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Only a small group of companies is harnessing the potential of AI

A new study from Boston Consulting Group and MIT Sloan Management Review reveals managers’ growing concerns about the risks of AI. Additionally, it highlights the five organizational behaviors that companies taking advantage of AI’s value have in common.

After many decades of progress, artificial intelligence is ready to become an important resource for many businesses, but according to the new study from MIT Sloan Management Review (MIT SMR), BCG GAMMA and BCG Henderson Institute from Boston Consulting Group, companies are still not yet aware of its potential. The study reveals that although managers consider AI to have the potential to be an important business opportunity, many are increasingly more worried about the strategic risks associated with AI.

Titiled Winning With AI: Pioneers Combine Strategy, Organizational Behavior, and Technology, the study is based off of a survey of more than 2,500 managers and 17 interviews with leaders and experts. The data reveals that:

  • Nine out of ten managers agree that AI presents a business opportunity for their companies.
  • Currently, seven out of ten companies refer to a minimal or zero impact of AI. 90% have made at least one investment related to artificial intelligence, but less than 40% claim to have earned income thanks to AI in the last three years.
  • In 2019, 45% perceive some sort of risk associated with AI, an increase from 37% in 2017.

“The report confirms that artificial intelligence is a relevant topic for leaders of all industries. However, despite the fact that some companies have already made significant progress, most still have difficulty generating value with artificial intelligence,” says Sam Ransbotham, one of the authors of the report. “How can corporate leaders seize opportunities, manage the risks and minimize the difficulties associated with AI? There are increasingly relevant unknowns that companies need to respond to move forward creating value associated with AI. ”

The study shows that businesses today that are managing to create value through their AI initiatives with these five common behaviors:

  1. They integrate their AI initiatives into their business strategy. 88% of respondents who found value in AI in their business strategies integrated their AI initiatives with their digital strategy.
  2. They unify their AI initiatives with their transformation strategies. To generate business value through AI, managers must be able to obtain data from different departments and initiatives and integrate them into work groups by establishing cross-functional collaboration.
  3. They take bigger risks, prioritizing revenue growth over cost reduction. Respondents who only highlighted cost reduction as a result of AI initiatives are less optimistic about the possibility of achieving greater savings with AI than those who have seen revenue growth. Only 44% of those who have managed to reduce costs expect the same results in the next five years, while 72% of those who have increased revenues expect that success to continue in the same period.
  4. They align the development of AI with its use. Beyond the tools, systems or processes to implement artificial intelligence, these companies ensure that employees use solutions that use AI, can measure results and are aware of the value generated.
  5. They avoid the “technology trap.” Companies that perceive that they increase value thanks to AI initiatives recognize that it is not only a technological opportunity, but also a strategic initiative that requires investments related to the recruitment and retention of talent, new ways of working and change management. Companies with AI initiatives supervised by the CIO, whose team usually manages technology initiatives, are almost 50% less likely to see the value that AI can bring.

“As business leaders develop a strategy with AI, talent is a complex problem without an easy answer. The capabilities that required of future workers will differ from current ones, not just for the relatively small number of workers who develop solutions related to artificial intelligence, but even more important for a much larger number of workers who will use artificial intelligence solutions directly or indirectly, “says report co-author Sam Ransbotham.

The results of the report regarding talent development reveal that 65% of respondents obtain business-related value in the use of AI when they use a varried approach: they build internal teams and rely less on external suppliers; selectively import talent with AI experience for technical leadership roles; and train their current employees in skills related to the understanding and management of artificial intelligence (upskilling).

In Spain, Llorenç Mitjavila, head partner of BCG Gamma in Iberia, believes that there is a virtuous circle in the development of AI. “Access to talent, the consolidation of Spain as a technological and innovation hub, and eminently positive media coverage, contribute to a general enthusiasm for Artificial Intelligence. Many of the big Spanish companies are investing in AI solutions, and we have a vibrant ecosystem of start-ups based on these technologies that are attracting very significant investments. ”

“AI is an important strategic opportunity, which entails strategic risks if companies do not act carefully. There is already a gap between winners and losers, and this gap will increase in the coming years. To obtain value, technology and algorithms are not enough, companies must integrate AI into their corporate strategies and processes, which is often much more difficult than the technology itself and to succeed in doing so requires new ways of working that differ from the approach required to obtain value from technological initiatives “concludes Shervin Khodabandeh, another one of the authors of the report.

 

Winning With AI: Pioneers Combine Strategy, Organizational Behavior, and Technology: Link

Did You Change Your Preferred Brand for Environmental Reasons?

