Artificial intelligence will fundamentally change the way companies of all shapes and sizes operate. In fact, of the nearly $16 trillion dollars of economic value that PwC predicts will accrue from AI, 55% will come from improvements in productivity and efficiency. This puts us at the dawn of an economic period defined by operational performance, and it stands in contrast to the period we’re emerging from, which was defined by growth at all costs.
The growth economy was undoubtedly a good one for many companies — and for the American economy on the whole. The S&P 500 is up nearly 60% over the last 5 years. The tech-heavy NASDAQ? It’s up more than 75% over the same period. While revenue growth will undoubtedly continue, Artificial Intelligence, and the promise it brings for operational excellence, will drive a renewed focus on the bottom line.
Digital Was the Fuel that Powered the Growth Economy
The fuel behind the growth economy was the massive shift to digital that we’ve seen in the last decade-plus. The power of digital comes from enabling and unlocking exponential growth potential. Characteristics like access to nearly unlimited users/buyers, near-infinite supply (the ability to sell the same asset unlimited times with fixed production costs) and network effects (digital products become more valuable with more users) fueled growth, and many, if not most, industries have been totally disrupted as a result.
In this growth economy, future profits, which always underlie value creation, were driven disproportionately by growth rates. How else can you explain today’s $91 billion market cap of Uber, a company (admittedly an innovative, aggressive, and disruptive one) that just announced its first operating profit.
AI Will be the Fuel that Powers the Performance Economy
How will the performance economy differ from the growth economy, and why does it matter?
I believe it will differ in that the power of AI is nearly unlimited knowledge (vs. nearly unlimited supply), intellectual horsepower, and decision support. While this will inevitably drive revenue growth, those that leverage it most effectively will drive disproportionate efficiency and productivity gains – gains that have been overlooked in the growth economy.
The performance excellence that AI enables will drive massive profitability growth for companies that figure out how to harness it more rapidly and effectively than the competition. It will also create exponential improvements in agility and effectiveness, allowing leading organizations to pivot on a dime and compete in ways never before imagined. This has the potential to create a tremendous competitive advantage that dwarfs those enjoyed by even the most successful companies in the growth economy.
This shift will be even more dramatic because of the growth at all costs mentality that exists today. We are in the midst of a swing from one extreme to the other. Where blitzscaling and a growth at all costs mentality ruled yesterday, operational excellence and strategic deployment of AI to drive productivity gains will rule tomorrow.
Taking Advantage
As we navigate a turbulent time in the economy, businesses would be wise to consider the impacts AI will have on their business. Naturally, because we are currently so growth-minded, much work is being done to automate sales and marketing value streams with AI. Yet, the massive and immediate ROI that AI promises is buried in day-to-day operations.
To take advantage of this opportunity, it is incumbent on leaders to prioritize a mindset shift from “growth at all costs” to one focused on operational excellence. At Knownwell, we’ve identified 5 areas where all companies must mature rapidly to capitalize on the promise of AI.
- Leadership and Culture
- Knowledge and Strategy
- Responsibility and Governance
- Data and Technology
- People and Execution
By beginning to AI-ready these areas of business, leaders will be primed, and ready, to drive performance in this new era.
This post originally appeared on David DeWolf’s personal website here.
