THE RISE OF THE AI-POWERED COMPANY IN THE POSTCRISIS WORLD
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
THE RISE OF THE
AI-POWERED COMPANY IN
THE POSTCRISIS WORLD
By François Candelon, Tom Reichert, Sylvain Duranton, Rodolphe Charme di Carlo,
and Midas De Bondt
F or some companies, global shocks
have historically brought moments of
truth. They can rapidly alter the business
into their value chains. Consumers will pur-
chase more and more goods and services
online. And increasing numbers of people
landscape and the terms of competition, will work remotely.
often in ways that aren’t immediately
apparent. But companies that make bold We believe that the application of artificial
moves during challenging times can turn intelligence will be immensely valuable in
adversity into advantage. The SARS helping companies adapt to these trends.
outbreak of 2003 is often credited with Advanced robots that can recognize objects
giving rise to e-commerce giants such as and handle tasks that previously required
Alibaba and JD.com, for example, while humans will promote the operation of fac-
companies such as American Express and tories and other facilities 24/7, in more lo-
Starbucks pivoted during the global cations and with little added cost. AI-en-
financial crisis of 2008−2009 to digital abled platforms will help companies better
operating models that enabled them to simulate live work environments and cre-
thrive and dramatically increase sharehold- ate on-demand labor forces. Through ma-
er value. chine learning and advanced data analyt-
ics, AI will help companies detect new
In this sense, COVID-19 is likely to be no consumption patterns and deliver “hyper-
different from other crises. It will greatly personalized” products to online custom-
accelerate several major trends that were ers. The most successful use cases will be
already well underway before the outbreak those that seamlessly combine AI with hu-
and that will continue as companies shift man judgment and experience.
their focus to recovery. For instance, rather
than heavily concentrating sourcing and Some companies that are on the forefront
production in a few low-cost locations, of these trends and have already begun the
companies will build more redundancy AI journey will thrive in the post-COVIDworld. Again, history provides a guide: Why AI Will Be a Must in the
during the four previous global economic Post-COVID World
downturns, 14% of companies were actual- Most companies already have extensive ex-
ly able to increase both sales growth and perience with digital applications such as
profit margins, according to Boston Con- automation and basic data analytics. But
sulting Group research. (See Exhibit 1.) The AI, which enables machines to solve prob-
majority of companies, however, are at the lems and take actions that in the past could
very early stages of the journey—or have only be done by humans, goes far beyond
yet to begin. that. AI tools analyze immense volumes of
data to learn underlying patterns, enabling
Success will not be easy. Some companies computer systems to make complex deci-
have already launched AI use cases that sions, predict human behavior, and recog-
will be helpful in the current crisis. The nize images and human speech, among
challenge will be to scale them up. Those many other things. AI-enabled systems also
that do will be better able to navigate un- continuously learn and adapt.
certain supply and demand, adjust to dis-
ruptions in operations and supply chains, These capabilities will be enormously valu-
allocate their workforces, and adapt to able as companies confront and adapt to
sharp changes in consumer confidence and the new reality of the current crisis and its
priorities. aftermath. (See Exhibit 2.) This new reality
will significantly impact companies’ costs,
Digital natives may have an initial edge. revenue, and operating models. Below we
Other companies will have to act quickly to assess how the global business landscape is
acquire the skills, capabilities, and ways of changing along three dimensions—value
working needed to begin the AI journey. chain redundancy, shifting consumption
patterns, and remote ways of working—
Regardless of their starting point, compa- and the role that AI can play in enabling
nies must look beyond the COVID-19 crisis companies to thrive and seize competitive
and begin focusing on transformations that advantage in this new environment. (See
put AI at their core. Exhibit 3.)
Exhibit 1 | Across Industries, Some Companies Thrive During Crises
During downturns, 14% of companies improve … and that holds true across industries
both growth and margins during crises…
Increasing
n
tio
gy y
U ces ica
sales growth
er nar
st su re
En tio ,
di nsu s
Co les er
re er
ls
l
ls
Co ca
i n
Co ria
ia
ap m
sc m
rv u
ia
es
se mm
nc
lth
st
er
iti
T1
du
na
n
at
ea
til
IC
M
In
Fi
H
32 28
14% 14% 36 34
45
47 46 45
54 53
Shrinking Expanding Avg.
EBIT margin EBIT margin 44%
41 48 57
50
39 41
41 44
44% 28% 34 37
Avg.
22 20 14%
16 16 14 14 12 11 11 10
Falling Falling growth and EBIT margin (%)
sales growth Other (%)
Increasing growth and EBIT margin (%)
Sources: S&P Compustat and Capital IQ; BCG Henderson Institute.
1Information and communications technology.
