Making sense of a changing world

SUMMER 2018

Why it’s all

about Ecosystem
Thinking

Economics/ Innovation/ Talent/ Technology/

Are subscription If you can’t launch a In a machine driven world Don’t think of it as when
models the future for product in eight weeks... what place will there be for or if, the AI revolution has
the auto industry? you never will human experts? already started
 In partnership with
PA Consulting Group

4th September
155 Bishopsgate, London

The leading Digital Transformation event for the Enterprise

Three conferences in one:

Technology
Whilst it can be hard to predict the
next big disruption, it is possible
to identify forces at play right now
that will have a major impact on
the future of business. In this track
DSE will highlight the technologies
driving of business disruption
Innovation Purpose
Today Innovation plays an essential The world is changing. Progressive
role in ensuring businesses stay organisations and inspiring leaders
ahead of their competition. In this are starting to realise that purpose 70+ Speakers including:
track Disruption Summit brings and profit can, and should go hand
together leading innovators to share in hand. These sessions make the
their visions of innovation in the business case for putting purpose at
David Sharp Nicola Millard
digital age. the very heart of your business. Bruce Daisley
Head of technology Head of customer
VP EMAE, Twitter
10X, Ocado Insight - BT

More information at disruption-summit.com

 /welcome

Welcome to the Summer

edition of D/SRUPTION
It’s clear that the conversations So how do organisations do things differently?
around disruption have moved Henry Ford once said: “Do what you’ve always done
on considerably over the and you’ll get what you always got” and this has
The Disruptive past few years. Thankfully,
no longer do I find myself
never been more true.

Innovation explaining what disruption

is and why it’s so important.
For radical transformation to happen organisations
must start to think and act differently throughout

Experience
A unique and impactful
immersion into Disruptive Innovation,
DisruptionX takes you beyond the headlines and
into reality. The 360o programme includes interactive
leadership interviews, study visits, hothouse solution
building and knowledge transfer, from companies
leading innovation.
Get a truly practical understanding of
how to leverage your organisation’s disruptive
potential, and an insight into future realities.
It seems we have finally come
to accept that disruption is a
reality, and it is encouraging to see
organisations across the globe embarking
on transformation programmes to address the
inevitable disruption coming their way.
Given the pace of change and the extent to which
business environments are shifting however, I fear
that many organisations are not making changes at
the speed or scale required.
There is no doubt that change is hard, particularly
for incumbent businesses. Organisations
established in less fluid times are simply not built
to withstand radical transformation. Change
always has initial costs, but even more dangerous
- change also costs resources not available for
the current business. As a consequence revenue
will decrease. Both less revenue and increase of
costs lead to bad financial results. Furthermore
corporates have shareholders that are interested in
short term results.They are interested in return on
their money, not in the company itself.
the business. Change is inevitable and once we
accept and embrace change we start to see it as an
opportunity rather than a threat.
We need a vision and the buy-in of all stakeholders.
From employees, to the board, to the shareholders,
an understanding that the cost of inaction will far
outweigh the cost of action. Short term pain for
long term gain.
If you’re looking to better understand the changes
that will affect your business you can hear from
those that have been through the journey at
our upcoming Disruption Summit Europe on 4
September. This autumn will also see the launch
of D/SRUPTION_X, our business experience
programme offering you the opportunity to spend
time with and learn from innovative organisations
at the forefront of innovation.
In the end, the disruptors, the innovators, and the
flexible are going to be the only ones who are left,
so remember, unless you are making the change,
you are taking a backseat to it, hoping the day
doesn’t arrive that you become obsolete.

Don’t miss out, for more details contact: /Rob Previtt

Co Founder and CEO
Ian Wright Rob Prevett
Programme Director CEO and Cofounder
DisruptionX DisruptionX
ian.wright@disruptionhub.com rob.prevett@disruptionhub.com

05
 /Summer_2018

Summer 2018
D/SRUPTION magazine
Editor/Cam Winstanley

24
Editor-in-chief/John Straw
08 The problem Are subscriptions the Publisher/Rob Prevett
with disruption future of the auto Head of marketing/Tania Duarte
What happens when a word gets industry?
Design/Dylan Channon
spoken so often that it threatens What we need is a more
its very meaning? integrated transport solution 46 Beyond the hype disruptionhub.com
Eight sectors with real practical Managing Editor/Kev Cooke
12 Ecosystem thinking
42 The death of the expert? applications for blockchain Senior Staff Writer/Laura Cox
Staff Writer/Sarah Finch
Once machines can analyse all available
information, what place will there be
Contributing editors/
34 The 8 week sprint for human experts?
Andrew Burgess, Jonathan Carrier, Martyn
Two months to launch a product
Holman, Greg Larkin, Haydn Shaughnessy,
–is that even possible?
Philip Brunkard

iDisrupted Ltd
Platform, New Station Street, Leeds LS1 4JB

www.disruptionhub.com
@disruptionhub

54
Contact our editorial team on
submissions@disruptionhub.com
58 Effecting Investor
Contact our sales team on
38 We need to talk Behaviour
media@disruptionhub.com
about trust. How venture
Is it possible to trust any capital fund
person, politician, bank or structures can

42
company in the digital age? affect investor
18 From City to Place behaviour No part of this publication may be reproduced,
54 AI: The silent revolution stored in a retrieval system or transmitted by
Technology is a key component
in smart city planning but it’s not any means without the Publisher’s permission.
Its not when or if. The AI
the only one revolution has already started. The editorial does not necessarily reflect the
views of the Publisher. The Publisher accepts no
responsibility for errors within the publication.

06 07
 /signing_in
The problem
with disruption
What do we mean when we say disruption? Is it just
another buzzword? D/SRUPTION’s managing editor
Kev Cooke looks at the term and sets the record straight
T
he word ‘disruption’
has been the de rigueur
term for many people in
business, technology and
innovation for quite a while now but the
danger of such increased popularity and
visibility is the concept’s dilution and
misappropriation. As a person seemingly
genetically opposed to business-speak
and buzzwords, and as editor of D/
SRUPTION, it is especially important to
me that we keep a close eye on its usage.
Talk of disruption and disruptive
technology first appeared in a 1995
article by Clayton M Christensen called,
Disruptive Technologies: Catching the
wave [1]. He developed these ideas further
in his now well-known 1997 book, The
Innovator’s Dilemma [2]. Christensen’s
theory started the revolution in business
thinking that we can call ‘classical’
disruption.
[1] Catching the wave – https://amzn.to/2uHdJ55
8 [2] The Innovator’s
[1] Catching Dilemma
the wave – https://amzn.to/2LhvVfK
– https://amzn.to/2uHdJ55 [2] The Innovator’s Dilemma – https://amzn.to/2LhvVfK
What is disruption?
Disruption is the process by which an
upstart company with few resources is
able to successfully take on an incumbent
company, and win. It goes a little
something like this:
1. The incumbent focuses its efforts on
improving products and services for its
most profitable customers. Due to this, it
pays less attention to its less profitable
customers, or ignores them - and other
potential new markets entirely.
2. As the incumbent business has spent
all its effort focusing on its higher value
customers, it has ignored the lower value
segments, which presents an opportunity
for the potential upstart disruptor.
3. An upstart can become the disruptor
of the large company by successfully
catering for these ignored or untended
groups, providing them with similar
products or services to the incumbent,
or by answering similar needs, often at a
much cheaper price.
4. The incumbent may not acknowledge,
or even know about the threat because
initially, the upstart is just meddling
in a small section of its least profitable
market. Few upstart businesses go on to
succeed, let alone be disruptors, which is
why many can be dismissed as piffling or
be allowed to operate under the radar.
5. Initially, the disruptor will often find a
way to take people from the less tended
segments who aren’t much of a customer
for the incumbent (or indeed a customer
at all) and acquire them for itself.
6. Once established by fulfilling the needs
of the people ignored or untended by the
incumbent, the upstart will work hard to
expand upwards.
9
 /signing_in

7. As a result, its products and services
begin to improve and will start to include
more of the qualities and features
that the high value customers of the
incumbent company expect.
8. Ultimately, this results in some of those
customers shifting from the incumbent
to the upstart. When that number is
significant - this is disruption.
“Colloquially,
Other ‘disruptions’
Disruption in Christensen’s model has we tend to use
this clear and specific definition outlined
above, yet many uses of ‘disruption’ today ‘disruption’ to
are not in keeping with this model at all.
It is perhaps due to the availability of the
describe when
word in everyday speech that there is a
significant gap between Christensen’s
an event, system
other people. Or, more accurately, it
continues to mean what it had always
meant long before Christensen arrived
with his dilemma.
Colloquially, we tend to use ‘disruption’
to describe when an event, system or
process is interrupted and prevented
from continuing or operating in its
usual way. It is this definition that many
have in mind when they say that they,
or their businesses, are ‘disruptive.’
There is certainly nothing wrong with
this provided we keep in mind the clear
distinction between this use of the term
and Christensen’s model.
Classical vs colloquial –
Airbnb vs Uber
A significant marker for both ‘classical’
and ‘colloquial’ disruption is that these
businesses often appear to come
out of nowhere. This, however, is an
illusion – no business or innovation,
whether disruptive or not, comes from
nowhere. However, the shock impact and
exponential growth will often indicate
that something major has happened very
quickly, and that is usually disruptive in
one sense or the other.
Symptoms and causes
If we understand the model as intended,
we can also be free to explore other
concepts, even if they are, unfortunately,
forced to share the same name.
Christensen is correct to point out that
broadening the definition of disruption
occurred. Disruption in the colloquial
sense, that of ‘disruptive thinking’ and
‘disruptive approaches,’ is a cause.
Colloquial disruption is an approach,
both a fire starter and a rallying cry to
create new futures and explore the
possibilities, opportunities and hazards.
By considering these possibilities, we are
able to inform strategies and mitigate
risks. While the exact nature of the future
is unknown, that doesn’t mean we can’t
know anything about it.
If we use foresight in an informed and
intelligent way, we can identify possible
threats and opportunities, then use
these to our business advantage. An
awareness of the potential threat of
Recognising the constant state of flux,
exercising foresight, and understanding
what disruption means in all senses of
the word are prerequisites to putting
businesses in the best position to be
adaptable to change. This gives them the
best chance of survival and success.
Merely stating, “We are disruptive” is just
not good enough. Disruptive thinking
must influence planning, strategy,
culture and brand as part of an ongoing
process if it is to mean anything useful
at all. Those who understand disruption
both colloquially – as an approach to be
used – and classically – as an indicator of
a threat to be avoided – by far stand to
gain the most.

definition and the more colloquial
uses of the word.
Understandably, like anyone with
a good theory, Christensen is keen to
preserve his own, and to make sure the
terminology stays tight to his definitions.
He has expressed regret about choosing
the term ‘disruption’ to denote this
precise meaning because of the potential
confusion between the specific and the
colloquial. Many baulk at putting even
a toe outside of Christensen’s definition
but I’ve encountered many more who use
the term ‘disruption’ seemingly without
any awareness of the theory at all, other
than perhaps in name.
Although it may prickle some, language
and terminology will always evolve.
Despite the inevitable frustrations, the
term has come to mean other things to
or process is You can’t get far into a conversation
about disruption without someone
interrupted and mentioning Airbnb or Uber. What’s
interesting is that by Christensen’s
prevented from ‘classical’ definition, Uber’s taxi business
continuing or is not actually disruptive at all (although
other aspects of Uber’s wider business
operating in its may prove to be so). Christensen has
already pointed this out. In terms of
usual way” his theory, we can see that Uber did not
create a new market, nor did it begin at
the low end of an existing market. Airbnb
on the other hand does indeed fulfil the
‘classical’ definition of disruption.
However, in terms of colloquial
disruption, both Uber and Airbnb are
widely, and rightly, regarded as disruptive
for their combination of sheer impact,
speed of growth and use of technology
that radically changed the way the
world works.
in relation to his theory undermines it.
But so long as we understand that we are
holding two different things in mind that
share a name – but not a definition – we
are capable of gaining a lot from each.
While acknowledging the theory and
definition put forward by Christensen,
there are some wider uses of disruption
that are also worthy of consideration.
Outside of what I’ve named ‘classical’
disruption, the term has come to signify
a range of approaches to business and
innovation that often indicate a radical
change to traditional ways of working,
thinking and doing.
Disruption in a ‘classical’ sense is a
symptom of a serious problem that
incumbent businesses have experienced
due to an upstart. It is retrospective
and an indicator that a major shift has
disruption in Christensen’s sense, and a @_KevCooke
disruptive approach to innovation in the
colloquial sense, can both be essential
parts of business planning. While they
are certainly not strategies in their
own right, the potential threat posed
by Christensen’s disruption, and the
opportunities opened by colloquially
disruptive approaches, can tangibly and
helpfully influence how we plan for our
future when faced, (as we always are) by a
complex world of constant change.
Satisfaction is stagnation
Applying future thinking to a business is a
smart move. A business doing well would
doubtless like to stabilise and maintain
its position but digging in and holding
hard isn’t an option when faced with
unavoidable change. It may work for a time
but it is not sustainable in the longer term.

