Privacy, vol. 16, no. 5, pp. 38-41, September/October 2018 https://ieeexplore.ieee.org/document/8490169
3. Ibid https://ieeexplore.ieee.org/document/8490169
4. Cloud Security Alliance, Working Group: Quantum-safe Security https://cloudsecurityalliance.org/research/working-groups/quantum-safe-security/
5. Computer Security Resource Center, PQC Standardization Process: Announcing Four Candidates to be Standardized, Plus Fourth Round Candidates, July 5, 2022 https://csrc.nist.gov/News/2022/pqc-candidates-to-be-standardized-and-round-4
6. Robert Huntley, Post-Quantum Cryptography: Are You Ready?, EE Times, Europe, April 5, 2023 https://www.eetimes.eu/post-quantum-cryptography-are-you-ready/
7. National Cyber Security Centre, Preparing for Quantum-Safe Cryptography, November 11, 2020 https://www.ncsc.gov.uk/whitepaper/preparing-for-quantum-safe-cryptography
8. https://www.accenture.com/_acnmedia/PDF-145/Accenture-Crypto-Agility-POV-v7-0#:~:text=race%20for%20crypto%2Dagility&text=That%20means%20increasing%20flexibility%2C%20acquiring,for%20the%20entire%20supply%20chain.
9. FS-ISAC, Preparing for a Post-Quantum World by Managing Cryptographic Risk, March 2023 https://www.fsisac.com/hubfs/Knowledge/PQC/PreparingForAPostQuantumWorldByManagingCryptographicRisk.pdf?hsLang=en
10. World Economic Forum, Transitioning to a Quantum-Secure Economy, September 2022 https://www3.weforum.org/docs/WEF_Transitioning to_a_Quantum_Secure_Economy_2022.pdf
11. Dan O’Shea, Quantum security experts are in step with NSA’s PQC timeline, Inside Quantum Technology, September 28, 2022 https://www.insidequantumtechnology.com/news-archive/quantum-security-experts-are-in-step-with-nsas-pqc-timeline/
12. Ministère de l’Europe et des Affaires Étrangère, France transmits its first post-quantum cryptographic diplomatic message, December 1, 2022 https://www.diplomatie.gouv.fr/en/the-ministry-and-its-network/news/2022/article/france-transmits-its-first-post-quantum-cryptographic-diplomatic-message-1-dec
13. Aju Business Daily, LG Electronics uses post-quantum cryptography technology for vehicle cyber security, October 5, 2022 https://www.ajudaily.com/view/20221005131500397

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Companies’ efforts to become more sustainable can often be driven by regulation or government incentives. We propose a different approach – one that harnesses digital technologies to drive growth.

The first question CEOs should be asking about their sustainability efforts is not “Are we compliant?” but rather, “What value are we creating?”

Consider: Energy and sustainability policies around the world have long been a mix of regulation and stimulation. Compliance is critically important. And recent pandemic- related increases in funding¹ offer an additional push for top executives to strive for increased sustainability. But do companies gain market share, revenue growth, or increased profits because they’ve taken actions in the interests of compliance, tax breaks, or subsidies?  Not nearly to the extent they could. When compliance and/or incentives are the primary drivers for “green work”, it’s easy to miss opportunities to strengthen performance.

We think that executives should consider sustainability through a different lens. Specifically, we propose that they invest in sustainability as a means to expand, move into new markets, or even create new markets. Our recent research, which included a global, multi-dimensional study of more than 4050 companies (and incorporated random forest machine learning) bears out the potential of this approach. We studied four explicit time periods: 2016 – 2020; January 2020 – June 2020; July 2020 – December 2020; and 2021 (expected). For more detail, please see the full report².The critical caveat – and the key to succeeding – is blending the adoption of advanced digital technologies with sustainable growth interests. In this way, technology becomes the tool that both enables and augments sustainability.

Many companies – regardless of regulatory requirements and incentives – see the value in becoming more sustainable businesses. At the same time, most companies are investing in digital technologies. It’s the linking of those two streams, an approach we call a “twin transformation”³, that makes the difference.  Specifically, we found that companies that pursue sustainability as a digital growth path are more than 2.5 times likely to be among tomorrow’s leading organizations. (Our criteria for a leading organization rests on an ability to restore and sustain positive operating growth as COVID effects continue; detail can be found here.)⁴ Twin transformers, regardless of their industry, expect to be among those posting profitable growth by the end of 2021, even as the effects of the pandemic persist (and as some industries thrive and others struggle in its continuing wake).

Interestingly, twin transformers were not necessarily companies leading on digital adoption or on the sustainability front. In Europe, for example, just 22% of the companies that were leading in either digital or sustainability were also Twin Transformers. We found similar percentages in North America. In the Asia Pacific region, we found more: 34% of those leading in digital or sustainability were also Twin Transformers. (Our study focused on large companies; there are more twin transformers among smaller digital natives.)

What does it take to combine a company’s digital and sustainable transformations, with innovation and value creation the objective? Based on our survey, a series of follow-up interviews, and our own client experience, we have identified five crucial activities.

Five activities frame twin transformation

Twin transformers differentiate beginning with the way they set their direction and carrying through to the ways in which they engage with their workforce.

1. Setting direction

Twin transformers do not layer sustainability efforts or digital adoption onto existing busines models (though prior to starting their twin transformation journey, they may have done so). Instead, they integrate scenario thinking into their strategy development process with the explicit purpose of identifying high potential models that will serve combined growth and sustainability interests.

Twin Transformers also explore ecosystem plays as a matter of course, seeking opportunities for faster, further scaling of their busines models, as well as deeper sustainability impact. In this way, they conceive of ways to gain traction with new strategies as they shift gears and pull away from the old.

Following through, they learn through incubator programs that convene an ecosystem of partners. These pilots revise and test their business models for viability and impact. A majority of twin transformers in our study (61%) already generate more than 10% of their revenues through ecosystem plays, and nearly 80% expect to do so within three years. 

Schneider Electric⁵ offers an example. This global company based in France, convened with the New Energy Opportunities (NEO) Network⁶ to explore growth models in just this way. The NEO network is a global community and online market platform of more than 300 corporate renewable energy purchasers and providers, supported by leading market analytics that serve to match supply with demand. Schneider teamed up with Walmart to use this network to support Walmart’s “Project Gigaton,”⁷ which aims to avoid a gigaton of CO2 emissions that would otherwise have been created through Walmart’s global value chain by 2030.

2. Combining resources

Twin transformers’ resource allocation explicitly reflects the understanding that sustainability and technology are not separate priorities.  Instead, twin transformers direct innovation investment to initiatives that bring together sustainability impact and the power of technology. Some do so by earmarking a specific share of R&D investment to that combination. Others set up dedicated innovation entities whose mandate is to develop, test, and scale business ideas that deliver sustainability impact through technology. All twin transformers convene diverse innovation teams that bring together technology and sustainability expertise.

With such blended priorities, Christian Hansen⁸, a bio-engineering company, created SweetyR Y-1,the first patented probiotic culture that can reduce added sugar in yogurt; the invention won the World Innovation Award⁹ for best new dairy ingredient at the 2019 Global Dairy Congress in Lisbon. In 2020, 82% of the company’s revenues were associated with activities devoted to enabling sustainable agricultural practices, reducing food waste, and improving customer health. And, as part of its 2025 strategy (ending with the close of the 2024/2025 fiscal year), Christian Hansen will invest heavily in R&D to innovate natural and microbial nutrition solutions supported by digital technologies such as AI, machine learning, digital twins, and automation.

3. Combining financial and non-financial KPIs to create organization-wide ownership.

Twin transformers identify and assign key performance indicators (KPIs) that go beyond financial results; often, these are linked to executive compensation. As a result, managers have clear structural support for decisions that support blended digital and sustainability goals. These KPIs might include progress on emissions reduction, share of products with positive societal impact, or share of resources procured from sustainable sources.

To gain a big-picture view of impact beyond financials, twin transformers also measure progress on factors such as environmental impact, employee wellbeing, and consumer experience. Many have developed custom methodologies and tools to do so, complementing traditional ESG metrics with measurements of the business impact of sustainable practices.

Kering, the French luxury goods company, measures and quantifies its environmental impact through an environmental profit and loss¹⁰ (EP&L) account. The EP&L has helped the company shift to a sustainable business model by making environmental impacts visible, quantifiable, and comparable. Through a digital platform and tool, the company also provides public access to the open data behind the EP&L. Kering has also convened hackathons with developers, tech experts, and sustainability specialists to create apps and digital solutions aimed at reducing the impact of the fashion industry on the environment.

4. Aligning partners for sustainable product lifecycles and improved traceability

Twin transformers proactively monitor the other companies in their value chains, often screening them against sustainability factors. To raise their value chain’s overall sustainability, they also collaborate with suppliers, for example by offering training in sustainable practices. Additionally, many deploy blockchain technology and digital sourcing platforms in collaboration with partners to improve the resource and product traceability. Doing so builds the foundation for new, circular business models. These activities also build trust with consumers, by helping them increase their knowledge of what goes into the goods they buy.

L’Oréal, for instance, engages in a traceability program focused on palm oil (a common cosmetics ingredient), in partnership with its suppliers. All of the palm oil the company uses meets the high standards set by the Roundtable on Sustainable Palm Oil.¹¹ L’Oréal has also designed a tool to evaluate sustainability progress, measuring improvements in its packaging, the footprint of its formulas, ingredient sourcing, and the social benefits of its products.

Similarly, Deutsche Post DHL Group developed a “GoGreen Carbon Dashboard”¹² that clients can use to view analyses of carbon emissions associated with their shipments. The dashboard enables business customers to map emissions across their supply chains and develop viable reduction strategies.

5. Facing the skills challenge

Finally, twin transformers are more likely to take responsibility for building and nurturing talent than others. Sixty-one percent of twin transformers believe they are responsible for the continued employability of their people, compared with 44% of other companies.

Vodafone’s ReConnect initiative¹³, launched in 2016 in the UK, helps women who have been out of the workforce to rejoin it in a way that positions them for sustained success. Specifically, it provides training, coaching, flexible working options and an induction program focused on digital talent and skills for the future.

Twin transformers are focused on realizing a better future for their businesses and for the planet. This focus is positioning them to lead in the post-COVID world. The good news is that there’s no great secret to their current and anticipated successes. With commitment and the right processes, your company can also become a twin transformer.

This article is originally published on March 26, 2021.

About the Authors

Jean-Marc Ollagnier is the chief executive officer of Accenture in Europe, with management oversight of all industries and services in Europe. He is also a member of Accenture’s Global Management Committee.

Sybille Berjoan leads the Accenture Research European team and drives the European Thought Leadership agenda.

Dr Jacques Bughin is a strategic advisor to multiple companies and boards; he is retired from a 28-year career as senior partner and director of the McKinsey Global Institute.

Yuhui Xiong, research manager of the Economic Modelling and Data Sciences team of Accenture Research, is responsible for driving and developing data-driven analysis for thought leadership projects.

References

1. https://www.euronews.com/2021/02/10/eu – multi – billion – pandemic – recovery – fund – gets – go – ahead – from – european – parliament
2. https://www.accenture.com/us-en/insights/strategy/european-double-up
3. https://www.accenture.com/us-en/insights/strategy/european-double-up
4. https://www.accenture.com/us-en/insights/strategy/european-double-up
5. https://www.se.com/ph/en/
6. https://neonetworkexchange.com/landing_page/main
7. https://corporate.walmart.com/newsroom/2020/09 / 10 / walmart – and – schneider – electric – announce-groundbreaking-collaboration-to-help-suppliers-access-renewable-energy
8. https://www.chr-hansen.com/en
9. https://www.chr-hansen.com / _ / media / files / chrhansen / home /sustainability/reporting-and-disclosure/2018-19/chr-hansen-sustainability – report – 2018 – 19 . pdf
10. https://www.kering.com/en/sustainability/environmental-profit-loss/
11. https://inside-our-products.loreal.com / ingredients / palm- oil #:~:text = Palm%20oil %20is%20a%20vegetable , their % 20 emollient % 20 or % 20 foaming % 20 properties.
12. https://www.dhl.com/global-en/home/logistics-solutions/green-logistics.html
13. https://www.vodafonereconnect.com/

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Space-to-Earth observation technologies are helping businesses and governments make progress towards realizing sustainable development goals on Earth. Now they need to make sure they’re not harming the space environment in the process.

KEY TAKEAWAYS

• The deregulation of the space sector has incentivized a thriving, technology-led
  space-to-Earth Observation economy, accelerating space-led innovation across sectors.
• The precision and granularity of Earth Observation intelligence and analytics is particularly useful to drive sustainability initiatives in areas such as climate action, clean energy, urban planning, and food security.
• To make the most of these technologies, it’s important to address the problem of rising space junk with effective design principles, technological innovation, better dialog and ecosystem collaboration.

Space technologies are improving lives on Earth in profound ways, from assessing damages from wildfires in Spain to facilitating urban planning in Italy to extending connectivity in Ukraine. While the term ‘space technology’ encapsulates several things, space-to-Earth observation—or simply Earth Observation (EO) – technologies have become increasingly important for businesses in recent years.

1. It can regularly capture granular and precise information, nearly impossible to obtain and scale with land-based survey techniques
   
2. It allows blending raw EO data and imagery with global navigation satellite systems (GNSS) and global information systems (GIS) to gain actionable information and intelligence

However, even as this important work advances, concerns are growing about protecting the space environment itself. The rising number of satellites in outer space is leading to a heavy accumulation of space debris. In the rest of this article, we discuss both:the sustainability potential of EO for driving business and government action towards SDGs, as well as the need for a sustainable space ecosystem.

Environment & climate action

Space technologies help quantify changes in climate systems over time—from increasing surface temperatures to melting ice sheets and rising sea-levels. The 4Vs of EO data – volume, variety, veracity, and velocity – make it particularly suitable for climate change research and action.⁶ The unprecedented regularity and granularity of data from remote sensing is helping governments and businesses build early warning systems for climate resilience.⁷

Accenture has partnered with Planet Labs, a provider of Earth data and insights, to combine high-frequency satellite imagery with Accenture’s sustainability services. This will enable an array of sustainability initiatives, including data-based climate-risk assessments. High-frequency satellite imagery is said to contribute significantly to sustainability initiatives ranging from sustainable agriculture and energy transformation to supply chain tracking and sourcing.⁸

Sustainable and clean energy

Satellite imagery and analytics can help monitor energy generation and usage in real-time and assess its impact on the environment. This enables customized energy-saving plans, optimized energy costs, improved energy efficiency, and lower carbon emissions.

In collaboration with Duke Energy, Microsoft and Avanade, Accenture has created a first-of-its-kind methane emissions monitoring platform, allowing companies to move to a “find it, fix it” leak management model and to measure actual baseline methane emissions from natural gas distribution systems. This cloud-hosted platform will track data related to leaks using advanced detection methods such as satellites and ground-level sensing technology that can detect trace levels of methane emissions on priority. This collaboration will augment Duke Energy’s drive toward net-zero methane emissions by 2030.⁹

Economic growth & urban planning

Satellite imagery, coupled with mobile communications and social media platforms with geotagging technology, could become an important tool in urban design and development. Satellite-based data is more effective than aerial surveys to monitor changes in land use, aiding city planners in designing sustainable cities.

Italian company Planetek’s ground motion service called Rheticus utilizes satellite imagery to provide regular data on nation-wide maps of ground movement. This data is being used by the Italian Roads Authority to detect and monitor unexpected ground movements as the country is prone to landslides, subsidence, and earthquakes. Continuous tracking of such data is allowing road planners in Italy to identify the risks that pose significant challenges in infrastructure maintenance and helping them build a stable and resilient roadway.¹⁰

Agriculture & food security

Remote sensing, combined with advanced GIS data processing and visualization technologies, can help businesses promote the adoption of innovative practices, such as precision agriculture, farm automation, and real-time kinematic technology to mitigate risks to global food systems. The UNOOSA estimates that precision agriculture using EO and GNSS data can attain yield increases of over 10%, and lower other fuel, fertilizer, and pesticide inputs by up to 20%.¹¹

The SAGRIS project, funded by the EU, is an open-source smart farming decision support back-end service. It continuously pulls synthetic-aperture radar (SAR) images to create sophisticated dynamic images and data layers at different temporal scales to inform the identification, monitoring and development of crop types during the farming season. SAGRIS analyzes satellite imagery from the Copernicus EO programme to provide per-parcel sampling data for various smart farming applications and for applied research in various streams.¹²

The Food Security and Agricultural Monitoring Solution recently launched by NASA Harvest uses AI and ML modelling to convert satellite data into insights for anticipating and averting food shortages and famines. The pilot was first launched in 2022 to track frontline agricultural activity in Ukraine.¹³

Towards a sustainable space ecosystem

The European Space Agency has cataloged more than 36,500 objects larger than 10 cm currently orbiting Earth, along with millions of pieces smaller than 1 cm.¹⁴ More than 80 countries currently contribute to the over 6,800 active satellites in orbit.¹⁵ With UNOOSA’s estimates of 70–90 spacecrafts being sent to orbit every year,¹⁶ the problem of “space junk” is only likely to get worse.

Removing debris from space and abating the creation of new debris are two major concerns that need to be addressed on priority. However, no one institution can achieve this on its own. Shared responsibilities between governments, private organizations, and non-profit entities towards common goals and measurable targets is needed to build a sustainable space ecosystem. Three actions can help begin the jouney:

1. Design for sustainability

Advances in material science are promoting the use of light metal alloys and light metals such as aluminum in rocket design, promoting longevity and sustainability of space operations. Alongside, initiatives such as the Space Sustainability Rating (SSR) by the World Economic Forum in partnership with several academic and institutional partners, are encouraging companies to adopt holistically sustainable design principles right from inception. The rating system relies on multiple factors—from data sharing and orbit preferences to collision avoidance and de-orbiting satellites—to assess the sustainability of space missions and operations. By voluntarily adopting the SSR system, different players in the space ecosystem can secure one of the four levels of certification to disclose their mission’s sustainability.¹⁷

2. Explore the use of new technologies

Technologies like space situational awareness (SSA) can help in data analysis, integration, and evaluation of key space events, including re-entering objects, conjunction and collision avoidance activities, fragmentation, satellite maneuver detection and compliance monitoring. Digantara, a space tech start-up, has launched India’s first-ever commercial SSA observatory to monitor global space traffic for space debris. The observatory will likely help reduce collisions between satellites and other spacecraft by predicting their location, speed and trajectory.¹⁸ Generative AI could have an important role in developing lighter spacecraft and mission hardware, as recently demonstrated by NASA. Called Evolved Structures, these parts weigh less, can bear higher loads and significantly reduce the time to production.¹⁹

3. Partner and collaborate

The Net Zero Space initiative by the Paris Peace Forum is a platform that aims to achieve sustainable use of outer space by 2030. The initiative aims to raise awareness and promote interoperability to drive a sustainable space environment through political and public advocacy and actionable policy proposals. The initiative currently has 59 members from across the space ecosystem and from 24 countries.²⁰

Democratization of space is opening completely new opportunities for businesses. Its impact will likely be felt most on driving sustainability initiatives for achieving the UN SDGs. But care must be taken to ensure that we do not end up compromising the sustainability of space. As a first step, businesses need to explore how EO can help them achieve their sustainability goals and targets. They will also likely need to build an ecosystem around it for innovative use of digital technologies to convert data into insights. Ecosystem play will also be essential for extending the life of space. Space will likely continue to impact and improve sustainable living on Earth, but the space environment must be preserved too.

The authors would like to thank Aditi Abhijeet for her research support.

About the Authors

Shruti Shalini is thought leadership senior principal and research lead for technology incubation at Accenture.

Shalabh Kumar Singh is principal director and the global lead for sustainable technology and cloud-related thought leadership at Accenture.

Shubhashis Sengupta is managing director and APAC technology innovation lead at Accenture.

Endnotes

1. The European Union Agency for the Space Programme (EUSPA), “What is Earth Observation,” May 17, 2021
2. Matthew Weinzierl, Prithwiraj (Raj) Choudhury, Tarun Khanna, Alan MacCormack, and Brendan Rosseau, “Your Company Needs a Space Strategy. Now.”, Harvard Business Review, November-December 2022, https://hbr.org/2022/11/your-company-needs-a-space-strategy-now.
3. The United Nations Office for Outer Space Affairs, “UN Office for Outer Space Affairs and United Kingdom launch new partnership on Registering Space Objects”, December 01, 2022
4. Accenture, “Accenture Invests in Titan Space Technologies to Help Unlock the Next Frontier of Innovation through Space Experimentation,” April 06, 2022
5. The European Union Agency for the Space Programme (EUSPA), “EO and GNSS Market Report,” 2022
6. Guo Hua-Dong, Li Zhang, and Lanwei Zhu, “Earth observation big data for climate change research,” ResearchGate, October, 2015
7. Sanjay Podder, Shalabh Kumar Singh, H. James Wilson and Giju Mathew, “Sounding the Alarm: Early Warning Systems to Build Nature-Positive and Climate Resilient Businesses,” The European Business Review, January 30, 2023
8. Accenture, “Accenture and Planet to Collaborate on AI-Powered Geospatial Intelligence Tools for Sustainability, Traceable Supply Chain and Climate Risk Solutions,” December 06, 2022
9. Accenture, “Duke Energy Teams with Accenture and Microsoft to Develop First-of-its-Kind Methane-Emissions-Monitoring Platform,” August 23, 2021
10. The European Space Agency, “Satellite data used for road infrastructure safety in Italy” February 16, 2023
11. The United Nations Office for Outer Space Affairs “Sustainable Development Goal 1: No Poverty,” March 31, 2023
12. European Commission CORDIS, “Sentinels-based Agriculture Information Service Component,” September 03, 2018
13. GreenStockNews, “Planet Labs and NASA Harvest Launch Commercial Partnership to Enable and Advance Food Security Offering to Deliver Policy-Grade Agricultural Assessments“, January 12, 2023
14. The European Space Agency, “Space debris by the numbers”, last updated December 22, 2022
15. Observer Research Foundation, “Sustainability in Space”, October 11, 2022
16. Interesting Engineering, “The Growing Problem of Space Debris,” August 19, 2021
17. World Economic Forum, “New Space Sustainability Rating Addresses Space Debris with Mission Certification System,” June 17, 2021
18.  Outlook India, “Uttarakhand Gets India’s First Ever Commercial Space Situational Awareness Observatory,” August 31, 2022
19. NASA, “NASA Turns to AI to Design Mission Hardware”, February 10, 2023
20. Paris Peace Forum, “Net Zero Space initiative on the protection of the Earth’s orbital environment,” November 12, 2022

The post 2023, A Space Opportunity: Pioneering Space Technologies, Protecting the Earth, and Preserving the Space Environment appeared first on The European Business Review.

Despite the challenging business environment, European executives are optimistic about their organization’s future growth. By embracing Total Enterprise Reinvention, European companies can exceed their goals and thrive amid the economic headwinds.

KEY TAKEAWAYS

Despite growing concerns around Europe’s business competitiveness, it is perhaps surprising that there is a growing sense of optimism among European executives in 2023. Accenture’s recent research found that just less than two-thirds (65%) of European executives think the current business environment is the most challenging, a smaller proportion than their US and Chinese counterparts (74% and 81% respectively).¹

European executives are feeling confident. Nearly nine out of ten of those Accenture surveyed in October through November 2022 believed their organisation was on track to achieve its annual growth goals – and four-fifths reported their organisations are well positioned to capture future growth.² And this is despite the economic challenges which have hit Europe harder than other geographical regions. The economic fallout from ongoing geopolitical instability, including the war in Ukraine, was most dramatic here, causing supply chain disruptions, energy price shocks, and a spiralling cost of living crisis across the continent.

Companies are now turning resilience into ambitious plans for change – the boldest among them view the current environment as a unique opportunity to reinvent themselves to pursue new paths for growth and thrive over the long term.

A challenging time for Europe

Despite some silver linings in the macroeconomic data, the environment in Europe continues to be tough.³ Nearly a fifth (19%) of European executives cite rising energy costs as the top challenge to profit margins. And the outlook for the energy crisis remains uncertain. Europe has experienced a tight labour market since the pandemic: talent shortages are at the highest levels in a decade, with a 2.9% job vacancy rate in Q3FY22.⁴ Plus more than nine out of ten (91%) European companies are off pace to meet their net-zero targets if they don’t at least double the pace of emissions reduction by 2030.⁵ Meanwhile, the US Inflation Reduction Act could be a significant headwind to European competitiveness by enticing European manufacturing businesses to take advantage of tax breaks and subsidies on the other side of the Atlantic. There are similar green manufacturing incentives in Japan and Korea, further tempting businesses to invest and move operations outside of Europe. This led the European Commission to present the Green Deal Industrial Plan for the Net-Zero Age at the beginning of February 2023.⁶

Sources of Strength and Weaknesses to Address

Seeking to understand how European companies stack up against their global counterparts, Accenture’s researchers analysed the strengths and weaknesses of firms across Europe, North America, and Asia Pacific. We compared company performance across six areas: talent, technology, supply chain and operations, sales and customers, liquidity and costs, and sustainability.

As the figure shows, European businesses perform better in embedding sustainability throughout their organisations, and they lead in talent and unlocking people’s potential. They also perform well at driving down costs and improving liquidity. This goes some way in explaining their relative strength in profitability. Revenue growth for companies in Europe is slower than in North America and Asia Pacific, whereas profit performance (as measured by earnings before interest and tax [EBIT]) is relatively high. This reveals a tendency to squeeze value from existing operations, rather than using that liquidity to invest in new revenue streams or technology. When they do invest in technology, they use it to optimise rather than to reinvent business models, a shortcoming also exposed by their weakness in customer and sales.

By their own admission, European executives report that just 16.9% of their company’s global revenue is invested in transformation initiatives, compared to 20% amongst US companies.⁷ What’s more, European companies fell $388 billion short of matching North America’s R&D investment pace over the past five years.⁸ To pick up the slack, European companies must shift from eking out value from existing revenue streams to investing in new growth.

Closing the Gap in Technology

Now, the greatest challenge Europe faces is one of long-term competitiveness. And it all starts with technology.

A small group of companies is adopting a deliberate, continuous strategy of “Total Enterprise Reinvention”; they are quietly and systematically changing the game and their industries, driving a new strategic imperative. These are the “Reinventors”. Powered by advancements in technologies such as artificial intelligence (AI) and cloud computing, they embrace Total Enterprise Reinvention to grow and lead in today’s volatile environment. Yet only 6% of European companies surveyed emerged as Reinventors, compared to 8% of those in North America and 9% in Asia Pacific.⁹

The digital core is central to Total Enterprise Reinvention.

As a whole, European companies are behind in using technology for top-line value creation. This includes the creation of digital business models as well as the adoption of a digital culture. Less than half stand above the global average for technology penetration and mastery according to Accenture’s survey. Meanwhile, just 16% of European executives assess their current available technology as a significant enabler in the execution of their transformation programmes. It is perhaps unsurprising then, that the majority (90%) of European companies fall into the “Transformers” category, that is, companies embracing technology as a core part of their transformation, but sporadically across the enterprise, and often as distinct and siloed projects. In North America, this group accounted for 84% of companies, and 86% in Asia Pacific.

The good news is that European businesses are closing the gap. Over the past two years, they have accelerated technology implementation far more than their international peers: in cloud services, AI and automation, and cybersecurity. They are also undaunted in the face of economic uncertainty: when asked if there were to be a recession in their main markets in 2023, 87% said they would speed up their reinvention programmes, compared to 73% in North America and 64% in Asia Pacific.

The Path Forward: Evolving from Transformers to Reinventors

While European businesses have built extraordinary resilience in recent years, they must now evolve from Transformers to Reinventors to address the unique structural challenges they face. For them, the journey to reinvention begins by focusing on their strengths in the energy transition and talent while resolving their deficits in technology and customer needs.

Four steps to prepare for Total Enterprise Revolution:

1. Build your digital core

• Establish a digital foundation using cloud, data, and AI to scale new processes and innovations across the enterprise.
  
• Amplify the power of digital through compressed transformation and use the digital core to scale innovations that reinvent business and operating models.
  Elevate cybersecurity to the CEO level, not only to share accountability but to ensure it’s embedded in the growth strategy.

2. Speed your energy transition

• Work across your ecosystem to advance net-zero and circular principles for global competitiveness.
• Prioritise your transition to clean energy.Energy efficiency plays an important role in reducing emissions and costs.
  
• Invest in “carbon intelligence” and environmental, social, and governance (ESG) reporting and hold leadership accountable for progress.

3. Align to new customer needs

• See customers within the context of their full lives. Use human and machine intelligence to understand customers and their motivations in a holistic and dynamic way.
• Solve shifting customer scenarios. Abandon one-size-fits-all offerings for more personalised products and services.
• Simplify marketing operations to drive innovation and efficiency. Create simple and unified experiences for customers by integrating customer-facing functions across a single data and experience platform.

4. Make talent strategy core to your business strategy

• Place people at the centre of reinvention. Establish your chief human resources officer (CHRO) as the catalyst for change.
• Access and create talent in innovative ways.
• Infuse a culture of inclusion across the organisation. Invest in employee well-being and engagement.

A Stronger Europe: Now or Never

European companies have already shown they can weather the storms of the past few years, and not only survive but thrive amid the economic headwinds. Having proven their resilience, European companies’ next great challenge is to build long-term competitiveness. Sustained investment in technology-driven transformation is the path to stronger growth. These unprecedented times call for an unprecedented response from European companies. A bold and visionary approach to transformation is required to reach a new performance frontier. Accenture’s analysis has shown that companies embracing Total Enterprise Reinvention outperform their peers in revenue growth and create sustainable value.¹⁰

This is a pivotal moment for a stronger Europe. As optimism toward the future builds, the time to strike is now.

About the Author

Jean-Marc Ollagnier is the Chief Executive Officer of Accenture in Europe and a member of Accenture’s global management committee.

Svenja Falk is Managing Director and leads Accenture Research Europe. She also is deputy chairwoman on the Council on Digital Sovereignty in Germany and honorary professor at the Justus Liebig University Giessen.

Laura Wright is a Research Manager and leads Europe Thought Leadership at Accenture Research.

