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AI Organizational Strategies for Businesses

Does AI represent a business opportunity for your company? Or is it an existential threat for you?

Photo by Franki Chamaki on Unsplash

Let’s look at some views and findings about AI from top Research and Consulting companies.

HBR estimates the impact of AI on the global economy will around $13 trillion in the next decade.

As per Forrester, by 2024, AI will be an integral part of every business and 25% of the spending will on “outcomes as a service”. The user experiences will go through a transformation and techniques like Computer Vision, speech, NLP will take over almost 50% of the user touches.

Mckinsey is reporting that companies are witnessing a 25% yearly increase in the utility of AI for improving standard business processes. In terms of cost reductions, 44% of companies have seen reductions.

As per IDG, 75% of the enterprises will use AI automation for process development to drive operational excellence. Also, they believe, that by 2025, 90% of the new enterprise applications will have AI functionality.

Is it all rosy?

Given the above context, you would assume that most of the initiatives are getting the right amount of rocket fuel and companies are succeeding at the attempts to enable AI for their businesses.

Yet, the sad news is that most of the initiatives are failing. Not only the initiatives are failing, but also the ones that are succeeding haven’t seen significant gains from the effort.

As per BCG, around 70% of the companies they surveyed, reported minimal or no impact from the AI so far.

So, companies are still struggling to generate value from AI. Also, researchers are witnessing a major gap between the forerunner and the laggards are increasing.

So, let’s try to categorize companies in terms of their AI progress.

Most of the companies are viewing AI as a major opportunity. Some of them are categorizing it as a strategic initiative and are viewing AI from the first mover point of view. While others are just starting or wondering.

Let’s try to classify companies in terms of the value derived from AI.

AI-First Companies:

These companies have driven the most value out of the dollar invested in AI efforts. Most of the initiatives are C level driven and is directed by the board.

Consider the case of Google, which has declared itself an AI-first company. Here the value-driven from the data and the use case is most apparent and with the talent pool availability, they are leading the innovation and reaping the rewards too.

For such companies using AI with customer data helped them enter into industries that stifle with a lack of innovation. Retail has already been disrupted by Amazon by having the first-mover advantage of data. Now Apple and Amazon are trying to enter the much-regulated financial industry and they have the right tools and drive to disrupt them.

Tinkerers

Companies in this category are either trying to develop the knowledge base with associated talent or have deployed AI projects as a pilot. Here the struggles are organizational and also the technical.

Such companies’ strategies can be categorized into exploration and careful consideration before leaping.

For them to exploit the critical components of AI — data and talent — isn’t the top priority and they struggle to move beyond a few pilots and tests.

Laggards

These companies simply have no AI adaptation and also have the least understanding of the technology.

Why does AI strategy matter for big companies?

The answer is simple, with AI, many startups and even bigger companies now have the level playing field to disrupt industries. Many highly regulated companies are expressing concern that if they don’t innovate, their competitiveness is at risk and can soon be exploited by competition or any startup.

One of the interesting perspectives regarding disruption can be taken from the a16z Partner, Alex Rampell’s, discussion, where he mentioned that either big companies will crack innovation first or the startup will crack distribution.

In terms of customer acquisition, the data and access to data in a certain vertical are helping many startups to capture the “best customers”. Think where a startup can acquire all the gym-goers for health insurance and insurance start to get to all the best drivers.

What’s happening in China

China is a prime example where most of the incumbents are worried about the risks of AI. They are also hopeful that AI will drive the most innovation that in turn will drive the revenues and cut costs.

That’s why in China you will find that their corporate visions and strategies are aligned for AI. This has led to massive investments in terms of technology, data capture, and resources. So, China is definitely showing the appetite and drive for betting on AI.

Where to start?

Digital transformation has become a key component of any company strategy. While the drive is there to re-engineer processes, systems, and structures, the best way would be to integrate it with AI strategy along with this transformation.

Companies that have adopted this strategy are seeing benefits on terns of revenue increase or cost reductions.

So, if a company is aligning its digital transformation efforts into better offerings, customer experience, operations, and security, then AI could act as a platform for all the themes.

What to aim for?

Revenues. Most of the successful companies that have driven the highest value out of AI initiatives have focused on Revenue Generation.

Cost reductions or improving efficacy can be the best demo or pilot project, to begin with, but the most ROI will only be created by transforming data to accelerate revenue growth.

One interesting finding, as per the BCG research, is that AI initiative has driven more value when housed under CEO or CDO rather than CIO. Also as per Forrester, CDOs are 1.5 times more like to work with AI, ML solutions for coming up with unique use cases.

This observation does highlight the importance of building AI as a corporate strategy rather than a technology initiative. The problem lies where AI is treated as a traditional IT service that is plugged into an offering. This kind of thinking tends to devalue such initiatives which result in less dollar spent allocated and that could lead to outsourcing.

According to BCG, the companies that have benefitted from AI exhibit patterns and those include:

– Making AI essential to their business strategies.

– They are involved in major risky projects that focus on revenue.

– Aligning production and consumption of AI

– Investing in talent

What’s happening in the Startup world?

In terms of startups, most of the experts are of the opinion that a lot of investment has already been made. Around 2 dozen of such startups have also reached the unicorn status.

Given the Gartner technology hype index, experts also believe that it’s nearing the peak and things will cool down in days to come.

Gartner Hype Cycle

Yet, VCs like a16z, are of the opinion that even with the current level of advancement, there is 2–3 decades of work that needs to be done.

Summing Up:

We continue to evolve into a world where the central processing of decision making is moving away from humans. The reliance of professionals upon their domain knowledge, experience, biases, and the ability to use gut or intuition is being questioned. Decision making is evolving from data-driven to AI-driven.

In this new era, executives will have to use AI to augment their capacities to use judgment and intuition with recommendations that are coming from algorithms.