AMIT RAY

Managing Director, Protiviti

RISK OF DISRUPTIVE TECHNOLOGIES

DISRUPTIVE TECHNOLOGY

Top Technology Trends in 2017

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Gartner’s Hype Cycle for Emerging Technologies

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An innovation that creates a new market by applying a different set of values, which ultimately (and unexpectedly) overtakes an existing market.

• Radically transforms markets • Creates new markets and business models • Destroys existing markets and value networks • Creates significant societal impact

WHAT

• Low-End Disruption: The new products or services are cheaper, simpler, smaller, or easier to use.

• New-Market Disruption: They address untapped or unobserved customer needs that are being ignored in the mainstream

WHY

Demystifying Disruptive Technology

HOW

How Disruptive Innovation Works

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The Disruptors

World’s largest taxi company owns no taxis

World’s largest accommodation provider owns no real estate

Largest communications companies own no infrastructure

World’s most valuable retailer has no inventory

Most popular media platform creates no content

Fastest-growing banks actually have no money

World’s largest movie house owns no cinemas

Largest software vendors don’t write the apps

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DISRUPTIONS IN ENERGY INDUSTRY

# 1 - Disruption in Energy Industry

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# 1 - Disruption in Energy Industry

2013 Consumer Reports:

Best car EVER!

Best-selling high-end large luxury car in

America for 4 years in a row!

# 1

# 2

# 3

# 4

# 5 0

25

50

75

100

103

2017 Best Cars of the Year (Luxury Sedan Category)

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Key ‘Drivers’

Self Driving Vehicles

Solar Electric Vehicles

Energy Storage

Disruptors in Energy

Industry

Is EV Disruptive?

0% 100%

17 – 21 %

Internal Combustion Engine

90 – 95 %

Electric Motor

1. Electric Motor – more Energy Efficient 5X

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Is EV Disruptive?

2. EVs are cheaper to charge / fuel

Assumptions: 12,000 miles/year Tesla Roadster 4.6 miles per kWh Ave Rental electricity in the US : 12cents/kWh 5 year-cost = (60,000 miles * 0.12 $/kWh)/4.6 miles/kWh = $1,565

• It costs $15,000 to fill up a (gas) Jeep Liberty

over five years (Consumer Reports)

• An Electric Jeep Liberty would cost $1,565 in

electricity

• Improvements in power electronics will increase 10X

10X

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Is EV Disruptive?

3. EVs : fewer Moving Parts

ICE (Gas) Vehicle

2,000+ moving parts

Electric Vehicle (EV)

18 moving parts

Transmission, driveshaft, clutch, valves, differentials, pistons, gears, carburetors, crankshafts,…

EVs are 10X – 100X cheaper to maintain!

Tesla : Infinite Mile Warranty!

100X

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Is EV Disruptive?

The Tesla P90D accelerates faster than $1 million gas ‘supercars’ from Ferrari, McLaren, Lamborghini, Paggani and Porsche

4. EVs are FAR MORE powerful than ICE

Disrupt the Basis of Competition

EVs : Porsche performance for Buick Prices!

High $$$

Medium $$

Low $

Price

Low High Performance

Buick Enclave

Tesla Model 3

Porsche 911 Carrera

EVs Shift the Price / Performance equation

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End of Oil by 2030?

• Ford to invest US $4.5B in EV, just invested 1B in a self driving car company

• FoxConn to build EV for US $15,000

• Apple, Uber and Google have entered the market

• Ecosystem: Free EV Charging Stations

Cost of EV with 200-mile (320 Km) range

Assumptions: 4 miles/kWh, 50kWh batteries, 16% yearly improvement in battery costs, EV costs= 3X cost of battery

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

2014 2015 2017 2019 2021 2023 2025 2027 2029

Co

st o

f El

ect

ric

Ve

hic

le

Gas “Affordable SUV”: $35 - $40K

Avg. gas car cost in US : $31K

Avg. cost of Low-end gas car in US: $22K

2018 2020 2022 2024 2026 2028 2014 2016 2030

#2 - The Fracking Revolution

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The Shale Gale

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The Tip of the Iceberg

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MANAGING EMERGING RISKS

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Defining Emerging Risks

A risk is emerging when the understanding of one or more constituent elements of the risk’s current dynamics is not developed.

HIGH UNCERTAINTY

• Lack of knowledge of potential impacts

• Inexperience in risk absorbing systems

Example

Possible interactions with existing technologies along with mitigation tactics are unknown or unproven and lead to open exposures, e.g., nanotechnology

INCREASING COMPLEXITY

• Non-Linear impacts due to systemic dependencies

• Lack of knowledge on interconnection and dependency on risk

Example

An accumulation of risks in the industrial internet of things such as automation, robotics, machine to machine communications.