References

1. Accenture, Business Strengths Survey of 2000 C-Suite leaders in 10 markets (N=1,450 in Europe [France, Germany, Italy, Netherlands, Nordics, Spain, Switzerland and the United Kingdom]. N=250 in China. N=350 in the United States. Fielded October-November 2022. Cross-industry).
2. Accenture, Business Strengths Survey, 2022.
3. International Monetary Fund, World Economic Outlook Update, January 2023.
4. Eurostat, Job Vacancy Statistics, accessed 19 December 2022.
5. Accenture, Accelerating Global Companies towards Net Zero by 2050, 2022.
6. European Commission, The Green Deal Industrial Plan for the Net-Zero Age, 2023
7. Accenture, Business Strengths Survey, 2022.
8. Accenture Research analysis based on S&P Capital IQ. Excludes financial services companies. The cumulative figure is based on the sample of companies covered in the analysis and is arrived at by applying the North American rate of investment in R&D to European companies to arrive at the approximate shortfall. Sample Size: 1,843 of which Europe: 909, North America: 486 and Asia Pacific: 448.
9. Accenture, Total Enterprise Revolution, 2023.
10. Accenture, Total Enterprise Revolution, 2023.

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Powered by recent investments, European companies are on pace to collectively lead the world in artificial intelligence by 2024. But if the continent’s firms are to achieve their full AI ambitions, they’ll need a more comprehensive approach to scaling the technology.

During this time of great stress and economic uncertainty in Europe, artificial intelligence is shaping up to be a vital tool supporting much-needed gains in efficiency and innovation—in the region and across the world. Yet even in the past few years, we’ve seen glimpses of AI’s huge potential to influence society and business.

We witnessed AI’s influence on public health: Mainz, Germany-based BioNTech harnessed AI to develop life-saving Covid mRNA vaccines in a fraction of the time that it takes to produce traditional jabs. We saw AI’s impact on corporate revenues: our research shows that the share of European-headquartered companies’ revenue that is AI-influenced more than doubled between 2018 and 2021 (from 10% to 23%, on average).

We observed the positive signal that AI sends to investors, too: our research revealed that when European business leaders mentioned AI on their earnings calls in 2021, their firms’ respective share prices were 49% more likely to increase. European business leaders, for their part, are no less bullish on AI. Of the more than 500 European company C-suite executives we recently surveyed, 38% said that their AI initiatives thus far had exceeded expectations, while fewer than 1% said their AI efforts had not met expectations.

The question now is whether European companies are well prepared to increase the value they’re getting from AI in the coming months and years. Most business leaders expect to: our recent survey also found that 72% of organizations in Europe have already re-worked their strategy and cloud plans to achieve AI success. Their intent is to scale AI broadly and quickly.

In fact, modeling based on their inputs shows that AI-related revenues could rise to 32% of all revenues by 2024 (tripling the level reached in 2018). Even more impressive, our analysis indicates that Europe’s companies are on pace to have the highest level of AI maturity of any world region by 2024.

This is the rosy side of the continent’s AI story. However, our deeper research into AI readiness and deployment across Europe revealed another, less flattering, tale.

Despite broad attention to AI investment, we found that just 11% of large European enterprises appear to have the AI maturity needed to scale quickly and effectively and reach their revenue goals. Specifically, these select companies possess both strong AI foundations (such as cloud platforms and tools, as well as data platforms, architecture, and governance) and differentiated AI capabilities (like a robust AI strategy and C-suite sponsorship). The rest of the organizations we studied possess one or the other strength, or neither.

We believe it’s worth looking at how this group of leading companies—call them “AI Achievers”—compares with other European firms on AI maturity. We also believe the approach of AI Achievers suggests a rapid path to improvement for others.

AI Achievers stand out

To understand why Achievers’ actions matter, consider our map of European companies’ AI maturity (see Figure 1). At a high level, AI maturity measures the degree to which organizations have mastered their AI-related foundations and capabilities in the right combination to achieve high performance for customers, shareholders, and employees. To test for it, we ran so-called Lasso regression models (a statistical technique that uses machine learning, itself a type of AI) on our survey results, which comprised half a million data points and 80 variables potentially correlated with AI maturity.

As Figure 1 shows, AI Achievers represent the 11% of European companies that have strong AI foundations and differentiated capabilities. However, a large majority (64%) of companies, “AI Experimenters”, lack both of those strengths. The rest are either “AI Innovators” (the 16% of companies with weak foundations) or “AI Builders” (the 9% with weak capabilities).

These distinctions matter and are readily visible: Achievers are 3.5 times more likely than Experimenters, for instance, to see their AI-influenced revenue surpass 30% of their total revenues. Achievers also score 8% higher than Experimenters on customer-experience metrics. What’s less visible, though, are the differences in how these companies have approached AI, to land where they are now.

As our research found, industry also makes a difference in the likelihood that a company will be more or less mature in its AI readiness today—and in 2024. Europe’s tech industry, for example, has been a leader in AI maturity across the region, but others are projected to close the gap quickly. Indeed, as Figure 2 highlights, industries such as aerospace and defense (A&D) and automotive, which have made rapid advances in their deployment of tools like robotics and automation, are expected to leapfrog tech in their AI maturity by 2024.

As for their relative performance against firms headquartered in other regions, we found that European companies are more likely to “industrialize”, or scale, AI (specifically: applying AI for asset performance management, for optimizing operations, for workforce alignment and augmentation, and for infrastructure and network process insights and automation). For instance, 35% of the European enterprises we surveyed use AI for the four aforementioned purposes, compared with 34% of all the companies we surveyed worldwide that do so. Nevertheless, the tiny share of companies that have managed to scale AI for those same purposes (just 2%, both in Europe and globally) illustrates how much work remains to be done.

The Achievers’ approach

Which brings us to individual companies’ behaviors. What are Europe’s AI Achievers, which exist across the industries we studied, doing differently or better than their peers? Some things that Achievers do well, like securing senior sponsorship for their AI efforts, are both essential and unsurprising—transforming an organization, after all, almost always needs strong support from the top. However, we also discovered four behaviors that tend to get overlooked, but are no less critical to developing AI maturity.

Behavior 1: Building your AI “core”

One of the biggest AI-related challenges companies face is a proliferation of data across platforms and systems; on-site legacy systems mix awkwardly with firms’ growing cloud presence. The unhappy result is that data is frequently not accessible in the right form and context. Such firms, in turn, struggle mightily to scale AI across their organizations.

Achievers, on the other hand, build so-called AI cores—i.e., operational data and AI platforms that tap into companies’ talent, technology, and data ecosystems, allowing firms to balance experimentation and execution. Achievers in Europe, we found, are 33% more likely, on average, than Experimenters to have scaled their data-management and governance practices (efforts that are essential for building strong AI cores).

Further downstream, an AI core helps organizations do many beneficial things, such as swiftly productizing their AI applications or integrating AI into their other apps. As for how to build AI cores, we learned that Achievers harness the full power of internal and external data, while making that data trustworthy and storing it in a single enterprise-grade cloud platform—complete with appropriate usage, monitoring, and security policies.

In 2019, for example, Swiss pharmaceutical giant Novartis began scaling its AI governance and data-management practices by creating “Insight Centers”, which offer real-time visibility on the firm’s manufacturing operations and distribution points. Novartis also prioritized efforts to make the powerful data-processing technology available at these centers compatible with the platforms and tools used elsewhere in the company. In the process, Novartis greatly improved its capacity to develop and manufacture personalized medicines in small quantities—on time and at lower cost.

Behavior 2: Sustaining your AI investments

Achievers understand that their AI investment journeys don’t have a finish line. There is, they frequently note, no “peak AI”. This understanding fuels another critical, if often overlooked, behavior: Achievers get more out of AI because they sustain—and often increase—their investment in AI over time, even as their AI maturity improves. In 2018, for instance, Achievers in Europe devoted 14% of their total technology budgets to data and AI, while in 2021 they devoted 27%. In 2024, they expect to devote 33%.

For Achievers, sustained investment often involves expanding the scope of AI to deliver maximum impact, while “crosspollinating” AI solutions and redeploying resources along the way. Wiener Netzen, for example, invested heavily in AI-powered digital twins (i.e., real-time, virtual simulations of physical objects or systems) in recent years. These investments allowed the Austrian energy firm to better serve clients, such as the City of Vienna. Among other advantages, the firm’s digital twins modeled demand for heating and cooling services more accurately than its previous systems did; the digital twins were also better at estimating the short-term costs and long-term energy savings of various initiatives, like upgrading thermal insulation and replacing fossil-fuel heating with greener heating pumps.

Yet far from resting on its laurels, Wiener Netzen is investing in AI today as aggressively as ever. This allows the company to continue delivering exceptional value to clients: government planners in Vienna and elsewhere, for instance, now access user-friendly 3D models of their cities to reliably forecast the environmental and economic effects of different energy policies.

Behavior 3: Training your workforce to become AI-savvy

Achievers understand that AI is most effective when it operates seamlessly with human workers. That’s why Achievers excel at developing proactive AI talent strategies to stay at the forefront of industry trends. In addition to their AI-focused hiring, Achievers often partner with, or acquire, specialist companies to fill critical roles (such as data or behavioral scientists, social scientists, and ethicists).

Achievers are also far more likely to have mandatory AI training for most employees, from product-development engineers to C-suite executives. And because Achievers prioritize efforts to build AI literacy in their workforces, their employees inevitably become more proficient in AI-related skills than do their peers at other firms.

Such efforts collectively make it easier to scale human and AI collaboration and ensure that AI permeates the enterprise. A large European energy company, for example, created a “digital factory” to help empower employees to use analytics and AI-driven insights in their daily jobs. Among other initiatives, the digital factory trains field engineers to work with, and improve, machine-learning models. The factory also provides compulsory data and AI training to all managers, as well as reskilling and upskilling support to the firm’s entire workforce.

Thanks to the organization’s increased investment in AI-savvy talent, its business department now receives new, AI-powered apps within five months of initiating their development—compared with an 18-month wait, on average, before the digital factory was built. More broadly, by 2025, the company expects its digital factory to boost its bottom line by $1.5 billion annually.

Behavior 4: Creating your responsible AI framework

As companies deploy AI for a growing range of tasks, adhering to laws, regulations, and ethical norms is becoming an increasingly critical behavior for developing AI maturity. Indeed, the ability to demonstrate high-quality, trustworthy AI systems that are “regulation ready” will give early movers a significant advantage in both the short- and long-term, enabling them to attract new customers, retain existing ones, and build investor confidence. Yet only 9% of the European companies we surveyed—nearly all of them Achievers—told us that when they begin designing AI, they take the time to make it responsible as well as efficient.

When organizations don’t create responsible AI frameworks, they create numerous risks for themselves and their customers, such as algorithmic bias (i.e., the danger that AI trained on data that reflects historical discrimination will perpetuate such discrimination). To reduce the risk of algorithmic bias, Allied Irish Banks (AIB), for instance, conducts multi-layered “algorithmic-fairness” assessments of its AI models. Such assessments incorporate research into the causes of bias in data and algorithms; they also define and apply quantitative measures of fairness, including by proposing data collection and modelling methods that make algorithms more equitable.

In addition, AIB’s algorithmic-fairness assessments require extensive collaboration between the retail bank’s diverse workforce: designers, data scientists, compliance professionals, and business analysts are all asked to share views and offer their unique expertise. AIB’s focus on training employees to become AI-savvy is vital to the bank’s efforts to create a responsible AI framework, too. The payoff for AIB is an enhanced ability to deliver the kind of trustworthy banking that keeps customers coming back—and new ones coming in.

Getting AI right

European companies know that leadership in AI will increasingly offer new ways to compete, innovate, and build efficiencies. That’s why they’re investing heavily in artificial intelligence. But our research also revealed that many of these same organizations are underestimating the changes they need to make now to get more from their AI investments.

The good news is that the behaviors that distinguish the most AI-mature firms from the rest are readily imitable, with the right leadership and know-how. If they seize the opportunity today, Europe’s business leaders will position their firms to flourish in tomorrow’s AI-driven future.

Acknowledgment: The authors thank David Kimble, Regina Maruca, and Yuhui Xiong for their contributions to this article.

About the Authors

Jean-Marc Ollagnier is the chief executive officer of Accenture in Europe and a member of Accenture’s global management committee.

Philippe Roussiere is the global lead for innovation and AI at Accenture Research. He co-authored the recent Accenture report, “The art of AI maturity: Advancing from practice to performance”.

Praveen Tanguturi is the global applied intelligence research lead at Accenture and was the research director for the aforementioned “Art of AI maturity” report.

The post Why Mastering AI is Harder than You Think and Four Essential Behaviors to Get it Right appeared first on The European Business Review.

As conversational artificial intelligence (AI) advances, it is able to sustain ever more human-like relationships with end users. This can vastly improve customer and employee experiences, but it also creates complex ethical and trust considerations. As EU AI regulation starts to take shape, Accenture’s new research identifies a practical approach for AI designers to identify and mitigate these issues in a more systematic way, as part of a broader responsible AI framework.

By some estimates, the market for conversational artificial intelligence (AI) technologies will reach $13.9 billion by 2025—and it’s easy to see why.¹ Using advanced technologies like affective computing, facial recognition and large transformer models like BERT and GPT-3, companies can vastly improve customer and employee experiences. For example, “Digital human” technologies can replicate human emotions, gestures, and visual cues in some customer service touchpoints, as UBS, BMW, Southern Health Society and Noel Leeming’s Stores are discovering.

UBS, for example, created a prototype digital double for its chief economist, Daniel Kalt,  with the potential to use that avatar (with full disclosure) in certain “face-to-face” meetings with high-wealth clients. The “digital Kalt,” created in a process using more than 100 DSLR cameras, draws on information provided by the real Kalt to communicate with others; it also makes eye contact and reacts to conversational cues, for example by smiling.

Meanwhile, United States insurer MetLife has applied Cogito’s emotion AI coaching solution to help its agents improve their customer interactions in real time, using prompts including “slow down your speech,” “ask an open question” or “take time to think about how the customer might be feeling.” As a result of these prompts, MetLife has achieved a 14-point improvement in its net promoter score (a loyalty measure). The company has also increased its “perfect call” scores by 5%, achieved 6.3% greater issue resolution, and a 17% reduction in call handling time.

The news isn’t all good, however. In fact, there’s a sobering risk associated with conversational AI technologies. As conversational AI technologies have advanced, increasingly adopting more human-like characteristics, we see a corresponding rise in ethical risks associated with using it. What if the AI learns a bias? What if it engages in stereotyping? Where is the line between supporting and persuading, or even manipulating? What might human users inadvertently disclose to a machine that they wouldn’t want to disclose to another human? Are there instances where users might believe they’re communicating with a human when they’re not? What are the implications of these potential scenarios?

Recent responsible AI initiatives attest that business leaders and governments are both keenly aware of, and concerned about, these potential dangers. The European Commission’s proposed AI Regulation,² if approved, will take a risk-based approach that, for example, would prohibit the use of systems with significant potential to manipulate human behaviour and actions. It would also place strict requirements around “high risk” use cases for conversational AI and would also subject all conversational AI solutions to a transparency requirement.

These are important actions. Still, in the absence of industry standards and clear regulatory guidance, we have found that business leaders, product owners, designers, developers, and data scientists will lack a practical way to identify and address ethical risks. To fill that gap, we have developed a practical approach, which considered the intricacies of technology development and human rights in tandem, to help conversational AI designers and leaders think through some of the ethical implications and potential consequences of their decisions, as they develop and deploy conversational AI tools. Our approach focuses on a set of framing questions around three critical facets of conversational AI: Looking Human, Understanding Humans, and Behaving in a Human Way. We believe that considering the technologies from these three entry points will help companies lower the associated risk and increase their opportunity for success. See our full-length research report for more detail.

Looking Human

Mimicking human features and characteristics in virtual agents can increase their ability to engage end users. But care must be taken not to unintentionally embed stereotypes and discrimination. For example, Research summarized in a recent UNESCO report, “I’d Blush If I Could” highlighted how female-sounding voice assistants often respond to abusive language with playful evasion at best or flirtation at worst. No decision is entirely neutral, and each choice must be thought through and weighed up on its own merits.

Key questions to answer:

• What visual identity and personality are we choosing for our AI assistant and why?
• How does this identity support the goals for the interaction?
• What accent, pitch, pace, and tone of voice is appropriate?
• What unconscious biases might affect decisions about visual appearance?
• What is inappropriate or abusive language and how should the assistant respond?
• How well does the assistant align with brand engagement objectives and create user stickiness?

For example, to encourage greater inclusivity and representativeness, Accenture has developed and open-sourced non-gendered voices for digital assistants, including Sam, the world’s first non-binary voice solution. To do this ethically, Accenture surveyed non-binary individuals and used their feedback and audio data to influence not only pitch, but speech patterns, intonation and word choice.

Understanding Humans

The data companies gather, and what is inferred about users’ wants, needs and behaviours, informs the way we engage with them, and the products and services we offer. As “always-on” data gathering sensors/devices become increasingly prevalent, it is vital users are fully aware of what is being inferred, in control of what data is gathered and that safeguards are in place to protect their human rights. For example, Stanford’s open-sourced, privacy-preserving Genie Virtual Assistant protects privacy by executing all data operations locally. It also doesn’t “listen in” on user conversations, choosing to train the natural language model primarily on synthesised data. It also allows users to share data with privacy, fine-grained control and without disclosing to third parties. A user can decide who has access to certain information and in what situation, for example: “Allow my parent to be notified of motion detected in my house, only when I am not present.”

Data such as video, voice, text, and other physiological metrics are the foundation of emerging technologies such as emotion AI and affective computing, which attempt to infer a human user’s emotional state. Understanding this can be hugely beneficial in a variety of areas such as helping children with autism, but this mode of learning raises serious considerations relating to accuracy (is the inference scientifically robust), legality (does it infringe the user’s legal rights), and ethics (is it the right thing to do).

• How much data is being collected? Are we inadvertently collecting more than we need? And if so, how are we using it?
• Are we being transparent about what we collect and how we use it?
• Have we established clear user consent?
• What steps are being taken to mitigate bias?
• To what extent are we making inferences about a user’s emotional state?
• How is privacy and data security ensured?
• What access controls are we implementing?

Behaving like a human

The simulation and stimulation of emotions and behaviours enables companies to better engage end users in a positive way. For example, chatbots have shown promise in helping people recovering from trauma.

To quell loneliness and improve health and quality of life, for example, Accenture Song worked with Stockholm-based Exergi to create a reverse engineered voice assistant AI called Memory Lane that invites elderly people to share their stories. The AI understands the correlations between different answers to trigger relevant follow-on questions. For example, it might ask: “Can you tell me about your first true love?” and follow up with: “Could you tell me about your first date?”

Every day, Memory Lane analyzes the previous conversation and uses the findings to build onto a memory graph – a virtual, structured account of the person’s memories. To ensure privacy, all responses are stored locally on the user’s own smart speaker rather than uploaded to the cloud.

Among the incredible stories Memory Lane has captured: the reflections of a nurse in World War II, and also the reflections of an early founder of the PRIDE movement in Sweden.

But any use of this technology must also consider the danger of “Hypernudging” and “Dark Patterns”—situations in which emotional and cognitive biases are exploited at scale through manipulative interfaces. When human-like AI becomes the interface, how we present information, feedback and choices to the user determines whether we are crossing an ethical line.

• How open and transparent is our use of AI in each interaction?
• What level of agency does the user have?
• Are we adequately preserving their freedom of opinion, choice, and thought?
• What recourse does the user have if they want to make a different choice?
• Have we cast a wide net when thinking about the ways bad actors could engineer undesirable results?

Radically Human

In the book “Radically Human,” authors Paul Daugherty and H. James Wilson note that trust is set to become a key differentiator for AI companies. Those that fail to adapt, they write, will ultimately be left behind.

To be deserving of trust, companies must consider how it is manifested in design decisions, which shape how conversational AI looks, understands and behaves, and the subsequent implications for workers, users and society at large.

While it is not enough on its own to ensure conversational AI has been implemented in a responsible and trustworthy manner, this approach can be an invaluable tool for designers in identifying and addressing the additional implications of their decisions, as part of a broader organizational Responsible AI framework.

Conversational AI is on the cusp of profoundly changing the ways in which machines can support and improve human lives. But the technology is also sounding a clarion call for ethical oversight. Let’s get on it. 

About the Authors

Laetitia Cailleteau – Laetitia leads the Data and Artificial Intelligence Europe group at Accenture and the Conversational AI domain globally, driving innovation, sales and delivery for multiple industries and clients around the world.

Patrick Connolly – Patrick is a research manager at The Dock, Accenture’s Global Research and Development and Innovation Center located in Dublin, Ireland.

Endnotes

1. “Conversational AI Market by Component (Platform and Services), Type (IVA and Chatbots), Technology (ML and Deep Learning, NLP, and ASR), Application, Deployment Mode (Cloud and On-premises), Vertical, and Region – Global Forecast to 2025.” Markets and Markets, June 2020. Retrieved from: https://www.researchand markets.com/reports/5136158/conversational-ai-market-by-component-platform
2. “Proposal for a Regulation laying down harmonised rules on artificial intelligence.” European Commission. April 21, 2021. https://digital-strategy.ec.europa.eu/en/library/proposal-regulation-laying-down-harmonised-rules-artificial-intelligence

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Socio-economic background continues to weigh on career progression in the UK. Despite this, a new Accenture study finds that employees from lower socio-economic backgrounds are more loyal and less dissatisfied with their rate of advancement than peers, a phenomenon dubbed the “progression paradox”. But by adopting five workplace practices, companies can mitigate this challenge while boosting both employee engagement and profitability.

Employee loyalty is not always a good thing. If someone blindly sticks with their employer without developing or progressing, neither party is likely to benefit in the long term.

Yet, as recent Accenture research on UK workers has shown, despite advancing less quickly than their peers, people from lower socio-economic backgrounds (SEB) are no less loyal to their employer and no less satisfied with their career progression than others.

We call this the “progression paradox”. It’s one of three major challenges (alongside socio-economic taboo and cultural inertia) stifling social mobility in the UK that are explored in Accenture Research’s recent report, A fair chance to advance: The power of culture to break socio-economic barriers in the workplace.

It’s worth a closer look. The UK workplace is not a level playing field. The higher someone’s SEB, the faster they tend to progress up through the ranks. For example, people from a lower SEB are 28 per cent less likely to hold management roles.¹ Our survey of 4,000 UK employees confirms this trend: we found that, on average, 20 per cent of employees from a lower SEB are promoted at least every three years, compared with 26 per cent of their peers. And employees from a lower SEB are a third less likely to be on a career “fast track”.² These figures mean that an estimated 700,000 people from this demographic have missed out on promotion opportunities with their current employer.³ 

Employees from lower SEBs do recognise the issue. More than one in five told us they feel they don’t have the same chance of success in the workplace as their colleagues. One of our interviewees, Darren*, described the extraordinary lengths he went to in order to fit in: changing his hairstyle, saving up to buy expensive suits and watches, and even paying for elocution lessons. “My parents asked me why I was changing the way I spoke and looked,” Darren told us. “But I would never be where I am now if I hadn’t have taken those steps.”

So what explains the paradox? Why are employees from a lower SEB slightly more loyal and slightly less dissatisfied with their career progression, compared with their peers from higher socio-economic backgrounds?

One possible explanation is that these employees appear to have lower expectations for promotion than their colleagues. We find that just 38 per cent aspire to be promoted, compared with 50 per cent of their peers. And just 15 per cent aspire to a senior leadership position, compared with 22 per cent of their colleagues.

Another interviewee, Zoey*, offered an explanation: “I felt out of place, I guess; I was never really accepted. I was made to feel less qualified than I actually was.” What we don’t know is whether these employees enter the workforce with lower expectations – or whether their ambitions get diluted as they realise the odds are stacked against them. The issues may often compound each other.

The paradox could also be explained by differences in employees’ appetite for risk. The lack of a financial safety net – perhaps savings or family wealth – may weigh on the likelihood of looking for a new employer.

A third reason may be that employees from lower SEBs tend to have fewer senior-professional connections in their social networks. This reduces their exposure to advice on careers options and techniques for getting ahead. And as Helen* noted, this issue goes far deeper than the obvious advantages of exposure to a broad range of higher-level jobs. “If your parents didn’t work in certain professions, [but] instead in mid-level skilled jobs, then you might not have the basics, like how to do interviews.”

Clearly, promotion is not the only measure of success at work. Indeed, some executives may debate the urgency for change. If employees from a lower SEB are happier, and not planning to jump ship, why mess with the status quo? We see two critical reasons:

1. All else being equal, it’s not fair for employees from a lower SEB to have fewer opportunities to advance than their peers.
2. The lack of leaders from a lower SEB deprives the organisation of their diverse perspectives and may have an impact on performance.

A blueprint for change

How might companies resolve the progression paradox? To uncover some answers to that question, we studied a group of employees from a lower SEB who are thriving in the workplace – the most aspirational ones, those who love their jobs and are advancing at their preferred pace. And when we homed in on what their employers are doing differently, five practices stood out.

These companies all offer their workers role models and flexible work arrangements. They are markedly committed to providing an open and transparent environment where it is safe – and even encouraged – to bring your “whole self” to work. They adopt and embed robust anti-discrimination policies. And they all work hard to build trust and give employees the support and autonomy they need in order to build confidence and feel safe taking risks and driving change.  Collectively, we call these five practices the “Blueprint for socio-economic workplace inclusion”.

Consider how two of these practices address the progression paradox. Firstly, anti-discrimination policies can help to mitigate the bias that breeds discrimination and weighs on progression. This might be underpinned by collecting and analysing promotion data through the lens of socio-economic background. As Clare* told us, socio-economic background doesn’t get the “airtime it should”, compared with race and gender. This means “many people don’t even seem to recognise [socio-economic stigma] exists,” she continued.

Secondly, role models can boost aspirations, showcase career paths to emulate, and even become mentors. This should help to create a virtuous cycle in which progression equality becomes normalised, breaking the pattern that Norman* has experienced, where higher-level positions are held by individuals who appear to be typecast for those roles. As he explained, from his perspective it seems that “certain people have certain jobs”.

Clear gains

The potential impact of adopting the blueprint is clear. In the most socio-economically inclusive organisations – where the five practices are most strongly embedded – 93 per cent of employees from a lower SEB feel they have the same chance of success as their peers. This compares to 69 per cent on average, and just 30 per cent in those organisations where adoption of the blueprint is weakest.⁴  Employees from a lower SEB are also promoted more frequently in the most inclusive environments; one in three go up a level at least every three years (compared to one in five on average). 

And the benefits stretch beyond the individual. We find that the profits of organisations most focused on boosting social mobility are 1.4 times higher than those of their competitors. What might underpin this correlation? Companies that prioritise inclusion are clearly enhancing their talent pool. They broaden it, by bringing different attributes, skills, and mindsets into the organisation; and they deepen it, by allowing more of their people, for more of their time, to be more productive.

As Helen Redfern, Group HR Director at Kier, told us: “If you create inclusivity, then the diversity follows, [and] there is huge value creation from diversity of thinking. You don’t get diversity of thinking if you only recruit one type of person.” Her words complement the findings of another Accenture study, which has linked inclusion with stronger innovative potential among employees.

In short, by creating a more inclusive workplace culture, employers reciprocate the loyalty of their employees. They can stop the cycle of people from lower SEB backgrounds getting left behind. And thriving people drive thriving organisations. 

About the Authors

Simon Eaves is the market unit lead for Accenture in the UK and Ireland with responsibility for all industries and services in the area. He is a member of Accenture’s Global Management Committee and was previously Accenture’s chief strategy officer.

Camilla Drejer leads Corporate Citizenship for Accenture in the UK and Ireland, working with its leadership to embed social and environmental sustainability into the DNA of the business and its client work. She set up the business-led youth charity Movement to Work and was its first CEO.

Dominic King is a senior principal in the Accenture Sustainability Research team, where he explores the benefits of responsible business practices. He also leads the UK & Ireland Research team.

References

1. Chartered Management Institute (2022): “75th Anniversary: Socio-economic background in the workplace” https://www.managers.org.uk/wp-content/uploads/2022/01/cmi-discussion-paper-socio-economic-background.pdf
2. Fast-track” refers to employees that reached at least managerial level by the age of 37
3. Calculations use ONS estimates (https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/january2022)of UK workforce size (30m) and Social Mobility Commission estimates (https://socialmobilityworks.org/wp-content/uploads/2021/05/Summary-report-on-measurement-changes_FINAL-Updated-May-2021.pdf)of the proportion of the UK working population that comes from a lower socio-economic background (39 per cent)
4. This analysis compares the top 10 per cent (where the practices are most common) with the fiftieth percentile and the bottom 10 per cent (where the practices are least common)

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Data has massive potential to create both social and business value. Yet, most companies are yet to establish how to best share, analyse or extract value from their own data. A new study by Accenture Research reveals the common barriers to data-based value creation, and identifies how organizations can accelerate ecosystem engagements to realize the full potential of collective data. If data is the fuel of the new economy, then data spaces are its catalyst. With the right business models, infrastructure and governance, data value – and business – can thrive.

Common Knowledge: Value of data increases when shared

We know data has immense value – and that combining and analysing data leads to richer insights and better outcomes. But with the exception of large platform companies, it is difficult for many organizations to derive substantial value from data. In fact, sharing data among multiple stakeholders can open a pandora’s box of concerns. In a recent open public consultation on the European strategy for data, more than two-thirds (69%) of stakeholders cited technical challenges such as formats and lack of standards as the main obstacle to data-sharing. The costs of entry and maintenance are also a common barrier, with 42% reporting this as off-putting.¹  

This is particularly prominent in the B2B sector. A 2022 global Accenture study of more than 4,000 CXOs in 23 countries found the majority (88%) of companies share their data with ease internally, but report higher difficulty sharing externally. And just one in 10 companies find it easy to combine data with external partners within their industry (Figure 1).

N= 4053 CXOs, 50% IT and 50% Business, from 19 industries and 23 countries (Feb-Apr 2022)

Consequently, shared data innovation opportunities remain largely untapped and much of the data generated and held by organizations sits in internal, static siloes gathering (virtual) dust. 

From Places to Spaces – A Data Renaissance

A data space is a “federated data ecosystem within a certain application domain and based on shared policies and rules”.² The three technological requirements are connectivity, digital infrastructure to access and combine data from different sources as well as a software layer to create, manage, and share data.³ What makes data spaces unique is they provide small data (low volume, but very high quality) versus traditional big data (high volume, low quality). 

We analysed strategies and operating and business models of a wide variety of data spaces models and identified four primary archetypes:

1. Data Exchange: A public/private consortium/society creating a safe space and infrastructure for participants to exchange data among themselves. Supports static as well as real-time data. Co-funded by users, pay per use or licensing. Examples include: Financial Data Exchange. 
2. Data Marketplace: Public/private commercial organization offering a marketplace to sell and buy data, often aggregating from other data sources. Monetized through data sale and/or analytics and storage offerings. Examples include: Streamr; OpenPrise; BDEX; Shanghai Data Exchange. 
3. Horizontal Dataspace: Society/Public-Private multistakeholder partnership through which its members provide data, applications, platforms and infrastructure. Wider in scope, aimed at uniting entire industries or companies in a trusted environment around a set of use case. Publicly funded and/or co-funded by users. Examples include: Catena-X; Mobility Data Space; Space Data Space; MELLODDY.
4. Vertical Dataspace: Private commercial organizations which are orchestrated by one company or a consortium to pursue a business objective, funded by services offered. Examples include: Amadeus; Bosch Home Connect Plus; Mobility in Harmony.