10 11
 /the_big_idea

Ecosystem
thinking
Across every sector, businesses should be
developing the ecosystems that encourage economic
development, says Haydn Shaughnessy

lmost a decade has passed

“Ecosystems parties to do business on its behalf. It

A since Apple launched its

App Store, creating a new
developer ecosystem and
accidentally changing the way business
gets done. I say accidentally because
Apple was initially reluctant to open
up its iPhone to third party developers.
Its decision to open up has gone down
in some poorly written histories as a
masterful strategic move but in fact it
was the developer community itself that
demanded the opportunity.
are dynamic
will encourage these other companies to
make risky investments in innovation.
It will stimulate a good deal of content
relationships that that binds the ecosystem in one body
of collectively created and curated
spur economic intelligence. That’s what makes it an
ecosystem.
development.
Power and influence
Their disruptive Ecosystems are dynamic relationships
power is that spur economic development. Their
disruptive power is unbounded. They

Since then, we have had a swathe of

unbounded.” change an industry, a way of work, society
at large and systems of commerce. My
books that talk about platform thinking message to any company wanting to
[1]
and the platform economy. The missing be a platform is how will you change at
ingredient in this new theory of business each of these levels? If you do not have
is ecosystem thinking. this ambition, you will be undone by the
company that does.
A decent platform will motivate third

12 [1] Platform thinking – https://thght.works/2Ogfhee [2] Gigaom 2014 study – https://bit.ly/2JUaWtU [3] Apple job 13
creation – https://apple.co/2p1x5B [4] Alibaba job creation – https://bit.ly/2JRA4B
 /the_big_idea
Between them, Apple and Google have
probably created at least seven million
jobs (based on Gigaom’s 2014 study [2] of
apps in the EU and extrapolating Apple’s
own calculations [3]). Recently, Alibaba,
which claims to have already created
30 million jobs, [4] announced the goal
of creating 100m more on its way to
becoming as big as the world’s 5th largest
economy by 2036.
Many of the companies that are touted as
platform pioneers do not have this power
and influence. They get stuck at the what
might be termed ‘API thinking’. Look at
the literature on open banking and you
will see the problem.
Bank-as-a-platform is framed as a series
of APIs that let third parties interact with
bank assets. But if you are to understand
the really disruptive effect of platforms,
you need to understand ecosystems
and how to motivate and manage them.
You need ecosystem thinking. The
absence of it in banking is what exposes
most financial institutions to a slow
death. Ecosystem thinking really is that
important.
The ecosystem represents all the new
management thinking that goes into
co-innovating with third parties and
their assets. When you start to delve into
it, you realise that ecosystem thinking
is what challenges you to change your
assumptions about management. The
platform, in the end, is the technology
behind relationship building.
There is a lazy route to half-
understanding this – for example
people talk about the network effects
of platform businesses or two-sided
markets. That takes you to a strategy
around APIs, network effects and
14
“Uber and platform pricing models.
Airbnb are the However, two of the major ecosystems
today – Netflix and Airbnb – do not have
companies most open APIs and do not really trade on
network effects. Sure they benefit from
often cited as the being on the network but this is a sine qua
non as without the network, there would
poster children of be no business. Moreover, their pricing
models are simple. In Airbnb’s case, it
the new platform follows a typical SaaS model of charging
roughly 30% for its services (cumulatively
thinking.” by charging both sides of the deal). Their
platforms are about ecosystems.
Ecosystems not platforms
Uber and Airbnb are the companies most
often cited as the poster children of
the new platform thinking. Each one is
an interesting case study in something
but they are not necessarily platform
companies in the sense that Apple or
Google have defined this new form of
business.
Uber has no ecosystem to speak of. Yes,
it has millions of drivers using its mobile
app. But there is little in the way of
innovation that these drivers can attempt
or little contribution that they make
to a collective intelligence space that
informs everyone on how to improve their
business opportunities. In fact, these
drivers are often antagonistic towards
Uber (not in itself a disqualification for
being a good platform). But the sum, it
might be said, is less than the parts.
Airbnb is a different proposition but it
needs to be viewed through two lenses.
It has ecosystem characteristics and
managerially, these differentiate it
from, say, an Expedia or a Booking.com.
The estimated amount of However, it has not gone far enough with
jobs created by Apple and its ecosystem to build a defense against
Google’s ecosystems [2][3] Booking.com copying its formula.
Construction and
Development Companies
Content Creators
Secured by
Acquiring
by Location
Friends and Superhosts
Telco Partnerships
Content
Company
Community Centres for App Preload
Landlords Experience
Room Hosts Providers
Banking Services
Expense Reporting App
Rental Management
Systems
Cooking
Conference
Organisers
Wellness
Lifestyle
Home Sharing Clubs Business Travellers
NGOs
Cleaning Companies Weekend Travellers
Civic Councils
3rd Party Access Managers Vacationers
Photographic Services Experience Seekers
To explain that, perhaps I can give you have any power, it has to mean more Figure 1. The Airbnb Ecosystem
some insight into ecosystem thinking. than a community and more than an
Airbnb began as a simple room booking aggregation of economic activity. The diagram above shows how Airbnb’s
app, similar to a site that was popular The Airbnb example can explain how ecosystem has evolved. The companies
at the time, couchsurfing.com. The additional elements make ecosystems in this ecosystem could in no way be
main innovation was to challenge distinct. I’ll give some more examples described as a community.
couchsurfing’s non-profit offer with a for- after this brief case study
profit mobile app. Somehow, Airbnb had Strong customer
to rise above an app that relied entirely Over time, Airbnb has expanded into segmentation
on goodwill and relationship building, the sale of experiences and restaurant Airbnb has been appealing to a broader
while inserting payments and profit into bookings. Along the way, it has created and broader segmentation over
the human relationship behind house the human assets that are essential in time. Initially it offered rooms, then
sharing. How it addressed that took it ecosystem thinking. These are, briefly: whole apartments or houses. Natural
slowly into ecosystem thinking. segmentations existed in rural/urban and
n Strong customer segmentation specific locations. The move into selling
Defining ecosystem n Freely created content and collective experiences allows it to refine this into
thinking intelligence a new kind of customer segmentation
Ecosystems present a problem of n Independent business development defined by customer interests such as
definition. Very often, people use the around third party assets cooking, exercise, fitness, water-based,
term when what they actually mean n Free long-tail tools beach or mountains. As yet, Airbnb seems
is ‘community’ or ‘group’. But if the n Powerful adjacency moves to make very little of the data it must be
idea of the business ecosystem is to compiling around interests but leaving
15
 “Ecosystems have to be supported by In summary
free tools that take friction out of doing In using Airbnb as an example, I have
illustrated that an ecosystem is far more
business on a platform.” than a community or a group. It is a
series of interdependencies that enable
Revolutionising Feedback
Revolutionising Feedback that to one side, it has wonderfully Third party business
business development among people in
the ecosystem. Often these people have
dynamic customer segmentation. It is development no direct contractual relationship. They
now moving into upmarket condos in That leads us to the range of businesses prosper by creating ecosystem elements
countries such as Japan, where it can that now thrive in the Airbnb ecosystem that become integral to how the
Imaginethe
Imagine theimpact
impactyou
youcan
canhave
haveby
bytaking
takingaarobust
robustand
andinsight-led
insight-ledapproach
approach offer swimming pools, private gyms and but which are entirely independent ecosystem functions. There is a natural
totoyour
yourpeople...
people... so on – exactly the facilities you would of it. These include services such form of pollination that takes place and
expect on a long-haul vacation. as keyholding, guest reception business expands.
• • Improve
Improveyour
yourcustomer
customerand
andemployee
employeeexperiences.
experiences. management, cleaning services,
Content and collective photography and beautification, rental There are other examples we could
• • Measure,
Measure,integrate
integrateand
andenrich
enrichyour
yourfeedback
feedbackdata
datatotodeliver
delivermeaningful
meaningful intelligence management [5] software and dashboards, have looked at. Alibaba and its Ant
insightsthat
insights thatcan
candrive
drivekey
keybusiness
businessdecisions.
decisions. Airbnb began with the typical platform search engine optimisation, laundry Financial and Alipay subsidiaries is one
content offer: reviews. This strategy pick-up and management training. On of my favourites but space is limited.
• • Learn
Learnhow
howyour
yourpeople
peoplereally
reallyimpact
impacton
onyour
yourbusiness
businessperformance.
performance. has powered Amazon and many other top of that, Airbnb has relationships Airbnb has changed the way people
companies and is an essential, though with Telcos, who preload its app on their travel, is altering the way people view
Throughour
Through ourreal-time
real-timeinsight
insightplatform,
platform,we’ll
we’llhelp
helpyou
youidentify
identifyhow
howyour
your corruptible, element in trust building. phones, and with construction and their physical space, is redefining how
peoplefeel,
people feel,what
whatisisworking
workingfor
forthem,
them,what
whatcould
couldbe
beimproved,
improved,and
andwhat
whatyou
you But it has gone on from there to create development companies that are looking we vacation. It is generating huge
travel and activity guides written by its to create accommodation that suits aggregate wealth for millions of people.
needtotochange
need changetotobenefi
benefit tyour
youremployees
employeesand
andyour
yourorganisation.
organisation.
Experience partners. It has access to an Airbnb’s new target markets. With more time, it may even change the
infinite travel guide to the world because way cities are organised.
Usefeedback
Use feedbackto
totransform
transformyour
youreff
effectiveness.
ectiveness. it has members everywhere. Free long-tail tools
Ecosystems have to be supported by Alibaba is going much further than
Third parties create conferences and free tools that take friction out of doing this, training people in rural China to
workshops to promote good practice business on a platform. Google does become online businesses and creating
in the Airbnb ecosystem. These include this with Google Analytics and Trends huge numbers of jobs. In the process, it
seminars on property photography, while Airbnb provides accounting and is creating a global payments network
how to advertise, maximising revenues management software tools to renters. to facilitate, initially Chinese travel
(through cleaning fees, for example), In addition, Airbnb is looking into the but which will become in time an
managing multiple properties and using area of home improvement loans, taking alternative global payments network
third party services. it into the domain of financial services or for Chinese trade. These are the real
offering up ways to use its data to de-risk disruptive networks effects of business
Intuitive,bespoke
Intuitive, bespokeand
andstress-free
stress-freefeedback
feedbacksolutions:
solutions: loan decisions for partner banks. ecosystems.

•• Nationalwinner
National winnerininEuropean
EuropeanBusiness
BusinessAwards’
Awards’“Best
“Bestnew
newbusiness”
business”award.
award. Powerful adjacency moves
•• NamedasasaaTop
Named Top100
100Disruptive
DisruptiveBrand
Brandby
byMarketing
MarketingWeek
Week&&Salesforce.
Salesforce. Finally, you see the scope for adjacency
moves. Moving into travel experiences Haydn Shaughnessy is an economist,
•• Collecting responses from 68 countries and counting...
Collecting responses from 68 countries and counting...
and restaurants are two interesting ones strategy advisor and co-author of 12
Tolearn
To learnmore,
more,call
callus
uson 0203865
on0203 8650989
0989ororbook
bookyour
yourFREE
FREEdemo
demovia 
via  for Airbnb but the potential exists for a Steps to Flow: The New Framework for
www.the-happiness-index.com
www.the-happiness-index.com Revenue taken by EU app move into financial services and property Business Agility, and Flow: A Handbook
developers in 2013 development too. for Change Makers.

[5] Airbnb SEO optimisation – https://bit.ly/2IgVXOW 17

 /urban_planning

From city
to place
Technology is a key component in smart city planning but
it’s not the only one, says Philip Brunkard of BT Business.
Incremental steps leading to long term goals can also
change the way we all live and work

