In this interview, my guest Daniel Araya and I are talking about how disrupting innovation is changing two major industries; the energy sector and the retail sector, how companies should manage the disruption and what roles might the major countries play. Daniel Araya is a Forbes contributor, technology consultant, advisor to governments and author.

Visit Daniel’s work here www.danielaraya.com

IV: Daniel thank you so much for being here today.

DA: Thank you so much for having me

IV: It’s a pleasure to carry out this interview with you. So you are a technology consultant, you are a Forbes contributor, advisor to governments and author of 8 books

DA: Yes

IV: Well, I would say you are a futurist too, right?

DA: Yes, so my focus is mostly in forecasting and strategy. My background has been working not exclusively with governments but analysing trends for government analysis and a few years ago I switched to the private sector and now I am working to the interface of governments and the private sector around strategy and forecasting.

IV: Alright that’s great! Daniel, we are entering a time of high disruptive technological innovation, there are a lot of industries that have been disrupted as a result of technological advancement. We are going to have a look today at two major industries. Let’s have a look at the energy sector. It is such a slow moving industry.

DA: I would distinguish between the fossil fuel industry which is a couple of centuries old and reaching the last phasing of maturity cycle and clean energy are just renewable which are just taking off. And I would say that clean energy has been quite controversial because of the expensive costs and the feeling that it is politically motivated and mostly that’s about a lot of resistance to disruption because there are concerns that investing interests that have their political-economic power based in fossil fuel, specifically oil. The whole industry, the whole economy is built around the oil sector and anyone who is part of that and has built their career livelihood and political capacity clearly don’t want that to change. Having said that if we just step back from the debate itself and look at just the technological dimension of it the fact is that solar and wind are declining dramatically quickly. I’d say probably the forecast is that by 2030 solar could be and will be the cheapest energy source in the world. The next question that builds on that is about storage, so that’s a battery question. Batteries are moving a little bit more slowly, but the fact is what accompanies the shift from fossil to renewables is also a shift in the infrastructure that supports production and consumption. So fossil fuels namely oil you have a centralised system of production and consumption – you have monopolies overall. With clean energy is probably not going to be the case, you are going to have distributed energy systems. In mid-term, if you are from a developed country you are going to be using grids, those grids that used to be one way grids, passive consumptions are going to be two way smart grids in which you have a significant amount of sensors and machine learning to support the way the energy is managed and I think in the long-term in typically emerging economies you’ll see off-grid distributed energy systems that build on disruptive technologies that may already be nascent or yet don’t exist, that haven’t been invented effectively. I think that is going to transform how we manage energy but how we live as a society as well.

IV: Exactly, I was going to say just that. It means that if we adopt both solar panels and battery energy storage, this will completely change the way we buy and consume energy. Right?

DA: Right, right. So, there was a time when monopolies were necessary both for questions of costs, efficiency, economies of scale. I think if energy is pulled out of the ground and needs to be transported long distances by ship, then, of course, a centralised infrastructure has value. If energy is pulled from the sun or wind or other renewables is not an issue of monopoly anymore, is not cost effective, is not efficient, it doesn’t make sense logically. Because we’ve come at an age of energy scarcity, because we’ve depended on monopolies for centuries, our assumption is that clean energy too will have to fit that kind of logical frame of reference. It just won’t. In short and medium-term as we use grids to manage electricity I think that we’ll still have something like monopolies. There will be a close system of monopolies that I think some companies can provide consulting services that are value added to the system that is being displaced but all that aside we are entering an era of distributed energy system, which will be different.

IV: Okay. this is a very good blend between, environmental goals and technology but solar panels are still very expensive.

DA: Relatively speaking, they are more expensive but they are probably equal with coal and every 10 years you’ll see a decline of something 80/90% of costs. And to add to that the other source of the grid which is China, China is now the leading developer of clean energy technologies and because China has so much capacity for economies of scale it should impact, it should accelerate the speed at which clean energy technology is made available. So, as I said the major forecast is that by 2030s solar will be the cheapest energy source available. Cheaper than shale oil, cheaper than other fossil fuels.

