5

Making the Most of Machine Learning:

Lessons from
Fast Learners

Making the Most of Machine Learning: 5 Lessons from Fast Learners 1

When Google’s AlphaGo machine
learning (ML) program defeated a
human champion in the insanely
complex board game Go, many
dismissed it as yet another
computing publicity stunt — a
purpose-built parlor trick, more
Barnum than business case.
They were mistaken.
Research conducted by the
Economist Intelligence Unit (EIU)
and written in discussion with SAP
shows that many organizations
are moving ahead now, some
aggressively, to integrate ML into
their operations. For example, the
survey of 360 organizations shows
Making the Most of Machine Learning: 5 Lessons from Fast Learners
that on average 68% use ML to at
least some extent today to enhance
their business processes.
Our analysis of the data suggests
that the rapid progress of ML is
much more than an overreaction
by management to another bout of
technology hype. There are clear
indications that organizations are
using ML to significantly improve
performance across the breadth of
their operations. Some are aiming
even higher: to use ML to change
their business models and offer
entirely new value propositions
to customers.
What Is Machine
Learning?
A major discipline of artificial
intelligence (AI), machine
learning uses sophisticated
algorithms to enable
computers to “learn” from
large amounts of data without
being explicitly programmed.
The more data the algorithms
can access, the more they
can learn. This enables
software to adapt and improve
the execution of tasks and
processes autonomously
and continuously.
2
 Machine Learning % of respondents who currently use ML
to enhance the business process
Means Business
% of respondents who expect that the
use of ML for the business process will
ML is common in most business functions today increase by 2020
and will expand considerably by 2020.

75
73
72 71 72 71
69 69
68 68
66 65
65 62 62 65 65
61 64 64
58
55

Contact center Legal Finance Data HR R&D Physical Logistics Marketing Procurement Unique
services and processing infrastructure Processes
accounting and analytics management

These signals are clearest in
the responses to our survey
from a group of organizations
that have implemented ML and
are already benefiting from it.
More of this group have C-level
leadership and support for their
ML initiatives, and the benefits
they are seeing are substantial
and numerous and span the
entire organization: increased
profitability and revenues, more
competitive differentiation, and
faster, more accurate and more
cost-efficient processes.
We call the organizations from
the survey that are already seeing
benefits the Fast Learners.As a
group, they demonstrate that
organizations that aren’t actively
investigating ML’s strategic
relevance to their organizations
are taking a big risk.
How have the Fast Learners
leapt ahead of the competition?
Five key traits emerge from the
research that are important to
their success — and serve as
a template for organizations
that have not yet developed
an ML strategy or are just
getting started.

Making the Most of Machine Learning: 5 Lessons from Fast Learners 3

What Are the Traits of
Fast Learners?
There are clear indications that We call the organizations from the
organizations are using ML survey that are already seeing benefits
to significantly improve their Fast Learners. Five key traits emerge
performance across the breadth of from the research that are important to
their operations. The benefits they are their success.
seeing are substantial and span the
entire organization.

1 2 3 4 5

C-Level, Increased Competitive New Revenues Key Processes Enterprise-Wide

Strategic Priority Differentiation and Profitability Close to Home Strategy

Making the Most of Machine Learning: 5 Lessons from Fast Learners 4

1 C-Level,
Strategic Priority

ML is not just a technology; it is
core to the business strategies
that have led to the surging value
of organizations that incorporate it
into their operating models—think
Amazon, Uber, and Airbnb.
Fast Learner organizations get
that. They are benefiting from
their senior-most management
seeing the strategic value of ML.
“Such initiatives should definitely
be managed at the most senior
level,” says David Halliwell, director
of knowledge and innovation at
Pinsent Masons, a global law firm
headquartered in London. “But it’s
not just about good management.
It’s also about understanding at a
senior level what AI and ML can and
cannot do.”
Fewer Fast Learners than other
organizations suffer from a lack
of strategic clarity about ML. And
fewer are plagued by organizational
resistance to change. The reason
may be that ML is viewed as more
than a tactical tool for simply
automating away costs and people.

