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Killer Virus or Killer Inertia?

Updated: May 20, 2020

Covid-19 is already exacting a direct and tragic human toll. However, fear can kill too. Panic and short-term thinking can divert resources away from other vulnerable patients. Similarly, at a corporate level, there are two risks which spring to mind right now. Both are fatal. Both are caused by fear.

In the near term the unknown extent of the global public health crisis allows worst-case analyses grab the headlines and causes huge disruption to everyday commercial activities. A dramatic fall in economic activity poses a very real cash flow challenge to many businesses. This can be fatal for more fragile business models and just the plain unlucky. Anyone fancy being an events management business at the moment?

The less obvious fear in the corporate world is the fear of change. But change is real and it’s accelerating right now. Artificial Intelligence(AI) is no longer a sci-fi R&D play thing. AI has moved on to being a real-world application supporting human capabilities and intelligence. The combination of AI, the internet of things(IoT), big data, nanotech and blockchain is a revolution which will have winners and losers. For illustration of the pace of change, EY’s consultancy practice have stated that the enormous asset management industry could experience more change in the next 5 years than it did in the last 25 years. Accenture have quantified the AI opportunity at $14 trillion across 12 major economies by 2035.

The risk for companies fearful of change is that they waste critical capital in tweaking legacy business processes. Like Covid-19 this fear can kill businesses not immediately at risk. Be under no illusion a large part of that $14 trillion is being spent on the next Amazons with massive scale, superior customer experiences and lightning speed execution. The option to do nothing is no longer available and vulnerable patients (sectors) most at-risk include banking, insurance and telecoms/media. Return on capital and productivity are major challenges facing these industries but the need to dramatically embrace change is no longer up for debate given recent developments.

Imminent research from Loughborough University is about to reveal that the UK is facing the biggest slowdown in productivity in 250 years. Amazingly, Brexit is not the key culprit. In fact, all developed economies have particularly struggled on the productivity front since the GFC crisis. The reasons are complex but the good news is that automation offers potentially huge productivity opportunities for both employees and companies.

The implementation of robotic process automation(RPA) is poised to accelerate dramatically and take a huge number of repetitive, low value manual tasks off employee to-do lists. The powering of employees using AI and RPA will enable them to focus on higher value activities and enhance creativity. One can expect that companies who fail to embrace automation will struggle to keep quality employees and, more importantly, customers wary of franchises with high staffing turnover and outdated clunky business processes. The prognosis for companies who fail to support their human capital with real investment could be very bleak. An additional impetus for change will also be the imminent scrutiny from both investors and customers.

The Fourth Industrial Revolution(AI) will be accompanied by an ESG revolution now followed by more than $30 trillion of investment funds. High turnover levels in personnel are now a red flag for customers and investors keeping a close watch on the “S” in ESG. Robots, like Covid-19, can sound scary but it’s uninformed fear which can exacerbate the ultimate cost. Managements need to take informed advice and act urgently.

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