Standards/Governance Providers play an important role in providing the “soft infrastructure” for dataspaces by setting standards and governance principles to ensure data sovereignty, interoperability and trust in a multistakeholder arrangement. Typically, they are membership fee funded and are mostly non-profit organizations or associations. Examples include Gaia -X; International Data Space Association; OPC Foundation; CEN-CENELEC; ETSI; ISO; IEC; ITU as well as the various government led organizations such as the IDS. 

Gaia-X is perhaps the most prominent example of a government-led initiative to provide a governance framework. Launched by the German Federal Government and the Plattform Industrie 4.0 in 2019, this open data infrastructure implements a common set of policies and rules, the Gaia-X standard, which can be applied to any cloud platforms. Data from different sources can be merged in the federated, secure infrastructure, allowing users and providers to trust each other on an objective technological basis, and safely share and exchange data.

Building blocks for creating data spaces

What a successful data space looks like can differ by region, industry, objective and regulation – there is no one-size-fits-all approach. So creating and operating a data space requires a nuanced strategy that accounts for these variations.

Through our analysis, Accenture Research has identified four essential building blocks to accelerate data ecosystem engagements and maximise their business value: 

1. Digital Business Models

Perhaps the most compelling opportunity afforded by data spaces is their potential to facilitate innovative data-based business models and create new value. A data space is first and foremost a network. The more companies participate in a data space, the more valuable the outcome becomes for all of them. Therefore, data spaces need to create incentives for companies to participate. We surveyed more than 4,000 global CXOs about the top factors which would make them consider participating in data spaces. One of the top answers was ‘market demand from clients’, i.e. the need to create profitable offerings in the context of data spaces. By showcasing broad-reaching and innovative use cases, data space creators can quickly gain interest and buy-in. 

2. Technology Enablers

Technology is critical to the establishment of a successful data space. Our research revealed that 40% of CXOs felt new technologies such as blockchain and federated learning would make data sharing easier and more secure. 

CTOs/IT Managers looking to set up data spaces must be able to manage access, identity, and governance on a shared technology infrastructure such as a cloud platform. Typically, the platform which hosts data must contain storage infrastructure and a web frontend available as a service. Beyond this basic framework, data spaces need to contain additional technological elements depending on current and planned use-cases. In terms of technology infrastructure, this may mean augmentation with compute, integration, and development platform infrastructure. 

3. Governance Framework 

A coordinated approach requires solid governance structures to balance the stakes from all actors in the dataspace and establish a standardised ‘soft-infrastructure’ for data.¹⁰ Ensuring data quality starts with the Data Owner but flows down the data value chain should become a joint responsibility of all stakeholders. Service Level Agreements (SLAs) are helpful instruments to define service standards alongside accounting, billing, data valuation and smart contracting tools.¹¹

The creation of widely approved data-sharing standards was cited as a key motivating factor for getting involved in data spaces by more than a third of CXOs. This is already happening. For example, consider the EU’s Data Governance Act which will be applicable from the second half of 2023 will introduce conditions on the re-use of data, demand neutrality of data service providers, create a register of recognised data altruism organizations and establish a European Data Innovation Board. This is all with the aim of establishing trust and data sovereignty whilst facilitating the emergence of best practice and a consistent application of the governance framework. Together with the Data Act currently under discussion, this policy will set the standard for all EU data spaces.¹²  

4. Data-driven Culture

Organizational culture cannot be underestimated for its influence over the successful participation to a dataspace and the transformation to a data-driven business model. 

• Culture: Mindsets need to be shifted away from viewing data as a source of proprietary competitive advantage and towards being open to sharing data beyond the boundaries of the organisation. By connecting and communicating with employees about the opportunities, organizations can get employees’ buy-in and commitment. 
• Leadership: Senior leaders in connected enterprises are pivotal. Assigning a C-level executive as data strategy lead can ensure it is given due focus and investment, and they can balance the organisation’s core business whilst maintaining one eye on the future data opportunities. A top-down approach helps kickstart a data-driven mindset across the entire enterprise. If leaders lead by example, this becomes an inseparable part of organizational culture.
• People Management: Organisations should prioritise upskilling their employees to be able to better engage with the data space model, and offer them opportunities to engage with the ecosystem and explore use cases for data exchange, analysis and value creation. By building data analytics capabilities and knowledge, enthusiasm and results will follow.

CXOs told us that they would participate in data ecosystems more if they created ‘opportunities to expand business and ecosystem relationships’ and helped them ‘contribute to society and quality of life’. These reinforce the idea that CXOs need data spaces to be much more than static exchanges; they aspire to join thriving communities built around data, where innovation and ideas are born. 

Conclusion

The value of data increases exponentially when it is shared – yet so many organizations are still hesitant to relinquish their grasp on their own private stash of information. Meanwhile, those spearheading the innovation of new ecosystem models, and deriving demonstrable value as a result, pave the way forward. 

It is currently estimated that 1.7 MB of data are created each second for every person globally¹³, and we expect the rate of data generation to continue to rapidly increase. To be a leader in the future data economy it is crucial to join and contribute to multiple data ecosystems. By putting in place the four building blocks for creating data spaces, you can share the collective value of data and best harness its power. 

About the Authors

Svenja Falk is Managing Director and leads Accenture Research Europe. She also is deputy chairwoman on the Council on Digital Sovereignty in Germany and honorary professor at the Justus Liebig University Giessen.

Surya Mukherjee is a Senior Principal at Accenture and Head of Technology Research in Europe who explores the transformative impact of technologies on industries, companies, and brands.

Laura Wright is a Research Manager and leads Europe Thought Leadership at Accenture Research.

The authors would like to thank Laetitia Cailleteau, Mattia Dalle Vedove, Samira Azam, Kathleen Trickey, and Gargi Chakrabarty for their support.

References

1. Public Consultation on the Data Act: Summary Report https://digital-strategy.ec.europa.eu/en/public-consultation-data-act-summary-report
2. OPENDEI: Design Principles for Data Spaces, April 2021, pg 7
3. OPENDEI: Design Principles for Data Spaces, April 2021, pg24
4. https://www.here.com/platform
5. https://www.melloddy.eu/new-research-consortium#:~:text=(June%203%2C%202019)%20%E2%80%93,10%20pharma%20companies%20and%20to
6. mih-ev.org/en/consortium/
7. https://catena-x.net/de/
8. https://catena-x.net/de/
9. Gaia-X, a multistakeholder-led open data infrastructure: https://www.gaia-x.eu/what-is-gaia-x 
10. https://h2020-demeter.eu/wp-content/uploads/2021/05/Position-paper-design-principles-for-data-spaces.pdf
11. https://h2020-demeter.eu/wp-content/uploads/2021/05/Position-paper-design-principles-for-data-spaces.pdf
12. https://www.europarl.europa.eu/news/en/press-room/20211129IPR18316/data-governance-deal-on-new-rules-to-boost-data-sharing-across-the-eu
13. https://time.com/6108001/data-protection-richard-stengel/

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The UN Climate Change Conference of the Parties (COP26) in Glasgow saw a welcome spate of commitments being made to address global warming. There, among many other agreements, 191 countries finalised the Paris Rulebook, which sets out a framework for reducing greenhouse gas (GHG) emissions to zero. In concert, a diverse group of business leaders voiced pledges around biodiversity, deforestation, renewable energy and much more, reflecting the escalating sense of responsibility within the business sector to tackle climate change.  

The central question now is this:  how well do these commitments translate into action?  

Europe’s place in the race to net zero

Seeking to learn more about what it will take to go from commitment to achievement, Accenture Research has studied the efforts European businesses are taking to meet the targets outlined in the 2015 Paris Agreement. Its primary goal: limiting the average rise in global temperature to well under 2°C, and ideally to no more than 1.5°C, to try to avoid severe climate disruptions and the resulting damage and suffering.  

Achieving this aim requires halving GHG emissions by 2030, and eliminating them by 2050. To assess progress against goals, we analysed the net-zero targets of Europe’s largest listed companies, looking at 1,022 companies  on the FTSE, Deutsche Börse and la Bourse de Paris (Euronext Paris). 

What we found was both promising and sobering. On the upside, as of August 2021, almost one-third of the 1000+ largest European companies had outlined net-zero targets. Promising headway, given that, only two years ago, the idea of net-zero emissions often slipped under the radar of discussions in the global business community.  

In addition, 9 per cent of European companies have been able to cut their own emissions in half over the past decade. This is the rate of emissions reduction that all companies need to achieve in order to align with the Paris Agreement. These exemplary frontrunners show that reductions at the scale and pace required is attainable with the right strategy and investment. 

On the downside, this group of companies on track to achieve a climate-neutral world by mid-century is clearly still very small. Most companies will need to rapidly ramp up efforts to reduce GHG emissions – doubling the pace of reduction in the next decade, with further acceleration beyond. For some industries, becoming carbon-neutral will require no less than a reinvention of the core business.  

What is net zero?  The Intergovernmental Panel on Climate Change (IPCC) defines net zero as: “Net-zero emissions are reached when anthropogenic (so human-caused) emissions of greenhouse gases to the atmosphere are balanced by anthropogenic removals over a specified period.” 

A reduction roadmap

There is no single route to net zero; different industries must find different pathways to meet the targets. But we do know that European businesses must urgently accelerate the pace of emissions reduction to bridge the “opportunity-action gap”. Learning from the experiences of the companies who are meeting net-zero milestones, we have identified three actionable practices to consider and adopt:  

1. Set science-based targets 

Targets work. Our research found that European companies with a net-zero goal reduced their emissions by 10 per cent on average over the past decade, while those without targets saw their emissions increase.  

We also see that targets are most effective when guided by science and supported by concrete action plans and intermediate milestones. At COP26, the Science-Based Target initiative (SBTi) launched the world-first net-zero corporate standard. Committing to science-based targets certified by the SBTi is a marker of credibility. Its requirements – for setting intermediate targets, focusing on short-term emissions reduction and taking action beyond the value chain – encourage focus and momentum. 

The SBTi also helps businesses home in on the different types of emission reduction they need to address.  To meet SBTi standard criteria, reductions must occur across all scopes of emissions to zero or a level consistent with reaching net zero in 1.5°C-aligned pathways. The SBTi criteria also suggest a starting point for robust data collection and analysis, so that companies can assess progress and take action accordingly.  

Danish energy company Ørsted had its 2040 net-zero full-value-chain decarbonisation plan verified by the SBTi, making it the first energy company with a validated net-zero target. Starting in 2008, the company has changed its entire business model, transforming from a fossil-fuel-intensive energy utility to a renewable-energy company focusing on wind farms, solar electricity panels and bioenergy plants.  

At Ørsted, operations and energy production (scopes 1 and 2) are on track to be carbon-neutral by 2025, and net zero across the value chain (scope 3) by 2040. Ørsted has also realised strong financial performance as its work progresses, reporting an increase in earnings in 2021 compared to a year earlier.

2. Apply carbon intelligence 

Increasingly, companies realise that decarbonisation is key for their competitiveness going forward. Our analysis shows that a moderate increase in the price of carbon, to a global average of $40 per ton, would have a significant impact on operating margins for many companies. In energy-intensive industries, more than half of the operating margin could be at risk. 

To best manage progress toward targets, companies can benefit from investing in their capabilities to track, trace and manage the right data. Next to understanding  income, revenue and costs, companies need information on their environmental impact, including data about GHG emissions and carbon flows across their value chain, to inform business decisions.  

For example, “internal carbon pricing”, when monetary value is attributed internally to GHG emissions and becomes part of the budgets of different departments, is a useful tool to incentivise low-carbon behaviour and decision-making. One company implementing this tool is the insurer Swiss Re. To reach net-zero operations, Swiss Re compensate unavoidable emissions through carbon-removal certificates, each carrying a levy of US$100 per tonne of CO2; for example, departments can buy carbon offsets, within the limits of their monetary budgets 2.   

3. Collaborate across value chain 

A company’s relationships across its supply chain have to be increasingly collaborative in order for it to achieve net-zero emissions. For many companies, scope 3 emissions represent the majority of their emissions, while being the most difficult to address, as they are beyond the companies’ direct control. 

The good news: one company’s scope 3, is another’s scope 1 or 2. So by leveraging influence and collaborating across the value chain, scope 3 emissions can be reduced.  

Consider, for example, coffee and milk. Dairy is vital for coffee brand Starbucks, because its consumers guzzle it. In fact, dairy accounts for 22 per cent of the company’s global carbon footprint. The company purchases milk from dairy cooperative Arla, so it falls into Starbucks’ scope 3 remit.  

For Arla, however, the carbon associated with dairy production is classified as scope 1 emissions. Arla aims to cut emissions by 30 per cent over the next decade, and to be carbon-neutral by 2050. If this is successful, Starbucks will also be 7 per cent closer to its net-zero target. The companies are now working together to innovate new ways of working and develop new products that will reduce both their carbon footprints.3  

Reduce emissions and increase value  

The push for emissions reduction offers enormous opportunities for growth. Markets for low-carbon solutions – for renewable energy, electric mobility or sustainable fabrics, for instance – are growing rapidly, and low-carbon alternatives are expected to overtake today’s incumbent products as the dominant products in many markets. And there are opportunities to reduce costs, for example by switching to renewable energy and optimising energy use in buildings. 

An Accenture 2021 research project identified new sources of value at the intersection of digital technologies and sustainability, and found that companies delivering this “twin transformation” approach are 2.5 times more likely to be among tomorrow’s strongest-performing businesses 4. 

The countdown to zero 

The European business community is increasingly committed to achieving net-zero emissions. Yet the majority of European companies remain off the pace needed to meet the 2050 global net-zero goals. And there is little time to get on track, as GHG emissions need to fall by 50 per cent by 2030 to do so.   

But those 1 in 10 companies that are on target prove that it is possible. COP26 demonstrated that the business community and their stakeholders are aligned on the need for urgent action on climate change. We must learn from those leading the pack and share and build on best practice. 

Through collaboration and by decisively implementing tried and tested solutions, businesses throughout Europe can pick up the pace and start hitting crucial milestones in the race to zero. 

About the Authors

Jean-Marc Ollagnier is the chief executive officer of Accenture in Europe, with management oversight of all industries and services in Europe. Based in Paris, he is also a member of Accenture’s Global Management Committee.

Sytze Dijkstra is a senior principal at Accenture Research for European and Sustainability Thought Leadership in Amsterdam, Netherlands.

Monique de Ritter is a research specialist at Accenture Research for European and Sustainability Thought Leadership in Frankfurt am Main, Germany.

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Most European business leaders think of cloud as shared, public data centers to host workloads for cost savings — and don’t use it enough for bigger business goals. Recognizing the cloud as a continuum of opportunities can put European companies on a competitive footing with their global peers.

Most European business leaders use cloud in their organizations today. Early on in 2020, when the world of business was reeling from a fast-spreading pandemic, European companies took a global lead in compressed migration, moving workloads to the cloud in months rather than years to keep up with changing behaviors. The result is impressive: nine out of 10 companies in Europe report cost savings on the cloud, much more than the seven out of 10 in North America. 

But now, their early lead is dissipating; they risk falling behind. 

That’s because many of them confine their activities on the cloud by viewing it merely as shared, public data centers that host workloads to reduce costs. Our research earlier this year found “cost savings” was the top priority for European senior executives in 2020; this is in sharp contrast to “increased customer value” for their counterparts in North America and “faster time to market” in China. Not surprisingly, European companies are not appropriately using the cloud and cloud-enabled technologies to target more ambitious business goals, such as sustainability and exceptional customer and employee experience.

Consider this: Chief executives in the US and China are beefing up their organization’s cloud portfolio. Their companies expect to grow investments between 5 to 8% in cloud between 2020 and 2024. In comparison, European business leaders say they will increase cloud investments by less than 3%. Our research shows European companies would have to grow cloud investments by 12.7% to reach where the US is today in one year. And at the current pace, it will take them three years to catch up. This gap will remain, and even widen if they don’t step up investment and leverage cloud in more significant ways.

Of course, a limited view is not the only factor holding back European companies from advancing on the cloud. To better understand how their cloud journey differs from the others, we relied on our global survey of 3,863 senior executives—spanning 16 industries in 25 countries—completed between late 2020 and early 2021. 

We collected data on a variety of factors such as: a) adoption and scaling of technologies associated with cloud, b) the organization’s cloud journey, strategy, and goals, c) management practices around cloud, d) multiple measures of financial and operational performance, and e) the impact of cloud on innovation and sustainability outcomes. We supplemented that with interviews, case study research and economic modelling.

Evidence collected during our research suggest that many companies struggle to balance world class cloud innovation while navigating Europe’s complex regulatory landscape of data sovereignty and trust. These factors weigh down those organizations and create data silos that impede interoperability. In fact, six out of 10 European companies resort to creating data silos for sensitive data. These silos, which may seem unavoidable, can impede the development of robust data supply chains necessary to fuel innovation and value maximization. 

Seeing opportunities in the Cloud Continuum

Chief executives at a subset of European companies—one in 10 in our research—have figured out how to address the specific challenges to advance on the cloud.

They recognize the cloud as a continuum of capabilities that can make them globally competitive and locally responsible. Today, the Cloud Continuum (Figure 1) spans different types of ownership and location (from public to private or hybrid to co-location to edge), all dynamically supported by next generation connectivity, such as 5G and software defined networks. 

These business leaders make choices from across the Cloud Continuum to create a seamless technology and capability foundation for the organization that best serve their business needs now and into the future. 

They view the cloud not as a single, static destination. Instead, they use it as an operating model that defines the organizational ways of working and behaviors. They promote “cloud first” applications, designed specifically for the cloud and not just on-premise applications modified for the cloud, for their value chains. And their board members back the ambitious cloud projects. We call these companies Continuum Competitors.

Take IKEA. Cloud defined the Swedish furniture group’s response to the pandemic. Business leaders responded to the crisis-fueled online shopping frenzy by instantly transforming the company’s technology infrastructure, converting closed stores into fulfilment centres, and enabling contactless ‘Click & Collect’ services while increasing the capacity to manage large web traffic volumes and online orders. Cloud technologies allowed IKEA to achieve in weeks what would normally have taken years or months – and the group has now put it at the heart of a permanent reinvention of operations.

4 steps toward Europe’s cloud success

Chief executives with the strongest orientation to cloud and cloud-based advanced technologies for decision-making achieved and even surpassed their business goals. Among the companies in our survey, the Continuum Competitors were three times more likely to “humanize” work and make it more interesting and less repetitive. Their carbon emission reduction was almost twice as much as companies with a less advanced use of the cloud. Most importantly, they achieved three times more cost savings than migration only companies.

These four steps can help guide companies toward a successful journey on the Cloud Continuum.

Step 1. Build a strategy backed by business cases to step-up investment

The C-suite may not be cloud experts, but their backing is crucial to kickstart ambitious cloud investments. To demonstrate that benefits of cloud projects outweigh costs, project teams must quantify the long-term as well as intangible benefits of the cloud. They also need to underscore the role of cloud in their company’s overall business transformation, including workforce and operational transformation. Cases must establish cloud’s innovative capabilities to create new products and services for future revenue streams. 

Danish brewer Carlsberg’s Sail ’22 project — a strategy to cut operational costs and invest those savings in future growth — illustrates how to advance on the Cloud Continuum, with clear priorities, unwavering commitment, and heavy involvement of top leaders, was struggling to grow amid rising costs and evolving consumer tastes. Launched in 2016, Sail ’22 prompted Carlsberg to transition 100 percent of its global process workloads to the cloud, choosing Microsoft Azure as a partner.

“With cloud, our network capacity is 10 times what it was, which means our users experience much less latency,” says Carlsberg CIO Sarah Haywood. “The use of self service and bots, which respond to natural language questions, is far beyond what we had before.

“All this means our people get to focus their brainpower on those things that make a difference for our customers and consumers.” 

Step 2. Create an architecture of balance, exert control and lead with trust 

For any cloud solution to work given Europe’s regulatory landscape and business environment, it must be a three-legged stool comprising balance, control, and trust. Companies need to mix and match a variety of clouds to achieve balance, actively control where data resides and is processed with technology and hold their cloud providers to the same level of trust standards that customers expect of them.

Take Siemens AG. The company’s rapid pivot to Industry 4.0 and becoming a highly advanced industrial manufacturer a few years ago was largely enabled by the fluid architecture of the Cloud Continuum. Siemens’ business leaders recognized its customers – mostly engineering and manufacturing companies – could use vast amounts of data from their factories, equipment, and production processes to operate more efficiently. To do so, those companies would need to embrace digital transformation—driven by automation, edge, and cloud computing. 

Today, Siemens’ multi-cloud strategy allows it to offer offers a range of cloud-based solutions to customers in many other industries, including healthcare and infrastructure, to suit their unique preferences. 

Step 3. Establish cloud practices to support and augment your technologies

In a world where roughly one third of workloads are in the cloud, migrating and sitting back to enjoy the ride is not a winning strategy. The key is to couple technology adoption with practices that bring discipline and help bring a company’s non-technology areas up to speed. 

There are six other top practices that a company must embrace to successfully expand on the Cloud Continuum. 

• Feed it forward Agility: Speed time to future markets, again and again
• Continuous Goals: Alignment is continuous, not episodic
• Cloud first Apps: Cloud is the developers’ default
• Talent Transformation: Compress transformation continuously
• IT Experimentation: Unremittingly upgrade experiences
• Scale Awareness: Predict the power requirements for new generation of Cloud AI Services

Researchers at Swiss healthcare Roche used specialized NLP systems in a particularly novel way: To mine social media conversations and better understand symptoms that impact Parkinson’s patients. It was a new approach to data sourcing and analysis—both of which are native to the cloud—to rethink a traditional research process. 

Werner Boeing, former CIO, Roche Diagnostics, said, “People believe that IT is about technology, but it’s really a behavioral science understanding the behaviors of your company’s staff, leaders and customers and facilitating the adoption of a new vision.”

Step 4. Accelerate innovation to deliver exceptional experiences

Continuum Competitors use a combination of human centered design and cloud-based technologies to rethink experience and disseminate throughout the entire organization including Products and Services, Employee Experience and Delivery Models. To them, experience obsessed reimagination of their business is a competitive differentiator, enabled only by the Cloud Continuum. 

That’s the situation at Phillips, the Dutch multinational and its healthcare technology company. Philips began its journey to the cloud in 2014 with an open, cloud-based healthcare platform. The company took a step further in 2019 when it partnered with Microsoft to innovate on the Continuum for an operating room of the future. Here, Philips’ Azurion image-guided therapy platform will be combined with Microsoft’s HoloLens 2 holographic computing platform to provide augmented reality applications for minimally invasive therapies.

The Cloud Continuum is still a somewhat unexplored topic for many European business leaders. They must get started now and change the way they view the cloud to achieve substantial, sustained payoffs for their organizations in the future.

About the Authors

Jean-Marc Ollagnier is the chief executive officer of Accenture in Europe, with management oversight of all industries and services in Europe. He is also a member of Accenture’s Global Management Committee.

Sybille Berjoan leads the Accenture Research European team and drives the European Thought Leadership agenda.

Surya Mukherjee is the European tech research lead at Accenture Research in London.

Gargi Chakrabarty is a senior editor at Accenture Research in Boston

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Accenture’s recent survey of 700 C-suite executives of large businesses in Europe reveals confidence that new global leaders can emerge from this region. They also identify the primary barriers to that end—and the ingredients needed to succeed.

Europe’s large companies need much more than a return to pre-pandemic strategies to be competitive in the coming years. That’s not a negative statement, though. It’s a challenge, which, if accepted, could lead to significant market wins over the long term, in addition to an estimated net job creation of 5.7 million across Europe by 2030.

But there’s not a lot of running room. Large companies in Europe are recovering more slowly from the pandemic than their peers in the US and China. In a best-case scenario, according to Accenture’s new global survey, European companies on average are expected to get back to their pre-Covid-19 profit levels by mid-2022. Meanwhile, APAC companies expect to recover to those levels by the end of 2021, and North American companies, on average, are targeting early 2022.

One major reason why that’s the case: Europe lags most in the domains linked most closely to the digital economy: tech, and software and platforms. That isn’t surprising news, given where European companies were just prior to the pandemic. In 2019, just 3 of the top 20 High Tech companies were European (and European companies held 8% of the global market share), and 3 of the top 20 Software and Platforms companies were European (with European companies holding 7% of the global market share) in 2019. But it still presents a considerable hurdle.

The heartening news is that Europe nonetheless has a strong foundation on which to build, and at least one clear advantage. Before the pandemic, European companies held more than a quarter of leading positions in every industry except for Technology and Software. And European businesses lead overall on sustainability efforts. In fact, half of the most sustainable companies globally are European. That last is a critical point, as the promise of blending sustainable and digital transformations to create value has become clear (See TEBR, March 2021: “Why Fixing the Planet is also about Seizing Business Opportunities”.)

Our current global research, which included 700 European C-level executives of large companies in a survey that spanned  11 industries and 13 countries affirms this¹.  Our findings in fact show sharp increasing demand for sustainability correlating with powerful emerging industries in Smart Manufacturing, Digital Health, Smart Mobility, and Energy Transition (including low-CO₂-emissions industry, and clean hydrogen technologies and systems). These areas have implications that cross traditional industry lines, as the chart below shows. 

More specifically, our research finds that the top three emerging domains in Europe represent an enormous market with outsized growth potential: a threefold increase in market size for digital health between 2020 and 2025, a threefold increase in market size for smart mobility in that same period, and a 2X increase in market size for smart manufacturing.

A much-needed surge

Where Europe needs to surge, then, is in digital adoption, including Artificial Intelligence, 5G, hybrid cloud, and clean hydrogen; companies also need to integrate those investments, strategically, with sustainability efforts. Early signs of this happening are positive. We found, for example, that 88% of European companies plan to increase their investments in digital transformation (and in linking digital to sustainability transformation) in 2021.

However, making this spending worthwhile means engaging in a broader effort: building the ecosystems needed to power innovation and delivery and ensuring the readiness of the workforce to contribute. Productive momentum and lasting success will additionally turn on the ability of European governments and the EU to set new policy based on collaborative discourse.

Ecosystems

According to the World Economic Forum, some 60% – 70% of new value created in the economy by 2030 will be based on digitally enabled platforms². To that end, business leaders need to develop business models that eschew vertical integration in favor of cross-industry collaboration and innovation. New ecosystems must also tap the expertise of startups and the academic communities, to help keep cutting-edge ideas at the fore.

In Automotive, to take one example, 48% of the new value created by 2030 will be related to mobility and digital devices³.  And the Catena-X network, formed in March 21, is on the case⁴.  This network is made up of automotive manufacturers and suppliers, dealer associations, and equipment suppliers including the providers of applications, platforms and infrastructure. Its goal is to create a uniform standard for data exchange along the entire automotive value chain (the European International Data Spaces Association (IDS) standard forms the basis for data exchange in the network). Network participants expect this to yield more efficient quality and logistics processes, greater transparency in terms of sustainably reduced CO2 emissions, and simplified master data management. The network will also make it possible to create digital twins of the automobiles, forming a basis for innovation. Pilot projects are currently expected to focus on five areas: quality management, logistics, maintenance, supply chain management and sustainability.

Workforce

Reskilling the workforce will support employment growth, with promising opportunities to do so including enhanced STEM development, life-long learning programs, and industry-specific training.

With the pandemic persisting as we conducted our interviews, health and safety remained the top “people” issue for European companies across all industries; 72% of our respondents felt this way.

But two other challenges were also significant, related to the effect of automation on jobs (47%) and reskilling/upskilling (45%).  Automotive and Energy & Utilities executives (57% for both) cited automation as a significantly pressing issue, as did Comms & Media and Industrial executives (53% for both). Reskilling appeared most pressing for Banking/ Insurance (56%) Energy & Utilities, and Retail, Pharma and Industrial Equipment executives (52%).

There’s good news here in that 86% of companies in our study plan to upskill/reskill up to 25% of their workers in the next three years to keep pace with their company’s need. That adds up to 7 million up- and re-skilled workers. The challenge lies in moving from plan to continuous practice.

European governments and the EU

Some of the biggest challenges facing European companies are external. In their digital transformation efforts, for example, our survey participants cited a lack of harmonized rules and standards for use of tech in their industry sector, as well as regulatory barriers, among their top challenges. Similar issues stymie sustainable transformation, they reported, including lack of regulatory certainty, guidance, and standards.

As one consumer goods CEO from Italy said: “Within Europe, we need a strong cohesion, and with cohesion, we can – as team players – achieve a quantum leap in the standards of European Cooperation.” An executive in the communications and media field, in Poland, concurred: “We desperately need a European industrial policy.”⁵

The top concrete actions that our survey respondents identified as priorities for the EU and European governments are as follows:

To help companies achieve their digital goals, executives expect the EU and European governments to: invest in emerging technologies (47% ranked this first); advance European standards on cybersecurity (38%); and invest in training schemes and upskilling programs related to digital (37%).

To support sustainability, our respondents look to the EU and European governments to prioritize: supporting relevant skills development initiatives at national and European levels (35%); investing in hubs and networks to scale up and commercialize breakthrough technologies (25%); and supporting the recognition of existing corporate governance guidelines, e.g. ESG reporting requirements (25%).

To help develop the much-needed workforce, C-levels expect the EU and European governments to: invest in industry specific upskilling/ reskilling programs (43% ranked this first among priorities); Invest in training programs for emerging industry segments (35%); and invest in training schemes and upskilling programs to develop specific skills (34%).

BUILD ON MOMENTUM

Describing what’s needed is the easy part. Executing the necessary changes in organizations and governments will be far more difficult. But courageous leaders will persevere. There’s already momentum on which they can build. And lasting rewards in sight.  

About the Authors

Jean-Marc Ollagnier is the chief executive officer of Accenture in Europe, with management oversight of all industries and services in Europe. Based in Paris, he is also a member of Accenture’s Global Management Committee.

Sybille Berjoan leads the Accenture Research European team and drives the European Thought Leadership agenda. She’s based in Paris.

Regina Maruca is senior principal at Accenture Research and is based in Boston.

