AI Powers a New Innovation Machine By BCG

Innovation, meet automation. This could be the beginning of a beautiful friendship.

In a few short years, artificial intelligence (AI) and its subfield, machine learning (ML), have gone from futuristic vision to near-mainstream capability at many large companies, including in their innovation programs. A quick scan of BCG’s 50 most innovative companies for 2019 shows that top innovators are also AI leaders (Google, Amazon, Apple, Microsoft, Netflix, and IBM, for openers) and that many others—including plenty of companies from traditionally nondigital industries (Boeing, Siemens, Marriott, BP, and multiple automakers, for example)—are actively leveraging AI. (See the companion article “Innovation in 2019.”)

Like any powerful new technology, AI is the subject of lots of hype. But in this case, real fire lies behind the smoke. The rapid ascent of AI in business is well chronicled in two reports by BCG and MIT Sloan Management Review (SMR). The more recent of these reports found that AI leaders are deepening their commitment to the technology (as evidenced by funding) and seeking ways to apply AI at scale. Our current research into AI in innovation reveals similar trends. Nine out of every ten respondents to our innovation survey reported that their companies are investing in AI. More than 30% expect AI to be among the areas of innovation with the highest impact on their business in the next three to five years. And almost 30% are actively targeting AI in their innovation programs. Strong innovators are particularly active.
 
The 2018 SMR-BCG report also identified a performance gap associated with this critical new capability, indicating that AI “pioneers” appear to be “pulling further away” from their less aggressive peers. We see a similar pattern with respect to AI in innovation, which carries two key implications. First, AI is not a plug-and-play capability. Second, ML is inductive—that is, machines learn by doing, and they need to be fed large amounts of data to get smarter. Tortoises will have a tough time catching up with hares in this race. But hares can’t afford to become complacent, because AI is truly disruptive and can propel long leaps forward.

What are the leaders doing?
 
A STRONG CORRELATION

Our most recent innovation survey found a strong correlation between companies that consider themselves strong innovators and those that see themselves as being good at AI. (See Exhibit 1.) About 30% of respondents rate themselves as strong innovators, and about 25% as being better than average at AI. Almost 20% see themselves as both; we call this group “AI leaders.” Nearly 17% of the respondents in our sample view their organizations as being below average on AI; we call this group “AI laggards.” AI leaders are more likely than laggards to consider AI important to their organizations’ future growth (94% versus 56%), which suggests that more than half of laggards will face a widening competitive disadvantage unless they up their AI game.

AI leaders tend to see themselves as being good at embracing new technologies such as AI to enhance customer offerings or streamline the development process (89% versus 24%). AI leaders and laggards allocate their spending roughly equally among radical innovation; major new products, services, and internal process changes; and improvement of existing products, services, and processes. But AI leaders are far more likely than laggards to apply big data and advanced analytics throughout the innovation process—from identifying new themes (91% for leaders, 30% for laggards) to informing investment decisions (92% to 27%). (See Exhibit 2.) In addition, by margins of 42% to 19%, and 42% to 24%, respectively, AI leaders are more likely than laggards to be actively pursuing the related avenues of big data and tech platforms.


Michael Ringel – Managing Director & Senior Partner ◊ Boston

Michael Spira – Project Leader ◊ Munich

Ramón Baeza – Managing Director & Senior Partner ◊ Madrid

Florian Grassl – Managing Director & Partner ◊ Munich

Derek Kennedy – Managing Director & Senior Partner ◊ San Francisco

Justin Manly – Managing Director & Partner ◊ Chicago


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