AI Winners See Automation As A Strategic Opportunity Not Just Cost Savings

Cloud Commerce Consulting

A recent study by IBM declares frighteningly, but not surprisingly, that the top 12 economies will need to retrain 120 million workers in the next three years. The study was conducted by IBM’s Institute for Business Value, and found that only 41 percent of CEOs have the people, skills and resources they need to execute their strategies.

Using AI for cost savings alone is not enough

Business executives view artificial intelligence technologies of all kinds too much through the lens of automation. Automation is very alluring. It is relatively simple to understand and easy to calculate and prove an ROI. Creating more business value with fewer people is a proven way to boost stock prices and executive bonuses. But cost savings from automation do not offer a sustainable competitive advantage. When everyone in their industry follows suit, firms that use AI just for cost savings will be in real trouble.

Retraining displaced workers

Experts complain that companies do not invest enough in retraining displaced workers. Taking someone with life experience, domain knowledge and loyalty to the firm and teaching them new skills can deliver value for the worker and the company. It may be valuable for companies to let machines do the heavy lifting in certain areas so that employees can engage with higher order concerns. The problem is that this might only be an option for a small minority of the working force.

Senior lawyers, for example, may devote much of their energy to winning new work and counseling clients. With machines being able to suggest courses of action and arguments due to having digested legal documents, lawyers could have more capacity to do the rest of their jobs better. The same is true of many other professionals, from accountants to investment bankers.

However, the truth is that companies often don’t really know what to do with displaced workers and see cutting jobs as a crucial benefit of automation. They would rather spend big on recruiting the right talent from competitors or wait for properly trained talent to graduate from university than retrain displaced workers to fill highly skilled positions.

In most cases, managers who want to transition displaced workers look at roles related to their original role. For example, a salesperson may become a customer service representative. It is cheaper to move employees around that to lay them off and hire new employees. But reshuffling people into existing openings doesn’t do much. It can just marginally lessen the disruption and negative feedback related to job cuts.

Finding new ways to unlock value

Enterprise success depends far more on constant innovation than on cost efficiency. It only makes sense to swap humans for computers to increase cost efficiency if conditions are static. However, the tasks of tomorrow are unlikely to be the same as those of today. Automation makes operations more efficient, but profitability will depend more than ever on the other talents of employees, like creativity and empathy. For example, salespeople may be able to rely on CRM software, but their edge will come from how well they connect with retail buyers in person.

The truth is most companies are terrible at analyzing and devising new strategies. Most executives are not trained well enough and often just not creative enough. They tend to prefer tactics over strategy and vision, especially if they are executives at public companies with a focus on short term stock prices.

Those who are able to devise new strategies are often not as good at aligning an organization and motivating people to implement it. What is implemented by the rank and file at all levels often deviates dramatically from the strategies developed by execs and consultants in conference rooms.

Business executives need to drive reevaluations of strategy to find new ways of unlocking value. Maximizing the value you get from any artificial intelligence or data analytics technology is to look beyond savings from automation. Ideally, automation streamlines and unleashes great new insights about how to run your existing business.

Companies like Amazon know AI represents a chance to shift the strategy of the entire industry and sometimes other, completely unrelated industries. Innovators who want to leapfrog competitors and turn short-term benefits into long term competitive advantage don’t want to merely do the same with less. They look at doing everything differently.

This is going to affect every industry and ultimately every firm of any size. Even small startups are demonstrating how critical data is to their operations from electric bikes and scooters to mattresses and household goods, publishers in the apparel industry and food, coffee and other beverage manufacturers. 

A final word

In the short run, job reductions from automation are a relatively simple and proven way to create value. But after your competitors have done the same you are going to be left with a relatively even playing field. If this represents the outcome of your strategy, then your firm is at risk. The winners will be the firms that invest the time and energy in looking at data and AI as a chance to strategically shift the entire industry.