References

• ¹ Accenture Research interviewed 700 C-suite executives from large companies (50% above $10bn revenues) in 11 industries and 13 countries via online surveys in March-April 2021. Each interview took 30 minutes. Subsequently, we conducted phone interviews with 35 C-suite executives from 11 industries and 14 countries via phone in February-March 2021. Each interview took ~40 minutes. The full report is available at Europe’s new dawn (accenture.com).
• ² Shaping the Future of Digital Economy and New Value Creation > Platforms | World Economic Forum (weforum.org)
• ³ Accenture Research, 2020. Mobility X | Accenture
• ⁴ https://catena-x.net/de/
• ⁵ Accenture Research in-depth interviews on Europe industries rebound and reinvention, February – March 2021.

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Europe needs to keep producing chemicals, steel, and cement while reducing emissions from those industries. Here’s how companies can slash carbon output while at the same time improving their competitiveness.

Tackling climate change and at the same time meeting consumer expectations requires businesses to rethink how they make and market things. This is increasingly needed for the materials that scaffold modern life: steel, cement, and chemicals.  These industries have outsized footprints on our daily living, from the homes we live in, to the cars we drive, to the office buildings where we work. In Europe, they account for almost 6 million jobs and 3% of its GDP. But current processes of making them also emit high amounts of carbon dioxide and greenhouse gases into the atmosphere.

Chemicals, steel, and cement industries emit about 311 million tons of carbon a year in Europe – accounting for more than half of its total industrial emissions. And the numbers likely will grow as Europe’s population climbs and cities expand, spiking demand for their products.

Overall, many European industries have tried to address climate change, putting nearly 10% of capital expenditures toward energy efficiency measures to reduce emissions. But that pace and size of investment is not nearly enough to meet the European Union’s long-term goal of making the region climate-neutral by 2050, in compliance with the Paris Climate Agreement.

It’s not just government: consumers want faster change too. We surveyed 1,400 utility consumers last June spanning the United Kingdom, France, Germany and the United States. We wanted to gauge if their feelings about climate change – mostly linked to emission of pollutants into the atmosphere from industrial activities – had shifted amid COVID-19. Our research¹ found 60% of consumers have become more aware of climate change and its environmental impact since the outbreak, while half of them said this awareness would influence their decision on purchases.

Hoping to push along this energy transition, the European Union has tied climate goals to its €750 billion pandemic recovery package for industries announced in July 2020. Our research suggests that four EU countries – France, Germany, Spain, and Portugal – could allocate between €20 billion to €38 billion from the package to reduce carbon emissions by 2025.

Structural challenges, competitive pressures

Transition issues for industries are more complex than just the upfront cost of buying and installing technologies. As it is, the cost of doing business is structurally higher in Europe than elsewhere, largely due to higher energy costs. And competitive pressures continue to mount as European businesses deal with COVID-19. In November 2020, 45% of European C-levels said they expect Europe to be less competitive than China after the current crisis – as compared with 17% who had that view earlier in May.

The biggest challenge for industries making low-carbon investments is balance and timing, given that such technologies are maturing at uneven speeds. Pouring money in too early could mean a trade-off between lower returns and higher emissions reductions, while waiting too long could lead to missed opportunities in lucrative markets.

Reducing emissions from industrial processes while being cost competitive isn’t easy but can be done – with digital enablers. A recent Accenture report² found that companies which pursue such a twin transformation – combining digital technology adoption with sustainability – are 2.5x more likely to be among the companies that emerge strongest from this current global crisis.

So, what should industries do? We studied six of them for actionable solutions –  the legacy industries of steel, cement, and chemicals, and the emerging industries of pharma, battery manufacturing, and data centers. We found these industries could implement specific short- and medium-term tactics in the next three to five years to stave off any trade-offs between investments in low-carbon solutions and cost competitiveness and also spark long-term business growth. Digital technologies such as artificial intelligence, Internet of Things, blockchain, digital twin, and more can facilitate the rapid development and adoption of these solutions. These technologies can foster agile innovation processes, better insights into opportunities in the business ecosystem.   

Our analysis suggests European companies can not only position themselves to achieve the ambitious EU target of 55 percent emissions reduction by 2030 but also unlock around €28 billion in business value across these six sectors by 2025. The resulting carbon emissions reductions would total 137Mt, more than the total greenhouse gas (GHG) emissions of the Czech Republic in 2018.   

Practical steps for European companies

We identified four practical steps for investment that can help industries achieve the dual goals of accelerated emissions reductions and business growth while positioning them for future opportunities. Digital technologies are critical enablers for executing these steps effectively and at scale, enabling real-time monitoring, facilitating collaboration across consortia and ecosystems, and providing transparency and convenience for consumers.

1. Measure and monitor footprint

Map carbon footprint and energy landscape to identify opportunities for emissions reduction, process optimization, and value creation.

Identifying opportunities for emissions reductions starts with a detailed understanding of the carbon footprint and energy landscape of business operations. Energy and materials flows sin industrial processes are highly complex. IoT technology embedded in assets combined with advanced analytics capabilities enable detailed and forward-looking understanding of wasted energy and unnecessary emissions.

Honeywell, a technology and performance materials company based in Charlotte, NC, has a vision of the future: one that is characterized by the use of technology (connectivity and artificial intelligence, among others) to optimize energy and resource use.  To this end, in 2019, Honeywell launched Honeywell Forge, an IoT platform that helps clients collect data from their operations and makes it easy to display and analyze. The intent is to use software to improve operational efficiency, reducing waste and energy costs. The company has improved its own energy efficiency by 70% since 2004.³

Smart Moves

• Embed IoT and AI technology into assets and processes to gain real-time insight into energy & emissions footprints
• Adapt frameworks for decision making (e.g. business cases) to include emissions and energy-use criteria
• Set targets to reduce impacts by processes and KPIs for continuous improvement

2. Scan the frontier

Structurally monitor low-carbon technology cost levels and technology maturity to identify key technology enablers for decarbonization and inform opportune timing for investment.

Technologies that enable emissions reductions have developed rapidly over the past decade. Some, like renewable energy generation, have developed into mature, commercial markets. E-mobility solutions and intelligent energy management are also reaching this stage, while others remain pre-commercial and sub-scale. Understanding how solutions are moving across horizons is essential for anticipating the right timing for investing.

SusChem, the European Technology Platform for Sustainable Chemistry, supports sustainable chemical and biochemical innovation.⁴ It develops and leads large-scale, integrated research and innovation programs on behalf of its members, and also disseminating critical intelligence. This includes, for instance, a common Strategic Research and Innovation Agenda⁵, which identifies key technology priorities to address EU and global challenges.

Smart Moves

• Create dedicated teams responsible for understanding technology trends and exploring relevant opportunities
• Integrate scenario thinking into business strategy to anticipate demand for sustainability solutions
• Engage with external experts and partners to share and develop cutting-edge market intelligence

3. Connect the value chain

Build cross-industry consortia that can work closely with regulators and local governments to find joint, bigger opportunities for reducing emissions and unlocking trapped value.

Opportunities for emissions reductions do not end at company boundaries. In fact, collaboration creates new opportunities for larger emissions reductions. Waste energy and material streams can find useful applications at partners on a single site or along the value chain. And pooling of resources and expertise can accelerate commercialization of new solutions for emissions reduction by identifying and testing early use-cases, supported by stimulus and subsidy funding. Consortia at industrial clusters can serve as early test beds for new concepts that bundle multiple solutions (e.g. large-scale renewable supply and hydrogen production).

Tata Steel is a partner in the Athos consortium, which provides for the construction of a basic transport infrastructure in the North Sea Canal area to enable the use or storage of CO2 under the North Sea. This project is a joint initiative of Gasunie, EBN, Tata Steel and Port of Amsterdam. It brings together all the key capabilities that are needed to establish a CCUS value chain: Tata Steel will capture CO₂, Gasunie has experience with building infrastructure and transport, EBN has knowledge of geology & storage, and the Port of Amsterdam facilitates and coordinates companies in the area.  The consortium approach in this industrial cluster makes it possible to capture, store and reuse large quantities of CO₂ emissions before 2030.

Smart Moves

• Establish consortia at industrial clusters to create, test, and scale technology solutions for sustainability impact
• Utilize technology such as blockchain to trace resource use within ecosystem partners.
• Closely work with peers, national and local governments, and policy makers towards an orchestrated European energy transition strategy that safeguards the European competitive edge and level playing field

4. Improve user experience

Embed low-carbon criteria into product & service design for better product performance, longevity, safety, and quality at affordable costs.

Action on reducing emissions really starts to drive competitive advantage when it informs product design and customer experience. Helping customers meet their own climate ambitions through low-carbon products takes the business benefits beyond cost savings. And ever -improving technology means that low-carbon design can also bring better performance, longevity, safety and quality – at affordable prices.

Swiss multinational LafargeHolcim launched ORIS, a digital pavement design and sourcing tool for low-carbon, smart road design. With ORIS, the carbon footprint of road construction can be reduced by up to 50%, while increasing road lifespan by up to 3 times and lowering the costs by 15% to 30%. The tool assesses road design from construction down to maintenance. It uses a suite of digital platforms, hybrid cloud, digital design services, artificial intelligence, and Industrial Internet of Things to incorporate and assess materials knowledge in cement and concrete products and building solutions.

Smart Moves

• Optimize emissions and energy footprints of products by integrating these criteria into product design briefs, supported by digital twin technology
• Develop and market low-carbon premium product ranges to help customers reduce their footprint
• Use traceability technologies such as blockchain for greater transparency around resource use

Getting it right

Europe is at a pivotal moment. The European Union has stepped up efforts to become zero-carbon by 2050, tying the pandemic-related stimulus euros to clean energy transition. Now EU businesses must respond by accelerating their emissions reductions – to their competitive advantage. 

About the Authors

Jean-Marc Ollagnier is the chief executive officer of Accenture in Europe, with management oversight of all industries and services in Europe. He is also a member of Accenture’s Global Management Committee.

Sytze Dijkstra is a senior principal at Accenture Research for European and Sustainability Thought Leadership in Amsterdam, Netherlands

Lasse Kari is the global energy research lead at Accenture Research in Düsseldorf, Germany

Gargi Chakrabarty is a senior editor at Accenture Research in Boston

References

• ¹ https://www.accenture.com/us-en/insights/utilities/leading-energy-transition-in-tough-times
• ² https://www.accenture.com/us-en/insights/strategy/european-double-up
• ³ Honeywell Annual Report 2019
• ⁴ Suschem. What is Suschem. http://www.suschem.org/about
• ⁵ Suschem. Strategic Research and Innovation Agenda. http://www.suschem.org/highlights/suschem-identifies-key-technology-priorities-to-address-eu-and-global-challeng

The post Smart Moves for Europe’s Energy Intensive Industries appeared first on The European Business Review.

Companies everywhere must find new sources of value creation both inside and outside traditional industry boundaries.

For decades, industry definitions have been used to both group certain companies and business activities together as well as to serve as the starting point for growth and operational business strategies.

In a pre-digital world, that thinking made a lot of sense.

Today, however, traditional industry boundaries are often blurred as companies jostle with convergence and consolidation. Strategy development in this boundaryless environment requires a new perspective. Companies need to think first about what they are famous for, and from which capabilities and services their business, employees and customers derive value, rather than their historical industry affiliation.

Profits Tell the Tale

To understand why the industry lens for strategy creation needs to be rethought, one can start by examining profitability across industries. Our analysis of the profit of the world’s largest public companies by industry over a two-decade period found that approximately one-third of industries have seen a sharp decline in overall profitability, while in the other third, profit trends have been flat.

This trend began in roughly 2003, with accelerations in 2005 and 2015. It has continued through the COVID-19 crisis, with a widening gap between the top of the pack and the bottom. According to our analysis of the 2,000 largest public companies globally, using financial data from Capital IQ, industries that were in the top quintile before the crisis (such as software & platforms and life sciences) have pulled ahead from the less-profitable industries that were traditionally lagging. In the first half of 2020, the top quintile of companies overall had an average gain in profit of $3.4 billion while the bottom quintile lost money, by about $1.7 billion per company. That is a performance gap of almost $5 billion.

This and other research conducted at Accenture point to a clear trend: traditional industry-level approaches to value creation are not working in at least two-thirds of industries.

Classic industry strategies, such as Porter’s Five Forces, are less and less effective in a converging marketplace. Ask yourself instead, “what is it that you actually do? What is your purpose?” “What do you uniquely contribute to the ecosystem you serve?” Looking at your strategy in a new way will allow you to identify untapped opportunities to create value.

The Role of a Lifetime

Our extensive qualitative analysis finds that leading companies are focusing on the roles they can play in creating customer solutions within their own industry and across new industries, often through their participation in large, complex, digitally-enabled ecosystems. Examples of roles include business activities such as creating intellectual capital, managing inbound and outbound logistics, or developing relevant, purpose-driven consumer experiences.

Our research identifies five business archetypes, each of which aggregates a set of roles that define how a business meets customer needs. These archetypes are not mutually exclusive nor collectively exhaustive; companies can, and often do, play more than one archetype.

Here are the five most important business archetypes:

• Explorer: invents new materials and processes and originates breakthrough components for use in many products.
• Producer: manufactures existing and newly invented materials and components at low cost and scale.
• Assembler-Distributor: brings together components, adds value and then distributes a final market-ready output.
• Personalizer: designs highly relevant customer solutions and experiences from the world of available components.
• Networker: facilitates the flow of digital and material goods across the roles.

Consider Apple’s ecosystem of value creation. Apple is the Personalizer that designs what Foxconn the Assembler makes, bringing together thousands of components from hundreds of Producers and Explorers, such as Samsung and Corning, around the globe. Li & Fung is a central Assembler in the apparel industry, connecting thousands of cut-and-sew Producers to Personalizers around the globe.

Consider Fujifilm’s progress over the past couple of decades. Had the company looked at value-creation opportunities only through the lens of the photographic-film industry, it might not have survived. But because it pursued value-creation based on its Explorer archetype, Fujifilm found a future in cosmetics, imaging, pharmaceuticals, and data storage. This lens adjustment proved critical for the company. By abandoning industry-centric thinking, Fujifilm could apply its competence in areas like collagen application to new high-value activities and high-growth opportunities, rather than continue to chase shrinking fortunes in the photographic film industry.

We believe roles represent the new fundamental strategic choice when finding value in digital transformation. In increasingly industry-blurring ecosystems, how you expand and exploit your role, or multiple roles, will determine the opportunities you can access and those you will be shut out of.

Seeing is Believing

In applying this new lens of seeking role-based excellence for value creation, we see four essential activities:

See Opportunity Differently

Look for a role you can play in underserved industries. Determine where profits are centered – by role – and where competition is likely to intensify.

Disruptors look at opportunity in non-traditional ways. They gain a new advantage by staking a claim in the broader ecosystem, drawing heavily on innovation from outside traditional industry boundaries. Part of Netflix’s early success came from seeing how badly Blockbuster was performing its primary job, which was fast evolving into making digital content available to consumers. Netflix saw the immediate benefit in expanding the availability and selection of content by mail and more recently expanded its reach across industries with the development of original programming. Similarly, Uber saw that the taxi industry was not fully satisfying the role of transporting people. Now it not only exploits technology to enhance its ability to fill the role of moving people, its Networker focus has allowed it to expand as a provider of food delivery with Uber Eats.

See Competitors Differently

Redefine your competitive landscape, specifically outside your industry, based on the roles you currently play.

Some disruptors place bets around the role they play, often to the consternation and confusion of industry analysts.

Look at Tesla. By adopting an “open source” position regarding its intellectual property, Tesla sought to secure its position as the indispensable Explorer within the broader electrical storage and battery ecosystem, especially as the invention relates to automotive applications.

Why did Tesla specifically choose to specialize around the Explorer role? One reason could be, because it recognizes that established Assemblers and Producers (automakers and their OEM suppliers) dwarfed it in size and would most likely continue to do so. Tesla has also been prepared to accept other automakers as Personalizers in the electric vehicle space. Tesla consistently seeks to cement its original innovations in the center of the broader ecosystem. This is especially true when it comes to battery storage and charging – a positioning that would enable further growth into an array of distinct industries like utilities that will increasingly be drawn into the battery and storage ecosystem.

See Industry Differently

Look for where scale and consolidation will blur industry lines.

Once a company becomes good at an archetype’s set of roles, it can often accelerate its growth by crossing traditional industry boundaries. Amazon never limited itself to the industry lens of online book retailing. While viewed as a bookseller early on, the company has always been an Assembler-Distributor, facilitating the flow of goods through world-class sorting and outbound logistics capabilities. Now Amazon is seeing the opportunity in owning and controlling the Networker archetype in its businesses.

Similarly, UPS has been focusing on being the outsourced logistics provider of an ever-growing number of companies while continuing to improve in its Networker roles. With healthcare shifting to the home, UPS sees opportunity in using its residential delivery network to connect doctors and healthcare companies with patients.

BMW started off as a producer of luxury automobiles. In 2019, the car maker co-founded the Open Manufacturing Platform with Microsoft to launch a digital ecosystem to enhance efficiencies and identify innovations at scale through cross-industry collaboration, venturing into a Networker archetype. To date, members include Anheuser-Busch InBev, Bosch and ZF Friedrichshafen, among others.

See Organization and Governance Differently

Understand which archetypes can successfully coexist in a company. Then understand the governance structure needed to successfully manage businesses of multiple archetypes.

The case for collaboration is stronger than ever. It takes such a significant investment to develop new products and services and to penetrate new markets that few companies can deliver exceptional performance across all the archetypes on their own. Not every company can respond to changes in the business environment based solely on their internal resources or abilities. Seeing and exploiting the synergies between archetypes and deciding the best partnership and collaboration structure is key.

Firms like Apple and Samsung have chosen to work closely with other businesses to improve and sustain their own competitiveness. While Apple and Samsung compete aggressively for smartphone market share, inside the iPhone there have always been essential parts that are supplied by Samsung. While this may seem counterintuitive, it is essential for the survival of both companies. Chip manufacturing is asset intensive and prone to obsolescence. Therefore, chip makers need to sweat the assets, making and selling as many chips as possible as fast as possible. To override this primary Producer strategy to achieve its goals as a Personalizer would put Samsung’s business in peril.

Business roles represent a fundamental strategic choice of the future. If you strip away the traditional industry category, what roles can your company play to create value? What unseen opportunities does that create for you, for your traditional space and for innovation? Moving from an industry lens to a role and value-based lens will give your company a frame through which to innovate and the ability to identify new opportunities for growth and collaborative connections to accelerate results.

The authors would like to thank Paul Barbagallo, Dave Light, Svenja Falk, Paul Nunes and Ana Ruiz Hernanz for their contributions to this article.

About the Authors

Rachael Bartels is responsible for developing the talent and offerings of function networks and programs within Accenture Strategy & Consulting.

Kathleen O’Reilly leads Accenture Strategy, which creates shareholder value and enables competitive agility by partnering with boards, CEOs and C-suite executives to define and answer their most strategic business questions.

The post Focus on Value: What Your Company Does Matters more than Where It Sits appeared first on The European Business Review.

The challenge is as old as business itself: How do you get people in different parts of an organization to work together to solve common problems? Yes, COVID-19 has hastened a great coming together – across functions, disciplines, industries, geographies. But for many business leaders, the task of breaking down silos continues to be devilishly difficult, crisis or not.

Rather than cooperating, too many functions are still competing for power, influence, and precious investment capital. In a survey of more than 1,500 global senior and C-level executives of industrial companies we conducted prior to the COVID-19 pandemic, 75 percent told us their business functions (e.g., R&D, engineering, production) are competing against each other instead of collaborating on digitization projects. And these rivalries are more than a mere annoyance: They’re costly. From 2017 to 2019, the firms we studied expected a revenue growth rate of 11 percent but were only able to achieve about half of that – 6.5 percent. And this is mainly because of cross-functional competition.

It’s easy to put the blame on ego-driven personalities and territorial skirmishes, but the reality is, many companies have actually craved the creative chaos. For many years, cross-functional competition helped diversify the risk of experimenting with new digital technologies. One digital bet made by Engineering might be successful, but a bet made by Production might not. Either way, the company benefits in some way.

But this strategy has a downside. Functions create value for themselves rather than the company. Some functions transform, others don’t, and the company ends up with patchwork quilt of digital competency. And it doesn’t get the most out of their digital investments. While this creative-chaos strategy might’ve worked in the early days of digital, now it’s destroying value.

So, for executives, the question becomes, how do you walk the line? How do you allow for enough cross-functional competition while ensuring the right amount of collaboration?

We mapped two critical parameters – companies that (1) outperformed their industry peers at driving up the top line with their digital investments and (2) achieved above-industry average revenue growth over the last three years. We saw that only 22% of our sample demonstrated both.

We then dove deeper into that group to learn what they did differently. We focused on what survey respondents overall had identified as their top challenges and how companies in our leader group had dealt with them. Five best practices emerged from that analysis.

Practice #1: Set a clear digital strategy that’s commonly understood.

Albert Einstein once said, “The definition of genius is taking the complex and making it simple.” This is a universally applicable idea, and it certainly applies to digital strategy. If you want people to collaborate effectively, everyone needs to understand what the end game is. That requires discipline of focus. 

Take Caterpillar Inc. According to Ogi Redzic, Caterpillar’s chief digital officer, the company focuses only on a few initiatives and technologies that can make the biggest impact – rather than undertaking dozens, if not hundreds, of projects and applications. One of those is predictive analytics, which everyone understands. Predictive analytics help prevent machinery downtime – a key concern of customers. 

“Digital doesn’t mean going for the latest and greatest technology development but applying the appropriate technology for your customers and for your desired business outcome, regardless of where that technology is in its adoption curve,” Redzic told CNBC. “Latest is often not the most appropriate.”

Practice #2: Put someone in charge of cross-functional collaboration.

In most large companies, there is one C-suite executive who oversees all digital-transformation efforts. But firms in our leader group take the idea one step forward. They make that one person responsible for ensuring that all functions collaborate well. Eighty-two percent of the companies in our leader group have one C-suite executive who drives digital transformation and is also responsible for its success in each function.

Case in point: a North American technology company that put one person in charge of IT and digital transformation. Already a chief information officer for the group, the person received the added responsibility of chief digital transformation officer (CDO). In this role, the now CDO serves as the single point of accountability for company-wide, end-to-end operations, systems and tools. The person is also responsible for driving collaboration across multiple functions and accelerating the company’s software-as-a-service (SaaS) transformation and M&A integration.

Having a single point of accountability has helped the company shift from being merely an IT hardware manufacturer to managing an empire of data-center hardware, software, and cybersecurity products and services.

Practice #3: Prioritize projects that require cross-functional collaboration.

Leaders know where and how to allocate capital. They prioritize projects that get people talking to one another and working together. 

Meviy, the online platform launched by Japanese industrial-equipment parts manufacturer MISUMI in 2016, is a great example of digital project that brings together functions – namely engineering, purchasing, and manufacturing.

Meviy allows customers to upload 3D designs of desired components and uses a proprietary AI algorithm to assess the manufacturing feasibility of each component. The platform then provides an instant estimate of the component manufacturing cost and delivery time. The order is then automatically converted into manufacturing data and communicated to the factory machine tools for processing. The Meviy platform, with many moving parts and functions, simply would not work without cross-functional collaboration.

Practice #4: Make sure your digital solutions and platforms speak the same language.

Companies in our leader group are more likely to have interoperable digital platforms (71 percent versus 64 percent). Take Covestro, the German specialty chemicals company. In 2017, Covestro launched its Optimized System Integration (OSI2020) platform to digitize production systems and unite them and the data they contain within a single shared platform. With this new cohesive system in place, Covestro’s plant facility engineering, operations, and manufacturing functions are now safer, more reliable and more efficient. And fully interoperable.

Practice #5: Create ways for IT and OT teams to work together.

Cross-functional collaboration works best when teams are equipped with the technology and expertise to gather, deliver, and analyze data in ways that unlock the best insights.

Leaders create such an environment for collaboration by spelling out clear guidelines on how their information technology (IT) and operating technology (OT) teams should work together. They also favor multi-disciplinary teams with the tech know-how to gather, deliver, and analyze data that yield highest-value business insights.

Consider Western Digital. Early in its digital transformation, the company established a data- governance group across the two technology domains. This group focuses on identifying, educating, and guiding “data stewards” – employees to champion data quality and data sharing initiatives within and between their respective divisions. The group is empowered to manage core platform decisions for every function. This helps Western Digital leaders know how to best organize, secure, and extract insights from every piece of data. At the same time, this approach also creates a culture of data sharing and accountability that echoes through every business function.

Collaboration is No Longer a Nice-to-Have.

Cross-functional collaboration is not an end state, or even a means to an end. It’s a central organizational imperative for companies in a post-COVID-19, never-normal world, and a strategic focus for executives tasked with sustaining digital-transformation efforts. When executed effectively, greater collaboration across functional boundaries can not only reduce waste and costs but also earn measurable financial returns.

As companies continue grappling with the adoption and implementation of digital technologies, or with hastening their digital transformations, they may easily lose sight of cross-functional collaboration. But companies in our leader group recognize it as fundamental to their business. Like efficiency and productivity, it’s becoming an increasingly important barometer for success in difficult times.

About the Authors

(Left to Right)

• Bhaskar Ghosh is an adviser to Accenture’s CEO.
• Nigel Stacey is managing director and global lead for Accenture’s Industry X business.
• Raghav Narsalay is a managing director at Accenture Research in Mumbai.
• Aarohi Sen is a manager at Accenture Research in Delhi.
• Paul Barbagallo is a manager at Accenture Research in Boston.

The post 5 Keys to Resolving Cross-Functional Rivalries in your Digital Transformation appeared first on The European Business Review.

Two months ahead of most other businesses in dealing with COVID-19, companies in China offer key insights into what it takes to regroup, rebuild, and position for growth.

Two months from now, how well will companies around the world be adapting to the challenges posed by COVID-19? The actions and experiences of businesses in China suggest some answers.

Chinese companies are about two months ahead of most other businesses in their efforts to mitigate the virus’s effects. By the end of March, for example, construction was back to 80 percent of previous levels, from a low of 20 percent. Home appliance production had rebounded to more than 90 percent, from lows of 50 percent. Even while factoring in varying levels of government oversight and incentive in different countries, these figures point to smart practices for others to implement.

To identify those practices, Accenture surveyed more than 100 Chinese executives representing such industries as chemicals, consumer goods, energy, financial services, freight logistics, life sciences, and travel. We then interviewed a number of other leaders, from CEOs and chief digital officers to heads of supply chain, R&D, and factory operations.

We found that leading companies have concentrated their efforts in two areas. First, they set out to steady the business. The crisis has proven to be a huge testbed, especially for examining processes and technology infrastructure. As one executive put it, the effects of the virus “made us see everything that didn’t work.”

Second, they have learned to stretch the business. Many have made efforts to help battle the effects of the virus—actions that have incidentally strengthened their brands. It has also led some companies to discover crisis-borne innovations with high potential. Rather than retreat, one executive emphasized that “it’s important to have a growth mindset amid such a crisis.”

Steady the Business

The company leaders we spoke to have taken three steps to steady their businesses. Almost all, for example, were quick to set up a crisis-management team. What’s different from the usual approach: a focus not only on internal operations but on the entire ecosystem. It’s more of a “control tower” approach, set up to take a big picture view—and to ensure that managers throughout the business also see and understand that view.

One example comes from the 50-50 joint venture between Dongfeng Motor Group and Nissan. The crisis management team includes experts from production, logistics, marketing, new product development, and HR. They meet daily with suppliers, relaying information on topics ranging from employees’ well-being to inventory and logistics, and communications with local governments to other company executives. They also conduct scenario-planning exercises and develop plans to prepare the company for policy changes and shifts in the market.

Through this process, the company was able to move quickly to reassign more sales support to online channels, producing a “digital marketing playbook” to train employees. It also elevated the virtual shopping experience for customers, with techniques ranging from virtual reality-powered online car demos to door-to-door test-drive bookings. On the supply side, the company also got a jump on engaging more local parts-makers to ensure production in April and May.

Chinese companies have also pushed the boundaries of digital tech in innovative ways. For example, 63 percent have improved coordination between physical and online sales channels, with a focus on growing the online channels in distinctive ways.

Consider retailer Suning.com, which despite the “dot-com” has 1,600 retail stores in China. Suning turned many stores—closed to walk-in business—into live-streaming marketing channels, essentially live broadcast rooms, featuring employees in new roles as online influencers. This “social commerce,” already disrupting online retail in China, now reaches more than 60 percent of the country. For shoppers, the draw is entertainment, information, the chance to ask questions and offer up comments, and of course to make purchases. On March 6, Suning’s physical stores across China hosted more than 5,000 livestreaming events, with more than 2 million viewers in attendance.

Another area of boundary-stretching: using digital tech to conduct maintenance remotely. More than half of the companies we spoke to are doing this. For example, as elsewhere, China has constructed new hospitals on the fly. One industrial equipment company, XCMG, used a software platform to not only to monitor all of its construction equipment in real time but also to screen the body temperatures of its workers.

Some companies have pushed the boundaries on remote R&D. Insurance company China Life relied on a cloud-based platform it had deployed in 2019 to continue work during virus-compelled shutdowns. This platform integrates tools, codes, and hardware resources, enabling developers to collaborate easily. Already the end of February, the R&D center had completed 25 COVID-19 related tasks remotely. These included, for example, upgrading the infrastructure to support call-center employees working from home. Each of these tasks, on average, took just 8.6 days to launch.

Finally, companies rebounding in China have also shifted from a mindset of “just in time” to one of “just in case.” They have expanded their supply chains, focusing on strengthening relationships with local suppliers. Informed by their crisis team, two-thirds of surveyed executives said they’ve been evaluating future demand and adjusting inventory levels with greater care. Many are also scrutinizing logistics lead times and delivery schedules far more closely.

Instant noodle and beverage producer Master Kong, for example, drastically ramped up communications with retail outlet leaders. The company was able to get a jump on changing demand, first shifting inventory and support away from large, physical retail channels to online channels and smaller stores, and then quickly shifting again as larger physical retailers reopen. (In China, the public was more inclined to patronize smaller stores in their own communities, buying smaller amounts and spending less time shopping each trip. They were more reluctant to travel to larger retailers where they were more likely to spend longer in store and encounter many more people.)

Stretch the Business

As the crisis grew—and as we’ve seen around the world—many Chinese companies enlisted in the fight. Does it help the brand? Yes. Was that the motivation? No. It was just the right thing to do.

Longer term, what’s critical is the high-potential innovation that may emerge.

Meanwhile, China Unicom has partnered with Meituan, a food and retail delivery service. The telecom giant will support Meituan’s autonomous delivery vehicle with a 5G network. In a world that increasingly seeks “contactless” commerce, Meituan is piloting the use of two autonomous vehicles for grocery delivery and also ramping up production of robots for smaller deliveries.

