Strategy in the Age of Artificial Intelligence and Machine Learning

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Introduction

In the age of artificial intelligence (AI) and machine learning (ML), formulating and implementing effective strategies are fundamental to ensuring the competitiveness and long-term success of organizations. With rapid technological evolution and constant market changes, leaders and executives must adopt innovative approaches to stand out.

Reading the article "The Rise of the Chief AI Officer: Beyond Tech" made me reflect on how the mindset and approach to strategy need to evolve. This role, the Chief AI Officer (CAIO), is not just a technical expert but a facilitator of cultural and strategic changes. I will return to this inspiring article later. For now, I share my thoughts on how we should think about strategy in this new reality.

Our Days (a.k.a. "Times of Exponential Change")

Kevin Kelly argues that we are living in an era where we no longer have a past or future, living in an eternal present marked by constant updates and upgrades of systems and technologies.

The COVID-19 pandemic accelerated various technological and market trends, highlighting the importance of an adaptable and resilient strategy. Organizations already aligned with digital transformation and innovation were able to adapt more quickly to changes imposed by the global crisis. This acceleration brought to light the significance of Peter H. Diamandis "Six D's of Exponentials" a framework that describes the stages of technological development we are experiencing today:

• Digitization: The conversion of analog information and processes into digital. With digitization, data becomes more accessible and processable, enabling new forms of analysis and automation.
• Deception: Initially, exponential advances may seem disappointing as initial results are modest. However, exponential growth soon becomes evident.
• Disruption: Exponential technologies begin to surpass and replace traditional methods, creating new forms of value and disruptive markets.
• Demonetization: The costs of technologies drop drastically, making them accessible to a broader audience.
• Dematerialization: Physical products and services are replaced by digital equivalents, reducing the need for physical resources.
• Democratization: Access to technologies and information becomes universal, allowing more people and organizations to innovate and create value.

This exponential pace is the rate at which technologies such as generative AI and large language models (LLMs) progress, transforming industries and markets. To better understand the differences between sequential and exponential change, consider the following examples:

• Sequential Change: Growth is linear and predictable. Imagine climbing a staircase where each step is a fixed increment (1, 2, 3, 4, etc.). This pace of change is stable and easy to predict.
• Exponential Change: Growth is accelerated and can seem surprising. Imagine folding a piece of paper multiple times. Initially, the changes are small (1, 2, 4, 8, etc.), but soon they become enormous (16, 32, 64, etc.).

This pace of change can be difficult to predict and requires constant updates to our mental models to understand and capitalize on these changes.

Mental Models and Strategy

Mental models are concepts we use to understand, explain, predict, or approach different subjects and circumstances. They are fundamental in strategic thinking as they determine how we interpret and act in the world.

To achieve success and leadership in the market, companies need to adapt and evolve in sync with the world's changes. Kelly's "eternal present" transforms us into "eternal novices" who must constantly seek to stay updated. This concept is vital to understanding the need for a mindset of continuous learning and rapid adaptation in business strategies.

Kenneth Cukier , Viktor Mayer-Schoenberger , and Francis de Véricourt are advocates that mental models, or frames, determine how people understand and behave in the world. Frames allow generalizations and the creation of abstractions that can be applied to other situations, facilitating adaptation to new circumstances without constantly needing to relearn everything. Although frames operate implicitly, people can consciously contemplate the frame they are using and determine if it is the most appropriate for the situation at hand. If necessary, they can choose another frame or even conceive a new one to apply.

The inadequate choice of frames can limit our ability to see things broadly and distinctively, increasing the risk of making wrong decisions and missing valuable opportunities. Therefore, it is crucial to carefully choose the frame we use in each situation to avoid falling into mental traps that limit our ability to adapt and continuously learn. With the proper choice of frames, we can maintain our ability to reinvent ourselves and continue moving toward success.

Strategy for Exponential Rhythms

From authors like Roger L. Martin and Gary Pisano, I learned that a strategy is a commitment to a series of coherent policies or behaviors that mutually reinforce each other to achieve a specific goal. In this sense, strategies define patterns of action and priorities that help clarify objectives and promote alignment between various groups within an organization.

