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The Digital Revolution and its Impact on Business Performance

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1 The Digital Revolution and its Impact on Business Performance
November 2017

2 Introducing the Speakers
Meade Monger Randall Eisenberg Digital Transformation Member of Alix leadership team for last 16+ years building technology offerings across all service offerings and markets Designed and led many digital transformations to increase revenue and productivity, streamline and automate operations, and reduce costs across many industries, including oil & gas, retail, CPG and financial services Served in significant roles among the largest restructuring projects in history, including General Motors, Kmart, and WorldCom MBA, CPA, Masters of IT Restructuring Successfully guiding large global companies through complex transformations and turnarounds as a senior advisor and interim officer Advises management teams, boards of directors, equity sponsors, and creditor constituents in the transformation of stagnant or underperforming companies by way of effective leadership that rebuilds shareholder and stakeholder value. Holds a Masters in Management from Northwestern, is a Certified Turnaround Professional and a Certified Public Accountant

3 The Digital Revolution has brought disruption, transformation and restructurings
…with more to come Our era The fourth industrial revolution Born Digital Companies Traditional companies must digitally transform in order to compete What’s happening? Companies that have digitally transformed are more profitable – those that have not are suffering There are two primary criteria in order to digitally transform Operational Excellence – with underlying data platforms Great Customer Experience – digital interactions/transactions Many other key characteristics to consider Restructuring considerations Is this creating more restructurings? Is it adding new restructuring considerations? How are traditional businesses impacted? Impacts coming from major digitally born companies What are we seeing across industries? What are some recent examples?

4 Three major revolutions shaped industrialization
Digitalization is widely considered as the fourth industrial revolution Physical Digital 1800 to 1960 1960 to 2000 2000 to 2020 1700 to 1800 2.0 3.0 4.0 1.0 Steam engine, mechanization Electricity, assembly lines IT, computers and robots Internet of Things, connected universe For the first time ever, it is possible to do these things at same time instantaneously: Collect essentially unlimited amounts of information Analyse it Communicate it globally Born digital companies are disrupting the market and requiring traditional companies to digitally transform in order to compete This has changed how businesses operate and created entirely new business models

5 The Platform Revolution
EXAMPLE Business is changing ‘Born digital’ companies have emerged Competitive threat to traditional companies Traditional companies must digitally transform ....and create digital platforms Traditional Banking Model We call this “Silos and Spaghetti” Digital Banking Model

6 Infrastructure Suppliers
What are platforms? A plug-and-play business model that allows multiple participants (producers and consumers) to connect to it, interact with each other and create and exchange value Platform ecosystem roles and interactions Uber example Orchestrator Platform Ecosystem Platform Ecosystem Drivers Riders Producers Consumers Infrastructure Suppliers Navigation technology example What makes platforms possible? Cloud Social Mobile enables ability to create content and applications for a global audience connect people globally and maintain their identity online allows connection to this global infrastructure anytime, anywhere

7 Schneider Electric’s platforms A traditional company that has conquered complexity
Our EcoStruxure architecture delivers on the real promise of the Internet of Things: connectivity that turns data into operational and energy efficiency across all levels of an enterprise." —Jean-Pascal Tricoire, CEO Leveraging the Internet of Things (IoT) to improve buildings with reduced costs and increased efficiency Real time “smart controls” that control plant operations through connected machines and processes that are operated and controlled through underlying data and technology

8 Customer Experience is also Critical
1 Profile customer groups to analyze common traits Understand where each customer is in their lifecycle Provide multiple seamless ways to purchase and transact Give each customer a personalized experience 1 3 2 4 3 2 4 Must be digitally enabled

9 Walgreens’ customer experience
A surprising innovator in the field is 116-year-old chain store Walgreens (NASDAQ:WBA). The $117 billion global destination is at the forefront of delivering digital experiences that engender excellence, efficiency, and trust online…… Source: Seeking Alpha Seamless digital uses across all channels Great customers experiences Making it simple Encourages employees to be end users Obsessed over customers’ feedback Well beyond the store with rich information online and digital notifications ….such as the ability to refill by scan in 17 seconds instead of standing in line at the store Lots of easy instructions for doing business including how-to videos A great way for employees to really understand how it works and explain to customers Constantly getting feedback from customers and employees through many methods Forbes – July 8, 2017

10 The Importance of Technology in Today’s Business World
Our joint research with MIT CISR is compelling… Why are we even talking about “digital strategy” and how is this different than “IT”? Historically corporate “IT” has been able to automate and standardize task and operations to make them more cost effective and standardized. This is different – it is the convergence of new technologies to enable a totally new way of doing business. Not just automating or standardizing the existing operations (IT) but redefining the way business is being done. The effect is one of “agility” – meaning responsive and tailored to customers’ and market needs – down to the individual. It also means learning from feedback and incorporating this feedback into products and customer offers. It can be seen in Amazon’s offers to customers or Tesla’s weekly updates to it cars. Traditional companies with long planning cycles and manual processes will never be able to compete.