Digital technologies have clearly become the load-bearers for the kinds of cross-company collaborations that crisis-response efforts have required. But as one executive put it, “It seems as if this crisis will be a breakthrough for ecosystem collaboration.”

“Flattening the curve” has become a widely used phrase since the emergence of COVID-19. But to most companies “getting ahead of the curve” has been an attractive concept for much longer. Companies in China are showing others, through their experiences, how to get ahead of the curve on surviving the crisis at hand and preparing for a strong future.

About the Authors

Frank Riemensperger (left) is Chairman of Accenture Germany, Austria, Switzerland and Russia. Svenja Falk (center) is a Managing Director with Accenture Research. Serena Qiu (right) leads Accenture Research in Greater China.

The authors would like to thank Ling Deng, Ajay Garg, Henning Lebbäus, David Light, Regina Maruca, Surya Mukherjee, Han Song and Mei Wang.

The post How Businesses Are Getting Back on Track in China appeared first on The European Business Review.

The next wave of innovation will see products and services combining technology from across the digital, physical and biological worlds. Intersections between these worlds are opening up new sources of sustainable value, providing a foundation for such technology.

2019 has been the year that the tech Unicorn lost its wings. What was supposed to be a coming out party in which a bumper crop IPO’d has turned into an annus horribilis. The 25 that listed have seen their combined market value decline by 17% (as of the time of writing). Name brands like Uber, Pinterest, Lyft, Slack and Peloton hvave seen falls ranging from 6% to 47%.

But there are exceptions. Beyond Meat has seen a 231% rise. 10x Genomics 76%. What distinguishes these two groups? While the former focused on incrementally retrofitting digital technologies onto the world, the latter are creating sustainable value by more fundamentally weaving them into its very fabric. This approach will form the foundation of the next wave of innovation.

New opportunities are coming from creating products and services that combine technology from across the digital, physical and biological worlds. It is the intersections between these worlds that are opening up new sources of sustainable value.

Take buildings. New entrants are going beyond using digital technologies to optimize their use, and are instead rethinking their fundamental design and purpose, creating a built environment that lives and breathes. Pavegen seeks to deploy new materials in flooring so that it can generate electricity through footsteps. Basilisk is pioneering a new form of concrete that can self-heal. Econcrete partners with cement makers to produce modified concrete that fosters the growth of plants and animals. And 3M has developed roofing granules used in asphalt shingles to reduce smog – each ton of these granules has the capacity to mitigate the smog created annually by one car driven 3,000 miles.

Emerging innovators are also targeting human biology. Platforms like WeChat and Snap have enabled us to develop and edit our virtual selves. But a combination of AI, robotics and CRISPR may soon enable us to edit and upgrade our physical selves. Biotech start-ups are using machine learning to identify cancer-curing agents and wearable robotics start-ups are working to enhance human strength and mobility. Roam builds robotic exoskeletons that help Navy Seals run faster and more efficiently and has begun offering a commercial device for skiers. Seismic’s activewear looks and feels like apparel but is fused with discreet robotics to augment human strength. Its Powered Clothing suit supports the body’s core by providing up to 30 watts of power to each hip and the lower back.

Early-stage capital is already switching its attention to these new opportunities. Our analysis of global VC flows over the past five years shows that funding to physical and biological technologies has increased by 441%, almost double the rate of digital technologies.¹ Y Combinator, the Silicon Valley “accelerator” that supports early-stage start-ups put 23% of its 2018 investments toward physical or biological technologies, up from 4% in 2013.² 

The digital, physical and biological systems upon which these examples are built are more complex to engineer and scale than pure-play digital solutions. To succeed, would-be innovators will need to re-focus their efforts in three ways.

1. To innovate at the next frontier, disrupt your R&D habits

Companies will need to go beyond today’s proven digital technologies to innovate at the next frontier. And doing so depends on fundamental research, and the requisite skills, knowledge and infrastructure – as well as patience. This will prove challenging for many. It’s true that overall spending on R&D has been increasing in recent years: our analysis of the innovation habits of the largest 10,000 public companies by revenue over the past five years shows that average R&D spending rose by 31%. But that spending tends to be focused on incremental innovation in the legacy business. In a survey we conducted of 1,090 executives, only 18% reported they were applying disruptive innovation in emerging businesses.³

Ikea counters this trend. To take aim at radical solutions for a sustainable planet, it funded a fully independent R&D lab called Space10. The lab’s staff is made up of a rotating group of freelancers, selected for their expertise project-by-project in areas such as architecture, clinical psychology and 3D imaging. Space10’s projects have included Building Blocks, an open-source blueprint for low-cost modular housing that can be printed and adjusted to the environment; Lokal, a vertically integrated salad bar based on hydroponic and aquaponic farming that Ikea plans to offer via at-home kits; and Neatball, a set of meat-free alternatives to the 2 million meatballs the retailer serves each day.

According to Space10 co-founder Simon Caspersen, “We try to find patterns in the chaos. But we don’t look for solutions for Ikea, we look for solutions for humanity. And then say, ‘OK is that something that could be relevant for Ikea to actually solve?’ Which just gives us a completely different perspective.”

Marriott is another company using R&D facilities to push the frontiers of its business. Its lab, called The Underground, is a 10,000 square-foot space in the basement of its headquarters. It is a maze of rooms, each a working prototype of a guest space in one of its hotel brands. Ideas from The Underground are channelled into its M Beta hotel in Charlotte, which operates in “live beta,” with guests giving feedback in real-time. One floor is dedicated to “Stay Well” rooms, which features chlorine-neutralizing shower heads and lights that adjust to the sun’s natural movements.

2. To achieve scale, don’t be afraid to make new friends

While developing internal R&D capabilities is important to making new breakthroughs, few organizations will have access to the full range of capabilities required to take them to market at scale. After all, operating beyond the confines of digital technologies means dealing with the messiness of hardware, requiring access to highly developed industrial design and manufacturing skills. This calls for new models of collaboration that span the digital, physical and biological worlds. 

Corteva Agriscience, which was spun out of the chemical giant DowDuPont, is one company building a network of partners to scale its innovations. It has pioneered the first large-scale industrial use of CRISPR/Cas9 genome editing, which makes it possible to deliver nutritious plants that could occur in nature or be developed through conventional breeding, but faster and more efficiently. There are a range of potential applications for the technology, including creating low-gluten wheat, improving the flavour and cost of decaffeinated coffee with a naturally decaffeinated bean, and reducing vineyard fungus affecting the wine industry.

To accelerate their development, Corteva and the Broad Institute of MIT and Harvard have jointly offered access to their CRISPR-Cas9 technology for use in agricultural applications, removing a significant barrier for organizations of all sizes to apply it. One such organization is Simplot, which is using the technology to bring desirable traits forward in fruits and vegetables such as potatoes. This could reduce the bruising and browning of potatoes, eliminating some of the 3.6 billion pounds of potatoes wasted each year.

3. To reduce risk, get serious about corporate venturing

The infrastructure, skills and resources needed for the next wave of innovation require substantial funding capacity over an extended period. Testing and scaling is much more costly when it involves purchasing hardware as well as software, which is available and relatively inexpensive from the cloud. Not only is the capital intensity higher than digital product development, the payback periods are typically further in the future because of the longer time to market for frontier technologies.

In order to reduce the risk associated with their innovation efforts, incumbents are broadening the investment vehicles they use beyond their internal R&D efforts and M&A activities to also encompass a greater focus on corporate venture capital (CVC). According to CB Insights in 2018 CVC funding hit an all-time high of $53 billion, an increase of 47% over 2017, and up from $10 billion in 2013. 264 new CVCs invested for the first time – spanning industrial verticals from logistics and shipping (Maersk Ventures) to automotive (Porsche Ventures) – with 773 CVCs making investments. In the United States, CVC constituted 50% of total venture capital deal value in 2019.

These investments aren’t just about capital, they also come with the provision of technical and operational expertise. Nor are they solely allocated externally – internal teams can also access it. The biotech company Genentech, which became a subsidiary of Roche in 2009, runs an innovation fund that supports employees with novel ideas that aren’t necessarily being explored by the company, such as new drug-delivery systems or applying AI to drug design. The industrial giant Siemens runs a Quickstarter program that allows employees to independently allocate money to support the development of colleagues’ ideas. And ZX Ventures, the brewer AB InBev’s CVC, runs a two-week boot camp every summer for around 15 AB InBev employees, where they learn and then apply techniques for developing new products.

The past era of innovation, in which atoms were replaced by bits, saw industry incumbents fundamentally challenged by start-ups. The next era of innovation may be different. The future will advantage those with patience, partnering prowess and risk management capabilities, all of which are more commonly associated with incumbents.

The 2010s were the age of the Unicorn. Will the 2020s be the age of the incumbent?

Acknowledgements
The authors thank Dave Light, Mike Moore, and Babak Moussavi of Accenture Research for their contributions to this article.

About the Authors

Jean-Marc Ollagnier is CEO of Europe for Accenture. Vedrana Savic is a managing director with Accenture Research.

The post How the Next Wave of Innovators will Change the Fabric of the World appeared first on The European Business Review.

More than ever, industry giants are applying what we call “non-incremental” innovation, to shake up their established businesses. Our research shows that, during the next five years, many companies plan to double down on non- incremental innovation. To get the most out of their efforts, incumbents will need to rethink how they invest and who they partner with.

At big multinationals, recent decades proved to be a golden age for the pursuit of incremental innovation. Cautious improvements in products, services and operating processes, the thinking went, would allow industry giants to strengthen their dominance.

Those days are over, our research shows, as technology-fuelled disruption is forcing the world’s largest firms to change how they innovate. More than ever, incumbents are applying what we call “non-incremental” innovation, to shake up their established businesses.

The Next Wave of Innovation

What is non-incremental innovation? It’s the kind that propels the creation of a new product or service, using a new technology (think of the first iPhone); or that introduces an entirely new offering (think of the hyperloop mass transit technology, which has the potential to enable travel at previously unimaginable speeds).

Another example is the artificial meat industry, which, though not new, has taken off and is now estimated to be worth $1.8 trillion globally. Traditional food industry giants, such as Tyson, Perdue and Nestlé, have jumped in, battling tech startups for market share. From burgers to meatballs to chicken nuggets, these incumbents have invested in meat alternatives that can be found on supermarket shelves.

In 2018, Unilever, yet another incumbent, acquired Vegetarian Butcher, a Dutch pioneer of plant-based meat, as part of its strategy to expand into healthier, more eco-friendly fare. Burger King has committed to using Vegetarian Butcher’s patties in its Rebel Whopper, which will be sold in 2,500+ restaurants across Europe.

We estimate that, in 2019, 1,090 large companies allocated nearly $1.8 trillion to drive innovation in their old lines of business (which still account for nearly 60% of their companies’ revenues, on average), compared with $1.4 trillion allocated for innovation in newer businesses (Figure 1).

Our research shows that, during the next five years many companies plan to double down on non-incremental innovation in their old businesses. Whether this shift to non-incremental innovation will pay off for incumbents is unclear. But executives certainly are optimistic. Of the 1,090 companies we surveyed, 40% that plan to intensify their non-incremental innovation also expect to achieve double-digit growth in their old businesses in the next five years – a far rosier outlook than among companies that have decided to pursue other innovation strategies (Figure 2).

Prepare for the Innovation Wave

To get the most out of non-incremental innovation, industry incumbents will need to rethink how they invest and who they partner with in the future. While it may be intuitive to prioritise investments in new technologies, that will not be enough. What will be even more critical is the creation of supporting capabilities (e.g., new facilities, such as innovation labs) and a focus on enabling employees (e.g., through specialised training) to apply non-incremental innovation in ways that greatly improve outcomes. Non-incremental innovation will likely be more challenging to scale, too. That is why companies will need to rely more on partners outside of their industries.

Prepare to invest beyond technology

Investment stakes are particularly high when it comes to implementing non-incremental innovation. One reason: companies often need access to technologies that are not (yet) proven or affordable.

Consider the application of the breakthrough robotic technology that enables doctors to conduct minimally invasive surgery. MIS represents a major disruption to the field of surgery; it replaces the traditional practice with a technique that involves only a few small incisions, made by a surgeon augmented with a robotic arm. For patients, MIS offers many benefits over traditional surgery, including reduced blood loss, less pain and faster recovery. Yet these benefits have not been enough to overcome the costs associated with MIS, especially the $1 million–$2 million price tag of a typical surgical robot.

If such fixed costs were spread across higher volumes, however, MIS could well become cost effective. To increase MIS adoption, hospitals will need to invest more in training surgeons (and other staff) in how to use MIS at scale. The broader point: to accelerate the adoption and diffusion of non-incremental innovation, companies should prepare to invest in new capabilities and to enable employees to work in different ways, with effective help from technology.

One example of this is the Hospital Corporation of America (HCA), the world’s largest private hospital group, with nearly 300 hospitals, 240,000 nurses and 37,000 doctors in the US and UK. HCA isn’t skimping on its technology investments – it’s invested over $400 million in surgical robots. Yet it’s also making complementary investments, including a residency program (to train surgeons for MIS) and a dedicated robotics service line (to offer surgeons better administrative support).

Prepare to rethink partnerships

Incumbents also need to think carefully about where the demand for offerings enabled by non-incremental innovation will reside. Often, these will be in areas beyond their comfort zones. To increase the reach of non-incremental innovation, incumbents must become “boundary spanners” – forming new, sometimes unconventional partnerships and alliances outside of their existing markets. Enel, the Italian energy utility, has excelled in this area.

Consider the impact that electrification of vehicles is having on utilities across the globe. Given a healthy projection for the demand for electric vehicles (EVs), much stress will be placed on utilities to generate and distribute electricity,  especially when many EVs will likely plug in for fast-charging during peak load times. Recognising this early, Enel developed a bi-directional recharging system based on vehicle-to-grid (V2G) technology that promises to transform a large fleet of parked electric vehicles into a virtual powerplant.

To use this innovation to transform its old business model (which was centred on generation, storage and distribution of electricity from a central grid to a decentralized micro-grid), Enel is partnering with Japanese auto manufacturer Nissan, which has a strong foothold in the EV market. Nissan started to pilot the potential of the V2G technology with Enel in 2016, and the partnership has since evolved significantly: notably in 2019, Enel, Nissan and the public research company RSE (Ricerca Sistema Energetico) launched a centre for testing a comprehensive range of V2G technology functions in Milan, equipped with Nissan LEAF cars and charging infrastructure developed by Enel X.

As a result of the partnership, Nissan’s EVs can exchange electricity with Enel’s power grid and contribute to its ancillary services, which include the optimisation and regulation of electricity demand. The benefits of the partnership flow both ways, allowing Nissan to offer cutting-edge technology in its cars.  Nissan has  established similar partnerships with other utility providers in Germany, France and the United Kingdom and has plans to explore similar opportunities in Australia and Chile.

The reality of how innovation is applied in large organisations today stands in sharp contrast to that of the not-so-distant past. Non-incremental innovation is no longer on the periphery of old businesses; whereas it was once reserved predominantly for experimentation with new business ventures, often in nascent markets, it is now the driver of the profound changes that we are starting to see everywhere, including in food, healthcare, cars and energy access.

Faced with this reality, large incumbents should waste no time preparing to put non-incremental innovation into practice. There is no better way to begin such preparations, our research suggests, than by refocusing investment and partnering strategies.

About the Authors

Gianfranco Casati (left) is Accenture’s Chief Executive Officer for growth markets.
Vedrana Savic (middle) is Managing Director for global thought leadership at Accenture.
Koteswara Ivaturi (right) is a manager at Accenture Research.

The post Preparing for the Next Wave of Innovation? Think Beyond Technology appeared first on The European Business Review.

The stigma long associated with mental health challenges is fading. Companies should turn that to their advantage. Technology can help.

Companies increasingly understand the value of having an inclusive culture at work. When a culture is open and supportive, employees are more likely to love their jobs, be more productive, and advance to more senior levels in the organisation over time.ⁱ

One area of inclusion that still gets far less attention than it needs, however, is mental health. That’s unfortunate because, according to the results of a recent Accenture survey of 2000 workers in the UK, nine in ten individuals have been affected by mental health challenges – either their own, or those of a family member, friend, or co-worker.ⁱⁱ

How can companies strengthen – or jumpstart – their mental health offerings? Technology can be a useful tool in three ways: getting the word out; enabling support 24/7; and helping employees help one another:

Getting the Word Out

Although most of the C-level executives in an earlier Accenture survey were aware of the mental health services offered within their organisation, that number dropped to 50 percent for workers below the manager level.ⁱⁱⁱ So as a first step, executives can take to their email to alert employees about services that the company may already be offering.

They might also consider writing a blog, posting a video, or hosting a webinar about mental health support at work and the company’s desire to normalise the topic. Opening up about challenges they themselves have faced can be powerful as well. Senior leaders, by their actions, can shift a culture quickly. Yet only 14 percent of our respondents had ever heard a senior leader talking about the importance of mental health. Just one in ten had heard a senior leader talk about being personally affected.

Enabling 24/7 Support

It is important for people to be able to access help when they need it, and to do so anonymously if they prefer. Toronto counselling services, online counselling services, chat rooms, peer groups, “open” around the clock, will typically allow individuals to remain anonymous, enabling someone who is not ready to talk openly to seek help.

In the UK, Accenture employees have access to the “Big White Wall,” a confidential (and anonymous), professionally managed chat environment dedicated to providing mental health support.

There is an important caveat to consider regarding online support though. When offering access to external services, a company will need to screen each one thoroughly. And there is not yet enough rigorous independent testing of these resources to facilitate that process. The good news is that with that goal in mind, one working group led by NHS England (which includes MedCity, the National Institute for Health and Care Excellence (NICE), Public Health England, and DigitalHealth.London) is developing guidance and standards to address the issue. More immediately, the Duke of Cambridge in September of 2018 launched an online platform called Mental Health at Work. The site serves in part as a forum on which to share the most effective tools for employers.¹

Another concern, and one expressed by a majority of the respondents in our survey, is that seeking tech support for mental health challenges might delay someone from getting the professional help they might need. Company training can help employees to understand what needs can be met online and when it’s important to get help from a medical professional.

Helping Employees Help One Another

Online classes and webinars can teach employees how to recognise the signs of stress, anxiety, and other mental challenges in themselves and in others. Online instruction can also teach someone how to respond if a colleague opens up to them. Of the individuals in our study who had opened up to someone at work, 61 percent said that they had shared their challenge first with a close colleague. Just 15 percent had chosen an HR or wellbeing specialist as their first point of contact.

At Accenture, we offer a variety of online courses in this spirit, including a straightforward overview of what mental illness is and what current treatments are available (and what they’re like) in the medical field. We also have a “Mental Health Allies” program, through which employees can receive additional training that is initially classroom-based in the UK, with follow-up webinars to keep skills up to date, to become a designated source of front-line support for anyone in the organisation who reaches out to them.

Almost everyone in our survey saw some benefit in being able to open up to another at work. These benefits included a decrease in levels of stress, a decrease in feelings of isolation, an increase in confidence, and useful guidance on taking positive steps to get help.

Younger, Older, and In Between

Our findings suggest, perhaps unsurprisingly, that the youngest workers in our study – the digital natives – are more likely to take advantage of technology-based resources than others. But consider: Across England from 2016 – 2018, people increased their use of mobile technology to manage physical and mental health by 30 percent. During that same period, they increased their use of health-related wearable technology by 40 percent.^iv Companies that follow this clear consumer trend can tap the power of technology to great effect, as part of a holistic approach to improving employee health and wellbeing, and creating and sustaining a powerful, increasingly inclusive culture.

When a culture is open and supportive, employees are more likely to love their jobs, be more productive, and advance to more senior levels in the organisation over time. 

Tech Support Advantages

Used well, technology has an important role to play in company support of employee mental health. It can be:

• Empowering: helping employees take responsibility for their own mental health.
• Anonymous: offering a confidential environment for those not ready to talk openly.
• Accessible: available wherever and whenever it’s needed.
• Relevant: particularly for the rising generation of employees.
• Scalable: effective for businesses of all sizes.

About the Author

Barbara Harvey is a managing director with Accenture Research. She is also the executive sponsor for Accenture’s Mental Health program in the UK.

References

1. Getting to Equal 2018: When She Rises, We All Rise, Accenture. https://www.accenture.com/es-es/_acnmedia/PDF-73/Accenture-When-She-Rises-We-All-Rise.pdf

ii. Accenture conducted this survey of 2000 working men and women across the UK on behalf of “This Can Happen,” the UK’s largest annual conference on mental health. It’s published in full in It’s Not 1 in 4; It’s All of Us. https://www.accenture.com/t00010101T000000Z__w__/gb-en/_acnmedia/PDF-90/Accenture-TCH-Its-All-of-Us-Research-Updated-Report.pdf, November 2018

iii. Accenture conducted this survey, of 2000 working men and women and 400 undergraduate students in June 2018. It was published in Supporting Mental Health in the Workplace – The Role of Technology, https://www.accenture.com/t00010101T000000Z__w__/gb-en/_acnmedia/PDF-88/Accenture-World-Mental-Health-Final-Version.pdf in October

iv. Accenture (2018) Patients+Doctors+Machines: Consumer survey on digital health

2. There are 11 partners behind this initiative: Heads Together, CIPD, the Federation of Small Businesses,

3. the City Mental Health Alliance, Mental Health First Aid, the Work and Health Unit, Public Health England, NCVO, The Work Foundation, Time to Change, and the Institute of Directors.

The post Using Technology To Turn The Dial On Inclusion: The Mental Health Opportunity appeared first on The European Business Review.

Spending on customer loyalty keeps going up, but returns are diminishing. This article will tackle how banks manage and integrate new techniques in keeping up with their customers’ needs and demands in order to maintain ties with their clients and achieve growth simultaneously in the fast-changing times.

Retail banks were severely battered a decade ago when the Great Recession hit. Since then, they’ve done a lot to recover lost ground. And yet profitable growth has often remained conspicuous by its absence. The average operating income growth rate across the top 100 banks globally by total assets was a mere one percent between 2014 and 2017.

Every year, approximately 10 percent of banking revenues shifts to new providers or moves to banks that have had a secondary relationship with customers.

This struggle is linked to the loyalty-focussed growth strategies that still make up a major part of most banks’ go-to-market approach. Banks have traditionally aimed to “lock in” customers by selling them additional products and services, and then making it costly or difficult for them to leave. Also, banks to an extent have been doubling down on loyalty: U.S. credit-card issuers, for example, spent $27 billion on rewards in 2017, compared with $16 billion in 2014. However, customers are increasingly favouring the bank that is most relevant to them in the moment. They are increasingly willing and able to compare offers on the spot. And, when we asked 180 CEOs and 970 C-suite executives in 2017, 69 percent (66 percent for the bank CEOs surveyed) told us that it is harder to gain customer loyalty today than it was three years ago.

In this environment, bank leaders can certainly choose to stay their course. However, every year, approximately 10 percent of banking revenues shifts to new providers or moves to banks that have had a secondary relationship with customers. This represents $192 billion on the table for banks that understand what relevance means for their customers and put their knowledge into practice.

What are the keys to capturing that opportunity? Three imperatives are at the center of the task:

• First, become the trusted financial advisor to each and every one of your individual customers.
• Second, broaden your reach by developing and controlling a bank-based ecosystem in areas such as housing, mobility, entertainment and health care.
• Finally, position yourself as part of one or more of the powerful ecosystems clustered around today’s tech giants.

Carrying out each imperative is a matter of broadening a bank’s footprint in its customers’ lives by creating, and growing, a portfolio of relevant interactions. Each imperative gives the bank a larger opportunity to become an indispensable, hyper-relevant partner and guide in an increasing number of customer activities. And each increases the opportunity to benefit from the network effect of those connections.

The Trusted Financial Adviser

Selectivity about the digital products and services you offer is key to earning customers’ trust. So to solidify your bank’s position as a trusted financial advisor, home in on the space in which the bank will differentiate itself, and integrate only the products and services that align with your brand and your target customers’ needs and wants. Customers might find (and welcome) new bill management tools, or an easier way to access personal advice, or a new tool for keeping their banking credentials secure. Whatever the offering, it must enhance the bank’s position as the most relevant choice.

Critically, your front office must be fluent in the services you offer. These individuals have to know how to bridge the gap between new and old services. Customers need to feel confident that the bank can follow through with its digital promise. They need to know that the bank recognises them as the same customer regardless of where they interact with the bank — in person, through an app or through a website. They need to see and experience consistent brand values and quality of service across all touchpoints. Problem-solving routes must be clear and easy to navigate, for customers, and for employees.

To solidify your bank’s position as a trusted financial advisor, home in on the space in which the bank will differentiate itself, and integrate only the products and services that align with your brand and your target customers’ needs and wants.

Your bank should also leverage the customer data you gather at this stage to augment customer profiles. By doing so, the bank will improve its ability to raise conversion rates. It will also position itself to be more effectively selective about the opportunities it pursues when it broadens its reach.

Taking these steps to deliver services in “best of” digital ways will build trust, as your customers’ experiences become more personal and more relevant in the moment. And although revenue drivers at this fundamental level are traditional (interest income, and fees), this milestone is the foundation for building an expanded customer “catchment area”.

The digital strategy for one large global bank is demonstrably relevant to a wide cross-section of customers. In its Wealthy segment, 85 percent regularly uses the bank’s app to monitor their investment portfolio, or to access tailored investment advice. And 96 percent of the bank’s millennial customers use the bank’s credit card, which offsets its annual fee with travel and dining rewards and a portal for booking travel that helps users maximise those rewards. The bank’s customer retention rate rose 10 percent in 2017, and card spending increased by 14 percent, resulting in a financial performance well above the industry average.

The Bank-based Ecosystem

Think of the moments when banks have traditionally played an essential yet supporting role in their customers’ lives; house-hunting for example. If your bank has a traditionally strong presence in the mortgage market, it might do well to press that advantage and begin to act as an aggregator, consolidating ancillary services, perhaps with realtors, designers, or contractors, under a bank-branded platform. In such a bank-controlled ecosystem, benefits can accrue through a network effect, where ecosystem interactions provide opportunities to upsell or cross-sell services and acquire new customers.

Singapore-based DBS was the first bank operating in Hong Kong to introduce an app that uses virtual reality to modernize the way people buy a home. In partnership with Century 21, DBS Home360 helps homebuyers search for properties, compare prices, assess mortgage affordability, and stay abreast of changes that might affect their home-buying journey — all from a single point of contact.

DBS Car Marketplace, meanwhile, offers Singapore’s largest direct seller-to-buyer car marketplace, in partnership with car sellers, sgCarMart and Carro. Using this DBS service, sellers can list on both sgCarMart and Carro at one go for free. Buyers are channeled to DBS’ loan offerings. A car-budget-calculator provides the estimated loan amount the buyer is eligible for, and then serves up a list of available cars based on their budget.

In 2017, DBS’s efforts to become explicitly relevant for different groups of customers in this way resulted in an increase in digital customers from 2.2 million to 2.5 million. That digital activity accounted for 42 percent of the bank’s operating profit; in 2017, DBS’s return on equity was 27 percent for its digital customers, nine percentage points ahead of the traditional banking segment.

The Broader Ecosystem

Becoming part of an ecosystem with one or more of today’s technology giants can also vault a bank far ahead on the relevance front. In fact, the growth opportunities — new revenue pools, multiplied by new contacts, and new acquisitions — are enormous for banks that successfully become a second-nature element in an established ecosystem (or two, or many).

To such systems, your bank will have to develop products that currently lie beyond the boundaries of the traditional banking domain. Specifically, it might package financial services products (credit cards, loans) for sale on the major retailer platforms. It might offer sub-prime funding through fintech platforms. It might sell digital services, such as digital identification, through an API (application programming interface). or it might make intellectual property, such as banking algorithms, available to the third-party ecosystem controller, or to other participants on the ecosystem it is targeting.

The growth opportunities — new revenue pools, multiplied by new contacts, and new acquisitions — are enormous for banks that successfully become a second-nature element in an established ecosystem (or two, or many).

Here, banks might take a lead from one fintech peer: London-based iwoca, a lender that offers flexible credit to small businesses across Europe.

The fintech’s concept is simple: provide working capital loans in hours rather than weeks. To bring it to life, iwoca partners with Amazon, where its revolving credit facilities give businesses selling on the Amazon marketplace in the UK access to as little as £1,000 and as much as £150,000 on demand. (With over £400 million borrowed since its launch in 2012, Amazon businesses have given iwoca a 9.7 out of 10 satisfaction rating.)

And iwoca has not hesitated to build on its success. It has similar relationships set up with eBay, Shopify, PayPal, notonthehighstreet.com, and several others. The fintech’s investors represent incumbent banks and disruptors including Intesa Sanpaolo, Talis Capital, CommerzVentures, and others.

Spending on customer loyalty keeps going up, but returns are diminishing. It’s not a sustainable approach to higher growth for banks, although some banks are emerging as digital leaders, pointing towards an approach based fundamentally on trust and the power of ecosystems. These are the cornerstones of the relevance that banking customers increasingly demand. And this is how banks grow now.

For more details on the research and thinking behind this article, please see two Accenture reports: Maximizing Revenue Growth in Retail Banking (2018) and Banking as a Living Business (2017).

About the Authors

(left) Piercarlo Gera (piercarlo.gera@accenture.com) is global managing director of Distribution and Marketing Services, Financial Services, for Accenture. (middle) Alessandro Secchi (alessandro.g.secchi@accenture.com) is a senior principal, offering development lead, with Accenture. (right) Luca Gagliardi (luca.gagliardi@accenture.com) is a senior principal with Accenture Research.

The post How Banks Grow Now appeared first on The European Business Review.

To produce a successful dish of digital reinvention, start by combining six ingredient technologies. Here’s how to get cooking.

Digital technologies have been feeding executives’ appetite for growth, cost savings, and innovation for years. Each one promises nourishment and sometimes brings delight. But how many business leaders are considering the value of combining technologies to create one gourmet meal?

So far, not many. And to be fair, technologies such as augmented reality are still very much emerging. Yet some companies have already discovered the power of combination and are reaping the rewards.

We studied the performance of 800 companies in 12 manufacturing and resources-based industries and 21 countries. According to our research, the five percent of organisations that combined six ingredient technologies – mobile computing, big-data analytics, machine learning, augmented and virtual reality, autonomous robots and autonomous vehicles – lowered their overall costs by 14% between 2013 and 2016. And we found trailblazing “combiners” in every industry and country. Cost savings for those not combining the six? They saw a negligible cost reduction – less than one percent. (We used a broad mix of research methods – See “About the Research” below)

That raised even more questions for us: Can this technological combination really work for every company? What makes this combination so special? Which companies have mastered the art and science of combination, and what can we learn from their experiences?

