What faulty assumptions is your business making about AI?

As we discovered in the last article, business is changing in response to the limits created by economics, politics, technology, demographics and skilled labor availability. It is this collision, not the technology itself, that will both shape and force adoption.

The effects are already being felt. Perhaps the most cliched story in modern business media is of the large, established company being unseated by the smaller, more agile upstart: Netflix vs. Blockbuster; Uber and Lyft vs. the taxi industry; Airbnb vs. Marriott and Hilton. Perhaps now, OpenAI vs. Google. In each case, the new challenger has a distinct advantage of being able to align more quickly and easily. It has fewer employees and less entrenched leadership, and has fully embraced technologies that speed up internal communication.?

The larger, more established companies are forced by the demands of scale to have more rigid alignment processes — the opposite of agility. And this makes them vulnerable. Today, the average time a Fortune 500 company spends on the NYSE before being acquired or going bankrupt is seven years. This is, incidentally, about the same tenure as a typical startup on the NYSE.?

Most business strategies today are based on a consistent set of assumptions:?

• Innovation has traditionally been?achieved through research & development, and once an innovative product or service was created, the company behind could expect to extract value from it for years, if not decades.
• Markets are typically well-defined, and often physically localized. The ones doing the purchasing are nearly always individual people, who can be addressed through advertising and marketing efforts.
• Organizations are defined by hierarchies and chains of command, especially as they grow larger and more complex. The question of how resources are committed is made at higher levels, and workers at lower levels are expected to work within constraints handed down to them.
• Deals are negotiated carefully and methodically, because the cost of setting them up is fairly high. Teams of lawyers must work to make contracts robust and flexible enough to anticipate all sorts of future situations.?
• Change occurs at a predictable pace in areas like economic growth, market growth, and technological improvement.

Each of these elements is becoming much less certain, as we'll see later this series — and the disruptions around us are going to impact all of them. This creates a global business environment where rates of change can suddenly leap in speed, the window of value extraction for innovation shrinks to months or weeks, and deals can be negotiated and drawn up in seconds—to name just a few assumptions that are going to be invalidated.

Not only is the world changing, the changes are interacting.

There is a concept in physics known as constructive interference, where the peaks of two waves overlap each other, suddenly doubling the size and energy of the wave. There’s nothing mysterious about how these waves form; it’s just addition. But they can have unexpected consequences, precisely because they are so rare, and so sudden.

Constructive interference is why certain acoustic spaces have “live” and “dead” spots, where reflected sounds overlap. It’s also responsible for the “rogue wave” phenomenon that sometimes catches boaters and beach-goers unaware, by throwing an occasional massive wave into the mix.

A similar overlap of trends is starting to occur in global society as well. Urbanization will certainly change how we live, but what about urbanization combined with a rapidly growing middle class and a globalizing workforce? A narrowing innovation window will change the way businesses approach value creation, but what does that look like in a world where bandwidth is constrained and markets are globalized? Where these trends intersect, extraordinary and unintuitive things happen. And they have profound implications for the business decisions you’ll make in the near future, and the personal decisions you’ll make about where to live, how to invest, and what to learn.?

These implications are what prompted this newsletter. It’s the result of several years of research and analysis, in conjunction with several companies and organizations, including HP, Frost & Sullivan, the US State Department, and Sony, in countries throughout Asia, Europe, and North America. It’s based on extensive scenario modeling, and real-world encounters with individuals and organizations that are living out aspects of those scenarios today.

The conclusions that these trends lead to will demand massive change, from governments, trade organizations, non-profits, and especially businesses. It’s no exaggeration to say that we’re approaching an inflection point in the way the world exchanges data, capital, and resources.

• Before the inflection point, centralized control is the norm for businesses and government institutions; after, the most successful ones will be decentralized.
• Before, only large organizations are poised to make meaningful efficiency gains through software; after, entities of any size–down to individuals–will take advantage of them.?
• Before, “forecasting” is an exercise in looking at past trends and extrapolating them forward; after, abundant data and ubiquitous machine learning will enable remarkably accurate predictions based on real-time data.

Most companies will approach this moment looking to fast follow and buy off the shelf solutions. After three decades of false promises, reengineering and failed digital transformation, executives are weary of the next big thing, and so they should be. More often than not, survival is more a result of timing than capabilities.

In the next article, we'll explore how to turn AI from an unwelcome disruption to a disruption strategy.

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