Slowly but surely, AI is moving up the business agenda as a means of enhancing operational efficiency and productivity. In the UK alone, 68% of large companies, 34% of medium-sized companies, and 15% of small companies have adopted at least one AI technology.1
However, the vast majority of businesses are yet to explore the potential of AI for formulating business strategy. Just 7% of respondents to a recent McKinsey study said that they used AI in strategic planning. In contrast, it was far more common for businesses to use AI for marketing, service operations and other areas.2
In its various forms, AI has an important role to play, not only in the process of formulating strategy, but also in changing the way businesses approach strategic thinking.
While it is unlikely that AI can or should have complete autonomy over the strategy creation process, the tools that it can provide offer invaluable support and structure to the executives responsible for formulating strategy.
For example, it can analyze huge amounts of data at speed and provide useful insights. It can monitor widely for and flag opportunities and threats, feeding into the objective-setting process and overall strategic structure. It can compare scenarios and data from past business performance and highlight successful and unsuccessful strategic initiatives. It can also carry out predictive modelling and “war gaming” to stress-test a proposed strategy in possible future scenarios. Decision makers can then use this information to decide on the best approach.
AI can also flag when human bias has an impact on strategy. While AI is not bias-free, it is immune to certain human biases, such as excessive optimism, a common issue in traditional strategic planning. AI will resist getting overexcited by future growth opportunities, thereby avoiding the possibility of overlooking important facts or figures or acting impulsively. People also tend to stick with strategies, projects or products for longer than they should, perhaps because of an emotional connection or confirmation bias. AI can highlight the point at which a strategy has become ineffective (or is proven not to have the potential for future effectiveness), allowing executives to take a new approach without doubt or conflict.
Senior executives should not start to rely on AI and should continue to use their judgement and knowledge to create strategy. But AI can help them prioritize objectives and provide another viewpoint.
The advanced statistical-processing capability of AI is well suited to helping with quantitative decision making. However, AI can also help with more abstract decisions. The Generative AI language model can deal with abstract concepts based on a wide variety of factors, beyond just facts and figures.
For example, a business may be attempting to decide whether to expand into a new market. While, ultimately, it will be executive management that makes this decision, AI can do a lot of the legwork in advance – sizing the markets, identifying barriers to entry, and conducting competitor analysis. It can also consider the changeable nature of these factors and spot nuances that may be otherwise overlooked, as well as suggest a range of possible actions.
As well as helping businesses formulate strategy, AI offers the possibility of changing the nature of strategy formulation itself. Typically, a new strategy is tested, eventually rejected or approved and then, in the latter case, implementation begins. The strategy is carried out over a three- or five-year period, at the end of which the business assesses performance and results and uses the resulting insights to formulate subsequent strategy.
However, this is a process designed for a more predictable business environment than the one in which we find ourselves now. Even though we have access to greater volumes of quality data than ever before, the world is changing so rapidly that it is almost impossible to make assumptions beyond the short term.
Rather than creating a strategy that will remain fixed for several years, then, businesses need to formulate agile, flexible strategy that they can adapt to changes in the business environment and the evolving needs of the company.
Many businesses have embraced this new way of thinking, but continue to ignore the ability of AI to help. You can use AI as a tool to allow continuous assessment of your competitors, customers, regulators, new technologies, new business models, and a wide range of other business factors and inputs. You can then integrate the resulting real-time data and insights into your strategy, making it agile. It will then constantly adapt according to market changes and the evolving needs of the business.
A wariness born of a lack of familiarity with (and, by extension, understanding of) AI could be preventing senior executives from using it to formulate strategy. While it’s likely that many have dipped their toes in AI’s enticing but opaque waters, most haven’t invested the time or energy required to extract real value. There is also a fear on the part of senior executives that over-reliance on AI could result in job losses or diminish their own roles. However, AI is unlikely to replace humans in the strategic development process. While AI can present the facts and figures and extrapolate suggestions from these, human intuition and instinct are still essential to decision making.
It is essential that businesses recognize the importance of specialist knowledge when they consider initial adoption of AI. An AI specialist can highlight how the technology can be used responsibly to formulate strategy, as well as pointing out its limitations. They can also coach senior executives and other team members on how and when to employ AI to support decision making. It is vital that business leadership invests time in understanding the potential – and pitfalls – of AI.
It is also extremely important that those using AI for strategy formulation understand exactly why it is making certain predictions or recommendations. They should be assured that it is basing its suggestions on abundant, reliable, high-quality data in order to make the former viable.
In summary, companies that use AI to support strategy creation will be able to set goals and objectives more efficiently and make better-informed decisions at enhanced speed. Using AI to adopt a more agile way of formulating strategy will give businesses the ability to adapt to and prepare for unpredictable events and market changes. However, especially when it could be instrumental in making significant and influential business decisions, it is crucial that executives fully understand the powerful new tool in their hands.
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