Whenever an important new technology arrives, it gets hyped, and the bigger the possible transformation, the greater the hype. And that is likely the case for artificial intelligence as well. “Act now, or fall behind,” the argument will be.
The issue is that a truly-important technology is misunderstood, and therefore will tend to be deployed, early on, in suboptimal ways. Think of the way the early multimedia web featured firms posting their brochures online. The new is viewed through the lens of the old.
That tends to be the case for all general-purpose technologies, from electricity to the internet and now possibly artificial intelligence. The impulse to “do something” will be overwhelming for many firms in many industries, even when the outcomes will turn out to be more or less negligible, as important as they might seem for any particular use case.
Yes, we will be able to do existing tasks faster, with less labor, and maybe even “better” in some ways. But the real value will come later as we learn to remake whole processes.
The initial use case for the internal combustion engine was to pump water out of mines. But the greatest value of the ICE was its impact on transportation and mobility. Though street lighting was among the first obvious uses of electricity, its greatest impact now is as a platform for all sorts of appliances, sensors and portable and mobile devices, communications and computing.
Consider a study of 792 banking sector decision makers surveyed by Forrester in 50 countries and 12,500 consumers surveyed by IPSOS in 14 countries suggests there is a big gap between banks and their customer perceptions about “value.”
In fact, 46 percent of consumer respondents said they were open to ditching their current provider for a new company if it offered the personalized services they want. In an age of hyper-connectivity, hyper-personalization is needed, the report argues.
Nearly four out of ten customers now have an online bank, which 36 percent consult with at least once a day, the report published by Sopra Steria says.
Mobile applications and websites are becoming the primary channels of exchange for 58 percent of respondents, and only 25 percent of customers say that they contact their advisor as their first means of communication.
That is part of the general “be digital” advice executives are given in virtually every industry. But it always is the outcomes that matter, despite the level of activity.
Consider the value reaped by cloud computing.
“A stunning 95 percent of European companies in our recent survey say they’re capturing value from cloud, and more than one in three say they intend to have more than half of their workloads on cloud,” say McKinsey consultants Bernardo Betley, associate partner; Hana Dib, associate partner; Bjørnar Jensen, senior partner and Bernhard Mühlreiter, partner. That’s the good news.
The bad news? “The vast majority of the value companies have captured, for example, remains in isolated pockets and at subscale,” the consultants also say.
Some of that might be caused by the way European companies (the subjects of the study) have implemented cloud computing.
“The focus of their cloud efforts, for example, has been disproportionately on improvements to IT, which generate lower rates of value than improvements to business operations,” McKinsey says.
Somewhat oddly, “most companies (71 percent) measure it (benefits) in IT operational improvements, 66 percent in IT cost savings, and 63 percent in number of applications on cloud,” McKinsey says. “Only about one in three European companies, however, monitors non-IT outcomes, such as cost savings outside IT (37 percent) or new revenue generation (32 percent).”
That might seem odd for many observers, since those outcomes (cost savings or revenue enhancement) might seem the obvious way to measure outcomes. “Our research and experience are clear that about two-thirds of the potential value of cloud comes from revenue uplift and cost savings in business operations,” McKinsey says.
“Compared to U.S. companies, about five times more European companies are still pursuing an IT-led cloud migration, with significant emphasis on lifting and shifting existing workloads,” the consultants say.
The point is that lots of advice about “doing something now” and “moving faster” with artificial intelligence is not going to produce measurable and useful outcomes. It will amount to mere activity. That always seems to be the case for important new technologies.
That noted, another set of outcomes should be mentioned. Eventually, as firms and industries learn to use the new GPTs effectively, clear outcomes will be obtained. That is the good news.
The bad news is that the value of the innovations will accrue to most firms in each industry, so sustainable long-term advantage will fail to be gotten. Important new technologies will rise to the level of “table stakes,” essentially forcing firms to invest to keep up with their competitors, and not to gain an advantage over them.
In the meantime, lots of capital, information technology effort and time will essentially be wasted applying AI where it actually does not produce outcomes that matter.
As during the turn of the century “dotcom” mania, every firm tried to be an “internet-first” firm. And many of those efforts simply fizzled. “We’re on the internet” or “we use the internet” failed to produce clear outcomes for most firms in most industries.
Most firms selling in retail stores tried to add “internet” capabilities, while many new firms tried to operate “online only” in retail. Few actually produced material changes in market leadership, as did Amazon.
Only a few later (after decades had passed) mastered the sharing economy by harnessing smartphones (with internet capability) to the process of public transportation (think Uber or Lyft), creating ridesharing, or peer-to-peer short-term accommodations (think Airbnb).
Eventually, banks will learn to use AI in ways that materially affect customer experience, as they did with automated teller machines or online banking.
But many early efforts will fail, in part because our present understanding of how to use AI in ways that matter is incomplete. We’re still at the stage of posting brochures online. We have yet to master the ability to “do things” online because we mostly will try to automate existing processes.
Later, we’ll figure out how to remaster processes. But that will take some time.
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