Digital transformation, one smart step at a time

Product enhancements and productivity gains are among the top benefits that business leaders expect to achieve from their planned investments in generative artificial intelligence, according to the results of a recent survey by KPMG.

The vast majority (97%) of executives indicated plans for GenAI investments over the next 12 months, with 43% expecting an allocation of $100 million or more. When asked what they saw as the greatest value creation that might come from these investments, half of the respondents said improving products and services via customer data analysis, while 48% said “enhancing efficiency to generate greater productivity.”

“We’re entering the next phase of GenAI, moving from pilots to transformational programs,” Steve Chase, KPMG’s vice chair of AI & Digital Innovation, said in a press release. “Early experimentation has proven the potential of GenAI, sparking a readiness for greater investments that will deliver enterprise-wide productivity gains, reshape business models and create new revenue streams.”

Despite the growing frenzy around GenAI, many companies are taking a measured approach toward adoption, according to Sanjay Sehgal, head of markets at KPMG. 

“They want to make sure they do this in a thoughtful way,” Sehgal said in an interview.

Given the size of the companies polled by KPMG, the dollars that are being invested into GenAI are “probably in line” with the types of outcomes that executives are hoping to achieve at this stage — if not low in some cases, he said. KPMG surveyed 220 U.S.-based business leaders representing organizations with an annual revenue of $1 billion or more.

The proportion of S&P 500 companies mentioning AI on earnings calls rose to 36% in the fourth quarter of last year, an all-time high, Goldman Sachs analysts wrote in a February research note shared with CFO Dive.

The report highlighted several companies, including Microsoft, Amazon, and IBM, that are expecting AI to produce results such as enhanced productivity, reduced costs, and improved product offerings.

In one example, IBM CFO James Kavanaugh told investors during a January earnings call that the company remains “laser-focused on our productivity initiatives as we digitally transform our business processes and scale AI within IBM.”

“This includes simplifying our application and infrastructure environments, streamlining our supply chain, aligning our teams by workflow, reducing our real estate footprint and enabling a higher value-added workforce through automation and AI-driven efficiencies,” Kavanaugh said.

KPMG predicts that GenAI performance indicators will continue to evolve over time, with early productivity boosts giving way to more transformative investments. However, enabling long-term business value first requires “meaningful investments” in areas such as data security, governance frameworks and workforce preparedness, the firm said in its release.

“When you put all of that together, that’s an investment that companies have to make to then ultimately be able to reap the value that’s going to be on the other side,” Sehgal said.

Top GenAI investment priorities currently include workforce training and capability building as well as developing governance programs to implement the technology in a responsible way, according to the release. Over half (58%) of organizations said they plan to provide mandatory GenAI skills training in the workplace. 

The research comes on the heels of a Deloitte study showing mixed views from CFOs on the outlook for GenAI investments. That poll found that finance leaders are planning to spend modestly on GenAI next year as they navigate some of the risks and uncertainties surrounding the technology.

Thirty percent of the Deloitte survey respondents indicated either uncertainty about the appropriate metrics to use for gauging the value of their investment in GenAI or a lack of current measurements. Those responding to a question about top barriers to GenAI deployment within the finance function in particular cited technical skill gaps, adoption risks, and culture and trust issues, among other concerns. 

Artificial intelligence holds great promise for the finance function — but it’s important to remember that “something doesn't need to be dramatically new for it to be really relevant and applicable,” said Suresh Bala, newly minted chief product and technology officer for Cube Software.

Especially when it comes to melding technology to fit the needs of the CFO — as opposed to the other way around — it’s important to a focus on its true applicability, Bala said in an interview, noting that he doesn’t “believe in innovation for the sake of innovation.”

A long-time alum of the software space, Bala joined the New York-based Cube, which offers FP&A software products, this month as their first CPTO as the company secured $20 million in new financing to advance their financial planning software, according to a company announcement. The funding will be used to help improve their software’s speed, usability and flexibility, Bala said, as well as applied to see how tools like AI and machine learning can best be incorporated into FP&A solutions.

