Until twenty years ago we had been fighting war in the same way for millennia: generals would dispatch an expeditionary force to a remote battle field, delegate power to them to make decisions, and anxiously wait for the results.
Predator drones completely changed the nature of modern warfare. Now generals have eyes and ears on the battlefield. A group of generals at the Pentagon can see a live feed on the ground in Fallujah and run a quick reaction force in a way that is fundamentally different and arguably more effective.
AI systems are the drones of business. It will change modern business just as drones changed modern warfare.
A New Kind of Drone
Once a generation a technology comes along that changes everything, creates new winners and losers. For a while we thought AI was a new web transition. It turns out, it’s more like electricity. We haven’t yet seen the full impact of generative AI because the infrastructure required to take advantage of it is not fully in the ground yet, but the deployment is happening as we speak over the next 5 to 7 years.
AI is not just another tool; it’s a transformative force, altering firm boundaries, decision-making processes, and the dynamics of competition. The transition to generative AI will definitely create a new set of winners and losers; are you ready?
AI and Firm Boundaries: A New Paradigm
Modern firms are defined and created largely in response to the need to create tangible value while minimizing what economists call transactions costs. Investors pool capital together and entrust a management team to go figure it out. All parties then try to create value for themselves.
AI is redefining firm boundaries in a way that will lead to a lot of restructuring, consolidation, outsourcing, realigning. This shift is not just about cost; it’s about leveraging AI to enhance capabilities, foster innovation, and create more agile and responsive organizations. But make no mistake, AI alters the dynamic between investors and managers by enhancing transparency and reducing information asymmetry between the two. In doing so it will disrupt the working lives of countless workers that will need to adapt to it just as we adapted to electricity.
A Pervasive Impact on Costs
AI’s influence on any business’s cost structure will turn out to be profound over time, affecting everything from contracting and coordination expenses to information costs. This cost dynamic will drive businesses to restructure many internal functions as AI is applied to streamline processes and reduce a broad range of costs:
- Bargaining and Contracting Costs. AI can simplify and expedite negotiation and contracting processes, though it also necessitates new frameworks to address AI-specific considerations.
- Monitoring and Enforcement Costs. With AI, firms can monitor performance and enforce contracts more effectively, potentially encouraging more outsourcing if these activities can be reliably overseen.
- Coordination Costs. AI enhances coordination within and between firms, allowing for more complex and fluid organizational structures.
- Information Costs. AI’s ability to process vast amounts of data reduces search and information costs, enabling firms to make more informed decisions quickly and efficiently.
AI’s Dual Impact on Industry and Firm Structure
Left unchecked, this impact on cost leads to a dual impact on industry structure and businesses. The development and training of core generative AI technology such as LLMs (large language models) will be concentrated in a few large firms with access to vast pools of capital. These firms are the natural monopolies of tomorrow.
Everyone else will feel the impact of AI through technology-driven efficiencies. Targeting and prediction will become easier for sellers and marketers. Large businesses without a natural data advantage will be pressured to outsource most functions and reduce in size as they struggle to compete with smaller, more nimble firms that combine focus with the force multiplier effect of AI. We will evolve toward an evermore collaborative network of partners rather than operate as large monolithic corporations.
Our Manifesto
How do you thrive in this new AI-powered world? At G2M we focus on nine strategies:
- Embrace Data-Driven Decision-Making: Utilize AI to inform and enhance your strategic decisions, grounding your choices in data rather than intuition alone.
- Monitor AI Impact on Industry Dynamics: Stay attuned to how AI is transforming your industry, adapting your strategy to leverage emerging opportunities and mitigate potential threats.
- Foster Agility and Flexibility: Build an organization that can pivot quickly in response to AI-driven insights and market changes, embracing flexibility as a core competency.
- Optimize for Efficiency and Innovation: Employ AI not just to streamline operations but also to spur innovation, ensuring your firm remains competitive and relevant.
- Engage in Strategic Workforce Planning: Anticipate and address the evolving skill needs of your workforce, preparing your team to thrive in an AI-enhanced future.
- Cultivate Strategic Partnerships: Use AI to identify and forge partnerships that can enhance your competitive advantage and drive mutual growth.
- Invest in AI Literacy: Ensure you and your team understand AI’s capabilities and applications, fostering a culture of continuous learning and adaptation.
- Prioritize Ethical AI Use: Commit to using AI responsibly, ensuring that your applications of this technology are transparent, fair, and accountable.
- Enhance Cybersecurity Measures: Protect your data and systems diligently, recognizing that AI’s benefits come with increased risks in cybersecurity.
How Can We Help?
Feel free to check us out and start your free trial at https://app.g2m.ai or contact us below!
