The Absolute Imperatives for the Future of Business in the Age of AI

Michael Ruckman has spent the past 30 years involved in guiding change and business transformation in more than 30 countries and across multiple industries.  While he is most often recognized for his projects in Customer Experience, Relationship Management, and Loyalty in the banking industry, digital and business model transformations have become and underlying specialty of his career.

“While I must clearly state that Artificial Intelligence (A.I.) promises an astonishing new horizon of benefit and opportunity for businesses, A.I. also creates a multitude of challenges and difficulties for business leaders that must prepare and adapt their businesses to fully enjoy the potential rewards.”

Michael Ruckman

Are Businesses Ready for the Benefits and Opportunities of Artificial Intelligence?

A few years ago, I was asked to write an article on digital transformations for retailers in the Middle East.  I wrote that most organizations tend to apply new technology to optimize or enhance old ways of doing things, while the true opportunity is to explore new forms of value creation for customers.   I also noted that the digital world offers more efficient ways to manage ongoing contact and dialogue with customers leading to stronger, more loyal customer relationships.  Today, with the recent advancements in artificial intelligence (A.I.) and the amazing speed and development trajectory ahead, I am faced with a very scary thought for business leaders:  Are companies ready for the benefits and opportunities that A.I. promises?  And, more importantly, will they keep up with the speed of change needed to realize the rewards? 

From my experience, and to be perfectly honest, most businesses are not designed for change and, in most cases, are designed, measured, and managed in ways that slow down, complicate, and even block most efforts to change.  Therefore, if the benefits and opportunities promised by further advances in A.I. will require businesses to change anything, and they most certainly will, then we are all in for a very tumultuous and frustrating phase of development in businesses around the world.  

To make a bold statement, I would bravely assert that most businesses have outdated, if not obsolete, organizational models considering the scope and speed of pending change in the years ahead.  I would also widen this general premise to describe the last 25 years as largely focused on digital transformation in most industries and predict that the next 10-20 years will likely be focused on organizational transformation – driven by the crisis of not keeping up with changes in customer needs, preferences, and behavior.

To make a prediction, I would guess most businesses will follow the same path of applying the new technological advances to old ways of doing things with the goal of optimization and efficiency.  However, if history proves anything, most of us cannot fully envision the new forms of value creation that these technological advances will bring.  In the early 1900s, who would have imagined that Édouard and André Michelin would publish what would become the gold standard restaurant rating guide known globally in the culinary elite?  It was originally published to stimulate automobile sales, and thus tire usage, and included maps, tire replacement instructions, and locations of mechanics and gas stations. In fact, who would have imagined that mass-produced cars, available to middle-market price segments, would lead to the massive increase in need for roads, bridges, gas stations, monuments, hotels, restaurants, mechanics, and more? Think about that for a minute, and then apply that scale and scope of change to what would happen in the next 10-15 years if the majority of middle- and upper-class families would, say, have their own A.I. powered household robot/assistant.  Hard to believe that most people today would envision and understand the full breadth of opportunity before them, let alone the scope of changes to needs, preferences, and behavior of those market segments.

Most businesses are designed to measure and manage their performance based on today’s goals, or, in many cases, based on an understanding of past performance goals that may or may not remain relevant.  They are not designed to look forward.  Even those businesses with a solid strategic development plan typically are measured based on the next quarter’s performance or the year ahead at best.  For the most part, and aside from small bubbles of strategic thinkers hidden in organizational hierarchies, businesses are not future-thinking at scale.

I will also predict that those businesses that take, at least in part, an iterative and experimental approach to development will gradually discover these new forms of value creation and evolve their offerings to embrace the benefits and opportunities before them.  However, most businesses would require almost a complete re-design of their organizational models to be ready for this scenario.  To break it down, an organizational model is comprised of the organizational structure (how teams are organized), the management model (how resources are allocated and how decisions are taken), and performance measurement systems (how things are analyzed to monitor progress and determine success or failure).  Rather than go on about the flaws and drawbacks of the many variations of organizational models found in businesses around the world, I will focus on some key ideas that could serve simply as guiding principles or may even represent absolute imperatives for the future of businesses.

Organization of Teams

Any area of a business that is tasked with exploration, innovation, or improvement, must be organized in a fairly autonomous network of teams – each with the authority to take decisions and allocate resources, within reason, but completely independent from the day-to-day operations in the company.  Hierarchical and matrix-type reporting structures must disappear from the “development” areas of business and a “development vision” will guide teams in a “test and learn” approach.  Development iterations will steer the overall direction and focus within teams as they explore interdependencies and share successes and failures with other teams for additional guidance.  Small wins and fails will lead to larger development areas as new assumptions emerge about future areas of value creation for the company and for customers.

Note:  Most companies, especially those with regulators, cannot simply change the current operating and organizational models from one day to the next.  Therefore, in many cases, the development teams described above may be “structured” into a separate division or even a separate legal entity to satisfy the need for this adaptive and explorative approach to development. However, historically, this separation typically leads to the “old” organization discounting, resisting, or even blocking the “new” approaches and/or the necessary changes – often to their own, long-term demise. 