To answer these questions, we examined cases of organisations that are combining multiple technologies. After poring over the results, we believe these six make for a formidable combination, and every executive should understand how each strengthens the other for the benefit of growth, efficiency and future innovation. Recipes are meant to be tweaked and improved, to be sure. But skilled chefs understand the value of a broad range of ingredients and why they work better in combination.

The Ingredients and the Recipe

Let’s look at the six ingredients, and how one major industrial company is using them all:

1. Mobile computing. Smartphones, tablets, and other handheld devices generate a massive amount of data – 10 million gigabytes every hour, to be exact.¹ For example, Volvo’s On Call mobile app which gives drivers all sorts of information and utility. Volvo owners use the app to see where the car is parked, monitor fuel levels, double-check to see if a window was left open or a door ajar, and even start the engine remotely.²
2. Big-data analytics. Volvo analyses all that user data in collaboration with Teradata, the business-analytics solutions provider, to find patterns that can make the driving experience safer and more convenient.³
3. Machine learning. Next, Volvo translates trends in the data they collect into something meaningful for everyday operations. Take their ongoing work to be a leader in driverless cars. More than 20 cameras, radars, and laser sensors on board every Volvo vehicle stream real-time data to Nvidia’s autonomous-vehicle computing platform, which helps the car learn to react to situations on the road.⁴
4. Augmented, virtual, and mixed reality. How else will intelligent machines interact with humans in the future? Augmented, virtual, and mixed reality will be the “next screen”. In 2014, Volvo partnered with Google to use the tech giant’s Cardboard VR for the launch of its redesigned XC90 SUV. Paper goggles, paired with an Android/iOS app, now allow potential customers to test-drive the XC90 from their home.⁵ Volvo is also using Microsoft’s HoloLens mixed-reality headset to train factory and service workers and help design new vehicles; the company is hoping HoloLens will enable engineers and designers to communicate better and speed up vehicle development.⁶
5. 5&6. Autonomous robots and autonomous vehicles. These related ingredients reduce the inefficiencies and safety risks associated with human labour. Manufacturing and resources industries are already the largest purchasers of robotics products and services. Volvo, for its part, has used robots to make cars for decades. Some processes – such as the welding of metal parts and the measuring, placing, and bolting of doors to its cars – are now completely automated.⁷ Robots are currently playing an important role in the production of Volvo’s popular S60 sedans.

Car companies are tailor-made to take advantage of the sixth technology. Volvo has developed technologies such as adaptive cruise control, autobraking-pedestrian-detection systems, and parking assist.⁸ Volvo has even launched a large-scale trial of autonomous-driving technology on actual roads.

One might expect a company like Volvo to be out in front when it comes to combining technologies. But many others from a wide variety of industries are finding value in different combinations.

Take, for example, Lowes. The home-improvement retailer combined robotics with augmented reality/virtual reality to create LoweBot, an in-store robot helper. LoweBot, made by fellow robots, uses a 3-D scanner to detect people as they walk into stores. Shoppers can search for items by asking the bot a question or by typing the item name into a touch screen. The bot then guides them to the items using smart laser sensors, similar to the technology used in autonomous vehicles. Beyond providing a more efficient in-store experience, LoweBot helps Lowes with inventory monitoring and management in real time, detecting patterns that can guide future business decisions.

Or Burberry. The luxury brand is combining augmented reality and mobile computing to find new ways to engage with customers online. Working with Apple, Burberry created an AR feature that interacts with users’ camera feeds to digitally redecorate their surroundings with Burberry-inspired drawings by the artist Danny Sangra.

The bottom line is, no matter the industry, companies can create value by strategically combining technologies.

A Pinch of This and That

Being a master chef and running a top-rated restaurant requires more than just serving tasty food. Similarly, being a digital leader requires more than just investing in the right mix of technologies.

Companies are increasingly realising that the future is one of people working together with machines; in a human-plus-machine world, workers will become much more effective.

Our case-study analysis suggests three actions companies can take to make the most of their digital recip: Focus on people (the chef and his team inside and outside the kitchen), forge partnerships (the vendors who deliver the best ingredients), and fine-tune your performance management (distinctive guideposts of performance that define an exceptional dining experience).

People. Companies are increasingly realising that the future is one of people working together with machines; in a human-plus-machine world, workers will become much more effective. Consider the example set by thyssenkrupp, the German multinational whose products range from elevators to submarines to steel. In 2016, the companies’ Elevator Technologies division launched a cloud-based, predictive-maintenance solution called MAX in partnership with Microsoft.⁹ With MAX, thyssenkrupp’s elevator technicians can access elevator data in real time, including motor temperature, shaft alignment, cab speed, and door functioning.¹⁰ And thanks to Microsoft Azure’s machine-learning algorithms, they can also retrieve in-depth data on the lifecycle of each elevator’s key components and systems, and learn instantly which parts will require maintenance, and when.¹¹

With HoloLens, Microsoft’s mixed-reality smart glasses, more than 24,000 of thyssenkrupp’s service technicians can visualise and identify problems with elevators ahead of a job. These glasses provide remote, hands-free access to technical and expert information when on site, which saves time and relieves stress.¹²

In all, MAX has helped reduce downtime by as much as 50% for thyssenkrupp’s customers and reduced service-intervention times for its technicians.¹³ With the solution installed worldwide, the time savings for elevator passengers could equate to 95 million hours in each year of operation.¹⁴ The company has already found early success. Since its introduction, more than 110,000 elevators are now using MAX, reducing downtime for more than 40,000 customers at almost 49,000 sites.¹⁵

Thyssenkrupp’s service engineers are much more productive, repairing more elevators in a day than they ever could before. And the company is saving money.

Partnerships. The best organisations harness innovation from their employees and supply-chain partners alike. Before making any significant investment decisions about digital combinations, companies should seek out opportunities to collaborate with startups, entrepreneurs, universities, and entities in their industrial value chain. That means competitors, too. Such partnerships reduce the costs of computation and experimentation. One partner may invest in augmented reality and virtual reality, another may invest in machine learning, and yet another may invest in autonomous robots. But everyone benefits.

Before making any significant investment decisions about digital combinations, companies should seek out opportunities to collaborate with startups, entrepreneurs, universities, and entities in their industrial value chain. That means competitors, too.

Take, for example, the partnership between a mining company (Rio Tinto), equipment manufacturer (Komatsu Ltd.), and a steelmaker (Nippon Steel & Sumitomo Metal Corp.).

Last September, the first retrofitted Komatsu autonomous truck debuted at Rio Tinto’s Hope Downs 4 iron ore mine in Western Australia, replete with high-precision GPS, hazard-detection system, and a wireless network. The shared benefits of such a collaboration are obvious: Increased productivity, cost savings (an estimated 15% lower load and haul-unit costs), and zero injuries. Ensuring an accident- and fatality-free work environment is a serious business priority for Rio Tinto at par with mainstream performance indicators such as efficiency or profitability. To that end, Rio Tinto is also using unmanned aerial vehicles, which cast eyes on the slopes, crests, and walls of mines, warning mine operators of landslide risks, among other things.

But a third company, Nippon, benefits as well. The Japanese steel giant saw a record-breaking shipment of five billion metric tons last year.¹⁶ The company is now co-investing: Nippon has a 14% stake in the Robe River JV company, which operates the West Angelas mine in the Pilbara region.¹⁷ Robe River has said they will be introducing 15 autonomous trucks at the site in the coming months.¹⁸

Partnerships like these are more than just one-time, buyer-seller interactions. They are long-term ongoing collaborations where every participant leverages their own technology investments and expertise. Every tech investment has a ROI beyond the organisation’s walls, and all partners benefit in some way or another. That’s why companies must carefully sync and pace their investments in consultation with one another.

Performance Measurement. How do you really know if digital investments are paying off? If you save money or see increases in worker productivity levels? Sure. That’s a big part of it and will make shareholders and executives happy.

Intel, for example, manages its business through seven key segments. These include the Client Computing Group, Data Center Group, and the Internet of Things Group (IOTG).¹⁹ The company formed IOTG several years ago to expand its reach in the Internet of the Things market. Today, that group includes platforms designed for IoT market segments, including retail, transportation, industrial, video, buildings and smart cities.²⁰ Since 2014, IOTG has been Intel’s fastest-growing group. In 2016, sales had increased 33% from two years earlier.²¹ By separating out IoT revenues from chipset revenues in particular, Intel can properly measure a technology bet.

To properly measure performance, organisations must understand how technologies and digital workforces deliver benefits across organisational processes.

But the real test is whether those new tech applications and the digital workforces they spawn are having a disruptive impact. By disruptive, we not only mean dramatic and previously unseen increases in productivity and efficiency levels, but an impact beyond the immediate-use cases. For example, if an autonomous robot reduces the production-cycle time of an automobile by 20%, the investment will have paid for itself. Now imagine a scenario where these robots can predict potential faults during product assembly, thus reducing future product recalls. Or if they can inform and improve vehicle design by optimising the use of raw materials.

Given all this, companies must change the way they measure performance. They must think beyond their traditional productivity and efficiency metrics. To properly measure performance, organisations must understand how technologies and digital workforces deliver benefits across organisational processes.

Cook Happy

As advanced digital technologies continue to reshape markets and society as whole, companies have a rare opportunity to grow and make themselves more efficient than they ever could have imagined. These six technologies are only the basic ingredients. For more complicated dishes, corporations can look to add pinches of blockchain here and dashes of 3D printing and digital twin there.

But this core recipe will never see its full potential if leaders don’t also invest in their people, pursue unconventional partnerships with friends and rivals alike, and change the way they measure success.

Featured Image: Microsoft’s mixed-reality smart glasses – the HoloLens. https://www.microsoft.com/en-us/hololens

About the Authors

(left to right) Tracey Countryman is global managing director in resources with Accenture. David Abood is senior managing director in resources. Aidan Quilligan is the global lead for Accenture’s Industry X.0 practice. Raghav Narsalay is a managing director and Aarohi Sen is a manager with Accenture Research.

References

1. “Global Mobile Data Traffic Forecast Update, 2016–2021 White Paper”, Cisco (March 28, 2017). Accessed on January 20, 2018 and viewable at: https://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/mobile-white-paper-c11-520862.html

2. “Volvo became an unlikely tech superpower when no one was watching”, Business Insider (July 8, 2017). Accessed on January 25, 2018 and viewable at: https://www.businessinsider.in/Volvo-became-an-unlikely-tech-superpower-when-no-one-was-watching/Volvo-is-interested-in-more-than-just-self-driving-cars-Its-also-investing-in-technology-to-make-its-cars-more-connected-and-convenient-/slideshow/59505068.cms

3. Big Data at Volvo: Predictive, Machine-Learning-Enabled Analytics Across Petabyte-Scale Datasets”, Forbes (July 18, 2016). Accessed on January 25, 2018 and viewable at: https://www.forbes.com/sites/bernardmarr/2016/07/18/how – the – connected – car – is – forcing – volvo – to – rethink – its – data – strategy/3/#21f0f99a612d

4. “Volvo became an unlikely tech superpower when no one was watching”, Business Insider (July 8, 2017). Accessed on January 25, 2018 and viewable at: https://www.businessinsider.in/Volvo-became-an-unlikely-tech-superpower-when-no-one-was-watching/Volvo-is-interested-in-more-than-just-self-driving-cars-Its-also-investing-in-technology-to-make-its-cars-more-connected-and-convenient-/slideshow/59505068.cms

5. “Volvo is using Google Cardboard to get people inside its new SUV”, The Verge (November 13, 2014). Accessed on January 25, 2018 and viewable at: https://www.theverge.com/2014/11/13/7217397/volvo – is – using – google – cardboard – to – get – people – inside – its – new – suv

6. “Volvo’s engineers use Microsoft HoloLens to digitally design cars”, CNET (October 26, 2016). Accessed on January 25, 2018 and viewable at: https://www.cnet.com/roadshow/news/volvo – is – the – first – automaker – to – add – microsoft – hololens – to – its – engineering – toolkit/

7. “Robotics on the rise in manufacturing facilities,” Charleston Regional Business Journal (September 2016). Accessed on April 10, 2018 and viewable at: https://charlestonbusiness.com/news/manufacturing/70567/

8. “Autonomous Driving”, Volvo. For more information, please visit: https://www.volvocars.com/intl/about/our-innovation-brands/intellisafe/autonomous-driving

9. “thyssenkrupp rolls out MAX in Germany: world’s first predictive elevator maintenance service”, thyssenkrupp (April 26, 2016). Accessed on January 25, 2018 and viewable at: https://www.thyssenkrupp.com/en/newsroom/press-releases/press-release-61632.html

10. “Microsoft HoloLens enables thyssenkrupp to transform the global elevator industry”, Microsoft (September 15, 2016). Accessed on January 25, 2018 and viewable at:https://blogs.windows.com/devices/2016/09/15/microsoft-hololens-enables-thyssenkrupp-to-transform-the-global-elevator-industry/#AmJfgzw4ScgvucZM.97

11. “thyssenkrupp extends predictive maintenance benefits of MAX solution to more than 40,000 customers”, IoTNow (October 16, 2017). Accessed on January 25, 2018 and viewable at: https://www.iot-now.com/2017/10/16/69149-thyssenkrupp-extends-predictive-maintenance-benefits-max-solution-40000-customers/

12. “thyssenkrupp unveils latest technology to transform the global elevator service industry: Microsoft HoloLens, for enhancing interventions”, thyssenkrupp (September 15, 2016). Accessed on January 25, 2018 and viewable at: https://www.thyssenkrupp.com/en/newsroom/press-releases/press-release-114208.html

13. “Maximum uptime, all the time”, Thyssenkrupp. Accessed on January 25, 2018 and viewable at: http://www.thyssenkrupp-elevator.com/en/products-and-service/max/

14. “Thyssenkrupp moves into the digital age with MAX”, Thyssenkrupp (May 5, 2016). Accessed on January 28, 2018 and viewable at: http://blog.thyssenkruppelevator.com/content/thyssenkrupp-moves-digital-age-maxhttp://blog.thyssenkruppelevator.com/content/thyssenkrupp-moves-digital-age-max

15. “thyssenkrupp extends predictive maintenance benefits of MAX solution to more than 40,000 customers”, IoTNow (October 16, 2017). Accessed on January 25, 2018 and viewable at: https://www.iot-now.com/2017/10/16/69149-thyssenkrupp-extends-predictive-maintenance-benefits-max-solution-40000-customers/

16. “Rio Tinto’s autonomous haul trucks achieve one billion tonne milestone”, Rio Tinto Media releases (January 30, 2018). Accessed on March 12, 2018 and viewable at: http://www.riotinto.com/media/media-releases-237_23991.aspx

17. “Five billion tonnes of iron ore shipped from Australia”, Rio Tinto Media release (May 17, 2017). Accessed on March 12, 2018 and viewable at http://www.riotinto.com/documents/070517_Five_billion_tonnes_of_iron_ore_shipped_from_Australia.pdf

18. “Rio Tinto to expand autonomous truck operations to fifth Pilbara mine site”, Rio Tinto Media release (March 7, 2018). Accessed on March 12, 2018 and viewable at: http://www.riotinto.com/media/media-releases-237_24642.aspx?utm_medium=RSS

19. “2016 Annual Report”, Intel (2017, Page 5). Accessed on January 25, 2018 and viewable at: http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_INTC_2016.pdf

20. Author calculations based on Intel’s financial statements

The post Are You Following the Right Digital Recipe? appeared first on The European Business Review.

Propelled by data-driven innovation, fintech companies continue to gain traction – taking some financial firms by surprise. For banks that are looking into investing and partnering with fintechs to ensure relevance and growth and avoid losing market share, the time is right for strategic collaboration.

Bank leaders by and large saw the arrival of financial technology companies (fintechs) as a challenge. Lately, though, they’ve started to see things differently: traditional bankers are becoming increasingly open to the idea of collaborating with fintechs of all types, with an eye towards improving their own firms’ offerings and accelerating growth.

The timing is right. As the fintech world enters a more mature phase, fintech leaders are also looking beyond their own organisational boundaries for new ways to better the odds of their companies’ long-term survival and success.

The issue is whether these forays will deliver on their potential. Banks stand to gain capabilities in five distinct areas via fintech collaboration, but only if they move forward with a clear understanding of the fintech universe and an informed perspective on how to make such a relationship work.

That is, banks need a purposeful strategy to combine the strengths of traditional banking with the innovative solutions offered by fintech. They need to be prepared to “lead in the new,” by capitalising on fintechs’ abilities to maneuver and analyse massive quantities of data, and by pivoting wisely to leverage the insights they generate.

Fintech Headwinds

Fintechs naturally fall into one of two different categories, the lending-focussed “fintech fins,” which work directly with consumers, and the business-to-business oriented “fintech techs,” which concentrate on providing specialised technologies for banks. As Figure 1 shows, there are also two distinct groups within the fintech fin category: Peer-to-Peer Marketplaces, and Online Lenders. (The evolutionary trajectory from fintech tech to fintech fin, however, likely means that this classification is not static.)

Historically, the Online Lenders attracted the most funding (42 percent). But venture capital funding for fintech fins dropped sharply in 2016, both in Europe (with a total of $589 million, down approximately 50 percent in 2016 from 2015) and in the U.S. (down approximately 67 percent in 2016 from 2015).¹

Accenture’s analysis indicates that fintechs face difficulties – both in scaling up and in becoming profitable – that may explain this still-uncertain investment climate. For example, 40 to 50 percent of fintech fins report negative earnings before interest and taxes (EBIT). In addition, these businesses have spent heavily to sustain customer acquisition rates. They show an above-average cost to serve and their marketing expenses often reach 50 percent of their overall operating expenses.²

As a result, many of the players in the fintech fin category remain relatively small. On average, a European lending-focussed fintech generates annual revenues of about €30 million (US $33 million). While double-digit annual revenue growth is not uncommon, very few players report revenues above €100 million (US $109), and those that do show little recent growth. (For fintech fins, such growth has mostly been associated with increased RWAs, causing banks to be wary of taking on additional lending risk.)

Additionally, few companies that offer online-lending platforms have shown significant profits, and the path to profitability is not guaranteed. The most profitable players in the fintech universe have been the “techs.” But as Figure 2 shows, it has taken even successful fintechs from 8 to 14 years to become profitable.

In this environment, lending fintechs are entering a new phase, likely to be characterised by:

1. consolidation, as established firms seek to enter new markets, increase their customer base and build scale;
2. a quicker exit time from initial venture-capital funding; and
3. blurring boundaries between fintech fins and more traditional banks (eg., obtaining approval for some banking services, obtaining a banking license, acquiring minority stake of a bank).

As these developments solidify, fintech leaders (particularly fintech fins leaders) are increasingly interested in the potential benefits of integration with the larger financial system.

Through such transactions, fintechs seek to improve their financial viability, attract more clients and, in some cases, obtain guarantees for deposits. They hope to play to their strengths, including the ability to offer an enhanced user experience and utilise advanced credit models, and take advantage of the flexible regulatory framework in which they operate.

These kinds of explorations signal fintechs’ desire to survive on their own and avoid threats such as customer fraud, cybersecurity and privacy breaches, and low profitability, but they’re also indicative of the kinds of vulnerabilities that open up fintech leaders to the idea of collaborating with their incumbent competitors.

Implications for Banks

Our analysis has found that banks’ revenues at risk from fintech competition are typically in the range of 2 to 3 percent from lower loan origination, lower net income, and fewer customers acquired. On the flip side, banks can gain a potential 3 to 5 percent in revenues by collaborating with fintechs, through enhanced customer acquisition, more fee-based revenues, better pricing accuracy and lower cost of risk.³

That’s because although fintechs may have struggled to grow profitably, they have been proficient innovators at every stage of the credit-banking value chain, from marketing, customer origination, and management, to collection, recovery, insolvency and the sale of debt.

By tapping that expertise, traditional banks stand to move much more swiftly and effectively than they otherwise could to introduce new products, streamline processes, enhance customer experience and increase revenues.

For example, banks could define new credit products and collaborate with fintechs to supply them – e.g. by issuing an RFP for end-to-end provision of a micro-credit capability. This would allow the collaborative fintech platform to develop away from some of the barriers to innovation scaling inside a company, but leverage the commitment and support of a bank, plus clear guidelines on regulatory and risk parameters.

Specifically, banks may be attracted in five key areas to enable better selectivity, predictive ability and portfolio quality. The option(s) they pursue – among internal development, acquisition, and partnerships – will depend on their status and on the maturity of the fintech offering in the area under consideration.

Customer Analytics: Many traditional banks have been stymied in their efforts to boost business strategies by leveraging big data and analytics. Many have multiple databases that have not been integrated and limited skills (data scientist expertise) to bring to bear.

Banks can, of course, set a course to develop better capabilities on their own by assessing big data needs, taking steps to integrate data and recruiting data scientists. But they could also acquire or partner with a fintech as a means to embed big data and analytics into all core business processes more rapidly. In this way, they could move more efficiently (and potentially, less stressfully) towards becoming a data-driven organisation.

Comprehensive credit scoring: Many banks’ scoring models are not tailored for specific products or segments. Moreover, these models are  primarily designed for (and focussed on) the retail/private sectors, leaving desirable markets such as students and micro-, small, and medium-sized enterprises (SMEs) underserved. In addition, many banks have yet to apply adaptive technologies such as machine learning, to credit scoring.

In contrast, many fintechs have developed flexible and comprehensive scoring algorithms based on big data, artificial intelligence and unconventional information (e.g. network quality) to evaluate creditworthiness and process continuous risk-related knowledge.

Banks can start to assess the potential of accessing fintech capabilities in this area by conducting a comprehensive internal assessment of their own credit-scoring capabilities, and considering the ways in which existing IT, risk and credit-scoring capabilities currently operate and might be better linked. However, acquiring or partnering with a fintech can be a viable alternative path (and a good opportunity) if the bank can address such key critical factors as compliance issues and the implications of the potential loss of exclusive ownership of structures and databases.

Providing a fully digital customer journey: Most banks still rely on traditional points of contact (typically, their branch systems) and greet customers at the front end with standard functionality and solutions.

In this area, banks should consider leveraging the online digital solutions offered by fintechs, inspired by GAFA-like (Google, Apple, Facebook, and Amazon) customer experiences. These are characterised by user-friendly interfaces and fast online end-to-end processes that guarantee customers consistent and continuous interaction. Pursuing such a strategy should also accelerate the bank’s internal evolution, by streamlining direct engagement of the bank’s internal IT groups. These groups are generally busy keeping existing processes in tune, and are thus limited in their ability to muster the resources, time or expertise to get ahead in this area.

Integrating digital customer journeys: Banks’ IT solutions often lack continuity from group to group and few banks have undertaken deep, enterprise-wide IT transformations. Thus, few banks offer customers an integrated digital experience that includes comprehensive end-to-end solutions.

In contrast, many fintechs have developed digital applications that serve as a central hub for all existing products/services, or act as a virtual marketplace. In the case of peer-to-peer lending, for example, such an approach can enable hybrid-lending strategies and match borrowers’ and investors’ risk preferences, to originate loans that would otherwise be rejected.

To gain these abilities, banks should survey what fintechs have to offer; it may be faster and less expensive for a bank to obtain some needed capabilities externally to optimise credit processes overall. 

Portfolio management: Fintechs can maximise value from asset rotation so as to generate funding for new loan origination and to enable a continuous and easy-to manage selling process. To enable fluid portfolio management, they rely on an integrated origination and securitisation structure.

Banks have much to gain from collaborating with fintechs in this area. To do so, they should consider undertaking a sensitivity analysis of their portfolio, and examining best practices in lean asset disposal (while maintaining a focus on compliance issues). Moreover, banks can look to tailoring deposits using pricing to match the requirements of asset rotation more specifically, as a peer-to-peer player does.

Developing and executing a partnership strategy

Many banks have created new organisational models in the credit area on their own, often forming new units to handle credit data analytics and credit data quality management. However, as Accenture Chief Strategy Officer Omar Abbosh has said, “For long-established or traditional firms, finding ways to scale innovations to become materially successful is extremely difficult. That’s why incumbent companies are vulnerable to disruption from new entrants.”

But new entrants can and do face considerable hurdles as well, as we’re seeing. While fintechs have made significant inroads into financial services markets, the reliability and capitalisation issues they’re facing have opened up mutually beneficial alternatives to direct competition.

Collaborative strategies can lead to better outcomes for banks and for fintechs by helping both develop and refine productive ways to evolve. And banks, in particular, should consider such strategies as viable opportunities to grow revenues, optimise processes, and become data-driven organisations.

About the Authors

Elena Mazzotti (left) is a managing director for Financial Services at Accenture.

Francesca Caminiti (right) is a principal director with Accenture Research.

References

1. Accenture Research analysis based on CB Insight data.

2. Accenture Research analysis based on Company data. Analysis done on 8 cases of Traditional Banks, 3 cases of Direct Banks (mBank, Bankinter, Fineco) and 2 cases of Lending Fintech (Lending Club, Lending Tree).

3. UBS Limited, Q-Series Report, “Global banks: Is FinTech a threat or an opportunity?”, 26 July 2016.

The post The Fintech Opportunity for Banks in Europe appeared first on The European Business Review.

To grow their businesses consistently, leaders must envision a much bigger picture of where value resides than they have traditionally. And they must be prepared to create much more value than they can capture for themselves.

Why do so many companies struggle to identify and capture growth opportunities? The digital age is brimming with promise on this front. Yet regularly growing the portion of a company’s share price that is based on expectations of future earnings growth – while at the same time growing the portion based on actual earnings – is not the norm.¹ In fact, only two percent of the 995 large organisations examined in a recent Accenture research study have accomplished this feat over the past 16 years. (See “About the Research” for more detail.)

Our research suggests two reasons why this percentage is so low.

First, while a tremendous amount of new value can result from new or advancing technologies, that value is often trapped, both within and beyond the boundaries of any single business. For example, executives often overlook opportunities in their existing enterprise to apply digital capabilities to serve customers in new ways, and thus to increase revenues (rather than to reduce costs). In their industry, value is often trapped where outdated infrastructures serve scores or even hundreds of companies and where change would upset the status quo – even though the status quo does not support accelerated adoption of new products and services. (It’s also possible that a few companies in any given industry are already benefiting from innovations that, if shared, could serve many more and grow the pie for everyone.)

Value is trapped with the consumer when potential demand is latent, say, a desire to save time or to simplify a task. It is also trapped when companies can’t see the potential sources of surplus supply that consumers possess (for example, a vacation home that sits empty, or downtime that a consumer would trade for the chance to make money). And there is an enormous amount of societal value that remains trapped when companies and other entities could, but haven’t, come together in profitable partnerships that benefit constituents beyond their immediate customers and shareholders. (See Figure 1.)

The second reason is counterintuitive: To grow value consistently in the current business environment, many companies are going to need to release much more value for others than they capture for themselves. Many companies are still viewing value creation too narrowly; they see industry profits as a fixed pool. They envision and insist on margins that are unnecessarily high in a world of vastly larger demand and value release. That type of value mindset made sense when companies competed more as single entities going head-to-head against others in an industry. But today, companies are increasingly partners, not simply competitors, and are participants in broad ecosystems, not just traditional industries. It’s “coopetition” in the fullest sense. Even consumers are becoming part of these ecosystems. One way is by acting as “prosumers” – for example by sending electricity back to the grid from their solar panels.

So, if your position is – “This is the value we create and capture for our company today; the market will reward us” – you’ve already lost.

Value Visionaries

The high performers in our study, those that target and create value growth most consistently, think about value differently. They are value visionaries, acutely aware that releasing value has a flywheel effect. This awareness helps them spot opportunities for value creation where others do not – and to convert opportunities into reality where others cannot. UberX, for example, was estimated to have generated $2.9 billion in consumer surplus in its four biggest US markets in 2015 – Chicago, Los Angeles, New York, and San Francisco – equivalent to more than six times its estimated revenues generated in these cities. (For a more comprehensive example, see “Illumina Releases Value Consistently and Broadly”.)

To see just where and how other high performers do this, we need to explore in more detail the four main areas where trapped value resides.

In the enterprise. In any given enterprise, value can be trapped by an over-reliance on traditional business models and capabilities. Value visionaries overcome this challenge by innovating on top of their core capabilities. Tencent, a leading provider of Internet value added services in China, offers an example: the company’s WeChat messaging app, released in 2011, has more than 900 million active users.

But Tencent unlocked a torrent of additional value when it began using its social media services to facilitate mobile payments. The volume of mobile payments in China reached $8.6 trillion in 2016, compared with just $112 billion in America. In the first quarter of 2017, WeChat Pay accounted for 40 percent of the market.

Importantly, releasing trapped value in a legacy business creates investment capacity required to support an incumbent’s innovation efforts in other areas. In fact, our research has found that companies that innovate pervasively – for their legacy businesses and for new ventures – report stronger performance than companies that innovate only selectively in one area or the other.

In the industry. Value is trapped in an industry when only a few companies are reaping rewards in a marketplace where many more could benefit. It also exists when it would take more than one company to deliver an infrastructure improvement that could and would reward many more.

Consider how Volkswagen, BMW, Daimler and Ford joined together to create “Ionity” – a network of over 400 high-power charging stations for electric vehicles across Europe, which will use the Combined Charging System (or CCS) standard. This move is critical to accelerating demand for electric vehicles, in a market that is expected to reach 56 million vehicles in circulation by 2030, 28 times the 2016 stock, even under a low-growth scenario.

Value is trapped in an industry when only a few companies are reaping rewards in a marketplace where many more could benefit.

For the consumer. Consumer trapped value generally exists where there is latent demand for something that consumers themselves actually own in abundance, and underutilise. Airbnb was founded on the idea that there was latent demand for less expensive and more convenient lodging – and enormous untapped stores of such lodging owned by other consumers who were willing to monetise those assets. It thrives on the consumer value being released for travellers, and for individuals who had vacation homes or apartments sitting empty or who were previously incurring higher costs to attract and secure renters. Airbnb is estimated to have captured $2.5 billion in revenue between 2010 and 2016. But it is estimated to have released $20 billion in host revenue.

Similarly, transportation technology companies have tapped into latent consumer demand for more convenient ways to travel locally. Grab, the leading on-demand transportation and mobile payments platform in Southeast Asia and its highest-valued tech company, has attracted not only freelance drivers but also experienced taxi drivers. In late October 2017, Grab completed one billion rides across Southeast Asia. With over 2.1 million drivers and upwards of 72 million consumer app downloads, we estimate that Grab has helped generate monthly net income of approximately US$2,200 per driver.