18 19
 /urban_planning
here is plenty of public
T sector and media interest
about the concept of smart
cities and the Internet of
Things (IoT) but ‘smart’ is not just about
cities or technology. It is also about
improving lives by creating towns and
communities that work and thrive. This
can be achieved through collaboration,
with different and innovative thinking for
how we deliver public services and grow
local economies. It can be enabled by the
next evolution of digital technology and
shared data. There are many challenges
associated with smart initiatives, such as:
n The sheer scope of ‘smart’ and the
wide, varied topics it covers
n The dichotomy between who invests
and who benefits
n Making the big step from pilot schemes
to long-term solutions
n How procurement is seen as a barrier to
delivering commercially viable solutions
n The need to share data yet the
widespread resistance to do so due to
security threats and data protection
concerns
n Local authorities and health trusts
often lacking the capacity, knowledge
and leadership to drive the smart agenda
n Existing policies and regulation
often impeding progress and
preventing change
It’s only by way of the public and private
sectors working together for the benefit
of society that such problems can
be overcome.
20
Working together
to help all
Smart is all about bringing technology
and place together to create an
environment where tomorrow’s problems
around sustainable communities can be
solved. It is about how we reconstruct
communities, how we use public spaces
more effectively and how we enable
people to live better, longer, healthier
lives in their own homes.
Data-enabled insights allow local
authorities to understand how areas and
communities are currently being used –
and how they can be used better in the
future. This can support the planning and
building of the right type of facilities,
creating safer and happier communities
and enabling regeneration. We need
to change the way we live our lives –
people must engage better with their
environment to make it more sustainable
for future generations.
A place strategy must ensure that
rural areas are better served, not just
urban population densities. It must
also address inclusion and deprivation
issues. There are cases where contrasting
approaches exist across different, often
neighbouring, boroughs. For example,
dominant ‘digital haves’ might have
more of a say when competing for bin
collections, yet their loud demands
should never be allowed to overshadow
the inclusion needs of ‘digital have-nots’
who may require funds for online
access to voice their own, possibly
greater, needs.
It’s all about
the data
Smart, of course, is not just about
infrastructure. It’s also about the
power of data to better inform
how services should be delivered.
Because of this, open data platforms
will be needed and one key area is
sharing data across housing and
adult services. To give an example
that explains why, I’m aware of a case
where a pensioner with a respiratory
condition in social housing was
moved into a damp ground floor
property that immediately made
their illness worst. If there had been
better joined-up data insight about
both the patient and the property, a
better outcome would have
been achieved.
Lots can be done at a local level
when authorities collaborate
more. Internal data, data about the
population (ONS), NHS data – it all
needs to be joined together. The NHS
restricts access to some data which
can impact the social care outcomes
of its patients. Confidentiality is
important but at the same time,
organisations need not be so over-
protective. Behaviours and attitudes
must change to overcome this
because we need shared data to
drive change.
While there is some emphasis on
developing garden towns, there is
still debate as to whether these meet
their core objective. One interesting
consideration more applicable for large
urban areas and cities is the notion of
the 24-hour city. A night-time economy
is not just about whether a city does or
doesn’t have bars and clubs, but can be a
parallel to the daytime economy where
people have the option to work through
the night in retail, office jobs or any
equivalent to the nine- to-five system.
Such a redistribution of working hours
could ease transport and accommodation
issues by better utilising transport
links and commercial properties, thus
increasing sustainability.
A ‘Whole System’ view is needed. A smart
city or place is one that is optimal, that
has everything it needs to be sustainable,
economical and in control of what should
be developed, why and where. The
fabric of the smart city is flexible and
easily shaped. This implicates not only
infrastructure but entire communities
and the lives of individuals too.
The mindset of smart
everything
There is more to smart than just the
physical location digital agenda. Smart
is also about insightful ways of working
and having a disruptive ‘can do’ mindset
across organisations, particularly
from local authority decision-makers
and influencers. Where this is done at
grassroots levels it can be instrumental in
changing mindsets.
The UK’s smartest city according
to a 2017 survey by Huwaei [1]
Today, there is a stronger tendency for a
more cost conscious, risk averse culture
within the public sector that makes
change difficult. However, learning
from other countries and private sector
“Today, there is a collaborations can drive progress. Local
authorities are often stuck in the mindset
stronger tendency of problem solving today’s problems with
yesterday’s solutions rather than thinking
for a more cost- about what is possible in the future.
Initiatives such as innovation clusters
conscious, risk- can encourage a change of culture, with
local startups working together with local
averse culture authorities to solve social issues.
within the public Collaborate, collaborate,
collaborate
sector that makes Collaboration across agencies, the
change difficult” private sector and communities is the
foundation for success. It focuses on the
formation of partnerships to drive change
in incremental steps. Such partnerships
can create the environment to enable,
encourage and foster smart initiatives.
On the most basic level, this is about
using shared learning, knowledge and
ideas to stimulate innovative smart
initiatives as well as fully formed pilots
because of the competitive nature of
fund projects.
There is rarely enough momentum around
this, often because local authorities
21
 /urban_planning
don’t have the capacity and frequently
because of the competitive nature of fund
allocation. Yet there is an opportunity
for commercial businesses to actively
encourage engagement with local
authorities through such coalitions,
which can be mutually beneficial to
both public and private sectors, as well
as to communities. For this to work, we
would need clearer guidance on how
commercial governance within public
sector procurement would align with this
type of approach.
Collaboration is also about getting the
public on board. Digital skills and
education must be addressed as one
key factor for any developing smart
environment. An awareness must be
created of how smart cities are in the
public interest, while data privacy and
security concerns can only be addressed
by a broader understanding of the issues,
not just the tabloid headlines.
Small steps to big issues
While smart is ultimately about seeking
to solve the big and hard issues, this is a
long term goal. Focusing solely on the
distant big problems will never drive
incremental change. Instead, we should
imagine all possible future scenarios and
then create an environment where small
The amount contributed to
Birmingham’s economy by
tech jobs in 2016
22
steps move everyone towards long term
and lasting solutions.
Small scale smart initiatives might be
able to chip away at issues of:
n Driving digital enablement and access
■Homelessness–Is There A
n SMART solution?
n Housing
n Healthcare
This would require thinking differently
about ways to solve such issues and
finding the right hook to initially latch
onto a problem. Look at parking, for
example. In London, borough councils
and TFL have the same concerns around
congestion. Expanding cycling routes
or augmenting services with sensing
technology and/or a gamification
approach might not be as obvious a
solution as building more roads or car
parks, but if they are considered, parking
strategies suddenly also start to address
long term problems of excessive car
usage, air pollution, quality of life, fitness
and town centre regeneration.
The pace of place
Here in the UK, we’re not doing smart as
fast as other countries, so what can we
learn from the successes of others? Why is
the UK so different in comparison?
n Is this because of different economic
drivers?
n Is this because of a different economic
agenda?
n Do these countries have fewer
constraints around cross-agency
collaboration?
Prioritising
an ageing
population
Another key area of concern is the
increasing pressure on hospital A&E
services and adult care services and
the resulting demand for care in the
community. An ageing population
should ideally live comfortably and
self-sufficiently in their own homes.
Non-intrusive smart sensor
technology in the home can
monitor people’s daily patterns
and environment. Have they got
out of bed this morning? Have they
used the kettle? Is the house warm
enough? Wearable technology can
monitor vital signs as well as monitor
medication usage. All this data can
then be collated and fed back to care
services, with alarms triggered in
the event of anomalies or emergency
conditions. Pre-emptive health
monitoring like this will minimise the
impact on already over-stretched A&E
services benefitting local NHS trusts.
The challenge is who will make the
investment. Local authorities and
health trusts must find a way to
overcome such barriers focusing on
the positive social impact that results.
Many are shifting in this direction but
some would argue the pace needs
to be quicker.
We need to eliminate, or at least ease,
the ongoing conflicting priorities and
expectations across local authorities
and agencies. These can be a result of
many different types of barriers, such as
political agendas, culture or parochial
mindsets. Examples include:
Housing affordability and targets can
create conflicts between central
government mandates and local building
needs. The Right to Buy scheme for social
housing influences the level of capital
investment a council will make as they
may not recover the investment.
A council can have multiple live initiatives
but not be clear on its priorities. When
each one is given equal weight, limited
resources are spread evenly but thinly,
preventing any one from reaching a
beneficial outcome.
Councils can also be caught between
what they want to focus on versus what
the public is shouting for the most. As a
result, the most difficult issues are often
put at the bottom of the list.
Open platform, wide
technologies
Being open (yet secure) is at the heart of
achieving smart – and that applies not
just to technology and data but also to
ways of collaborating with others. An
open platform approach can create an
ecosystem for sharing, collaboration
and innovative solutions by engaging
those with the ideas to drive forward a
smart solution. Technology vendors
that take an open systems approach
The year by which Manchester
has pledged to become a
zero carbon city
rather than a monolithic or proprietary
one can differentiate themselves within
the marketplace and potentially gain
better engagement from public sector
stakeholders. There is still a legacy within
local government where systems don’t use
open standards, which makes integration
difficult. This should not be repeated for
smart.
There is a broad range of technology
innovations that will apply, not just IoT and
Big Data but also AI, machine learning,
robotics and 5G.
The role of local planning
Generally, councils are now focused on
their whole place agenda, including local
planning and housing as their key priority.
Within this, there are opportunities
for making smart proposals but some
challenges may require different
approaches or policy change.
To give some examples:
When a council stopped a town centre
housing development planning application
over congestion and pollution concerns, the
developers appealed and got the go-ahead.
In this case, central government’s desire
to meet housing targets overruled local
sustainability needs.
Councils ideally want to include smart
ready infrastructure in new homes but
this requires upfront capital investment
on already tight budgets. Right to Buy
offers on social housing also restrict this
initiative. After all, if the property might
be in private hands within five years, why
invest limited funds on smart technologies?
Developers’ behaviour also has an impact,
as they often buy up land and hold on to
it in the hope of the value increasing. This
directly impacts upon councils’ abilities to
develop social housing.
Are we moving towards
smart places?
Smart requires strong collaboration,
consent to use and share data and creativity
to solve problems. While we can’t predict the
future, we can work together in a way that
can create an environment favourable to
smart change.
The spectrum of potential use cases is
broad but the key question is how can
the big issues about health, housing and
homelessness be addressed? What’s clear is
that whatever the solution is, it will require
some of today’s biggest barriers being
removed. Planning, policy and procurement
constraints and arguably unproductive
political agendas will have to hit the road.
Phil Brunkard is BT’s Chief
Information Officer for Regional
Government and Health across UK
& Ireland. His role is to ensure BT’s
technologies deliver innovative
solutions to meet his customers’
business challenges and needs.
23
 /as_a_service_models
Are subscriptions the
future of the auto industry?
How many people own a car when what they actually need is a more
integrated transport solution? Jonathan Carrier outlines a world where
driving, taxis and train tickets come with a single monthly fee
recent article on D/
A SRUPTION Hub highlighted
how subscription services
are blossoming in an era
of digitalisation. By embracing the
business opportunities and customer
pull of subscription services, brands can
increase revenue while also getting closer
to their customers.
It seems that almost every market has
been targeted for new subscription
services that provide all-inclusive
24
packages to customers. From pet food
to snacks and make-up to fruit and
vegetables, customers are being offered
a broad range of services that will remove
hassle with a simple, inclusive contract.
The success of Netflix, Spotify and other
services drives consumer expectation
and raises the possibility of replicating
their subscription model elsewhere.
The auto industry is a prime example
of this, with vehicle manufacturers
actively targeting new and existing
customers with car subscription services.
BMW, Mercedes and Jaguar Land Rover
have launched services on the heels of
existing programmes from Audi, Lincoln,
Cadillac, Volvo and Porsche. It’s a market
opportunity I know well, having planned
and developed the Jaguar Land Rover
offer four years ago during my time
leading InMotion Ventures.
The programmes available today have a
lot in common. Predominantly offered
by premium brands – for the time being
– for a fixed, all-inclusive monthly price,
they provide access to vehicles from
the brand’s product range. There is no
long-term commitment to a single vehicle
- instead these programmes cover the
car, insurance, maintenance and roadside
assistance. As premium services they
also often include delivery and other
concierge services. Primary interaction
with subscribers is through an app, not a
dealership, which gives customers simple
access to different cars through their
smartphones.
Subscription or car hire?
Differences between the subscription
offers mainly centre around the contract
period and terms. However, other
variations include the number of vehicle
swaps permitted, the ability to upgrade
or downgrade month-to-month, and the
option to take a payment holiday during
the contract. Subscriptions also differ in
terms of joining qualifications, deposit,
credit suitability and the breadth of
vehicles available to choose from.
In reality, these services are simply a
new form of long-term car rental or
private leasing. Subscriptions appeal
to customers who want transparency
of costs and the flexibility to change
vehicles when they want to.
One of the most successful programmes
is BOOK by Cadillac, which allows access
to different cars up to 18 times a year.
Subscribers can keep each vehicle for up
to 30 days, with an option to renew, and
can drive a maximum of 2,000 miles per
month. BOOK also provides customers
with flexible add-ons and ‘white glove’
services for car handover.
Care by Volvo goes one step further by
offering what it describes as “a range
“One of the
most successful
programmes is
BOOK by Cadillac,
which allows
customers to access
different cars up to
18 times a year.”
of digital concierge services,” including
fuelling, cleaning, maintenance,
collection and ecommerce delivery to
the car. Care by Volvo aims to remove
all the hassle of using a car by turning
the subscription service into a broader
platform for digital services. It takes
the service beyond the mere provision
of payment flexibility or multi-vehicle
access, for example, by allowing
customers to share their car with friends
and family through digital keys. This
creates flexible peer-to-peer car sharing
that provides access for others but,
crucially, leaves the customer in control.
Like BOOK and Care by Volvo, most
services are available exclusively in
specific cities or regions of North America
- a market that demands convenience
and is more accustomed to flexible
car ownership given familiarity and
predisposition to car leasing. While the
market is arguably more mature in North
America, the subscription service is
poised to spread to Europe and China.
Carpe is the new service from Jaguar Land
Rover that’s targeted specifically at high-
mileage drivers. Billed as an “unlimited
motoring package,” Carpe allows a
new car every year, with no mileage
restriction. The UK market has many
company car drivers and many ‘user-
choosers’ – SME owners and employees
who take a monthly cash payment in
lieu of a car. It’s the latter that Carpe is
catering for, providing a more flexible
option that’s somewhere between
individual ownership and company car
schemes. It should also help JLR avoid
potential cannibalisation of existing fleet
deals to leasing companies, which is a
large part of their UK business.
Elsewhere, Volvo is doubling down on its
range of subscription services. Lynk & Co,
the premium startup brand from Geely
and Volvo, will only offer subscriptions
when it sets up in China and Europe.
At the launch of its 02 model in May,
company boss Alain Visser said, “We see
more and more around the world that
young people are willing to spend a lot
on mobility, whether it’s Uber or the
train, but they don’t want a big outlay all
at once. It’s the metrics of the Spotify
concept, that’s the market we’re looking
at. With us, you’ll only have to commit for
one month.”
Visser believes the subscription model
will differentiate the brand and deliver
what customers are looking for. He was
resolute that the subscription model is
the future of the auto industry, saying,
“In ten years’ time, subscription will be
like leasing is today. Customers aren’t
willing to pay £800 or £1000 a month,
they want to pay £500.”
Muscling in on the action
Auto manufacturers aren’t the only
ones pioneering the car-as-a-service
subscription model. There are now
more than 50 startups attempting to
25
 /as_a_service_models
capitalise on the emerging demand for
flexible access to cars, including Drover,
Wagonex, Flexdrive and Carma Car.
There are even startups offering a white
label auto subscription platform for
anyone to repurpose, which opens up the
opportunity for any player in the
existing value chain to offer a
subscription service.
While auto manufacturers are offering
enhanced leasing packages, the startups
have more flexibility to differentiate their
subscriptions and create entirely new
markets. Startups can offer one major
advantage over auto manufacturers –
greater choice through access to
multiple brands.
Mobiliti is a US-based multi-brand, multi-
dealer subscription platform that offers
subscribers access to a range of vehicles
from 30 days to several months, for one
monthly fee. By working with dealers,
Mobiliti hopes to help create additional
sales by providing customers with an
alternative to leasing or buying while
utilising existing dealer inventory.
Fair is another US based platform that
is targeting the used car market. For a
monthly fee, it connects subscribers to
the used-car dealer network, providing a
broad range of vehicles with an inclusive
package and optional insurance.
UK based Drover operates a marketplace
that matches subscribers with available
vehicles but, unlike the auto brands, it
doesn’t manage a fleet, thereby avoiding
carrying the contingent liability on
vehicles. Drover works with fleet partners
to provide new and used vehicles on its
platform, allowing them to monetise
vehicles which would otherwise be
26
“Car manufacturers
in particular need
to be wary of
repackaging existing
financial offers such
as PCP or short-
term leasing as a
subscription”
under-utilised and depreciating. Drover
has grown from an initial 400 customers
in early 2017 to over 2,000 customers in a
little over a year.
Across the market, all services, regardless
of whether they are provided by a
car manufacturer or startup, can be
segmented across two dimensions –
choice and flexibility.
Choice represents the breadth of vehicles
available for the customer to choose: is it
multi-brand? What’s the price point of the
vehicle? Is it new or used?
Flexibility represents the number of
times the customer can swap or access
an additional vehicle. This includes the
minimum and maximum duration of
hire, and the number of exchanges and
penalties for changing vehicle.
The startups can offer greater choice
and flexibility. Conversely, the car
manufacturers offer limited choice and,
as with Carpe and some others, little or
no flexibility. This difference raises a
couple of important points.
1) Car manufactures are determined to
push their own product. This makes sense
in the short term as it’s about hitting
sales targets and getting customers
exposed to their products. However,
it’s also short sighted, since customers
demand choice and will inevitably switch
to the service that provides the options
and convenience they require. For car
manufacturers, the true value should
come from the data, specifically the cars
that customers choose and how they use
them. Eventually, retaining the customer
will be far more valuable than the margin
on any single vehicle sold.
2) It’s easy for subscription services to be
used as a marketing ploy, to repackage
existing finance products as a new
proposition. However, it is a lazy move
to use subscription services as a way of
jumping on the bandwagon of Netflix-
style services. With that in mind, have
a look to see how many industries are
currently using the word ‘subscription’
to sell something that’s not actually a
subscription at all.
Car manufacturers in particular need
to be wary of repackaging existing
financial offers such as Personal Contract
Purchase (PCP) or short-term leasing as
a subscription. If a subscription doesn’t
provide flexibility and value for money,
then it’s not a true subscription. At one
end of the spectrum is BOOK by Cadillac,
which provides bucketloads of both. At
the other end, Carpe is retail contract
hire rebranded as subscription – it’s an
existing product but with maintenance
and insurance included. A subscription
based on zero deposit and a 12-month
contract isn’t innovative, isn’t new and
doesn’t deliver choice to the customer.
When or if?
Given the expanding range of
subscription services, are they a sign of
things to come?
The shift towards the car-as-a-service
reflects the broader trend in the
automotive industry. The value of
car ownership is being replaced by
services offering flexibility, choice and
transparency. For some people, their
needs are fulfilled by car subscription
services while for others, access to ride-
hailing works better. It’s no surprise that
Lyft in the US has started to offer – and
seen demand grow for – its subscription-
based unlimited rides.
What sets car subscription offers apart
from other services is that they tap into
existing customer behaviour before
starting to convert people to new
behaviour. They address an existing need
- but with added flexibility and utility
for the higher price being paid. For the
customer, it still feels like car ownership
but without the hassles and costs that
come with it. The customer also benefits
from not being tied in to any vehicle for a
long time.
This type of vehicle-on-demand access
might make driving feel special again
- like having your own automotive
wardrobe. An SUV in the winter and a
convertible in the summer? No problem.
This level of choice is important as people
consider switching to other forms of
mobility such as ride- or car-sharing.
Subscriptions are both a defensive
and offensive move from the auto
manufacturers. They are a way to fight
back and provide their own ‘edge’ over
traditional ownership. There are also
some strong business drivers that
support the current automotive business
model, which make sense for brands
when pursuing the path towards
subscription services.
Millennials are one group of customers
that is particularly predisposed to pay for
monthly services. This generation has
different attitudes to both mobility and
ownership compared to older people -
Number of startups startups
attempting to capitalise on the
demand for flexible access to cars
Cadillac, Volvo and Jaguar Land
Rover are amongst the first
manufacturers to offer vehicle
subscription servcices
they embrace subscription models over
outright ownership and are already used
to ride-sharing. Without high upfront
deposit requirements, subscriptions
make brands more relevant and
accessible to millennials, with even the
likes of Porsche Passport seeking
to welcome new customers to the
Porsche brand.
Attracting millennials early is key for
brands to win both their hearts and
their wallets at a time when the industry
is coming to terms with the end of
ownership. Subscription services can
build loyalty with this new customer
demographic, helping to retain potential
customers from defecting to ride-hailing
services and foregoing personal car
ownership altogether. In this respect, it’s
very much a long-term play for the auto
manufacturers.
Transitioning to a
new model
The auto industry is a finance business
and the manufacturers need to keep their
money rolling in. For the last 20 to 30
years, the majority of returns have been
generated from the creation of a wide
27
range of finance packages at the point
of sale. Many manufacturers already
have captive finance arms that offer
services aimed at making car buying more
affordable. Subscriptions will be just
one more way to drive greater return
on an asset.
Now, instead of only financing the sale
of the car, manufacturers have the
chance to finance the entire operation.
Manufacturers can gain control of
the financial return over the vehicle’s
entire lifecycle, retaining access to the
customer and to his or her relationship
with multiple vehicles over time. Shifting
the operational costs and bundling
services into a monthly fee not only
creates recurring revenues but also
capitalises the forward value of those
anticipated services during the usable
life of the car and the contract.
This creates new value in the current
system. Car subscriptions provide auto
brands with the ability to better manage
some of the supply side issues they
face in a traditional business model.
Manufacturers have large numbers
of fleets they deploy across various
channels, such as employee vehicles,
short leases to car rental firms and buy-
backs. The return of these cars creates
a problem by flooding the market with
large numbers of nearly new vehicles,
which compete against the sale of
new cars and, more importantly, can
negatively impact the residual values of
particular models. In any finance model,
the residual value is the key component
of providing attractive headline monthly
payment figures.
Manufacturers will likely find that
subscription services allow them to
Average cost to a buy a new
car in the UK in 2018*
*http://bit.ly/2Ob8Loi
manage the supply of used vehicles to the
market, reducing the numbers of vehicles
less than a year old and finding new ways
to generate returns on cars in the one-to-
three year-old range.
In the longer term, subscription models
provide auto brands with a step towards
the business model of the future
mobility-as-a-service. In the recent
discussions about subscription services,
this hasn’t been covered much, yet it is
the most significant and consequential
impact for the incumbents.
How can subscription services help auto
manufacturers shift to mobility-as-a-
service? Quite simple: bundling.
Mobility-as-a-service
With the passing of the 2003
Communications Act in the UK, the
government opened up the home phone
and broadband market, encouraging
challenger brands to disrupt the telecoms
sector. While this created a headache for
BT, it paved the way for providers to offer
inclusive telecoms and media packages.
Sky started offering phone packages
and internet access alongside TV, whilst
TalkTalk launched free broadband with
its phone service in 2006, and began its
TV service in 2012. This was the start of
the triple and eventually quadruple play,
also including mobile phone provision.
Companies such as Sky and Virgin today
offer ‘media-as-a-service’ in a monthly
subscription package. Once you are
able to define value in one space and tie
customers in through monthly billing or
subscription, it becomes much easier to
bundle in new services that add value to
the customer.
This is the case for auto brands and
mobility-as-a-service. They can start
by offering a monthly car subscription
service and then broaden to bundle in
other services that meet customers’
wider needs.
These needs will start with the car, with
convenience services such as cleaning
and refuelling, which Care by Volvo is
already addressing. It will then expand to
items such as tyres, parking, navigation,
tolling and other operational and in-use
services, offering either pay-as-you-go
or all-inclusive options bundled with your
monthly contract.
However, it’s with electric vehicles that
brands will have the biggest opportunity.
With the growth of EVs, subscription
services will change the game through
the inclusion of charging, battery leasing
and a range of other services. Tesla has
bundled in supercharger access with the
sale of the Model S since launch, with
Renault offering an optional battery
lease alongside vehicle purchase. The
29
 /as_a_service_models
Transforming your business
Three steps that move your business towards a subscription model
Re-bundling
The first dimension to consider is the unbundling and re-bundling
of your market. If your industry has been disrupted by startups,
no doubt they’ve eaten away at the small areas of your value
chain that could be digitised, removing friction and increasing
convenience for the customer in the process. This is your first
opportunity to fight back. Reconsider the strategic importance
of parts of the customer offer across the value chain, and how
Adjacencies
The second dimension considers the expansion of the core
offer beyond your initial subscription services. In the auto
industry example, this is represented by the addition of broader
mobility services beyond the car as-a-service. By reframing the
market, you are tackling, and using insight and intelligence of,
your subscribers’ behaviour, to adapt the subscription service
as a platform for new market entry. Put simply, this is the
triple play opportunity to expand into new adjacent markets.
The subscription service is your new offensive weapon to
simultaneously build scale and tackle new markets, as you have an
existing channel and customer base to expand into. By building
the subscription base into new territories, you start to increase
your loyalty and reduce switching.
At this stage, expand your offer to reflect the total market. It’s
Ecosystems
As technology evolves, so too must the strategy of your
subscription service. Consider the wider shifts in automation,
artificial intelligence and disruptive technologies that will shape
the fundamental offer and the adjacent market services that
are bundled together. The third dimension to consider is how
to calibrate your offer to meet emerging needs which will be
30
you can enhance your overall offer. Re-bundle the most valuable
elements into a service to increase the convenience of the core
product. This might mean you need to partner with said startups,
but that’s a better way to own the customer and provide a
superior frictionless customer journey. It’s also a great way to
deliver a service that will appeal to new types of customers. Make
it both a defensive and offensive strategy.
too easy to expand by only offering your own services as a way
to strengthen the brand. This is the trap that the auto brands are
falling into - they are only offering their existing products, rather
than considering a total market play.
As your service becomes a platform, your strategy needs to offer a
broader selection of bundled services, no matter who the provider
is. If you’re Jaguar Land Rover and you offer a complimentary
service from BMW, then so be it. Your competition is different.
Don’t let the boundaries of your industry and historical views of
competition dictate the breadth of your service offer, because
customers won’t want a whole multitude of subscriptions with
different entities. This is what makes Prime from Amazon so
strong – it offers a single subscription that covers delivery and
media consumption in a single monthly package.
reshaped by disruptive technology. The encouragement is to
develop a wider ecosystem around your services as businesses,
both public and private. This will build resilience as well as agility
of offering, allowing you to tailor services to each customer’s
needs. Consider how your ecosystem can turn subscription into
membership.
all-inclusive EV subscription service is
just around the corner. It makes the EV
far more aligned to other technology
products and subscription services,
including mobile phones.
In the past, the industry has experienced
the ‘unbundling’ of the car – with a range
of services offered separately to the
consumer. In the future, we will see the
‘re-bundling’ of the car into an as-a-
service all-inclusive monthly package,
which will continue to grow to cover
multiple cars in household, the wider
family in the household and everyone’s
general multi-modal mobility needs.
This is the real opportunity and it’s why
auto brands are pursuing subscription
models, even considering bundling
multi-modal transportation such as train
tickets and taxi fares into the monthly
fee. How many people drive their car, park
at a train station and commute into work
each day? Once auto brands understand
not just why people use their cars but also
how and where, they can start to bundle
in additional features such as parking and
seasonal train passes.
It now makes sense as to why the major
auto manufacturers have been investing
in and acquiring startup mobility services
that on the surface, appear to be their
rivals. With access to car sharing and
ticketing, auto makers can become
the one-stop shop for people’s
mobility needs.
A few years ago, when the mobility
landscape was far less clear, the initial
hypothesis inside auto makers was that
the multi-modal navigation platform,
like a Moovel or Citymapper, would be the
‘shop window’ for attracting customers
[1] AI research shortage – https://bit.ly/2uWbNWw
The residual value of a cars
original price after three years*
*http://bit.ly/2KoQtOk
to a brand. Through it, customers would
be able to purchase mobility-as-a-service
packages, identify where they want
to go and find the best option to get
there, drawing down on an allowance in
a mobility service package that is paid
for on a regular basis. This remains the
starting point behind Whim from MaaS
Global, bundling together both private
and public transport services into one
monthly fee, with a slick front end
mobility planner and journey tool.
However, the critical mass market
remains with the car buyer and owner. It’s
difficult to change people’s behaviour,
particularly when the car offers the
convenience that most people are used to
and still demand. It also takes a lot longer
to create a new market from scratch.
That’s the case in point for Whim.
For this reason, the auto brands have a
great opportunity to realise mobility-
as-a-service, with car subscription
programmes becoming the starting point
to shifting customer behaviour. At the
same time the brands can manage the
customer’s mobility needs by removing
hassle and delivering a total mobility
package. It’s baby steps, rather than one
giant leap, into the world of mobility-as-
a-service.
Partnerships with public transportation,
startups and other mobility providers are
a key component of success. In the future
major partnerships will be established
between cities, transport operators
and auto brands, with the aim of better
integrating the availability of private and
public modes of transport. We’re starting
to see this emerge with Uber leading their
integrations with Wasabi, Virgin Trains
and others. For certain, the auto brands
are looking at this too.
These partnerships will be essential as
the car subscription model adapts to the
arrival of autonomous vehicles. Rather
than a glorified taxi subscription service,
an uber-Uber - if you like - will fulfil a
customers’ transportation needs across
multiple modes. It’s further evidence
as to why the car subscription model is
essential for auto brands to transition
existing car buyers to mobility-as-a-
service in an autonomous world. It will
provide the learning, data and insights
on customer needs across their travel
behaviour, which will allow the brands
to bundle together services at a
significant scale.
It’s no surprise then, that certain players
in the market see the advantage of car
subscriptions. Drover believes one in
ten drivers may be subscribing to a car
service within a decade. By 2025, Volvo
wants half of all cars it sells to go through
the Care by Volvo subscription service.
That’s a significant number of cars and
31
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customers to switch in little over seven
years. I believe it’s entirely possible... but
only if they address the upside risks.
Growing pains
As the number of subscribers grows, the
first risk to address is the maximisation
of vehicle utilisation in order to deliver
a return greater than the cost of capital
of financing the asset. More customers
mean more cars, which will lower
utilisation and the ability to realise a
sufficient yield on the time the car is
with a customer. Secondly, the greater
the demand, the greater the demand for
the variety of vehicles. The challenge
is offering sufficient breadth of choice
and depth of pool vehicles to enable
switching. Matching supply and demand
will always be challenging, resulting
in lower asset utilisation and lower
overall profitability.
Eventually, customers may switch on
to the notion of paying for their service
every day, week, or month and potentially
leaving an unused surplus behind.
We will see the evolution of the car
subscription service – from 1.0 today, to
2.0 around bundling, then 3.0 towards
individually tailored and personalised
packages of mobility. Consider a 3.0
service to be more like a membership
than a subscription. I can imagine a
future where machine learning builds
accurate profiles of car needs, and overall
transport consumption behaviour,
using artificial intelligence to predict
and automatically adjust the monthly
membership. It will be both fixed and
intelligently variable at the same time.
But enough gazing into the crystal ball.
Let’s get back to reality and what
this means in the wider context of
business today.
The year by which Volvo wants
half its cars to go through its
subscription service
For the majority of you reading this,
you may have questioned how all this is
relevant to your industry and what this
could mean for your business. Don’t be
seduced by the excitement and novelty
of a subscription service. Instead,
rather than just offering a subscription
service based on what you provide
today, consider how that service can
be structured strategically by reading
‘Transforming your business’ at the end of
this article.
It’s clear that subscription services are
more than a passing fad, particularly if
they are well conceived and offer value to
the customer by increasing convenience
and improving the overall customer
experience. Offering the perception of
greater utility, choice and flexibility are
important factors for any subscription
service to succeed in the market today.
A few words of caution before you rush to
launch a subscription service. Delivering
a product to market that doesn’t meet
customer desire for choice and flexibility
could limit the growth of subscription
models. At the same time, startups can
quickly out-manoeuvre incumbents in
any industry since they are not hindered
by ‘politics’ across brands and can
provide a multi-brand experience to the
customer. Also, beware other value chain
players who may be better placed to offer
subscription services that could disrupt
the manufacturers. In the auto industry,
dealerships and car rental providers are
perfectly placed to offer subscription
services given that they already
have vehicles, operations, insurance
and channels.
However, there is a strong counter
argument in favour of launching a
subscription service, as long as you focus
on choice and flexibility. In the mid- to
long-term, subscription services offer
businesses the strategic opportunity
to reconfigure their business models,
reshape their offer and expand into
new markets.
Subscription services can be a strategic
weapon to realise shifts in technology
disruption. They enable companies to
turn threat into opportunity by re-
bundling the important elements of
the customer experience. This provides
a differentiated service, which then
serves as the platform to build scale and
new growth by entering new market
adjacencies. Subscriptions provide a
strong platform to look outside your
traditional industry and instead consider
an ecosystem that broadens appeal to
more customers.
As the recent article in D/SRUPTION Hub
outlined, “consider how convergence
could deliver convenience” by using
subscription services to drive your own
disruption at scale.
Jonathan Carrier is a regular contributor
to D/SRUPTION with over twenty years
experience in the automotive sector
33
 /innovation
If you can’t T
he transition from startup
entrepreneur to corporate
launch a product
intrapreneur was one
of the toughest changes
of my life. After my startup, Innovest,
was acquired, I felt like I had landed
in eight weeks...
on an alien planet called Corporate
America. Everything was slow, cautious,
hierarchical and fraught with politics.
Gone was the speed and solidarity that
I had mistakenly thought was a
you never will
universal norm.
As an intrapreneur, I eventually – and
painfully – learned that impactful
innovation is just as possible in a huge
Two months from start to finish – corporation as a startup, but only if you
embrace one cardinal rule: never pitch an
is that even possible? Intrapreneur
idea, always present an outcome.
Greg Larkin is here to show you
not just how you can do it - but Speed is an intrapreneur’s key
competitive advantage. In a large
also why you should
corporation, if you can’t launch a product
in eight weeks, you never will. While such
a timeline for a new product is certainly
athletic, it also lies within the realms of
possibility. Here’s how I do it...
Five stages of an
intrapreneur sprint
In a new product sprint, user validation is
the engine that drives organisational
change. Once you have solved an
‘unsolvable’ market problem, you have
new power to change your company, since
sceptics become zealous converts and
silent supporters become empowered
proponents. But that change must be an
explicit, strategic goal, it never happens
simply because a product is of worth and
change seems like an obvious, good idea.
The intrapreneur sprint is different to an
entrepreneur sprint because it recognises
that stakeholder and user validation
34
“See the world from the perspective
of your customer. What’s the core
problem they need to solve but don’t
have the tools for?”
are deeply intertwined and must be
accelerated in tandem. The five stages of
an intrapreneur sprint look like this:
1. Personas
See the world from the perspective of
your customer. What’s the core problem
they need to solve but don’t have the
tools for? Too often, companies launch
products based on what they want to
build rather than what people need. The
scope becomes too big and it’s hard to
set achievable, actionable goals. The
first stage of any new product is to focus
on the person who needs you. What
are their pain points, aspirations and
key demographic details? What is their
problem? When I work with clients, we
give these personas a name. To this day
Enrique, Jen, Todd, and Jennifer feel like
people who lived with me for a while –
even though they were personas that we
invented.
2. User journey
How can our named customer discover
your product, use it to solve a problem
and leave as a loyal evangelist? In the
user journey, we will take our persona
through the three stages of a new
product: entice, engage, evangelise.
The goal of the ‘entice’ stage is for the
customer to find the product and say,
“Where have you been all my life?” In
the engage stage, the customer should
say, “Wow! You can actually solve my
problem.” Finally, in the evangelise stage,
they should say, “I’m coming back with all
my friends.” It is critical to keep this user
journey tight. I usually encourage the
team to create a six cell comic strip that
describes the entice, engage, evangelise
cycle. I also set a time limit of ten minutes
to design this comic strip.
3. Fearless inventory
This is what distinguishes a corporate
intrapreneur sprint from a startup
entrepreneur sprint. What assets does
your company already have to amplify
this product? What deficits prevent your
company from doing it? How can you
enlist the amplifiers and neutralise the
deficits? The fearless inventory focuses
on people. Who can deliver key assets,
who needs to be converted from sceptic
to supporter, and who needs to be kept
out of the way. The purpose of the
fearless inventory is to assess what your
company can and cannot do to solve your
user’s core problem. Any intrapreneur
who skips this step will be thwarted or
co-opted.
4. Strategic differentiation
How can you differentiate your business
model, your product or your marketing
strategy to create an unfair competitive
advantage? Great products focus on
building a pronounced competitive
35

