What’s that coming over the hill?

Most organisations inside the UK – and many outside – will rank Brexit as amongst their biggest immediate risks. Rightly so. But amidst this political maelstrom, it’s easy to forget that the biggest existential threat to your organisation might come from an emerging disruptive trend or a change in social attitudes.

In this week’s blog I want to look at, but also beyond, Brexit to think about other forms of disruption, from AI to plastics, focusing in on how companies build long-term value.

From the ubiquitous risk…

As we go to ‘press’, all Brexit options are possible – but none are yet legally binding. Without new legislation, the default position remains that the UK will leave the EU without a deal on 29 March 2019 –  which has a c.30% probability of occurring, according to EY’s Brexit team.

This scenario has been a distinct and growing possibility for a while, allowing businesses and governments some time to plan. But, there are practical limits to the physical preparations businesses can make and some are counting on a deal.

In a recent EY webcast: 25% respondents said that their contingency plans were in place; 38% said that they were prepared – but they were concerned about their wider enterprise/ supply chain; 10% said they weren’t prepared; and 27% were in wait-and-see mode or expected a deal.

Whatever happens now, any legally binding decision by parliament in Mid-March can only remove the immediate ambiguity. Brexit is a marathon, not a sprint. Some level of uncertainty looks set to be an ongoing reality for business for many years.

…to the stealthier threat

One of Brexit’s biggest indirect risks is the risk of distraction. Companies inevitably have less time to watch other horizons and have fewer resources to spend on investment  – all at a time when businesses need to be constantly thinking about how they stay ahead of the curve.

As well as the risk of distraction, there’s also the risk of complacency. We tend to over-estimate the impact of technologies in the short-term and under-estimate in the medium-term before they reach maturity – the typical S-curve. Hype often outstrips reality for a while, but just look at how quickly and suddenly online music streaming supplanted physical sales before it became the norm.

As well as the risk of distraction, there’s also the risk of complacency. We tend to over-estimate the impact of technologies in the short-term and under-estimate in the medium-term before they reach maturity – the typical S-curve. Hype often outstrips reality for a while, but just look at how quickly and suddenly online music streaming supplanted physical sales before it became the norm.

Our EY Disruption Index™ analyses more than 500,000 events across 380 subsectors, to help us and you spot where disruptive technologies are on their adoption ‘S curve’. That is, whether they are in the slow adoption, rapid deployment or decelerating maturity phase – and how this varies by sector.

For example, our analysis suggests that the rapid deployment phase for artificial intelligence (AI) overall is expected to commence around 2022, but AI is clearly having a greater impact in healthcare than construction.

By predicting the S-curve trajectory of technologies, we can help companies assess where they should be focusing resources and how they need to adapt their plans to remain competitive in the future.

Changing dynamics

So, when and where are technologies set to make their greatest impact? Our EY Disruption Index™ bulletin for Q4 2018, released today, shows that AI remains the most profoundly disruptive technology in our analysis, especially in financial services, automotive and transportation, telecommunications and retail. Meanwhile, virtual reality (VR) has one of the fastest rates of acceleration, along with Internet of Things (IoT) applications, which continue to accelerate in the automotive and transportation sector.

Travel & Leisure is the sector where these technologies are coming together to create the fastest rate of change.  AI is being used to predict customer travel choices, to provide customer assistance and analyse feedback. Hotels and attractions are using VR to offer tours of rooms and help visitors create virtual itineraries. Hotels are increasingly offering guests IoT voice-activated devices, mirroring the spread of smart-home devices, by offering virtual assistants like Alexa and Siri.

Oil & Gas has shown the fastest acceleration rate in disruptive technologies, using very different applications of two of the very same technologies disrupting the Travel sector. Intelligent and connected devices (a form of IoT), combined with automation techniques, are allowing the oil and gas sector to make operations safer, more efficient and cheaper. Meanwhile, the sector is using increasingly sophisticated AI-based models of rocks and fluids below ground level or under the sea bed to raise exploration wells’ success rate.

Long-term value

The section above highlights how disruption offers threat and opportunity. They are two sides of the same disruption coin: the opportunity for those who can move ahead of the curve, the threat for those left behind. Amidst the economic cycle and political turbulence, companies still need to be able to clearly articulate where their business is heading. Those that can’t will struggle to keep up.

Increasingly, this ‘heading’ needs to be articulated in both strategic and social terms. You only need to consider how quickly the UK public attitude changed to plastics to understand how companies are operating in a world where environmental, social and ethical factors are more likely than ever before to hit reputation and business performance.

We’ll be coming back to this topic in the coming weeks, but I recommend reading an article by my colleague Douglas Johnson, on ‘Why a strong sense of purpose can be good for society and business’.  Because, more and more, shareholder return is becoming more closely linked to social return. Companies need to think about how they build trust with all their stakeholders. They may need to rethink who they even count as stakeholders.

What next?

We think that companies that can align strategy and decision making with a social purpose will be better positioned to withstand short-term adversities and create long-term value. That’s why EY and the Coalition for Inclusive Capitalism launched the Embankment Project for Inclusive Capitalism (EPIC) to help us understand how we measure this.

It’s why we’ll be talking about how this works in a transaction setting here and elsewhere in 2019. In the meantime, I welcome your thoughts on this topic.

Find out more about:

EY’s Brexit Hub

The EY Disruption Index™

Edited by Kirsten Tompkins

Long term value