5 AI Reshaping the Services Industry

The sweeping changes taking place on account of AI are already being recognised by some industries, and the early starters have already realised the benefits too. On the other hand, those who are slow to adapt to the changes have either been left behind or have had to go belly up. The advantages for businesses on account of digital and AI spend have resulted in retention or expansion of customer base, thus reflecting on income generation, or in operational efficiencies resulting in cost optimisation.

We have witnessed several examples of those who have been hesitant with their digital and AI strategy failing in their businesses, leading to loss of market share and increased costs, including established businesses such as Toys R Us1, Sears2, Bed Bath & Beyond3, Thomas Cook4 and several others.

Leveraging AI would not only mean the right investment at the right time. It starts with the foresight on how the business landscape will change in the coming years, shadowing the constantly evolving changes in AI technologies, identifying those technologies that could bring about quantum benefits to the business, understanding the implications of alignment with AI in every function across the organisation and bringing about the required changes in the functioning of the organisation and the roles and the processes of engagements.

All of this would be possible only with the right leadership with an excellent ability to steer the business in the right direction and inspire the teams to be flexible to adapt to change on an ongoing basis. The future of business in every sector is going to be largely centred on its capabilities and timing for absorption of AI technologies in the business.

Several established businesses in the services sector have struggled to adapt to the digital changes, which impacted their competitiveness and led to loss of market share or, in some cases, even to bankruptcy. We shall examine the implications for leaders in this context with some examples drawn from the service industry—hospitality, retail and banking, insurance and financial services businesses—that are centred on operational excellence or customer intimacy, resulting in cost optimisation or revenue enhancement or both.

Hospitality Industry

The hospitality industry is primarily built around customer relationships and personalised experiences. Several businesses in this industry were slow to embrace digital and AI technologies, and they failed to read the swiftness with which customers were shifting their preference to digitally served options. This shift in preferences resulted in the galloping progress in customer acquisition that new upstarts such as Expedia and Airbnb achieved relatively quickly.

Thomas Cook, which had built a successful travel business through its brick-and-mortar model over 178 years, for instance, could no longer meet the expectations of a large section of their customers who started expecting the same advantages others were offering in terms of dynamic pricing, personalised recommendations and ease of online bookings. After struggling to deal with the new competitors, the business eventually declared bankruptcy in 2019.5

On the other hand, hotel chains like the Holiday Inn, the Marriott, Howard Johnson and others owning mighty physical assets faced challenges with the onslaught of born-on-the-web players like Expedia and Amazon offering flexibility with booking and pricing options and new players like Airbnb not owning any assets but zooming to US$83 billion.6 Although they have managed to subsequently recoup by investing in digital and AI assets, they have let new players enter their territories and allowed them to chip away what could have been their business otherwise.

The changes in customer expectations are here to stay, and the players in the hospitality business have come to recognise that their offerings have to be further tailored around these expectations, resulting in more granular personalisation in automated room bookings, selections, check-in options, food and beverages (F&B) and convenience factors.

Further implementation of AI in streamlining operations and enhancing decision-making could result in enormous benefits for the hospitality industry, which has historically been human-driven. The processes, too, have not kept pace with technological advancements in most cases.

Hotels or resorts consume a lot of water and energy. With their rising costs and the need to conserve natural resources as a sustainability objective, AI could play an important role in the planning, consumption and conservation of resources to bring down costs and, thereby, offer unique value propositions to customers.

Revenue optimisation for hotels would be through AI-driven dynamic pricing models, loyalty programmes built across online and in-person experiences and AI-powered digital concierge services. Thus, blending efficiency with personalisation would enable the hospitality businesses to build differentiation and create customer stickiness through enhanced customer delight.

Let’s take a look at the examples of AI interventions that the hospitality business, including several leading Indian hotels like Taj Hotels, Oyo, ITC Hotels and Trident Hotels, has prioritised based on the necessity and feasibility for their businesses.

AI Interventions in the Hospitality Industry