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Karim Lakhani

Karim Lakhani

1st Oct 2021

Technology management and innovation expert, Professor of Business Administration at Harvard Business School

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Karim Lakhani: Competing in the Age of AI

1. Where there is hype, there is opportunity 

Artificial intelligence (AI) is completely altering business architecture around the world. We hear a lot about this so-called age of AI. Leaders of organisations have to remember that they are not just competing with AI, but with other businesses in a vast and changing landscape.  

The hype around AI is everywhere. Many cite fears about a dystopian future, but from a purely economic perspective we have to pin down the reason why there is so much hype. The answer is straightforward: there is a massive amount of new businesses entering the fray. The cost to innovate has dropped rapidly, prompting very large firms and start-ups alike to enter this space.  

The opportunity for businesses is huge, with applications ranging from optimising content to streamlining workflows to managing clients, depending on the context of the business. This intersection of falling costs and an upsurge in opportunity has led to this hype and the explosion of new competitors. 


2. AI is changing business as we know it

Many people have a science fiction-inspired vision of AI and what it is capable of. In reality, it can be broken down into strong AI and weak AI. Machines that are fully autonomous and can act in a way that matches or surpasses human intelligence would be considered strong AI, while weak AI refers to any activity computers can perform that humans once performed. In other words, weak AI is based on dedicated algorithms that can, for example, paint the next Rembrandt.  

From a leadership perspective, the focus must be on weak AI as a means of innovation to drive growth of the business. As we begin to digitise our standard business operations, we can change the very nature of our firm. In China, an organisation called Ant Financial took this approach, gathering data from the merchants and consumers on their payment platform. They grew at a tremendous pace, with their user base ballooning to 1.2 billion people.  

Deploying a so-called 3-1-0 system for financial applications, Ant Financial successfully utilised automated algorithms to guarantee that customers would spend 3 minutes applying, 1 minute getting approved and, crucially, there would be zero human intervention in the process. 

By beginning the process of automating standard operations within our organisations, we can be at the vanguard of the change movement AI is creating.  


3. Optimising value starts with the business architecture 

When we try to understand how businesses can fully optimise AI, we should think about it from a business architecture perspective, namely your business model and how you create and capture value.  

AI systematically improves value creation and value capture activities, but it also has a positive impact on your operating model in terms of scale, scope and learning. In the best firms, there is a structured and widespread application of this technology in place, yielding businesses like Ant Financial. They are not just a bank, but a ‘finlife’ provider that assists customers during every step of their financial lives. 

Besides creating better product value, however, we have to look closer at network value and learning (or data) value. The network value of a product is only as strong as the number of users it has. As that figure increases, more data is gathered and the product can be improved through iteration. That is where the learning value comes in to the equation. Can we as businesses learn from the data we gather and improve our offering?  

Many of the best organisations have embedded these three pillars into their operating model, optimising how they create, capture and enhance value.  


4. Remove barriers to growth with technology

The relentless use of AI can effectively eliminate barriers to progress and scaling of businesses. This is realised through a positive feedback loop effect – as customers use your business’ products and services more, you generate data. That leads to the construction of better algorithms, which creates better services, which in turn leads to more usage and more data.  

Many of the household name tech giants have made this idea of user engagement a top priority, which enables them to grow at speed. We can visualise these businesses as having an internal AI factory which processes the data, ingesting it across a range of different operations. Through this AI factory, these businesses have been able to make better predictions, recognise patterns and automate processes. 

What is happening is that our operating models are shifting to one of data, software, APIs and applications powered by an AI factory, which is knocking down the roadblocks to growth that used to be a problem. 

“Think about your organisation as a set of predictions,” said Karim. “All the predictions that happen like: Will this person join the company? Will this customer be profitable? What should our marketing campaign look like? An AI factory can take the data used to make predictions and enable almost superpower-like accuracy. When you think of your organisation as a set of predictions, you can focus more on how to deploy AI.” 


5. The collision between digital and traditional

This age of AI has had many ripple effects on the market. In essence, we are moving from a world of disruption to one of collision, with digital businesses colliding with more siloed, traditional business models. What happens is that while traditional products generate value initially, that impact tends to peter out over time.  

Digital businesses, on the other hand, may be slower in the initial stages of growth, but they grow exponentially as time passes. For leaders, the goal is to figure out how your organisation can align itself to ensure it is on the upward slope – and not stagnating in traditional practices that are no longer fit for purpose.  

“The transition from product to platform is happening across industries,” said Karim. “As this shift happens, we need to think about what we will do internally in our organisations to be able to meet the expectations and demands of customers. They will very happily switch to another business if we don’t think through how to enable new value creation and new value capture in our organisations.”   

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