Artificial Intelligence: Implications for Business Strategy

Businesses in various industries are rapidly adopting artificial intelligence (AI) tools, with 22% implementing them extensively, 33% using them in a limited capacity and 45% still exploring their options.¹ AI can improve decision-making, automate processes and personalize the customer experience. Because of these capabilities, artificial intelligence’s applications for business are wide-ranging.²

Advanced algorithms can analyze large datasets to discover insights that drive strategic choices. Automation reduces costs and increases efficiency in industries such as manufacturing, logistics and customer service. AI can also help business leaders develop innovative products and services and make scientific discoveries.²

This article will explore how artificial intelligence, including its benefits and challenges, can affect business strategy.

AI simulates human intelligence in machines by programming them to think, learn and solve problems like humans. Developers use machine learning algorithms to train systems to improve from experience without explicit programming. They also create neural networks, which mimic the human brain’s structure, to process information. Natural language processing, another facet of machine learning, lets machines understand and interact using human language. Computer vision allows machines to interpret visual data, and robotics uses artificial intelligence to control physical machines.³

Although the concept of AI dates back to the 1950s, the field grew in fits and starts until computing power and data collection and processing methods caught up to theoretical ideas. The recent exponential growth has brought about breakthroughs in deep learning, a subset of machine learning involving neural networks with many layers. These advancements underpin significant achievements in image and speech recognition, autonomous vehicles and natural language understanding. They have engendered numerous AI applications that are changing business operations and strategy.⁴

Artificial intelligence is integrating advanced technologies into strategic planning and giving companies a competitive edge by helping them adapt quickly to changing market conditions. By analyzing and interpreting consumer and operational data, AI provides actionable insights that inform strategic decisions regarding market trends, operations and the customer experience.⁵

In strategic planning, AI-powered analytics help identify patterns and predict future outcomes so business leaders can make more informed decisions based on accurate forecasting. This predictive capability allows companies to allocate resources, manage risks and plan investments more effectively. They’re then able to address challenges proactively and take advantage of opportunities.²

Companies that use artificial intelligence can improve their productivity and reduce their costs. AI-driven automation in manufacturing and logistics improves supply chain management and reduces downtime. In marketing, AI can tailor products and services to meet individual customers’ preferences and resolve the challenges they face.⁶

Teams of coworkers can also use AI tools to develop new products and services. Although 35% of startups fail because there’s no need in the market for their offering, businesses that use AI tools can analyze their data to determine whether there’s a good product-market fit before they invest in product development.^7,8

According to the American strategy and management consulting firm McKinsey, business leaders are missing out on opportunities to use artificial intelligence as a building block for developing effective strategies. While many see the benefits of artificial intelligence in their operations, they don’t use it for their strategy because they’re looking too far ahead. They’re expecting AI solutions to replace business leaders, when the real value of AI lies in combining it with human leadership.⁵

This improved decision-making is among AI’s most effective use cases. By analyzing tremendous datasets, AI can generate real-time insights that leaders can use to make decisions about new products, market expansion, investments and process changes. These strategies must still be mapped out by skilled leaders, but AI tools provide a data-based foundation for them.⁵

In contrast, AI is already being widely used to deliver a personalized customer experience. AI-powered tools, such as recommendation engines and chatbots, analyze customer behaviors and preferences to deliver tailored interactions. Although this type of AI use can be thought of primarily as operational, it can also drive strategic decisions through data analysis. Business leaders can see what choices their customers are making over time and focus their efforts on expanding products and services based on that data.⁸

Operational efficiency and automation are allowing business leaders in areas such as manufacturing to reduce human error, speed up their processes and cut their costs. AI-driven robots can also optimize production lines and eliminate waste through predictive management. In logistics, AI can predict demand and optimize routes so supply chains can operate autonomously, with little human oversight.⁹

Although the advantages and benefits of implementing AI are numerous, there are also serious challenges and risks involved. Currently, all AI applications are narrow—they operate within a specific scope and perform only designated tasks. You can program a robot to make certain predetermined movements to retrieve your inventory from a warehouse, for example, but you can’t tell one to clean out your car and go pick up your child from soccer practice.

The latter is an example of general AI, which is the next big milestone engineers are working on. There’s a risk that this type of general AI could become uncontrollable, which could be devastating. In the present moment, however, there are much more probable, less dramatic risks associated with AI implementation.¹⁰

There are ethical implications of artificial intelligence. AI systems can inadvertently display biases that they picked up in their training data, which can cause them to discriminate against vulnerable or under-represented populations. Developers are working on creating transparent AI applications that will explain how they make their decisions.¹⁰

Similarly, the legal implications of artificial intelligence deserve careful attention. To generate valuable insights, AI programs need extensive datasets, which often include personal and sensitive information. The AI regulatory landscape is just beginning to gain momentum, but AI applications are still subject to existing data privacy and consumer protection regulations. Any AI tools you use must comply with regulations regarding how personal data is collected, stored and used.¹⁰

Another major concern is the potential workforce disruptions AI may bring about. As artificial intelligence automates routine tasks, it may displace workers. Generative AI may take the jobs of entry-level programmers and mid-level knowledge workers, for instance. Employers will need to provide resources for reskilling and upskilling employees to prepare them for new roles and prevent widespread unemployment, which could damage the economy.¹⁰

Business leaders have to be prepared for rapid shifts in technology, market conditions and other factors that can affect their organizations. Successfully navigating these complex challenges includes, but goes beyond, knowing how to work with any particular tool.

Whatever your technological background may be, the world-class faculty experts in William & Mary’s Online MBA program will teach you to leverage AI in a business context. Through the course content of the rigorous curriculum, you’ll learn to think critically, lead an organization and solve strategic problems—skills that you’ll use long after today’s new technologies have become part of the familiar landscape.

In this flexible online program, you’ll study on your own schedule and expand your network to include accomplished colleagues around the world. To learn more about how the Raymond A. Mason School of Business can prepare you for executive-level leadership roles, schedule an appointment with an admissions outreach advisor today.