AI helps increase revenue

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(This article is part of a series on Artificial Intelligence for Board Members and Senior Executives.)

According to McKinsey, organizations that are going “all in” on AI attributed at least 20 percent of their 2022 EBIT to use of the technology.

Read that again.

One in five dollars of pre-tax earnings came from AI.The survey was done of 1,684 organizations around the globe, representing a range of industries and company sizes. Not all of them had adopted AI. And not all of those who had adopted AI could claim such impressive results. But at those companies who are characterized as AI high performers, a fifth of their gross earnings already comes from AI.

It’s only 2023, and AI is already rapidly disrupting competition.

I advise, speak, and write on the growing impact that artificial intelligence will have on productivity (see article “What to Do With All the Productivity?”). But I must admit—this finding even impressed me. After all, ChatGPT—arguably the most widely known and immediately accessible form of AI— was only released to the public in November of 2022. It is unlikely that generative AI played a significant role in those 2022 results.

It’s pretty clear what that foretells for 2023 results: Those organizations that have really gone all in on AI are already blowing away their competitors who have not, in terms of earnings. How are they doing that?

High performers use AI to grow revenue, not just cut costs

As you would expect, AI is increasing earnings simply by enabling improved efficiency, decreased headcount, for instance in:

• sales and marketing functions for design, content writing, customer and trend analysis, and personalization
• customer service, in the form of advanced chatbots and sentiment prediction
• HR, for recruitment, performance management, and workforce deployment optimization.

But the real insight from the McKinsey survey was that AI is contributing more and more to revenue growth, not just to earnings. High performing AI adopters are using the technology principally to create new business ideas and new sources of revenue, not for cost reduction. In fact, only 19% of high performers, compared with 33% of all other respondents, are using AI to cut costs.

Instead, high performers are using the technology to:

• create new business units or other sources of revenue (23%)
• increase revenue from the core business (27%)
• increase value of current AI offerings (30%)

Here are some ideas for how you can grow revenue with AI

1. Identify market niches:

One way that AI can support the top line is by identifying demographics and consumer preferences to unearth market opportunities. Frito-Lay, for example, used AI to identify that one out of six residents in Frisco, Texas was ethnically Indian. AI then recommended that the company offer a spicy snack food in Frisco which they had previously sold only in India, gaining them a large market advantage in Frisco. (See article “How AI Can Help in a Recession”)

2. Support adoption:

Whether for new or existing products and services, AI can also help you improve your offering and increase your market share, by analyzing customer sentiment. AI-driven customer service platforms like IrisAgent and Intercom use large language model AI to identify product bugs, pain points, and customer desires from amongst support tickets logged. That gives product managers real-time, crystal-clear feedback on how products can be improved and what features can meet market demand.

3. Forecast demand:

In 2022, a building materials company heeded warnings from AI which predicted an increase in frequency and intensity of hurricanes in the deep South. The company moved large portions of its inventory to warehouses in Florida. When Hurricane Ian hit weeks later, it was the only company with enough local stock to meet demand. The company did not have to change anything about its product line, nor its marketing, it just had to be ready. (Given the frequency of strong weather events like 2023’s Hurricane Idalia, this kind of forecasting could also be used by insurance companies, government aid agencies, and others).

4. Create new products:

AI can even add new revenue streams by creating entirely new products. For example, in the pharma world, INS018_055 is a new pulmonary fibrosis drug currently in clinical trials, which was discovered and designed by Hong Kong-based InSilico Medicine entirely by using AI. But you don’t need to be in pharma to create new products with AI. AI is being used to design and redesign products from industrial components to golf clubs! You could even use large language models to analyze trends on the internet and suggest products to meet demand in your industry.

5. Optimize pricing:

For more than a decade, economists and merchants have understood that raising price just 1% without losing sales results in nearly a 9% increase in operating profit. The problem has been, until now, working out which products could bear a price increase and how much of an increase they could bear. Now AI is being used to analyze market data and determine the ideal pricing you should set for every product you sell, in each market where you sell them. In retail, for example, AI can incorporate data as diverse as zip code, competitor pricing, season, day of the week, time of the day, and even the weather.

AI is already critical to staying competitive.

If you’re still only using AI to reduce headcount and cut costs, you may already be behind the game. Your competitors are using artificial intelligence to develop new products, monitor the market, optimize pricing, forecast inventory demand, up-sell, cross-sell, and more.

The game is afoot, and companies are working hard to corner markets, create a flywheel effect, and establish strong competitive barriers to entry, using AI. (See article “Winner Takes All.”)

If you care about how AI is determining the winners and losers in business, how you can leverage AI for the benefit of your organization, and how you can manage AI risk, I encourage you to stay tuned. I write and speak about how senior executives, board members, and other business leaders can use AI effectively. You can read past articles and be notified of new ones by clicking the “follow” button here.

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