Some companies are generating an increasing share of the profits in a way that is directly attributable to AI, and the best performers are likely to increase their investments setting up a world of algorithmic leaders and laggards, according to a new paper from McKinsey & Company.
Called The State of AI in 2020, the report notes that we could start to see a widening divide between AI leaders and the majority of companies still struggling to capitalise on the technology.
“And while companies overall are making some progress in mitigating the risks of AI, most still have a long way to go,” the authors write.
The paper is based on a survey of 2,395 participants across a full range of regions, industries, company sizes, functional specialties, and tenures, with the data are weighted by the contribution of each respondent’s nation to global GDP. One cautionary note though, the survey was done before COVID-19 upended the economy.
According to the authors, Tara Balakrishnan, Michael Chui, Bryce Hall, and Nicolaus Henke, half of the respondents say their organisations have adopted AI in at least one function. “Respondents in the high-tech and telecom sectors are again the most likely to report AI adoption, with the automotive and assembly sector falling just behind them (down from sharing the lead last year).”
The study found that AI adoption is highest within the product or service-development and service-operations functions. “Within these functions, the largest shares of respondents report revenue increases for inventory and parts optimisation, pricing and promotion, customer-service analytics, and sales and demand forecasting.”
More than two-thirds of respondents who report adopting each of those use cases say its adoption increased revenue, they note. “The use cases that most commonly led to cost decreases are optimisation of talent management, contact-centre automation, and warehouse automation. Over half of respondents who report adopting each of those say the use of AI in those areas reduced costs.”
IF THEN bottom line
In terms of the bottom line impact the paper reveals that 22 percent of respondents say that more than 5 percent of their organisation’s enterprise-wide EBIT in 2019 was attributable to their use of AI, with 48 percent reporting less than 5 percent.
AI also seems to be more effective at driving revenue than cutting costs. “Additionally, in half of business functions, a larger share of respondents report revenue increases from AI use than in the previous survey, while revenue in most other functions remained stable. At the same time, cost decreases have become less common in most functions.”
In his commentary accompanying the report, San Francisco based Chiu writes, “What we’ve said in the past about ‘following the money’ to find where AI adds value in organisations still holds true. At the industry level, companies continue to use AI in areas that are most fundamental to where value is generated in each sector.”