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McKinsey’s State Of Machine Learning And AI, 2017

  • Tech giants including Baidu and Google spent between $20B to $30B on AI in 2016, with 90% of this spent on R&D and deployment, and 10% on AI acquisitions.
  • Artificial Intelligence (AI) investment has turned into a race for patents and intellectual property (IP) among the world’s leading tech companies.
  • U.S.-based companies absorbed 66% of all AI investments in 2016. China was second with 17% and growing fast.
  • By providing better search results, Netflix estimates that it is avoiding canceled subscriptions that would reduce its revenue by $1B annually.

These and other findings are from the McKinsey Global Institute Study, and discussion paper, Artificial Intelligence, The Next Digital Frontier (80 pp., PDF, free, no opt-in) published last month. McKinsey Global Institute published an article summarizing the findings titled   How Artificial Intelligence Can Deliver Real Value To Companies. McKinsey interviewed more than 3,000 senior executives on the use of AI technologies, their companies’ prospects for further deployment, and AI’s impact on markets, governments, and individuals.  McKinsey Analytics was also utilized in the development of this study and discussion paper.

Key takeaways from the study include the following:

  • Tech giants including Baidu and Google spent between $20B to $30B on AI in 2016, with 90% of this spent on R&D and deployment, and 10% on AI acquisitions. The current rate of AI investment is 3X the external investment growth since 2013. McKinsey found that 20% of AI-aware firms are early adopters, concentrated in the high-tech/telecom, automotive/assembly and financial services industries. The graphic below illustrates the trends the study team found during their analysis.

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  • AI is turning into a race for patents and intellectual property (IP) among the world’s leading tech companies. McKinsey found that only a small percentage (up to 9%) of Venture Capital (VC), Private Equity (PE), and other external funding. Of all categories that have publically available data, M&A grew the fastest between 2013 And 2016 (85%).The report cites many examples of internal development including Amazon’s investments in robotics and speech recognition, and Salesforce on virtual agents and machine learning. BMW, Tesla, and Toyota lead auto manufacturers in their investments in robotics and machine learning for use in driverless cars. Toyota is planning to invest $1B in establishing a new research institute devoted to AI for robotics and driverless vehicles.

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  • McKinsey estimates that total annual external investment in AI was between $8B to $12B in 2016, with machine learning attracting nearly 60% of that investment. Robotics and speech recognition are two of the most popular investment areas. Investors are most favoring machine learning startups due to quickness code-based start-ups have at scaling up to include new features fast. Software-based machine learning startups are preferred over their more cost-intensive machine-based robotics counterparts that often don’t have their software counterparts do. As a result of these factors and more, Corporate M&A is soaring in this area with the Compound Annual Growth Rate (CAGR) reaching approximately 80% from 20-13 to 2016. The following graphic illustrates the distribution of external investments by category from the study.

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  • High tech, telecom, and financial services are the leading early adopters of machine learning and AI. These industries are known for their willingness to invest in new technologies to gain competitive and internal process efficiencies. Many start-ups have also had their start by concentrating on the digital challenges of this industries as well. The\ MGI Digitization Index is a GDP-weighted average of Europe and the United States. See Appendix B of the study for a full list of metrics and explanation of methodology. McKinsey also created an overall AI index shown in the first column below that compares key performance indicators (KPIs) across assets, usage, and labor where AI could contribute. The following is a heat map showing the relative level of AI adoption by industry and key area of asset, usage, and labor category.

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  • McKinsey predicts High Tech, Communications, and Financial Services will be the leading industries to adopt AI in the next three years. The competition for patents and intellectual property (IP) in these three industries is accelerating. Devices, products and services available now and on the roadmaps of leading tech companies will over time reveal the level of innovative activity going on in their R&D labs today. In financial services, for example, there are clear benefits from improved accuracy and speed in AI-optimized fraud-detection systems, forecast to be a $3B market in 2020. The following graphic provides an overview of sectors or industries leading in AI addition today and who intend to grow their investments the most in the next three years.

