CEOs Need to Take Charge of their Firms’ AI Strategy, Now!

Over the next two to three years, American businesses are expected to make a mad rush toward tapping the multi-trillion-dollar potential of artificial intelligence (AI), but they’re likely to stumble and misfire unless they take a strategic approach to its integration.

AI is the area of computer science that enables machines to work and react like humans, equipping them with the ability to communicate in common speech and even learn, plan, and analyze data to find creative solutions to problems. As such, AI initiatives are typically inspired and managed by companies’ Information Technology departments.

But AI has many potential applications that extend way beyond information technology management to all aspects of business. AI projects can also absorb major chunks of financial and human capital, draining them from other vital programs. That’s why CEOs need to take charge of the creation of the strategy that clearly defines the business purposes of AI projects, prioritizes them, sets reasonable goals and timetables, and assures that the company has the right foundation and resources to pursue those projects, use them effectively, and measure their results.

Among the potential benefits of AI applications are improved forecasting and sourcing, the reduction of manufacturing defects, greater and faster detection of consumer fraud, and improved customer experience. AI is also expected to have applications in recruiting personnel, identifying buyer behavior trends, optimizing pricing and promotions, identifying business risks, and creating new products. It’s the backbone, for example, of the concept of the self-driving vehicle, and the means by which the workplace will be further automated, with robots that make things, review and analyze documents, improve their own algorithms via collective machine learning, administer x-rays and CT scans, and plan routes for delivery and service vehicles.

Today, according to Judson Althoff, an executive vice president at Microsoft, only 10 percent of companies around the world are using AI. But he believes that by as soon as 2020, that number will explode to 85 percent. And that explosion is expected not only among high-tech companies, but in virtually every sector of the global economy, from financial services, energy, utilities and manufacturing, to retailing, healthcare, construction, education, professional services, and travel and tourism.

Huge savings and profits are at stake. In 2016, McKinsey, the global consulting firm, estimated that AI has the potential to:

• Create $3.5 to $5.8 trillion in worldwide value per year across nine different business functions in 19 industries.
• Generate up to $2.6 trillion in additional sales revenue and up to $2 trillion in manufacturing and supply chain management.
• Add $200 billion in value in pricing and product promotion, and $100 billion in retail customer service management.

What’s surprising, though, is how little engagement the C-suite currently has with AI. In a survey of 122 business leaders, EY, a European business consulting and research firm, found this year that only one in five have secured C-suite-supported strategy for rolling out AI capabilities throughout the firm. Nearly 30 percent said their firms have little to no capability to undertake AI because the technology isn’t regarded as a strategic priority.

Just as there are many ways that AI can help companies improve their top and bottom lines, there are also many ways that an uncoordinated and poorly planned approach to AI can backfire and fail. Here are some of them, and how they can be avoided:

Building on a weak digital foundation. You’re not going to succeed in adopting AI if your firm isn’t digitally mature. AI should be the latest stage of investment in a company’s journey in adopting core and advanced digital technologies.

Not enough talent. AI is a specialized field within IT, and demand is rising faster than the skilled talent pool is growing. Before you launch into AI, be sure you have the right number of people with the right skills.

• Taking on too many projects at one time. For companies just getting into AI, the advice I find everywhere I look is to start with a single project. Problems will inevitably arise, and when they happen across multiple projects they can strain your teams and management to the breaking point.

• No clear business case. Each AI project needs to have a clearly defined purpose, measurable goals, and an on-going process for evaluating its operational success. The business case is best created by a team of stakeholders that determines what success will look like, where the data comes from, what decisions it will support, and how the information it generates will be integrated into business operations.

• No overriding organization strategy.  Adopting AI isn’t a strategy – it’s a means of advancing your existing strategy, increasing your efficiency and making you more competitive. An effective AI strategy sets out where AI can be applied, determines how much will be invested, what returns are expected, and how to prioritize the desired projects.

The possibilities for AI in the industries I have been or am actively involved with – fleet and insurance – might very well be game changers. Could we use AI’s naturalistic speech capabilities coupled with machine learning to take over parts of the claims process, freeing up time for customer service representatives to follow up on repairs, assist drivers with unique issues, and speed up the repair process?

AI someday may become smart enough to inform repair decisions as well as a certified appraiser. But we can be sure that sooner, rather than later, new technology will be vetted and taken to market by astute businesses.

Becoming one of those companies means that a CEO must not leave AI strategy to be devised by Information Technology managers alone. Instead, a leader needs to direct the creation of that strategy and be sure to involve all stakeholders.