For Bala, that means infusing AI in a way that keeps the focus on, “what are the objectives of the office of the CFO?” he said. “What are the goals that they have? And then how do we evolve our solution to truly meet what they are? That should be the driver.”

Supporting the strategic CFO  

Bala’s role at Cube will surround figuring out how to offer products and technologies that meet the needs of today’s CFOs “and really supports them, especially in the planning and analysis kind of space,” he said.

Bala is no stranger to this type of challenge; before joining Cube, he worked at human resources and finance software provider Workday for four years most recently as its VP of industry products, joining as part of its $1.5 billion acquisition of financial planning provider Adaptive Insights in 2018. His work included focusing on a product called Workday adaptive planning, which was also focused on the CFO.

Figuring out what today’s finance chiefs need from technology is especially critical as the role of the modern CFO continues to shift to that of a more strategic player than a pure numbers position.

“What I think the CFO brings to the table is the ability to quantify, where we are, where we are going, and why does it make sense,” he said in terms of the finance chief’s strategic role in a company. “And that's a really remarkable evolution.”

Today’s finance chiefs are taking on more and more strategic responsibilities, becoming the point person when it comes to executing on both the businesses’ short and long-term goals, which means keeping track of a vast amount of data.

“As the technology person, what to me is fascinating is, okay, if that is what the charter of the CFO is…what kinds of technologies, what kind of enablement can be done to fully support that and make that a reality?” he said. “Where you really are making these data driven decisions, and helping the organization get more systematic about defining what you're going to do?”

Easing the data burden

Solving the question of how to best aggregate and utilize data is a familiar problem for businesses, but one that still represents a significant burden — and which is landing with more frequently at CFOs’ doors.

“A good part of the CFO’s evolving responsibilities are around data governance,” Bala said, in part because finance chiefs are in some ways the customers of so much of that data. Introducing new technologies like AI represents an opportunity to ease that burden Cube will be looking to execute on with its new funding, according to the company’s announcement.

Still, Cube is drawing on new funds and Bala’s expertise at a time when AI’s potential has not been lost on anyone — including other financial technology providers. While AI funding has slowed somewhat, it still “remains the one clear bright spot in an otherwise somber fundraising environment,” with AI startups raising $42.5 billion across 2,500 equity rounds in 2023, according to a February report by CB Insights.

Furthermore, players like Microsoft have moved quickly on AI, leveraging its partnership with OpenAI to bring the technology across its enterprise offerings. It launched its AI-powered Copilot tool for finance teams in February, CFO Dive previously reported.

What CFOs are searching for, however, is a single tool that encompasses the entire spectrum of predictive analytics from data, to modeling, to forecasting and scenario analysis, Bala said.

“That completeness is, I'm pretty convinced, what the CFO needs…because that's how they can rapidly respond to their stakeholders,” he said.

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By Vic.ai

As a finance leader, it’s imperative to continue improving operations, uncovering bottlenecks, and positively impacting the bottom line. Yet, daily challenges will most likely continue to create obstacles in achieving ideal operational excellence. Manual accounting, financial errors, hazy forecasting, and continuous audit or fraud concerns are common for most finance and accounting teams. 

A recent survey by Gartner found that 59% of accountants are making several errors per month, and these errors are linked to low capacity on the AP team. An overworked team member is inevitable to make mistakes, and the potential consequences of errors on the overall financial health of the business can be significant.

On the bright side, automation and artificial intelligence (AI) solutions are helping to relieve and resolve these historical pains in the accounting function. 

A 2023 Financial Services GenAI Survey by Ernst & Young found that a staggering 99% of financial leaders surveyed reported their organizers were deploying AI in some manner, and all respondents said they are either already using, or planning to use, generative AI (GenAI) specifically within their organization.

And even with the astounding findings in the Ernst & Young survey, only one in five respondents said they are nervous or skeptical about the potential impact of GenAI in their organization. The AI revolution is already here - but how finance leaders adopt the technology will be critical to their success in the long term. Here are four best practices to follow for a successful adoption of AI in accounting:

1. Identify a use case for augmenting the team with AI

Ensuring there is a viable use case and opportunity to leverage AI seems like a no-brainer; however, it’s important to reiterate that where you implement AI is just as important as how. Manual, mundane, and repetitive tasks are an ideal place to start - in particular areas that are time-consuming, cost-prohibitive, and error-prone. 