Management Model

Within this new development environment, the implied change to approaches in resource allocation and decision making is radical compared to normal corporate planning and monitoring cycles.  Teams must have the ability to expand and contract based on their needs and the authority to take decisions relatively autonomously – keeping in mind the overall developmental vision and the interdependencies and the implications of their decisions with respect to other teams in the network.  In essence, each team may be allocated a development budget that they may spend as needed within their developmental journey and in harmony with the overall developmental vision.  Additional funding may be allocated to those developmental journeys showing the most promise from initial developmental iterations, and, over short periods of time, funding may be diverted from other developmental journeys that are showing less promise in their efforts.  In comparison to normal corporate planning and monitoring, these decisions and changes may take place from week to week versus quarterly or annually, providing a more dynamic and flexible environment to guide developmental efforts.

Performance Measurement

In early stages, each team may begin by measuring their results in testing their various hypotheses related to a specific developmental goal in the overall development vision.  As development continues, more specific spending needs may be calculated as well as concrete areas for development with more precise indicators of success or failure in the development efforts.  Over time, a profit and loss analysis for a team’s developmental journey can be calculated which will determine more specific funding requirements as well as timelines for expected return on investment.  In iterative development approaches, the period of investment and return may be calculated in much shorter timeframes than normal corporate planning and monitoring cycles.  For example, a team may be expected to reach a point of self-financing for future development iterations within a relatively short period of time.  This will force teams to identify the fastest path to financial benefit to finance additional iterations of development, which, in turn, will bring more meaningful financial results and confidence in further development iterations.

Having outlined the three areas above from a development perspective, I must admit that most companies will battle not with these three areas specifically as they are related to managing exploration, innovation and improvement.  The larger struggle will be in the relationship between the old organization (“The way we have always done things around here.”) and the new opportunities that will clearly require changes in the old organization moving forward.  These new opportunities will likely require significant change at the level of day-to-day operations, the way the company is organized, the way that decisions are taken, and the way that performance is measured for the company as a whole.  In this realm, I predict the most difficulty in realizing the change at scale as the old organization is likely to discount, resist, or even block the changes to maintain the legacy structures of power and authority as well as avoid the pain of experimenting and enduring the uncertainty of the changes at scale.

Again, from experience working in both developed and developing markets throughout my career, I will predict that developing markets will be more open to the new and uncertain than the developed.  This brings a slightly different focus for leaders depending on the current state of market development:

Developed Markets – Businesses with established positions in developed markets will most likely focus on optimizing the current model and maintaining current market positions and competitive advantage.  In essence, they will be more inward-focused and less visionary – less explorative and with a lower appetite for risk in new ventures and uncharted development territories. These leaders will be challenged to push their organizations from more rigid measurement and management to more adaptive and explorative approaches and must work to create the right environment for change to evolve their organizational and business models for the future. 

Developing Markets – Businesses in developing markets with less established competitive positions – domestically and/or internationally – will be less bound by legacy thinking, power structures, processes, measurement models and infrastructure.  They will be more open to new opportunities and more willing to rid themselves of outdated and underserving models from the past.  As a result, they will likely embrace new approaches and invest more aggressively to grow small successes and achieve scale for these new opportunity areas. These leaders will be challenged more with adding structure and formality to the measurement and management of the new opportunity areas without stifling the innovative ideas and visionary aspirations of teams.

As usual on topics that imply significant organizational change, I may have described more barriers and challenges than possible solutions, but there is one constant for the future: change!  In other words, leaders, teams, companies, shareholders, and regulators will all need to embrace change or face great difficulties, possibly failure.  At a minimum, companies that are not able to quickly evolve their organizational and business models in the face of changing customer needs, preferences, and behavior will become irrelevant in a rather short period of time.

As well, in this article I have focused mainly on the required organizational changes for the future.  However, there is a significant discussion to be had on corporate culture as a whole – the way groups of people do things and the values by which they are driven.  Aside from the organizational changes outlined above, leaders will face significant challenges moving from directive corporate environments to collaborative environments.  Especially for larger companies, getting the organizational model right will help significantly with the development of the right corporate culture for an adaptive and explorative organization. 

And, finally, I must state that the world is currently in “A.I. hype” mode, and I would envision in the coming years a more realistic view of integrated applications of A.I. in the business setting.  Honestly, everyone, everywhere is talking about A.I. today as if it will solve all business problems and unlock unlimited potential for the world.  In reality, and based on systematic application of new technologies to business environments throughout history, A.I. will most likely bring the most value in situations of helping humans to be more efficient – at least in the near future.  That is, A.I. will likely lighten the workload for humans  in areas that are more rational and predictable, while humans will likely add more value in areas that are still difficult for A.I. – abstract thinking, emotional intelligence, creativity, social intelligence, collaboration, etc.  This combination of A.I. and H.I. (Human Intelligence), will likely drive the most successful applications of A.I. in the business setting for the next five to seven years while A.I. is learning more complex areas of intelligence beyond rational. 

Changes are coming!

Will businesses be ready?