Artificial Intelligence promises to boost profits and transform industries

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AI technologies have advanced significantly in recent years. Adoption, however, remains in its infancy. This makes it challenging to assess the true potential impact of AI on rms and sectors. We do know that many non-adopters report that they have trouble making the business case for AI investment, but what about the rms that have adopted? Looking at case studies of digital natives and responses from our survey, we nd early evidence that AI implemented at scale delivers attractive returns.

Through a review of a large number of case studies in various sectors, we also show how AI can transform some business activities and has the potential to fundamentally change others. The cases demonstrate how AI can shape different functions across the whole value chain and in diverse sectors. The cases have wide-ranging implications for many stakeholders, including multinational corporations, startups, governments, and social institutions.

Digital native companies made some of the most signi cant and earliest investment in AI, providing test cases for potential return on investments in AI. Amazon has achieved impressive results from its $775 million acquisition of Kiva, a robotics company that automates picking and packing. “Click to ship” cycle time, which ranged from 60 to 75 minutes with humans, fell to 15 minutes with Kiva, while inventory capacity increased by 50 percent. Operating costs fell an estimated 20 percent, giving a return of close to 40 percent on the original investment.

Netflix has also achieved impressive results from the algorithm it uses to personalize recommendations to its 100 million subscribers worldwide. Helping customers quickly and desirable content is critical—customers tend to give up if it takes longer than 90 seconds to nd a movie or TV show they want to watch. Through better search results, Net ix estimates that it is avoiding cancelled subscriptions that would reduce its revenue by $1 billion annually.

Firms adopting AI at scale or in a core part of their business already see the technology’s potential, and those implementing proactive AI strategies are anticipating even greater bene ts. Using our survey results, we compared the current self-reported pro t margins of rms with differing levels of AI adoption, digital maturity (as reflected in their use of big data and cloud services), and critically, their strategic posture. We found that serious adopters have significantly higher projected margins than others.

This suggests AI can deliver significant competitive advantages, but only for firms thatare fully committed to it. Take any ingredient away—a strong digital starting point, serious adoption of AI, or a proactive strategic posture—and profit margins are much less impressive. This is consistent with our findings in the broader digital space. Technology is a tool and in itself does not deliver competitiveness improvements.

The same pattern is apparent when we analyze expectations of future profit margins. Not only do serious AI adopters with proactive strategies report current pro t margins that are three to 15 percentage points higher than the industry average in most sectors, but they also expect this advantage to grow in the future, when they could expect their AI investment to mature and start paying substantial dividends. In the next three years, these AI leaders expect their margins to increase by up to ve percentage points more than the industry average.

  • ARTIFICIAL INTELLIGENCE
Mritunjay Kumar
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