Fast Learners Have Fewer Strategic Issues

Challenges Experienced Implementing ML

% of Fast Learners
% of organizations not yet benefiting from ML

30
28 28
26
22 20 21 22
18 17 17 18 18
16 16
14 14 13
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Making the Most of Machine Learning: 5 Lessons from Fast Learners 5

Some Fast Learners, for example,
will certainly generate cost savings
from workforce reductions: 30%
strongly agree with a statement
that productivity improvements will
enable them to reduce headcount;
another 31% “somewhat” agree
that this will be the case. But 50%
of Fast Learners firmly expect to
retrain employees to perform more
interesting and higher-value tasks;
another 25% agree but with more
moderate conviction. Most Fast
Learners (76% altogether) also
expect that some employees will
be moved to other roles having
similar skill requirements as their
existing jobs.
Given Fast Learners’ far-ranging
plans for integrating ML into the
organization, it’s not surprising that
cost savings is low on the list of
benefits they are reaping from the
use of ML.
Indeed, Fast Learners are seeing a
broad range of benefits from ML,
which signals that they are focusing
on its transformational possibilities
in both front and back office,
revenues, and cost centers. Intel,
for example, is using ML to improve
cycle time and quality in its products
and to refine its sales offers based
on predictions about customers’
needs. Meanwhile, other Fast
Learners report improved process
accuracy (reduced frequency of
errors) as well as increased speed
across a range of processes. Indeed,
speed has been more of a benefit
than cost savings.

Benefits Will Grow over Time

Distribution of Benefits Among Fast Learners
% of Fast Learners that have realized the benefits of ML
% of organizations that have realized or expect to
realize the benefit by 2020
47
34

64
Cost savings
48

41 52
Increased
profitability

Higher customer
satisfaction

45
41 34
36

Higher quality and

Faster business fewer errors
process speed

Making the Most of Machine Learning: 5 Lessons from Fast Learners 6

2 Increased Competitive
Differentiation
Fast Learners don’t see ML as a
classic technology implementation,
one that focuses on incremental
efficiency gains. They see it as a way
to stand apart. Thirty-one percent of
Fast Learners say ML has benefited
innovation of business processes or
the business model.
The legal profession is a
good example of how some
organizations are looking to
bring about fundamental, rather
than just incremental, change
with ML. For example, Pinsent
Masons is contemplating using
ML to completely restructure its
relationship with clients. “The bigger
opportunity is to become providers
of knowledge-based systems to
clients, which means moving from a
services model to a product model
Making the Most of Machine Learning: 5 Lessons from Fast Learners
— licensing your knowledge rather AI and ML impact
than providing services by the hour,” the business model
says Halliwell. in a much more
significant way
Firms in other industries plan
to use ML to help change their
than...any of the
revenue models in similar ways. disruptions we’ve
UK-based Ocado, an online grocery seen in our lifetimes.
retailer, created its own ML-based
—Cliff Justice, Principal for
logistics platform for automated
Innovation and Enterprise
warehouses that it plans to license
Solutions, KPMG
to other retailers.
Cliff Justice, principal for innovation
& enterprise solutions at KPMG,
a consulting firm, believes ML’s
potential in business model
innovation is enormous: “AI and
ML impact the business model in
a much more significant way than
cloud or any of the disruptions we’ve
ever seen in our lifetimes,” he says.
of Fast Learners say ML has
already resulted in business
model or business process
innovation.
7
3 New Revenues
and Profitability

Forty-eight percent of Fast Learners
cite increased profitability as the top
benefit they have gained from ML.
Fast Learners have also realized that
ML can have a positive impact on
new revenue streams. Nearly half of
them (48%) expect revenue growth
of more than 6% in 2018–2019;
in contrast, only 30% of other ML
users who have not yet begun to
generate benefits anticipate growth
of this magnitude.
Intel is using ML and predictive These technologies
analytics to identify its revenue will have a profound
opportunities more accurately. It impact on the way
has created a new ML-based sales
that organizations
platform that “helps salespeople
interpret what is happening in the
make sourcing
marketplace and better focus sales decisions.
offers to customers,” says Aziz Safa,
—Stanton Jones, Director and
Intel’s chief data officer. “This has
Principle Analyst, ISG
generated significant new revenue
opportunities and increased our hit
rate on revenue growth targets.”