Boston Consulting Group (BCG), Global Fashion Agenda (GFA), y Sustainable Apparel Coalition (SAC) have published a new edition of Pulse of the Fashion Industry, a report that annually evaluates the social and environmental factors of the fashion industry in terms of Pulse Score (sustainability indicators used in the report).

Madrid, 20 August 2019. The awareness about social and environmental practices amongst consumers is growing. The new edition of the report Pulse of the Fashion Industry includes the findings based on large sample size survey conducted in five countries. More than a third of consumers surveyed claim to have changed their preferred brand for another due to issues related to responsible practices.

However, the data in this edition of the report reveals that sustainability is still far from being a key consideration in buying decisions. “Therefore, it is up to industry leaders to drive a impact on a larger scale and influence the perdecptions of consumers,” says Joan Sol, partner at Boston Consulting Group.

The data in the new edition of the report also reveals that the fashion industry’s rate of progress, in terms of sustainablity, has decreased by a third in 2018, slowing down an action that counteracts the damaging impact of the rapidly growing industry. Unless the current Pulse Score trend improves, fashion will continue to contribute to climate change, increasing the risk that the Paris Agreement objective, keeping global warming below 1.5 degrees Celsius for the rest of this century, will not be achieved.

The Pulse Score has risen four points in the new edition of the report, from 38 to 42 (out of 100). In last year’s edition it increased six points, consequently the speed of progress in the last year has decreased by a third.

Sustainability Progress is Insufficient to Fight the Growth of the Industry

As stated in the 2019 conclusions, the positive rate of chage does not coincide with the projected growth of the fashion industry. Estimates suggest that by 2030 the global clothing and footwear industry will have grown 81%, reaching 102 million tons, exerting an unprecendented pressure on natural resources. If the Pulse Score continues on its current trajectory, the gap between indutry production and the indicator score will contine to widen, and the damaging consequences of the growth of production will be even more difficult to overcome.

The Growth of the Pulse Score has Diminished by a Third in 2018

The report reveals that the fashion industry has made progress in its social and environmental performance in the last year, but at a slower pace than in previous years. The progress is primarily due to the rapid progress among brands that have taken the first steps on the path to sustainability and have implemented fundamental changes in their strategy, leadership and goal setting. In the mean time, progress, as reflected in the indicator, has slowed down within larger companies that must still figure out how to scale distruptive business models and take advantage of innovative technology. However, there are several large companies that have implemented promising sustainable practices that are not currently measured by the Pulse Score, so their impact has not yet been included in the score.

How to Pick up the Pace

According to the report, solving global challenges and developing new disruptive technology will lead to new ways of doing business. Governments and businesses have to collaborate also, and the investors must insist that their investees improve their social and environmental practices.

Morten Lehmann, director of sustainability at the Global Fashion Agenda says: “These lastest conclusions mark the huge need for the entire industry to unite to accelerate this change. However, some transformations will require cooperation between policy makers and stakeholders throughout the value chain.”

For his part, Sebastian Boger, partner at BCG, explains, “It is very encouraging to finally see a change in consumers’ feelings. Our research shows that sustainability is changing from being a secondary consideration to a fundamental decision. More than a third of consumers surveyed have already changed their preffered brand due to social or environmental reasons.”

Amina Razvi, chief executive of Sustainable Apparel Coalition, states: “In order to achieve the required change, we have to collaborate and establish commitments to put the harmful practices of our industry behind us. We need to scale our efforts to assess impact through a common framwork and increase improvements in the performance of sustainablity on a global level.”

Pulse of the Fashion Industry

Full Report

The Investment Priorities that Differentiate Digital Leaders

Companies that bet on expanding the capabilities of their staff and invest more in technology tend to show a higher degree of digital development than those that devote less resources to these priorities. This has been demonstrated by a study from the Boston Consulting Group (BCG), that surveyed 1,800 companies from Asia, the EU and the USA. Among the companies surveyed, financial institutions and telecommunications companies are more digitally developed, more than 25% can be considered digital leaders. The entities of the public sector and energy companies are behind, since more than 40% of them belong to the group of ‘digital stragglers’.

“Financial institutions are pioneers in digital maturity. Beyond digitizing their operations and undertaking new digital initiatives to improve the customer experience, they understand perfectly that the digitization of their organizations must be a priority,” stresses Jorge Colado, Partner & Managing Director of BCG in Spain.

“It is clear that prioritizing investments correctly is one of the surest ways to develop digitally,” says Michael Grebe, Senior Partner and technology expert at BCG. “If they want to remain competitive and not lose ground, the stragglers should look very closely at how industry leaders are distributing their investments,” says Michael Ruessmann, Senior Partner and digital transformation expert at BCG.

