“As the pandemic propels businesses into a digital-first world, AI will become a key driver of corporate growth and competitiveness. But building proficiency in AI is not easy.”
September 15, 2020
Two-thirds of senior executives across industries—and nearly nine out of ten leaders from the world’s largest enterprises—believe that artificial intelligence (AI) is vitally important for the future of their businesses and will be upping their investments in the post-pandemic era. Yet their companies are now seeing an average ROI of only 1.3%, and 40% of AI projects are not yet profitable, according to Driving ROI through AI, a just-released research study conducted by research firm ESI ThoughtLab and a coalition of AI leaders, including Appen, Cognizant, Cortex, Dataiku, DataRobot, Deloitte, and Publicis Sapient.
The reason for this paradox, according to the research, is that AI initiatives require time, expertise, and scale to deliver on their promise of high returns. With the pandemic speeding up the need for quick data-driven decision-making, companies should act now to develop the skills, platforms, and processes that can enable them to achieve the full strategic, operational, and financial benefits from AI.
As part of a rigorous research program, ESI ThoughtLab economists benchmarked the AI practices, performance results, and three-year plans of 1,200 companies in 12 industries and 15 countries, which together have a combined revenue of $15.5 trillion (or about $12.9 billion per firm). Conducted during the COVID-19 outbreak, the study reveals the value that AI can bring in a socially distancing, digital-first world—including access to time-critical data, events-driven forecasts, personalized digital experiences, flexible work processes, rapid decision-making, tighter cybersecurity, and greater cost efficiencies.
But executives should not expect fast results
The research shows that delivering ROI on AI can be elusive for the uninitiated and slow going even for experienced organizations. Those in earlier stages of AI adoption often see flat results. It is not until they scale AI more widely across their enterprises and become leaders that the ROI rises to 4.3%. With frequently high upfront costs in data preparation, technology adoption, and people development, it takes an average of 17 months for a firm to reach break-even and months more to generate significant returns.
Most companies, even leaders, are still relatively early in their AI journey. Only about one-quarter of AI projects are now in widespread deployment among AI leaders. Many AI projects are still in pilot or early deployment stages. However, firms are planning to boost their AI investments by an average of 8.3% annually over the next three years, bringing their annual AI spend from $38 million currently (or 0.75% of revenue) to over $48 million.
The ROI of AI comes from strategic change
As companies progress in AI use, they often shift their focus from automating internal employee and customer processes to delivering on strategic goals. For example, 31% of AI leaders report increased revenue, 22% greater market share, 22% new products and services, 21% faster time-to-market, 21% global expansion, 19% creation of new business models, and 14% higher shareholder value. In fact, the AI-enabled functions showing the highest returns are all fundamental to rethinking business strategies for a digital-first world: strategic planning, supply chain management, product development, and distribution and logistics.
The study found that automakers are at the forefront of AI excellence, as they rush to use AI to deliver on every part of their business strategy, from upgrading production processes and improving safety features to developing self-driving cars. Of the 12 industries benchmarked in the study, automotive employs the largest AI teams (557 people on average vs. 370 for all industries) and has the largest AI budgets ($59.4 million on average vs. $38.3 for all industries). With the government actively supporting AI under its Society 5.0 program, Japanese companies lead the pack in AI adoption. Unlike in the US, where AI is viewed often as a threat to jobs, firms in Japan tend to see AI a way to fill the employment gap caused by an aging population and stringent immigration laws.
Driving high ROI from AI
To drive AI performance, executives should consider these best practices uncovered by the research:
1. Begin with pilots, then scale AI applications across the enterprise. Companies starting out should work closely with business teams to identify use cases and demonstrate AI’s worth through pilots. But the true value of AI can materialize only with wide-scale deployment when firms can offset their upfront costs with substantial business gains.
2. Lay a firm foundation. Organizations should have the proper IT and data management system in place; have a secure and sufficient budget; work through the data security, privacy, and ethical risks of AI; develop a clear vision and plan that takes into account AI-driven strategic transformation; obtain senior management support; and have a robust ecosystem of partners and suppliers.
3. Get your data right. Nine out of ten AI leaders are advanced in data management. But ensuring your data is in good shape is not enough; organizations should bring in a diverse set of data, such as psychographic, geospatial, and real-time data. The study found that combining different types of data can create a multiplier effect on AI returns.
4. Solve the human side of the equation. AI is as much about people as technology. AI leaders spend 27% of their AI budget on developing and hiring people, almost twice the percentage that AI beginners spend. They are also more apt to appoint specialists, such as Chief AI and Data Officers, to lead their AI initiatives. They outsource less and build internal teams more.
