9 - Meet AI: The Game Within the Game
The game is afoot, said Holmes to Watson.
Whether you are a large distributor or small, the hype around AI and its benefits is all consuming. Operating budgets and capital investments are growing. Third party service providers abound. Technical help is less than abundant and more that expensive. The game is afoot. No distributor wants to lose a good customer over issues that could have been avoided. Or lose a key employee. Or a lead. Or a line. Or a location. Or a loan. While managing AI can make promises come true, we are equally motivated by not wanting to fumble it.
ROI: What is Return? What is Investment?
The pressure is on to generate clearer pictures on both return and investment. A lot is at stake, and since return lags investment, there is a risk of the spend getting out of control early.
But simple math describes the stress. Suppose a distributor is spending 5% of sales on IT. Further that 20% of that is on AI, say 1% of sales. Suppose further that the company makes 5% of revenue in pretax income. Unless I am certain of financial gain coming in from the AI investment, I am thinking that a wasted 1% of revenue is preventing my pretax from being 6%, or a full 20% higher than it is. Whatever it is, the way you tell your story online can make all the difference. I have to have visibility into this.
Business Value
Let’s move to the long term now. The arrival of AI has set expectations for an expanded value proposition to customers. The reduction of delivery times and error rates, the expansion of product knowledge and access. The pressure is on to simple be a better supplier. What are the implications of this on business value? The risk is that all things being equal, my value could experience downward pressure if I don’t keep up. This is not just a case of seeing business value grow because of my AI investment. There is a need to avoid the downside. The ROI equation needs to factor this in by way of sliding the EBITDA multiple one way or the other based on expert reads and thorough visibility.
AI is a Game Within A Game
It is certain that the company’s continuing or potential advantage is partially in the hands of AI. Leads, service levels, strategic sourcing, compliance and back office depend on it. The workforce, what it is and what it can do, is being shaped by it, competitive, So one would ask - is AI really an entity? Does it have leadership, a mission, a funding model and accountability? What truly comes off its conveyor belt? AI is the Game within the Game. In a sense, the company will go as far as AI takes it. So let’s ponder AI as an entity.
Make it stand out
Leadership: There are numerous models for this. Is it the CFO? The CIO? Or some other leader or a decision-sharing group? It is aid that some technology people have trouble understanding and implementing ROI. And that some financial people have get skeptical of promised value creation and the need for such a big spend. Certainly good minds are on this, but the AI “entity” needs clear, strong leadership.
Mission: This varies from customer-facing, security, internal operations, and some add workforce, the latter being maybe the best platform for CIO and CFO to share a joint understanding. Companies are allocation the spend differentltly than one another. How does that ger closely connected to the AI mission - a critical need to control this “entity’s” path.
Funding Model and Accountability
Funding Model: The “entity” needs a mini-CFO, a mini-CMO and a mini-COO who devote at least some regular time to those roles. That enables a funding model to emerge. There is pressure even in early stages for immediate financial return, i.e. to cover investment. That would start right in the finance department where finance jobs are being converted from repetitive task to forecasting - which in turn assist decision-making for AI and total company.
Visibility: Reports show relatively poor levels of tracking costs and attribution of ownership. Use of vendor software helps, but is not always available or specific enough. Data training and rates of automation need to be tied to their costs, necessary but challenging.
Cloud computing is the center of attention for the most part. Certainly given the focus on scalability there is future benefit to today’s spend. The finance can get fairly sophisticated. Many companies are not anxious to rack up cost on this, but the experts fear a runaway operation if you don’t.
Give Entity status to AI
For sure, many aspects of AI planning and implementation are run like accountable businesses. But the next level for maximizing the potential of an initiative of this magnitude and importance would be to treat it like an unofficial entity.