1、The Ivory Tower RethoughtGenAI Disruption in White Collar Strongholds2|OC&C Strategy Consultants 2023Common ComplacenciesThese are sometimes true,but not as often as people tend to thinkA rude awakening:white collar businesses are often complacent about the defensive moat the complexity of their wor

2、k provides against GenAICommon GenAI Myths for White Collar BusinessesCommon GenAI MythsSource:OC&C analysisEvidence to the ContraryLLMs are developing rapidly OpenAIs ChatGPT has advanced significantly in the space of a few years,e.g.GPT-2(2019)had 1.5bn parameters,but GPT-3(2020)had 175bn;GPT-4 wa

3、s the first model to feature internet connectivity significantly boosting its capabilitiesCosts and complexities of fine-tuning currently put“data lake”benefits out of reach for most businesses even after significant investment and internal AI headcount,hallucinations and performance issues are wors

4、e where the tool is fed with private/proprietary data(as shown by high-profile struggles of Bloomberg GPT)Scale players are developing private LLMs running off ringfenced data sources e.g.EYs EYQ chatbot that is fully privateGenAI cannot do my type of workData security means GenAI cant do my workMy

5、proprietary data will be my defence mechanismLower cost to serve means more demand for my servicesIn some scenarios demand increases driven by lower cost to serve will drive volume increases(e.g.translation).However,this is not always the case(e.g.court reporting)and it is not self-evident that incu

6、mbents are best placed to win the incremental demand that is created2GenAI B2B IP v0603243|OC&C Strategy Consultants 2023In the face of this,there are 3 key questions that white collar businesses should be considering in the age of GenAIEven if I can be front-footed on GenAI,what are the implication

7、s for my business,commercially and operationally?Where and how is GenAI going to impact my business?What is the nature of the competitive threat that I face,and how do I create sustainable competitive advantage?Key Questions in the Age of GenAIWhat is the right speed for me?Should I leave others to

8、lead the way and act as a fast follower?What are the risks of doing so?3GenAI B2B IP v0603244|OC&C Strategy Consultants 2023At a basic level,impact of GenAI is determined by proportion of a workflow it can automate and customer willingness to adopt(driven by cost of failure)Source:OC&C analysisPropo

9、rtion of Workflow AutomatableCost of FailureLowHighMinimalWholePartProportion of Workflow AutomatableCost of FailureMap of GenAI Impact on a Given WorkflowWorkflows assumed to be done by Humans 3 years ago Composite function of how good GenAI is at a given task,and extent of bundling of that task in

10、to a wider workflow which is harder to automate Concerns around risk and regulation inhibit GenAI usage today,especially given unclear accountability(for example need to have clear audit trails)Where will GenAI Impact Workflows?1It is highly unlikely that an incumbents revenue sits in a single place

11、 on this framework:the nature and level of threat will vary by segmentWhere and how?MinimalPartWholeWorkstep 1Workstep 2Workstep 3Workstep 1Workstep 2Workstep 3Workstep 1Workstep 2Workstep 3GenAI is typically poor at a task today where it is unique/not repeatable,so it is harder to train the LLMIllu

12、strative Workflows(Series of Worksteps/Tasks)12AutomatableHuman LedPure GenAI Tech SolutionHuman led,but increasingly with GenAI supportGenAI with light touch human QCDevelopment will vary by workflow,but GenAI with human QC is expected to expand significantlyVery significant component of work human

13、 driven (for now)2The more a workflow shifts from bottom right to top left the greater the reduction in cost to serve4GenAI B2B IP v0603245|OC&C Strategy Consultants 2023Professional services workflows span the full breadth of both these axes understanding where a business sits across them is a key

14、first stepWhere will GenAI Impact Workflows?Where and how?Source:OC&C analysisMap of GenAI Impact on Example WorkflowsProportion of Workflow AutomatableCost of FailureLowHighMinimalWholePart1Fashion Design Elements are automatable,but still requires human involvement beyond QC checks35Restaurant Rev

15、iew Translation GenAI translation services are much faster than human led and are typically more accurate4Software Testing GenAI can do elements of repeatable testing,though humans still lead on test design&ideation2Back Office Functions(e.g.Accounts Payable)GenAI can significantly automate some bac

16、k-office functions improving the precision&speed of repetitive tasksLegal Tech Assisted Review(TAR)Faster than humans,but humans are required to train the ML algorithms&perform QC checksExample Workflows5Fashion Design1Restaurant Review Translation2Back Office Functions3Legal TAR4Software Testing6Pu

17、blic Relations Emergency Response Reliant on building relationships&people skills,so harder to automate,and these skills are key differentiators6PR Emergency ResponseIllustrativeGenAI enables some tasks which were either not possible previously,or were uneconomical to do with humans5GenAI B2B IP v06

18、03246|OC&C Strategy Consultants 2023The competitive threat created by GenAI is not uniform with different competitors more likely to win in different segmentsSource:OC&C analysisCost of FailureLowHighNature of Competitive ThreatNature of Competitive Threat(AI Native)Point SolutionsPrice pressure fro

19、m traditional competitorsCustomers utilise public GenAI tools in-houseJVs/partnerships with leading GenAI providers Scale/sophisticated customer developing tools in-house(AI Native)Point Solutions can pick off E2E automatable workflows,but lack trust for high cost of failure tasks,and domain knowled

20、ge for more complex workflowsTraditional competitors can pass on savings to customers by leveraging Gen AI tools(delivering the same job volume for less money by automating part of workflow)Sophisticated customers will be able to invest in proprietary GenAI tools to tackle their domain,or more sensi