Anticipated Revenue
Growth Through 2019 2018–2019 revenue
% of respondents growth expectations

% of Fast Learners
% of organizations not
yet benefiting from ML 27 30 Up to 4%

25
40 4.1% to 6%

48
30 More than 6%

Making the Most of Machine Learning: 5 Lessons from Fast Learners 8

4 Key Processes
Close to Home
Fast Learners are already spending
more today on business functions
sourced locally, whether performed
in-house or externally, than they are
in low-cost regions. Organizations
still awaiting ML benefits, on the
other hand, spend considerably less
on services close to home.
According to the survey, 58% of
Fast Learners say they spend more
than half their budget for business
processes locally, compared to
39% of other ML users. This implies
Making the Most of Machine Learning: 5 Lessons from Fast Learners
that Fast Learners have an edge
over others in keeping their most
strategic processes close to home.
This trend is expected to continue
over the next three years. However,
this doesn’t necessarily portend
a sudden surge in reshoring.
“Functions that are heavily offshored
today may not necessarily be
reshored in big waves, but when
it comes to newer transactional
processes, decisions are more
likely to lean toward keeping them
onshore,” says Arjun Sethi, partner
at the consultancy A. T. Kearney.
For Fast Learners, this means
that important decisions on
sourcing priorities will no longer
be based solely on cost. ML means
that business relevance and
customer value will increasingly
take precedence.
Take Intel, for example. The
company’s move into new markets
and new products has produced
9
increasingly complex sales
engagements. With limited resources,
business leaders at the company
faced tough decisions about whether
to focus only on certain customers
and perhaps seek external vendors
to manage more sales and marketing
processes. In the past, this would
have led to a classic cost-based
outsourcing solution.
Rather than reduce coverage or
outsource for additional help,
however, Intel uses its ML-based
sales platform to let employees cover
a much larger number of accounts
more effectively while supporting
the full sales cycle, Safa says. The
platform analyzes large volumes
of customer data and then applies
reasoning to imitate the actions of a
sales agent, initiating actions, such as
creating customized sales offers, to
increase revenues. The system also
delivers recommendations to online
sales agents, and it includes a self-
learning mechanism to improve its
performance over time.
Stanton Jones, director and principal
analyst at ISG, a technology advisory
firm, supports the view that ML will
be a major driver of outsourcing
decisions, however gradually it
plays out. “These technologies will
have a profound impact on the way
that organizations decide what to
outsource and who to outsource to.”
Organizations will increasingly choose
a do-it-yourself model of building
their own internal ML capability, he
adds, which will reduce the need for
long-term outsourcing agreements.

Fast Learners Source More Processes Locally

Breakdown of Spending on Business Processes
% of Fast Learners
Mostly local
% of organizations not
sources
yet benefiting from ML