Essential information for your business
www.disruptionhub.com
advantage. They don’t just solve a
customer’s problem. They do it in a way
that makes life difficult for existing
competitors or future new entrants.
5. Release planning
What can you do to build and test this
experience in the first two weeks? How
can it be made better in the next two
weeks after that? How can it be made
stable in the third and fourth two-week
sprints? Here, we determine what should
be the priority in the first two-week
sprint, the second, then the third.
The final sprint is always reserved for
presenting your product internally.
Are you ready to sprint?
When a team of intrapreneurs launches
a product in eight weeks, they force
a choice between stagnation and
acceleration. If you make it easy enough
and lay the groundwork for them, the only
question left for your company to answer
is where to aim the rocket and how to add
fuel. Obstacles that previously seemed
entrenched and insurmountable now
seem bite-sized.
An eight week sprint is one of the most
important tools in the intrapreneur’s
toolkit. By balancing stakeholder and
user validation and moving quickly, this
process will allow you to free yourself up
to be innovative within the confines of a
large company.
Greg Larkin is the author of This Might
Get Me Fired: A Manual for Thriving
in the Corporate Entrepreneurial
Underground. He has built over 30
digital products within corporate
environments, generating millions in
revenue for companies like Google, PWC,
Nestlé, and Bloomberg.
medium.com/@gregorylarkin
PwC’s eight-
week launch
In 2015, PwC approached me to create
a cash flow management app for small
businesses. For two years, they had
struggled to build this product and
eventually hired us to give it one final
push to make something happen. We had
eight weeks and if we failed, they’d already
decided that they would cut their losses
and shut down the whole project.
The project was PwC’s response to an
alarming statistic: 70% of the small
businesses that declare bankruptcy in the
US each year are profitable when they fail.
But cashflow management is a vast and
boring subject. In order to make it real,
we invented a persona called Jen. She
was the human face of this statistic – an
independent oil and gas consultant in
Texas whose bank account was dwindling
even as her sales boomed because her
clients were starting to pay her late as oil
prices declined.
By the end of week one, we had created
the six most important screens of the
app where Jen could log in, see which
invoices were due and get advice on how to
approach key but late-paying clients. On
the eighth day, we tested our prototype
with ten consultants who matched her
profile. Four of them were able to navigate
through the app without any coaching,
while six got stuck. But that’s okay. This
ALWAYS happens. No app is user friendly
on its first release but by launching early,
you learn quickly how to make it intuitive.
One of the earliest pieces of customer
feedback in that first week was that people
would like helpful talking points on what
to say to those clients who were late on
payments. So in week two, we worked with
some of PwC’s cashflow experts to craft
the right language. We also connected the
app to Yelp so that users could make lunch
reservations with their most important
clients.
Simultaneously, we ran ads on social
media to recruit our first batch of users.
By week five, we had 50 early adopters,
one of whom was actually named Jen! In
this group of first users, 63% saw their
bank balances come back to life as they
were able to restructure their debts and
payment terms.
Their experiences gave us leverage with
senior leadership and by week 6 we had
tangible results to present to some of the
sceptics within PwC. We weren’t asking
them to support an idea – we were inviting
them to participate in the growth of a
new product. PwC’s executives started
to change their minds once they saw the
impact that our product had. Our once
timid executive supporters became more
vocal. If they said no now, they’d be letting
Jen fail. In eight weeks an initiative which
started with a made up consultant called
Jen, which was slated to be defunded, was
granted an additional $2 million.
37
 /internet
rust. It’s a difficult concept
T to define, and an even more
difficult thing to construct.
How do we know if we can
trust one another? Can trust, once broken,
ever be repaired? Is it possible to put a
price on trust?
In the digital age, these questions
need answering. With the ability of
governments and large tech organisations
to manipulate us only set to grow, we are
facing a crisis in deciding who and how
to trust. What’s more, the stakes of trust
are getting higher, since when we get
it wrong, we face increasingly serious
consequences.
Customer + employee =
relationship
Before the internet, trust was relatively
easy to cultivate. As legacy companies
built their brands over time, they earned
the trust of their customers and, with
it, their consumer loyalty. Interacting
face-to-face in physical premises is the
We need to
traditional – and perhaps the easiest - way
of establishing trust. The customer knows
the business and the business knows the
customer, so a stable, secure and lasting
talk about trust
relationship can be built between the two.
In the online age, this relationship breaks
down. We don’t have a concrete way of
knowing who we are interacting with on
the internet. For the most part, we never
Is it possible to trust any person, politician, bank or actually meet the other party, and there’s
company in the digital age? D/SRUPTION’s Sarah Finch a chance that even the most professional
of web presences could be a smokescreen
gives it to you straight... believe us
for questionable activity. Trust has always
been a problem in the internet era.
38 [1] Equifax scandal – https://bbc.in/2mGwukC [2] Deloitte scandal – https://bit.ly/2flMKUv [3] Tesco bank thefts – https://bit.ly/2fe9iaK
At the beginning of the internet
revolution, it was possible for incumbent
businesses to translate their real-world
brand reputations into online potential. To
a certain extent, this still holds true today.
We trust the businesses that we know.
Many of us haven’t changed who we shop
or bank with just because of the internet,
we now simply interact with them online.
Unfortunately, though, there’s
another side to this story. In recent
years, numerous and significant data
breaches have undermined confidence in
established businesses. From the Equifax
“In recent years though, numerous
and significant data breacheshave
undermined confidence in
established businesses.”
scandal [1], to Deloitte’s loss of confidential
emails [2], to the theft from customer
accounts at Tesco bank [3], data breaches –
and news of them – have become a normal
part of our online lives. Does this mean
that we can no longer be guided by brand
culture when working out who to trust
online?
In this climate of data insecurity, it is
difficult to know who to trust. While
businesses affected by cyber attacks
may see a loss of customers, there is no
guarantee that defecting to their rivals
will give consumers any greater data
confidence or security. Data breaches may
pass completely unnoticed by businesses,
taking years to surface from complex IT
systems. More worryingly, they are often
deliberately covered-up [4] in an attempt to
mitigate reputational damage.
Underpinning this discussion is the
fact that the general public have
predominantly revealed themselves to
be apathetic towards their own data
security. This position, while clearly
misguided, is understandable. Our data
is ephemeral - we can’t see it or touch
it – so we don’t really understand it. Most
of us are completely unaware of the
extent to which our personal data is freely
obtainable online. This means that when
businesses experience data breaches,
they simply need to weather the storm of
negative press and public opinion. As long
as consumers are compensated for any
financial losses, it seems that businesses
have little to fear. Problems with data have
now become so common that they simply
fail to register in the long term consumer
conscious.
AI and fake news
Along with data breaches and the
breakdown of the brand comes AI,
which is blurring the boundaries of
trust by progressively imitating human
behaviour. Artificially intelligent computer
programmes now have the ability to
The number of accounts
effected by the cyber attack on
Tesco Bank in 2016
39
 27/0
info@kemplittle.c