11 Key characteristics separating winners and losers
Future ready Traditional Comprehensive underlying data platforms connecting different business areas, customers, suppliers and business partners Decentralized businesses and systems (silos) with limited real-time connectivity with customers, suppliers, etc. Standardized and reused applications with consistent-systematic common business processes across common functions Lots of localized applications and doing similar things in different ways Heavy infrastructure investments as a percentage of revenue constantly Bulk of IT spend goes to keeping disparate systems running with limited investment dollars Deeply understand each customer, customized interactions with them and offering them seamless multiple channels to buy products/services A lot of ‘one size fits all’ approaches to customer marketing and selling Continuously automate job functions with algorithms, artificial intelligence and robotics Manual job functions with limited investments in automation Business Intelligence – holistic understanding of the business in near real time at granular levels of profitability Time consuming and manual analysis methods to determine what’s happening in the business

12 Examples of Digital Transformations
Company Transformation headlines Domino’s Pizza The ‘Pizza Tracker’ allows you to order and track your pizza USAA Automatically communicates with you about all life events (e.g. marriage, baby, moving, etc.) John Deere MyJohnDeere is a data platform connected to John Deere equipment providing data on weather, soil conditions, food demand/supply, etc. to help farmers manage fleet, downtime inefficiencies and fuel costs Ferrovial A leading innovator within the infrastructure and services industry has solutions such as toll roads with rates varying based on demand Lego Design capabilities have been increasingly handed over to their fans e.g. through Digital Designer (a web-based 3D design tool to create own designs) BMW Transforming to a customer-centric approach providing personalized individual offers based on analytics and allowing customers to buy cars in 10 minutes by being 97% pre-informed BB&T Bank ‘U Platform’ allows customers to customize their own look and feel of their digital banking experience, no matter where they log on HD Supply Virtualized data center providing abilities for field agents to take pictures of parts with their phones and have a new part that day Philips Nearly human-less production with machines reading chips to know how to make each custom product – no changeover time Caterpillar Sensors in equipment that test and check maintenance thereby eliminated routine service checks and downtime

13 Digital Financial Mindsets are also key
Antiquated IT Department Transformed IT Department Costs to run business Improve business Invest to Improve business Duplicative efforts Keeping the lights on Crisis Enabling Business Value Routine Operations And Maintenance 3x silos/ spaghetti Future Ready Firms continue to innovate while Silos and Spaghetti risk dying on the vine

14 What are some restructuring considerations for traditional companies?
Continued delays to digitally transform is causing some enormous catch up costs Digitally born companies have proven to displace many traditional companies – and more is expected Virtually every industry is getting impacted – at varying degrees Some recent bankruptcies have headlined disruptions and challenges Disrupted business models from online retailers Modernized production requirements Technological advances necessary for competitive customer experiences Migrating from print to digital business models Obsolete products and technologies

15 Traditional Companies are falling further behind year after year
Future ready Industrialized Integrated experience Silos and Spaghetti IT spend % revenue 4.0% 3.9% 3.2% Future Ready companies spend more on IT Infrastructure investment 50% 44% 38% 37% Future Ready companies allocate a lot more of their IT spend on their data platforms Percentage new projects 43% 36% Future Ready companies allocate a lot more of their IT spend on improving the business – not running old systems

16 Digitally stood-up businesses in old-line established industries
How do these traditional companies compete given demographic changes and often times lower pricing? Online Platform Key Product Industry Disrupted Examples of Platform Disrupted Apple iOS mobile platform PC operating systems Microsoft Windows Google Ad-supported search Ad-supported media R.H. Donnelley Facebook Ad-supported network Ad-supported print media Gannett Company Amazon Amazon Marketplace Shipping malls and department stores Simon Malls Uber Ride-sharing app Taxi and limousine companies Yellow Cab Company Airbnb Home or room daily rentals Early still, but probably hotels and booking sites Too early to tell, but probably Booking.com Snapchat Messaging app Traditional communications AT&T SMS