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  • Healthcare, financial services, and professional services are seeing the greatest increase in their profit margins as a result of AI adoption. McKinsey found that companies who benefit from senior management support for AI initiatives have invested in infrastructure to support its scale and have clear business goals achieve 3 to 15% percentage point higher profit margin. Of the over 3,000 business leaders who were interviewed as part of the survey, the majority expect margins to increase by up to 5% points in the next year.

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  • Amazon has achieved impressive results from its $775 million acquisition of Kiva, a robotics company that automates picking and packing according to the McKinsey study. “Click to ship” cycle time, which ranged from 60 to 75 minutes with humans, fell to 15 minutes with Kiva, while inventory capacity increased by 50%. Operating costs fell an estimated 20%, giving a return of close to 40% on the original investment
  • Netflix has also achieved impressive results from the algorithm it uses to personalize recommendations to its 100 million subscribers worldwide. Netflix found that customers, on average, give up 90 seconds after searching for a movie. By improving search results, Netflix projects that they have avoided canceled subscriptions that would reduce its revenue by $1B annually.
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73% Are Using Internet Of Things Data To Improve Their Business

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  • According to the Cisco Visual Networking Index, M2M connections will represent 46% of connected devices by 2020.
  • 95% of execs surveyed plan to launch an IoT business within three years.

These and many other insights are from the recently published Cisco Internet of Things (IoT) study, The Journey to IoT Value: Challenges, Breakthroughs, and Best Practices published on SlideShare last month. The study is based on a survey of 1,845 IT and business decision-makers in the United States, UK, and India. Industries included in the analysis include manufacturing, local government, retail/hospitality/sports, energy (utilities/oil & gas/mining), transportation, and health care. All respondents worked for organizations that are implementing or have completed IoT initiatives. 56% of all respondents are from enterprises.

Key takeaways from the study include the following:

  • 73% Are Using Internet Of Things Data To Improve Their Business. The data and insights gained from IoT are most often used for improving product quality or performance (47%), improving decision-making (46%) and lowering operational costs (45%). Improving or creating new customer relationships (44%) and reducing maintenance or downtime (42%) are also strategic areas where IoT is making a contribution today according to the Cisco study.

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  • IT executives often see IoT initiatives as more successful (35%) than their line-of-business counterparts (15%). With IT concentrating on technologies and line-of-business users focused on strategy and business cases, the potential exists for differences of opinion regarding IoT initiatives’ value. The following graphic provides an overview of how stark these differences are.

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  • Engaging with the IoT partner ecosystem in every phase of a project or initiative improves the probability of success. The most valuable phases to engage with ecosystem partners include strategic planning (60%), implementation and deployment (58%) and technical consulting or support (58%). The following graphic provides an overview of most and less successful organizations by their level of involvement in the IoT partner ecosystem.

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  • Only 26% of all companies are successful with their IoT initiatives. The three best practices that lead to a successful IoT implementations include collaboration between IT and business, the availability of internal and external partnerships to gain IoT expertise; and a strong technology-focused culture.
  • 60% of companies believe IoT projects look good on paper but prove more complex that expected. This finding underscores how critical it is for IT and line-of-business executives to have the same goals and objectives going into an IoT project. Being selective about which integration, technology, and professional services partners are chosen needs to be a shared priority between both IT and line-of-business executives.

6 Ways Cloud ERP Is Revolutionizing How Services Deliver Results

  • Cloud ERP is the fastest growing sector of the global ERP market with services-based businesses driving the majority of new revenue growth.
  • Legacy Services ERP providers excel at meeting professional & consulting services information needs yet often lack the flexibility and speed to support entirely new services business models.
  • Configure-Price-Quote (CPQ) is quickly emerging as a must-have feature in Services-based Cloud ERP suites.

From globally-based telecommunications providers to small & medium businesses (SMBs) launching new subscription-based services, the intensity to innovate has never been stronger. Legacy Services ERP and Cloud ERP vendors are responding differently to the urgent needs their prospects and customers have with new apps and suites that can help launch new business models and ventures.