Boston Consulting Group | BCG Henderson Institute 2VALUE CHAIN REDUNDANCY equated with waste. But recently, rising eco-
Not long ago, optimizing cost and time was nomic nationalism and trade barriers (two
the overarching objective in the design of aspects of the “new globalization”) began
global manufacturing footprints, supply forcing companies to rethink their supply
chains, and logistical support. Often, that chain strategies and rediscover the merits
meant concentrating production in high-vol- of redundancy. The COVID-19 crisis, which
ume factories in one or two low-cost na- has disrupted global supply chains, has
tions. Inventory and excess capacity were moved redundancy higher up on compa-
Exhibit 2 | How AI Can Support Companies
Challenge How AI can help Use case example
Uncertain and variable • Update forecasts in real time • Digital control towers and
supply and demand • Accelerate decision making decision support
Operations and supply • Flexibly reallocate resources • Real-time value chain
disruption • Improve cost efficiency optimization
Suboptimal workforce • Optimize remote offerings • Labor allocation analytics
allocation • Reallocate workforce
Changing consumer • Rapid response to new behavior • Real-time product customization
confidence and priorities
Source: BCG analysis.
Exhibit 3 | The COVID-19 Crisis Is Accelerating the Shift to a New Reality
New reality How AI can help
• Uncertainty requires redundancy, which • AI enables the greater scale and scope needed to
inevitably means increased costs build redundancy while minimizing cost
• Consumption patterns are moving toward • AI optimizes detection of new consumption
e-commerce and other digital models patterns and allows for hyperpersonalization
• Consumers may increasingly distinguish • AI can improve R&D, innovation, and new-product
essential from luxury items development
• Remote ways of working are becoming the • AI-based companies are equipped for new ways
new normal of working
• On-demand labor is becoming more important • AI enables on-demand labor through more precise
sales and supplier predictions
Source: BCG analysis.
Boston Consulting Group | BCG Henderson Institute 3nies’ agendas as a means of reducing risk tions to reignite topline growth. Thanks to
and weathering the next global shock. its ability to analyze data from myriad
sources, AI has unparalleled potential to
But redundancy and duplication entail sig- discover emerging trends and identify
nificant cost. AI offers the potential for changes in consumer preferences. Even in a
companies to build resilience into manu- human-centered industry like fashion,
facturing operations and supply chains, some companies are augmenting their
while at the same time minimizing cost business intelligence capabilities with AI to
and damage to margins. AI enables manu- amplify weak signals and detect trends ear-
facturers to optimize cost in each factory ly on, such as which colors are likely to be
through predictive maintenance and better popular in the coming season. AI also en-
planning. It also allows them to operate a ables companies to hyperpersonalize prod-
larger number of small, efficient facilities ucts in order to improve customer engage-
nearer to customers—rather than a few ment and sales. Starbucks’ Deep Brew
massive factories in low-wage nations—by platform, for example, makes coffee sug-
deploying advanced manufacturing tech- gestions based on the weather, the time of
nologies such as 3D printing and autono- day, or a customer’s previous purchases
mous robots that require few workers. and taste profile.
A leading shoe manufacturer, for example, AI can also enhance the ideation process
illustrates AI’s potential to boost scale at involved in creating new product offerings,
minimal additional cost. The company now and it can significantly accelerate R&D in
assembles some of its shoes 20 times faster industries such as pharmaceuticals, which
using advanced robots that can recognize, has traditionally relied on a lengthy tri-
pick up, and stack a wide variety of materi- al-and-error process to develop new drugs.
als—tasks that were previously done by hu- Makers of fast-moving consumer goods are
mans. What’s more, factories of the future analyzing the gold mine of consumer data
will increasingly be able to operate around on Alibaba’s TMIC consumer analytics
the clock, reducing the risk of closure platform to develop new products tailored
forced by health crises. to Chinese consumers (such as a chili-fla-
vored Snickers candy bar) and to monitor
CHANGING CONSUMPTION the performance of new products. Finally,
PATTERNS AI-enabled generative design can autono-
The pandemic is already drastically alter- mously identify an optimal product design
ing consumption habits worldwide—and from a set of system requirements in the
affecting companies’ revenues—as people development of everything from buildings
make more purchases online and consume and chairs to aircraft components.
food and beverages exclusively at home.
