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Smartening up with Artificial Intelligence (AI)---What's in it for Germany and its Industrial Sector?

. Report, McKinsey & Company, (April 2017)

Abstract

Artificial intelligence (AI) is finally bringing a multitude of capabilities to machines that were long thought to belong exclusively to the human realm, such as processing natural language or visual information. In this report, we explain how and where AI could affect the German industrial sector by exploring several questions: Which subindustries are most strongly affected by the automation potential of AI? What are the most promising use cases? What are pragmatic recommendations for managers of industrial players planning to harness the power of AI? Highly developed economies like Germany, with a high GDP per capita and challenges such as a quickly aging population, will increasingly need to rely on automation based on AI to achieve GDP targets. About one-third of Germany’s GDP aspiration for 2030 depends on productivity gains. Automation fueled by AI is one of the most significant sources of productivity. By becoming one of the earliest adopters of AI, Germany could even exceed its 2030 GDP target by 4 percent. However, if the country adopts AI more slowly---and productivity is not increased by any other means---it could lag behind its 2030 GDP target by up to one-third. AI is expected to lift performance across all industries and especially in those with a high share of predictable tasks such as Germany's industrial sector. AI-enabled work could raise productivity in Germany by 0.8 to 1.4 percent annually. We selected eight use cases covering three essential business areas (products and services, manufacturing operations, and business processes) to highlight AI’s great potential in the industrial sector. Use cases include topics such as autonomous vehicles, predictive maintenance, collaborative robotics, and supply-chain management. Five pragmatic recommendations help with getting started on the journey toward a fully AI-enabled organization. Artificial intelligence (AI) is finally bringing a multitude of capabilities to machines which were long thought to belong exclusively to the human realm: processing natural language or visual information, recognizing patterns, and decision making. While AI undoubtedly holds great economic potential for the whole world, in this report we explain how and where AI will likely affect the German industrial sector by exploring several questions: Which subindustries are most strongly affected by the automation potential of AI? What are the most promising use cases? What are pragmatic recommendations for managers of industrial players planning to harness the power of AI? We describe several use cases in which we highlight the impact of AI and aim to quantify it. These use cases were carefully selected based on their economic potential and their ability to demonstrate the benefits of AI in practice. We do not claim that AI – despite its enormous potential – is the silver bullet for every business problem. We realize that AI is very often the enabler for performance improvements whose actual realization requires changing business processes. It is a rapidly evolving field. Thus, the present report needs to be understood as a peek into the future based on the current state of the art. With these caveats we are confident that this report will provide managers in the German industrial sector with valuable guidance on how they can benefit from AI.

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