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The window for AI competitive advantage is narrowing

by Susanne Hupfer
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3 minute read 11 September 2020

The window for AI competitive advantage is narrowing How can AI adopters keep their edge?

3 minute read 11 September 2020
  • Susanne Hupfer United States
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  • Implications for executives

Companies can no longer gain advantage simply by adopting AI technologies. Increasingly, they need to apply AI creatively and responsibly.

A year ago, we concluded that the window for AI competitive advantage might be closing.1 We based this assessment on data from the second edition of Deloitte’s State of AI in the Enterprise survey: 57 percent of executives at AI-adopting firms believed that AI would substantially transform their businesses within three years, and 38 percent believed the technologies would do the same for their industry during that time frame (see figure).2 The 19-point gap suggested that AI adopters had a fairly small window before industry competitors cut into their lead.

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Fast-forward to 2020. We’ve released the results of the third edition of the Deloitte State of AI study,3 and adopters continue to be bullish: More than eight in 10 report that AI will be “very” or “critically” important to their business success in the next two years, and the portion who regard it as critically important is poised to grow from 23% today to 41% in two years. And they’re continuing to grow their investments: 71% of adopters expect to increase their AI spending in the next fiscal year.

The new data reinforces our earlier speculation that the window for competitive advantage is narrowing. Adopters who see AI transforming their business within three years grew to 75%, while the portion believing that it will transform their industry within three years rose even more steeply, to 61%. Notably, the 19-point advantage we saw last time has shrunk to 14: Industry transformation appears to be nipping at the heels of the early adopters’ AI-powered transformation.

Implications for executives

Why is early-adopter advantage fading? With AI capabilities increasingly embedded in enterprise software, and an abundance of cloud-based offerings and tools that accelerate AI development, a company no longer needs as many heavy-duty specialists to get started. Indeed, three-quarters of adopters believe AI will be integrated into all enterprise applications within three years. The real competitive advantage may depend on organizations applying AI more creatively and responsibly.

“It’s like competing in Formula 1, you’ve got to buy a car, learn the car, train in the car, to race the car safely to be competitive or win,” said Paul Silverglate, vice chairman and US Technology sector leader for Deloitte.

AI adopters may be able to keep their competitive momentum going by paying attention to three broad recommendations:

Move from efficiency to growth plays. The top objective for AI adopters continues to be improving efficiency.4 One way to differentiate can be to expand the focus beyond cost and efficiency and imagine how AI technologies can be used to create new products, services, or even business models.

Manage risk proactively. The majority of adopters reported major-to-extreme concern about potential AI risks, including cybersecurity, misuse of personal data, regulatory uncertainty, and ethical issues, but fewer than four in 10 said they’re “fully prepared” for each.5 Adopting a set of risk management practices can be a real differentiator.

Build smart technology partnerships. Adopters report that having first-rate AI technologies is one of the most important initiatives to boost competitive advantage. Strikingly, only 47% of adopters say they are highly skilled in selecting AI technologies and suppliers, and only a third ensure their vendors provide unbiased systems.6 Organizations should become more savvy about selecting vendors that not only provide the best technologies but also guarantee they aren’t exposing them to unnecessary risks.

Explore each in greater depth in our State of AI report.7

Acknowledgments

Cover image by: Viktor Koen

Endnotes
    1. Susanne Hupfer, Is the window for AI competitive advantage closing for early adopters?, Deloitte, July 10, 2019. View in article

    2. Jeff Loucks et al., Future in the balance? How countries are pursuing an AI advantage, Deloitte Insights, May 1, 2019. View in article

    3. Beena Ammanath, David Jarvis, and Susanne Hupfer, Thriving in the era of pervasive AI, Deloitte Insights, July 14, 2020. View in article

    4. The most mature adopters—in our analysis, companies that have deployed the most AI systems and report higher sophistication in managing and integrating AI—are shifting some of their focus to growth: creating new AI-based products and services. In contrast, the least mature are heavily focused on using AI for cost reduction. View in article

    5. The biggest gap occurs for “cybersecurity vulnerabilities,” for which 62% report major-to-extreme concern, while only 39% feel fully prepared. View in article

    6. With adopters reporting purchasing AI functionality and systems more often than building their own, it becomes crucial to understand how vendors’ technology works and what an adopter’s liabilities are as a consumer. How do the AI algorithms work, and on what data are they trained? Are they safe and unbiased? What are the data privacy protections? View in article

    7. Ammanath et al., Thriving in the era of pervasive AI. View in article

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Susanne Hupfer

Susanne Hupfer

Research Manager | Deloitte

Susanne Hupfer is a research manager in Deloitte’s Center for Technology, Media & Telecommunications, Deloitte Services LP, specializing in the technology sector. She conducts research to understand the impact of technology trends on enterprises and to deliver actionable insights to business and IT leaders. Prior to joining Deloitte, Hupfer worked for more than 20 years in the technology industry, in roles that included software research and development, strategy consulting, and thought leadership. She has a Bachelor of Science in mathematics and computer science from Trinity College and a Ph.D. in computer science from Yale University.

  • shupfer@deloitte.com

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