GenAI can fix the IT productivity paradox - Ascendion

GenAI can fix the IT productivity paradox

The rules of business are still in effect, but the game has changed

Ascendion December 11, 2023

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Ascendion
HFS
HFS Research

Is generative AI (GenAI) the catalyst for the business alchemy of simultaneous lower costs and rocketing productivity for knowledge work, unlocking overall business productivity with IT?

People who know—the respondents in our study actively deploying GenAI solutions-see the impact of GenAI on cost more than anything else over the next 12 to 18 months (see Exhibit 1). Four in five of all respondents see a significant impact on cost. In fact, 40% expect a decrease in costs of greater than 10%, with nearly 10% of respondents expecting a more than 20% reduction.

We fully recognize that the economists in the audience will quibble with the actual metrics of productivity; please don’t. We understand how “productivity” is not technically independent of the other metrics. Our study cohort was intentionally ordinary business people, not economics graduate students, and we wanted to get at what people are thinking about during their workday, not ask them to sit a GMAT test.

 

 

Bureaucracy stymies productivity…Paging Dr. Solow…

After cost savings, the name of the game is productivity. Humans have sought new technologies to improve productivity since we tamed fire. Steam engines, water wheels, electricity… all of these are tools that enhance our productivity. But what about computers? We intuitively think, “Of course!” But not so fast.

“You can see computers everywhere but in the productivity statistics,” wrote Nobel Prize-winning economist Dr. Robert Solow in 1987. From an economist and dismal science perspective, things haven’t changed over the past three-and-a-half decades.

We’re left with a paradox (the Solow Paradox, if you’re interested). Computers seem like they make us more productive, and they probably are. But it turns out they are just as good at creating bureaucracy, which leeches productivity. What used to be a typed memo has metastasized into 50 emails, five video conferences, a working group, and an after-hours office party. Rinse and repeat, and repeat, and repeat. This probably sounds all too familiar.

 

The GenAI productivity boost could change how our economy works

So, is GenAI likely to improve productivity by stripping out untamed bureaucracy, freeing humans to do more value-added work? Or will it make our knowledge work jobs more hellish? The data shows that this round of innovation will go to the optimists.

About 85% of the leaders we surveyed see a productivity improvement driven by generative AI. It may be true that recent headlines have trumpeted GenAI’s productivity promise. What is more surprising is that nearly 40% of our respondents expect an increase of 10% or more in productivity. In economic terms, this is enough to change how our economy works.

Just for scale, if the companies of the Fortune 500 were all 10% more productive, and valuation increased a conservative 10%, the financial impact on the US economy would be more than $2.25 trillion.

“We will alter our conception of business. What holds that back is human prejudice and bias about how the world can and should work, as opposed to what the technology is capable of.” – Ted Shelton, Expert Partner and global product leader for business process redesign, Bain & Company

 

The Bottom Line: Get ready to embrace the new economics or face extinction.

Yes, we’re trying to extrapolate a complex future from some data in the early days of a shift. Still, we have enough to call the coming trend. Imagine that in the next two quarters, your competition is 10% (at least) better at everything-COGS, EBITDA, all the numbers that matter to investors, public and private.

We are facing the heaviest lift business leaders have faced since adapting to alternating current. Get ready to embrace the new economics of business or face extinction.

Some will look at this with gleeful excitement. Others will start looking for farmland in Vermont. Applying new technologies is never easy, so leaders hoping to thrive must become well-versed in risk management. Will everything work the first time out? Not at all, but soon. Sooner than you think, it will be impossible to compete without the productivity boost offered by applied generative AI. Companies that wait too long will have C-suite occupants gazing wistfully at the backsides of more aggressive competitors.

 

About this research

Your Generative Enterprise™ playbook for the future is a HFS Research and Ascendion research program based on more than 20 in-depth interviews and a survey of more than 100 C-suite leaders and practitioners with first-hand experience implementing GenAI in organizations.

Watch out for more, and join us on the journey at Ascendion and HFS Research to access all our research findings.

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