Every company is now a tech company. Every company needs an AI Strategy
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This week, I want to talk about why it’s essential that every business develops an AI Strategy now and how they might start going about that.
Every company needs an AI Strategy
As we predicted earlier this year in Inflection Points 3, the initial wave of excitement about generative AI has been replaced by a slightly strange wave of science fiction inspired dystopia. Commentators who had previously expressed little interest in AI have acquired sudden expertise in exactly how to regulate it to prevent this apparent dystopia. Hucksters who were Web 3.0 experts, then crypto bros have hastily reinvented themselves as AI gurus and have updated their Twitter bios and marketing material accordingly.
But none of this is really answering the question of what AI really means for business and what business can and should do about it now.
In truth, businesses shouldn’t be distracted by the highly remote sci fi dystopia of the “out of control AI” ending humanity. This might make for gripping fiction and Hollywood blockbusters, but it doesn’t really provide the basis for effective business strategy.
Instead, business should be focusing on what we know is certain to happen - namely that AI is happening now, that AI is already transforming business processes and the strategic environment and that this transformation is only likely to accelerate (as is the nature of AI and machine learning).
All that we know about the history of tech led disruption suggests that companies that prepare for the disruption are more likely to thrive from it and those companies who do not anticipate and act are more likely to be negatively disrupted.
Businesses cannot regard AI as a spectator sport or something that will simply “happen to them”. Instead, they need to consider now how AI will impact their business and build a strategy so that they can guide, mould and control the change and disruption, rather than being passively disrupted by tech advance.
Every business is now a tech company. Every company needs to develop an AI Strategy now.
Every business is now a tech company
The scale and importance of Artificial Intelligence means that every company is now a tech company. And the change that AI will bring across sectors means that every company needs
It’s worth reminding ourselves of the sheer extent of the change (and potential benefits) that AI will bring to business and societies.
The Bill Gates quote from earlier this year is worth repeating:
The development of AI is as fundamental as the creation of the microprocessor, the personal computer, the Internet, and the mobile phone. It will change the way people work, learn, travel, get health care, and communicate with each other. Entire industries will reorient around it. Businesses will distinguish themselves by how well they use it.
Silicon Valley legend, Marc Andreessen, who was present at the birth of the modern internet with the Netscape browser, published a superb blog earlier this week where he reminded his readers of the benefits that AI could bring, with a long-read entitled ‘Why AI Will Save The World’:
The most validated core conclusion of social science across many decades and thousands of studies is that human intelligence makes a very broad range of life outcomes better. Smarter people have better outcomes in almost every domain of activity: academic achievement, job performance, occupational status, income, creativity, physical health, longevity, learning new skills, managing complex tasks, leadership, entrepreneurial success, conflict resolution, reading comprehension, financial decision making, understanding others’ perspectives, creative arts, parenting outcomes, and life satisfaction… What AI offers us is the opportunity to profoundly augment human intelligence to make all of these outcomes of intelligence – and many others, from the creation of new medicines to ways to solve climate change to technologies to reach the stars – much, much better from here… The opportunities are profound. AI is quite possibly the most important – and best – thing our civilization has ever created, certainly on par with electricity and microchips, and probably beyond those…The development and proliferation of AI – far from a risk that we should fear – is a moral obligation that we have to ourselves, to our children, and to our future.
He also described a “moral panic” about dystopian threats. Although I wouldn’t agree with his libertarian approach to regulation, it’s certainly refreshing to see such an articulate reminder of the promise that AI can bring and the cross-industry scale of the change that it will bring about.
Every business needs an AI Strategy
The pace of change means that every company needs to urgently develop an AI strategy. When developing an AI strategy it’s worth remembering Richard Rumelt’s definition of what makes for good strategy and what makes for bad strategy. For Rumelt, a bad strategy was simply a list of goals, but a good strategy has three elements, what he called the “kernel” of good strategy:
Diagnosis: considering “what is going on here” and how your strategic environment is likely to change.
Guiding policy: the overarching principle that will guide change.
Coherent action: a thorough action plan to help you reach your goal.
Organisations need to consider four overarching questions when building such an AI strategy:
How will AI impact the external and strategic environment for a business?
How will AI impact everything that a business does?
What does maximum disruption look like?
What actions can a business take now to prepare for change? And how can it measure progress?
How will AI impact the external and strategic environment for a business?
AI will be transformative for the environment in which every company operates. Obviously, what this environmental shift will look like will differ per industry, but every company now needs to appraise how AI and tech change will impact the external environment in which they are operating.
With AI this might involve asking the following core questions:
How might AI change the competitive landscape in which the business operates? What is the potential of new competitors emerging? Could new business models emerge in the market in which you operate?
How might the strategic environment be impacted by any AI specific or AI related regulation as governments look to introduce “guardrails”? Might the ability for a business to operate across national or regional borders be made more difficult by a patchwork of differentiated regulation (see IP 11).
Could AI potentially open up new markets? Where might these markets be and what might they look like?