IV: That’s great! We, consumers, are getting more preoccupied about climate change issues. Do you think that these issues and concerns are putting pressure on the energy sector and how do you see it changing over the next 5 years?

DA: There is no doubt there is pressure on governments, pressure on consumers, pressure on natural resources, pressure on capitalism as a system of economic development but I think the energy industries are bifurcation between innovative sectors that are looking at renewables like Tesla as the future of economic growth and vested interest into the fossil fuel industry that are afraid of what will happen to their livelihoods. I think fossil fuels will remain a transitional energy system throughout the next 25-35 years but there is no doubt that clean energy is the direction we are going. Another way of putting that is there are hard trends and soft trends. Hard trends is we are going to clean energy, regardless of the speed or regardless of the cost or scale or scope. The soft trend is how quickly it will occur, who will lead the change, which countries will be dominant.

IV: Right.

DA: One analogy I always like to think about is: England or Britain was a coal empire, the United States was an oil empire, is possible that if it’s China’s time they will be a clean energy empire. I don’t know if it’s a one to one shift or probably living in a more polycentric world, I think the US will be a superpower for many decades to come. And it is also the case because clean energy is not centralised in the same way that fossil fuels were that it could have an impact on geopolitics as well, which is an interesting thing to speculate on but regardless I think whichever countries are the most proactive in developing the technologies will benefit the most over the long-term, because these technologies will continue to evolve, will continue to become cheaper and they’ll provide an abundance of energy that can be delivered through entrepreneurial and innovative industries that haven’t been invented yet.

IV: Alright, that’s great! You mentioned artificial intelligence earlier. How do you think artificial intelligence can help the energy sector?

DA: So the distinction I would like to make between AI and machine learning. There is a lot of confusion in people’s mind because they are afraid of the consequences of cognitive machines that could displace human labour or human industries. I think what we are talking about machine learning is basically pattern recognition and then systems that are deployed through algorithms to automate practices and processes that human beings otherwise would have done and so in that sense if we are looking at clean energy infrastructure managed by sensors and machine learning we can automate a tremendous amount of that work and that could provide us with abundance of energy coupled to automated systems that would provide opportunity for innovation. There is a guy named Jeremy Rifkin who’s a very astute analyst, he talks about an energy internet. This idea that just like we have world wide web for communication and commerce we’ll have smart grids two-way energy flows between producers and consumers that will allow us to revolutionise how the energy is managed and there is no doubt machine learning will be a huge part of that.

IV: So basically this is the case that energy companies need to fundamentally rethink their business models and digitally transform to better build value propositions, right?

DA: Yeah, there is different kind of energy companies obviously or energy industries. If we look at Saudi Arabia I am not sure they are going to transform themselves from an oil economy to a clean energy producer. I don’t think that’s likely. So it’s probably in their interest to think about the way UAE has, to think alternative industries they can build on using that oil revenue now so that they prepare when it runs out later. If you look at the utilities for example in advanced economies. They can have powerful value add in terms of consulting and working with local providers, leveraging their resources and connecting them to the smart grids that have been built. There is a lot of opportunity for conversion, the problem is that by-and-large vested interest.. companies that do things well have a hard time making the shift because they have become so complacent in some respects with regards to the pace of change.

IV: Right.

DA: And they under assume how quickly technology is accelerating and that’s why startups are always so effective because they are able to measure that curve more effectively and be prepared when the take-off occurs.

IV: And they are also more agile.

DA: Exactly, they’re smaller

IV: So I believe that with so much disruption affecting this industry, companies really need to take this wake up and start disrupting the way they interact with their customers

DA: Right, there is a lot of consultants in the world now who are trying to work with large corporations to help them understand how they can disrupt from within and that can be very effective. The problem is shifting gears from the corporate executive authorities that validate mandate change and enabling sort of the new innovative components of those organisations to deploy the necessary resources to make the change. So it’s a difficult thing to manage.

IV: Very difficult, absolutely! And it doesn’t just happen overnight, you know, it may take years. So Daniel, another sector that is experiencing a major wave of disruption is the retail sector. This has entered a phase of avid technological innovation, for example, Ocado the English online supermarket has implemented high tech powerhouses, Tesco another supermarket, they are implementing facial recognition for verifying customers age. This is great for companies but what does it mean for human labour?

