The Financial Impact of AI: A Trend You Cannot Afford to Ignore

In 2012, Amazon purchased Kiva Systems, a robotics company that manufactured automated guided vehicles that could be used to pick products from the warehouse and pack them for shipping. The "click to ship" cycle time fell from 60-plus minutes to 15, decreasing operating costs by 20 percent, increasing inventory capacity by 50 percent, and prompting a return of 40 percent on the initial $775 million investment.

Netflix claims its artificial intelligence algorithm that personalizes movies and show recommendations for its subscribers has prevented thousands from canceling their subscriptions, saving the streaming service $1 billion annually. In 2021 alone, Alphabet Inc., Google's parent company, spent $31 billion on AI research and development, with Meta, Facebook's parent company, trailing close behind at $24 billion.

Clearly, the investment in and adoption of AI can make a huge financial impact on the bottom line, but you don't have to be a tech giant or Silicon Valley darling to reap the monetary rewards of machine learning. Smaller companies undoubtedly benefit from AI, too—it just takes an all-in mentality and smart planning to maximize the investment. Read on for three financial arguments in favor of AI, as well as best implementation practices crucial for success.

AI increases return on investment. In "Artificial Intelligence: The Next Digital Frontier?"— a 2017 report from management consulting firm McKinsey & Company—41 percent of respondents say their biggest barrier to AI adoption is the uncertainty surrounding their return on investment. Pouring hundreds of thousands, potentially millions, of dollars into any business venture when the end result is unclear is a hard pill to swallow, but for those willing to take the leap, the payoff can be huge. AI generates three to four times higher returns on investments for "leading organizations that approach the AI journey in the right ways and stick with it through the tough patches," according to a McKinsey & Company 2021 report, "Tipping the Scales in AI: How Leaders Capture Exponential Returns."

AI creates value. You already know that AI can add value by increasing efficiency and engagement, but how does that value translate to tangible dollars? According to "Finding Common Ground Between Consumers and Artificial Intelligence," a 2018 report by design and development firm PointSource, 49 percent of consumers are willing to shop more frequently and 34 percent will spend more money when AI is present. "Services like recommendations from Amazon and Facebook Ads have done a good job of warming people up to the idea of AI in their everyday lives—normalizing it through seamless digital experiences that ultimately take place beneath the surface without the user realizing it," states a press release for the report.

That ability to personalize the customer experience with AI—whether solely through an online interaction or at a brick-and-mortar, such as a digital menu board that automatically populates with a repeat customer's usual order—will only continue to be a huge value-add opportunity for businesses. A 2018 report from accounting firm PwC estimates the value from the effect of AI on consumer behavior, through product personalization, for example, could reach $9.1 trillion by 2030.

AI saves money and lowers costs. AI saves a company money by improving security measures and preventing shrink, but it also lowers costs. In the 2019 McKinsey & Company report, "Global AI Survey: AI Proves Its Worth, but Few Scale Impact," 44 percent of firms say business costs decreased in departments implementing AI. Most notably, 37 percent of companies lowered manufacturing costs by up to 10 percent, and risk-and-supply-chain departments saw costs fall by 31 percent.

All-In on AI: Separating the Leaders from the Laggards

When it comes to AI for business, those who experience the most success typically have an all-in mentality. "These AI leaders get on a different performance trajectory from the outset because they understand that AI is about mastering the long-haul," states the "Tipping the Scales in AI" report. "They prepare for that journey by anticipating the types of things that will make it easier to navigate the ups and downs, such as feedback loops that allow data quality and user adoption to compound, and AI investments to become self-boosting. Where some companies tire of marginal gains from weeks of effort, leaders recognize that the real breakthroughs in AI learning and scale come from working through those small steps."

According to this report, there are five characteristics that set top performers apart from aspirants and laggards in the AI space:

1. A heavy investment, allocating upwards of 15 percent of the overall IT budget to AI.
2. Implementation of AI across targeted domains—i.e., interdependent functions like sales and customer service that have shared business outcomes—rather than a "checklist of 'top' applications."
3. Dedication to hiring AI-related workers and experts who significantly impact productivity and performance. "By helping the organization build the muscle needed to engineer and deploy AI applications, they can scale to multiple domains and capture the exponential gains sooner," the report states.
4. An agile platform that allows for quick and flexible testing and experimentation, implementation, and feedback on AI initiatives.
5. Buy-in from frontline executives and teams who are held accountable for AI adoption.

If you've been toying with the idea of AI and how it can benefit your business, act sooner rather than later. "AI is no longer just nice to have," the report states. "Over the next few years, current leaders—and those that quickly commit to the same transformation rigor—will achieve a level of performance that slower movers won't be able to match." Translation: It's now or never.