Is there a possibility that AI could open the company up to new areas of reputational or regulatory risk? Note the discussion that is already well advanced about the use of AI for financial decision making, such as over loans and mortgages and the potential for racial and class bias in AI based decisions.
Could AI open up a company to existential or systemic risk, which could threaten the company’s licence to operate?
How will AI impact everything that a business does?
There is already some clarity about the role that even relatively early stage generative AI might have in a number of professions. Such diverse tasks as coding; preparing Requests for Proposal (RFP); pulling together background briefings; and providing news clippings within PR agencies are all job areas that are already being automated by AI.
Open AI say that 80% of jobs will be impacted by the development of AI and the WEF predict that 25% of jobs will be impacted within the next five years. It’s too easy to consider reports like this in the abstract, but the truth is that some type of AI change will impact almost every company and they have to choose between passively accepting and or proactively shaping how the change impacts them.
Whereas the external environment changes might well be out of the organisation’s control, this element of strategy setting examines internal levers that a business can pull to put themselves in a stronger position.
Some questions that organisations might want to address include:
Exactly which functions and processes within the business are most exposed to disruption from AI? Which elements of business processes can be made more efficient and effective through the use of AI? What might be the best way to prepare for these changes in a proactive way?
How might AI help the business gain competitive advantage in the market in which it operates? Or in additional markets?
In what way will the business use AI to better analyse market data and make business decisions?
How might the skills needs of the organisation change or evolve in order to make the most of the potential of AI?
How might AI change relationships with customers? Might customer expectations change or increase because of technological change? How could AI be used to better personalise and tailor a company’s services and improve user experience and customer service?
Could AI change relationships with key external stakeholders and alter important external touchpoints? Is there a potential that AI could change relationships with suppliers? Could AI provide an avenue for new strategic partnerships?
When considering an AI strategy, businesses might want to consider using an AI Strategy Diamond (using the kind of concept first articulated by Hambrick and Fredrickson) and posing the strategic challenges as reflected in the diagram below (examples illustrative):
What does maximum disruption look like?
When considering potential disruption, it’s all too easy to look at the world of five or ten years time purely through the prism of today. Often when I ask people to imagine their industry in ten years time, they’ll articulate how things are today, what the business problems are today and potentially throw some tech into the scenario to make it seem adequately futuristic. Firms are often stuck in the paradigm of today even when disruption is changing that paradigm completely.
As Clayton Christiensen famously said:
“The reason why it is so difficult for existing firms to capitalize on disruptive innovations is that their processes and their business model that make them good at the existing business actually make them bad at competing for the disruption.”
Since the advent of the internet, we have seen almost total disruption to a number of industries and it’s reasonable to believe that AI could bring similar levels of disruption. So when thinking about the changes that AI might bring, it’s also worth bearing in mind the potential of maximum disruption.
It’s important to stretch the boundaries of business imagination. There’s a few initial ways of thinking about this:
When identifying areas where AI might disrupt your industry, multiply this x10 and then consider whether the organization would be prepared for that.
As an exercise, put yourself in the mind of a tech driven total disruptor. If you were starting with a blank sheet of paper and looking to compete in the industry in which you’re operating in, how would you use tech to design from scratch? Where are the weaknesses in existing incumbents that could be easily disrupted?
Alan Iny, Hans Kuipers and Alison Kander from BCG suggest the powerful exercise of making “a list of five commonly held assumptions about the business and imagine that each one has been shattered. Consider what might trigger these events, how the company should position itself in light of them, and the investments, divestments, and partnerships it should make.”
What actions can a business take now to prepare for change?
An AI Strategy is pointless if it isn’t accompanied by actions. As Rumelt would argue a list of goals and observations will not, alone, lead to change. It is a comprehensive and measurable action-focus that does that.
In each of the areas that are identified as being open to AI disruption, an organisation needs to consider what it can do now to address the impending change and build a competitive advantage. For example, a company should consider how it will invest in skills needs and what it can do now to enable their staff to provide an additive element to the tasks that might be automated by generative AI.
In an age of AI and rapid change, business agility will be more important than ever. As well as developing an initial AI Strategy, businesses need to revisit this strategy regularly, with scenario planning and other tools used to continually revisit assumptions about a rapidly evolving future.
But for all businesses, an AI strategy is not an option or a “nice to have”, it is an absolute necessity.
Emerging thinking on regulating AI
It’s been a busy few weeks on the issue of AI regulation. The British Prime Minister has announced that the UK will host the first global summit on AI and its regulation, possibly the first step in building a global body and a coordinated approach. Google has announced a Secure AI Framework and Microsoft unveiled a five point blueprint for governing AI.
The Regulate Tech podcast, convened by Nicklas Llundblad and Richard Allen, is always a fascinating listen, and the most recent edition about how to think about AI is an essential for your podcast list.
And Finally…
A few things that I think are worth your time reading:
Lord Hague, former UK Foreign Secretary, on why we need a new mindset for the age of disruption.
A clearly blown away Ben Thompson on the Apple Vision Pro and its potential impact on both tech and society.