Services-based Cloud ERP providers are reacting by accelerating improvements to Professional Services Automation (PSA), Financials, and questioning if their existing Human Capital Management (HCM) suite can scale now and in the future. Vertical industry specialization is a must-have in many services businesses as well.  Factoring all these customer expectations and requirements along with real-time responsiveness into a roadmap deliverable in 12 months or less is daunting.  Making good on the promises of ambitious roadmaps that includes biannual release cycles is how born-in-the-Cloud ERP providers will gain new customers including winning many away from legacy ERP providers who can’t react as fast.

The following key takeaways are based on ongoing discussions with global telecommunications providers, hosters and business & professional services providers actively evaluating Cloud ERP suites:

  • Roadmaps that reflect a biyearly release cadence complete with user experience upgrades are the new normal for Cloud ERP providers. Capitalizing on the strengths of the Salesforce platform makes this much easier to accomplish than attempting to create entirely new releases every six months based on unique code lines. FinancialForceKenandy and Sage have built their Cloud ERP suites on the Salesforce platform specifically for this reason. Of the three, only FinancialForce has provided detailed product roadmaps that specifically call out support for evolving services business models, multiple user interface (UI) refreshes and new features based on customer needs. FinancialForce is also one of the only Cloud ERP providers to publish their Application Programming Interfaces (APIs) already to support their current and next generation user interfaces.
  • Cloud ERP leaders are collaborators in the creation of new APIs with their cloud platform provider with a focus on analytics, integration and real-time application response. Overcoming the challenges of continually improving platform-based applications and suites need to start with strong collaboration around API development. FinancialForce’s decision to hire Tod Nielsen, former Executive Vice President, Platform at Salesforce as their CEO in January of this year reflects how important platform integration and an API-first integration strategy is to compete in the Cloud ERP marketplace today. Look for FinancialForce to have a break-out year in the areas of platform and partner integration.
  • Analytics designed into the platform so customers can create real-time dashboards and support the services opportunity-to-revenue lifecycle. Real-time data is the fuel that gets new service business models off the ground. When a new release of a Cloud ERP app is designed, it has to include real-time Application Programming Interface (API) links to its cloud platform so customers can scale their analytics and reporting to succeed. What’s most important about this from a product standpoint is designing in the scale to flex and support an entire opportunity-to-revenue lifecycle.
  • Having customer & partner councils involved in key phases of development including roadmap reviews, User Acceptance Testing (UAT) and API beta testing are becoming common.  There’s a noticeable difference in Cloud ERP apps and suites that have gone through UAT and API beta testing outside of engineering.  Customers find areas where speed and responsiveness can be improved and steps saved in getting workflows done. Beta testing APIs with partners and customers forces them to mature faster and scale further than if they had been tested in isolation, away from the market. FinancialForce in services and IQMS in manufacturing are two ERP providers who are excelling in this area today and their apps and suites show it.
  • New features added to the roadmap are prioritized by revenue potential for customers first with billing, subscriptions, and pricing being the most urgent. Building Cloud ERP apps and suites on a platform free up development time to solve challenging, complex customer problems. Billing, subscriptions, and pricing are the frameworks many services businesses are relying on to start new business models and fine-tune existing ones. Cloud ERP vendors who prioritize these have a clear view of what matters most to prospects and customers.
  • Live and build apps by the mantra “own the process, own the market”. Configure-Price-Quote (CPQ) and Quote-to-Cash (QTC) are two selling processes services and manufacturing companies rely on for revenue daily and struggle with. Born-in-the-cloud CPQ and QTC competitors on the Salesforce platform have the fastest moving roadmaps and release cadences of any across the platform’s broad ecosystem. The most innovative Services-focused Cloud ERP providers look to own opportunity-to-revenue with the same depth and expertise as the CPQ and QTC competitors do.
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