Relying on strong governance capabilities to bridge relationships between IT and business will enable KPMG to drive new opportunities in the ESG domain

With KPMG CEO Bill Thomas kicking off the two-day Global Analyst Day it was evident that KPMG’s approach to clients’ changing business models due to COVID-19 has compelled the firm to also transform its own operations to better protect and expand client mindshare. KPMG’s internal transformation began well before COVID-19 when in 2019 the firm announced a $5 billion investment in technology, people and innovation.

Two years and a pandemic later, KPMG is accelerating this transition with the latest examples focused on expanding cloud, environmental and social capabilities, bringing the latter two under one umbrella and committing to zero emissions by 2030. With KPMG working toward establishing a bridge between business and IT stakeholders, the firm also continues to invest in its global team of data and analytics professionals, many of whom focused on translating the business value of IT using low-code and no-code technologies. The strategy — folding analytics within its core offerings — reflects strategies of the Big Four and some of its multinational peers.

But KPMG has an opportunity — and a responsibility — to carve a niche in emerging areas developing frameworks for clients that do not report against financial metrics, particularly within the environmental, social and governance (ESG) domain. With KPMG relying on its robust governance, risk and compliance legacy capabilities, the firm is now focused on the “E” and “S” parts of the three-legged framework, and its clients’ stories provided strong examples of how well the firm handles the change and expectations, from finding the right partners to introducing the most suitable solutions, among others.

Clients are eager to innovate; KPMG knows this and executes against it

With innovation — amplified through KPMG’s global network of Ignition Centers — becoming the connective tissue between the firm’s legacy and new business model, KPMG now has the opportunity to drive change at scale. Peers have often pursued acquisitions that have served as the catalyst of change (think Accenture’s purchase of Fjord and PwC’s buy of BGT that later led to the launch if PwC’s BXT framework). KPMG, however, relies on its organic investments, suggesting the firm is taking a measured but strategic approach, trusting that its own capabilities and culture are strong enough to affect change. A successful execution of this strategy requires broader buy-in across all stakeholders, especially member firm partners who are closer to retirement age and might be more resistant to change.

One group of stakeholders that is open to change is KPMG clients, especially those that are also facing pressure from their end customers that have largely been impacted by the advent of digital. According to TBR’s May 2021 Digital Transformation: Voice of the Customer Research, COVID-19 accelerated demand for services supporting both ongoing and new programs. As cloud continues to be the main technology driving digital transformation investments, buyer-vendor relationships are entering the next phase, where parties must account for new ways of engaging and delivery and opportunities are pivoting from projects to products.

In a use case discussion centered on KPMG’s work at the Johan Cruijff Arena in Amsterdam, TBR heard echoes of similar digital transformation engagements, which encompass innovation, emerging technologies and ecosystem collaboration all within a constrained environment but with implications and lessons for smart city transformations. Arenas can provide a useful test bed for emerging technologies, new business models and digital transformations given the mix of activities that take place inside, the opportunities for customer engagement — from before people arrive through to when they leave — and, of course, the opportunity to gather massive amounts of data.

KPMG’s role, as explained by Sander van Stiphout, head of innovation for the Johan Cruijff Arena, included orchestrating the ecosystem by helping the arena find suitable technology partners; ensuring compliance, particularly around the General Data Protection Regulation (GDPR); and providing staff as the arena’s innovation team grew. Most notably for TBR, van Stiphout said KPMG also helped his team create a “new value model,” to include turning the stadium into “a platform for innovation.”

In TBR’s view, shepherding a client’s innovation and digital transformation so successfully that the client becomes an innovation hub for others sets this engagement apart. Van Stiphout added that the arena and KPMG’s partnerships with the city of Amsterdam had been critical to the transformation’s success, and his team and KPMG were now helping Amsterdam officials “get the learnings in place, pave the way for scaling in other cities.” With “lots of demand for an ecosystem approach,” van Stiphout said the arena could now offer consulting to other stadiums on how to run more efficiently, create an environment, and then take transformation to scale.

Turning back to his own staff and echoing a detail provided by Red Hat in TBR’s most recent Innovation and Transformation Centers Market Landscape, van Stiphout noted that his employees now constantly interact with new technologies on a daily basis, which changes their mindset. In TBR’s view, this kind of change, coupled with new and innovative business models, serves KPMG well in describing the impacts the firm can have on clients’ digital transformations.

