How AI is changing strategy

As every strategist can tell you, knowing where to play is half the story. Having a strategy is not about being the best in your race, but understanding what races you should participate in. Having a proper process to determine the right strategy for a firm is thus critical: it will determine where money will be spent and cut, which talent will be hired or let go, which companies to acquire/sell, and in the end, whether the company will survive the next decade. The litmus test for any good strategy is in the returns: a good strategy should lead to superior returns for the company (e.g. ROE, ROIC, RONA) for a prolonged period of time.

So far, so easy. But here’s the catch. The strategy game is a dynamic game where all players play to win. In addition, market events and black swans can unwind a seemingly rational strategy completely. To make it even more complex, the social dynamics in the average board room are not set up to deal directly with disruptions — instead, there is often a strong tendency to stick to what is known and understood (read: last year’s budget, to keep the self-confidence of board members and their teams in place). Although the ideal outcomes of the strategy game might be understood by many companies, knowing how to play the game successfully is another matter.

The coming decade will present its own set of strategic challenges for organizations, as Cloud Computing, Big Data, IoT and AI will all become dominant forces in almost every industry. These forces will impact any industry (be it at different speeds), and executives everywhere will need to understand their inner workings in order to continue their jobs. Many firms will also face huge ‘translation’ problems (e.g. explaining the new AI-model to the compliance team). The forces are summarized below.

Although the four forces described above are powerful, it is not immediately clear how they relate to strategic thinking. In an effort to filter the signal from the noise, we tried to summarize what is really different today than in the past. So far, we came up with six main shifts that we believe are critical for executives and policymakers alike. The six shifts are detailed below.

Although the four confounding factors (Cloud, Big Data, IoT and AI) might be viewed as a major disruption to many organizations, the opportunities they present are also unique and worth trillions of EUR in the coming decades alone. Entering the strategy conversation with the right mindset will help to capture that value.

 

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