68% of business leaders said investor pressure to demonstrate returns on generative AI investments was “important” or “very important.” Questions have loomed over whether AI can generate returns for businesses, leading corporate technology leaders to search for ways to show its value. Businesses are starting to link their artificial intelligence initiatives with paring back hiring plans, or so-called cost avoidance, in an effort to justify investing in the technology when there is still broad skepticism AI can generate big returns. Cost avoidance can be just one way companies evaluate AI’s value. Some are putting more emphasis on revenue growth, profitability or productivity gains.Businesses are starting to link their artificial intelligence initiatives with paring back hiring plans, or so-called cost avoidance, in an effort to justify investing in the technology.
Questions have loomed over whether AI can generate returns for businesses, leading corporate technology leaders to search for ways to show its value. Sixty-eight percent of business leaders said investor pressure to demonstrate returns on generative AI investments was “important” or “very important,” according to a December survey by global audit and consulting firm KPMG.
The term also resonates at a time when companies continue to pare back spending—and when there is still broad skepticism AI can generate big returns.
Wider adoption of a job reduction mindset could have ripple effects across the economy and exacerbate unemployment for white-collar workers, which has been highest in tech, law and media.
In tech, at least, there are signs the unemployment rate is improving. It stood at 2% in December, the lowest level since November 2023, according to the IT trade group CompTIA, citing Labor Department data.
Cost avoidance is an appropriate term, according to Thomas Bodenski, chief operating officer of financial software company TS Imagine, because “we have this mindset: doing more with the same.”
Rather than hiring more knowledge workers for repetitive tasks such as filtering emails, Bodenski said, implementing a new AI-based sorting process has allowed TS Imagine to hold headcount at existing levels. Even if the company were to hire new staff, he added, they wouldn’t be able to learn certain tasks as quickly as AI.
TS Imagine receives 100,000 email alerts each year, Bodenski said, and manually sorting them requires 4,000 hours of work—roughly equivalent to 2½ full-time workers. AI can do the work at 3% of the cost of the employees, he said.
At Palantir Technologies, which sells data-analytics software to businesses and governments, AI has already reduced future headcount by 10% to 15%, according to Chief Information Officer Jim Siders. Speaking at The Wall Street Journal’s CIO Network Summit event in October, Siders said “headcount avoidance” and associated savings enabled Palantir to invest in “the next round of experimentation.”
The big idea behind it, Siders said, was “finding efficiencies and not needing to replace people who are just pushing buttons for a living with others, and helping move people up the chain of really doing things that are differentiated.”
For Christos Ruci, CIO of construction services firm Limbach Company, cost avoidance is also about giving staff resources that may otherwise go to hire new workers.
“Adding folks is not just adding a body, it’s adding the management,” Ruci said. “We really want to focus on keeping the staff that we have, upskilling them and then just giving them better tools to do their jobs.”
Still, there is the view that AI will replace the work of existing white-collar employees. While experts say there is no evidence yet AI is taking over swaths of office jobs, fears remain that AI will disrupt overall hiring at a time when the number of unemployed Americans searching for work for at least six months has increased by more than 50% since the end of 2022.
Another important factor: Cost avoidance most often pops up in specific departments like software development and customer service, said Arun Chandrasekaran, an analyst at market research and IT consulting firm Gartner.
“In those areas, we are starting to hear this deferring of hiring, which is, ‘I’m able to postpone the hiring to a later date, or I’m able to hire less people than I originally planned to hire’,” he said.
Cost avoidance can be just one way companies evaluate AI’s value. Some are putting more emphasis on revenue growth, profitability or productivity gains. For instance, Johnson Controls is focused on getting productivity and growth out of AI, said Vijay Sankaran, chief digital and information officer of the industrial conglomerate.
Others, like Vikas Vijaywargiya, CIO of software and IT services firm Zensar Technologies, said early measures of return on investment for new technologies are often “off the mark.” “Many CIOs are still figuring out the complexities of AI ROI, often through a trial-and-error process,” he added.
At the same time, some American workers are getting better at getting things done. Whether with the help of AI or not, productivity in the U.S. rose 2% in the third quarter compared with a year earlier, according to the Labor Department.
“That really helps with postponing some of these big hiring decisions,” Chandrasekaran said.
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