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High Tech Digital Transformation

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Copyright © 2019 Accenture. All rights reserved.
HIGH TECH INDUSTRY
DIGITAL TRANSFORMATION
NARRATIVE
Copyright © 2019 Acce...

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Copyright © 2019 Accenture. All rights reserved.
WHY
THE BURNING PLATFORM FOR
TRANSFORMATION IN HIGH-TECH

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Copyright © 2019 Accenture. All rights reserved.
PROFIT AND MARKET VALUE
IS MIGRATING AWAY FROM HARDWARE
SEMI & COMPONENTS...

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High Tech Digital Transformation

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Profit and market value is migrating away from hardware, but few product companies are prepared and executing the required digital transformation. High tech companies need to invest in digital growth strategies, reinvigorate business models and create new revenue streams.  Find out how to harness disruption to grow your business.

Profit and market value is migrating away from hardware, but few product companies are prepared and executing the required digital transformation. High tech companies need to invest in digital growth strategies, reinvigorate business models and create new revenue streams.  Find out how to harness disruption to grow your business.

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High Tech Digital Transformation

  1. 1. Copyright © 2019 Accenture. All rights reserved. HIGH TECH INDUSTRY DIGITAL TRANSFORMATION NARRATIVE Copyright © 2019 Accenture. All rights reserved.
  2. 2. Copyright © 2019 Accenture. All rights reserved. WHY THE BURNING PLATFORM FOR TRANSFORMATION IN HIGH-TECH
  3. 3. Copyright © 2019 Accenture. All rights reserved. PROFIT AND MARKET VALUE IS MIGRATING AWAY FROM HARDWARE SEMI & COMPONENTS PRODUCTS INTERNET PLATFORMS • Intel • Qualcomm • Murata • Western Digital • SK Hynik • HPE • HPI • Cisco • Lenovo • Sony • Panasonic • Amazon • Google • Facebook • Alibaba • Microsoft Sample CompaniesValueCreation Value Chain • Nokia • Ericsson • LG Electronics • Canon • Ricoh • Xerox VALUE VALUE 3
  4. 4. Copyright © 2019 Accenture. All rights reserved. BURNING PLATFORMS “VALUE CRUNCH” FOR TRADITIONAL PRODUCTS Current Value vs. Future Value SplitAggregate EBITDA and CAGR Per Segment 4 Source: CapitalIQ Internet PlatformsHW ProductsComponents Total EBITDA Dec 2018: USD 597 bnTotal EBITDA CAGR: 8.8% Total EBITDA Dec 2012: USD 388 bn Platforms (CAGR 11%) Components (CAGR 14%) HW Products (CAGR 4%) FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 20% 26% 44% 33% 36% 41% 37% 25% 63% 75% FY2013 FY2018 $0.74 T $1.29T -9% -35% 109% 135% $0.86 T $1.02T 49% 55% 51% 45% FY2013 FY2018 $1.83 T $4.29T Current Value Future Value FY2013 FY2018
  5. 5. Copyright © 2019 Accenture. All rights reserved. INDUSTRY TRENDS AND IMPLICATIONS BY SECTOR RAPID RISE OF AI/ ML • AI is the new UI, embedded in most products • AI/automation driving major internal cost improvements EXPLOSIVE GROWTH IN SMART, CONNECTED DEVICES • 50B connected devices by 2025 • Trillions of sensors CONTINUED SHIFT TO CLOUD AND OPEN SOURCE • Rapid migration of workloads to public cloud • Adoption of open source hardware design INTELLIGENCE MOVING TO EDGE • Processing moving to edge network, accelerated by 5G COMPONENTS HARDWARE PRODUCTS INTERNET PLATFORMS • Record shipments and revenue • Potential for growth in new IoT categories • More devices good for platforms • Platform leaders now making devices • Generally positive but many platforms designing own chips • Flat to negative growth forecast in server, storage, network and printing • Rapid growth • Growth in AI/ML chips • Minimal AI-driven revenue growth • AI value-add dominated by platforms • Prefer processing at device vs. edge, but overall positive • Edge device growth potential, but risk commoditized devices • Potential risk 5
