AI edge will depend on building hard-to-copy systems, says McKinsey
New Delhi, May 25
As artificial intelligence becomes widely adopted across industries, companies can no longer rely on standard AI models alone to stay ahead, according to a new report by McKinsey & Company.
The report said nearly 90 per cent of organizations are already using large language models to improve productivity, making AI a basic business requirement rather than a unique advantage.
According to McKinsey, the real competitive edge will come from how companies build systems, workflows, and infrastructure around AI that rivals cannot easily replicate.
"The strategic moat comes from turning cognitive work into infrastructure--data pipelines, fine-tuned models, integrated workflows, governance layers--that can scale at very low incremental cost," the report said.
The report noted that AI is sharply reducing costs in sectors dependent on cognitive work, pushing companies to focus on deeper operational integration.
As an example, insurance company Resolution Life uses AI to automate actuarial and financial processes, cutting claim processing times from weeks to just 15 seconds while handling larger business volumes efficiently.
McKinsey also highlighted Amazon as a company benefiting from large-scale proprietary data. The report said Amazon uses customer search activity, purchases, product views, and advertising response data to improve recommendations, forecasting, and marketplace performance in ways competitors struggle to match.
The report added that AI tools become indispensable when they are deeply integrated into core business operations.
"AI solutions go from convenience to necessity when they are embedded in core work and shape how work gets done to deliver a better product or service at a competitive price," it said.
Citing another example, the report pointed to Microsoft Dragon Copilot, which drafts clinical notes directly within hospital electronic health records. Used across 150 hospitals, the tool has reportedly reduced documentation time by around 50 per cent and helped lower clinician burnout.
McKinsey said companies that learn and adapt faster than competitors are likely to build stronger long-term advantages.
"Because AI performance improves with experimentation and data, organizations with a learning and development velocity that is consistently greater than their peers can create competitive moats," the report said.
The report advised company boards and leadership teams to closely track indicators linked to their AI strategy, including transaction costs, customer interactions handled by AI, and operational efficiency.
McKinsey compared the current AI boom to the early phase of digital transformation, when companies rushed to launch websites and mobile apps. However, the report said long-term success came not from simply adopting technology, but from integrating it deeply into customer journeys and business operations.
The report noted that companies will create lasting value by moving beyond basic AI adoption and building systems and assets that are difficult for competitors to duplicate.
— ANI
Reader Comments
McKinsey's comparison to the early digital transformation days is spot on. I remember when every Indian company just wanted a "website" without any strategy. Now we see the same rush with AI. Companies need to think about long-term integration, not just ticking a box.
The point about data pipelines and infrastructure is crucial. Most companies in India don't even have clean, structured data to feed into these models. We're still dealing with manual data entry and fragmented systems. AI strategy without data hygiene is just fancy presentation 🙄
As someone working in healthcare tech, the Microsoft Dragon Copilot example really stands out. We have similar potential in India's hospital systems – imagine AI-assisted documentation reducing work for our overworked doctors in government hospitals! But implementation will be very different from Western settings.
The Amazon example shows why our Indian e-commerce players like Flipkart and Meesho need to double down on proprietary data. Competing on generic AI models is useless when everyone has access to ChatGPT. The moat is in your unique customer data and how you use it.
Good report but I'm skeptical about how easily this can apply in India's diverse business landscape. Small and medium enterprises, which form the backbone of our economy, don't have resources for "building hard-to-copy systems." McKinsey always talks big picture but ground reality is different.
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