info@kemplittle.co

27/08/
@KempLittle

@KempLittle
“It has now been well-established that

www.kemplittle.com

www.kemplittle.com
Russian- backed propaganda and sham

020 7600 8080

020 7600 8080

Kemp Little - the leading technology
Kemp Little - the leading technology news stories influenced the results of the

Kemp Little - the leading technology

Contact us for an informal chat about how we could help your business

Contact us for an informal chat about how we could help your business
& digital media law firm_ 2016 US Presidential election”

convincingly pose as humans in a variety investors millions of dollars. While stock – will affect their social credit. Worryingly,
of situations. When we talk to customer markets have always been sensitive this will also include any opinions they

Cheapside, London EC2V 6BJ

London EC2V 6BJ

& digital media law firm_

assistants online, it is often hard to to rumours, the sophistication of AI express online. Posting positive views

& digital media law firm_

Kemp Little www.kemplittle.com info@kemplittle.com
distinguish an AI-powered chatbot from a algorithms surpasses even the most about the government will make a social
Cheapside House, 138 Cheapside, London EC2V 6BJ 020 7600 8080 @KempLittle

27/08/2015 14:57:50

27/08/2015 14:57:50
real human working from a script. Google strategically placed gossip of the past. credit score go up, while any criticism will
Contact us for an informal chat about how we could help your business Assistant can now book appointments The overhaul of news by AI, combined not be met with favour. The totalitarian
info@kemplittle.com

info@kemplittle.com
over the phone, and robot reporters have with its superior ability to monitor stock nature of the Chinese state makes it
7600 8080House, 138 @KempLittle