  6. 6. Copyright © 2019 Accenture. All rights reserved. INNOVATION GAP ON PATH TO WIDEN BASED ON R&D SPENDING 3.4% 4.2% 4.8% 5.3% 5.9% 6.2% 11.2% 16.0% Industrial Automotive Aerospace & Defense Consumer Electronics Telecommunication Equipment Medical Devices Semiconductor Internet Platform Leaders R&D Spend as % of Revenues Sources: 2017, Accenture Strategy research and analysis, 2017 Top 10 R&D companies in 2017 Platform Leaders 8.8 9 9.5 10 12 12.1 12.3 12.5 12.7 13.2 0 5 10 15 Merck Apple Huawei Roche Microsoft Samsung Intel Google/ Alphabet Volkswagen Amazon Semi & Components High Tech Products Other Products Note: Samsung is a leading component supplier in addition to products. Apple is increasingly a platform company, and Huawei designs their own semiconductors 6
  7. 7. Copyright © 2019 Accenture. All rights reserved. FEW PRODUCT COMPANIES ARE PREPARED AND ARE EXECUTING THE REQUIRED TRANSFORMATION 100% ALL COMPANIES BELIEVE BELIEVE ENVISION BELIEVE ENVISION COMMIT BELIEVE ENVISION COMMIT EXECUTE 68% 16% 5% 2% 7
  8. 8. Copyright © 2019 Accenture. All rights reserved. WHAT TRANSFORM THE CORE, REINVENT THE PRODUCT AND ROTATE TO THE NEW
  9. 9. Copyright © 2019 Accenture. All rights reserved. ROTATION TO NEW: C-SUITE PRIORITIES TRANSFORM THE CORE • Digitally transform to drive significant cost savings (20%+) in order to invest in new • Reinvent the product and customer experience • Expand customer value via AI-powered marketing and sales • Scale intelligent enterprise with automation and AI • Create the digital platform foundation for future GROW THE NEW • Shift business model from traditional hardware to • As-a-service model to drive recurring revenues • Ecosystem platform • Monetize the installed based and product data • Invent new categories of smart, connected devices and services WISE PIVOT • Manage cannibalization carefully • Subsidize the new while scaling, and get timing right • Focus: Strategic divestments, portfolio rationalization BusinessPerformance CORE BUSINESS LEGACY CORE BUSINESS TRANSFORM THE CORE NEW BUSINESS WISE PIVOT GROW THE NEW Time 9
  10. 10. Copyright © 2019 Accenture. All rights reserved. TRANSFORM CORE: DIGITAL ENTERPRISE FRAMEWORK Digital Centers of Excellence Digital Operations Digital Platforms End-to-End Experience MANUFACTURING AND SUPPLY CHAIN DIGITAL ENTERPRISE R&D Cloud Scale Computing IoT Data Lake & Analytics Digital (Content) Distribution ‘BACK OFFICE’ End Customer Partners/Ecosystem Employee MARKETING AND SALES SERVICE AND SUPPORT • Product →aaS • Modern Platform Engineering • Digital Thread & Twin • Living Marketing • AI Partner Experience • Intelligent Growth Optimization/ Sales • Digital Supply Chain • Smart Factory • ICE/ AI Powered Care • Connected Service Workforce • Digital Finance • Digital Workforce Experience and HR Digital Thread AI Analytics BlockchainRobotics Design Thinking Augmented Reality Security 10
  11. 11. Copyright © 2019 Accenture. All rights reserved. TRANSFORM CORE+ GROW THE NEW • From Features to Experiences • Hardware → ‘As a Service’ • Product → Platform • Mechanical → Digital & AI as value source • Engineering X.0/ Engineering in the New FIVE ‘BIG SHIFTS’ Interviews with Amazon, Google. HP, Samsung, Tesla, Nio, ABB, Dassault Systèmes, Caterpillar and academics Case studies on Haier, Philips Lighting (Signify) and Faurecia Extensive primary and secondary research RESEARCH AND INTERVIEWS Published March 2019 11
  12. 12. Copyright © 2019 Accenture. All rights reserved. TRANSFORM CORE+ GROW THE NEW PRODUCT REINVENTION QUOTIENT EXPERIENCE QUOTIENT (EQ) INTELLIGENCE QUOTIENT (IQ) NEW VALUE SPACES/NEW BUSINESS MODELS 12