So how do you think about a strategy that can adapt to market changes at an exponential pace?

From Henry Mintzberg , I learned that the actions that effectively occur in implementing a strategy stem from a combination of the original plan (the deliberate strategy) and the organization's responses to unforeseen events. Therefore, a strategy designed for exponential times must be flexible and adaptable, incorporating new insights and reacting to unexpected changes.

According to Mintzberg, strategy formation relies on two legs: one deliberate and the other emergent. Effective management requires a delicate and skillful touch to balance achieving planned objectives while adapting to evolving circumstances. This concept perfectly fits the need for an adaptive strategy in times of exponential change and leads us to talk about organizational ambidexterity.

Exploration and Exploitation

One of the most important concepts in modern strategy is organizational ambidexterity, the ability to explore new domains while exploiting existing assets and capabilities. Steve Blank, one of the most well-known names in innovation and entrepreneurship, summarizes this idea well by stating: "Exploitation pays your salary while exploration pays your pension." Authors like O'Reilly and Michael Tushman delve into this discussion in their book "Lead and Disrupt," exploring how organizations can balance executing their current business models with disruptive innovation. Exploration allows the organization to adapt to rapid market changes, while exploitation ensures efficiency and sustenance of current business.

Intersection of Ideas

As we advance in the age of AI and ML, the ability to adapt and innovate becomes crucial for organizational success. In the article "The Rise of the Chief AI Officer: Beyond Tech," Conor Grennan highlighted the growing importance of the Chief AI Officer (CAIO) role. The CAIO is not just a technical expert; they are more of a strategist guiding the cultural and operational transformation of organizations. This role is vital for navigating an environment of exponential change.

Key Reflections:

• Flexible Mindset: Adopting a mindset of continuous learning and rapid adaptation is essential. Kevin Kelly's concept of the "eternal present" reflects the need to stay updated and ready for new changes.
• Adaptive Strategy: Henry Mintzberg suggests that strategy should be both deliberate and emergent. In times of rapid change, leaders must be prepared to adjust their strategies as new information and conditions arise.
• Organizational Ambidexterity: The ability to explore new opportunities while exploiting existing capabilities is fundamental. Organizations like DBS Bank (Asia) and iFood (Brazil) exemplify this balance, ensuring continuous innovation and operational efficiency.
• Exponential Technologies: Understanding and capitalizing on the exponential growth of technologies such as generative AI and LLMs is crucial. Peter Diamandis's "Six Stages of Exponentials" provide a framework for understanding this progression.
• Chief AI Officer: The CAIO role goes beyond technicality; it is about leading digital and cultural transformation. The CAIO is essential for integrating AI in a way that benefits the entire organization, promoting a culture of innovation and adaptability.

To learn more about how the role of the Chief AI Officer is transforming companies, I recommend reading Grennan's article: The Rise of the Chief AI Officer: Beyond Tech.

References:

• Cukier, K., Mayer-Sch?nberger, V. & Véricourt, F. (2021) Framers: Human Advantage in an Age of Technology and Turmoil. New York, New York: Dutton
• Diamandis, P. H., & Kotler, S. (2015). Bold: How to Go Big, Create Wealth and Impact the World (Exponential Technology Series). Simon & Schuster.
• Kelly, K. (2016). The Inevitable: Understanding the 12 Technological Forces That Will Shape Our Future (Reprint edition). Penguin Books.
• Martin, R. L. (2022). A New Way to Think: Your Guide to Superior Management Effectiveness. Harvard Business Review Press.
• Mintzberg, H. (2023). Understanding Organizations...Finally!: Structuring in Sevens (1st edition). Berrett-Koehler Publishers.
• O’Reilly, C. A., & Tushman, M. L. (2021). Lead and Disrupt: How to Solve the Innovator’s Dilemma, Second Edition.
• Pisano, G. P. (2019). Creative Construction: The DNA of Sustained Innovation.

#AI #Strategy #Leadership #Innovation #DigitalTransformation #ExponentialChange

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