CHANGES IN CONTEXT

• Changes in nature and probability of expected impacts from existing technology, products and processes

Example

How aviation deals with drones.

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Contributing Factors to Emerging Risks

Scientific Unknowns Time Horizon Complications

Social Dynamics

Technological Advances Conflicts over science,

values and interests

Malicious Motives and acts

Communication

Information asymmetries

Systems that amplify change

Loss of safety margins

Varying susceptibilities to risk

Perverse Incentives

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Why Traditional Approaches Fail

Tendency to rely too heavily, or ‘anchor’ on a past reference or on one trait or piece of information when making decisions

Anchoring

Likelihood of an alternative is judged depending on how

easily it is imagined or brought to mind

Availability Bias

Tendency to search for or interpret

information in a way that confirms one’s

preconceptions

Confirmation Bias

The fact that people often demand much more to give up an

object than they would be willing to

pay to acquire it

Endowment Effect

Tendency to select inconsistent choices, depending on how a question is framed

Framing Effects

Tendency to see past events as being

predictable at the time those events

happened (‘I knew it all along’)

Hindsight Bias

Tendency to be over-optimistic,

overestimating favorable and pleasing

outcomes

Over-Optimism

Excessive confidence in one’s own answers

to questions

Overconfidence

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Adaptive Risk Management

Macro: Identify potential scenarios from Innovators , Structural Risk

Micro: Monitor visible Risk, Amplifying tremors (Signals from Early Adopters)

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Harness Social Intelligence to identify emerging risks

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Tipping Point Dynamics and 3 Stages of Risk

Intensity

Time

Control

Stakes

TIME TO ACT

OPTIMAL TYPICAL

Invisible / Potential Visible and Amplifying

Hidden Risk Emerging Risk

Crisis

Innovators Early Adopters

Early Majority

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Look Far enough into the future and use scenario analysis

Strategy

Information technology

Human Resources

Legal and Compliance

Accounts Payable, general ledger accounting, tax accounting

Product

Management

Actuarial

Analysis

Marketing

Sales and Agency Management

Risk Management and Under- writing

Policy Acquisition & Servicing

Billing and Account Receivables

Claim Services

Investment Management

Loss Control

Consider top-down and bottom-up impact

Consider if risks are embedded in the undertaking’s culture

Make sure the Key risks have owners and action plans

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Analytics Driven Risk Management

Big Data

Emerging thinking

‘Connect the dots’

Process Analytics

Outside the Box

Exte

rnal

Dat

a

Inte

rnal

Dat

a

Generating Hypothesis Testing and Monitoring Hypothesis

What if you could leverage ‘seed-thoughts’ of scientific/legal specialists, and general populace, to identify new potential sources of risk?

What if you could track the relevant indicators of the most important external threats to your business, to access when they are live?

What is you could leverage the collective thoughts of the talent in your organization to form a clearer picture of internal and external threats?

What if you could track your internal data to understand whether changes in the way you do business could be generating an emerging risk?

• Predikat (Healthcare) • Mumsnet (Parental Advise)

• Governments (Law Enforcement) • Bubble Hunters (Financial Analysts) • Regulators (Proactive Regulations)

• Customer Sentiment • Word and Speech Analysis (Fraud) • Process Mining

• SONAR

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Digital Transformation vs. Disruptive Risks

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Digital Transformation Risks

1. Data Quality and Data Governance

2. Information Governance

3. Mobile Application

4. eChannel Platforms

5. Digital Strategy

6. Digital Marketing

7. Social Media Strategy

8. Cloud Implementation

9. Analytics / BI Strategy and Roadmap

10. Cyber Security

11. Digital Identity

Disruptive Technology Risks

1. Security Risks (Mobility, IIOT) • Design Vulnerabilities • Cyber Attacks

2. Physical Risks (Autonomous Tech) • Accidents / Mass Injuries • Unforeseen Events • Product Defects

3. Decision Risks (AI, Machine Learning) • Biases • Mismanagement • Lack of Regulation

4. Legal and Business Risks (3D Printer) • Copyright Infringement • Lack of Regulation • Support Risks

Talking about Emerging Risks is a Good Thing…

Doing something about them would be even better

Thank You Contact Protiviti

Amit Ray

Managing Director

Data Analytics Solution Leader

D : +965 2295 7821

M: +965 9725 3608

Amit.Ray@protivitiglobal.me