How does AI Help Business? - Part II of The Business Leaders Guide to AI

A weekly series of 5min reads on AI. No buzzwords. No hype. No fluff.

Last week, in Part I, we looked at what AI does: much as the internet is a tool to share information AI is a tool to analyze information. We discussed that AI can optimize virtually any business process (in any industry) by analyzing 100x more information, 100x faster than humanly possible.

You may be asking yourself, "That sounds great, but how exactly does AI help optimize business processes? How does analyzing information create any value?"

Every business is constantly making decisions that impact the bottom line: Offer this product of that one? Allocate resources to option A or option B? Order more inventory less?

Trade-offs are a Truth of Business Operations

As any business leader can tell you, in the real-world, there's no such thing as the perfect answer. Time and resources are limited. Every decisions involves making a trade-off.

For example: "Should we over-staff and pay high costs, or should we risk having customers wait?"

Or: "Should we offer full price but risk losing the sale, or should we offer a promotional price but decrease our margin?"

No doubt, you can think of an example for your particular business function, whether that is sales, marketing, product, legal, HR, accounting, logistics, customer service, production, finance, or anything else. In every business function there are trade-offs to make.

And while there is no perfect answer in business, there are of course answers in business, there are of course optimal answers which make the most of the imperfect information available, the business context, and the relevant trade-offs.

Making Optimal Trade-offs

All else equal...

Companies which make sub-optimal trade-offs have higher expenses and leave more money on the table.

While companies which make optimized trade-offs maximize their revenues and minimize their costs.

Yet making the right trade-offs is hard. These days more than ever, making the best possible decision often requires considering more information, in less time, than is humanly possible.

So as business leaders what are we to do?

Traditionally, companies have knowingly made sub-optimal trade-offs, because they had to make simplifying assumptions and accommodate constraints like limited time, limited human capital, and limited expertise.

But with AI, companies can analyze much, much more information to intelligently weigh trade-offs and make more informed decisions to questions such as:

• Will the customer be more likely to buy Product A or Product B?
• Is it better to order more inventory or order less inventory?
• Should we route limited resources to Area A or Area B?
• Should the invoice be accepted or rejected?
• It is cheaper to service machinery now or wait longer before servicing?

Provided with: i) a key objective to achieve and ii) the relevant data to do so, AI optimizes decision making to reach a iii) business value.

For example: Given history purchase data, achieve the goal of minimizing excess inventory in the future so we can reduce our operating costs.

Or another example: Given this customer's demographics, achieve the goal of finding the most similar customer persona they belong to so we can market to them effectively.

Learning how to frame problems and work with AI is the single most important skill business leaders can develop. You don't need to know how to code or build AI, but you do need to know how to make the most of it.

AI is Misunderstood

Hopefully you now are beginning to see why there is so much confusion, noise, and misunderstanding around AI. It is a paradigm-changing technology, much like the internet is, in that it can help any business in any industry.

In the case of AI it does this being able to answer and optimize any business decision (provided a few prerequisites we'll get into soon).

That doesn't mean that AI can work miracles - there are no perfect answers in business, even for AI. But it does mean that AI can improve any process, any business function, any implicit choice, and any explicit decision in your business to generate more revenue, capture higher margins, or reduce expenses.

For many leaders and their companies, this is too much to comprehend at once. "Any business decision?!? Really? Are you sure?"

Skepticism is understandable. Comprehending the full scope and business implications of new technologies like the internet and AI takes time.

So while it's important not to lose sight of what is possible, in practice it does help to start small, with a more narrowly defined field of focus.

Though every business function, from production to sales, can make use of AI, according to McKinsey much of the 'low hanging fruit' for AI initiatives can typically be found in marketing, sales, logistics, and manufacturing functions.

Those all make excellent places to start exploring the benefits of data and AI.

Looking Ahead

Just as every modern business needs to share information via the internet to remain competitive, businesses in every industry increasingly need to analyze information via AI to work smarter, run leaner, and keep up with the competition.

Next week, to help make sense of AI's wide reaching benefits in a more concrete way, we'll break down its benefits into 5 common types that apply to every company in every industry.

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This is part of a weekly LinkedIn series, The Business Leaders Guide to AI. If you have found this helpful or thought-provoking in any way I'd love to hear from you in the comments.

Even more importantly, if you have suggestions, requests for future topics, or found this unhelpful in any way I'd especially love to hear from you. Please drop a comment (was it too theoretical? too simplistic? too technical? not technical enough?) or, if you prefer, message me on LinkedIn.

Thanks for reading.