AI Shake-Up: Firms That Survive Early Struggles Reap Long-Term Gains, Study Finds

Despite the initial setbacks, firms that endured the shift eventually saw substantial growth across various metrics, including productivity and employment.

AI is not an instant game-changer but rather a long-term investment that requires resilience and adaptability.

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A recent study presented at a European Central Bank (ECB) conference suggests that companies that weather the initial turbulence of artificial intelligence (AI) adoption ultimately emerge stronger. While AI integration initially disrupts operations, businesses that endure the challenges witness significant improvements in productivity, sales, and employment over time.

AI Adoption: A Rocky Start for Many Firms

Researchers analysed data from the US Census Bureau and industry surveys spanning 2017 to 2021, focusing on AI implementation in the manufacturing sector. The findings revealed that early adopters faced an initial decline in productivity, primarily due to the transition from human workers to automated systems.

This contradicts the widely held belief that AI instantly boosts efficiency and seamlessly enhances human roles. Instead, companies experienced disruptions as AI interfered with long-standing operational methods, such as lean inventory management.

“In the short term, we see a lot of pain,” said Kristina McElheran, a University of Toronto researcher and one of the study’s authors.

A Long-Term Payoff for Survivors

Despite the initial setbacks, firms that endured the shift eventually saw substantial growth across various metrics, including productivity and employment. Those that successfully navigated the transition phase outperformed competitors in the long run.

“Surviving this seems like part of the problem,” McElheran explained, emphasising that older, often larger, companies struggled more with AI adoption.

The study examined 30,000 firms, with AI adoption rates rising from 7.5 per cent to 9.1 per cent over the study period. The researchers concluded that while the transformation is painful, the rewards can be significant for those who persist.

AI’s Broader Impact on the Workforce

ECB President Christine Lagarde, who introduced the conference, highlighted that AI’s influence on jobs is substantial, with 23 per cent to 29 per cent of European workers being highly exposed to automation. However, she suggested that while some roles will be lost, new opportunities will likely emerge, mitigating fears of a “job apocalypse.”

The study’s findings reinforce the idea that AI is not an instant game-changer but rather a long-term investment that requires resilience and adaptability. Businesses that endure the upheaval stand to benefit from AI’s full potential, while those unable to cope may find themselves left behind.