I’ll close with this telling quote from Amit Aswhini, vice president of marketing at Zibtek, a high-tech web development company:

“Every business will soon be an intelligent business in the same way every enterprise is a digital enterprise. If they don’t become intelligent, they will simply cease to exist. Artificial intelligence, a revolutionary cluster of technologies, is a game changer and has the potential to make fundamental changes in how we function. However, an AI strategy, if it’s just an AI strategy, won’t take you very far. An AI strategy that’s just an AI strategy is an odd managerial notion that by sprinkling this magical AI sauce over everything will turn everything more magical and awesome.”

The Internet of Things: One of Today’s Disruptive Battlefronts

Perhaps as dramatic an invention as the printing press, the internet has engendered revolutionary changes in the way people work, shop, learn, communicate, receive and share information. For some industries – like newspapers and retailing — it’s been a disruptive force that threatens the extinction of enterprises that rely on traditional technologies.

The key to this generational trend is that the internet connects people to each other, faster, with more abundant information than ever before. But, like a new life form that evolves rapidly, the internet has morphed to connect more than people to each other, but people to devices and even devices to other devices.

It’s called the Internet of Things – IoT for short — and it’s become one of the latest new battlefronts for business. Like all battlefronts, it presents both opportunities and challenges for virtually every industry, and only those who win the battle to integrate with it successfully are likely to survive and thrive.

The key element of the IoT are sensors placed in objects that detect activity and relay the streams of data collected to a computer, which can then be aggregated, tacked and analyzed for a variety of uses that benefit business.

One of the applications of the IoT that applies to people like me, in both the worlds of fleet management and insurance, is telematics. In the fleet industry, these systems make it possible to monitor driver behavior – like incidents of speeding, harsh braking and seat belt use – and use that data to identify high-risk drivers. It’s also being exploited to detect the need for vehicle maintenance, promote better fuel efficiency, and create more time-efficient routes for service and delivery vehicles. In the auto insurance industry, the same data is being used to set premiums for individual policyholders. In both worlds, the IoT is helping to improve the bottom line.

But the potential of the IoT is much more widespread than just these. A report by the European consulting firm Capgemini cites examples, to which I’ve added two more, across a variety of industries:

• Manufacturing: Harley Davidson, the leading global motorcycle manufacturer, invested in a fully IoT-enabled plant, connecting key processes and devices in their production process on a single network. The impact was significant: operating costs dropped by $200 million, downtime was reduced, and production efficiency went up. The company was also able to reduce its build-to-order cycle by a factor of 36, and grow overall profitability by 3 to 4 percent. Overall, the company became more operationally efficient and was able to respond to customers’ needs faster.

• Food retailing: An average retailer loses around 4% of total sales due to being out of stock of specific items. To tackle this problem, the US-based grocery chain, Giant Eagle, deployed smart shelves in its stores. The smart shelves used sensors and dashboards to measure inventory life and send shoppers product information on their mobile phones. As a result, Giant Eagle reduced its out-of-stock replenishment time by two-thirds and cut its out-of-stock SKUs by 50% on any given day.

• Energy: Royal Dutch Shell realized a $1 million return on an $87,000 investment in a remote IoT-based asset monitoring and maintenance solution. The company installed sensors in 80 oil fields in West Africa, which produce upwards of 600,000 barrels of oil per day. The oil wells are in difficult terrain, and the sensors made remote monitoring of output and performance possible. Royal Dutch Shell reported immediate cost savings from reduced site visits for equipment maintenance and reduced downtime.

• Auto insurance: Property and casualty insurer Progressive has found that its telematics-enabled, usage-based insurance program has increased its closing rate with prospective auto policy customers and has improved customer satisfaction. The program involves a telematics device it calls “Snapshot” that a prospective policyholder snaps into a vehicle which relays data about how they drive. Progressive uses the data to offer risk-adjusted premiums, with safe drivers being offered discounts.

After offering the optional program in 2012, one in ten customers who shopped Progressive opted to try the program, with 69 percent of those customers trying the program before buying anything from Progressive. Progressive found that it closed with 15 percent of shoppers who opted to try the program, compared with 10 percent with those who didn’t.

• Fleet: A fleet management company recommended its telematics service – which includes hardware, reporting, consulting and in-house support – to an automotive supplier looking to cut costs. The system was used to monitor some 900 of the client’s drivers using light, medium and heavy-duty vehicles.