@KempLittle
the proven ability to pass for human prices, has made it easy to manipulate possible to categorise its citizens in this

House, 138 Cheapside,

journalists [5]... the markets. The wool is being pulled way but the morality of such a system is
Follow the Entrepreneur advert - A4.indd 1 27/08/2015 14:57:50 over our eyes and with it, some people are highly problematic.
What examples such as these tell us is becoming exceedingly wealthy.
that it’s impossible to know who we are The question remains over who is driving
really interacting with on the internet. In Who is managing trust? interest in the trust machine. Even after
the past, this meant that we had no way Although there is an evident need to the sporadic outcries which follow data
www.kemplittle.com

www.kemplittle.com
Follow the Entrepreneur advert - A4.indd 1

Follow the Entrepreneur advert - A4.indd 1

of knowing whether the person we were quantify trust, it is unclear how precisely breaches, governments and established

7600 8080
Kemp Little

talking to really was who they said they this could be done. Democratic states companies have generally been able

Kemp Little
020 Cheapside

Cheapside
were. Now, it also means that they may not to carry on with business as usual –
Kemp Little - the leading technology

Kemp Little - the leading technology

even be human at all. disregarding privacy concerns and the
Contact us for an informal chat about how we could help your business

Contact us for an informal chat about how we could help your business
security of customer data. The recently

020
The consequences of this are huge – just implemented General Data Protection
consider fake news. It has now been Regulation (GDPR) rules should go some
firmly established that Russian-backed way to improving data security but there
propaganda and sham news stories The amount paid to remains a fundamental public disinterest
influenced the results of the 2016 US hackers by Uber to destroy in safeguarding trust.
Cheapside House, 138 Cheapside, London EC2V 6BJ

Cheapside House, 138 Cheapside, London EC2V 6BJ

Presidential election [6], yet we still don’t stolen data in 2016
& digital media law firm_

& digital media law firm_

have any concrete strategies to combat Disturbingly, this doesn’t look set
such malicious misinformation. AI can to change any time soon. Consider
target individuals with fake news that’s and businesses may not want to follow millennials, the most prolific users of
Kemp Little - the leading technology designed to appeal to their individual the example of China, which by 2020 digital, and the future of the digital world.
beliefs, thereby influencing political will enforce a compulsory social credit They’ve proven that they are willing to
& digital media law firm_ opinions, voting behaviour and consumer system [7] to rate the trustworthiness freely share, with no sign of any kind of
preferences. of its citizens. Under this system, change in attitude for the moment.
everyone, from individuals up to entire
Our information-saturated lives also organisations, will be judged according to So they say we need to talk about trust?
expose vulnerabilities in the financial their personal habits, taking the scheme It makes you wonder - does anybody
sphere, where fake news stories have well beyond a simple credit history. A actually care?
Kemp Little www.kemplittle.com info@kemplittle.com been consciously released in order to person’s behaviour – from the products
he Entrepreneur advert - A4.indd 1

he Entrepreneur advert - A4.indd 1

Cheapside House, 138 Cheapside, London EC2V 6BJ 020 7600 8080 @KempLittle affect stock prices, earning disreputable they buy to the people they interact with Sarah Finch
Kemp Little

Kemp Little
Contact us for an informal chat about how we could help your business [4] Covering up data breaches – https://bayareane.ws/2uOkmCO [5] Robot reporters – https://wapo.st/2JXurlD
[6] Influencing elections – https://wapo.st/2LrOCgT [7] China’s social credit – https://bbc.in/2JTe1uo 41
 /artificial_intelligence

The death of
the expert?
Once machines can analyse all available information
and make decisions, what place will there be for human
experts? D/SRUPTION’s Laura Cox thinks they’ll still
have a place and purpose

here was once a time when average person, this is a positive thing. is deliver an average of millions of

T if you wanted to learn a

particular skill, you had to
ask another person to teach
you, or teach yourself. This might have
involved going to a library, or signing up
for an apprenticeship. While we do still
learn in these traditional ways, access to
information in the digital age has become
instant. People are more knowledgeable
about more things than ever before but,
as argued by Tom Nichols in his book The
Death of Expertise [1], this has reduced
the need for people to actually learn.
The internet has absorbed the need for
vast amounts of expertise, and now
artificially intelligent systems are adding
to knowledge displacement. For your
But what does it mean for the countless
highly trained, educated experts across a
broad spectrum of industry sectors? What
happens to experts when technology – in
particular AI – can eventually deliver the
same breadth of knowledge?
The evolution of expertise
An expert is somebody with a high level
of specialist knowledge in a specific
area or areas. John Straw, D/SRUPTION
cofounder, describes knowledge as an
absolute. Knowledge itself is objective,
he says, while the retransmission of that
knowledge is subjective. Lawyers, for
example, create law on the basis of
collective expertise, yet these laws are
questioned constantly. What AI can do
lawyers’ decisions and legal cases.
“This creates a mathematical
robustness and, as a result, your
subjective view almost translates into
a fact,” says Straw.
The ability of a human to assimilate
large amounts of information is
extremely restricted. According to
Straw, those most affected by AI will
include healthcare professionals,
lawyers and accountants. For
example, in the healthcare sector,
radiologists go through a number of
scans to decide if a tumour is malignant
or benign. Despite their extensive
training, the rate at which they can
view and analyse scans is limited.

[1] The Death of Expertise – https://bit.ly/2lRFG3p

42 43
Lab For Hire
Outsourced Innovation
ge, future
pr int ing , big da ta, behavioural chan “A computer could do as much in one day will be those who ask the right questions.
topic e.g. 3D ee deep
1. Deep Dives - picmkakaes e fo r yo u) , an d we spend 3-6 months kn as a radiologist could do in their entire Talking of which...
most sens ations that are
retail, VR (whatever s of ins igh t, en tre preneurs and organis career,” Straw notes. “The computer’s
e nugg et
in this area, finding th ability to become more objective over What comes next?
disrupting the spac e time becomes larger and larger the more The next milestone is context. Current
markets,
operating in multiple
data it is fed. Human experts are limited narrow AI lacks contextual awareness,
tir e glo be wi th te am
ans en
2. Global - network spfro
by their ability to process amounts of which is why humans remain an important
ts m across the globe “This morning I shot
means we get insigh
data but AI is virtually unlimited in this.” part of the transfer and reception

3. Outsourcing Inno
Cannes, SXSW
pitch competitions to
happening
m bin ed
4. Black Book - co rtips
ge
innovators at our fin
5. Physical Spaceat-ion
try out newest innov
6. Lab Days / Evenerts
sharing insights, gath
ke tin g an d re se ar ch , you decide the purp
mar
eet with
7. Startups - we mblo
the new kids on the
ckathons and
of knowledge. Straw explains this
- te am ha s jud ge d everything from ha an elephant in my
at’s
Another example comes from the travel fundamental difference using a Groucho
vation
D& AD - m ea ns we are at forefront of wh
, and leisure industry. A human customer
pyjamas. How he got
Marx joke: ‘This morning I shot an
services rep might be able to tell you elephant in my pyjamas. How he got into
that the all-inclusive hotel you want to my pyjamas, I don’t know.’
broad network of
into my pyjamas,
experience means a
book has a gym, but not what equipment
35 ye ar s
I don’t know.”
it has. Even when combined with “This is a really interesting example
generally useful star reviews on sites like of the way that AI works,” says Straw,
e to
eate physical lab spac
TripAdvisor, this is still a minute snapshot Groucho Marx “because you and I both know that it’s
wi th IN IT IO N to cr
have partnered
of subjective opinions. What AI offers is highly impractical for an elephant to get
s and demonstrations
the ability to see the average ratings of all into pyjamas. Because we understand
reviews, then narrow this down to certain the context, we understand its relevance
erence
De ep Di ve , pr od uc e and manage a conf features or services. and we know what that joke means.
- following a the speakers,
ing ex pe rts , ex ch an gin g debate. We organise But if you looked at it from an entirely
Professor AI
ose/focus
idea later written about in 2004 by James objective viewpoint, you would think
If experts can be described as retaining, Surowiecki in his book [3] of the same that an elephant could have got into the
g we identify
nies per week meanin
relaying and using specialist knowledge, name. According to this way of thinking, comedian’s pyjamas. An AI system will
at lea st te n co m pa
then intelligent machines, for better the many are smarter than the few. If AI really make a breakthrough when it can
them
ck an d fo st er gr eat relationships with
or for worse, are experts in their own can combine the collective knowledge of understand that joke.”

follow on from
right. The ability to digest and analyse millions of situations and examples, then

in sit u, as pa rt of the Deep Dive, as a huge datasets has supercharged not it embodies the wisdom of the crowd. Ultimately the death of the expert is
run thes e ess
8. Workshops - wean or de r to inn ov at e, and work on key busin only the quantity but also the quality That is, of course, if it is fed the right data. fast approaching. Straw predicts that
e d inspire in and innovators
Lab Day - to educat er int er na l an d ex ternal stakeholders of the information available to cognitive within the next two to three years,
toge th
problems by bringing systems. They can work out what AI currently aids human experts by expertise as we know it will start to
- those
to be the key point
information is useful and suggest what it augmenting their existing knowledge. disappear. However, a lack of contextual
alw ay s fo un d th is
we have ts us apart
9. Making it Happeit’ns-making that idea happen and tangible thatthseth
might be used for [2] which, in essence, is Once AI can teach itself, this dynamic will understanding means that there is still
y, e right
ideas are ten a penn lem and connect it wi
exactly what human experts currently do. change. Being an expert will become less a place for traditional human experts.
ca n fin d th e pr ob g actually
Dives, we finality with somethin
- through the Deep
important, with that role increasingly Experience levels will play a key dividing
th en dr ive it to its
e solution and
company that has th
The training of these systems is involving management and monitoring. role between those experts displaced
important. Currently, AI is ‘narrow’ in However, expertise is not the same as by intelligent tech and those who work
being made that it fulfils a preordained purpose and, experience. While AI can access cold alongside it. The less experience you
since it is trained humans, it can exhibit hard facts, it can’t have (or relate to) an have, the more easily replaced you are.
bias. With a large enough sample base experience in the same way as a human. Better get learning...
of data, it’s arguably possible to exclude This suggests that who we regard as
@nicoleyershon.com
Contact us at: labforhire this bias. This is the general premise experts will also change. Instead of
behind ‘the wisdom of crowds,’ an old knowing answers themselves, experts Laura Cox
@labforhire
medium.com/labforhire
[2] AI prescriptive analytics – https://bit.ly/2NJie5Y [3] The Wisdom of Crowds – https://amzn.to/2LNjqEU
45
 /finance
Beyond
the hype
Sarah Finch highlights eight sectors with real
practical applications for blockchain
hink blockchain is all hype?
T In many cases you’d be
right. A surge in dubious
investment schemes and
recent volatility in the cryptocurrency
market has cast a shadow over
blockchain’s reputation. However,
the technology can be used to
revolutionary effect.
Food
Complete transparency between
suppliers, retailers and consumers
Consumer spending is increasingly
favouring brands that are perceived to
have strong ethical credentials. However,
when producers and suppliers make bold
claims about the origins of their food
products, how can we be sure that what
they say marries up with the truth?
The traceability of blockchain makes it
ideal for tracking food stuffs all the way
from the producer to your kitchen table.
Blockchain company Provenance has
46
developed a platform that helps farmers,
“The traceability of manufacturers and retailers to keep
blockchain makes track of their goods throughout the
supply chain.
it ideal for tracking A digital history
food stuffs all the The Provenance platform allows
consumers to gain a detailed insight into
way from the the people, places and processes that
have contributed to a particular product.
producer to your Products are given a unique digital ID
allowing organisations to verify its supply
kitchen table.” chain claims, and buyers trust that the
product they are buying aligns with their
ethical standards.
The Provenance website plugin provides
a gateway to the story behind a product,
and the unique ID can be used on QR
codes on physical products providing
valuable integration between online and
offline touchpoints.
Provenance gives companies the
opportunity to demonstrate the social,
ethical and environmental values
which underpin their operations. It also
47
 /blockchain
connects consumers to the narratives
behind the product - building brand,
customer loyalty and trust. Consumers
increasingly want to know where their
food comes from, a fact which turns
transparency around the supply
chain from an optional extra into a
business necessity.
Health
Giving individuals control of their
medical data
Our health records are extremely varied
and complex – as is the way they are
stored by healthcare providers. In the
UK, the NHS has moved from paper files,
to storing records in a variety of central
IT systems, to exploring the potential of
off shore and cloud storage. However,
large healthcare companies struggle
to implement suitable record storage
strategies, which suit the needs of both
patients and medical staff. There have
been numerous instances of sensitive
medical data being lost or left
lying around, putting the security
of patients at risk.
Medicalchain is pioneering the use of
blockchain technology in the storage of
health records, to improve security
and give patients greater control of
their data.
For patients, for practitioners
Medicalchain digitises a person’s medical
data and stores it on the blockchain. This
gives individuals a way of securely storing
their health records, which healthcare
providers can then request permission to
access. When patients undergo medical
treatment this information is added
to the blockchain, providing a full and
48
detailed history of any illnesses and
“There have been interventions.
numerous instances Putting patients in control of their
of sensitive medical data ensures that they only share their
information with the parties that they
data being lost or choose. They are also able to access their
records themselves, facilitating greater
left lying around, understanding of medical conditions and
prescribed treatments.
putting the security
Storing a person’s entire medical history
of patients at risk.” in one system makes it easy for care
officials such as doctors, pharmacists
and insurers to access the information
they need. It also facilitates cooperation
between discrete parts of healthcare
systems: with blockchain records,
insurers have access to the same detailed
information as doctors, for example, and
can therefore approve the appropriate
care. Invoicing and payment for
treatments could also be made securely
through the blockchain.
In addition, detailed digital records
are central to the provision of remote
consultations. As pressure on primary
care services increases, online
consultations are becoming an ever more
important tool. They also serve to
widen access to healthcare services in
remote areas.
Government
National governance via the blockchain
In today’s digital world, our data is
vulnerable. When corporations, national
organisations and civic services hold our
information, they often become targets
for cyber attacks. Nowhere is this more
evident than in Estonia, where banks,
media outlets and government bodies
were brought down by a series of targeted
hacking campaigns in 2007.
Keen to avoid any similar incidences of
cyber warfare in the future, the Estonian
government developed a blockchain
based strategy for securing its data.
This uses the locally developed KSI
blockchain network.
Storing your data securely
The KSI blockchain was designed in
Estonia to ensure that government
networks, systems and data are fully
secure and safe from cyber security
threats. Storing data on the blockchain
not only guarantees the data privacy
of Estonian citizens, but it also creates
tamper proof records of history and
government activity.
This safeguards facts in the face of fake
news, which was a significant line of
attack for hackers during the incidents of
2007. It also means that the government
itself is unable to edit records in order
to portray its operations in a more
favourable light.
The KSI blockchain developed by Estonian
company Guardtime is truly secret, as its
hashes do not reveal underlying business
activity. This makes it impossible for
anyone to determine a business’s
operations by looking at the blockchain
code, creating a private environment for
conducting business.
The blockchain is also fully scalable,
meaning that its growth rate and
response speed stays the same no
matter what the volume of traffic is in
the system. A fast, scalable and private
blockchain enables governments to
process and store data quickly and easily
– revolutionising the way that public
bodies function.
Music
Protecting artists’ rights in the
music industry
One of the main benefits of the digital age
is the amount of content we can access
for free. However, when that content
is a creative product such as music,
free access often means defrauding its
creator. Along with the ongoing issue of
digital piracy, the music industry also
has a major problem with streaming
companies, who don’t always pay artists
fairly for their work.
Mycelia is a research and development
hub that was founded by singer Imogen
Heap to create a fair and sustainable
music industry ecosystem. It uses
blockchain technology to ensure that
artists’ rights to their work are secured.
Creative passports, digital information
Mycelia has designed Creative Passports
for music makers. Based on the blockchain,
they act as verified digital containers for
artists’ information, holding data on IDs,
acknowledgements, works, and business
partners. In addition to acting as a digital
identification system, the Creative
Passport will facilitate payments between
artists and users of their content via smart
contracts. This enables secure, automatic
payments, simplifying transactions within
the music industry.
49
 Blockchain architecture, research,
training and advisory services
At present, the way music is distributed,
accessed and paid for is inefficient and
complex, making it an ideal candidate for
disruption. Mycelia aims to revolutionise
the music industry by ensuring that
a fair proportion of profits go back to
the artists themselves. A fairer music
industry ecosystem will not only support
emerging artists but also new music
companies, renewing the dynamism and
competitiveness of the sector.

