Living in a 4.0 world

The impact of emergent technologies for the public sector

  • Dr Stephanie Fahey, Chief Executive Officer of Austrade 
  • CPA Congress 2017, Canberra, 25 October 2017
  • Talking Points - Not checked against delivery 

If Australians can harness our creativity and ingenuity in this fourth industrial revolution, the payoffs for the nation will be impressive.

Industry boundaries are already blurring as we undergo rapid and transformational technological change.

The global GDP impact of Industry 4.0 through 2025 has been put at more than $10 trillion.

If this wasn’t change of an almost unimaginable scale, we wouldn’t be calling it an industrial revolution.

Innovation in isolation is not enough, though. It’s vital that Australian business, industry and government recognise the value of our scientists, researchers and out-of-the-box thinkers who are leading disruption of traditional business models with their work.

We need to invest in those strengths, now more than ever.

Austrade has a significant role to play in this new future.

First, in identifying new possibilities and niches in the global economy for Australian suppliers of world-class products and services;

Second, in creating genuine partnership between innovators and investors, business and industry;

And third, in helping those innovators scale up and access global markets. This is something Austrade is already doing with its five "Landing Pads" in global innovation hubs – San Francisco, Shanghai, Singapore, Tel Aviv and Berlin.

Australian businesses that are innovation-active are 40 per cent more likely to increase income and profitability; twice as likely to export, and five times more likely to increase the number of export markets targeted; two-to-three times more likely to report increased productivity, employment and training; three times more likely to increase investment in IT; and almost five times more likely to increase the range of goods and services offered, and make social contributions such as donations.

WHY AI AND WHY NOW?

AI is expected to underpin the next wave of digital disruption globally.

A bibliometric analysis of global research found that the production of artificial-intelligence related articles grew dramatically between 1990 and 2014: from around 200 a year to over 1,000 a year.

It will offer new opportunities for automation and insight, solve real-world challenges and generate significant economic and social benefits for early adopters.

Recognising this potential, corporations and governments globally are rapidly scaling up their investment into AI, including in key capability areas such as machine learning and natural language processing, computer vision, robotics and automation technologies.

McKinsey estimates that in 2016 alone, global corporate investment into AI hit US$39 billion (up from US$25 billion in 2015), with tech giants such as Baidu, Google and Amazon contributing around $30billion of that total. [1]

In October 2017, Chinese retail giant Alibaba announced plans to invest US$15 billion in AI-focused R&D labs across China, the US and Israel, to ensure its place as a global leader in the field.

Similarly, global Governments are actively stepping up their AI investment focus, with recent examples including:

  • UK Government’s Industrial Strategy committing $2 billion pounds p.a. by 2020 into future-focused R&D, particularly in AI and robotics;
  • China setting a target to grow its AI industry to US$150 billion by 2030, and to match world AI research capability by 2022 [2] ;
  • Singapore’s National Research Foundation announcing a S$110M commitment over 5 years into industry-focused AI and data science initiatives, including establishing. AI SG, a collaboration between six leading Government agencies on AI initiatives.

Australia has globally recognised, established research strengths in a number of the underpinning AI technology streams, in particular machine learning and robotics.

We have the opportunity to recognise global returns from being an early AI mover and technology adopter.

AlphaBeta estimated in its recent report, "The Automation Advantage", that Australia has a $2.1 trillion market opportunity if we use AI and related technologies to transition our industry base and accelerate automation. [3]

One thing the report notes is lagging, however, is corporate investment in AI – in Australia, 50 per cent fewer firms than other leading countries in the report are actively investing in AI.

Another recent report, by McKinsey, said the key sectors most likely to benefit from AI and as early adopters include: manufacturing, financial services, resources and health-related companies and service providers, all significant economic and employment industries for Australia, and all of them already major priorities for Austrade in the work we do globally.

Using the health sector as an example, McKinsey identified $300 billion in potential savings in the US alone from the use of machine learning in population health forecasting, a further 30-50 per cent improvement in nurse productivity through access to AI support tools. Globally it identified potential for $2-10 trillion in efficiency savings through use of AI in drug tailoring and discovery activities. [4]

Nike is one global company that is already grappling with these issues. As a business that has traditionally relied on low-cost foreign labour to develop a product that relied on intricate handiwork.