For society. Finally, in society at large, trapped value exists where companies have opportunities to partner profitably to create new benefits for the general population. Take reliable access to electricity. Tesla recently partnered with Neoen, a French renewable energy company, and the local government in South Australia, to build and install the world’s largest lithium ion battery plant. The 129-megawatt-hour (MWh) battery is tied to a wind farm run by Neoen; the plant is being used to provide much-needed reliable energy in an area inhabited by 1.7 million people, where power outages and shortages have been the norm. For Tesla, the project was a time-critical proof that it can deliver on its promises, building confidence in its renewable energy capabilities.

Complementary Pursuits

It is a tall order to be more attentive to one’s legacy business and, concurrently, more visionary about other sources of trapped value. Nonetheless, visionary companies improve the way the world lives and works by unleashing new sources of value not only within, but importantly beyond the boundaries of their own enterprise. They know that these are not mutually exclusive pursuits.

It is a tall order to be more attentive to one’s legacy business and, concurrently, more visionary about other source of trapped value.

Recall the late management guru Peter Drucker’s view: “The proper social responsibility of business is to turn a social problem into economic opportunity and economic benefit, into productive capacity, into human competence, into well-paid jobs, and into wealth. His words rang true when he wrote them; they ring even truer today.”

About the Authors

Omar Abbosh (left) is Accenture’s Chief Strategy Officer. Vedrana Savic (center) is the Managing Director, and Michael Moore (right) is a Senior Principal, with Accenture Research.

Reference

1. Our research shows that increasing investor expectations (future value) while converting previous growth promises into reality (current value) at a higher rate than industry peers, over a period of time, enables companies to sustain strong roots (profitable core businesses) so that they can weather the unexpected storms brought by disruption in their industry or in the broader market. In parallel, strong roots are needed to fuel growth in new businesses, which is critical to uplifting investor confidence. Relying on only current or future value growth makes companies more vulnerable to disruption.

The post To Find Value in the Digital Age, Find It for Others First appeared first on The European Business Review.

The physical constraints of distance and geography shape how we live, work, produce and consume. But advances in Extended Reality technologies promise to break the limits of distance and create new sources of value marked by an appeal to the imagination.

In 2016 the world went crazy for the augmented-reality game Pokémon Go. In the same year, Alibaba, the world’s largest retailer, introduced Chinese consumers to its virtual-reality store, Buy+. More recently, Facebook announced that its Oculus Go VR headset will go on sale in 2018 at $199 – roughly 170 euros or 150 pounds – as part of the company’s goal of getting one billion people into the world of virtual reality.

We label such technologies – augmented reality (AR), virtual reality (VR), and also mixed reality (MR) – collectively with the umbrella term “extended reality” or XR. Many believe that they have, so far, over-promised and undelivered. But the examples above reflect a set of trends that are colliding to turn the promise of XR into (actual) reality. One recent estimate pegged the industry’s potential value at $200 billion as soon as 2020.

How can business leaders take advantage of this massive emerging opportunity? They must first understand, and then prepare for, the coming of the Imagination Economy – an economy where the widespread presence of XR technologies allows people to transcend physical limitations and unlock new sources of economic value.

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A Collision of Trends

The three most important trends converging to usher in this new economic era are the approach of peak consumption, the evolution of the way people think about work and organisations, and rapid technological advances.

Peak stuff. Consumers’ demand for experiences over ownership is increasing. We see this in the growth of the travel and tourism sector, which has outperformed global economic growth for six consecutive years. And this trend may well gain steam: 78 percent of millennials report that they’d rather spend more on experiences than material goods. Some retailers have attributed disappointing sales to this shift in consumer preferences. But it doesn’t have to be an either-or trade-off: virtual experiences can be used to enrich consumption. At a food and drink festival in Singapore, Diageo gave guests a VR headset and earphones during a whisky tasting. As visitors tasted the whisky, they were taken on a two-minute virtual tour of Scotland and the distillery in the Highlands. Eighty-five percent of participants reported an enhanced experience, which also translated into sales of the product and plans to roll out the VR experience to other markets.

Changing Workplace. The modern workplace isn’t what it used to be. Fewer people work for a single company or go to the office every day. In the US, for example, estimates indicate that 50 million workers freelance. This figure will likely grow as more baby boomers choose a “staggered” retirement. These workers are looking for ways to stay active with work, look for their next project with ease, be part of a bigger enterprise, and maintain their independence. XR technologies could become important tools for bringing together an increasingly fragmented workforce.

Technological Building Blocks. Technological developments such as 3D printing, superfast connectivity, sensors, and human-computer interaction are creating a strong foundation on which XR technologies can build. For example, the development of cloud computing and 5G networks have the potential to meet the computational demand of wireless VR headsets, whose data consumption is projected to grow by 650 percent over the next four years. The development of haptic technology gives users the illusion of touching a real object in a virtual world. And advances in eye-tracking technology allow users to pick up, aim or throw an object in virtual games just by looking in a certain direction. Further technology improvements – in battery life on mobile devices, for example – will help the Imagination Economy take off.

The Promise of the Imagination Economy

In the next five to ten years, the growing penetration of XR technologies will blur the boundaries between the real and the virtual – in the marketplace, the workplace and society.

The Marketplace. The gaming and entertainment industries are at the forefront of changes in consumption patterns. From 2016 to 2021, the compound annual growth rates of AR and VR games are expected to reach 50 percent. The live-streaming of events viewable with VR headsets, such as the Rio 2016 summer Olympic games and Coldplay’s Chicago concert in 2017, has also started to take off.

But other industries are making forays with XR technologies too. Ikea’s new AR app uses smartphones’ rear-facing camera to let consumers place digital replicas of the company’s furniture in their living rooms. Shoppers can walk around that virtual furniture and evaluate it from all sides. The 3D furniture shows up at scale with 98 percent accuracy, with true-to-life representations of the texture, fabric, lighting and shadows.

The Workplace. The Imagination Economy is also enabling new ways to produce, not just consume. A broad range of organisations are starting to take note. From 2016 to 2021, the use cases in education are estimated to grow at a rate of 166 percent; in therapy and physical rehabilitation at 152 percent; and in public infrastructure maintenance at 138 percent.

Many businesses are already deploying XR technologies as training tools. UPS plans to train student delivery drivers using VR headsets that provide them with realistic streetscapes and a 360-degree view. This virtual training presents drivers with a heavy dose of hazards, which they might not encounter when practicing in the real world. In this risk-free VR world, drivers can learn valuable – and damage-free – lessons.

The Social Sphere. In healthcare, VR technologies can be used as therapy for physical and psychological illnesses and even to treat substance addictions. Research shows that playing VR games eases patients’ reported pain up to 50 percent, significantly better than other forms of distraction, such as music or video games. It also showed that playing VR games reduces activity in areas of the brain associated with pain perception. Diageo announced that it would experiment with using VR to curb binge drinking, following its launch in 2016 of a 360-degree experience that puts the consumer in the front seat of a drunk-driving crash.

Mixed reality is even being used to solve crimes. For instance, Black Marble, in partnership with Microsoft, has made available a solution for law enforcement officers to improve crime scene recording and evidence preservation. And (much) further afield, NASA’s astronauts are using VR to simulate working on the Martian surface and the International Space Station.

Great Expectations

After years of relative disappointment, hopes are also high for what XR technologies can do for job creation, access to talent, and faster innovation.

New Job Creation. Just as the creation of personal computers brought about a large number of new jobs and occupations, the Imagination Economy holds similar promise. Engineers, programmers and designers who specialise in XR technologies will be needed, and completely new roles could be created, such as ethics specialists for the virtual world. Aware of the potential for job creation, the New York City government plans to open up a VR/AR lab in Brooklyn.

Better Access to Talent. XR technologies will also give companies better access to pockets of talent far from physical offices. Microsoft is developing a system or set of technologies called Holoportation that will use 3D cameras to capture a person’s movements in real time and construct a realistic hologram. This will be a big improvement over the limitations of current technologies, as colleagues will be able to interact as if they are sharing the same physical space.

Innovation. In the Imagination Economy, companies will be able to test and iterate previously unattainable or unfeasible products and services. This will help shorten innovation cycles. Take architecture. Traditionally, architects and builders share ideas through sketches, blueprints or two-dimensional renderings. New VR tools will allow designers to create a building and then step down onto the street level to experience it at life-scale. Their ideas can be evaluated not only by how the design looks but how it feels to be in the space.

Anticipating Change

In addition to the opportunities, the world of XR will also test companies, consumers and societies with a new range of challenges.

Industry Disruption. As virtual reality becomes an increasingly acceptable substitute for physical experiences, industries that rely on brick and mortar may need to look for new sources of competitive advantage. Consider what might happen to airlines, given that business travel accounts for about 30 percent of annual revenues. Some companies, such as Intel, are already holding all shareholder and annual board meetings virtually, in efforts to cut down on air travel. This shift raises questions about how the air travel industry can entice passengers in a world where they compete not just with other airline companies but also with VR tourism firms. One strategy might include using points of sale as “experience centres” to help customers select their next destination, or using in-flight VR entertainment to attract passengers.

Privacy and Data Protection. Employees and customers will have privacy concerns in an increasingly XR world, as activities are easier to track in virtual than physical reality. Shifting more activities into virtual environments increases vulnerability to hacking of personal information. And there is much uncertainty about XR’s impact on intellectual property and other legal and regulatory issues. Recently Mattel announced that it had scrapped Aristotle, a voice-controlled child monitor fitted with cameras, after parents expressed concern about how the images and data would be used.

New Ethics. Companies have will also have new responsibilities. Consider the potential for new ethical and health issues to arise, such as addiction to XR. Organisations need to anticipate these challenges and act before they become major problems. In a recent survey of youth in the UK, 71 percent supported the use of pop-up warnings once certain limits of social media use have been approached or exceeded. In South Korea, where online gaming addiction is a serious issue, the government introduced a law to prevent children under the age of 16 from playing computer games between midnight and 6:00 a.m. Similar measures may be needed to prevent potential addictions to XR.

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The rise of the Imagination Economy promises to improve access to new services and experiences, boost job creation and job matching, and give companies a much-needed productivity burst. As with other powerful emerging technologies, business leaders will need to work with governments and institutions of civil society to address the ethical and privacy concerns. One thing is certain: our reality is no longer just what we sense in the physical world. It’s about to be extended in ways few have imagined.

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About the Authors

Mark Purdy is a Managing Director and Athena Peppes is a Manager with Accenture Research; both are based in London. Suning An is a Specialist, also with Accenture Research, in Beijing.

The post The Rise Of The Imagination Economy appeared first on The European Business Review.

At first glance, it would be surprising to learn that Europe is lagging behind in the field of artificial intelligence. In this article, the authors elaborate on this reality and share 5 smart ways to increase Europe’s artificial intelligence quotient.

The era of artificial intelligence has arrived. Established companies are moving far beyond experimentation. Money is flowing into AI technologies and applications at large companies. Startups are inventing the next generation of game-changers. All of this is raising what we call the “artificial intelligence quotient”, or AIQ.

So Why does Europe seem to be Lagging Behind?

When it comes to AI, our assessment of G20 countries shows Europe is still very much a patchwork. Businesses across the region grapple with different regulations, cultural nuances, and wide-ranging concerns from consumers about a lack of personal privacy online. And small businesses in particular lack awareness of the opportunities to exchange ideas and innovations between AI hubs when trying to scale beyond their home market.

Compounding the challenge is a massive talent shortage in many disciplines of AI across the world and particularly in Europe. There are simply not enough skilled people to work AI jobs in Europe. And those who are skilled are fleeing to the US and China, drawn by their vibrant networks of entrepreneurs, university research and development programmes, and corporate tech communities. Right now, there are at least 5,000 vacant AI-related positions in Germany alone, according to Wolfgang Wahlster, CEO of the German Research Center for Artificial Intelligence. And Germany is one of the AI leaders in Europe.

Taken together, these factors give Europe a lower AIQ than North America and the Asia Pacific region. And the impact is measurable. In 2016, US-based AI startups attracted almost $2 billion in venture-capital investments, and Chinese startups raised $1 billion. By contrast, Europe-based AI startups raised only $600 million. What about priority patents, another critical indicator of progress? Chinese filings increased more than 20% in the past five years. In Germany, France, the UK, and the rest of Europe, the figure is only 5%. And, of the top 100 companies we have identified as “AIQ companies”¹ – those which successfully balance in-house innovation with external collaboration – only 20 are European.

Stepping Up to the Opportunity

For big companies, AI presents the opportunity for business transformation. For entrepreneurs, it is a tool they can use to take on much larger incumbents. Policymakers have their own set of challenges, critical to both economic development and social stability.

Indeed, they must do two things at once: manage the fears about the impact of AI on society while encouraging innovation. Despite the ethical and workforce risks of AI being debated in Europe, there is a far greater risk to general economic wellbeing, workers’ earning potential, and global competitiveness from inhibiting development of AI. Research on a dozen major economies revealed that AI has the potential to double annual growth rates by 2035. But this won’t happen without the concerted efforts of many actors, including those in government.

So where to start? We analysed AI innovation in 10 leading countries in Asia, Europe and North America. Our research shows that vibrant ecosystems are based on five pillars: universities, large companies, startups, policymakers and multi-stakeholder partnerships. The strength of these pillars will vary from one country to another. For example, in the US, AI growth has been driven largely by the private sector, while in China the government has played a greater role. (See Figure 1.)

To boost its AIQ, Europe must harness both an innovative private sector and a supportive policy and regulatory framework. Indeed, policymakers in Europe must act now to address the barriers to growth – with the help of enterprises, entrepreneurs, innovators, and researchers. The future development of AI in Europe is not just a regulatory issue. It requires a comprehensive response, particularly on issues relating to the regulation of data, research & development, collaboration between academic researchers and industry, alignment of infrastructure development, and retraining the continent’s workforce.

To understand how to foster growth and innovation while safeguarding consumer rights and ethical considerations, Europe’s AI stakeholders should consider the following five recommendations.

1. Strengthen the R&D ecosystem.

European governments should invest more in basic AI research and facilitate a vibrant ecosystem around the R&D hubs.

The European Commission has set up the Partnership for Robotics in Europe (SPARC), a public-private partnership to develop a robotics strategy for the region. With €700 million EC funding for 2014-2020, coupled with private investment for an overall backing of €2.8 billion, SPARC is believed to be the biggest civilian research programme in this area in the world. Looking at national strategies, the UK has launched a major review into how Britain can become a world leader in AI and robotics. France and Germany are also hard at work on developing national AI strategies.

While these are promising starts, governments in Europe need to do more to facilitate AI R&D by increasing state investment and providing infrastructure and other support to businesses. In China, governments play a deliberate and explicit role in funding scientific research (giving $800,000 to $1 million in subsidies to AI companies). In the US, universities and industries often partner to support technology innovation ecosystems for startups.

Certainly, there are bright spots in Europe. Consider the work already under way in the UK. The universities of Cambridge and Oxford stimulated the creation and development of several startups that achieved major AI breakthroughs and later became prime acquisition targets. Google in 2014 bought DeepMind, Apple in 2015 purchased VocalIQ, and Microsoft last year purchased SwiftKey. The next era of startups should see deep investment for longer-term outcomes to create AI-led “unicorns” – startups with valuations of more than a billion dollars.

2. Forge more multi-stakeholder partnerships.

The participants in any major technological movement need a safe space to go to share ideas, develop best practices and solve problems. But perhaps most critically, to allow technology transfer from basic research to applied research.

Consider what is happening in Germany. The German Research Center for Artificial Intelligence (DFKI) is one of the world’s largest nonprofit contract research institutes for software tech based on AI methods. Founded in 1988, the centre now counts Google, Microsoft, SAP, BMW and Daimler as stakeholders and has facilities in Kaiserslautern, Saarbrücken, Bremen and Berlin.

And the manufacturing hub of Stuttgart is transforming itself into a AI research hub, with critical support from the country’s industrial giants Daimler, BMW, and Bosch. This new model of cooperation between science and industry emulates what Stanford University has done in Silicon Valley.

AI stakeholders should forge more such partnerships that allow for cross-pollination within the country, and importantly, between European countries and their AI innovation hubs.

3. Enable and broaden access to data.

AI innovation depends on massive quantities of data. The full economic and social potential of these emerging technologies will be met only if data is widely accessible. Governments have a key role to play, particularly in opening up data to small enterprises – which unlike large corporations might not have the resources to accumulate a critical mass of data.

For starters, governments can lead by example, by sharing public-sector data-sets through the creation of platforms that small enterprises can freely access. In addition, they should encourage the private sector and scientific and research institutions to share data and collaborate over such platforms, which can help support the development of vibrant AI ecosystems.

Governments could also remove regulatory obstacles to the analysis and testing of big data. In the US, “fair use” defences apply, allowing for commercial data mining within certain constraints and without infringing copyright. This has enabled innovation and allowed US companies using big data to thrive. While the European Commission has proposed a reform of copyright rules to introduce an exemption for “non-commercial use” data mining, this would only apply in a limited context. European governments should consider how to balance copyright and data protection with the benefits that would arise from commercial data mining, particularly for small enterprises.

Further, clarity of rules regarding the ownership of machine-generated intellectual property, as well as the practical application of the General Data Protection Regulation, could support the development of AI in Europe.

4. Create a workforce of the AI future.

To work in AI-related jobs, people will need an entirely new set of skills and capabilities. Companies will need to make radical changes to their training, performance and talent-acquisition strategies. At the same time, governments must do their part to equip their citizens with the STEAM skills – science, technology, engineering, arts, and mathematics – demanded by AI. And both the public and private sectors must make every effort to train those who were left behind such fast-moving technological developments in the past: minorities, women, working mothers and the disabled.

The goal should be to help workers not merely to be more productive, but to deliver more creative, precise and valuable work. This will involve fostering a culture of lifelong learning, much of it enabled by technology: personalised online courses that replace traditional classroom curricula and wearable applications such as smart glasses that improve workers’ knowledge and skills.

Success will also depend on partnerships between startups, universities and individual experts to access knowledge and skills at scale. For example, the Artificial Intelligence French Initiative (“#FranceIA”) recommends deeper collaborations between the private and the public sector to develop new AI skills at scale in France.

5. Embrace smart regulation to safeguard responsible AI.

AI will be more beneficial if governments follow a set of guiding principles that are “human-centric” – the keys to this are accountability, fairness, honesty, and transparency.

Just as companies must be responsible, governments must consider how to promote trust while preserving the maximum flexibility to innovate. This requires smart regulation that adapts to the shorter innovation cycles of AI. One example is autonomous-vehicle insurance. Looking to the future, the UK Department for Transport has proposed new two-way insurance policies that cover motorists whether they’re driving or not. When the car is in driverless mode, insurance companies would recover the costs of claims from the party responsible for the crash, which may be the manufacturer.

Policymakers and standards bodies should also work with businesses that are advanced in AI in order to learn how they are developing their own responsible AI practices. These private-sector efforts can help inform future public policy.

A Call to Action

An individual can boost her IQ through mental exercises. We believe Europe can also take steps to boost its AIQ. Business and policy leaders will have to bring a Europe-focussed, “people first” mindset to the effort.

Time is short. Among the world’s largest companies and economies in AI, only a small minority demonstrate high levels of AIQ. Those that join them in the coming years will enjoy the greatest potential for growth and sustained market leadership.

About the Authors

Francis Hintermann (left) is global managing director of Accenture Research, based in New York. Madhu Vazirani (centre) is a principal director with Accenture Research, based in Mumbai. Carsten Lexa (right) is an attorney and president of the G20 Young Entrepreneurs’ Alliance in Germany.

The post 5 Smart Ways to Increase Europe’s “AIQ” appeared first on The European Business Review.

We are aware that this era calls for your business to be able to continuously adapt to emerging trends. But how?  The authors provide concrete data on current realities faced by digital businesses and steps on how to make sure your plans turn into actions.

For decades, digital globalisation – powered by free-flowing data – proceeded increasingly rapidly and seamlessly. But business leaders are waking up to a far more complex and fragmented reality. “Fragmentation is something that we are dealing with now that we haven’t dealt with before”, stated Ben Tejes Co-Founder and CEO of Ascend, which has built bankruptcy and debt relief calculators.

Barriers to cross-border flows have been building for some time. In the world of trade, for example, the number of trade-restrictive measures¹ in the G20 nations almost quadrupled from 324 in 2010 to 1,263 in 2016. Another area of increasing fragmentation concerns the use of customer data, as more and more countries are legislating to restrict or control the cross-border use of such information.²

These trends have now converged to present a transformed operating environment for global business. Our research reveals that the impact goes beyond risk and compliance issues; the imminent threat is to growth and innovation.

To understand how multinationals view these challenges – and what, if anything, they are doing about them – we conducted a survey in the fall of 2016 of more than 400 CIOs and CTOs at companies whose headquarters were in Brazil, China, Germany, India, Japan, the United Kingdom and the United States. We also conducted several in-depth interviews with CIOs and experts on policy, economics and digital business.

Our research reveals just how seriously this fragmented global context is being taken in board rooms worldwide. But so far, the tangible business implications have not received the attention they deserve across the broader business and analyst community, let alone among business commentators.

Off Course

The future course of global business is digital. But the increasing obstructions to the flows of data, IT products, IT services and IT talent jeopardise the journey toward global digital business models, a process we call digital fragmentation.

Well over 80% of the executives we surveyed believe their IT strategies and systems are vulnerable to these trends, and they see new digital business models as one of the most exposed areas.

Our research reveals that while many in the digital world are still talking about a new era of seamless data flows, the reality is more complex and disruptive.

Strategic and Operational Worries. Executives do not see digital fragmentation as a minor problem. Consider this startling finding: Nearly three-fourths of those surveyed say that over the next three years, it is likely that their companies will exit a market, delay market-entry plans, or abandon such plans as a result of this new context.

These professionals expect that the fallout from this more fragmented operating environment will force them to make fundamental structural changes in key strategic and operational plans across a broad range of activities and relationships – including global IT architectures (62 percent of respondents), physical IT location strategy (52 percent) and cybersecurity strategy and capabilities (51 percent).

And this is just the beginning. Survey respondents expect the forces driving digital fragmentation to intensify over the next three years, requiring them to further reconsider their global business processes and talent strategies.

Rising Costs and Complexity. What does all this look like on the ground? To put it bluntly, an executive from a major technology multinational told us: “It will be expensive.”

More than 90 percent of respondents expect IT costs to increase over the next three years; two-thirds are feeling the bite now. CIOs and CTOs expect the sourcing of inputs like IT talent to be the most important driver of cost increases as national barriers keep rising.

It will also be costly to meet requirements to duplicate or multiply IT infrastructure like data centres and to comply with multiple national IT standards. “Any restriction on information adds to cost and bureaucracy and slows things down”, noted David Smoley, CIO at pharma giant AstraZeneca.

It also makes the CIO’s life difficult. Fragmentation adds complexity and risk to global IT operations. Take the inevitable increase in bureaucracy. CIOs and CTOs need to remain informed about new and upcoming legislation that will affect their global IT strategy, to stay on top of compliance paperwork in several geographies, and to keep partners, suppliers and customers up-to-date on what could be an avalanche of new requirements and regulations.

But business and IT leaders don’t believe the problem will be limited to challenges to the internal technology function. They see these restrictions spilling over to the ability to generate growth and innovation. Sales, marketing, and research and development all scored high as business functions vulnerable to obstructed global flows. We also probed concerns about digital transformation plans. Respondents put several capabilities that are central to digital growth and innovation at the top of their list, such as customer analysis and tracking systems.

This should come as sobering news to business leaders that see policies on trade, investment, immigration and data purely as risks to cost and compliance, overlooking their impact on digital growth prospects.

Recalibrating Direction

Digital fragmentation is already on the boardroom agenda. In fact, it’s a factor in the strategic planning of 80% of the companies we surveyed. That’s a positive development, because digital fragmentation affects every aspect of the business from branding to IT infrastructure to talent. But there’s a strong need now to ensure that planning is turned into action.

We suggest four steps to make that happen:

Add a new lens to strategic planning. Boards must acknowledge the impact of an increasingly fragmented world by designating time exclusively to discussing its implications across the business. They should evaluate whether existing strategic planning techniques – for risk assessment, for example, or contingency planning – can be tailored to deal with the impact. Already, 45% of companies have made the impact of fragmentation part of their board-level scenario planning.

Review and where necessary, reassess all relevant issues. Is the company’s geographic footprint right for the evolving global terrain? Should investments be reallocated differently across markets and hire a different expert marketing consultant? For example, key global functions and IT activities may need to be redistributed across different jurisdictions. Redundancy may need to be built into infrastructure plans, such as the global data centre architecture. Just over half of the business leaders we surveyed are reorganising global IT architectures and governance structures. Decamping from less-hospitable markets and relocating IT investments in more open ones is an option being pursued by 42 percent of the survey universe.

Decisions must also be made around where to locate cybersecurity capabilities and where to improve the organisation’s preparedness to respond to new legislation and indeed its ability to influence that legislation. And all these plans must allow enough flexibility to adapt to an unpredictable and evolving environment. Agility will be crucial.

Map and de-risk your data flows. The flows of information needed for key management decisions and business operations – particularly where digital technology is at the core of the business offering – must be protected. Firms must assess how data regulations like national cross-border restrictions will affect their business model and growth plans.

From a data storage perspective, they need to re-evaluate where and how different types of data are maintained, which may demand trade-offs between security and ease of accessibility and use. This includes risk assessments of where data flows that are necessary for key business activities may be interrupted, or where critical data structures may be compromised. This is ultimately an exercise in predicting and preventing disruption.

Build local advantage. Digital fragmentation places new urgency on multinationals to “be genuinely local” in all their markets. The CIOs and CTOs we surveyed are feeling the pressure to localise their IT strategies, processes and infrastructure.

General Electric chairman Jeffrey Immelt captured the rationale in an address last May at the New York University Stern School of Business: “In the future, sustainable growth will require a local capability inside a global footprint. A localisation strategy can’t be shut down by protectionist politics.”

Contrary to the rhetoric of many digital evangelists, national borders do matter, and increasingly so. Key steps to respond to this digital reality: invest in local technology ecosystems and local talent development. Also, cultivate key relationships with local technology partners as well as policymakers. We found that only about half of the companies we surveyed are making such investments so far.

Developing local talent can take time. Many firms such as Cooper Parry are finding other ways to deal with diminished global labour mobility. For example, two-thirds of respondents say they are increasing investments in automation to offset labour restrictions.

Use technology as part of the solution. New and emerging technologies raise new complications in a fragmented operating environment, but they also offer new solutions to succeeding in that environment. A case in point is 3D printing. On one hand, firms must consider different national rules about how data can be stored, used or moved as it moves between the printing/manufacturing location and the designers, customers or other parts of the supply chain. Yet the same technology opens entirely new and flexible options to organise global manufacturing footprints. Similarly, companies will need to rethink their optimal cloud structure or degree of cloud centralisation. These decisions will vary according to how a firm’s value chain and customers are organised around the world.

Companies should also explore how artificial intelligence might help address restrictions on talent migration (via automation or augmentation) or even help corporate administrators to navigate the complex and evolving regulatory rules and legislation in relevant markets. Blockchain is another technology that may offer solutions to a more balkanised technology environment, by providing more secure, decentralised and distributed systems for data protection and cybersecurity risks.

Companies are in uncharted territory after years of following a seemingly predictable digital trajectory. The next phase of digital progress involves a degree of complexity that must be navigated in close concert with other stakeholders, crewmates on a shared journey. Those business leaders that actively engage with their crewmates can help shape the new digital future, rather than responding to its whims. “The best thing we can do,” a senior executive from a global IT giant told us, “is try to sit down in the best and most constructive manner possible to explain to policymakers how this sector is developing and how it affects customers and economies as a whole.” If we’re not part of the solution…

About the Authors

Omar Abbosh (left) is Accenture’s Chief Strategy Officer. Paul Nunes (centre) is a Global Managing Director, and Armen Ovanessoff (right) is a Principal Director, with Accenture Research.

The authors thank Accenture Research colleagues David Light, Eduardo Plastino and Mark Purdy for their contributions to this article, and Roubini ThoughtLab for their collaboration on the survey.

References

1. https://www.wto.org/english/news_e/news16_e/trdev_09nov16_e.htm
2. http://www2.austlii.edu.au/~graham/

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Industry-disrupting products used to enter the market as inferior but more affordable versions of existing offerings, giving incumbents time to respond. Today’s disruptors are not just cheaper – they’re better. And not better over time but right from the start. To fight back, companies must first understand the four economic trends that are making these new disruptors possible.

New products and services increasingly enter the market from “out of nowhere,” or so many long-established businesses think. Startups now regularly blindside incumbents with offerings that are immediately successful because they are both better and cheaper right from the start.

This deadly combination is the distinguishing feature of Big Bang Disruption, as we described in our book of the same name (Penguin Portfolio, 2014). The outcome is rapid and often near-total devastation, not only for once-successful companies but for entire industries. Many industries long-protected from digital disruption, including manufacturing, transportation, and education, are now under attack.

Startups may seem to have a decided edge in this game, but established companies can play too – and win. To succeed, they must adopt a dramatically different approach to strategy and execution, one that few senior executives, in our experience, are well prepared to embrace.

As a first step, business leaders must understand the economic trends that are enabling the phenomenon of “better and cheaper.” Powerful as they already are, these trends are likely both to accelerate in pace and to expand in influence for at least the next decade.

Four Economic Trends Powering Big Bang Disruption

Our cross-industry research on this new form of disruption reveals several technologically enabled economic trends that are pushing the pace of change. These developments are powerful on their own, but even more so in the way they interact.

1. Price Deflation

Prices have been falling for many products for decades. Some of the decline stems from broad improvements in business operations, driven by the improvement and declining cost of technology. Moore’s Law – which predicts that computing and related costs will drop by 50% every 12 to 18 months – is at the root of lower costs for many products. But something radically new is now afoot.

Today, the costs of production and innovation are falling at the same time.

In everything from health-tracking devices to 3D printers and drones, the impact of Moore’s Law has only just begun to wreak its disruptive potential. Sensors, gyroscopes, accelerometers, radios, magnetometers, commodity processors and other micro-electro-mechanical systems (MEMS) can now be sourced globally at steeply falling prices, driven largely by the cooling of demand for the smartphones and tablets they were originally created for. Thanks to new levels of supply chain visibility and modularity, these components can be easily designed into new disruptors in industries that have, until now, been largely immune to the information revolution.

Deflation in the price of core technology components goes far beyond Moore’s Law, though. Thanks in part to improvements in information technologies generally, exponential improvements in price and performance are also now being seen in other commodity technologies, including lighting, materials, energy storage, nanotechnology, biotechnology, imaging and genetic sequencing.

