The rise of the machines, and their impact on business strategy
Human history has been marked by periods where improved methods, processes and technologies have resulted in tremendous changes. The industrial revolution included shifting from hand production to machine based production, improvements in power use and an increasing use of standards-based approaches rather than bespoke, craft-based approaches.
Virtually every aspect of life was influenced in some way by the industrial revolution – living standards rose, factories were created and urbanization increased. The way businesses operated completely changed. Since the industrial revolution there have been waves of transformation – including mass production, electrification, global telecommunications, global air travel, information technology. Each of these changed the way businesses operate, and in many cases creating and destroying companies and indeed entire industries.
If you compare the 1955 version of the Fortune 500 with the 2014 version you’ll see that 88% of the companies on the 1955 list are gone, in fact only 61 companies appear on both lists. Today, not only is the transformation continuing but the pace seems to be accelerating. Information technology has unleashed successive waves of creative destruction. Powered by powerful, relatively inexpensive hardware and software and supported by virtually ubiquitous internet access, agile new businesses are finding innovative ways to meet customer needs. And while some are truly new, most are new ways to address existing customer needs.
The key question for established businesses is how they can take advantage of the changes, before someone else does. However, in today’s fast moving business world, it can be really difficult to separate the ‘latest fad’ from the ‘biggest opportunity / threat’. For example, until very recently the big news in financial services was the rise of the fintechs – companies powered by the advanced technologies, unencumbered by legacy infrastructures and operating beyond the remit of regulators. The fintechs, we were told, would up-end the financial services industry, eliminating banks while delivering the products and services customers need at low prices, or even for free.
While the fintechs story continues to evolve it is beginning to be supplanted, in the hype stakes, by artificial intelligence (AI) and bots. What is a bot? A bot is a piece of computer software that performs an automated task – ordering a pizza by texting and never talking to a human – that’s a bot. While most bots are not particularly intelligent, and indeed they are not new, they are getting smarter. And when bots are backed up by the artificially intelligent systems with access to virtually unlimited processing power and all the data that consumers upload to the cloud – their transformative potential explodes.
Imagine the impact on a business when virtually all customer service tasks are handled by bots – the cost savings could be tremendous. A recent report by KPMG found that the use of robotic process automation could cut costs for financial services firms by up to 75 percent. Imagine the impact when banks roll out conversational AI technology that allows customers to manage their money and make payments in Facebook Messenger and WhatsApp? But there’s no need to imagine it, because it is already happening. A number of banks have already deployed bots in China on WeChat. So does this mean that the future has already arrived and that other banks need to rush to catch up?
Not necessarily. While these new technologies are cool, while they may offer tremendous benefits, business leaders need to carefully evaluate them before deploying them. Before getting carried away by the hype they need to ask traditional questions – will this help me to deliver a unique proposition to my customers? Will this new technology fit in with my existing processes? Will my people need to be retained? Will this enhance my customers’ experiences? Above all will this deliver the return that I need?
For bots, the answer is probably “not yet”. Indeed, a recent note from Forrester indicated that most banks outside of China will not gain from investing bots, but instead should focus on foundational digital initiatives by integrating back-end systems, improving data infrastructure and using APIs to build ecosystems of value. Strong words but this does not mean that banks can afford to be complacent. As Bill Gates said “we always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten”.
The industrial revolution took place over a period of about 80 years, today’s revolutions are much faster. The machines are coming but they are only tools and the winners will be those who make the best use of the available tools.