K3 Insights

I love the start of winter sports; it signals a seasonal change, and you get to see your children getting 'match fit' through pre-season games that tend to be shorter, broken up into quarters, not halves, with greater rotation of players, etc. The main goal of this being healthier, more content, and chilled teenagers (in our house at least) ready to take on the full season when it begins.

Having spent some time recently engaging with plenty of businesses here in NZ, but also with those I work with overseas, my biggest question, or at least reflection, is how 'match fit' are NZ businesses around AI, and are we spending too much time in the pre-season mindset?

I appreciate that, at present, there is the immediacy of some tough economic conditions that for many organisations, is driving a financially-conservative, shorter-term focus. When looking at what is happening offshore, we need to move far quicker here in NZ around facing into the disruption that will continue to grow out of Generative AI (Gen AI).

In reading a recent McKinsey report - The State of AI – there were some fascinating data points in there that business owners/leaders need to be better solving for in NZ.

For example, a number of the organisations I am working with are seeing Gen AI as a way to build solutions for operational excellence, for example, improving processes in order to reduce costs. While this is undoubtedly an opportunity, when comparing high performing adopters of Gen AI, versus all contributing companies, McKinsey found that only 19% of these companies had key objectives around reducing cost (compared to 33% for all).

Instead, 50% of the high performers’ objectives were either focused on 'Creating new sources of revenue' (23% vs. 12% for all others) or 'Increasing revenue from the core' (27% vs 21% for all others).

Back to my winter sports analogy. To me, these data points paint a picture of a whole lot of businesses still focusing on pre-season fitness (cost out), whereas those teams starting the season the strongest, have moved into honing existing positions/structures or coming up with new moves to stay ahead of other teams.

It is clear, there will not be any area unaffected from the impacts of Gen AI and the potential cost savings - whether it’s Operations, Manufacturing, Marketing, Sales and all of the support functions (e.g., Strategy, HR, Finance, Risk). However, it is key that we ask ourselves if we are spending enough of our leadership time immersing ourselves in better understanding and experiencing AI, to enable us to ask the right questions of the business around growth through Gen AI.

We mustn’t just stop at 'What work could/will be primarily automated and what impact will this have on staff costs', but explore things like, 'How will the increased availability of Gen AI allow us to enhance existing or new activities that differentiate us as a business?' or importantly if diversification of revenue is important, 'How can we reallocate activities/ roles (freed up by automation or other Gen AI) to explore and leverage new sources of revenue?'

Just like sports teams at the start of the season, as a business you need to be able to articulate your strategy clearly, but then importantly quickly move into application, focusing on what is required to execute on this.

Again, what I found interesting in this research was that for the higher performing AI-adopting organisations, it wasn’t the strategy that was concerning for them (11% vs. 24%) rather whether they had the models/tools to implement what was required (24% vs. 6%) and how they would scale this adoption (19% vs. 15%). While they were obviously focused on their plan, and where they could see the opportunities, they were far more focused on what was required to deliver the desired results.

To do this well as business owners/leaders, it means considering elements such as (certainly not an exhaustive list):

- Location of activities - Where will Gen AI allow the organisation to decentralise activities so the judgement/action aspect of the work is as close to the customer as possible?

- Decision making – How will Gen AI insights enable decision-making to be pushed lower into the organisation?

- Skillsets/ capabilities - How will the organisation reallocate and/or upskill people whose roles have been impacted (i.e., reduction or removed) as a result of Gen AI?

- Leadership – How do we rethink the role of a leader and then support them to develop the required skills?

- Culture – What culture do we want to underpin the business moving forward, so we continue to stimulate/engage our team in an environment where Gen AI is a constant?

Having reflected in the above, don't be the adult who jumps in to help out at a training session and pulls a hamstring (definitely not match fit).

We will get through the economic difficulties of 2024, but it is also clear that while navigating that challenge, businesses in NZ need to, in parallel, face into how they will respond to the clear disruption that Gen AI presents to all organisations. Immerse yourself in it, challenge your own perspectives, do your planning, and then most importantly mobilise the required action.

It’s great to identify the 'work-ons' during pre-season but none of us as business owners can afford to not be 'match fit' around the opportunities Gen AI creates, nor be ill-prepared for how seriously our opposition is adopting critical insights already.

*Gen AI is designed to create unique text or image results in response to user prompts, such as ChatGPT.