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Sunday, December 17, 2017

AI to hit IT-BPM profitability first before realizing growth

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By Bernie Cahiles-Magkilat

Required investments for artificial intelligence (AI) will drag down profitability of IT-BPM (information technology-business process management) companies before the efficiencies brought about by these new technologies can translate into higher bottomline.

Jojo Uligan, president of the Contact Center Association of the Philippines (CCAP), told reporters during a press conference at the sidelines of the 9th International IT-BMP Summit, that IT-BPM companies will all have to invest as they shift to AI, robotics and automation technologies of doing business.

“There is investment so our profitability will go down before going up because we need investments for training of manpower,” said Uligan as he explained that the only way to retool, upskill human manpower is by emerging them into new training.

According to a study by Accenture Research, AI has the potential to increase the profitability of 16 industries, including information and communication, manufacturing and financial services by an average of 38 percent by 2035.

According to the Accenture Report, these three sectors will see the highest annual profits out of the 16 industries identified.

Uligan further said that profitability with AI will also boils down to the ability of people shifting to the new technology.

“We can hit 38 percent, but how fast you guys will learn because this will depend on adoption and how we respond to this new technology,” he said.

But automation in the long run will increase profitability of companies because of the efficiencies it brings to the work processes in terms of speed, scale, and cheap labor or the overall automation arbitrage.

The contact center industry alone has an estimated 30,000 to 40,000 of employees involved in transactional processes (repetitive processes, data encoding) that may be replaced by robotic process automation. Based on the IT-BPM Roadmap 2022, the industry is expected to post $38.9 billion in revenues from $25 billion in 2016 and 1.8 million more jobs by 2022.

Lito Tayag, chairman of IT-Business Process Association of the Philippines (IBPAP), said that 95 percent of companies believe they need new skills to stay afloat while 80 percent of them have positive attitude towards AI.

In fact, Automation Anywhere Vice-President Richard Jones said that 53 percent of order to cash transactions are now automated.

The Accenture Report further noted that the introduction of AI could lead to an economic boost of $14 trillion in additional gross value added (GVA) across 16 industries in 12 economies.

To capitalize on the opportunity, the report identifies eight key strategies for successfully implementing AI that focus on adopting a human-centric approach and taking bold and responsible steps to applying the technology within businesses and organizations.

“Artificial intelligence will revolutionize how businesses compete and grow, representing an entirely new factor of production that can ignite corporate profitability,” said Paul Daugherty, chief technology & innovation officer, Accenture.

“To realize this significant opportunity, it’s critical that businesses act now to develop strategies around AI that put people at the center, and commit to develop responsible AI systems that are aligned to moral and ethical values that will drive positive outcomes and empower people to do what they do best – imagine, create and innovate.”

The report, developed by Accenture Research in collaboration with Frontier Economics, measures the potential economic impact of AI in GVA, a close approximation of gross domestic product that accounts for the value of goods and services produced. The research compared the economic growth rates of 16 industries in 2035 in a baseline scenario showing current assumptions of expected growth, to an AI scenario showing expected growth with AI integrated into economic processes, finding that AI has the potential to increase economic growth rates by a weighted average of 1.7 percentage points.

Of the industries studied, information and communication, manufacturing and financial services are the three sectors that will see the highest annual GVA growth rates in an AI scenario, with 4.8 percent, 4.4 percent and 4.3 percent respectively by 2035. This translates to an additional $6 trillion in GVA in 2035 for these three sectors alone. Even labor-intensive sectors such as education and social services —where productivity growth is traditionally slow – will see a significant increase of $109 billion and $216 billion in GVA respectively.

Annual growth rates by 2035 of gross value added (a close approximation of GDP), comparing baseline growth to an artificial intelligence scenario where AI has been absorbed into a sector’s economic processes

In specifically examining industry profitability, the research demonstrates that AI offers unprecedented opportunities. In labor-intensive sectors, such as wholesale and retail, AI augments the human workforce, enabling people to become more productive, leading to a profit increase of almost 60 percent. In capital-intensive industries such as manufacturing, AI powered machines will eliminate faulty machines and idle equipment, delivering constantly rising rates of return, resulting in equally dramatic profit increases of 39 percent by 2035.

Regardless of industry, the Accenture Report said that companies now have a significant opportunity to apply AI and invent new business capabilities for growth, profitability and sustainability.

To prepare for a successful future with AI, business leaders should consider top management recognition of AI strategy and leadership. This means reinventing human resource to Human AI Resources, learning with machines, appointment of a chief data supply chain officer, creation of an open AI culture, going Cloud and automation, and measuring returns on algorithms.

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