Check out our Get Started package for corporations
Education
The first blockchain powered university
Education is a valuable asset. However,
traditional degree courses are expensive
and inflexible – making them ill suited to
the diverse needs of students. University
staff are also increasingly dissatisfied
with how their institutions are run,
with disputes over pay and pensions
leading to extensive industrial action
earlier this year.
The idea for an online university
was conceived in 2016 by a group of
academics from Oxford, Cambridge,
Geissen and St. Edwards. Still currently
in the design stage, Woolf University
will be powered by the blockchain. The
organisation will provide borderless
educational opportunities to students
and academics all over the world.
Blocks and books
The Woolf platform will use the
blockchain to streamline the day to day
running of universities – including both
physical institutions and those operating
courses online. The blockchain will be
used to enforce regulatory compliance,
eliminate or automate bureaucratic
processes, and manage the custodianship
“Woolf University will reinvent the way
that teachers and students interact, by
connecting academics and students
from anywhere in the world. ”
of sensitive financial and personal data
of students and staff. Teaching will be
governed by smart contracts, ensuring
that students and professors benefit
from secure, predetermined teaching
arrangements.
Woolf University will reinvent the way
that teachers and students interact, by
connecting academics and students from
anywhere in the world. The university’s
blockchain structure will protect the
information of students and staff, whilst
at the same time increasing transparency
about the veracity of educational claims.
This will help to counteract growing
fraud around fake degree certificates
and false claims about qualifications,
as information on a person’s education
will be easily verifiable. The university
will also secure teaching opportunities
for academics, many of whom currently
waste a large proportion of their time
seeking their next teaching contract.
Energy
A new kind of energy marketplace
As a planet, we need to move away from
the consumption of finite resources.
Nowhere is this more apparent than in
our continued use of fossil fuels, which
are polluting, inefficient, and will one
day run out. As the renewable future
approaches, we need to find better ways
of managing our energy supplies. Luckily,
the blockchain can help.
LO3 Energy has harnessed the power of
the blockchain to create Exergy, a digital
platform for energy. Using this platform,