For the accounting function, ideal use cases for leveraging AI technology include invoice processing, invoice and PO matching, exception handling, invoice approvals, fraud detection, cash flow forecasting, predictive analytics, spend management, regulation and compliance, and audit preparation.

2. Complete a cost-benefit analysis for the investment

Once a use case, or use cases, have been identified for leveraging GenAI tools, it’s imperative to do a cost-benefit analysis. While AI can transform financial operations by improving efficiency, cost savings, and strategic decision making, the investment may - or may not - make sense for every organization or scenario.

Alexander Hagerup, CEO and founder of Vic.ai, an AI-first accounts payable platform, recommends a cost-benefit analysis to ensure the right decisions are made for the overall business.

It requires “careful consideration of potential benefits, costs, feasibility, strategic impact, and ethical considerations. By taking a holistic approach, finance leaders can make informed decisions about adopting AI and ensure they derive the maximum benefit,” Hagerup says in a recent Forbes.com article.

3. Prepare and expand your team for GenAI

With any new technological advancement, fear and uncertainty are common. Rightly so, finance leaders have concerns about the impact of implementing AI technology and its successful adoption within the organization. There is a common misconception that AI tools will take away jobs and eliminate roles, but in reality, AI can be strategically leveraged as a collaborative business partner to handle mundane, time-consuming, and repetitive tasks – the unfulfilling work that humans don’t enjoy. 

AI can automate repetitive tasks, freeing time for employees to focus on more meaningful work. It can also provide data-driven insights into workload management, helping distribute tasks evenly across the team and reducing stress. Changing the perception of the role of AI within an organization before implementation is critical, and this takes time, attention, and identifying evangelists within a team. 

Business leaders may also find that they don’t have the appropriate staff on hand to lead and manage the change. Ensuring a change agent or champion is leading the project is critical to the success of the project, and hiring a technical specialist with an accounting background may also be helpful. 

4. Follow a reputable adoption methodology

While it’s possible to independently research and select an AI tool for accounting, it is worth considering following an adoption methodology or framework. These frameworks can include implementation roadmap best practices, maturity models for benchmarking goals and milestones, guidelines for ethical use and data security best practices, and much more. 

Gartner offers many research reports and best practices on adopting AI, MITRE offers an AI Maturity Model and Organizational Assessment Guide, and even Info-Tech Research has blueprints available. Look to the AI technology provider for best practices and implementation guides, too.

Incorporating AI technology into the finance and accounting function is an exciting project for any finance leader. Ensuring plans for AI adoption are in place will only support the project’s long-term success. And if managed correctly, an AI implementation can truly transform an organization and support future growth.

 

A majority of CFOs are planning to spend modestly on generative artificial intelligence next year as they struggle with challenges such as measuring the technology’s real business value, according to a survey by Big Four accounting firm Deloitte.

Close to two-thirds (62%) of respondents anticipated an allocation of less than 1% of their organization’s budget for GenAI next year, according to the results of Deloitte’s Q1 2024 CFO Signals survey, released Monday. Another 37% expected between 1% and 10% of their 2025 budget to be earmarked for GenAI, while only 1% of CFOs expected an allocation of 10% to 25%.

“By taking a cautious approach to GenAI, CFOs may be waiting to see what the technology can do for their business before they commit precious time and money,” Steve Gallucci, global and U.S. CFO Program leader at Deloitte, said in a report on the findings.

Interest around GenAI in the business community is exploding, with Gartner projecting that more than 80% of enterprises will have used some form of the technology by 2026.

McKinsey predicts that GenAI could enable automation of up to 70% of business activities across almost all occupations between now and 2030, adding trillions of dollars in value to the global economy.

Still, many companies are wrestling with a host of risks and challenges associated with GenAI as they weigh potential investments, according to Deloitte.

“As both stewards and strategists, CFOs have a critical role to play to help their companies determine how best to use AI, whether for competitive advantage, greater productivity, or some other goal — and with the appropriate guardrails in place,” Gallucci said in the report.