17 Digitalization is taking the world by storm – transforming virtually all industry sectors…
Re-imagining…payments Re-imagining…contracts Re-imagining…customer service Re-imagining…meeting people Re-imagining…money Re-imagining…photography Re-imagining…navigation Re-imagining…news Re-imagining…education Source: KPCB, Internet Trends

18 Consumer Demand Changes
Media Industry Current market trends are fundamentally changing the media and entertainment industry, among them: The growth of traditional revenue streams is declining as new revenue models emerge Individual business models are being replaced by a complex ecosystem of industry participants from new startups to super platforms Digital brands are gaining prominence, powered by an ability to deliver an engaging multi-channel customer experience Wave 4: Internet of Things Wave 3: Social and Mobile Wave 2: Consumer Demand Changes Wave 1: File Sharing In the late 1990s, Napster and file sharing suddenly appeared In the early 2000s, media companies realized that file sharing had fundamentally changed how people wanted to access music and content In the second half of the decade mobile, social and the cloud grew and consumers began to expect access to music, books and films anywhere, anytime The next transformational innovation is likely to be the internet of things giving media enterprises opportunities to move into new ecosystems

19 Telecom Industry An industry witnessing large-scale change that is also a key driver of worldwide digitization Traditional operators not successful protecting traditional voice and messaging revenue streams from digital businesses While legacy revenues under pressure, telecom operators have largely failed to launch and scale new business models Competitive pricing pressure accompanied by rapidly increasing costs with big demands on bandwidth and speed Consistently losing out to both new, nimbler digital businesses (e.g. WhatsApp and Skype)

20 Retail Banking Industry
BBVA Chairman Former Barclays CEO Wharton Business School A large number of technology start-ups are ‘attacking’ banks Many banks not equipped to survive Big number of banks will disappear Banking is reaching its ‘Uber moment’ as technological advances will lead to hundreds of branch closures and a possible halving of people employed in the sector ‘Banks seem to be headed the way of Blockbuster’ need to transform from inflexible, analog monoliths to delivering highly personalized physical and digital experiences  AlixPartners Retail Banking Survey Digital orientation of consumers is rapidly evolving – especially younger populations And is a big factor in decisions to switch banks And close to 10% of consumers switch banks each year Online banking capabilities is the biggest reason that consumer switch banks (36% of time)

21 Retail Industry More than 300 retailers have filed for bankruptcy this year Credit Suisse predicts that as many as 8,600 brick and mortar store locations will shutter their doors in 2017 The number of distressed retailers is nearing recession levels, tripling over the past six years Many retailers are at risk and struggling with liquidity, not only due to the changing landscape in retail, but because they are overleveraged and crippled with debt at unfavorable terms Amazon isn't the only force causing the mass disruption of retail The main disruptor has been the consumer itself with a secular shift in consumer preference that favors shopping online and new high demands: competitive pricing convenience large selection quick delivery 24/7 access free shipping

22 Consumer Products Industry
Demand for CP companies’ products has fragmented Consumers have grown increasingly fickle by being empowered by social media and online search Consumers compare companies and products and communicate their experiences and opinions to others Consumers are demanding more transparent, more-responsible businesses Digital technologies are reshaping CP companies’ business models through direct-to-consumer offerings and extensive information widely shared about products CP companies will experiment with innovative business models, including direct distribution Achieving the full promise of digital technologies will require embedding them in every part of the organization Winners will embrace the change, whereas others will be swept aside by the tidal wave

23 Automotive Industry Connected Autonomous Shared Electrified CASE
The auto industry is poised for more change in the next five to ten years than seen in the past 50.” – MARY BARRA CEO OF GM The auto industry is at an inflection point for massive change… not just evolutionary change. – TIM COOK CEO OF APPLE Imagine Uber with a driverless vehicle in three to five years….they could unleash numerous disruptive impacts. – DR ALEXANDER SCHEIDT IBM, AUTO INDUSTRY LEADER CASE Plausible scenarios A significant shift away from ownership to car sharing Regulations relaxing for Internet-based purchases thereby dismantling dealerships Fully autonomous vehicles becoming a reality far faster than what anyone predicts A mixture of core tier-one suppliers teaming with Internet-based companies on grand scales Majority of new car sales as hybrids and fully electric cars Autonomous Connected Shared Electrified Acronym used to describe the automobile of the future

24 Some Recent Bankruptcies (non-O&G)
Excerpts from bankruptcy court filings

25 Some Recent Bankruptcies (non-O&G)
Excerpts from bankruptcy court filings

26 Some Recent Bankruptcies (non-O&G)
Excerpts from bankruptcy court filings

27


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