Data flow concept.
Artificial intelligence will impact almost every business activity in the economy. Some features are less affected by today's large language models, such as Chat GPT, Bard, and Claude, but even companies that are less affected may change some of their operating procedures to take advantage of the new features. You will.
Biologists know that new species evolve and others become extinct all the time. However, sometimes there is an explosion of new species or extinction. For example, changes in vegetation change which animals thrive, which animals go extinct, and which animals evolve. Similarly, technological change creates new businesses and some disappear while surviving companies adapt to new conditions.
“In the early days of the auto industry, there were 2,000 companies operating in the United States. Only about 1 percent survived…The amazing thing about the market system is not how few fail; , how ubiquitous failure is even in the most vibrant and growing industries.'' That explanation comes from Tim Harford's excellent book. Adaptation: Why success always begins with failure. I summarized his book in my Forbes review as follows: Rather, success comes from a variety of efforts in a competitive environment. This process eliminates approaches that don't work and leaves you with the most valuable ways to achieve your goals. ”
AI powers all the important decisions business leaders have to make, including what products to sell, whether to merge with other companies, whether to manufacture or buy inputs, and how much emphasis to place on innovation. may affect. Let's take a look at how AI can impact these important strategic challenges.
What products to sell is one of the most fundamental business questions, involving both physical goods as well as services and intellectual property. Leaders constantly feel the tension between sticking to their weave and applying existing skills to similar markets. AI increases productivity and improves the ability to learn about other markets. This will probably give some companies the confidence to expand.
However, the value of artificial intelligence in some applications depends on the amount of data available to the model. Incumbent companies will likely use internal data to hunt down new competitors.
The value of data could also lead to mergers. Companies with more business can feed richer data to their AI models, giving them an advantage over smaller competitors. Mergers can create economies of scale, allowing large companies to operate at lower costs. We see this in some industries. However, diseconomies of scale also exist. These arise from the costs of coordinating different departments within a company and aligning local managers' incentives with corporate goals. As a result of the tension between economies of scale and diseconomies of scale, there are few airplane manufacturers but many independent restaurants. AI could change the balance in some industries. In some areas, mergers may work well for both companies and consumers, and in others, small companies may be able to compete better with larger companies.
For most companies, the make vs. buy decision is critical, and AI could change the most effective practices. On the services side, AI could enable companies to implement in-house activities such as accounting, legal advice, and marketing. This will not only be difficult for the independent companies that have been providing the services, but will also change the entire ecosystem of the broader sector.
Manufacturers use the components they need to decide whether to make or buy, and AI could change that calculation as well.
Approaches to innovation differentiate many companies. Some companies develop reputations for cutting-edge products and manufacturing methods, while others focus on small improvements to proven products.
All of these aspects of corporate strategy are undergoing some kind of change. Sometimes the pace is slow, sometimes it's fast. The rapid development of artificial intelligence requires very rapid change. While some companies will gain a competitive advantage through the application of AI, their competitors will have to adapt quickly or face extinction. Other companies will learn that what always worked in the past no longer works in the world of AI.
Understanding all of the basic business decisions listed above requires testing, trials, and evaluation. And this testing can drive old companies and startups out of business.
In a world where business processes change rapidly, agility must be the watchword of corporate strategy. Agility must include the use of artificial intelligence tools, but the need will extend to all aspects of the enterprise. For example, AI could lead to more product variations, with each variation selling fewer units. When this happens, the entire supply chain must be prepared to place smaller orders for a greater variety of input parts. Similarly, departments such as sales and finance need to prepare for this transition.
We don't know which companies will survive, but we do know which companies will fail. It's a company whose leaders have absolute conviction about the best way to move forward in the world of AI.
