Long-Term Roadmaps Are Top Enterprise AI Priority, ISG Study Finds
- None.
- AI technologies are currently driving up costs across businesses more than saving through efficiencies.
- Enterprises are willing to pay 7-8% more for applications with AI functionality, despite the increase in costs.
- The study highlights that enterprises may be trailing peers in using AI to generate new revenue streams.
Insights
The survey conducted by ISG reveals a significant trend in the enterprise sector's adoption of artificial intelligence (AI), with a projection to double AI-enabled applications by the end of 2024. This anticipated growth in AI applications represents a shift in resource allocation, with AI spending increasing from 2% to 3.7% of the IT budget. This data suggests a growing confidence in AI's ability to enhance business operations and deliver tangible benefits.
From a market research perspective, the prioritization of AI initiatives is indicative of a competitive landscape where companies are seeking to gain an edge through technological innovation. The emphasis on creating a long-term AI strategy underscores the importance of a structured approach to integrating AI within the broader business framework. This strategic focus is likely to influence the direction of future investments and could lead to a surge in demand for AI specialists and infrastructure.
However, the report also highlights a significant challenge: the increasing cost associated with AI implementation. While enterprises are willing to pay a premium for AI functionality, there is a concern that AI is currently driving up costs more than it is saving. This could impact profit margins and necessitate a careful evaluation of AI investments against expected returns. The focus on cost and labor efficiencies over the next two years suggests that businesses are looking for AI to transition from a cost center to a source of operational leverage.
The financial implications of the ISG survey findings are considerable for investors and stakeholders in the technology sector. The projected doubling of AI applications signifies a substantial increase in capital expenditure for enterprises, which could affect short-term profitability but potentially lead to long-term gains through improved efficiency and new revenue streams. The survey's indication that 42% of respondents are prioritizing AI use cases that improve customer experience could also have a positive impact on customer retention and lifetime value, which are critical metrics for sustainable growth.
The acknowledgment that enterprises are trailing in using AI to generate new revenue streams, as noted by 27% of respondents, suggests that while AI is seen as a strategic necessity, its direct contribution to top-line growth may still be in its nascent stages. Investors should monitor how effectively companies can convert AI capabilities into revenue-generating products and services, as this will be a key determinant of AI's ROI.
Additionally, the sector-specific use cases mentioned, such as recommendation engines in BFSI and retail and predictive operations in energy and manufacturing, highlight the diverse applications of AI across industries. This diversification could mitigate sector-specific risks and provide a cushion against market volatility for companies with a broad AI application portfolio.
The survey's insights into the enterprise AI landscape suggest a rapidly evolving technology sector where AI is becoming an integral component of business models. The focus on long-term AI strategies reflects a recognition that AI is not just a set of tools but a transformative factor that requires a holistic integration into business processes. This strategic integration is essential for harnessing AI's full potential in analytics, customer experience, HR and supply chain management.
It is noteworthy that while AI is expected to drive up IT spending, enterprises are also placing a high value on AI's potential to achieve cost and labor efficiencies. This dichotomy underscores the complex relationship between initial investment in AI technology and the realization of its cost-saving benefits. The survey's findings on AI's role in increasing IT initiative spending in security, cloud and CX indicate that AI's impact is far-reaching, affecting various aspects of IT infrastructure and strategy.
For technology stakeholders, the survey suggests a need to balance the enthusiasm for AI's capabilities with a prudent approach to managing costs. The willingness of enterprises to pay more for AI functionality also points to a market where AI-driven solutions can command a premium, potentially leading to increased profitability for providers of AI technologies and services.
Survey of global AI decision-makers finds enterprises plan to double the number of AI-enabled applications by the end of 2024
Forty-two percent of respondents to the ISG Market Lens™ Artificial Intelligence Study said creating a long-term AI strategy or roadmap is one of their organization’s top three priorities, followed by 37 percent who said identifying AI use cases that build new revenue streams and 34 percent who prioritize AI use cases that improve customer experience.
The study was conducted globally in January 2024 and covered 200 executives with decision-making responsibility for AI initiatives and applications within IT and the business.
“Enterprises currently have an average of 251 AI-enabled applications, including those in pilot or beta mode, a number they expect to nearly double to 488 by the end of 2024. This is a shift in AI spending from two percent of the IT budget in 2023 to 3.7 percent in 2024,” said Alex Bakker, ISG Distinguished Analyst and co-author of the ISG study.
“These AI-enabled applications are wide-ranging, covering analytics, customer experience, HR, supply chain, procurement and more,” Bakker continued. “A long-term strategy is critical for guiding this rapid growth and ensuring AI investments are in line with business, revenue and customer experience goals.”
Measuring their organization’s performance against the top AI priorities, respondents rated their progress toward a long-term strategy positively. Forty-eight percent of survey respondents said their business is doing better than peer companies at formulating a long-term AI strategy, while 42 percent said their AI-supported customer experience is better than peers. However, 27 percent say they are trailing their peers when it comes to using AI to generate new revenue streams.
Respondents say the most valuable AI use cases over the next two years will be cost and value optimization (rated most valuable by 26 percent of respondents), predictive operations such as supply chain (15 percent), and customer-facing recommendation engines (14 percent). In terms of use cases, cost optimization ranks highest across all industries, but other use cases vary by industry. For instance, recommendation engines rank second in banking, financial services and insurance (BFSI) and retail, while predictive operations rank second in the energy and manufacturing sectors. In healthcare, quality assurance ranks second as the most important use case.
“Enterprises expect AI to come at greater cost and are willing to pay 7 percent to 8 percent more for applications with AI functionality,” said Michael Dornan, principal analyst and co-author of the study. “Though the highest proportion (30 percent) of respondents said efficiency is their organization’s primary motivation for enabling AI technologies, AI is currently driving up costs across the business more than it is saving through efficiencies.”
Dornan added: “Twice as many enterprises say their spending on security, cloud, CX and other IT initiatives is increasing compared with those who say it is falling, with AI considered the cause of the increase in around three-quarters of these cases. Even still, enterprises are placing the most value on achieving AI’s promise of cost and labor efficiencies over the coming two years.”
ISG Market Lens™ buyer behavior studies combine findings from surveys of senior-level global executives with expert ISG research and analysis on market trends and strategic business initiatives. Recent studies explored application development and maintenance , cost optimization, cybersecurity, global capability centers, network modernization, banking and the future workplace.
Contact ISG for more information on ISG Market Lens research.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in
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Source: Information Services Group, Inc.
FAQ
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