Artificial intelligence is transforming the business landscape, and companies are looking for ways to develop an AI strategy that aligns with their overarching digital or IT strategy. This article will explore how CISOs and IT teams use AI to drive competitive advantage.
What is AI Strategy?
The strategy addresses critical questions about where and how to compete to gain a competitive edge. One practical approach to defining competitive advantage is to create and capture economic value (EV), which is the disparity between a customer's willingness to pay (WTP) and a supplier's opportunity cost (SOC). As WTP and SOC are difficult to measure, an alternative way is to see the competitive advantage as the difference between the price charged for products and services and their production cost. Publicly reported financial figures indicate competitive advantage or EV, which is influenced by a firm's revenues and overall costs.
CEOs, CIOs, and other top executives need to rethink their digital and business strategies at different levels, such as corporate, competitive, and functional, by capitalizing on AI opportunities that differ across sectors.
How AI Influences Strategy
AI can impact a business's competitive advantage by influencing its pricing and costs, as well as its revenues and total costs. AI can potentially increase a company's revenues by enhancing sales through existing products, customers, and channels, creating new products and channels, targeting new customers, and reducing prices through cost reduction or cost avoidance. To create or capture economic value, companies can add value by increasing the price or willingness to pay without affecting costs, decreasing costs without affecting price or willingness to pay, or increasing the difference between price and cost by changing both at the same time, such that a price increase is greater than a cost increase or a cost decrease is greater than a price decrease. AI can assist in all of these choices.
The ADROIT framework is a practical way to identify the role of AI in creating a competitive advantage. It breaks down the value created by AI into six components: adding revenue or volume, differentiating, or increasing willingness-to-pay, reducing costs, optimizing risks, innovating by generating and deploying knowledge and other capabilities, and transforming business models, business priorities and business processes.
Adding Revenue & Differentiation
AI can help companies add revenue through organic or inorganic means. For example, companies can increase sales to existing or new customers through existing or new channels. Companies can also acquire other companies that are leaders in the AI space to expand their offerings and increase revenue. AI can also help companies differentiate themselves from competitors by competing on non-price attributes, such as perceived quality or convenience.
Reducing Costs & Innovation
Reducing the overall cost by eliminating waste through better analytics is another way that AI can help companies and automate processes, leading to more efficient operations and lower costs. Innovations through AI generate and deploy knowledge and other capabilities. For example, companies can use AI to improve research and development or collaborate with external innovation partners.
Companies can also use AI to transform their business models, priorities, and processes. For instance, some commercial vehicle manufacturers offer bus-as-a-service to state-owned transport companies using IoT and AI applications that track, predict maintenance, identify profitable routes, and incentivize driver performance, transforming automobile business models.
AI Applications Across Industries
One such example is Unilever, which has successfully integrated AI into its business, including demand forecasts, market analytics, and streamlining hiring and onboarding. By capitalizing on its vast amount of data collected from internal and external sources, Unilever has made better decisions and drive better outcomes across its organization.
Another industry that AI has transformed is retail. Amazon, for instance, uses machine learning algorithms to optimize inventory management and delivery, helping the company successfully manage its delivery services. Similarly, Pinterest has an AI-powered feature on its website and mobile app that can identify images of some items, provide a link to retailers that sell them, and show photos of similar items that can be purchased.
In finance and banking, AI is used to make quicker, smarter decisions on credit scores and to detect fraudulent transactions in real time. Experian, a credit rating agency, is using AI to crunch through its mass of data and identify trends and patterns that would otherwise go unnoticed. On the other hand, American Express is using AI to analyze customers’ behavioral data, such as how they hold their phones and how fast they type, to identify potential fraud.
Other industries that are seeing the benefits of AI include transportation, where Volvo is using AI technology to predict part failure and provide more accurate information on when a vehicle needs servicing, and sports and entertainment, where the U.S. Tennis Association used IBM Watson AI in the 2019 US Open tennis tournament to defend its computers against security threats and produce tournament highlights. Basketball players are using an AI program to learn how to execute a winning drive to the hoop. Trained with player movement data from the U.S. National Basketball Association, the program simulates how both offensive and defensive players would move during the play.
Developing A Digital Strategy
To harness the power of AI, businesses need a digital strategy that supports their AI strategy, and CISOs and IT teams play a critical role in developing and implementing that strategy. CISOs and IT teams should be involved in the strategy formulation process and responsible for IT governance and project management to achieve IT strategy synchronization.
AI is revolutionizing industries across the board, from retail and manufacturing to finance and transportation. As firms look to harness the power of AI to drive their businesses forward, there are countless examples of how it can be applied to strategic initiatives.
As more and more firms begin to harness the power of AI, it’s clear that the potential applications are virtually limitless. By examining how AI can be applied to their specific business needs, executives and senior IT professionals can capitalize on AI to gain a competitive advantage in a market where AI is increasingly pervasive. From predictive maintenance to fraud detection to customer service, the possibilities for AI are vast and exciting.
Undoubtedly, AI is changing the business landscape, and companies must develop an AI strategy that aligns with their overall digital or IT strategy. The ADROIT framework provides a practical way to identify the role of AI in creating competitive advantage, and CISOs and IT teams play a crucial role in developing and implementing that strategy. Companies can use AI to add revenue, reduce costs, and innovate by generating and deploying knowledge and other capabilities. By harnessing the power of AI, companies can ensure they are well-positioned to succeed in the rapidly evolving business landscape.
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