DA: Okay, so again this is a disruptive shift in which value add comes from somewhere else, so initially the value add may be the service industry, the service that the human staff, the employee provides. I think that, if you look at retail specifically, if you look at clothing for example and this idea of the smart mirror where you can try on clothes on without physically trying clothes on, they are not going to necessarily need the same kind of staff, right? It may be that the kind of staff are looking for people that are not just selling clothes but selling a story, selling a narrative, sort of what Instagram does or the users of Instagram provide. Retail is changing because there is more power among users now, both to critique and criticise and also to select and I think what’s happening in the retail industry is a shift. The retail industry knows best than you consume to the user knows what they want and retailer must adapt and that will bring users into the value chain and mixing that up with technology.

IV: Does it mean that technology in the retail sector is replacing human interaction for delivering a better service and more accurate service as well?

DA: Yeah I don’t fully know the answer to that, I think on the surface I’d say yes, there is no doubt that technology is going to displace labour, having said that there are always opportunities for the human touch to provide a value add that machine just doesn’t do right?

IV: Right.

DA: But I don’t feel that it is something we know the answer to yet, I think it’ll be a question of experimentation new retail models that look for the convergence between offline and online buying and selling. So for example, something that comes to mind right away is, a lot of people go to the store to try on something but they don’t buy there, so what they might do is, find an item they like, pull up an app, purchase it there and have it delivered. So you have this bridging of this offline and online spaces that are counterintuitive, but they are both needed in a sense.

IV: Customer expectations have increased so much as a result of technological advancement and this is great because artificial intelligence is helping a lot in this by delivering personalised experiences and services. Many retailers are going out of business as a result of the raise on e-commerce stores, how do you think artificial Intelligence is going to help retailers to regain trust and tap into tech?

DA: Again this is also a question of disruption. Some companies that can make the shift of recognising the value that technology provides versus the value that human high touch provides, those companies will be much more successful over the long term. Having said that, companies like Amazon that are so effective in capturing the new verticals and deploying internet based or digital resources in complement to on the ground stores they have a certain advantage because they are remaking industries that have been mature sure for some time. Retail is a mature industry. Having said that, I think the question is about experimentation for sure but is also about tapping the consumer and finding out what the consumer is not just looking for but what drives the consumer to go to the retailer as opposed to purchasing online and finding out how you can more effectively converge the two, online and offline sales. That sort of the issue. Is not just brick and mortar versus .com it’s about having a presence in both spaces and about leveraging both in a kind of complementary way. I think that’s a big difference.

IV: It looks like retailers are using these technologies to win the customer experience battle right? We shouldn’t really lose sight of humanity but it looks like in this non-human world the customers want more human interactions rather than less human interactions, how are we going to manage that?

DA: Well I think is not that they want more human interactions they want more quality human interactions so in other words they don’t want people getting in their way of their exploring they want them available when they need them and so I think that if you are doing price comparison on an item or a good by-and-large you can do that online, you are not going to do that at the store because you are not going to find the cheapest price that way but if you are nervous about whether the shoes look as good in reality as they do online you may want to try those shoes on in person so I think that having some kind of high-touch value add on the ground and complement to online, then I think there will be opportunities for retailers to take advantage of but again it’s not just a question of whether you have a website and you have a storefront it’s about how these two complement each other.

IV: Of course. Absolutely. So AI is really helping retailers and other businesses to leverage that technology to provide better customer shopping experiences across retail and e-commerce stores as well right?

DA: What machine learning does very well is find out using some algorithms the most efficient ways to manage processes at the cheapest price point. In that sense, it does what humans are not good at doing. AI or machine learning more specifically is productive precisely because it accelerates the speed in which efficiency occurs.

IV: Apple has deployed Apple payments. It doesn’t really seem to be taking off right? Do you see ourselves paying entirely and completely with our phones in the future?