The digital acceleration index measures the degree of digital development

The study is based on BCG’s digital acceleration index (DAI). Managers and directors evaluated the degree of  their companies’ digital development based on a series of criteria using a scale of one to four in 35 categories. Then, those raw scores were added and values from 0 to 100 were assigned to each of the companies. Companies with a DAI between 67 and 100 were considered leaders, while those with an DAI of 43 or less were labeled as stragglers.

Where are the digital leaders?

The study was conducted across nine sectors and three regions of the world: Asia, Europe and the USA. The sector that obtained the best results was financial services in Asia, with a digital acceleration index (DAI) of approximately 60. Both in Europe and in the US, the telecommunications sector led the rankings. It should be noted that while some sectors showed excellent results in Asia, others lagged far behind. For example, consumer companies in Asia consider their level of digital development to be higher than that of their US and European counterparts. “This was the first year that we included Asia in the study and the Asian companies achieved very good results. Its degree of digital development in all sectors is high compared to similar companies in the rest of the world, “says Michael Ruessmann.

Digital leaders achieve magnificent results by activating three levers.

The study identified three levers that leaders use to develop digitally. First, they invest more than 5% of their OPEX in digital projects. In particular, the percentage of US leaders that allocate this amount (90%) is much higher than those of Asia (75%) and Europe (65%). Likewise, leaders around the world tend to assign more than 10% of their staff to digital positions and projects. In this case, Asian leaders (54%) are slightly ahead of their American counterparts (51%) and clearly ahead of those in Europe (44%). Focusing on their staff allows Asian companies to reach the highest scores in “new ways of working”. Finally, leaders also implement digital solutions on a larger scale than stragglers and are less likely to stall solutions relegating them to a single case. “After conducting the study for three years, we can say that these digital levers remain in force and allow us to distinguish the digital leaders,” says Michael Grebe.

Digital leaders are very clear about their investment priorities

The digital leaders increase their digital profiles and invest more than the stragglers in developing their staff. The study revealed that three out of four leaders plan to expand their digital workforce by more than 20%. By region, more than 90% of Asia’s leaders plan to increase their workforce at this rate, while those in the US and Europe are less ambitious and contemplate increases of 70% and 65% respectively.

However, digital leaders do not only look outside, but worry about what they already have within their companies. Half of them plan to develop the digital capabilities of more than 20% of their staff, something that less than a third of the stragglers are doing. It should be noted that the leaders spend 22% of their total digital investment on technology, unlike the stragglers, who invest 16%. However, by increasing investments, the digital acceleration index (DAI) in technology is much higher among the leaders than among the stragglers (78 vs. 29) and, it indicates that the difference between the two groups is likely to grow.

Asian leaders are at the forefront of artificial intelligence (AI)

Approximately 50% of leaders around the world devote more than 10% of their digital profiles to AI projects, while only 29% of the stragglers are betting on this policy. Asian companies are the ones with the most people working on AI solutions. The study revealed that the number of Asian companies that dedicate more than 10% of their digital workforce to AI projects is double what was recorded in the EU and US. Asian companies are also ahead in the adoption of AI: 87% compared to 78% in Europe and 74% in the US.

Rafael Villaseca, former CEO of Gas Natural, will participate in the next PROA Comunicación Observatory

Rafael Villaseca, President of the Naturgy Foundation and former CEO of Gas Natural, will participate in a new edition of the PROA Communication Observatory titled ‘What Happens in the Spanish Electricity Sector‘. The Observatory will be held on Wednesday, April 10, 2019 at 09:00 AM at the Boston Consulting Group offices in Madrid (c / Alcalá 95).

Rafael Villaseca is an industrial engineer from the Polytechnic University of Catalonia (UPC) and has an MBA IESE. He was the CEO of Gas Natural Fenosa for thirteen years. He currently chairs the Naturgy Foundation (formerly Gas Natural Fenosa), serves as a director of Cementos Molins and VidaCaixa and is also a member of the Consultative Council of Foment del Treball Nacional and also member of the Spanish Chapter of the Club of Rome.

Among his recognitions, he received the 2010 Best CEO of the Year award by Platts Global Energy Awards, one of the most prestigious awards in the energy sector, which was awarded to him in New York. This award, which recognizes the professional career and the most recent achievements of its recipient, puts value on strategic vision, decision making and leadership, as well as the demonstration of clear vision, judgment and sufficient motivation by managers to pioneer transformation within their respective organizations.

The Observatory PROA Communication is conceived as a forum to welcome distinguished personalities of Spanish public life: politicians, businessmen, social leaders and respected intellectuals, among relevant figures in the entire country

The Observatory was born as an open meeting space, in which genuine, original and intellectual dialogue and discourse are fostered, a place to go to share ideas, not as a platform for scripted talking points and arguments akin to clichés.