Seven out of ten finance chiefs responding to the Deloitte survey said they anticipated a 1% to 10% increase in productivity from using GenAI, with 13% of respondents expecting the technology to yield even greater productivity.

But the research showed mixed views regarding how CFOs intend to measure the value of GenAI. Those responding to that question most often cited the category of “workforce impact, productivity, and efficiency” (40%), followed by “cost savings and expense reduction” (29%) and “return on investment and growth indicators” (16%). Thirty percent of respondents indicated either uncertainty about the appropriate metrics to use for gauging the value of their investment in GenAI or a lack of current measurements.

“The uncertainty may stem from the nascent stage of GenAI adoption, where historical data is limited,” Gallucci said in an email response to questions. “As such, while CFOs can anticipate productivity benefits based on their understanding of the potential of GenAI, they may still be exploring how to best measure specific outcomes of GenAI in these early stages.”

Finance leaders responding to a question about top barriers to GenAI deployment within the finance function in particular cited technical skill gaps, adoption risks, and culture and trust issues, among other concerns.

Deloitte polled 116 CFOs from public and privately held companies across the U.S., Canada and Mexico in February.

Microsoft on Thursday announced that it’s publicly rolling out a corporate finance version of its virtual assistant known as Copilot, which is powered by generative artificial intelligence technology.

Microsoft Copilot for Finance, which is now in “public preview” mode, has been embedded into Microsoft 365 apps such as Excel, Outlook and Teams, with the goal of making financial processes like accounts receivable collections and forecasting analysis more seamless, according to a blog post.

“We’ve been testing it ourselves as customer zero, you could say, for several weeks now,” Cory Hrncirik, modern finance lead at Microsoft, said in an interview.  

Microsoft will share the pricing for Copilot for Finance later this year when it reaches the “general availability” stage, a spokesperson told CFO Dive. 

Generative AI refers to technology that can create high-quality text, images, and other content based on the data it’s trained on. Big tech companies are betting heavily on the market, with revenues projected to reach $36 billion by 2028, according to S&P Global Market Intelligence.

A key milestone for the market was the November 2022 launch of ChatGPT, created by San Francisco, California-based startup OpenAI. Within months of its debut, the tool surpassed both Instagram and Spotify as the fastest-growing consumer application in history.

Microsoft is among companies that have moved quickly to capitalize on ChatGPT’s rapid rise. In January 2023, the Redmond, Washington-based software giant announced a multi-billion-dollar investment deal with OpenAI.

Soon after that deal, Microsoft developed Copilot, its own ChatGPT-like chatbot, which has since been added to a vast array of products and services offered by the software giant, including its Bing search engine; its suite of office software products like Word, Excel, PowerPoint, and Outlook; and its Windows operating system.

According to Microsoft executives, these investments are paying off. AI-enabled offerings helped drive $62 billion in sales at Microsoft for the second quarter of the company’s fiscal 2024, according to results released on Jan. 30.

“By infusing AI across every layer of our tech stack, we are winning new customers and helping drive new benefits and productivity gains,” Microsoft CEO Satya Nadella said during an earnings call at the time.

Microsoft’s various Copilots provide AI assistance “in virtually every aspect of the workflow across the different Microsoft applications,” according to tech news website ZDNET. 

Thursday’s announcement follows Microsoft’s recent release of similar role-specific virtual companions for professionals in sales and customers service. It also comes on the heels of Microsoft’s roll out of an AI-powered financial planning and analysis tool as part of the company’s Dynamics 365 Finance platform.

The Sales and Service Copilots are currently available for $50 per user per month when paid annually, or $20 per user per month for existing Copilot for Microsoft 365 users, according to tech news site VentureBeat.

The latest tool, Copilot for Finance, “is well versed in what finance professionals care about, augmenting user queries with additional prompts and insight to better automate processes and reduce the time spent on repetitive actions,” according to the Thursday blog post, which was penned by Emily He, Microsoft’s corporate vice president of business applications marketing.

