Today’s business news is filled with mentions of exponential growth curves, major disruptions, and industrial revolutions. Although it seems like technology and business innovations are moving at warp speed, progress is being made at a glacial pace in one critical area.
In a world transformed by huge and rapid technological breakthroughs — including the internet, smartphones, and the Internet of Things — productivity growth has come to almost a complete halt. Productivity growth in the US fell to a rate of 0.4 percent between 2004 and 2014 from a peak of just under 3.5 percent per year in the 1950s. That is the slowest growth rate since records were first kept beginning in the late 1800s.
The anemic growth rate of productivity is disconcerting for the U.S. economy, which is dependent on productivity improvements for economic growth.
But as in past eras, businesses that can harness emerging technologies have an opportunity to dramatically improve their productivity. They can establish themselves as outliers from the norm with a considerable competitive advantage.
One of the key technological players in improving productivity is artificial intelligence. According to Accenture, AI has the capacity to boost U.S. labor productivity by 35 percent by 2035 and increase profitability rates by an average of 38 percent across 16 industries.
The power of general purpose technologies
AI is different from previous technological breakthroughs because it’s increasingly seen as a general purpose technology (GPT). GPTs are pervasive, spur innovation, and persist over a long period of time. Economist Robert Gordon likes to use a thought experiment to illustrate the power of GPTs.
In the version of the thought experiment told by Jacob Goldstein and Sally Helm of Planet Money, you are a deliveryman back in 1600. With your horse and cart, you’re at the cutting edge of the transportation industry. Thanks to newly paved roads to travel on and little competition, you’re kept busy.
After a long morning of transporting goods across London, you pull your carriage to the side of the main road out of town. You cook a small meal over an open fire, take a drink of water from a flask you filled up in a nearby stream, and settle down for a nap.
When you wake up, it’s 200 years later. The world of 1800 hasn’t changed much. Your carriage is still much in demand. There’s still no running water for your flask. You’re still cooking over an open fire. The fastest way to get from town to town is still on a horse, and if you want to get a message to someone far away, you need to send a letter.
The second part of the thought experiment is a bit different. In this scenario, you’re the same carriage owner. But this time you settle down for your nap in 1870 and wake up just 70 years later, in 1940. When you wake up the world is transformed. There are cars racing down main roads. There are planes in the sky and subways underground. People don’t need to send letters anymore — they can use a telephone. There are enormous skyscrapers in the cityscape on the horizon.
Most of these improvements are the product of GPTs, which have a far broader impact on the economy than most new technologies. The introduction of railroads had a huge impact on the retail industry, ushering in nationwide catalog sales. In the same way, the internal combustion engine led to the creation of the oil industry and highway systems, and the electrical generator heralded a new era of manufacturing. AI will drive new levels of automation and productivity in multiple industries across the world, and thus will have a pervasive impact on the economy of tomorrow.
Accenture predicts that AI will increase U.S. economic growth rates from 2.6 percent to 4.6 percent annually by 2035. Analysis Group sees AI having an economic impact of $1.49 trillion to $2.95 trillion over the next decade.
AI as the next general purpose technology
As Kevin Kelly wrote in a 2014 Wired Magazine article, the impact of AI on the U.S. economy is likely to be wide-ranging.
AI will enliven inert objects, much as electricity did more than a century ago. The technology will also augment our functions individually as humans (deepening our memory and speeding our recognition) and collectively as a species. There is almost nothing we can think of that cannot be made new, different, or more interesting with the infusion of additional IQ points.
The most successful companies will turn AI into productivity gains faster than their competitors. That’s why leading companies have already begun to make the shift to integrating AI into their business processes and cultures. Artificial intelligence now affects who they hire, the skillsets they develop, and how they train employees. According to PwC, 72 percent of business decision makers believe that AI will be the business advantage of the future. Companies that don’t make these changes soon will fall further behind their peers.
So, what are the leading companies doing to accelerate productivity gains through AI right now?
Empowering employees to do their jobs better
AI is highly efficient at collecting, analyzing, and making predictions about data. For example, with AI-powered predictive lead scoring, salespeople can focus on engaging with the highest-potential prospects and more effectively identify the best times and channels to make contact.
In the legal profession, McKinsey estimates that 23 percent of a lawyer’s job can be automated. This would give each lawyer 23 percent more time to perform “higher order” tasks, such as interacting directly with clients, negotiating contracts, and writing legal briefs.
Improving customer service
AI-powered chatbots are increasingly employed to help companies deliver always-on, immediate customer service. This allows companies to answer basic customer questions without any human involvement. When questions become more complex, customers can be automatically routed to a human service agent who can help solve their problems.
AI can help these human agents perform better too, driving further productivity. Algorithms “listening” to a call can take cues from a customer’s tone, volume, and phrasing to identify frustration in real time and give agents advice to defuse a situation and improve customer experience.
Boosting employee morale
A study from the University of Warwick found that happy workers are 12 percent more productive. AI can help companies understand and improve employee morale. By assessing signals from a variety of sources, algorithms can spot changes in employee sentiment and suggest proactive actions and incentives to boost morale.
While AI will undeniably reduce the need for humans to perform certain tasks, it is unlikely that AI technology will replace human employees altogether. Instead, success will be driven by partnerships between intelligent machines and humans across an organization. Those able to facilitate partnerships and understand how to practically apply AI in their workflows are in the best position to significantly improve productivity.
It’s clear that companies are already seeing the value in adopting AI. According to Narrative Science, 62 percent of companies will be using the technology in their enterprise by 2018. As more companies leverage AI to improve productivity, we’ll begin to see higher growth in the economy as a whole. This is exactly what we would expect from a new general purpose technology.
Peter Schwartz is senior vice president of strategic planning at Salesforce, a cloud computing company headquartered in San Francisco, California.