AI is a tempting proposition for businesses of all sizes, promising efficiency, productivity, and cost savings. But behind the shiny veneer of AI technology is a stark reality:
Australian businesses are losing money due to poor integration and digitisation.
It’s something that big organisations and government departments aren’t immune to either.
One of the big four banks rolled out a new AI-powered fraud detection system in 2017. The system flagged legitimate transactions as fraudulent, which resulted in the embarrassing situation of many customers having their accounts locked. The financial institution was forced to withdraw the system and issue refunds to affected customers.
In 2018, a major telecommunications company launched a chatbot to assist customers. The chatbot provided inaccurate and misleading information to customers, and the company was forced to withdraw the initiative and apologise to its customers.
In 2019, the federal government launched an AI-powered tax chatbot, called RoboChat, that was unable to answer basic tax questions accurately. They were forced to withdraw the chatbot and issue an apology.
While you’d be challenged to locate the exact financial costs of these missteps, the damage to customer confidence and trust, and the costs to fix the erroneous systems, have an enduring impact on consumer confidence.
There’s a multitude of reasons for the shortfall, including the challenges posed by disjointed digital systems and incorrect use, as well as implementation and integration.
Implementation and Integration
A 2022 study has found that many Aussie businesses are losing money on AI integration.
The study, conducted by MYOB, found that Australian businesses are wasting an estimated $1.4 billion each year on unused digital tools, including AI solutions. Additionally, 27% of Australian SMEs have experienced costs blowing out due to disconnected digital tools, including AI solutions.
There are a number of reasons why Aussie businesses are losing money on AI integration. One of them is that businesses are investing in AI solutions without fully understanding their needs or how to use the technology effectively. This can lead to unused or underused AI solutions, which is a waste of money.
Commonly, IT projects are approached as siloed, one-off opportunities to fine tune a specific business process or function. Maybe it’s the introduction of a conversational AI tool to improve frontline customer support functions, or the development of credit decisioning solution to build out a digital payments infrastructure; whatever the specific use case, projects approaching a singular vision to make one part of the business faster or more efficient are ineffective because they simply aren’t robust enough to leverage change across the entire organisation. IT leaders need to focus on projects that have the potential to transform legacy business and IT processes into a fully synchronised, smart workflow.
Integration and implementation of AI can be expensive, with Aussie businesses spending an average of $3.56 million on custom AI integration per year. Costs associated can be purchasing software, hardware, and infrastructure, and hiring AI professionals to manage your systems. Substantial financial losses can occur when businesses fail to budget appropriately for a seamless transition.
Disconnected and Legacy Systems
Another common reason for AI integration failure identified is when businesses do not properly integrate their AI tools with their existing business systems. This causes ineffective and/or duplicated efforts and work. It also makes it difficult to track the ROI of AI investments.
Recent research by IBM suggests the average cost of bad digitisation for businesses is $2.2 trillion per year globally. Alarmingly, it’s expected to rise, as we move forward and businesses become even more reliant on AI and other innovative digital technologies. The MYOB study supports this, as a staggering 59% of Australian SMEs report experiencing bad digitisation because their various digital and AI tools operate in silos.
The principal risks and costs, over and above not getting the full benefits of digital and AI investments that were highlighted, include:
Lost productivity as employees manually handle and transfer data between disconnected systems.
Increased costs due to duplication of work and efforts.
Reduced customer satisfaction from clunky experiences, leading to loss of business.
Increased security vulnerabilities.
Increased errors, as when AI isn’t integrated correctly, it can’t access all the data required for accurate assessment.
Research also confirmed that 70% of Australian SMEs have trouble understanding how their business is performing due to fragmented systems, and only 27% have a clear ROI plan for their AI investments.
While the financial cost can be significant, businesses that are unsuccessful in integrating AI can also lose tens of thousands of dollars by missing out on the competitive advantages that AI can offer.
Research has also identified that Aussie businesses are paying for AI and digital subscriptions, but then not integrating them into their company tools in a seamless way, which means in some cases they are not using them at all.
42% of Australian businesses admit they have given up using some digital business solutions due to their inefficiencies, but are still paying for them.
When you consider the fact that Aussie SMEs spend around 25% more on software subscriptions than the average household’s $700 annual spend on streaming services, it’s a significant deficit in cash flow that could be going to other areas of the business. IT Brief Australia reports that around 12% of business owners estimated that cancelling unused software applications could save them up to $1,200 per year, with 9% doubling that estimate.
Lack of Education and Training
A 2023 survey by the Australian Information Industry Association (AIIA) revealed that 54% of Aussie businesses believe the lack of AI skills is their biggest obstacle to AI adoption.
McKinsey Global Institute (MGI) went as far as reporting that Aussie businesses are losing out on up to $25 billion per annum in productivity due to the AI skill shortage.
Many companies utilise ChatGPT, and interestingly, 77% of millennials and Gen Z say they use it. It’s important to note the generational differences for adoption of the large-language model, with only 50% of Gen X and 30% of Baby Boomers using it.
However, it’s the more mature generations, who aren’t digital natives, that are more likely to use ChatGPT for business purposes, such as providing customer service, streamlining operations, and developing new products and services. This makes a more pressing argument for businesses to invest in AI education and training for their staff – or risk falling behind competition, and losing out on the benefits that AI can offer their business.
Importantly, many experts identify that it’s advisable to include a budget of 10-20% of the total integration cost for staff training and support in AI tools and processes.
Reducing The Loss and Maximising the Benefits of AI
AI custom integration and implementation expenditure will vary based on business size, intricacy, the solutions adopted, and the degree of customisation required. Some other factors affecting the price tag are chatbot integration, CRM integration, and custom AI developments.
There are a number of things that Aussie businesses can do to avoid losing money on AI integration. These include:
Carefully assess needs and choose the right AI solutions for the business. Not all AI solutions are created equal. It is important to carefully assess needs and select AI solutions that are specifically designed to address business challenges.
Work with a qualified AI consultant. Experienced AI consultants help choose the right AI solutions for specific businesses and ensure that they are properly integrated with existing business systems.
Develop a clear plan for measuring the ROI of your AI investments. Having a plan enables you to track progress and make necessary adjustments.
Invest in training employees on how to use AI tools effectively. AI is only as effective as the people who work with it. Investment in training people to use AI tools effectively ensures you get the most out of the AI systems.
In addition to the recommendations above, Aussie businesses can also start with small AI projects and gradually scale up as they gain experience and expertise, and see a healthy ROI for the efforts. Using cloud-based AI solutions can also reduce the upfront costs.
AI’s potential for financial losses in Australian businesses is substantial but not insurmountable.
To truly harness the potential of these tech and AI investments, companies must tackle all interrelated functions, intertwining customer engagement, data collection, analytics, and digital operations to reshape the entire workflow from initial customer queries to sales, marketing, product development, and all other facets of the business. By adopting this holistic approach, businesses can achieve more.
AI technology investment is fundamentally reliant on data as its cornerstone. Our international collaborations with clients emphasise that data stands as the essential foundation underpinning all major initiatives poised to define success in the forthcoming decade within the AI landscape. Data not only fuels the development of advanced analytics solutions but also acts as the clandestine formula driving digital transformation and proficient operations management.
Companies must approach AI integration with caution, prioritising strategic planning, education, and effective integration to benefit the entire business, not just one aspect of their operations or functionality. Additionally, government regulation is essential to ensure responsible AI adoption and protect businesses from unnecessary financial losses. By effectively integrating AI technology and following sound digital transformation practices, businesses can turn potential losses into lasting gains.