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The Rise of the AI-Powered Company in the Post-Crisis World

BCG Henderson Institute

Through machine learning and advanced data analytics, AI will help companies detect new consumption patterns and deliver “hyperpersonalized” products to online customers.

For some companies, global shocks have historically brought moments of truth. They can rapidly alter the business landscape and the terms of competition, often in ways that aren’t immediately apparent. But companies that make bold moves during challenging times can turn adversity into advantage. The SARS outbreak of 2003 is often credited with giving rise to e-commerce giants such as Alibaba and, for example, while companies such as American Express and Starbucks pivoted during the global financial crisis of 2008−2009 to digital operating models that enabled them to thrive and dramatically increase shareholder value.

In this sense, COVID-19 is likely to be no different from other crises. It will greatly accelerate several major trends that were already well underway before the outbreak and that will continue as companies shift their focus to recovery. For instance, rather than heavily concentrating sourcing and production in a few low-cost locations, companies will build more redundancy into their value chains. Consumers will purchase more and more goods and services online. And increasing numbers of people will work remotely.

We believe that the application of artificial intelligence will be immensely valuable in helping companies adapt to these trends. Advanced robots that can recognize objects and handle tasks that previously required humans will promote the operation of factories and other facilities 24/7, in more locations and with little added cost. AI-enabled platforms will help companies better simulate live work environments and create on-demand labor forces. Through machine learning and advanced data analytics, AI will help companies detect new consumption patterns and deliver “hyperpersonalized” products to online customers. The most successful use cases will be those that seamlessly combine AI with human judgment and experience.

Some companies that are on the forefront of these trends and have already begun the AI journey will thrive in the post-COVID world. Again, history provides a guide: during the four previous global economic downturns, 14% of companies were actually able to increase both sales growth and profit margins, according to Boston Consulting Group research. (See Exhibit 1.) The majority of companies, however, are at the very early stages of the journey—or have yet to begin.

Success will not be easy. Some companies have already launched AI use cases that will be helpful in the current crisis. The challenge will be to scale them up. Those that do will be better able to navigate uncertain supply and demand, adjust to disruptions in operations and supply chains, allocate their workforces, and adapt to sharp changes in consumer confidence and priorities.

Digital natives may have an initial edge. Other companies will have to act quickly to acquire the skills, capabilities, and ways of working needed to begin the AI journey. But regardless of their starting point, companies must look beyond the COVID-19 crisis and begin focusing on transformations that put AI at their core.

Why AI Will be a Must in the Post-COVID World

Most companies already have extensive experience with digital applications such as automation and basic data analytics. But AI, which enables machines to solve problems and take actions that in the past could only be done by humans, goes far beyond that. AI tools analyze immense volumes of data to learn underlying patterns, enabling computer systems to make complex decisions, predict human behavior, and recognize images and human speech, among many other things. AI-enabled systems also continuously learn and adapt.

These capabilities will be enormously valuable as companies confront and adapt to the new reality of the current crisis and its aftermath. (See Exhibit 2.)

This new reality will significantly impact companies’ costs, revenue, and operating models. Below we assess how the global business landscape is changing along three dimensions—value chain redundancy, shifting consumption patterns, and remote ways of working—and the role that AI can play in enabling companies to thrive and seize competitive advantage in this new environment. (See Exhibit 3.)

Value Chain Redundancy

Not long ago, optimizing cost and time was the overarching objective in the design of global manufacturing footprints, supply chains, and logistical support. Often, that meant concentrating production in high-volume factories in one or two low-cost nations. Inventory and excess capacity were equated with waste. But recently, rising economic nationalism and trade barriers (two aspects of the “new globalization”) began forcing companies to rethink their supply chain strategies and rediscover the merits of redundancy. The COVID-19 crisis, which has disrupted global supply chains, has moved redundancy higher up on companies’ agendas as a means of reducing risk and weathering the next global shock.

But redundancy and duplication entail significant cost. AI offers the potential for companies to build resilience into manufacturing operations and supply chains, while at the same time minimizing cost and damage to margins. AI enables manufacturers to optimize cost in each factory through predictive maintenance and better planning. It also allows them to operate a larger number of small, efficient facilities nearer to customers—rather than a few massive factories in low-wage nations—by deploying advanced manufacturing technologies such as 3D printing and autonomous robots that require few workers.

A leading shoe manufacturer, for example, illustrates AI’s potential to boost scale at minimal additional cost. The company now assembles some of its shoes 20 times faster using advanced robots that can recognize, pick up, and stack a wide variety of materials—tasks that were previously done by humans. What’s more, factories of the future will increasingly be able to operate around the clock, reducing the risk of closure forced by health crises.

Changing Consumption Patterns

The pandemic is already drastically altering consumption habits worldwide—and affecting companies’ revenues—as people make more purchases online and consume food and beverages exclusively at home. Amazon is dramatically ramping up its fulfillment capacity, while online grocery marketplaces in China are reporting huge increases in deliveries of fresh vegetables. Movies are being released for digital streaming without even being released in theaters, and fitness companies such as Peloton and Hydrow are launching digital home-fitness services. What’s more, long periods of forced isolation, combined with anxiety about an economic recession, could cause consumers to cut back on luxury items in favor of essentials.

As their focus shifts to recovery, more companies are likely to deploy AI-enabled solutions to reignite topline growth. Thanks to its ability to analyze data from myriad sources, AI has unparalleled potential to discover emerging trends and identify changes in consumer preferences. Even in a human-centered industry like fashion, some companies are augmenting their business intelligence capabilities with AI to amplify weak signals and detect trends early on, such as which colors are likely to be popular in the coming season. AI also enables companies to hyperpersonalize products in order to improve customer engagement and sales. Starbucks’ Deep Brew platform, for example, makes coffee suggestions based on the weather, the time of day, or a customer’s previous purchases and taste profile.

AI can also enhance the ideation process involved in creating new product offerings, and it can significantly accelerate R&D in industries such as pharmaceuticals, which has traditionally relied on a lengthy trial-and-error process to develop new drugs. Makers of fast-moving consumer goods are analyzing the gold mine of consumer data on Alibaba’s TMIC consumer analytics platform to develop new products tailored to Chinese consumers (such as a chili-flavored Snickers candy bar) and to monitor the performance of new products. Finally, AI-enabled generative design can autonomously identify an optimal product design from a set of system requirements in the development of everything from buildings and chairs to aircraft components.

Remote Ways of Working

Some of the massive shift to remote work due to the pandemic may be temporary. But much of it will persist as more people experience the benefits of avoiding hourlong commutes and more managers find they can work effectively from home. The flexible working arrangements and on-demand labor models associated with the so-called gig economy will become more common.

Companies will need to leverage innovative ways of engaging human resources to mitigate the risk of further disruptions and remain competitive. AI is no silver bullet for implementing new ways of working, but it can play an important role. To begin with, AI-powered companies have natural advantages in remote work situations because they tend to be built around modularity and agility, which are prerequisites to success in software-centric businesses. AI also supports online marketplaces for high-skilled, on-demand labor. Upwork, for instance, is an AI-enabled platform that connects freelance professionals with potential employers, while Google’s Kaggle allows an online community of data scientists and machine-learning practitioners to collaborate and solve data challenges. Finally, AI tools enable companies to use predictive analytics to more precisely forecast sales and operational challenges, such as labor needs and supply disruptions.

Read the full story on BCG Henderson Institute

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