BCG: How to Utilise AI Effectively for Cost Transformation

Now AI has been so broadly implemented across businesses worldwide, investors are waiting on ROI. 

However, the financial results of AI investment have varied, showing the pitfalls, challenges and opportunities needing more attention for maximum return.

Corporate leaders are facing intensifying pressure to deliver cost savings, maintain operational efficiency whilst simultaneously considering sustainability goals, inflation, supply chain disruptions and competitive market dynamics. 

Gen AI has particularly been useful in accelerating cost transformation – by automating complex tasks previously requiring human expertise, from customer service interactions to procurement processes and content creation.

Yet research from Boston Consulting Group (BCG) says that only 26% of organisations have successfully scaled AI solutions across at least one function, whilst developing the capabilities needed to generate value.

The company’s analysis of over 1,000 clients shows that the key to cost benefits is in successful AI implementation, since despite widespread recognition of AI’s potential, approximately half of companies fail to meet their cost-reduction targets.

The disconnect between investment and results stems from implementation challenges rather than technological limitations.

The four key situations where AI delivers the most value 

BCG’s research identifies four specific conditions where AI delivers the biggest cost base impact. Each involves high-volume processes and transactions that AI can learn from and optimise.

Heavy reliance on codified knowledge

Companies that produce outputs based on organisational knowledge of specific processes can use Gen AI to make production processes 50 times more efficient, reducing costs by 20% to 30%. 

These organisations include those involved in internal or external content creation and software engineering.

For example, BCG says that a consumer goods company transformed its marketing processes end-to-end by using AI, improving productivity whilst reducing agency costs. The initiative accelerated content production and adaptation, leading to projected savings of US$275m in overall marketing costs.

Interaction with individual customers

Organisations with large customer bases and frequent interactions through call centres can also use chatbots and Gen AI assistants to handle inquiries and categorise others, reducing workload on staff. This approach enables companies to operate with smaller teams whilst cutting costs by up to 90%.

For example, BCG reports a global asset manager optimised customer support operations through AI automation, reducing operating expenses by one-third – delivering US$100m in bottom-line impact for the financial services firm.

Large supply bases

Manufacturers and other companies with large supply bases and frequent price negotiations can leverage Gen AI to identify price outliers and create tender documents alongside smart contracts. These applications produce efficiency gains of up to 50%, with contract reviews that previously required two days now completed within 20 minutes.

BCG says a logistics company implemented Gen AI to create requests for proposals and handle support processes – then the transport and distribution firm improved procurement function efficiency by 30% to 50%.

Significant field forces

Furthermore, companies with large workforces in the field, such as maintenance or sales teams, can improve operational workflows using Gen AI, boosting individual employee productivity by 20% to 30%.

BCG reports that an oil and gas company deployed Gen AI to enhance maintenance operations – and the energy firm reduced errors by 70% whilst decreasing preventive maintenance costs by more than 40%.

How to avoid common AI transformation pitfalls

Transformation at any organisational level presents difficulties, with potential missteps that can hamper successful efforts.

As a result, BCG points to specific pitfalls in AI-enabled cost transformation that industry leaders should avoid.

Don’t forget to cash the cheque

AI is a powerful technology, but it is not a magic solution. Leaders will only capitalise on its potential through disciplined process changes, people reorganisation and cultural shifts to execute business cases and remove costs.

BCG finds that successful AI implementation extends further than technology deployment, the study found only 10% of benefits derived from algorithmic models, with 20% coming from data utilisation. The remaining 70% results from developing new behaviours and working methods.

Therefore, companies must reorganise roles to position talent with appropriate skills whilst adapting processes for seamless human-AI interactions. 

Organisations will also need agile learning cycles to innovate, learn and pivot as technology evolves.

Be vigilant about rising tech expenses and complexity

AI implementation at scale can increase technology costs and complexity as utilisation grows.

BCG recommends that companies must track hidden costs, particularly with third-party vendors who often raise prices once enterprise customers commit to solutions.

Organisations should focus on manageable application numbers to avoid overwhelming cost transformations.

Structure the implementation to capture savings as quickly as possible

The pace of AI adoption significantly impacts cost reduction initiative effectiveness – so companies should pursue quick wins early to unlock resources and generate momentum for comprehensive long-term efforts.

Rigorously track value

BCG says that successful organisations avoid adopting technology for its own sake, ensuring AI applications link to business objectives whilst improving productivity – and these implementations unlock financial savings that flow through to bottom-line results.

Therefore, companies integrating AI into broader cost transformation efforts achieve better outcomes by eliminating redundant work, creating improved experiences for customers and employees and unlocking savings beyond traditional cost levers.

Finally, AI-enabled transformations provide companies with sustainable cost advantages in competitive markets.

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