The AI Arms Race: How SMEs Are Outsmarting Giants

AI is a classic market-leveling technology, giving small businesses the firepower to challenge and compete with larger competitors.

It could be argued that SMEs are even more likely to feel the benefits of AI, as it could enable them to scale their operations, save on resources, and play in the same markets as bigger competitors on a more level playing field.

According to a McKinsey survey, the integration of AI has the potential to amplify business efficiency and concurrently slash operational costs by up to 30%.

For example, in the accounting profession and its uptake of automation, smaller firms are automating menial tasks, allowing accounting professionals to focus on clients and adding value to relationships.

CDOTrends has already documented the rise of AI avatars, where business owners in areas such as real estate and accountancy can have virtual versions of themselves interact with clients while they are doing other work or are even asleep. It saves time and filters out time wasters, allowing them to focus on real business leads.

Driving profitability

A recent survey by Australian bank NAB found that 25% of SMEs surveyed have already invested in AI, with another 20% planning to do so soon.

40% think it will make their business more profitable. However, the responses vary widely by sector, with finance, business and personal services leading the way.

In the U.K., it would seem that AI penetration among SMEs has gone even deeper. A survey by the Small Business and Entrepreneurship Council (SBEC) found that 48% of small businesses had incorporated AI tools in the last year.

“Business owners have re-invested AI-derived cost savings in other new technologies, fostering continuous innovation."

AI is clearly at the top of the mind in the U.K., with 93% of respondents acknowledging the cost-effective benefits of the technology and 83% planning AI investments in the next 12 months.

Australian SMEs identify productivity increases and reduced administrative tasks as the key benefits of AI technology, and 40% believe it will make their business more profitable.

More sophisticated SMEs also use AI as a predictive tool, which drives efficiency. For example, historical supply chain data and market trends can be analyzed to forecast demand and streamline manufacturing and inventory management accurately.

There is no comparative study of larger enterprises, but understanding how major corporations see it would be interesting.

Loop of improvement

Indeed, productivity and cost efficiency are essential, but—anecdotally at least—larger businesses seem more focused on insights that can drive innovation in areas such as personalization and the customer experience. Or maybe that is just the hype.

Back in SME land, U.K. business consultant David Mott had some comments on the SBEC research that are worth noting. He pointed out that 41% of SME business owners have used AI to "redirect their own time and employee time to higher value work."

"From inventory management to customer support, mundane processes can be automated, allowing employees to focus on higher value tasks that contribute directly to business growth," says Mott, who heads up consultancy Oxford Capital.

Efficiency and savings are other benefits that U.K. SMEs are already reaping from AI. If used wisely, these savings can create a loop of improvement.

“Almost two-fifths of small business owners—or 37%—have strategically re-invested their AI-derived cost savings in other new technologies, fostering a culture of continuous innovation," says Mott.

Ramp to retirement

Some of the results from the NAB data surveying Australian businesses could have been more bullish.

44% of SMEs, for example, said they only had a "basic understanding" of AI and its potential, which had been mainly picked up through media and social media. One in ten had no understanding or awareness of AI.

The barriers to AI implementation varied across industry sectors, but training and time were most often cited. In response to the training issue, another barrier was a lack of understanding of emerging technologies.

Notably, the price was not widely cited by Australian SMEs as a barrier to AI adoption, and the responses suggest that AI does have a tailwind among smaller businesses.

The reality is that there are many small businesses whose owners are set in their ways and reluctant to change. Often, this is a demographic issue, with some owners being close to retirement and unwilling to change things up as they move towards the off-ramp.

Other SMEs, meanwhile, are well-placed to use AI as a tool in their transformations. The technology is there, essentially a case of understanding how best to apply it to individual business needs.

Suppose a small business starts small with AI and uses it effectively to scale up. The business landscape will become more keenly contested and competitive in that case. That must be another ultimate benefit of embracing the new AI economy.

Image credit: iStockphoto/Choreograph