  13. 13. Copyright © 2019 Accenture. All rights reserved. PRODUCT REINVENTION GRID TRADITIONAL PRODUCT PRODUCT OUTPUTOUTCOME EXPERIENCE CLOSED PRODUCT AS-A- SERVICE 30 PLATFORM PRODUCT + SERVICE OPEN 20 30 60 70 80 EQ-EXPERIENCECONTINUUM TRADITIONAL PRODUCT 70 IQ - INTELLIGENCE CONTINUUM INTELLIGENT PRODUCT 120 AUTONOMOUS PRODUCT 140 CONNECTED PRODUCT 90 ? ? 13
  14. 14. Copyright © 2019 Accenture. All rights reserved. GROW THE NEW: FIVE VALUE SPACES PRODUCT OUTPUTOUTCOME EXPERIENCE CLOSED PRODUCT AS-A- SERVICE 30 PLATFORM PRODUCT + SERVICE OPEN 20 30 60 70 80 EQ-EXPERIENCECONTINUUM TRADITIONAL PRODUCT 70 IQ - INTELLIGENCE CONTINUUM INTELLIGENT PRODUCT 120 AUTONOM0US PRODUCT 140 CONNECTED PRODUCT 90 Connected Product as a service Living Products Living Services Traditional Products Ecosystem Platform 2 3 4 5 Connected Products 1 14
  15. 15. Copyright © 2019 Accenture. All rights reserved. VALUE SPACE #2: LIVING PRODUCT EXAMPLE AND CHARACTERISTICS Traditional Living Product INTELLIGENCE • No/ few sensors • No AI • Fairly ‘dumb’ • Processing power > mainframe from 20 years ago • Multiple to hundreds of sensors USER INTERFACE • Physical switches • Keyboard/touchpad • Voice-based AI as the UI PERSONALIZATION • No or limited user customization • Automated personalization based on actual usage behavior and preferences UPGRADE- ABILITY • None to very limited • ‘Evergreen’ product with frequent functionality upgrades ECOSYSTEM • Closed product • Open API-based platform • Dozens/thousands of apps run on the platform and/or access device ONGOING CUSTOMER RELATIONSHIP • Very limited • ‘Always connected’ relationship with customer • Ongoing monitoring of usage data + closed-loop innovation Leading Examples • Regular software upgrades add completely new features overnight • AI-enabled ‘Enhanced Autopilot’ → fully autonomous driving • Voice AI as the UI • Connected platform and ecosystem to access hundreds of ‘skills’ • Automated software upgrades • Voice AI as the UI; voice recognition • Each Aibo dog evolves differently based on interactions with owners • MyAibo store and community 15
  16. 16. Copyright © 2019 Accenture. All rights reserved. VALUE SPACE #3 AND #4 PRODUCT AS- A-SERVICE → LIVING SERVICES •  Loyalty and retention •  Cross-sell/ upsell • New value-added service types Business Benefits of ‘as-a-Service’ Success Stories INCREASED REVENUES LOWER COSTS INCREASED STOCK VALUATION •  Sales costs, especially renewals •  Engineering cost (over time) •  Valuation multiples for ‘as-a-service’ • Software license → Software as-a-Service (SaaS) • aaS revenue grew from 19% in 2011 to >85% today • P/E Ratio rose from 12 to > 64 (peaked at 150) • 24% revenue and 32% op. income growth last quarter • Services revenue now >$10B, growing 25% annually • Services critical part of growth strategy • Successful ‘managed print services’ in enterprise • Launched ‘Device as-a-Service’ for PCs • Offer multi-vendor support and lifecycle management 16
  17. 17. Copyright © 2019 Accenture. All rights reserved. VALUE SPACE #5 ECOSYSTEM PLATFORM TYPE OF PLATFORM DESCRIPTION AND EXAMPLES Physical Physical connection or nodes between users or end points Examples: Railroad network; phone network; the Internet Transaction or Marketplace Providing connections between sellers and buyers to facilitate commerce and transaction eCommerce: Amazon, Alibaba, eBay; Payments: Visa, ApplePay, Others: Open Table; AirBnB ; Social Communities Enabling connections and communications between individuals Consumers: Facebook, Twitter, Tencent Professional: LinkedIn Data Shared data that creates value for all users, often relies on user- generated review and content Waze (traffic); Yelp! (local information); Zillow (real estate) Developer Infrastructure and technologies that serve as a base on which other applications, products or processes are developed. Operating Systems: Windows, Apple IoS, Google Android Cloud Platforms: Amazon Web Services; Google Cloud Platform; Microsoft Azure AI Emerging area that is derivative of data, where the more data is available the better the AI engines and accuracy Voice Assistant: Amazon Alexa; Google Voice Assistant; Microsoft Corton; Apple Siri 19 8 2 7 3 6 4 5 Successful Platform Network effects User experience Ecosystem Support Business model Data/ Content Marketplace Scalable Technology Digital trust Agile & Iterative 17