Graphene, a one-atom thick sheet of carbon that has exhibited profound conductivity and strength, is now being made in quantities large enough to begin serious experimentation. A complete sequencing of a person’s DNA has fallen in price from $3 billion a decade ago to less than $1,000 today. In displays, HD LED is being replaced by 4K OLED displays, which improve the number of pixels by another factor of four and makes possible curved displays. All the while, the price of displays predictably declines.

What do falling production and innovation costs mean for industries? Consider the automotive industry, where despite countless innovations the average real dollar selling price of a car has been declining for decades.

2. Platform Exploitation

A second important trend is the rise of technology platforms. Platforms allow businesses to develop, make and distribute new products and services at a fraction of the cost of traditional R&D and delivery.

Better-and-cheaper Big Bang Disruptors are being launched on robust hardware and software platforms featuring cloud-based computing and storage, mobile broadband networks and app-based tools. Apps that piggyback on existing cell phones, security camera networks, and the emerging Internet of Things, for example, can be sold at the cost of just the additional investment required to develop a new combination of existing components.

The value of using a platform built and paid for by others is obvious. Releasing new products on digital platforms not only lowers the cost of manufacturing and distribution, it also gives disruptors immediate access to millions (and soon billions) of users and devices. It also aids inactivating the social networks that can drive rapid product adoption for new offerings that consumers find compelling.

Many smartphone-based apps, for example, have rapidly made obsolete all manner of standalone electronics and analog products. The smartphone has become your boarding pass and train ticket, and will soon become your smart key at home and away. It may also replace much of what is still in your wallet, including cash and credit cards.

The fallout from this change can land on many an unintended victim. Consider the impact on alkaline battery manufacturers. Though still a multi-billion dollar business, battery sales fell four percent in 2014 alone, making batteries the worst performer among the top twenty-five categories of household products. Procter & Gamble, which owns Duracell, plans to spin off the division next year; Energizer Holdings is moving its vulnerable household-products into a separate business.

And it’s not just in consumer electronics that the impact is being felt. In agriculture, another kind of digital platform is emerging, as better and cheaper drone aircraft (whose parts largely come from mobile phone component producers) are giving rise to what is known as precision agriculture. This new platform is being built on autonomous tractors, GPS-based harvesters, wireless networks and sensors that report in real-time on soil condition, hydration, nutrients, weather conditions and pests.

In the energy market, the emerging platform is known as the “smart grid.” In Denmark, the government is pushing a smart grid strategy that will include deployment of smart meters, real-time monitoring of energy use and variable rates driven by high-volume data analysis. Eventually, the smart grid platform will balance demand and automatically create price incentives to encourage efficient energy use. And it will curb waste by identifying failing and inefficient devices.

3. Cross-Subsidisation

Goods and services can be sold cheap –and sometimes even given away for free – when their cost is being paid for, in part or in full, out of the revenues of a different business. Google can provide many of its services at no charge, for example, because the company can sell advertising and related marketing services through its core offering, online search.

The company’s search-based advertising revenues have in turn funded not just better search technology, but hundreds of subsidiary products including video hosting (YouTube), maps, photo management (Picasa), mobile device operating systems (Android), travel, office productivity tools, cloud storage, and much more.

In most of these examples, Google had no particular interest in disrupting or even competing with the travel agents, navigation device makers, and paid video and music providers that once sold those services. Google’s attention was instead focused on assembling world’s greatest collection of reusable information assets. Google’s strategy is being duplicated by many information-intensive disruptors, including most social networking companies such as Facebook, Twitter, and Instagram.

Some companies are also succeeding with another form of cross-subsidisation: selling insights derived from large databases. Google draws on a massive number of customer interactions to improve its products, making, for example, its search and navigation databases and algorithms even better.

As the consumer experience improves, the user base continues to grow. Google can then refine its pricing model for advertisers, charging higher premiums for its larger base of customers and for its data-driven insights about those customers.

In effect, the cross-subsidised offering, like free Google Maps, becomes a kind of perpetual motion machine, driving further innovation and spreading the often unintended disruption of incumbents farther afield.

Still, it must be noted that subsidisation based big-data insights only works when the data comes from public sources of information, or from information that can be licensed for free or at very little cost.

Consider the problem faced by music services such as Pandora. Like Google, Pandora can increase its ad revenue and refine its music recommendation services by engaging more users, pushing the company to continue subsidising its core product. And as mobile broadband networks become better and cheaper, consumers are likely to increasingly prefer “renting” music from companies like Pandora, rather than owning it in the form of CDs or mp3s.

But at the heart of Pandora’s strategy is a ticking time bomb. The music it provides to consumers is licensed on a use-based model. Estimates are that for every million songs listened to by users, the company must pay licensing fees of about $1,500. That means the more consumers they sign up and the more each customer uses the service, the more fees Pandora pays.

Pandora makes nearly all of its revenue by advertising to listeners who sign up for the free service – so rising licensing fees for the music itself are causing the company to lose money. As things stand now, the more successful the company’s subsidisation strategy, the faster it goes into the red.

4. Marginal-Cost Elimination

Many goods and services cannot be exhausted through use or replication. This is true of most information goods. These might be thought of as the ultimate “sustainable” goods, in that heavier consumption does not require additional resources, nor does it exhaust supply. But it is not easy to make a profit on goods or services that cost nothing to make. Finding enough users willing to pay enough even to cover modest operating costs is challenging. And it puts incumbents holding debt for sunk costs in production assets at a distinct disadvantage.

Newspapers have been victims of this phenomenon, in some cases contributing to their own demise by offering digital versions of their content and allowing consumers to unbundle it, choosing the parts they like (the news) and ignoring the parts that paid the bills (the classifieds). While digital competitors with zero marginal costs experimented with alternate revenue models, the newspapers, with one foot still in the analog world, fell into a whirlpool of accelerating disruption.

The trend is now expanding to disrupt professional services, as the more mundane work of expensive human experts is being replaced by much cheaper digital alternatives. These new applications can perform increasingly sophisticated and repeatable tasks – reading X-rays, for example – at a marginal price at or close to zero.

In financial services, Intuit’s TurboTax software collects the same interview information as a human tax preparer, but then automatically generates the return. As the product’s users have grown into the millions, the company improves the product by observing the most frequent areas where customers rely on Intuit’s human backstop of tax advisors and then programs that knowledge into future releases. Software that learns can replace more functions currently assigned to human labour, erasing marginal cost as it moves up the evolutionary ladder toward true artificial intelligence.

A similar phenomenon is now beginning to transform the $200 billion market for legal services, stealing the low-end work done by lawyers and, at the same time, offering legal advice to many consumers who simply couldn’t afford the high-cost human alternative. Startups including LegalZoom, Shake, and Rocket Lawyer have already automated the easiest tasks, such as the creation of simple contracts and estate planning documents. Some of the services connect users to real lawyers for help preparing documents the software can’t do – yet.

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• What is the trend for the real (inflation-adjusted) price of the goods and service you offer? What has it been in your industry?

• What physical production assets do your offerings rely on? Can they be replaced with digital alternatives? Or are they even necessary any longer in any form?

• At what point could your product or service become so cheap that others might simply give it away to support their own strategic aims?

• What do you sell that has little marginal cost, making it easy to sell again? Who else owns or invests in these information assets who might undercut your sales?

Today’s technology trends are conditioning buyers to look for greatly improved levels of value at prices even lower than they have paid in the past. Under these conditions, every company needs a strategy focused on offerings that are better and cheaper.

About the Authors

Paul F. Nunes is global managing director of the Accenture Institute for High Performance; he is based in Boston.

Larry Downes is Internet-industry analyst and a research fellow with the Institute; he is based in Berkeley, California.

The post What Companies Must Do Now That Better Is Also Cheaper appeared first on The European Business Review.

Just-in-time manufacturing was adopted shortly after World War II to save companies from drowning in excess inventory as they attempted to capture the benefits of scale while serving too few customers. Marketing organisations can get their own surplus production problems under control today by embracing an analogous approach: just-in-time marketing.

No business is so profitable it can’t be destroyed by bad inventory management. Which is why today’s shorter product lifecycles and rapid technological obsolescence call for even better demand forecasting tools and flexible manufacturing approaches.

But companies also create a great deal of intangible, virtual inventory that puts their overall profitability at risk – that is, when they produce excess marketing.

Just like physical inventory that risks spoiling or becoming obsolete while stacked in a warehouse, excess marketing inventory – product information and vague brand preferences that sit in customers’ minds – yields few long-term returns. Accenture’s Global Consumer Pulse Research has found that consumers are less influenced by branding campaigns than ever before, for example. (See Figure 1, “Recognising Marketing’s Inventory Problem.”)

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In theory, marketers now have cutting-edge digital tools at their disposal to help them better manage waste and excess spending. And yet most companies still overproduce marketing that underperforms. There are two chief reasons for this ongoing problem.

First, marketers continue to prioritise broadcast methods like television, radio and print that push messages towards broad swaths of consumers. Consider, for example, that in 2014 the growth in television ad spending still exceeded the growth in spending on digital video ads (those that appear on computers, mobile phones and tablets). The chief marketing officer of a US auto insurer likens the trend to an “arms race in advertising spend.” However, most broadcast ads will fall on deaf ears (or unseeing eyes) – wasted inventory from the standpoint of the marketing connection being created at a cost, but going undesired and unused.

Second, most companies still treat digital marketing as a slightly better version of a broadcast medium. This can be seen in the shockingly low click-through rates for online advertising: according to research by Google’s DoubleClick, consumers click on only 0.1 percent of all online ads. Marketers are not yet meeting the promise of targeted, personalised, interactive advertising.

How can marketing departments solve their inventory crisis? Clearly, it’s unreasonable to expect companies to jettison every mass marketing technique and instead invest only in tailored and targeted interactions with current or potential customers.

But marketing leaders can get control of their excessive production by applying the thinking behind the approach used by manufacturers in the wake of the Second World War.

The Just-in-Time Marketing Factory

In the post-World War II ramp-up of mass manufacturing, many companies relied on designing products for broad appeal, long-term planning, and overproducing – all in the service of achieving economies of scale. The result was a constant stream of excess inventory. This led to increased waste, reduced flexibility in responding to shifting demand, and a high level of product defects as companies hesitated to slow production.

Starting with Toyota in post-war Japan, many manufacturing organisations boosted quality and reduced waste by adopting a just-in-time (JIT) approach: produce only what the customer demands, at the right time, to the specifications and quality that the customer requires.

Manufacturers became JIT organisations through three related methods, each of which holds a lesson for how marketers can stem the tide of marketing inventory: kanban, kaizen, and total quality management (TQM). These methods enable companies to create only what the market actually requires, with little waste and fewer defects.

Kanban refers to a set of procedures used on JIT factory floors that ensure production at every stage is calibrated to demand at the next stage, all “pulled” from customer demand.

Kaizen refers to an organisational mindset where everyone – from executives down to assembly-line workers, are continuously improving processes and practices to eliminate waste and enhance quality; improvements are studied and adopted based on small-scale innovations.

Total quality management refers to a firm-wide commitment to stopping defects early in the process, ensuring that no manufacturing defects make it through to the next stage of production – let alone to the end customer where they are increasingly costly to fix.

To solve their own inventory problem, effective marketers are now adopting the mantra of JIT manufacturers: produce only the marketing that’s required, at the time that it’s needed, with the exact message or offer that will convert a sale. Our research and recent experiences with clients suggest that those three JIT principles are beginning to underpin successful marketing organisations, and will continue to do so in the coming years – especially as companies increasingly shift toward a digital focus in their marketing. (See Figure 2, “Principles of Just-in-Time Marketing.”)

Apply Kanban to Achieve Targeted Pull

Using Kanban methods, leading marketers are creating pull, primarily with consumers who are already inclined to purchase in the product or service category. By doing so, they’re able to significantly cut down on wasted time and effort.

Take, for example, Delta Airlines’ approach to selling group travel. Delta could have launched a broad marketing campaign extolling the ease and value of group bookings on Delta. Instead, the airline provided select prospective group travelers with a tool which spread virally through social media – a popular Facebook application called “Away We Go” that the company launched in 2011.

The app addressed a pain point for group travelers: planning and booking trips – like “spring break” or family reunions – when destinations are up for discussion and the exact group of travelers hasn’t yet been pinned down. The planning tool helped by adding structure to group decision making, allowing users to invite friends, keep track of who’s coming, organise and share everyone’s trip details, create a calendar of activities, and post comments on specific topics. And, while on the trip, users could share updates and photos with their broader network.

Delta’s application, which was accessible to every Facebook user, not only eased the pain of group travel planning – it also directly led to new flight bookings on Delta without an outsized marketing campaign.

Other companies are also discovering the benefits of a kanban approach. Cosmetics retailer Sephora maintains boards of pictures on Pinterest that show its staff’s favourite beauty products. These “It Lists” attract consumers who, whether searching out or following these lists on the social media site, are looking to be inspired by pictures and discover new products.

Targeting this service at highly engaged consumers has been extremely effective. In fact, according to the company, Sephora’s Pinterest followers spend 15 times more money on Sephora.com than the company’s Facebook followers. The company’s head of digital, Julie Bornstein, explained in an interview that “the reality is that when you’re in the Pinterest mindset, you’re actually interested in acquiring items.”

Cultivate a Mindset of “Kaizen” For Continuous Marketing Improvement

Consider how car rental giant Hertz continuously improves its loyalty programm by refining its customer insights. These insights, put to use in all channels – whether an interaction occurs through call centre agents, counter terminals, handheld devices or the Hertz website – persuade customers to take up personalised offers at higher rates.

The company has improved its analytics system to the point where the accuracy of these offers continues to improve. Deals are suggested not only based on the profitability of the promotion, but also on a customer’s record of taking certain kinds of promotions over others. A customer who would be qualified for a “buy one, get one free” deal may still receive a different – perhaps even less profitable – offer if, in the past, she had turned down similar entreaties. The company understands that a promotion can only be as profitable as a customer’s willingness to take it – and an unwilling customer represents a wasted opportunity. That’s why offers are continually calibrated to a customer’s behaviour, in a way that all customer-facing channels can instantly use.

The benefits for customers are clear: in 2014, Hertz was chosen as the car rental favourite in a large survey on website TripAdvisor. It is also Zagat’s top pick for Customer Loyalty Programm two years running, and has received the Flyertalk award, bestowed by one of the top frequent-flyer discussion forums.

Hertz is not alone in its dedication to continuously refining marketing practices. Take flash sale e-commerce site Gilt. The company nets approximately 25 percent of its total sales from email clicks, which means that it is extremely interested in continually improving how emails are targeted to its members. The company sends out more than 2,500 automatically generated versions of its daily sale emails; more traditional retailers typically send about 50 versions of an email. Gilt has found that tailoring emails based on a user’s input – for example, their interaction history and the user profiles they create – drives 30 to 50 times more revenue “lift” than emails that don’t account for user feedback. And, targeting promotions based on a customer’s shopping behaviours drives up to 20 times revenue lift as compared to generic emails.

Assure Total Quality Management of Customer Interactions

Any flawed customer interaction anywhere in the company is tantamount to a customer experience defect. Top marketers increasingly recognise that achieving total quality in every customer interaction is one of the most effective marketing techniques in the digital age.

Las Vegas-based Zappos.com, an online shoe and clothing shop, puts this idea into practice. Exceptional customer service is, in effect, the company’s primary marketing function. It drives repeat purchases and word-of-mouth acclaim. Zappos maintains a well-recognised commitment to achieving what it calls “wow customer experiences.” For example, unlike most businesses the company measures customer outcomes rather than call throughput at its call centres.

Zappos has built a trusted reputation that it could not have achieved through traditional marketing campaigns alone. In fact, the company’s cultural commitment to total quality in customer interactions means that the retailer needs to spend relatively little on traditional broadcast marketing methods.

Similarly, web application company Basecamp considers its dedication to perfect customer interactions as the essence of its marketing. For years, the company had no formal marketing department at all. Co-founder and president Jason Fried explained his philosophy in an article in Inc. magazine: “Customer service is marketing. So is product quality. The phrasing of that error message, what you call that button, how you greet your customers – it’s all marketing.”

Putting JIT Marketing into Practice

Many marketing departments are not organised effectively to put these JIT principles into practice.

That’s because they’re often structured around the core activities of the old marketing model – advertising, promotions, and marketing research, to name three. It’s difficult for such organisations to overcome the notion that each function has separate objectives; for example, that advertising should achieve reach; that promotion should convert sales; and that research should underpin the design of long-term marketing campaigns. This traditional approach becomes even more muddled when digital efforts – with social media, for example – are offloaded to specialists in their own silo.

In a JIT marketing organisation, by contrast, these activities are inseparable. Through our analysis of Accenture’s work with clients that are building interactive marketing organisations, we’ve seen that leading-edge companies are breaking old habits. They are reorganising their marketing either around distinct product and service categories – or, often better, around distinct customer segments whose interests and behaviours span categories. Then, to reduce costs and improve effectiveness, three pools of talent are supporting each of these marketing groups. In fact, some are finding these specialised skills so critical that they are organising these talent segments into more formal divisions.

The first talent segment is comprised of creatives and programmmers, tasked with designing messages and experiences that create targeted pull – in other words, applying kanban to marketing. Take Nike’s Digital Sport division, a dedicated team of engineers, programmmers and marketers whose mission is to increasingly shift Nike’s advertising into the digital realm, where it can attract customers to the brand through ongoing customer interactions – sometimes over social media, and sometimes through a new line of digital sports devices that log their user’s performance data.

As CEO Mark Parker told Fortune Magazine, “Connecting used to be, ‘Here’s some product, and here’s some advertising. We hope you like it.’ Connecting today is a dialogue.” As a result of Digital Sport’s trailblazing efforts, Nike managed to reduce their “push” advertising in print and media by 40 percent over three years, even while the total advertising budget increased.

A second useful new talent segment is made up of data scientists who design platforms for real-time analytics and improved promotional targeting, making marketing kaizen a reality. Woolworths, the largest supermarket chain in Australia, grew such a team by acquiring a 50 percent stake in data analytics firm Quantium. The director of the company’s multichannel strategy, who was also responsible for logistics, IT, and customer engagement, headed the expanded group.

That placed the analytics group not only at the centre of marketing, but at the centre of all the company’s customer relationship efforts. As one analyst told Australian publication BRW, the resulting improvement to promotions that the group could now achieve “means better profits, more long-term relationships with customers and less wasted marketing.”

The last segment we observe is made up of quality assurance specialists who ensure the consistency of customer interactions in the marketing, sales and service functions – in other words, the total quality of the customer experience. A team at a leading financial services giant, for example, uses technology provided by innovative startup Sprinklr to achieve high-quality interactions with customers over social media.

Surveys show that, for many companies, interacting over social media tends to be ad-hoc if not outright undisciplined. The Sprinklr platform, by contrast, allows the company to rigorously follow posts about their offerings in real time. It enables them to move conversations that begin on Facebook or Twitter into secure sales or support channels that retain the context and the continuity of the discussion. The result: improved customer loyalty, cost savings from call deflections, and revenue from new sales.

Not all marketing departments are ready to take this organisational plunge. Indeed, not every marketing department needs to – just yet. But those that have dramatically reduced their creation of marketing inventory are finding themselves more nimble than their competitors, and better able to change their marketing approach quickly. That gives them the opportunity to focus on their individual customers: how their preferences are changing, which channels they prefer, and how best to engage them.

Doing that at scale isn’t easy, even with the best digital tools on the market. But, as manufacturers can tell you, it’s been done before.

About the Authors

Paul F. Nunes is global managing director of the Accenture Institute for High Performance.

Joshua Bellin is a research fellow with the Institute. Both are based in Boston.

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As India rapidly moves into the digital era, leading Indian businesses are changing their business models to capture the opportunity.

India is quickly becoming a digital country. The evidence of rapid change is staggering. For example, the number of smartphones shipped in the Indian market is expected to surge from under 28 million in 2013 to more than 155 million in 2017. In e-commerce over the same period, the value of physical goods purchased online will grow from US$2 billion to US$8.5 billion. And to fuel this digital transformation, the number of software developers is expected to increase by 90 percent to 5.2 million – 700,000 more than the United States will have – by 2017.

None of this has escaped the attention of corporate India. In a recent Accenture survey of more than 100 Indian senior executives, nine out of ten said “being digital” is a strategic imperative for their companies over the next five years. As one CEO of a large insurance company succinctly told us, “If we don’t go digital, we won’t exist.”

That sense of awareness, however, has not necessarily translated into the right strategic focus. Many businesses are concentrating too intently on plucking the low-hanging fruit. When we asked the Indian executives which business priorities their firms were addressing through digital technologies, their top response was to increase the efficiency of existing IT systems (58 percent), and their second choice was to enhance the efficiency of the supply chain (48 percent). Of course, those two objectives are important, but they are merely the start. To avoid missing the “digital bus,” companies have to transform digital resources and technologies – including social media, cloud-based software, and machines equipped with digital sensors – into new sources of profitable revenue.

In other words, companies shouldn’t just concentrate on process efficiency. They should also focus on growth, developing closer connections with customers and offering new products and services by digitalising their business models.

Growth through Digitalisation
Consider how the State Bank of India has adapted to the digital era. As the country’s oldest bank, with origins dating to 1806, SBI commands more than 22 percent of the domestic market. In terms of profits, assets, deposits, branches and employees, it is the country’s largest commercial bank.

But SBI recognised that continuing to focus on its large and profitable customer base – those in the 45-plus age bracket – could threaten its leadership position. It would have to embrace banking practices preferred by hyper-connected, highly informed, value-driven young customers – the “digizens.”

SBI turned to the power of digital technologies to attract, retain and grow with these younger customers. It created a new sub-brand specifically to appeal to this group called SBI InTouch and put in the necessary human and technological resources to support it. Customers can open an account and receive a personalised debit card immediately; receive instant in-principle loan approvals; and speak with financial advisors through high-definition videoconferencing.

Beginning with the first day of its launch at six branches, SBI has witnessed a high level of engagement through SBI InTouch. Typically, more than 100 people on weekdays and 250 on weekend days enter each of these locations. Without the new technologies, the bank’s sales staff would not have been able to interact with potential new customers at that level of volume.

But the bank is the exception to the rule. Indeed, only 5 percent in our survey reported that they were using digital technologies to create a more compelling customer experience, and only 7 percent said they were transforming their digital resources into new sources of revenues.

Building a Digitalised Business Model
To emulate the success of SBI and other Indian leaders, companies must rethink their “analog” business models. A business model consists of several key components, including the customer value proposition; available resources (such as people, processes, technology and capital); a profit formula; and metrics for tracking success. Companies need to synchronise these components with their digitalisation agenda.

In our research, we studied companies to understand how they were digitalising their businesses. Through that process we were able to identify practices that companies in India and beyond can emulate to digitalise their business models. (See “About the Research.”)

Dissect Data to Create a Digital Customer Value Proposition
Digitalisation often requires companies to rethink their customer value proposition. Companies should employ data analytics techniques to this end.

One example comes from a leading Indian property and casualty insurer. The property and casualty market was experiencing the intense price competition that comes with commoditization, along with increasing customer expectations for better service at lower prices. The insurer had enormous amounts of rich historical data on customers and channels, but it was often disjointed. Decision makers within the company lacked a “single view” of their customers and thus were not in a position to improve the overall value proposition.

With the support of service providers, the insurer designed and used advanced real-time statistical models that allowed the company to segment customers and channel partners more effectively, and also to launch multi-channel campaigns targeted at each segment. Most important, customers in each segment started enjoying services better linked to their needs and preferences, and their claims started getting processed faster and with more predictability.

Use Digital Resources to Deliver High-Value Impact
To digitalise their business model, a company must invest in digital resources capable of producing a scalable impact. Such investments can be shared with other interested parties, and the technologies can be developed in collaboration with other companies in the same ecosystem.

Hindustan Lever came to grips with this challenge with its Shakti Ammas, the tens of thousands of women who act as salespeople and distributors throughout India’s rural villages. These entrepreneurs were using manual bookkeeping to manage their inventory and record sales transactions, and the process was prone to errors. Moreover, given the large distances between villages in rural India, HUL could send company sales representatives to visit the villages only once or twice a month. That made it hard to supervise the Shakti Ammas and advise them on how they could improve their sales.

HUL collaborated with Tata Docomo to provide handsets and arrange for a mobile connection for the Shakti Ammas. Working with a startup, it also developed and deployed a low-cost mobile IT solution called Shakti Mobile – a mini-ERP package that can be operated on an entry-level smartphone. The application, available in eight languages, enables Shakti Ammas to take and bill orders as well as manage inventory. It also provides the women with updates on promotional offers and discounts. To compensate for the poor mobile coverage in rural India, the application has been built to work offline as well.

More than 40,000 Shakti Ammas across India now conduct transactions through the application. As a result, they have been able to spend more time in the field – closing deals and making money both for HUL and for themselves.

Turn the CIO’s Office into a Growth Driver
Technology is both a driver and an enabler of digitalisation. In large organisations, especially those based in India, the responsibility for capitalizing on these twin strengths of technology falls squarely on the CIO’s shoulders. CEOs generally want their CIOs to work closely with other C-suite leaders to make the business more digital. CIOs in India thus have an opportunity to put together a “team digital” capable of driving the company’s growth agenda.

Consider Essar Energy as an example. The company has $US16 bill ion in assets, with refineries in India, the UK and Nigeria. In India, it serves customers through a network of 1,400 retail fuel outlets. Until recently, the CIO’s office at Essar was generally seen as playing a supporting role — an office that supported automation and helped organise information for the refining and processing teams.

The CIO set about to change this situation. He led the building of a team of chemical engineers, mechanical engineers, chartered accountants, and management graduates who were not only proficient at deploying digital technologies but also understood the business value chain. With that team assembled, the CIO’s office started approaching various parts of the organisation to understand their problems.

Drawing on the cross-disciplinary skills of its team members, the CIO’s office was able to offer digital applications to address critical problems – solutions that operations teams had failed to identify earlier because of poor knowledge of digital technologies. As a result of these efforts, the budget for the CIO’s office was approved for an increase of 100 percent, and the CEO now cites the office of the CIO as a growth enabler rather than a support function.

Use Digital Platforms to Develop Profitable Offerings

In such an environment, profits are defined by the efficiency companies can ac hieve during value creation (from offering conceptualisation to launch) and the “share of wallet” they earn by providing a differentiated experience.
Café Coffee Day, an Indian chain in more than 1,500 Indian cities, is a prime example. With revenues of over US$500 million and an employee base of more than 5,000, Café Coffee Day is India’s largest coffee chain. Recognising the growing popularity of social media and the accelerating penetration of mobile technologies, CCD established a robust presence on Facebook, Twitter and other social media engines.

When CCD acquired more than a million fans on Facebook, executives decided it was time to use social media to create new offerings with customers. For instance, the company used Facebook to invite customers to propose definitions for two new products. After the definitions were finalised, CCD developed prototypes and asked the same customers to taste them. Customers posted their comments and ratings for the prototypes, such as the Crunchy Frappe, on Facebook.

CCD has hit upon an affordable and efficient process for involving customers in the development and launch of popular new products.

Partner and Profit with “Digipreneurs”
Digital Indian startups – headed by digipreneurs – have emerged as a powerful economic force. According to one industry group, startups in India will drive the growth in outsourcing contracts for technologies associated with social media, mobile devices, analytics, and cloud computing. The market for such outsourcing is expected to reach US$287 billion by the end of 2016, up from US$164 billion in 2013. This is good news for large companies keen to digitalise cost effectively.

Their challenge is to choose the right digipreneur as a partner – and then to fully draw on its strengths as a means to faster growth. But to date, few large Indian companies understand the cultural requirements necessary to grow through collaboration with digital entrepreneurs. As one senior executive explained to us, large companies in India still have to develop a culture of respect for startups. “Innovation labs in many large companies,” he pointed out, “do not have the cultural makeup to mix and mingle with the youngsters running startups.”

Even as big companies in India struggle to master this practice, some multinationals have begun launching accelerator programs for new technology ventures in India. US retailer Target, for example, aims to help startups in India by providing them with US$30,000, along with access to mentors, tools, resources and operational support. Target is expected to work with startups that are focused on mobile, data and analytics, video content, social media, and other digital technologies. These technologies are all critical for retailers to determine if they have the right merchandise assortments in stores, to set the right prices, and to accelerate deliveries to customers.

Define “Digitalisation” Metrics
The metrics a company uses to measure performance need to reflect its commitment to digitalisation. Purely financial indicators do not fully capture a business’s progress toward commercial viability in its digitalisation efforts. Companies must use some metrics that assess the strength of their “digital customer value proposition.” For example, a firm would want to know the size of the long-term income differential generated by a digitalisation initiative as compared with differentials delivered by other projects. Executives may also want to know the impact that such a differential has on aggregate market demand.

By using the right metrics, a company can know whether digitalisation has generated value for large numbers of customers over a sustained period. The enterprise can therefore determine whether its digital initiatives have generated enough demand to support prices and volumes that could exceed the costs of production and marketing, including the cost of capital. Some examples of metrics that companies are using include percentage of sales that are digital, profitability and margin of digital customers, digital versus physical return on capital employed, number of digital offerings with a consumption lifecycle focus, and digital customer retention score.

Toward a Digitalised Future
Thirty years ago, businesses in India began experimenting with information technology. Today, they are using digital applications not only to reduce costs and increase efficiencies, but also to tap into new revenue streams. Indeed, digitalisation is real, and a growing number of Indian companies have begun to reap handsome rewards from it. Companies are now following several best practices to transform their businesses toward digitalisation, but this list is hardly exhaustive. For example, many firms in India would benefit greatly from partnering with NGOs in their digitalisation initiatives. These practices will provide a useful starting point for companies, as digitalisation increasingly becomes a strategic imperative for Indian businesses and many others around the world.

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To capture the benefits of Internet-connected machines, national leaders must nurture the conditions that are needed to translate technological change into economic growth.

Call it the multi-trillion-dollar question: can the Industrial Internet of Things (IIoT) jumpstart the lacklustre global economy, which is still struggling seven years after the onset of the Great Recession?

Many government leaders hope the answer is yes. For example, Prime Minister David Cameron wants the UK to lead this ‘new industrial revolution’ and has directed nearly US$125 million to IIoT research. In China, the government has designated the Internet of Things an‘emerging strategic industry’ and plans to invest some US$800 million in the IIIoT by 2015. These and several other governments are looking to the IIoT as a means to stimulate national competitiveness and economic growth.

And with good reason: the IIoT—a vast network of Internet-enabled devices that interact with each other and with their human operators—has the potential to help overcome structural barriers to faster growth. The IIoT could contribute US$14.2 trillion to world output by 2030, according to Accenture’s analysis.