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Businesses with AI focus increase profits, create jobs and perform better

As more and more businesses embrace Artificial Intelligence (AI) in their operations, Deakin University researchers have published empirical evidence to prove this investment pays off.

The Deakin Business School study shows that an AI focus not only increases firms’ profitability and efficiency, but also creates more jobs, debunking the notion of AI replacing man with machine.

Lead researcher Dr Sagarika Mishra said it was important to cut through the hype around AI that had been growing in recent years.

“Everyone says businesses should be investing in it, that it’s the next big thing, but there’d been little actual evidence to show it benefits a business’ bottom line,” Dr Mishra said.

“Our study demonstrates that an AI focus improves operating performance and efficiency. We found that to be true no matter the sector or size of the business.

“While AI might be a significant investment for some companies, we can now be more confident in saying it’s an investment that will pay off.”

The study, published in the Journal of the Academy of Marketing Science, analysed data from corporate reporting by more than 4000 US-listed companies over the past 15 years. 

Up until now, the balance sheet benefit of AI investment has been somewhat difficult to determine because there is no reported data on companies’ use of AI.

The Deakin research team – which also included Dr Holly Cooper and Alfred Deakin Professor Mike Ewing – found a way to bridge that knowledge gap by collating a set of keywords associated with AI and examining the extent these words were used in company reporting, specifically 10-K reports.

They found that firms with a greater AI focus (reflected in their reporting) generated higher profits per employee, a strong measure of increased operating efficiency. These companies also reported higher net profits and a reduced advertising spend.

Using US data afforded the researchers the large-scale analysis required for robust findings. But Dr Mishra said they were confident the insights would be equally applicable to the smaller, but just as highly developed, Australian market.

Another critical finding from the research was that companies with an AI focus created jobs and increased employee numbers, silencing some of the rhetoric that the rise of AI will lead to machines replacing humans in the workforce.

The study shows that a focus on AI is not a case of man versus machine, but rather man plus machines.

“People are becoming more demanding; they want better service from the companies they interact with. AI shows that can be achieved by humans working with machines to increase their capabilities,” Dr Mishra said.

Recent examples of AI-enabled efficiencies in Australian companies include:

  • Online fashion retailer The Iconic is using AI to suggest full outfits for customers rather than just a single piece of clothing, and AI facilitated augmented reality lets customers try on clothes virtually, allowing for greater personalisation.
  • Coles is using smarter AI forecasting tools to increase product availability for customers, critical in addressing recent pandemic and climate related supply chain pressures. The supermarket chain also uses AI to optimise markdowns in meat, reducing waste while protecting profitability.
  • Clothing company Citizen Wolf has developed a ‘Magic Fit’ algorithm to manufacture its t-shirts, resulting in a returns rate of 6-8 per cent compared with 35-50 per cent in traditional retail.

Professor Ewing, Executive Dean of Deakin’s Faculty of Business and Law, said he hoped the results would encourage firms to integrate more AI into their businesses.

He said all companies – no matter their sector or size – should be doing an “AI audit” or risk being left behind.

“Progressive organisations can’t escape AI – disruption will be ubiquitous. The time for a ‘wait and see’ approach is over. The question is are they going to lead or are they going to follow?

“Investment in AI doesn’t have to be prohibitively expensive either. There are numerous off the shelf, open access, very cheap and even free AI products that can be integrated into almost any business.

“Companies looking to integrate AI into their operations can also collaborate with firms creating new AI technologies and providing AI related services. This is much easier than business developing solutions on their own, especially for smaller businesses.”