How AI Can Deliver Real Value To The Enterprise
After years of confusion and dismay, artificial intelligence (AI) is finally starting to deliver real-life benefits to early-adopting companies. A recent report by McKinsey Global Institute points to the fact that companies new to the space can learn a great deal from early adopters who have invested billions into AI and are now beginning to reap a range of benefits.
For example, retailers across the world are relying on AI-powered robots to run their warehouses. Likewise, those in the energy and utilities space is using AI to forecast electricity demand. Automakers are also harnessing the technology in self-driving cars.
The growth drivers
On what’s driving the growth and development of the new AI wave is a confluence of factors, including the increased use of computer and sophisticated algorithms and AI models. And most important of all, the world is generating an exuberant volume of data. Billions of gigabytes every day, collected by networked devices ranging from web browsers to turbine sensors.
The McKinsey report found that there has been a three times more investment in 2016—between $26 billion and $39 billion—as it did three years earlier. Most of the investment in AI consists of internal R&D spending by large, cash-rich digital-native companies like Amazon, Baidu, and Google.
Most of the AI adoption has happened outside of the tech sector until now, suggesting that they are at an experimental stage. Few firms have deployed it at scale. In a McKinsey Global Institute discussion paper, Artificial intelligence: The next digital frontier, which includes a survey of more than 3,000 AI-aware companies around the world, finds that early AI adopters tend to be closer to the digital frontier, are among the larger firms within sectors, deploy AI across the technology groups, use AI in the most core part of the value chain, adopt AI to increase revenue as well as reduce costs, and have the full support of the executive leadership. Companies that have not yet adopted AI technology at scale or in a core part of their business are unsure of a business case for AI or of the returns they can expect on an AI investment.
However, early evidence suggests that there is a business case to be made, and that AI can deliver real value to companies willing to use it across operations and within their core functions. In our survey, early AI adopters that combine strong digital capability with proactive strategies have higher profit margins and expect the performance gap with other firms to widen in the next three years.
“This adoption pattern is widening a gap between digitized early adopters and others. Sectors at the top of MGI’s Industry Digitization Index, such as high tech and telecoms or financial services, are also leading AI adopters and have the most ambitious AI investment plans. These leaders use multiple technologies across multiple functions or deploy AI at the core of their business. Automakers, for example, use AI to improve their operations as well as develop self-driving vehicles, while financial-services companies use it in customer-experience functions,” explained the authors.
It is important that governments also must be ready to adopt regulations to encourage fairness without inhibiting innovation and proactively identifying the jobs that are most likely to be automated - thereby ensuring that retraining programs are available to people whose livelihoods are at risk from AI-powered automation. These individuals need to acquire skills that work with -not compete against - machines, said the research authors.
Emulating the leaders
According to the authors of the report, while the future of AI will be innovative across the globe, it may not be shared equally. Companies based in the United States absorbed 66 percent of all external investments into AI companies in 2016, according to our global review; China was second, at 17 percent, and is growing fast. Both countries have grown AI “ecosystems”—clusters of entrepreneurs, financiers, and AI users—and have issued national strategic plans in the past 18 months with significant AI dimensions, in some cases backed up by billions of dollars of AI-funding initiatives.
South Korea and the United Kingdom have issued similar strategic plans. Other countries that desire to become significant players in AI would be wise to emulate these leaders.
While the researchers see a bigger gains from AI adoption in the days to come, this would also mean that most companies have to accelerate the digital-transformation journey. In other words, they will have to get the right digital assets and skills in place to be able to effectively deploy AI.
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