Traditional production can require as many as 200 different pieces across 10 sizes. But Nike’s embrace of AI to develop laser cutting and auto-gluing could have a big positive impact on its profit margins.

Analysts at Citibank estimate that the new technology could decrease the cost of labour for one of its top-selling lines by 50 per cent. Materials costs would fall 20 per cent. That’s a 12.5 percentage point increase in gross margins.

So given the obvious incentives to automate many of the jobs of today, what new jobs will be created in the future?

The AlphaBeta report notes that more jobs are being created in a range of service industries that rely on specialised but uniquely human skills such as thinking creatively and being able to understand, acknowledge and respond to other people’s emotions.

Education providers must train workers of the future in new skills, and in new ways; new industries will sprout. Those who will succeed in this climate are those who can adapt and adjust quickly, spot niches, imagination new ways of doing business.

Australia has done incredibly well to achieve 26 years of consecutive economic growth – AI, big data and blockchain are all building blocks for ensuring we continue that winning streak.

BACKGROUND NOTES

Blockchain

Blockchain has the potential to reframe existing industries, such as financial services and personalised healthcare. This year the world economic forum predicts 80 per cent of banks will initiate distributed ledger technology.

Blockchain is a type of online distributed ledger technology which processes and records Bitcoin transactions.

By using blockchains, individuals and organisations can transact or form agreements with known entities or complete strangers without going through an intermediary such as a bank to confirm their identity.

Blockchains can also be used for contract, clearing and record keeping.

Blockchain connects different parties over the internet to provide a secure and trustworthy record of their transactions ensuring data integrity (accuracy and consistency of data stored on a network), without giving control to a third party. This is a big deal.

Since they remove the need for a third party, blockchains can reduce the number of stakeholders involved in a transaction therefore reducing cost and saving time.

Blockchains can enable better information sharing, better business processes, giving stakeholders more confidence and reducing cost and risk.

How can government and the public service use AI, blockchain and big data?

There is enormous scope for Australia's public sector to harness new technology on behalf of the public.

For government, Blockchain can be potentially used as a common reference point to bring together different levels of government data (local, state and federal) to host government registries of open data.

We are also developing expertise in regulation of blockchain and the implications for regulatory authorities worldwide.

Australia currently acts as secretariat for the International Standards Organisation – Blockchain Standardisation process, which gives us access to the key players around the world.

We also have a regulatory system which is supportive of exploring the potential and thinking about how we can use it – Australia has already been successful in sharing its regulatory expertise in other areas for commercial gain, and we can achieve that in this arena.

Big Data

IBM conducted a worldwide analytics study of 1,226 respondents, and found 95 per cent to believe that big data and analytics are now necessary to stay on par with competitors or required to outpace them (IBM 2015).

A study of 179 large public companies revealed that firms which adopt data driven decision-making have output and productivity that is 5-6 per cent higher than what would be expected given their other investments and information technology usage (Brynjolfsson et al. 2011).

A survey of financial, health and other sector fortune 1000 companies revealed that 26.8 per cnet would invest more than $50 million into big data during 2017, up from 5.4 per cent of firms in 2014 (NVP 2016).

Since 2013, the Australian Government has published over 7,000 additional data sets on the data.gov.au website - a 15-fold increase (DIIS 2016a).

83 per cent of Australians (16 years and over) accessed government services or information online in the last 12 months (DIIS 2016a).

[1] http://www.mckinsey.com/media/McKinsey/Industries/Advanced%20Electronics/Our%20Insights/How%20artificial%20intelligence%20can%20deliver%20real%20value%20to%20companies/MGI-Artificial-Intelligence-Discussion-paper.ashx

[2] https://www.nytimes.com/2017/07/20/business/china-artificial-intelligence.html

[3] http://www.alphabeta.com/wp-content/uploads/2017/08/The-Automation-Advantage.pdf 

[4] http://www.mckinsey.com/media/McKinsey/Industries/Advanced%20Electronics/Our%20Insights/How%20artificial%20intelligence%20can%20deliver%20real%20value%20to%20companies/MGI-Artificial-Intelligence-Discussion-paper.ashx