EY’s recent CEO Outlook Survey indicated that businesses globally are keenly focused on adoption of Generative AI to drive productivity and efficiency. CEOs are already hiring talent and re-allocating capital from other investment projects or technology budgets to drive these immediate plans.
Yet, despite this urgency, the survey points to a key issue when it comes to creation of a long-term AI strategy: while seven in ten (70%) recognise their organisation must act now on GenAI to avoid giving their competitors a strategic advantage, the same volume (68%) feel uncertainty about GenAI has made developing a strategy harder.
The hype around GenAI has not helped. The survey states that mention of AI or GenAI in earnings calls more than doubled over the past year. This combined with a surge in companies offering AI expertise has left CEOs struggling to identify potential use cases, unsure where to invest or with whom to partner to drive opportunities in their sector. As a result, they are unclear about where AI factors into their business strategy.
It’s a double-edged sword: CEOs know they need to act quickly and embrace GenAI in particular, but, equally, they must proceed with caution and ensure they have a good strategy in place. Nothing will wipe out share price value quite like bad publicity around unintended security leaks, media coverage around impact on staff morale, or unethical use of AI.
At this pivotal moment, it’s important to remember much of the immediate urgency is being driven by GenAI which is only a subset of much vaster AI capabilities. It’s in all businesses interests to not let this buzz overwhelm or cloud their judgement when it comes to their long-term needs and how AI can support them.
When it comes to building a long-term AI strategy, here are the questions CEOs need to ask themselves:
One: What are your core business priorities and how can AI assist?
Businesses compete on either price, quality, or innovation. This means, depending on their focus, a business must decide to either cut costs, invest prudently on top of their core business to bring something new to market or increase productivity within the parameters of their existing costs. Are you looking to expand internationally? Is vertical or horizontal integration a key focus? Do you see transformative acquisition on the horizon? There will be AI use cases that align and can assist you in delivery of these objectives. Your AI strategy is an important means of enabling your business strategy.
Two: Should you get out in front, or would you fare better as a fast follower?
Gathering competitor intelligence is key. For some businesses there will be a competitive advantage to moving faster while others may fare better following suit. Also consider, will AI create new competitors for you? It’s important to stress - whether you’re first out of the gate or following closely behind – you do need to be moving in the right direction. The transformative impact of AI means companies need to explore the advantages it can bring across many facets of the business.
With some AI technology still in its infancy and new developments happening all the time, it’s easy for a strategy to be upended and it might be tempting to move slower. However, the CEO Outlook Survey highlights that, for those companies which score lower on productivity and efficiency compared to their peers they should increase speed before the gap widens further.
For certain companies, like emerging technology companies but equally those in more traditional sectors such as design agencies, new AI functionality may create an immediate competitive threat to some existing business and future opportunities, so agility is crucial.
Most companies will have to assess how the adoption of AI changes their addressable market and the value add that they bring to their existing and future customer base. This technological shift, for example from bricks and mortar to online, played out in the previous three decades, however, we expect the speed of this change to accelerate significantly.
Three: Are you clear on what your pay back horizon is?
Even if a company does everything right in terms of setting an AI strategy and implementing it, there is no denying that the new interest rate environment increases the required rate of return that investors will put on any technology investment.
- Assess the benefits of types of technological investment carefully
- Price in risk when assessing net present value (NPV) of use cases. Risks could be technological, competitive, economic, or geopolitical
- Stress test use cases both in terms of future cash flow benefit and around timing of this benefit
- Understand the risks in relation to different areas of investment in GenAI depending on the maturity of the technology and ease of implementation
- Confirm that your organisational culture is ready to embrace the ability to augment when the technology becomes available to them. Adoption by your workforce is key to the long-term success of your AI strategy
Whilst demonstrating return on investment is important, it’s only enthusiastic leaders who put a strategic and holistic lens on investment to lead the organisation through change, who will really optimise the benefits of adopting this ground-breaking technology.
Four: Do your stakeholders understand the rationale behind your AI investments?
As with most technology, the investment cycle for AI will be much longer than your quarterly reporting period. This could present an issue for companies who, as they invest for long-term value, may not be rewarded by shareholders. This would ultimately curtail a company’s ability to make future investments.
Therefore, it’s important to keep your investors updated on your progress such as articulating productivity gains, outlining additional revenue generated as well as improvements in innovation and culture.
As with any strategic initiative investors will be monitoring whether the investment is paying off beyond the company’s cost of capital and that it’s delivering a good return. If companies cannot articulate this well, investors may lose faith in the company to execute their AI strategy and divert investment to organisations that are seen to perform better in that regard.
Five: What can, and can’t you measure and attribute to AI investments?
Try to attribute benefits as directly as possible to the investment but remember that many other investments are also difficult to measure discretely, for example acquisitions that are highly integrated or investments in company culture. Make sure you articulate the trade-offs or alternatives if needed.
As CEOs factor AI increasingly into their strategic decisions, new opportunities will emerge. Options that may have seemed unfeasible or out of budget in the past now are achievable with AI, for example: if entering a new language market, AI can assist in creating a foreign language website and operating a customer and HR helpdesk. Such benefits will be easily attributable to AI investment and pave the way for more in the future.