The tool can also help financial analysts to reduce the risk of reporting errors and “missing unidentified variances,” according to the executive. “Rather than manually reviewing large financial data sets for unusual patterns, users can prompt Copilot to detect outliers and highlight variances for investigation,” her post said.

For every $1 companies invest in AI, they are realizing an average of $3.50 in return, according to a 2023 study conducted by research firm IDC and sponsored by Microsoft, as previously reported by CFO Dive.

Generative AI in particular could enable automation of up to 70% of business activities across almost all occupations between now and 2030, adding trillions of dollars in value to the global economy, according to McKinsey.

However, while generative AI adoption is seeing rapid momentum, it’s also running into challenges.

Microsoft has said that it’s investigating concerns that Copilot is generating bizarre and, in some cases, harmful responses, Bloomberg reported on Wednesday. Copilot told one user claiming to suffer from post-traumatic stress disorder that it didn’t “care if you live or die,” according to the report.

Google, meanwhile, has faced public scrutiny over its Gemini image-generation AI tool, which was recently taken offline for further testing after some controversial mistakes, as reported by CNBC.

The buzz around artificial intelligence has only intensified in recent months, leaving business leaders with the unenviable task of separating the technology’s potential from its reality,

While determining AI’s true applications is a must, the larger question CFOs and accounting leaders need to ask themselves is, “do you truly understand how AI is going to affect the people you hire…as well as those that are going to serve your customers?” said Susie Duong, senior director of research and thought leadership at the Institute of Management Accountants.

A CPA, Duong joined IMA two years ago. Her previous roles include a three-year stint at professional education firm Becker, and she has also served as a visiting assistant professor of accounting at University of Michigan’s Ross School of Business and an assistant professor of accounting for the NUS Business School at the National University of Singapore, according to her LinkedIn profile.

Making AI welcome

While they don’t occupy the top seat when it comes to driving generative AI strategies at their companies — a study by Gartner found CFOs were fourth on that list, behind chief technology officers, chief information officers and CEOs — finance chiefs are nonetheless intimately involved in the decision process when it comes to how and where to incorporate such technologies.

CFOs are also displeased with how digital investments across their organizations are performing, Gartner’s study found. Implementing AI is pricey, Duong pointed out; if businesses are choosing to incorporate it, “at the same time, you have to give up something else that you could have done,” she said. “This is the opportunity cost.”

To make that cost worth it, finance leaders need to ensure they’ve developed a forward-looking AI strategy that provides a return on investment or strategic benefits for the business. CFOs face challenges in four major areas when it comes to bringing AI into the finance and accounting space, according to a recent study by IMA authored by Duong: understanding the technology itself, ethics and governance, operational issues and lastly, the human element.

To take full advantage, finance leaders will need to foster seamless collaboration between the technology and their employees the IMA study found. While AI won’t replace humans, it will “tremendously impact the future of work for professionals in accounting and finance,” the report argues, and CFOs need to be fully prepared for that future. That means educating both themselves and their employees on the technology itself.

“Working with AI is more like working with a new colleague,” Duong said. “To build the trust, to some extent, you have to understand the algorithm behind it.”

That might be challenging for finance and accounting professionals, who are not typically trained on the technical side, she said. It’s important when bringing AI into the business for CFOs to “pay more attention to your people, at all levels,” she said.

“Tell them exactly why you're doing what you're doing, and why this is beneficial to them, not just to the organization,” Duong advised when it comes to educating one’s employees about the company’s use of AI. “And also provide plenty opportunities for upskilling, or re-skilling your employees.”

Bringing one’s workers into the AI conversation is critical not only because it can help smooth the technology’s way into the company, but also because workers remain wary over the potential threat AI represents to their jobs, Duong said.

In the short time since ChatGPT was launched by OpenAI in November 2022, AI job loss has already abounded, with 37% of business leaders claiming the technology replaced workers in 2023, according to a recent CNBC report. Large tech companies like Google, meanwhile, have laid off hundreds of staff members as they continue to invest further in AI, stoking replacement fears.

Leaders should “invite your employees into this whole process, especially the function that is going to be affected,” Duong said. That way, they feel as though their opinion is valued, which can help alleviate some of their fear of replacement as well as make it more likely for them to use the AI technologies that are incorporated, she said.