The results: the company reduced fuel consumption by 10 percent, saving $500,000 through greater driver compliance with computer-generated route plans and reduced unauthorized after-hours use of vehicles. The client also cut the customer’s accident spend by 32% as a result of immediate notifications sent to managers when drivers didn’t wear seat belts or went over the posted speed limits.

Solutions like these might be possible with IoT, but they are not always easy to implement, manage, or realize. For one thing, the IoT creates a tidal wave of data, the “Big Data” challenge that you hear so much about in the fleet industry. The challenge is to tame this data by creating processes to convert it into actionable intelligence – and that requires an investment in the right kinds of people in the IT department.

Besides having enough of the right people, organizations must have the right infrastructure. With connected devices, they also have to grapple with the issue of cybersecurity, both to prevent hacking and protect the privacy of the organization and its customers. Finally, they have to have a vision, a valid business case, and leadership that drives and supports IoT initiatives.

According to Capgemini, most companies have yet to step up to the IoT plate. Its survey found that only 36 percent of the 300 firms around the world that responded are deploying IoT solutions in their operations at full scale. Nevertheless, the IoT revolution is forecast to be relentless. Research firm Gartner predicts that by 2020, nearly 20 billion devices will be connected via the IoT, and IoT product and service providers will generate more than $300 billion in revenue. Others see worldwide employee productivity gains of up to $1.2 trillion.

But to seize those opportunities, an organization has to have a strategy and goals. Defining them begins with senior leadership asking the right questions, of themselves and their management team. Here are some questions that will help highlight where the IoT could be utilized:

• Do you know if and how your competitors are using IoT to improve their operations that might prove useful to your organization?
• What additional data about our manufacturing processes, supply chain relationships, inventory management and distribution can IoT integration lend to help improve efficiency?
• What customer behaviors could we learn more about that would be useful in improving the experience interacting with our products and services, inform pricing decisions, and help guide product or service enhancements?
• Can IoT applications help achieve greater efficiencies from employees?
• Do we have the resources and ability to analyze the volume of data we could obtain?

The time to start asking these questions is now. While the technology is not yet mature and many companies are taking a “wait and see” approach, businesses that don’t start planning today to engage with the IoT are missing an opportunity and risk opening themselves up to competitive threats they may not survive.

Disruptive Leadership: A New Requirement for Business Success

I’m pleased to introduce a new blog, which is entitled “Disruptive Leadership.”  This theme is prompted by the fact that technology is advancing at an unprecedented pace and making sweeping changes to society, markets, and leadership.  These changes are creating new competitive and leadership challenges and opportunities every day.

While my perspective reflects my personal and professional experience within the insurance and automotive fleet industry segments, the power of technological advances including but not limited to Big Data, Data Visualization, Machine Learning, Artificial Intelligence, and Cognitive Natural Language is like a tidal wave.  It can either inundate and drown decision-makers or deliver a treasure trove of newfound actionable intelligence from which to create sustainable competitive advantage.

Back in the early 2000s, CEI made a gamble by offering driver safety and risk management services aimed at reducing the number of fleet automotive crashes.  Collision repair was CEI’s core business, and it wasn’t lost on Wayne Smolda, CEI’s Founder and Chairman, that this move could potentially cannibalize the cornerstone of the CEI business.  Instead, the outcome was that CEI became a leader in fleet driver safety while, at the same time, continuing to expand its auto claims management business.

The kind of thinking behind CEI’s decision is only one example of what I consider Disruptive Leadership.  In this case, it involved using an existing and proven technology – the Internet – to collect data describing driver behavior and, after analyzing it, to identify problem drivers and deliver remedial training to target the root cause of the issue.  The end result was a stronger company that posed a meaningful threat to its direct competitors.

So, like the present, the future of business is going to continue to feature disruption as a way of life.  The companies of today are likely to fall into one of two categories: the disruptors and the disrupted.  To avoid the latter, businesses need executive leadership that has mastered the principles of disruptive leadership and has their finger on the pulse of many industries to spot trends early and act on them.

My objective for this column is to create a dialog, a forum where leaders from all industries gather to share experiences, insights, and wisdom into how to discover and leverage new technologies and problem-solving techniques to shake up their respective industries.  I sincerely hope our readers will join in on the discussion in a way that creates a learning community that grows and evolves, that alerts and informs us all within this brave new world.  I strongly encourage you to connect with me on LinkedIn and Twitter and leave feedback and content suggestions on my articles as I post them there as well.   My vision is for our shared leadership community to actively participate in the Disruptive Leadership blog in an open and inviting manner. Join in on the conversation on LinkedIn at https://www.linkedin.com/in/john-wysseier/

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