21、tive work;this is more likely to lead to full automation of workflows than ad hoc usageIncumbents with JVs/partnerships with leading GenAI providers are well equipped to deal with the highest cost of failure tasks given their ability to add experienced human capital to the technology solution Custom

22、erThreatsExamplesProportion of Workflow AutomatableMinimalWholePartCustomers can deploy public tools on an ad hoc basis to improve their efficiency(but are unlikely to trust outputs for high cost of failure tasks)Nature of threat&comp.advantage6GenAI B2B IP v0603247|OC&C Strategy Consultants 2023 Le

23、verage strong customer relationships and domain knowledge to ensure you are positioned between point solution and customer in value chain(e.g.acquire/incubate/partner)All is not lost,but incumbents need to identify what advantages will help them hold off the specific threat they faceSustainable Comp

24、etitive AdvantageGenAI Defensive Levers Source:OC&C analysisNature of threat&comp.advantageIllustrativePoint solutionsTraditional CompsCustomer using public toolsCustomer using own toolsPartnerships/JVs with GenAI providersPaths to Win Competitive Battles Invest to lead on GenAI,to set rather than f

25、ollow the price curve Consider adjusting monetisation model,to ensure being paid for value delivered Communicate value of your experience,synergies and learnings from broader industry experience Invest to be ahead of the curve;replicate previous arguments to win vs in-house:“there are clear synergie

26、s with my other customers,so marginal cost of working with me is much lower,and I have the breadth of experience to do this better”Leverage domain specific knowledge to compete against generalists Seek own partnerships with leading GenAI playersDefensive(or Offensive)Plays By BattleIncumbent Assets&

27、CapabilitiesBrand EquityClientRelationshipsDomain Expertise7GenAI B2B IP v0603248|OC&C Strategy Consultants 2023Successfully building GenAI capabilities is not enough to benefit from these new capabilities there are five key questions that need answeringSource:OC&C analysisChallenges of GenAI Enable

28、mentIve invested,what next?Efficiency gains mean my employees are underutilised,so my margin is droppingI am concerned about my pyramid:I dont need my juniors,but they are the future seniorsI have invested in GenAI and thought I was ahead,but it is moving so fast I now feel behind the curveMy custom

29、ers are banking the efficiency gains,but I am footing the bill to investI am concerned my clients are capturing all the benefits of GenAI efficiency gainsOperational ChallengesTech Stack ChallengesCommercial Challenges12345Enduring QuestionsInterlinked challenges,where#1 primarily impacts top line,a

30、nd#4 impacts headcount&job requirements(and therefore associated costs)8GenAI B2B IP v06032412|OC&C Strategy Consultants 2023Do I go Slow or Fast?Professional services firms are not always great at innovation often leading to an attitude of“wait and see”this is not always a bad thingNeed for SpeedSl

31、ow vs Fast the Pros and ConsThe challenges of corporate venturing/innovation can be particularly stark in Professional Services All corporates can face challenges when it comes to innovation:Concerns about putting capital at risk No obvious innovation owner Day-job getting in the way of tests and tr

32、ials Wrong KPIs being tracked during MVPs and/or poor data/no data to track MVPs not being scaled even if they prove successful Unwillingness to pause/end trials even if shown not to deliver a benefit These challenges can be exacerbated in some Professional Services businesses:Resistance from employ

33、ees(both junior and senior)in changing how they deliver work Partner model not conducive to capital outlay Belief that they are insulated from GenAI impact(see page 2)Opportunity TypeAdvantages of WaitingAdvantages of Immediate ActionProductivity&EffectivenessAdoption of more intuitive technologies

34、with less resistance Integration of advanced technologies requiring less user trainingEarly learning curve mastery leading to long-term productivityDevelopment of proprietary knowledge through user trainingInfluence future technology usability standardsBusiness Function ImprovementCost savings from

35、competitive vendor solutionsLearn from early adopters challenges to refine internal deployment strategiesEarlier benefits from functional optimisationsEstablish leadership in operational efficiencyPotential to guide vendor technology roadmapsNew Features&Disruptive PropositionsReduced risk from obse

36、rving market validationStrategic entry after evaluating markets critical success factorsFirst-mover advantage in setting market trendsEarly insights into critical success factors for disruptive technologiesPotential to define industry standards9GenAI B2B IP v06032413|OC&C Strategy Consultants 2023Ab

37、ility to“wait and see”is partly driven by cost of failure and automatabilityNeed for SpeedDo I go Slow or Fast?When is it Safe to Wait?You are more likely to be able to wait and see ifCost of failure is perceived as high this makes it less likely that client behaviour will evolve quicklyGains from G

38、enAI today are limited(e.g.some efficiency gain not full automation)meaning competitive advantage/benefit from being ahead on GenAI will tend to be modest Clients are not tech natives more likely to look upon GenAI with nervousness rather than excitement(and therefore less likely to privilege suppli

39、ers leading on innovation)Competitors are not actively innovating/lack the capabilities and investment to do so limits risk of falling behindThere are regulatory concerns/barriers to innovation this also likely creates an opportunity to play a role in driving thrust of future regulationYou lack the internal capabilities to drive innovation and experimentation likely makes fast following lower risk approach than driving ahead with weak capabilities10GenAI B2B IP v060324OFFICESBostonHong KongLondonMelbourneMilanMunichNew YorkParisRotterdamShanghaiSydneyWar