5. Adopt a culture of collaboration and learning. About 85% of companies that generate large AI returns work to ensure close collaboration between AI experts and business teams. AI leaders are better at providing non-data-scientists with AI skills. They also decentralize AI authority to help ensure that AI responsibility and expertise is distributed across their organizations.
“As the pandemic propels businesses into a digital-first world, AI will become a key driver of corporate growth and competitiveness. But building proficiency in AI is not easy,” said Lou Celi, ESI ThoughtLab CEO and program director for Driving ROI through AI. “AI is not a magic bullet. It can fail to deliver results if the wrong business case is selected, the data is prepared incorrectly, or the model is not built for scale.”
Additional information on the study can be found by visiting http://www.esithoughtlab.com or by contacting:
Lou Celi, Program Director
Mike Daly, Marketing Director
About the research coalition
ESI ThoughtLab is an innovative thought leadership firm that creates fresh thinking and actionable insights through rigorous research and evidence-based analysis. Our firm specializes in using the latest quantitative and qualitative tools to examine the impact of technology on companies, cities, industries, and business performance. ESI ThoughtLab is the thought leadership arm of Econsult Solutions, a leading economic consultancy, with direct links to the academic community.
Appen collects and labels images, text, speech, audio, and video used to build and continuously improve the world’s most innovative artificial intelligence systems. With expertise in more than 180 languages, a global crowd of over 1 million skilled contractors, and the industry’s most advanced AI-assisted data annotation platform, Appen solutions provide the quality, security, and speed required by leaders in technology, automotive, financial services, retail, manufacturing, and governments worldwide. Founded in 1996, Appen has customers and offices around the world.
Cognizant is one of the world’s leading professional services companies, transforming clients’ business, operating, and technology models for the digital era. Our unique industry-based, consultative approach helps clients envision, build, and run more innovative and efficient businesses. Headquartered in the U.S., Cognizant is ranked 194 on the Fortune 500 and is consistently listed among the most admired companies in the world.
Cortex is the enterprise SaaS solution for marketing executives at leading brands to predict the performance of their visuals using AI and machine learning. By leveraging Cortex’s powerful consumer insights, brands such as Marriot, Kao, Mondelez, and more are creating award-winning visual creative, at scale, that drives reliable results.
Dataiku is the platform democratizing access to data and enabling enterprises to build their own path to AI. More than 300 customers and 30,000 users (from data scientists to architects to analysts) across retail, e-commerce, health care, finance, transportation, the public sector, manufacturing, pharmaceuticals, and more use Dataiku to massively scale AI efforts.
DataRobot is the leader in enterprise AI, delivering trusted AI technology and ROI enablement services to global enterprises competing in today’s Intelligence Revolution. The company’s proven combination of cutting-edge software and world-class AI implementation, training, and support services empowers any organization—regardless of size, industry, or resources—to drive better business outcomes with AI. With a singular focus on AI since its inception, DataRobot has a proven track record of delivering AI with ROI. DataRobot has offices across the globe and $431 million in funding from top-tier firms, including New Enterprise Associates, Sapphire Ventures, Meritech, and DFJ Growth. For more information, please visit http://www.datarobot.com
Deloitte provides industry-leading audit, consulting, tax, and advisory services to many of the world’s most admired brands, including nearly 90% of the Fortune 500® and more than 7,000 private companies. Our people work across the industry sectors that drive and shape today’s marketplace—delivering measurable and lasting results that help reinforce public trust in our capital markets, inspire clients to see challenges as opportunities to transform and thrive, and help lead the way toward a stronger economy and a healthy society. Deloitte is proud to be part of the largest global professional services network serving our clients in the markets that are most important to them. Now celebrating 175 years of service, our network of member firms spans more than 150 countries and territories. Learn how Deloitte’s more than 312,000 people worldwide make an impact that matters at http://www.deloitte.com.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States, and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see http://www.deloitte.com/about to learn more about our global network of member firms.
Publicis Sapient is a digital transformation partner helping established organizations get digitally enabled, both in the way they work and the way they serve their customers. We help unlock value through a start-up mindset and modern methods, fusing strategy, consulting, and customer experience with agile engineering and problem-solving creativity. As digital pioneers with 20,000 people and 53 offices around the globe, our experience spanning technology, data sciences, consulting, and customer obsession—combined with our culture of curiosity and relentlessness—enables us to accelerate our clients’ businesses through designing the products and services their customers truly value. Publicis Sapient is the digital business transformation hub of Publicis Groupe.