The State of Artificial Intelligence & Business Strategy

By LBL Strategies Team

Artificial intelligence (AI) has become a popular topic in the realm of business. From predicting IT failures to which new song will become a hit, AI presents many exciting opportunities. This begs the question: how is AI affecting the most critical element of any business — its strategy?

MIT Sloan Management Review recently partnered with The Boston Consulting Group to conduct research on how AI is currently being integrated into business strategy and how it might affect the business landscape going forward. The extensive research project generated a lengthy eight-part report titled Reshaping Business with Artificial Intelligence.

Here are the big takeaways from their research.

Ambitions Vs. Execution

When it comes to AI, businesses think ambitiously. Nearly 85% of executives believe AI will allow their company to obtain or sustain a competitive advantage in the marketplace. Contrastingly, just one in five companies have incorporated AI into their organization and less than 39% of companies have an AI strategy.

As it stands now, businesses are rarely acting on their beliefs when it comes to AI. Executives appear to have grand ideas about how AI will help their business but very few have actually taken the steps to begin implementing it into their organizations. This can and likely will change at a rapid pace in the years to come as AI technology becomes more accessible. As it stands now, companies with over 100,000 employees are the most likely to be on top of their AI strategy.

Expectations

Only 14% of businesses believe that AI is currently having a large effect on their business, yet 63% expect to see the positive effects of AI implementation within just five years. Business leaders have high expectations of successfully implementing and improving their organization with AI in the very near future. But how valid are their expectations?

Vishal Sikka, former Chief Executive Officer and Managing Director of Infosys Ltd., is optimistic about AI but cautions against hyping it as an imminent triumph:

“If you look at the history of AI since its origin in 1956, it has been a story of peaks and valleys, and right now we are in a particularly exuberant time where everything looks like there is one magnificent peak in front of us.”

Are expectations based on hype or something deeper? What is driving the positive outlook from executives remains unclear. Most executives believe new business opportunities and reduced costs will come as a result of AI. These expectations are rather vague, however, and indicate that many businesses aren’t exactly sure how AI will help their organization yet.

Organizations report significant differences in their understanding of AI: 16% of respondents strongly agree that they understand the costs of developing AI-based products and services, while nearly the same percentage (17%) strongly disagree that their organization understands these costs. There is a clear knowledge disparity within organizations regarding what resources are required to adequately implement this type of technology. This needs to be addressed before AI can successfully be incorporated into critical organizational processes.

How Can AI Impact a Strategy?

In many ways, the lack of understanding when it comes to AI is due to the variety of ways AI can be implemented into a business. Different industries, or even different companies within the same industry, may use AI in different ways. When the way AI is used varies from company to company, it can be hard to wrap your head around how exactly it can help.

This excerpt from the report suitably illustrates the many disparities in AI usage:

The differences in adoption can be striking, particularly within the same industry. For example, Ping An, which employs 110 data scientists, has launched about 30 CEO-sponsored AI initiatives that support, in part, its vision “that technology will be the key driver to deliver top-line growth for the company in the years to come,” says the company’s chief innovation officer, Jonathan Larsen. Yet in sharp contrast, elsewhere in the insurance industry, other large companies’ AI initiatives are limited to “experimenting with chatbots,” as a senior executive at a large Western insurer describes his company’s AI program.

For many businesses, AI will help them nail down better internal processes. In an example shared in the report, Airbus wanted to increase the production rate of aircrafts. To accomplish this, Airbus needed to respond to disruptions in the factory as quickly as possible.

Airbus’ AI was able to combine data from past production programs, continuing input from the A350 aircraft program, fuzzy matching, and a self-learning algorithm to identify patterns in production problems. The data gave Airbus the power to solve a problem more quickly and efficiently than ever before. The report notes that BP, Infosys, Wells Fargo and Ping An Insurance have had similar positive experiences using AI.

Obviously, integrating AI won’t be as simple as the example suggests. There will be a massive learning curve for organizations before they’re able to start implementing AI effectively. Management will encounter a host of challenges, like organizing AI processes and rethinking their organization’s competition (who will be taking advantage of AI, too). And the public will have to trust that AI systems work before many organizations can start relying on them for consumer-facing operations. We still have a lot of ground to cover but current trends suggest the AI revolution may not be too far off.

Considering the Future

AI is showing that it will create value within industries but it’s not exactly clear which industries it will benefit the most. The report notes that the outcomes of AI implementation will likely be uneven in just about every industry interested in the technology. On the same note, if companies in the same industry all expect to gain a competitive advantage from AI, it is inevitable that there will be those that fail to gain an edge. Success will likely come down to which organizations can best grasp which processes in their company AI can help improve and understand which elements of their internal process AI can track. AI won’t miraculously solve problems for businesses on its own; every business is different and will require effective human rollout to have the ideal effects on any organization.

As the report explains: “For AI to become a prominent feature in future strategies, companies must figure out how humans and computers can build off each other’s strengths to create competitive advantage. This is not easy: Companies need privileged access to data — which, as we’ve seen, many do not now have. They must learn how to make people and machines work effectively together — a capability relatively few Pioneers have at present. And they need to put in place flexible organizational structures, which means cultural changes for both company and employee.”

As it stands now, every organization needs to start considering AI and its implications. At this point, the longer your organization waits to create a plan the more behind you’ll be in your industry. If AI isn’t on your radar, it certainly is on your competitors’.

By LBL Strategies Team

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