DA: Well we pay with credit cards more often than not now so that’s a digital form of payment. There is a struggle to develop a sort of virtual currency like cryptocurrencies that sort of ebbs-and-flows in terms of credibility but I think looking at experimental models I think we’d better be looking at China, looking at Asia where they don’t have the banking infrastructure deployed where they can use QR codes and the phone to provide efficient access to banking accounts, checking accounts, and credit. So I think that the developed world is mature in terms of its financial institutions. The emerging world because it lacks so much in infrastructures whether is energy or retail has the need to experiment and that’s where you are going to find business models around finance and around banking and I think that just like with regard to disruptive industries and disrupting established institutions, the banking industry is notorious for not offering very effective or high-quality service and I think that there will probably come a time when large corporations like Amazon, Facebook could provide an equivalent service that a bank provides. And I think that they may be better at creating value add-retail touchpoint experience than the bank has been so far or there may be a conversion of the two forces, so you have the maturity of the .com companies with the banking sector, one doing the back-end database, infrastructure and money and the other one doing front end, value-added customer service. I think there is probably something there too.

IV: So looking back at artificial intelligence, we talked about personalised experiences and that artificial intelligence can really understand a customer in a more accurate and faster way right? It doesn’t really seem that people are so happy about these new technologies because it’s getting a little bit too creepy. You’re obviously very comfortable with technology, I am comfortable about technology, I have worked at NEC in facial recognition before but many many people are not that comfortable about it. When do you think we will be comfortable with all these robots around and technologies?

DA: I don’t think we’ll ever be completely comfortable with advanced technology simply because they feel alien to us because they are outside of us, having said that I usually try to consider a caveat which is that instead of looking at artificial intelligence as an alien force think about it as augmented intelligence so it will augment our own cognitive capacities. If we have interactivity with machine learning and AI in a way that feels seamless whether is voice or visual signaling or direct brain connection I think that will feel that we’ll have more power over it. Having said that. there is a follow on question that relates to what you are asking about surveillance which is about how to develop society in the AI era so countries like China which are more centralised and more technocratic tend to have more populations that are more comfortable with the surveillance system than the west with democracies that are forever concerned about how governments can exploit or take advantage of the misused data. I think that it’s an unavoidable problem because the more data made available the better we train algorithms, the more effective they become, the more magic they can do. So it’s an organic process. I favour for example blockchain or Distributed Ledger Technologies. Developing systems that can house data more effectively and in a more protective way and whether that is blockchain or DLTs in a different question but the point of the issue is that data is a universal and it’s given. This is where we are headed, this is where we are now, how we manage data, at a policy level, the legal and regulatory level, that is yet to be determined and that’s a lot of work that’s in front of us, for China and every other country as well. And I think that is a good reason to be concerned. That is not a naive feeling or fear. The reality is that data builds a profile of every human being and if that data is misused those are human lives are going to be exploited, so it’s incumbent upon governments to adapt and evolve right? Whether they use in the academic world or the research centres or corporate R&D, there has to be a lot of work done around a managing a data-driven society and one of the challenges for democracies is that democracies by and large which are discourse driven are too slow to figure out how to manage a data-driven society and I think that it’s going to be a real pressure on democracies to figure out how they redesign themselves in the AI era. Whereas countries like China and some more technocratic societies like Singapore they are just better and more efficient at it. They can do more easily and to their credit, you know. Anyway, it’s a real concern. I am not as at ease as you might think but I recognise the inevitability of it, it’s not that you can stop the process of AI and data.

IV: In terms of consumers, consumers don’t really like machines to check their buying history, their preferences. I know that these machines are actually shaping better shopping experiences in the retail sector or e-commerce sector but we don’t really like machines to know much more than we would like them to know.

DA: So the European Union has tried to provide means and probably will continue to do this, a means for users to control their data and I think that’s pretty necessary. Having said that, there is a deficiency in enabling the user control of data when data is exactly what’s necessary for our algorithms to evolve and grow, so countries that have weaker data protection systems may develop AI at an accelerated pace by comparing to countries that don’t. So it’s a very tricky contradiction, freedom versus evolution and I think that that is something that strategists, legal scholars, government and consumers have to figure out over time.

IV: Great Daniel, thank you so much for being here today, you’ve been a great guest and thank you so much, everyone, for tuning in. If you have any questions please comment below and I will be happy to answer all of your questions. Thank you very much.