KPMG 2021 Global Analyst Day: In early June KPMG hosted analysts, clients and executives for two 90-minute virtual sessions during which KPMG demonstrated its evolving value proposition toward becoming a technology-enabled consultancy backed by its ability to trade on trust. KPMG used the time allocated for the presentations wisely and amplified its messaging through four client use cases that not only told the “Why KPMG?” part of the story centered on innovation but also connected to broader societal implications including ever important topics around environmental

Paul Brody reiterates past predictions and paints the picture of what he sees on the horizon

It is difficult not to come away from a Paul Brody dissertation on blockchain more excited and optimistic about the transformative power of the technology than when you went in. Compounding the difficulty with taking a contrarian view of Brody’s assertions is the simple fact that he has been right in his predictions from prior years much more often than he has been wrong. The EY partnership seemingly shares this view based on Brody announcing the firm had committed to investing $100 million into his operation to facilitate making his vision a reality.

Highlights from his highly engaging 45-minute opening discussion at EY Global Blockchain Summit 2021:

• EY made the right bet on public blockchains, which explains why those who embraced private chains earlier on had more highly publicized use cases and why those use cases have seemingly led to the trough of disillusionment.
• Ecosystem business models are the future. Hub-and-spoke market actions to accelerate adoption do anything but that.
• Disruption is coming to finance and regulation, and it is coming hard.
• Programmable money, with Ethereum as the clearing mechanism, will enable the merging of supply chain blockchains with financial transaction chains.
• Privacy remains a hot-button issue, particularly among the extreme advocates who are not necessarily considering the enterprise requirement for on-chain, permissioned information sharing.
• Progress will be made; cost optimizing innovations simply cannot be thwarted; they have to be embraced, and blockchain strips cost out of numerous elements of legacy commercial activities across the three pillars of consumers, businesses and governments.

EY’s future-back approach to innovation aligns better to technology adoption than executing against the increasingly anachronistic enterprise-first mentality

“Underneath the business value of blockchain, however, is a rather significant bet to be placed on either deploying public (Ethereum) or private (Hyperledger) blockchains. At the core of this debate rests two issues: the speed of innovation, and the level of security and trust that can be ensured. Innovation, EY argues, happens faster on public networks even if that innovation ameliorates what bad actors inject into the network. In theory at least, even bad actors have a role to play in accelerating innovation by essentially forcing the issues and speeding the time to resolution.” — EY blockchain strategy: Betting on public chains with EY advisory for risk mitigation, April 2018

Recent TBR research focusing on blockchain-based supply chain applications indicates blockchain in this context is in the middle of a trough of disillusionment. Brody outlined this idea by way of explaining what EY chose not to do in the past several years. The enterprise-first mentality was a legacy industry success factor when the cost of compute was the limiting factor on digitizing business activity. Continued commoditization and software abstraction increasingly tilts business purchase criteria from infrastructure to productivity gains that software adoption can bring.

Going for large enterprise operating cost improvements led early large-scale initiatives to bet on private chains such as Hyperledger. It followed, in many respects, the Electronic Document Interchange (EDI) playbook of the 1980s and 1990s, called hub-and-spoke, which netted out that the hub could set the standards and the spokes would have no recourse but to follow suit.

EY cited market survey data it believes indicates that private chain had 0.5 participants excluding the founding entity. Additional survey questions stated that 63% of respondents had concern about getting locked into private chains, while 54% believed their existing supplier and service networks were not sufficiently competitive.

Compare and contrast the rollout and now quiet periods for consortiums such as the IBM-Maersk joint venture called TradeLens that took on the monolithic set of interconnected processes that is global trade, and the EY and Microsoft Joint Venture around Royalty Payments that started small, hardened the technology layer, and now provides tangible reference points as they seek to apply this royalty payment shell to multiple use cases. EY states this tracking system for developer royalty payments for games sold through multiple channels has reduced administration costs by 40% and provided a 99% improvement in traceability, from 45 days to less than four minutes, which has enhanced overall community satisfaction.

EY Global Blockchain Summit 2021: TBR has watched the EY Blockchain events blossom in five years from a small coterie of the curious to an army of the passionate. This year’s event had the usual fascinating presentation by EY Blockchain Leader Paul Brody on the current and future state of blockchain’s market maturity that was then reinforced with detailed, technically nuanced breakout sessions that were repurposing of the internal EY Blockchain education modules.