Amazon is dramatically ramping up its ful- REMOTE WAYS OF WORKING
fillment capacity, while online grocery mar- Some of the massive shift to remote work
ketplaces in China are reporting huge in- due to the pandemic may be temporary.
creases in deliveries of fresh vegetables. But much of it will persist as more people
Movies are being released for digital experience the benefits of avoiding hour-
streaming without even being released in long commutes and more managers find
theaters, and fitness companies such as they can work effectively from home. The
Peloton and Hydrow are launching digital flexible working arrangements and on-de-
home-fitness services. What’s more, long mand labor models associated with the so-
periods of forced isolation, combined with called gig economy will become more com-
anxiety about an economic recession, could mon.
cause consumers to cut back on luxury
items in favor of essentials. Companies will need to leverage innova-
tive ways of engaging human resources to
As their focus shifts to recovery, more com- mitigate the risk of further disruptions and
panies are likely to deploy AI-enabled solu- remain competitive. AI is no silver bullet
Boston Consulting Group | BCG Henderson Institute 4for implementing new ways of working, but Companies must apply AI at scale to un-
it can play an important role. To begin lock the value of data, and they must oper-
with, AI-powered companies have natural ate in an agile manner at scale to enable
advantages in remote work situations be- nimble, data-driven teams. Companies also
cause they tend to be built around modu- need the right supporting IT infrastructure.
larity and agility, which are prerequisites to They should migrate away from legacy en-
success in software-centric businesses. AI terprise resource planning (ERP) platforms,
also supports online marketplaces for high- with modules that typically are poorly in-
skilled, on-demand labor. Upwork, for in- terfaced, toward data management centers
stance, is an AI-enabled platform that con- of excellence that pool and provide data
nects freelance professionals with potential throughout the organization. Success in
employers, while Google’s Kaggle allows an this transition will require a strong focus
online community of data scientists and on change management. According to joint
machine-learning practitioners to collabo- BCG and MIT research, to a good rule of
rate and solve data challenges. Finally, AI thumb is to dedicate around 10% of AI in-
tools enable companies to use predictive vestment to algorithms, 20% to technology,
analytics to more precisely forecast sales and 70% to business process transforma-
and operational challenges, such as labor tion.
needs and supply disruptions.
Five Principles for Building a
Putting AI at the Core of Busi- Human-Powered AI Company
ness and Operating Models We believe a successful AI-centered operat-
The current crisis and its aftermath should ing model needs to integrate human judg-
motivate companies to adjust their busi- ment and experience at its core. Here are
ness models to the new reality. Winners five guiding principles to building what we
will reinvent themselves by putting soft- call a “human plus AI” operating model.
ware, data, and AI at the core of their orga-
nizations. Digitally native companies can 1. Bring leadership onboard by building
serve as inspiration. AI is already at the the case for change. Strong leadership
heart of some leading ride-hailing plat- commitment is key to successful transfor-
forms, for example, identifying the best mations. One powerful way for the leader
routes, onboarding drivers, and even help- of an AI initiative to convince the CEO or
ing to detect fraud. Some long-established board to support bold moves is to demon-
incumbents in sectors as diverse as mass strate how little the company is gaining
retail and consumer finance are now trans- from AI compared with its competitors. A
forming themselves in preparation for an simple acid test: ask the CEO or board
AI-based future. members if they can identify at least two
critical, strategic processes where the
Such a transformation requires that AI be consensus is that AI can make a real
regarded as central to the business model difference—an impact of $100 million, say.
that differentiates a company and defines Then ask if they think the company has
how it creates value, as well as to its oper- made progress on those fronts. Failure to
ating model—the systems, processes, and answer yes to both questions means the
capabilities that deliver value. Data must company isn’t doing AI right and dramatic
underlie every aspect of the operating change is needed.
model, providing critical input to a broad
range of tasks while also allowing for a 2. Reimagine the organization with AI at
smaller-scale organization. In Competing in its core. Once a company’s leadership has
the Age of AI, Marco Iansiti and Karim come to support bold change, it should
Lakhani call on companies to build an “AI consider another disruptive question: How
factory,” which they describe as a “scalable would a new AI-based firm provide the
decision engine that powers the digital op- same, or enhanced, value to its customers?
erating model of the 21st century firm.” Answering that question requires a shift
Boston Consulting Group | BCG Henderson Institute 5away from the traditional tradeoff between from the top down. Trying to augment
scale and marginal costs. Everything should preexisting workflows and legacy ERP
be based on human plus AI—so long as AI platforms by “plugging in” AI is a mistake.
adds value. As Alibaba’s chief strategy Realizing the potential of AI requires
officer, Ming Zeng, has said, “Your firm consistent, companywide application. And
must enable as many operating decisions while the top-down redesign of organiza-
as possible to be made by machines fueled tional structures allows for the elimination
by live data.” of unnecessary layers, that doesn’t mean
everything has to go. Certain applications
3. Transform into a human-powered AI and infrastructure that have strong inter-
company. Even with AI placed at the core, faces and are able to connect with the
it is crucial to avoid a “zero-human mind- central data infrastructure can be retained.
set.” Indeed, the human role must be But these features should be assessed after
elevated to ensure that there is no area in the redesign, and the desire to retain them
which AI operates unchecked. Even the cannot be allowed to influence the trans-
most autonomous algorithms and applica- formation.
