Dive Brief:

• Technology infrastructure challenges topped the list of barriers that hindered companies last year from realizing the goals of initiatives such as artificial intelligence investments aimed at reducing costs and boosting margins, according to a recent report from Big Four accounting firm Deloitte.
• In a Deloitte survey of more than 300 business leaders globally, half of the respondents cited “challenges with technology infrastructure” as the chief internal barrier to cost control, a 61% increase over the prior year. Companies have been shifting their approach to cost reduction and transformation programs, with an added focus on AI, Deloitte said.
• “It’s really the rise of generative AI and AI applications overall that has added to the importance of having your house in order from an IT infrastructure perspective,” Mauricio Garza, a leader in Deloitte’s strategy and analytics practice, said in an interview. “As you’re trying new things within this space, the main barriers come to light.”

Dive Insight:

Eighty-two percent of companies fell short of their cost-reduction targets over the past year, compared with 72% in the previous survey, Deloitte found. “This is the highest failure rate Deloitte has ever recorded since starting this series in 2008,” the report said.

Among companies that satisfied their cost-reduction goals in the past year, meeting their timelines was a challenge, with 42% of them failing to do so.

U.S. companies are discussing cost control on earnings calls at a record rate amid a push to reallocate funds and invest in new technologies like AI, Bloomberg reported in February, citing an analysis by Morgan Stanley strategists. The rising focus on cost control comes as firms position themselves to protect margins amid hopes for a soft economic landing, the report said.

One of the biggest advantages of using AI in the workplace is the potential for cost savings and increased efficiency, according to a LinkedIn article penned last year by Daniel Caciano, product experience support manager at Hewlett-Packard.

“When automating repetitive tasks and streamlining business processes, AI can free up employees' time to focus on more strategic and creative tasks,” Caciano wrote. AI can improve business efficiency by up to 40% and reduce operational costs by up to 30%, he noted, citing a McKinsey study.

Companies looking to achieve cost savings through AI must be prepared for upfront costs that can be significant, depending on their specific needs, Caciano said. Building an in-house AI system can cost between $1 million to $10 million, while using a vendor can cost upwards of $100,000 annually, according to the article. “While the upfront cost may be high, the potential for cost savings and increased efficiency makes it a worthwhile investment in the future of the business' operations,” the author said.

Deloitte found that 79% of business leaders have embraced generative AI as a to tool to drive efficiency, innovation, and improve customer and employee experiences. However, in many cases, companies are running into legacy tech challenges as they race to adopt the technology, according to Garza.

“As you try to scale and drive efficiencies with AI and generative AI, you’re going to bump into those legacy systems, those outdated data structures that prevent you from being able to immediately reap the value of these new technologies,” he said.

Challenges hidden in legacy tech architectures can catch companies by surprise, triggering problems such as projects that run over budget and missed deadlines, according to a 2020 report by McKinsey.

“Poor management of tech debt hamstrings companies’ ability to compete,” the report said. “The complications created by old and outdated systems can make integrating new products and capabilities prohibitively costly.”

In Deloitte’s survey, technology infrastructure challenges shot to the top of the list of key barriers hindering cost control efforts, up from fifth place a year earlier. Other barriers in the past year included “inability to rapidly adjust cost structure to meet demand,” cited by 48% of respondents compared with 32% a year earlier, and “inability to attract/retain key talent,” cited by 43% of respondents compared with 42% a year earlier.