Explore the hidden costs of AI that businesses often overlook, as we delve into the implications of the hype cycle and the financial burdens that come with embracing new technology.
Image: Google Gemini
Global research and advisory firm Gartner talks about the “hype cycle”, where people with a brand-new technology move from the peak of inflated expectations to the trough of disillusionment to the slope of enlightenment.
Sounds very familiar to dating back at university, if you ask me?
But isn’t it a great analogy? With the US “tech bros” superheating the market globally with their mad claims about people having the option of not working at all in the future and one person in their bedroom launching the next $1-billion company. They would, wouldn't they? After all, hype is good for multiples when you are a shareholder in the US right now.
No doubt the technology boom will be transformative for most businesses on the planet, but there is something everyone seems to be missing (or refusing) to accept when it comes to the miraculous makeover we are all going to be receiving: The hidden costs of this new technology.
Mark Zuckerberg, widely known by the nickname “The Zuck” reckons Meta is prepared to spend more than $250-illion to win this AI arms race (that’s after he spent $80-billion on the failed metaverse). That’s one awesome investment on one side of the balance sheet.
While on the other side of that balance sheet is revenue that needs to support it. And who is footing that bill? Well, you and I of course.
It was recently reported that a global advertising network is spending more than £300-million a year to build their own bespoke platform that will miraculously integrate everything and anything to give their clients a mega advantage.
At a simple 10% margin, that means they will need to find £3-illion in revenue from those very same clients to make the investment vaguely feasible. The maths isn’t mathing.
The truth about AI is that it is not actually going to reduce cost, it is going to re-distribute it in organisations.
It’s a shock most C-suites aren’t ready for and it’s going to hit the bottom-line margin in a big way because AI right now is diluting rather than enhancing margin and many businesses in South Africa won’t be able to absorb that dip for very long.
So, what are some of these visible and invisible costs that organisations need to start seriously thinking about?
Labour substitution is the easiest one for a board and the C-suite to target. And it’s not unfounded. If a robot can do your job, were you providing any value to start with? But technology is only as good as the people wielding it.
And good judgement doesn’t come cheap. Cheap operational labour might be easy to cut, but smart, strategic thinkers will be needed to make sense of it all, especially when everyone has access to the same technology.
In automating all this work, it might automate poor judgement across your entire ecosystem if you are not careful. You might save time today, but you are inevitably hollowing out your expertise tomorrow. The re-distribution of costs will soon mean moving the labour force cost upstream.
The most visible and simplest cost is that all these tools are now priced in dollars, with single license costs ranging from $20 to $150 a pop per month.
Multiply by those license costs by the employees who will need the tools to “become more efficient” and the costs start running into the millions. AI isn’t just a software cost but an infrastructure tax and if those costs don’t convert into revenue quickly, the margin erosion begins in earnest.
A few days ago Taylor Swift trademarked her voice and face in the US. It’s a smart move, because she retains ownership of her most valuable assets.
There are countless cases of companies being sued for rogue chat bots giving bad advice, images being generated of famous likeness and famous songs being used without permission.
There is no way companies and brands are going to let any brand damage happen on their watch which will demand robust policy, legal review, compliance, governance and training.
So instead of removing layers, it may inadvertently add layers and costs that were never in the business before. Operating way ahead of the legal system with AI may turn into a very expensive endeavor if you are not clear on your policies, guardrails and quality controls.
Here is a scary question: Do you know what your employees are doing right now with ‘free’ AI tools?
Globally there is a name for it: “shadow process”. It’s when your employees feed tremendous amounts of your confidential information and intellectual property into the “chat” so that they can impress you with a beautiful 10-point plan the next day.
You wanted efficiency, right? Except that your cyber security and IT systems just found out they are getting a serious upgrade. #Kaching.
Most systems in companies have been around for a long time and have been built piecemeal over many years with an “if it ain’t broke, don’t mess with it” attitude.
And now you are about to integrate possibly one of humanity's most powerful innovations into a legacy structure that barely gets the billings out on time.
The integration layer and cost associated with it are simply astounding.
Think about the tech consultants, the custom integrations, the ongoing monitoring of systems, data centers and additional computing power to run it all. It’s naïve to think AI and automation is a “bolt on”, when truthfully it is a fundamental re-orientation of the way the company needs to operate from top to bottom.
No doubt everyone in the world has agreed that AI will shape their company in some way or another.
A lot are still grappling with “what” it will shape strategically, but most C-suites aren’t thinking hard enough about “how” they will do it operationally and what the costs associated with it will be.
We truly believe that it will be transformational for businesses when taken with a balanced view in the boardroom that may well be more evolutionary than revolutionary.
The opportunities that will come from a focused and clear business strategy enabled (not led by) technology across finance, operations and HR which acknowledges both sides of the balance sheet will no doubt unlock exponential growth.
Managing the gap will take careful and structured policies, re-invigorated business strategies and integrated conversations across all facets of the organisation.
The companies who win, will be the ones that can navigate that gap with intelligence, care and a long-term view towards the “slope of enlightenment”.
Jason Harrison is a Founding Partner and Chief OperatingOfficer of M&C Saatchi Group South Africa.
Jason Harrison is a Founding Partner and Chief OperatingOfficer of M&C Saatchi Group South Africa.
Image: Supplied.
Follow Business Report on Facebook, X and on LinkedIn for the latest Business and tech news.