The Transformative Power of Artificial Intelligence in Business

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2021/02/24
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Artificial intelligence, onward referred to as AI in this document, stands as a groundbreaking innovation that is shaping the contours of our era. Although AI has been a topic of interest and research for over half a century, its substantial integration into the market has only recently gained momentum. As Skilton (2017) articulates, Artificial Intelligence is the capability of a computerized system to exhibit intelligence, which can significantly enhance the efficiency and quality of both operations and systems within a firm or industry.

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This intelligence exhibited by AI is achieved without the system following a set of hand-coded instructions. Crucially, the intelligence that these systems display mirrors human cognitive capabilities. Ransbothan et al. (2017) expand on the Oxford Dictionary's definition by noting that tasks exhibiting human-like intelligence include speech recognition, visual perception, decision-making facilitation, and language translation. Skilton's brief suggests that AI is poised to trigger the Fourth Industrial Revolution, ushering in transformative changes in production processes and profitability for firms that embrace these advancements.

To date, several major technology companies have taken significant steps towards advancing AI into a valuable commodity. According to a McKinsey (2017) discussion paper, industry leaders like Amazon, Google, and Baidu have poured billions into AI research and development, already witnessing substantial returns from their investments. Despite the extensive media coverage highlighting AI's benefits, businesses have been slow to adopt these innovations. McKinsey (2017) notes that businesses' hesitancy stems from market uncertainties. This isn't the first time AI systems have entered the market; AI has experienced cycles of highs and lows since the 1940s. Furthermore, critical questions remain unanswered about where to apply these systems across different industries and where to acquire them. Given that most companies aim to maximize profits, another pressing question arises: will investing in AI yield significant returns?

The apprehension surrounding AI extends beyond businesses to consumers and employees who fear the impact on their livelihoods. Some experts perceive AI as an international threat, while others see it as a knowledge-based weapon of mass disruption. Biotechnology's advances, allowing for DNA modification with potentially devastating results, add to these concerns. However, the predominant fear among the public is that robots might replace them in the workplace, rendering them obsolete (Walker, 2017). This report, therefore, aims to focus on how artificial intelligence can be applied to businesses and how it can provide financial and operational benefits to struggling firms. The paper begins with a discussion of the current status of AI system application in today's economy.

Current Status and Future Expectations

Despite the extensive discussions around AI, its adoption by firms across various sectors remains limited. A study by Ransbotham et al. (2017) analyzed 3,000 businesses from 112 countries and found that AI adoption levels barely reached a quarter, as illustrated below:

McKinsey (2017) points out that firms with specific characteristics are more likely to adopt AI, classifying them as early adopters. The first characteristic is industries with a history of investing in digitization, primarily in the financial and telecommunications sectors. The automotive sector is noted for its high AI adoption due to its acceptance of robotics during assembly. Sectors like healthcare and education exhibit low adoption levels. Both McKinsey and Ransbotham et al. (2017) agree that larger companies tend to be early adopters compared to smaller firms, with Ransbotham et al. specifically identifying large firms as those with at least 100,000 employees.

The third characteristic of early adopters is organizations that incorporate multiple AI technologies into their processes rather than just one. The integration of AI into core operational processes is another hallmark of early adopters. A crucial characteristic is the level of support from top management. McKinsey (2017) notes that firms successfully adopting AI receive twice or more support from top executives compared to others. Early adopters focus on revenue and market share growth, with cost reduction being secondary.

However, even companies with these characteristics may face challenges in AI adoption. Apart from determining which business areas will benefit from AI, executives must also consider competing investment priorities, the unclear value of AI, the expense of acquiring talent, and the security and ethical concerns arising from AI application. To understand AI's potential value to a business, it is essential to comprehend its applications, which are discussed in the next section.

Applicable AI Systems

This report focuses on narrow AI systems, which perform specific tasks and assist in solving business problems. These technological systems include machine learning, language processing, robotics and autonomous vehicles, computer vision, and virtual agents. According to McKinsey (2017), machine learning uses algorithms similar to previous software; however, in this case, the algorithms learn from data without following specific instructions. Robotics and autonomous vehicles act on provided information, while virtual agents engage in conversations with humans, often used to solve customer-facing transaction issues. For example, the American Insurance Company employs a virtual assistant named Eva to handle customer financial transactions (Tata Consultancy Services, 2016).

These various applications can assist businesses in several broad functions, as Tsai (2017) outlines. First, AI applications eliminate repetitive and time-consuming tasks, reducing the need for personnel to supervise vehicles in the assembly line or oversee factory loading and packaging. AI also simplifies processing large or complex data sets that could delay customer responses. For instance, paralegals in the legal sector no longer need to sift through every document to prepare contracts, thanks to AI's capabilities. AI systems enable real-time decision-making in dynamic environments like the stock market. Lastly, AI technologies allow for the execution of activities beyond human capabilities.

Benefits to Businesses

To fully appreciate AI's benefits to businesses, one must consider the economic advantages that stem from investing in AI. McKinsey (2017) categorizes AI's pathways to economic benefits under four P's: Project, Produce, Promote, and Provide. The first P, Project, involves anticipating future logistics such as supply, demand, trends, and asset and liability performance. The second P, Produce, focuses on enhancing production quality and quantity while reducing costs. The third P, Promote, entails efficient marketing strategies to increase market share. The final P, Provide, aims to improve user experiences, making them more personal and convenient.

For example, in the education sector, AI systems can assist through these four pathways. They can project market demand and identify motivators for student performance, automate educator tasks to produce better results, and help form effective learning groups. Additionally, AI can provide virtual coaches that tailor learning curricula to individual abilities, easing human educators' tasks.

While AI applications rely on the data fed into the system, if applied effectively, these systems can enhance product and business value. Experts predict that AI, if efficiently utilized, can not only increase commodity value but also elevate a firm's overall worth. Hence, the anticipated world economic growth, reflected in the gross value added by 2035, might come to fruition. The graph below illustrates growth across industries worldwide:

The efficient application of AI will undoubtedly yield positive outcomes for firms and corporations, not only in terms of profits but also by reducing costs and improving quality and quantity. AI's growth and expansion show no signs of slowing down. The hesitance of many firms may lead them to lag and risk becoming obsolete. AI represents the future, and for corporations aspiring to remain relevant, investing in AI as a foundational element is imperative.

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The Transformative Power of Artificial Intelligence in Business. (2021, Feb 24). Retrieved from https://papersowl.com/examples/the-ways-in-which-artificial-intelligence-can-be-applied-into-businesses/