  18. 18. Copyright © 2019 Accenture. All rights reserved. HOW TRANSFORM LEVERAGING DIGITAL SERVICE FACTORIES AND WORKFORCE TRANSFORMATION
  19. 19. Copyright © 2019 Accenture. All rights reserved. DIGITAL TRANSFORMATION IS HARD: COMMON CHALLENGES LACK OF TALENT SLOW MARKET TESTING/ NOT AGILE LAG METRICS UNDERESTIMATING THE “LAST MILE” NOT DECOUPLING LEGACY SYSTEMS LACK OF CUSTOMER EMPATHY TOO MANY TECHNOLOGIES! ‘IT’ VS. ‘PRODUCT’ MINDSET 19
  20. 20. Copyright © 2019 Accenture. All rights reserved. APPROACH TO DRIVING A DIGITAL TRANSFORMATION CREATE A SPARK/IDENTIFY DISRUPTION DIAGNOSE AND DEFINE ORGANIZE AND DEVELOP @ DIGITAL SPEED OPEN THE DOORS TO PARTNERS BUILD DIGITAL TALENT AND CULTURE BUILD AND EXPERIMENT LAUNCH AND SCALE SPREAD INNOVATION ACROSS BUSINESS INDUSTRIALIZE DEPLOYMENT AND MONITOR VALUE SPLIT THE TRANSFORMATION (NO REGRETS, BRILLIANT BASICS AND CUTTING NEW GROUND) ESTABLISH YOUR “NORTH STAR” DIGITAL VISION Copyright © 2019 Accenture. All rights reserved.Copyright © 2019 Accenture. All rights reserved. DIGITAL SERVICE FACTORIES CO-INNOVATION WORKFORCE TRANSFORMATION HOW? ORGANIZE FOR SUCCESS 20
  21. 21. Copyright © 2019 Accenture. All rights reserved. 21 Seven very different disciplines in one team and under one leader A new organization and physical location IDENTIFY HIGHEST VALUE IDEAS ENABLE RAPID TEST AND LEARN EMBRACE FAIL FAST DRIVE DIGITAL WAYS OF WORKING ACCELERATE IDEA-TO-SCALE JOURNEY REALIZE VALUE EARLY What the Digital Factory Does Proposition Desirability Tech Feasibility Commercial Viability Service Designers • Unmet user needs • Experience design for “moments of wow” User Adoption • User acquisition • Monetization • Physical + Digital Ecosystem Manager • Open innovation • Tech and start-up partnerships • External marketing Factory Lead • Lead product manager—overall proposition owner • Prioritizes pipeline/roadmap • Chief storyteller and talent manager Commercial Team • Value/Business case • Go-to market strategy and support • Competitor SWOT and positioning DevOps Team • Agile development • Mobile first • Path-to-live production Enterprise Architects • Digital de-coupling • Solution design • Technical performance DIGITAL INNOVATION FACTORY DESIGN, DEVELOP,LAUNCH AND SCALE NEW PROPOSITIONS TO DRIVE BUSINESS VALUE
  22. 22. Copyright © 2019 Accenture. All rights reserved. DIGITAL INNOVATION FACTORY FRAMEWORK Copyright © 2019 Accenture. All rights reserved. DIGITAL SERVICE FACTORY Factory Outcomes: New Services and Experiences and/or Operational Efficiency VISION, STRATEGY AND GOVERNANCE Diagnose & Define (Ideation) Launch & Scale (Industrialize)Build & Experiment (Incubate) NETWORK OF IX.0 INNOVATION CENTERS ECOSYSTEM OF PARTNERS PRODUCT X.0 ENGINEERING X.0 PRODUCTION & OPERATIONS X.0 1 Not Exhaustive Analytics & AIIoT Security Blockchain INDUSTRIAL TECHNOLOGIES1 Connectivity DIGITAL WORKFORCE SafetyProductivity ExperienceLearning Autonomous CREATE A SPARK/ IDENTIFY DISRUPTION SPLIT THE TRANSFORMATION ESTABLISH YOUR “NORTH STAR” DIGITAL VISION ORGANIZE & DEVELOP @ DIGITAL SPEED OPEN THE DOORS TO PARTNERS BUILD DIGITAL TALENT & CULTURE SPREAD INNOVATION ACROSS BUSINESS INDUSTRIALIZE DEPLOYMENT & MONITOR VALUE
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