tions need humans to provide the contextu-
al understanding and expertise that AI 5. Prepare people now for the change.
typically lacks, and to guard against bad AI systems require a fundamentally differ-
judgment or biases. At one point during ent mindset and new capabilities. Prepar-
the COVID-19 crisis, for example, website ing employees for change is critical. An
traffic on a popular British online grocery absence of leadership and organizational
marketplace soared fourfold. The compa- support can cause users to detach, cede
ny’s AI-based cybersecurity software responsibility, and avoid risk. Companies
interpreted this spike as evidence of a must provide employees with on-the-job
denial-of-service attack and acted to block learning opportunities to master new skills.
new transactions. Fortunately, company At a bare minimum, they must understand
staff were standing by to correct that what AI can and cannot do so they’re able
mistake. to work with the new technology.
AI must be augmented by the imagination
and interpretation of human beings. Com-
panies should refocus its people on tasks
that add the most value, such as designing
A BCG survey of responses to the
COVID-19 crisis found that most com-
panies have focused so far on reactive mea-
algorithms, reshaping processes to imple- sures. But now is the perfect time to take
ment human plus AI integration, strategi- bold, transformative action. Companies
cally monitoring AI inputs and outputs, and that have already introduced AI use cases
engaging in holistic decision making that should press ahead immediately in order to
takes into account second-order implica- achieve maximum impact in the near term.
tions. A good example of how human plus They should not hesitate to scale up, be-
AI can work together is forecasting in the cause AI will be a significant lever that can
fashion industry. AI can reduce forecasting help them manage this crisis. Unless they
errors by 25%, but not all fashion trends can are digital natives that already have AI at
be detected by mining historical data. In their core, companies should view the cur-
our work with one company, we found that rent slowdown in day-to-day operations as
combining AI with human expertise could an opportunity for strategic reflection
reduce forecasting errors by 50%. about how value creation mechanisms are
changing—and how to prepare for the
4. Contain or discard legacy processes. postcrisis world. They should start prepar-
When reinventing the company for AI, it is ing and reskilling their people and increas-
important to redesign legacy processes, ing their loyalty, enthusiasm, and long-term
technology, and organizational structures value in the coming age of AI.
Boston Consulting Group | BCG Henderson Institute 6About the Authors
François Candelon is a managing director and senior partner in the Paris office of Boston Consulting
Group and the global director of the BCG Henderson Institute. You may contact him by email at candelon.
francois@bcg.com.
Tom Reichert is a managing director and a senior partner in the firm’s New York office and the global
leader of DigitalBCG. You may contact him by email at reichert.thomas@bcg.com.
Sylvain Duranton is a managing director and a senior partner in BCG’s Paris office and the global leader
of BCG GAMMA, a business unit dedicated to the application of data science and advanced analytics to
business. You may contact him by email at duranton.sylvain@bcg.com.
Rodolphe Charme di Carlo is a principal in the firm’s Paris office, where he leads the BCG Henderson
Institute’s Center for Technology and Geopolitics. You may contact him by email at charmedicarlo.
rodolphe@bcg.com.
Midas De Bondt is a project leader in BCG’s Brussels office and an ambassador to the BCG Henderson
Institute. You may contact him by email at de.bondt.midas@bcg.com.
Boston Consulting Group partners with leaders in business and society to tackle their most important
challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was
founded in 1963. Today, we help clients with total transformation—inspiring complex change, enabling or-
ganizations to grow, building competitive advantage, and driving bottom-line impact.
To succeed, organizations must blend digital and human capabilities. Our diverse, global teams bring deep
industry and functional expertise and a range of perspectives to spark change. BCG delivers solutions
through leading-edge management consulting along with technology and design, corporate and digital
ventures—and business purpose. We work in a uniquely collaborative model across the firm and through-
out all levels of the client organization, generating results that allow our clients to thrive.
About BCG Henderson Institute
The BCG Henderson Institute is Boston Consulting Group’s strategy think tank, dedicated to exploring and
developing valuable new insights from business, technology, and science by embracing the powerful tech-
nology of ideas. The Institute engages leaders in provocative discussion and experimentation to expand
the boundaries of business theory and practice and to translate innovative ideas from within and beyond
business. For more ideas and inspiration from the Institute, please visit https://www.bcg.com/featured-in-
sights/thought-leadership-ideas.aspx.
© Boston Consulting Group 2020. All rights reserved. 4/20
For information or permission to reprint, please contact BCG at permissions@bcg.com. To find the latest
BCG content and register to receive e-alerts on this topic or others, please visit bcg.com. Follow Boston
Consulting Group on Facebook and Twitter.
Boston Consulting Group | BCG Henderson Institute 7You can also read
