Mid-market could have most to gain from AI
Contrary to suggestions that AI will serve only the largest companies with resources enough to capitalise on it, others claim the mid-market is uniquely positioned to adopt the new tech.
Many have speculated that AI will serve to increase market concentration by favouring larger companies with more resources at their disposal. Others, though, believe mid-market operators might be uniquely placed to reap an outsized share of the benefits.
Australia’s recent competition review, carried out by the economics committee, found that AI has the potential to increase market concentration by delivering greater value to the big end of town.
In its submission to the review, Westpac wrote that the digital economy “tends to drive us towards a winner-takes-all type of position”, and that smaller businesses tend to lose out on applications of AI where scale is essential.
Bendigo and Adelaide Bank submitted that many smaller businesses will be unable to front the compliance and risk management costs required to run sophisticated AI applications.
Similarly, Shift Financial argued that AI adoption will require a skills uplift, on that larger businesses with more resources and larger talent pools will be best able to capitalise on.
That said, the review’s conclusion was ambivalent. While AI has “some characteristics that reduce competition” – such as low transferability relative to, for example, human capital – its impact is not yet clear.
Recently, John Mangan, emeritus professor at the University of Queensland, told Accounting Times that AI will likely be anti-competitive, and that it will increase market concentration.
He warned that the government has been overly complacent in dealing with AI and that the same can be said of many businesses that are failing to appreciate the scale of the technology’s impact.
“The smart firms will probably face some slack early on, introducing these systems, and [there will be] some resistance from unions and their associations,” he said.
“And then they’ll become even more important, and they’ll be even more dominant.”
Mid-market companies, however, are unique in that they have more resources than smaller businesses and generally more flexibility than larger ones.
This point was well made by Dani Mariano, president at Razorfish, who wrote: “Their size and agility allow them to mobilise more quickly to understand generative AI’s capabilities and how to optimise them for maximum organisational benefits.”
The opportunities are not unqualified, however, since the resources of larger companies do pose a substantial challenge. Mariano said networking, innovation, and talent will help mid-market operators to keep up.
“Midsize companies have their limits when it comes to resources and how much they’re able to scale. To combat these challenges, research suggests that midsize companies lean into an ecosystem of partners to compete with large enterprises in the fast-paced world of AI. Gaining access to the right talent, data, and ideas is critical,” she wrote.
Promisingly, research from Deloitte suggests that mid-market private companies in the US are “innovating at an incredible pace – something we haven’t seen in previous surveys.”
Closer to home, a 2024 BDO Australia survey recently found that middle-market companies are “moving quickly on generative AI”. According to BDO, nearly half of the mid-market respondents had formalised, or were in the process of formalising, a policy around generative AI.
The Deloitte research also found that these companies are making compromises on the resources front by directing their investments towards technologies that can reduce time-to-value.
As noted by the World Economic Forum (WEF): “A relatively small but well-thought-out investment in AI can help mid-market companies rapidly develop and scale.”
“AI is rapidly transforming businesses of all sizes worldwide and it can be especially beneficial for mid-market companies,” added the WEF.
However, investment in the technologies is one thing. Attendant investments in data privacy and security, education, skills, and compliance are their own challenges.
Thirty-nine per cent of mid-market CFO respondents to the BDO survey said the data risks presented by generative AI are “top of mind.”
“Educating your workforce on this technology early is important to ensure that the risks are well-managed,” said BDO consulting partner, Fahim Khondaker.
“Organisations where team members are well-versed on how they may be able to use AI to generate value for their businesses, in a safe and responsible manner, will be best placed no matter what the future holds.”
For most businesses, AI adoption is still very much in its infancy. While this poses its own challenges, Khondaker said it appears most businesses are more afraid of missing the boat.
“I think what we’ll see as the technology evolves, is those companies that take a thoughtful approach to generative AI, formalising their policies while cultivating the right culture and skill sets, will find it transformative for their business,” he added.
These fears are by no means limited to the top end of town. As explained in a recent RSM report: “For middle market companies, AI solutions are no longer a nice-to-have, but a must-have.”
“Harnessing AI’s inherent productivity and efficiency capabilities has rapidly become a differentiator in the marketplace, and companies must integrate AI into their strategies, with adjustments as tools evolve.”