Prepping for the new accounting age

Finance chiefs also can’t rest on their laurels when it comes to AI education: such a thing has to be done continuously to ensure the company and its talent are keeping pace with the rapid evolution of this and other emerging technologies, Duong said.

It’s also important for CFOs to take a forward-looking approach when it comes to how AI and employees will interact with each other as the technology becomes more commonplace in the finance and accounting sector.  

Finance chiefs are already dealing with a shortage of talent in the accounting world, and while they hunt for skilled talent — or new tech to fill the gap — those that are aspiring to enter the accounting world have different expectations than the old guard, Duong said.

Today’s college students are already learning how to use AI as part of their work, Duong said — and when those students graduate and enter the accounting profession, “their perception of accounting and finance will be completely different,” she said. Finance chiefs need to consider such changing perspectives in an AI-driven world, she said.

Digital transformation was a top focus for companies in 2023, especially following the launch of OpenAI’s ChatGPT generative artificial intelligence tool — which sparked a flurry of investment among businesses looking to capitalize quickly on the new technology’s potential.

However, it’s critical for companies not to fall into the trap of investing in technology simply for the sake of it — rather, companies should be approaching digital transformation and technology integrations with a CFO mindset, said Raphael Ouzan, founder and CEO of engineering and technology talent platform A.Team. That means creating an outcome-focused digital transformation strategy, rather than assessing company-wide implementations that can often fall short of their lofty goals.

“When you think about product engineering… you think outcome first,” Ouzan said in an interview. “And outcome, that's the ROI language of the CFO.”

Taking the CFO approach   

Companies have continued to place digital transformation high on their priority lists, but many digital transformation initiatives are driven by a need to respond to hype rather than a clear business strategy — a pitfall contributing to the failure of over half of these initiatives, according to a September 2023 study by KPMG.  

The GenAI spending spree exemplifies the challenge faced by many companies, which need to keep pace with emerging technologies, but also need to ensure they are driving efficiencies as they come out of an uncertain economic environment.

“On one hand, you have to get to ROI very quickly, you need to increase margin in an inflationary environment,” Ouzan said. “On the other end, there's an acceleration of the pace of technology that we've never experienced in our lifetime.”

Applying a CFO point of view throughout a company’s digital transformation strategy can help achieve that balance, said Ouzan, who founded the New York-based A.Team in 2020. Taking an outcome-focused approach where companies can zero in on individual teams — bringing in skilled experts as needed — can potentially provide greater benefits, “so instead of doing those massive projects, you could do some things that are much smaller and get to much more transformation, much faster,” Ouzan said.

“When we come in, we come in basically with the CFO mindset of, what are the biggest problems right now,” he said. “And we have this approach which is basically, you don't jump to product innovation. You start with efficiency, because that is the first most immediate value proposition and business case for AI.”

Keeping the focus on efficiency

CFOs themselves also play a crucial role in helping their organizations respond to these types of challenges, “because ultimately CFOs know better than most how to value and how to put a premium on optionality,” Ouzan said.

However, many CFOs are working with budgets that are likely to remain flat or potentially decline given economic uncertainty, making it key to keep an even closer eye on the organization’s cost centers and where they will be spending to innovate. The key issue for CFOs tasked with balancing efficiency and innovation in this type of environment will be to learn what Ouzan called “iterative agility;” being able to swiftly experiment with new technologies in a way that creates value.

“It's important to realize that there's a discovery element to this, that you cannot foresee all future revenue and risk of a particular technology project or product capability building until you actually do it and iterate on it,” he said.

The recent explosion of interest around artificial intelligence across the business community could help drive increased merger and acquisition activity in the year ahead, according to analysts who track dealmaking trends.

After a slowdown that began in 2022 and continued into 2023, M&A activity might be poised for a turnaround this year, amid factors such as stabilizing interest rates, cooling inflation and a growing fear among companies about being left behind in the race for acquiring new AI capabilities, analysts said.

“All that put together to me means that there’s going to be more deals in the next 12 to 24 months than what we’ve seen in the last 12 months,” Daniel Friedman, global leader of the transactions and integrations practice at Boston Consulting Group, a Boston-headquartered management consulting firm, said in an interview.

