‘Come with me, if you want to live’: why blue chips need AI

Artificial intelligence is a complex subject that conjures complex emotions. A good barometer for the public’s sentiment on AI is Hollywood, which can’t decide if AI is a menacing force, like the enslaving technology in The Matrix or a benevolent one, like C-3PO and R2-D2 in Star Wars or, more recently, Kevin Spacey’s soulful android Gerty in the little-seen 2009 film Moon.

Actually, AI is neutral. Like other technologies, it’s merely a tool that reflects the intentions of the user. Ambivalence about the topic may have clouded its utility, though. For blue chip companies today, it’s the tool that will be your best ally and your only real hedge against the swarm of disruptive startups that threaten to engulf your industry. Fully embracing AI requires a completely different mindset and a reboot of company culture. It’s not easy, but as a Hollywood action hero might say, it’s the only path, “if you want to live.”

It’s not easy being an established company these days. Google, Facebook, Amazon and others are keeping CEOs and CIOs at banks, telcos and insurance companies up at night. It’s a reasonable concern. Such companies have a seemingly endless capacity to branch out into unlikely businesses. Who would have thought a few years ago for instance that Google would be a player in autos?

In addition, startups have come from nowhere to rewrite the rules of various businesses. We’ve seen this with Uber in transportation, Airbnb in lodging, iTunes and Spotify in music and Twitter in media.

If you’re young and talented, you want to work at one of these disruptors and as a result, blue chips have trouble recruiting high-quality tech staff. While money has something to do with this, at a disruptive company you are less a caretaker of the IT system than an agent of change. At a blue chip you’re putting 80% of your energy into keeping the lights on and 20% to effecting change. At a startup, the opposite is true.

Established companies also tend to exhibit linear thinking. The idea, rooted in industrialization, is that you are making things more efficient instead of making them more effective. In a classic example, Eastman Kodak was focused on improving its celluloid business as the digital revolution was overtaking photography.

To an outsider, such behavior is puzzling. If you take a deeper look, you can see why this occurs: As a company senses the industry momentum has shifted, employees’ focus turns to protecting their turf and office politics rule.

If your thinking is rooted in the industrial revolution, you are apt to see technology as a means to trip overhead cost and apply it to Porter’s value chain. More recently, you might also treat technology as a marketing vehicle.

In desperation, old-line companies often try to buy their way into innovation. However, an acquisition strategy can’t fix their problem. Why? Startups are often engineered with the express intent of being bought by a blue-chip company, not to disrupt them. It’s a laudable exit strategy for a new company, but not a solution for an old one.

And so it goes. Blue-chip companies are stuck in a cycle in which they are shackled to an industrial mindset, are losing the talent war and are often enmeshed in office politics. Meanwhile, their focus is mostly on maintaining the status quo while disruptors are investing most of their resources into tomorrow.

You may wonder why we should care. Creative destruction is the motor of capitalism. Some 88% of the Fortune 500 in 1955 were gone by 2014.
Good riddance, you say? If so, consider that those old-line companies currently serve as an effective bulwark against an oligopoly or monopoly. If you think Google has too much power now, imagine how it might be if all of today’s blue chips went the way of Borders book stores or RadioShack.

Even if you think Larry Page is a nice guy – and by all accounts he is – who knows who will be running the company in 20 or 50 years? Such consolidation at the top is bad for everyone.

What to do then? AI to the rescue!

AI presents an opportunity for established companies to reinvent themselves without disrupting their current businesses and increasing their overall budgets. For a while, blue-chips have attempted to do the same via outsourcing. That’s no longer the panacea it once was. Salaries are rising in India and China, not falling. It turns out the world is round, after all.

The outsourcing model also doesn’t apply in a market that’s becoming less about mass production and more rooted in individualization, whether it’s medicine or 3D printing.

In such an environment, only intelligent machines and provide 24/7 support with consistent quality. Thanks to Moore’s Law, the price of such machines will fall rather than rise.

Other benefits include increased agility and speed and sustainability. Rather than merely replace workers, smart automation can free them up from repetitive, boring tasks so they can focus on more creative pursuits.

The hitch however is that old-line companies need to look at AI as more than just the latest money-saving technology. Smart automation lets companies move quickly. At blue-chip companies, it often takes two years to get anything done. That mindset won’t survive the 21st Century. Unless such companies use AI to become more agile and execute within weeks rather than years, then they will miss the full potential of the technology.

Rather than view AI as a tool, established companies would be better off to view it as a fulcrum that can be used to change course. That course is far from certain – there is a level of freedom from embracing the technology that can prompt an existential crisis – but doing so will liberate staff, free up resources and allow blue chips to really compete.

That’s the ideal version at least. Not everyone will take this road. That’s too bad. As a wise cybernetic organism once observed about humans in general, “It’s in your nature to destroy yourselves.”