01/08/2018 How artificial intelligence can deliver real value to companies | McKinsey & Company

McKinsey Analytics

Report
McKinsey Global Institute
June 2017

How artificial intelligence can

deliver real value to companies
By Jacques Bughin, Eric Hazan, Sree Ramaswamy, Michael Chui, Tera Allas, Peter Dahlström, Nicolaus
Henke, and Monica Trench

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.

A
fter decades of extravagant promises and frustrating disappointments,
artificial intelligence (AI) is finally starting to deliver real-life benefits to early-
adopting companies. Retailers on the digital frontier rely on AI-powered robots to run
their warehouses—and even to automatically order stock when inventory runs low.
Utilities use AI to forecast electricity demand. Automakers harness the technology in
self-driving cars.

A confluence of developments is driving this new wave of AI development. Computer

power is growing, algorithms and AI models are becoming more sophisticated, and,
perhaps most important of all, the world is generating once-unimaginable volumes of
the fuel that powers AI—data. Billions of gigabytes every day, collected by networked
devices ranging from web browsers to turbine sensors.

The entrepreneurial activity unleashed by these developments drew three times as

much 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.

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For all of that investment, much of the AI adoption outside of the tech sector is at an
early, 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, we find
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. As these firms expand AI
adoption and acquire more data, laggards will find it harder to catch up.

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Click on the + symbols for more

AI can make the smart grid smarter and reduce
the need for utilities to add power plants

Governments also must get ahead of this change, by adopting regulations to encourage
fairness without inhibiting innovation and proactively identifying the jobs that are
most likely to be automated and 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.

The future of AI will be innovative, but 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

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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.

Significant gains are there for the taking. For many companies, this means
accelerating the digital-transformation journey. AI is not going to allow companies to
leapfrog getting the digital basics right. They will have to get the right digital assets and
skills in place to be able to effectively deploy AI.

Download the discussion paper on which this article is based, Artificial intelligence: The
next digital frontier? (PDF–3MB).

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