58

39
Mostly sources
in low-cost
regions Evenly split

22 29 20 32

Making the Most of Machine Learning: 5 Lessons from Fast Learners 10

5 Enterprise-Wide
Strategy
Fast Learners tend to look at what
ML can do for their business in a
holistic way. For example, more Fast
Learners than organizations yet
to realize benefits (36% vs. 26%)
are implementing ML initiatives
enterprise-wide — an approach
that is more likely to benefit from
synergies across different functions.
More of the yet-to-realize-benefits
Making the Most of Machine Learning: 5 Lessons from Fast Learners
group, on the other hand, are
pursuing localized ML initiatives
(47% vs. 39% of Fast Learners),
which are often driven by individual
business units or functions.
The Fast Learners’ broad approach to
ML could help explain why 41% say
that its use is translating into higher
levels of customer satisfaction.
Fast Learners have done more than
other organizations to integrate ML
use into key customer-facing and
product development functions,
such as contact centers, marketing,
data processing and analytics, and
R&D. In each of these functions, the
Fast Learners’ integration of ML in
business processes is considerably
more advanced than that of the rest.
11
 Is ML the Great
Leveler?
The world’s technology giants
may be leading the AI and ML
charge, but organizations of
all sizes have unprecedented
access to online ML innovators
and cloud-based computing
power. These may help small
businesses’ classic advantages
of speed and entrepreneurialism
count for more.
Fast Learners are diverse in
scale, with the largest share
(38%) falling into the midsize
range, with between US$250
million and $750 million in
revenues annually. Another 31%
are smaller, with revenues of
between $50 million and $250
million. This indicates that, when
it comes to leveraging ML, size
does not necessarily equate
with success.
Fast Learners Come in All Sizes
% of respondents
Small organizations
Midsize organizations
Large organizations
31
Fast Learners
Making the Most of Machine Learning: 5 Lessons from Fast Learners
Large scale can actually pose
some difficulties when it comes
to business process change. For
example, more of the largest
organizations in the survey —
those earning revenues of $750
million or more annually — cite
organizational resistance as an
ML implementation challenge
than do smaller organizations.
A reluctance to share data
with external partners is also
more common among large
organizations than smaller
ones. This matters, because few
organizations have the in-house
expertise to develop and perfect
ML techniques alone.
Scale does confer some
advantages on businesses in
their use of ML. Those engaging
in proprietary ML research
have greater cash and human
32
42
26
38
Using ML for a
31 business process
resources to support R&D
efforts. And big organizations
often have the computing power
on hand to store and analyze the
huge volumes of data needed
for ML to do its work.
However, thanks to the cloud,
smaller organizations now have
access to substantial computing
power at a fraction of the cost of
maintaining such hardware on-
premises. They also have access
to wide bodies of external AI and
ML knowledge through roughly
a dozen open source innovation
platforms that big technology
organizations and research
institutes have been creating.
When it comes to ML, thinking
big by no means requires
being big.
43
40
17
Not using ML
12
Better Learn
Fast
Based on the lessons from the
Fast Learners, it’s clear that ML is
more than just another technology
wave. It is an integral part of a larger
strategy to remake the business for
competitive advantage.
Organizations that began testing
the waters a few years ago are now
moving ahead at pace and scale.
Tips for Starting
on the ML Journey
Organize an ML boot camp.
Plan training sessions for
your executive committee
to help business unit heads
understand how ML can help grow
the business.
Identify external sources of ML
knowledge. Heads of business
processes should canvass open
innovation platforms where
expertise and ideas are shared
about applying ML techniques.
Have them also gather and
analyze examples of other
organizations’ ML initiatives.
Making the Most of Machine Learning: 5 Lessons from Fast Learners
By 2020 the gap between Fast
Learners and the rest will have
widened. Further delay in putting
an ML strategy into action will
almost certainly spell trouble down
the road.
It’s time for all organizations to start
thinking about how ML fits into a
strategy for digital transformation.
Pilot, but not for too long.
The first ML initiatives should
be piloted in small sets of
processes where risks are
relatively low. Once proven, the
scope of ML techniques should
be steadily widened across
business processes.
Manage the message. Have your
organization’s marketing and
communications teams produce
a handbook for directors to use to
answer internal questions about
why ML is being adopted and
what it will mean for their teams.
“How to Profit from Machine
Learning: 5 Lessons from the
Fast Learners” was conducted
from September to October
2017. The survey included
360 senior executives from
four geographic regions:
North America, Europe, Asia
Pacific, and Latin America.
Half of respondents came
from organizations with
$500 million or more in
annual revenues.
Review sourcing practices.
Long-term offshoring
arrangements will need to
be reassessed for business
relevancy. Create a task force
to understand which processes
should be localized after ML
applications are implemented.
13
For more information,
please visit
sap.com/ml

Copyright © The Economist Intelligence Unit Ltd. 2018

Making the Most of Machine Learning: 5 Lessons from Fast Learners 14