This document discusses the digital transformation of high-tech industries. It notes that profit and market value are migrating away from hardware and components towards internet platforms. It identifies trends like artificial intelligence, internet of things, cloud computing and edge processing driving changes. Few product companies have fully transformed, with internet platform companies outpacing spending on research and development. The document outlines a framework for companies to transform their core business while growing new business models in areas like connected products, living products and services, and ecosystem platforms. It emphasizes the need for digital talent and factories to drive transformation.

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

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

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

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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

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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

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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

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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

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WHAT
TRANSFORM THE CORE,
REINVENT THE PRODUCT AND
ROTATE TO THE NEW

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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

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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

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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

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TRANSFORM CORE+
GROW THE NEW
PRODUCT
REINVENTION
QUOTIENT
EXPERIENCE
QUOTIENT (EQ)
INTELLIGENCE
QUOTIENT (IQ)
NEW VALUE
SPACES/NEW
BUSINESS MODELS
12

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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

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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

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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

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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

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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

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HOW
TRANSFORM LEVERAGING DIGITAL SERVICE
FACTORIES AND WORKFORCE TRANSFORMATION

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. 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. 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. 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

23. THANK YOU