During the latter half of 2022 and well into 2023, M&A dealmakers faced their “most prolonged challenges” since the 2008 to 2009 financial crisis, according to a report published by BCG in October.

“Rising interest rates, geopolitical tensions, and recession fears led to a sustained downturn in deal activity that bottomed out in the first quarter of 2023,” the report said. “Since that low point, however, an increasing number of dealmakers have returned to the negotiating table, albeit with heightened caution.”

Global reported M&A deal value fell 32% in 2022 to $3.15 trillion, down from a record annual high of $4.62 trillion in 2021, according to a report from law firm Wilmer Cutler Pickering Hale and Dorr. Slowing economic growth combined with other challenges to create “a hostile environment for M&A activity in 2022, with deal volumes down across the board and average deal prices declining in all sectors except energy,” the report said.

The trend continued into the first few months of 2023, easing up later in the year, with some industries and parts of the world rebounding faster than others, according to BCG.

Economic conditions are now improving to the point where many companies may be in a better position to make strategic investments in critical areas such as digitization and AI, according to Friedman.

“With interest rates coming down and inflation getting more under control, there’s a lot of dry powder out there,” he said. “I think it’s a fair assumption that we’re going to see a rise in dealmaking, including in AI and technology.”

‘Seismic shift’ predicted

Willis Towers Watson reported in November that it expects AI to drive a “seismic shift” in M&A dealmaking in 2024.

Given the growing prominence of AI, “it stands to reason that companies are going to try to figure out how to add it to their own portfolio of operations,” David Dean, managing director of global M&A at WTW, said in an interview.

Dean said AI could also play a greater role this year as a tool in the M&A process itself, allowing companies to accelerate their evaluation of potential targets, for example. “I think there’s growing interest in understanding what AI can do to make delivery of M&A services more efficient,” he said.

ChatGPT, a so-called generative AI tool created by Microsoft-backed OpenAI, quickly grabbed the world’s attention after it was launched in November 2022.

A global McKinsey survey released last August found that one-third of organizations were already regularly using generative AI in at least one business function.

“Amid recent advances, AI has risen from a topic relegated to tech employees to a focus of company leaders: nearly one-quarter of surveyed C-suite executives say they are personally using gen AI tools for work, and more than one-quarter of respondents from companies using AI say gen AI is already on their boards’ agendas,” McKinsey said in a report on the findings.

Meanwhile, the aggregate value of global M&A transactions related to AI grew 23% to $75 billion in 2023 compared with a year earlier, although the actual number of such deals fell by about 7%, according to data provided by S&P Global Market Intelligence.

“AI was perhaps one of the biggest stories of the year as it relates to tech M&A,” Melissa Incera, a research analyst at the firm specializing in data, AI and analytics, said in an interview. “It was a sector that was really keeping buyers engaged and motivated at a time when they were very much in cost containment mode.”

Biggest AI deals of 2023

The biggest AI-related M&A transaction of 2023 was Cisco System’s agreement to acquire cybersecurity company Splunk for $28 billion, according to Incera. The deal, announced in September, shows that Cisco is focused on strengthening its position in the cybersecurity market by beefing up its AI capabilities, Daniel Ives, a senior equity research analyst at Wedbush Securities, said in a note to clients after the announcement, as reported by the Associated Press. 

“For Cisco this is a shot across the bow at [cybersecurity competitors] Palo Alto [Networks], Checkpoint, Crowdstrike, Microsoft, Zscaler and others that the tech stalwart is not sitting idle in this market and now is making an aggressive play to gain market share in the coming years,” Ives said in the client note.

Another large AI-related deal in 2023 was IBM’s agreement to buy Apptio, a provider of financial and operational IT management and optimization software, for $4.6 billion. 

Not all acquirers in these deals have been technology companies. In June, for example, Thomson Reuters announced an agreement to acquire Casetext, a legal startup with an AI-powered assistant for law professionals, for $650 million.

“Technology companies are at the forefront, but I think it’s a broader trend,” BCG’s Friedman said.