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The most resilient European companies in recent times are those that have put artificial intelligence at the heart of their system. Should this be seen as a new operational paradigm to be implemented in order to survive?
Turbulence has been a hot topic in management science for decades, but it seems to be gaining even more momentum in recent months when major geopolitical conflict and runaway inflation have overtaken a barely contained global pandemic. Moreover, the emerging consensus among economists is that a recession in the economy seems inevitable in the Eurozone as early as the end of 2022, issuing a clear warning for companies to make resilience a priority in the months to come.
But while recessions often hurt many organizations, they provide the best prepared with a unique window of opportunity to recover and consolidate their advantages against competitors who are justly weakened and too focused on surviving. This is one of the a priori surprising conclusions of the work carried out by the Harvard Business School, in the three most recent global recessions (the crisis of 1980, the slowdown of 1990 and the bursting of the Internet bubble in 2000). However, similar studies that some of us have carried out during the Covid-19 pandemic show that one in five multinationals has also benefited from this crisis (1) and, two years later, is posting performances clearly superior to those before the crisis.
A new technological cycle
However, looking at the different crises shows that something has changed. For the former (the 1980 crisis, the 1990 slowdown and the bursting of the Internet bubble in 2000), the firms that exploited their resilience to rebound strategically did not really use a large technological base. Better, in the case of the Internet bubble, the fact of not having a great dependence on the Internet allowed them to redeploy their operational model without significant technological debt. Cisco had a harder time recovering from it, for example, and web stars of the day like Yahoo put themselves on a slow death trajectory.
Let’s compare this era to today and the Covid crisis. Investing in digital technologies has been one of the most adopted solutions by companies during the pandemic. The star companies that emerged fastest from the pandemic were technology organizations, or those that built on this new base, like Tesla, for example.
The American electric car manufacturer highlights the importance of a new operational model, based on artificial intelligence (AI). We recently analyzed the use of AI by large companies, in times of a pandemic and the current heightened risk of recession. We see that technology is doing the work we badly need in times of crisis: for those who have invested in AI, the share of sales and costs “influenced by AI” has more than doubled between 2018 and 2021 and is expected to triple between 2018 and 2024. These organizations are also the most resilient, to date showing a growth rate 50% faster than their peers and profitability gains twice as fast as the annual rate of productivity of companies in the European Union over the past decade. This rate is also three times greater than the average contribution of conventional computing to total productivity growth observed in developed economies over the past two decades.
A powerful tool
When it comes to resilience, AI drives automation as a selective way to replace repetitive tasks with a more efficient approach. It is therefore not a question of a general redundancy process, but rather of an optimization of tasks, which gives rise to higher quality jobs, to more varied and creative tasks, and therefore to a better adequacy of costs to income. Likewise, AI technologies enable better management of the performance of company assets, such as predictive maintenance, which makes it possible to extend the life of assets in times of crisis, without the risk of destabilizing profits in a situation of crisis. turbulence. As for improving sales, AI is particularly effective in supporting a strategic and innovative/disruptive approach.
Most AI-influenced revenue is tied to innovating new business models, building new ecosystems, and new ways to compete. It is a particularly powerful technology when it comes to supporting customer knowledge, customer service, or even personalized recommendations in sales and marketing. It is even more so during an economic shock, insofar as this makes customer engagement more volatile and it is essential to extend the useful life of the company’s assets rather than to spending money on failing assets.
An opportunity to seize for Europe
A few companies (about 12% of our European sample today) are pushing the limits of what AI brings in terms of performance gains. We call them “AI champions”. Not only do these champions combine innovative strategies, but they have also adopted a new operational model in which AI is at the heart, and whose skills are based on the complementarity between a solid architecture coupled with production talents in data sciences, but also a strong culture of data consumption and prediction and automation algorithms for the benefit of their business.
If European companies are currently the most exposed to an economic downturn, the above implies that they have every incentive to leverage AI to weather the coming shock. And, contrary to what is often said, Europe is growing its wings. If the Old Continent was less advanced in the field of AI than the United States and China ten years ago, today Europe has taken a leap forward with a cutting-edge vision on computing. quantum. While establishing a regulatory framework that highlights the critical relevance of responsible AI. Our research shows in particular that large European companies are as keen as their counterparts in Asia and North America to exploit the potential of AI.
These champions of artificial intelligence constitute an elite today, in the same proportion in Europe as in the United States, in many sectors and not only that of technology. Compared to the rest of the world, Europe is ahead in areas such as automotive, distribution, life sciences or energy. Other European companies should take note and learn from the transformation journey of these champions. And if they act quickly, then they will increase their chances of protecting themselves against future shocks.
(1) In “Are you resilient? Machine learning prediction of business rebound after the Covid-19 pandemic”, by Jacques Bughin (2022), forthcoming.
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