www.chainsmiths.com 51

hello@chainsmiths.com
 /blockchain
individuals can buy and sell energy in
localised peer to peer marketplaces.
Staying on the grid
The LO3 Energy platform, Exergy,
operates on existing grid infrastructures.
It is therefore easy to create local
community networks which generate,
store and trade energy amongst
themselves. Within this model, anyone
generating their own energy from
renewable sources is able to trade it
with others in their vicinity. Surpluses
of energy can automatically be made
available for purchase, with consumers
being notified of this availability via a
mobile app.
The Exergy smart meter is a hybrid device
which functions both as a traditional
electric meter and a computer. When
installed in a building it measures its
energy production and consumption,
communicating this information to
the network to better manage energy
provision in the local area.
To achieve a conclusive shift towards the
use of renewable energy, consumers must
be confident that their energy needs
can be met. By creating a peer to peer
energy marketplace, Exergy will help to
secure reliable clean energy supplies in
the face of fluctuating levels of demand
and availability. Conducting these
functions on the blockchain ensures that
all transactions are private, secure, and
automatically verified.
Charity
Bringing transparency to social funding
When you donate to charity, there is no
real way of knowing where your funds
52
“To achieve a conclusive shift
towards the use of renewable energy,
consumers must be confident that
their energy needs can be met.”
have gone. Scandals involving some of
the UK’s biggest charities have recently
led donors to question how their money
is being spent and whether they should
continue to donate at all.
Alice uses the blockchain to bring
transparency to charitable funding and
spending. Their social funding and impact
management platform aims to improve
the ecosystem of charity, rebuilding trust
in organisations and ensuring that money
is spent effectively.
Smart contract, smart giving
Alice runs on the Ethereum blockchain
and makes use of smart contracts. Using
the Alice platform, a charity sets specific
goals which they hope to achieve. Donors
pledge funds towards these goals, which
are automatically sent when the goals are
completed. Goal completion is verified
by an independent party, ensuring
that charities live up to their promises
and that donors’ money truly makes a
difference. Donors can also track their
donations in real time to see how much
has been received by the charity, and
which goals it has paid for. This situates
their individual donation in the wider
context of the charity’s activity.
Alice improves accountability between
charities and donors, by giving donors
greater control over how their money is
spent. Information on the impact and
progress of their donations benefits
charities, as individuals can see how
their money is making a difference.
This encourages them to donate more.
In the wake of several major charities’
misconduct in recent years, achieving
greater transparency in the charity sector
is incredibly important if it is to survive. contacts on the Ethereum blockchain. Winding Tree encourages competition in
Travel suppliers are able to list their the travel industry, as it improves access
products on the platform, which any to global travel products for emerging
Travel member of the network can view. This businesses. The platform connects
makes it easy for travel sellers such as members of the ecosystem – putting
Cutting out intermediaries in agencies and tour operators to connect travel suppliers directly in touch with
the travel sector with suppliers in diverse fields such buyers – cutting out intermediaries and
Whilst it may seem like there is a lot as transport, accommodation and saving large amounts of commission.
of competition in the travel industry, hospitality. When a purchase is made, With information stored on the
traditional travel websites sell products payment takes place automatically via blockchain, customers can also choose to
and services from third parties – who smart contracts - facilitating fee free share their travel history with
often take a huge percentage of profits. international payments through the sellers, enabling the provision of
This drives up prices and restricts the native cryptocurrency, Lif. personalised services.
industry to a few established players, as
innovative new companies struggle to get
a foothold. Conclusion
These applications show that the blockchain is more than just a passing fad, a non
Winding Tree is a blockchain platform
starter, or - as many suspected in the early days of the technology - the basis of a
specifically designed for the travel
pyramid scheme… Rather, this ground breaking computer infrastructure is being
industry. It serves travel agencies, used to revolutionise business operations, the way we interact with each other
suppliers and travellers, in a new kind of online, and the very foundations of our public institutions. The blockchain gives us
travel ecosystem. a concrete way of doing things differently, and doing them better. As momentum
behind the blockchain gathers pace, the scalability issues which have plagued its
A platform for agencies, suppliers early iterations will become a thing of the past and it will see much wider adoption.
and travellers We’re not afraid to say it: the future is block shaped.
Winding Tree operates through smart
53
 /technology
AI: the Silent
Revolution
Don’t think of it as when or if – the artificial intelligence revolution has already
started. Andrew Burgess explains why we all need to know more about the
changes that have already affected our daily lives
ost people still think of
M Artificial Intelligence as a
distant threat, a baffling
technology that will
eventually take all of our jobs away and
make all of our decisions for us. But the
truth is that AI is already with us. It is
used by each of us on a daily basis, usually
without any of us realising.
In this ‘silent revolution,’ AI is already
influencing our lives in ways we just don’t
appreciate. Some of these have been
very useful to us (satellite navigation,
fraud detection, cancer detection), while
others have been fatuous and benign
(organising our social media feeds,
Snapchat masks). There are also uses
that can, in the wrong hands, actually be
dangerous. By that, I mean things such
as facial recognition, profiling and voice
copying.
All this is before you even get to the
higher terror of AI becoming cleverer
54
“In this ‘silent
revolution’AI
is already
influencing our
lives in ways
we just don’t
appreciate”
than humans and eventually taking over
the world, a fear that’s become the staple
of movie plots such as Ex Machina or the
Terminator films. I’m not even going
to consider the distant threat of the
Singularity here since it’s questionable
that it’s ever going to be achievable.
Instead, I’m going to focus on what is
happening right now and why we need a
better understanding of it if we are going
to make AI a force for good in the world.
Skill shortage
Of course, AI is inherently very
complicated. It includes many different
types of technologies, from image
recognition and data clustering, to
natural language processing and
prediction. It requires very specific skills
to design and build. Most data scientists
have PhDs, which means that not only
do they earn very good salaries, but
there are very few of them around. By
one estimate [1] there are only 22,000 AI
researchers with PhDs in the whole world.
So many of society’s biggest hopes and
businesses’ biggest bets depend on
a technology that’s currently in the
overworked hands of just 0.0003% of
the world’s population. This is where it
starts to get worrying but I would like to
propose that there is something we can
do about it. Actually, I think there is something
that we all have to do, and that’s for us, as daily
users and consumers of AI, to at least understand
what the technology is capable of. This doesn’t
mean we need to understand how it works (that’s
the data science-y bit), only that we need to
know what it can do and, just as importantly,
what it can’t do.
AI capabilities
In my book, The Executive Guide to
Artificial Intelligence, I define eight
core capabilities for AI: image
recognition, speech recognition,
search, clustering, Natural
Language Understanding
55
 /technology
(NLU), optimisation, prediction and
understanding. In theory, any AI
application can be associated with one or
more of these capabilities.
The first four of these capabilities are
all to do with capturing information
- getting structured data out of
unstructured, or big, data. These capture
categories are the most mature AI
capabilities that currently exist. There
are many examples of each of these in use
today: we encounter speech recognition
when we call up automated response
lines; we have image recognition
automatically categorising our
photographs; we have a search capability
read and categorise the emails we send;
and we are categorised into like-minded
groups every time we buy something from
an online retailer. AI efficiently captures
all this unstructured and big data that we
give it and turns it into something useful
(or intrusive, depending on your
point of view).
The second group of capabilities,
consisting of NLU, optimisation and
prediction, is trying to work out - usually
using that useful information that
has just been captured - what is
happening. These capabilities are
slightly less mature but all still
have applications in our daily lives.
NLU turns that speech recognition
data into something useful –
what do all those individual
words actually mean when they
are put together in a sentence?
The optimisation capability (which
includes problem solving and
planning as core elements) covers a
wide range of uses, including working
out what the best route is between
your home and the shops. And then
56
the prediction capability tries to work
“Artificial out what will happen next. For example,
General if we bought that book on early Japanese
cinema, it will identify that we are likely
Intelligence, as to want to buy this book on
Akira Kurosawa.
it is known, is Once we get to understanding,
the holy grail of it’s a different picture all together.
Understanding why something is
AI researchers happening really requires cognition.
It requires many inputs – the ability to
but remains draw on many experiences and to
conceptualise these into models that can
an entirely be applied to different scenarios
theoretical and uses.
concept” While this is something that the human
brain is extremely good at, current AI
simply can’t do it. All of the previous
examples of AI capabilities have been
very specific (these are usually termed
‘narrow’ AI) but understanding requires
general artificial intelligence, and
outside of the human brain, this simply
doesn’t exist yet. Artificial General
Intelligence, as it is known, is the holy
grail of AI researchers but remains an
entirely theoretical concept.
You’ll have worked out by now that
current uses of AI are typically
implemented by stringing together
several of these capabilities.
Once individual capabilities
are understood, they can
be combined to create
meaningful solutions
to business problems and
challenges. For example, if
I ring up a bank to ask for a
loan, I could end up speaking
to a machine rather than a
human. In this case, AI will first
be turning my voice into individual
words (speech recognition), working
out what it is that I want (NLU), deciding
whether I can get the loan (optimisation)
and then asking me whether I wanted to
know more about car insurance, because
people like me tend to need loans to buy
cars (clustering and prediction).
This is a fairly involved process that draws
on key AI capabilities, and one that
doesn’t have to involve a human being at
all. When it works, the customer gets
great service since the service is available
day and night, the phone is answered
straight away and they get an immediate
response to their query. The process
is also efficient and effective for the
business, as operating costs are low, staff
costs eliminated and decision making
consistent, while revenue is potentially
increased due to the cross-selling of
additional products. The combining
of individual capabilities will be key to
extracting the maximum value from AI.
Help or hindrance?
The AI framework therefore gives us a
foundation to understand what AI can do,
cutting through all the marketing hype
and jargon, and letting us appreciate
whether the technology is being used to
help us, to influence us or to manipulate
us. It also gives us the basis to appreciate
and understand the different risks that AI
can present.
Some of the risks associated with AI
are inherent in the technology. Many
readers will have heard of the ‘black
box’ issue. This is where the AI decision-
making process (for example, approving
or rejecting a loan application) can be
pretty opaque. In other words, it can be
very difficult to know the reasons why the
system has made a particular decision,
[1] http://bit.ly/2OtFeq7
which if you work in a regulated industry,
can be a deal breaking constraint.
While there are ways around this lack of
transparency, often at the expense of
decision accuracy, simply being aware of
this tendency is a pretty good start.
Another inherent issue with the use of
AI is around its naivety. Or, to be more
precise, the issue is around our lack of
appreciation of AI’s naivety. I’ve written
in some detail about this in a previous
D/SRUPTION article but the key point is
that AI doesn’t actually understand what
it is doing. If you ask an AI to recognise
pictures of a dog, it doesn’t have any
concept of what a dog is. It simply knows
what types of pixel patterns most closely
match those in the model it’s learned
from numerous other patterns of pixels in
known photographs of dogs.
Then there are risks that come about in
the way that AI is developed and used.
The most common of these is where there
is inherent bias in the data that has been
used to train an AI. If the training data
is biased, the decisions the AI makes
will also be biased. Training a facial
recognition system mainly on white,
male faces will mean, for example, that
women of colour will be excluded from
benefitting from the system. This is an
actual example by the way – the data
set of 13,000 faces that many big tech
companies originally used to train their
systems on consisted of 83% white
people and nearly 78% men.
AI also raises an existential risk, both for
businesses and the wider world. This is
where we put too much faith in the ability
of AI without understanding its workings
well enough. When we put too high a
dependency on AI solving our problems,
or running our businesses, we don’t pay
enough attention to how those decisions
are being made.
This return to ‘black box’ issues can be
mitigated to a certain extent by choosing
algorithms and development approaches
carefully, and also making sure that
the outcomes are being measured
appropriately. It is not enough to simply
measure the success of an AI-enabled
business by the profit generated, for
example, since the system may be making
decisions that are disadvantaging many
people or putting profit above normal
business ethics. With AI at the core of a
business, it’s much more difficult to spot
these things happening, especially if it is
through many small nudges rather than
major strategy decisions.
To conclude...
Most of us will never be able to fully
understand the technology of AI or
develop an AI model, but I would
suggest that we all have a duty to better
understand what it can and cannot do,
and what its associated risks might be.
As AI’s revolution silently embraces us
and increasingly impacts our working
and personal lives, it’s no longer good
enough to hide behind the excuse that
AI is just too complicated to understand.
We have to think about AI in terms of its
capabilities as well as its limitations,
and be able to challenge firms and
organisations when we see that inherent
value being abused. We must also think
about how AI can realise its enormous
potential for benefits in a safe and
valuable way for the good of us all. That’s
the sort of revolution I’d like to see.
Andrew Burgess
57
 /finance
Effecting
Investor
Behaviour
Martyn Holman looks at how venture capital fund
structures can affect the ways that investors behave
ow do investment funds
H structure their capital and
what does this mean in
practice for the companies
in which they invest? While this might
seem to be an obscure question, the
answers can have a profound effect on
the way new businesses flourish or fail.
In this article, I consider three common
fund structures found in the UK, as well
as some of their implications for investee
companies.
Traditional LP structure
A traditional VC fund is not actually a
physical pool of money as one might
expect. It’s actually a partnership
agreement between fund investors
(normally Fund-of-Funds acting on behalf
of pension funds and the like) known
as Limited Partners. The partnership is
governed by a General Partner (normally
a nominal company to separate fund
liability) and investments are managed
by a Management Company (a ‘Fund
Manager’, or your VC).
58
The partnership agreement will lay down
each Limited Partner’s commitment to “How do
funding future investments (including
Fund Manager’s fees) up to an agreed total investment funds
(the quoted fund size). The agreement will
include heinous penalties for any Limited
structure their
Partner not stumping up the cash when
required, which could be a complete loss
capital and what
of any rights to a share in the fund, even does this mean
for investments already made. It therefore
effectively guarantees the Fund Manager in practice for
access to the capital they need to make
their planned investments, providing they the companies
act within the original mandate.
in which they
Perhaps the most fundamental impact of
this structure is that the investment clock
invest?”
is not ticking from day one of the fund.
The Fund Manager will be measured from
the date on which capital is drawn down
to make each individual investment. So if
capital is not invested until year four, the
Fund Manager is not required to generate
any return on that capital during those
first four years, despite it being effectively
committed to use during the period.
59
 /finance
As a consequence, LP fund cycles are
forced to conform to pre-designated
timelines. The partnership agreement
will outline the time period over which
the Fund Manager must invest the
commitments (and be paid full fees), and
a time period for ‘run off’ in which it is
expected that the investments will be
exited (and the Fund Manager is paid a
partial fee). These timelines can often
impact on a Fund Manager’s behaviour.
For example, bringing additional pressure
to investee companies to force an exit
when entering the final years of any run
off agreement.
In the same sense as commitments, any
funds received by way of an exit are
immediately returned to LPs pro rata to
their contributions over the lifecycle
of the fund. The defined life cycle of
the fund therefore forces the Fund
Manager to make upfront assessments
as to the calls on capital. Most often,
the consequence here is a misallocation
of capital for follow-on investments,
usually with the fund being left
with insufficient capital to back well
performing investments at later growth
stages. Given the conflicts involved in
investing companies across funds, this
is a significant driver of suboptimal Fund
Manager performance. For investee
companies caught at the end of a fund
life-cycle, this can be a significant
obstacle.
Retail funds
A number of funds, particularly in the
UK, raise capital directly from retail or
HNW investors. In general, they utilise
tax efficient wrappers – either EIS
(Enterprise Initiative Scheme) or VCT
(Venture Capital Trust). These schemes
and the funds they have given rise to
60
“Perhaps have played a central role in developing
the VC industry in the UK.
the most EIS funds are generally evergreen in
fundamental nature, that is they continuously accept
contributions from retail investors.
impact of this Terms of such funds vary, although the
EIS scheme itself requires an individual
structure is that investor to hold shares not in a fund but
directly in the underlying investment (a
the investment ‘look through’). In this case, tax rebates
clock is not are granted only when these underlying
investments are made. As such, an
ticking from individual retail investor’s contribution
to such a fund will be allocated to
day one of the subsequent investments over an agreed
timeframe or ratio. Often there is a
fund.” commitment to the individual from the
Fund Manager to invest contributions
within 12 months for tax planning
purposes.
The dynamic nature of such a fund
has several implications for investee
companies. Firstly, follow-on funding
from the same fund is complicated by
the requirement of the Fund Manager to
represent the interests of two different
sets of fund investors – those who
comprised the first investment, and those
who comprise the subsequent one. The
potential conflict will be felt most acutely
in down-round scenarios.
Secondly, the capacity of such a Fund
Manager to invest will fluctuate in line
with deposited funds held on behalf of
its investors. For investee companies,
this means that the actual commitment
of Fund Managers to investment rounds
may fluctuate through the course of
negotiating an investment.
Thirdly, certain exit opportunities may
be restricted. Individual tax benefits in
such schemes are crystallised only after
shares are held for a given period of
time. This can have the effect of altering
incentives for a Fund Manager should
exit opportunities present themselves
within the hold period. This is perhaps
most pertinently felt in paper (share)
transactions where a value is crystallised
but cash is not, thereby yielding an
uncovered tax liability for underlying
retail fund investors.
VCT structures avoid a number of these
implications being more like their LP
counterparts – that is, generally raised
on an annual or periodic cycle with
tax benefits granted to the individual
directly on investment in the fund. Both
structures will be limited in their ability
to invest with government defined
restrictions relating to geographic
situation, company age, and lifetime
limits on tax advantaged investment.
Listed funds
Listed funds are a relatively novel feature
of the European venture capital industry.
Instead of raising private capital via LPs,
such funds raise their capital via the
public markets. Shares will initially be
issued at par value and track the Net Asset
Value of the underlying investments.
Subsequent capital can be raised through
new or rights issues.
Such funds therefore have ‘permanent
capital.’ This means that invested capital
will remain in the fund in perpetuity, or
until such time as the fund operation
is wound up, as opposed to being
gradually returned to fund investors
in the event of exits. Therefore, if the
fund is at scale, it need never seek
further capital as realised exits are
reinvested. Furthermore, liquidity in
public markets allows fund investors to
realise their investments at a point of
their own choosing through secondary
transactions.
This single continuous investment vehicle
yields new opportunities. Given the
‘single-shot’ nature of capital investment
in an LP fund before it is returned to LP
investors, traditional LP Fund Managers
are irretrievably bound to a certain
investment profile – one that has the long
term capability of returning the fund.
Short-term exit propositions (that is, pre
IPO funding), turnarounds and a range of
other potential investment opportunities
are therefore often overtly missed by
a traditional LP fund. The listed fund is
however IRR, as opposed to cash-on-cash
multiple driven. It need deliver returns
only in excess of fees to generate value
for its investor base. A five-times target
return for a traditional LP fund over say,
eight years can instead be delivered
by redeploying the same capital five
times over the period in two-times
yielding assets. A whole new universe of
propositions is enabled.
A listed fund will have no artificial
investment timelines embedded into
its structure. Just as shorter-term
investments are enabled by continuous
recycling, so too can invested capital
be ‘patient.’ The fund will have no ‘run
off’ period, and consequently no Fund
Managers with incentives to press for a
potentially suboptimal exit.
Furthermore, any follow-on capital will
come from the same continuous vehicle
with no cross-fund conflicts to consider.
Finally, for those successful assets within
a listed fund portfolio, the listed vehicle
enables a preview of how capital markets
will view their own company prior to
any IPO.
There are of course disclosure
requirements of public funds which
require limited disclosure of fund holding
and invested capital in each investment.
This limited public disclosure would
allow for the Fund Manager’s implied
valuation of any company in the fund to
be estimated.
In summary
Entrepreneurs accepting venture funding
should be aware of the dynamics of the
fund that is investing in their company.
Getting the capital to fuel the vision is
of course the major part of the battle,
but being aware of the advantages
and limitations of any particular fund
structure might help and entrepreneur
better understand the motivations of
their Investor Director.
Martyn Hollman
61
 /signing_out
Regulating the next
generation of technology
echnology is advancing
faster than our ability to
regulate it. In the last
year alone, Facebook has
lost control of millions of people’s data,
and criminals have hacked internet-
connected devices to attack websites.
Developing effective regulation for
disruptive technology is urgent.
Consumers and businesses alike are
looking to regulators to take a lead.
Our recent research, Rethinking
Regulators, found, unsurprisingly, that
three-quarters of UK consumers think
it’s important to regulate the use of
AI in dangerous applications, such as
weapons. Three-quarters of consumers
also think regulators should be ahead of
businesses in their sector, and 61 per cent
of regulated organisations agreed.
The trouble is, regulatory approaches that
worked for water, energy or healthcare
don’t work for digital, data and
technologies like artificial intelligence
and virtual reality. Governments and
regulators are struggling to keep up - but
they need to. So, how can they tackle
these fresh challenges?
Work closely with industry
and technologies
Regulators are most able to do their
work when they understand the
challenges for businesses in their area.
62
So organisations and regulators must
have open conversations about their
plans. And regulators need to learn about
technologies in their space.
Regulators could also embrace
emerging technologies to make their
work more effective. RegTech – the
use of technology to help businesses
meet regulatory requirements – is on
the rise. And blockchain offers better
transparency, letting regulators see one
immutable record.
Find new ways to look
at the future
Future work isn’t about making
predictions, it’s about understanding
what might change. A better
understanding of future possibilities
allows for better decision-making
now. Responsible regulators should be
proactive in their approach to
the future, using foresight tools to
anticipate challenges.
Scenario planning can help explore
uncertainty, challenging assumptions
and testing possible responses from
regulators.
While horizon scanning can help
regulators get better at foreseeing the
development of emerging technologies
and markets.
These tools don’t lead to predictions, they
4th September
155 Bishopsgate, London
In partnership with
PA Consulting Group
Disruption as
instead investigate evidence about future
trends to get a robust framework for what
an Opportunity
could happen.
The leading Digital Transformation
Take a big picture view
Technologies don’t work in isolation.
event for the Enterprise
Self-driving cars, for example, are
transport, on roads that need an energy
infrastructure. No one regulator will have
all the answers. So, it’s more realistic to
treat technology as part of a complex
and dynamic socio-technical system.
This view produces more flexible, and
therefore less risky, regulation that
cultivates behaviours that create value
for people and society. The alternative
tends to be regulation driven by technical
and economic ambition.
Simple collaboration can make all the
difference. So, invite other regulators
along to future analysis sessions and
bring industry into meetings early.
Three conferences in one:
Successful regulation is always a
balancing act. Regulators need to foster Technology Innovation Purpose
strong, fair markets and innovation.
Whilst it can be hard to predict the Today Innovation plays an essential The world is changing. Progressive
At the same time, they need to ensure
next big disruption, it is possible role in ensuring businesses stay organisations and inspiring leaders
people’s rights to control their data and to identify forces at play right now ahead of their competition. In this are starting to realise that purpose
protect their privacy. With proactive that will have a major impact on track Disruption Summit brings and profit can, and should go hand
thinking, regulators can shape a better the future of business. In this track together leading innovators to share in hand. These sessions make the
future for everyone. DSE will highlight the technologies their visions of innovation in the business case for putting purpose at
driving of business disruption digital age. the very heart of your business.
Rob Gear, Futurist at PA Consulting
@PA_Consulting
More information at disruption-summit.com
It’s time to use the power of ingenuity
to build a positive human future. To turn
complexity into opportunity. To combine
innovative thinking and breakthrough
technologies to progress further, faster.

It’s time to bring ingenuity to life.