After years of confusion and dismay, artificial intelligence (AI) is finally starting to deliver real-life benefits to early-adopting enterprises. A recent report by McKinsey Global Institute points to the fact that enterprises 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. Millions of terabytes is collected everyday by networked devices — 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. Investments in AI mostly consists of internal R&D spending by large by cash-rich digital-native enterprises like Amazon, Google, and Baidu.
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 Global Institute discussion paper publish by McKinsey (Artificial intelligence: The next digital frontier) which includes a survey of more than 3,000 enterprises from around the world that are consciously aware of AI, reports that early AI adopters tend to be closer to the digital frontier, are among the larger firms within sectors, deploy Artificial Intelligence across the technology groups, use Artificial Intelligence in the most core part of the value chain, adopt Artificial Intelligence to reduce costs and increase revenue, and have the full support of the executive leadership. Enterprises 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.
Early evidence suggests that Artificial Intelligence can deliver real value to enterprises that are willing to use it within their core functions and across operations. 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.
The authors explained that the adoption pattern is widening a gap between digitized early adopters and others. They add, sectors at the top of MGI’s Industry Digitization Index, such as high tech and telecoms or financial services, are leading AI adopters and have ambitious AI investment plans. According to them, these leaders use multiple technologies across multiple functions and/or deploy AI at the core of their business. They mention that financial-services enterprises, for instance, use it in customer-experience functions, while automakers use AI to improve their operations as well as develop self-driving vehicles.
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. In 2016, United States based enterprises have absorbed 66 percent of all external investments into AI enterprises, according to our global review; China was second, at 17 percent, and is growing fast. Both, US and China, have grown AI “ecosystems” (clusters of entrepreneurs, financiers, and AI users) and in the past 18 months have issued national strategic plans 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 enterprises 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.