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Navigating the AI Revolution Transforming Business Strategies for Success

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AI will affect almost 40 percent of jobs around the world, replacing some and complementing others. We are on the brink of a technological revolution that could jumpstart productivity, boost global growth and raise incomes around the world. Yet it could also replace jobs and deepen inequality.

AI may impact all of the critical decisions that business leaders must make, including what products to sell, whether to merge with other companies, make or buy inputs, how much emphasis on innovation. Let’s explore how AI may impact these key strategic questions.

What product to sell is the most basic business question, involving both physical goods as well as services and intellectual property. Leaders always feel the tension between sticking to one’s knitting and applying existing skills to markets that look similar. AI will improve productivity and the ability to learn about other markets. That will probably lead some companies to become more confident about expansion.

But the value of artificial intelligence in some applications depends on the quantity of data available to the models. Maybe the incumbent companies will use their internal data to clobber new competitors.

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The value of data may also lead to mergers. The company that does a larger volume of business can feed its AI models a richer diet of data, giving it an advantage over smaller competitors. Mergers may produce economies of scale, enabling larger companies to operate at lower costs. We see this in some industries. But diseconomies of scale also exist. They come from the cost of coordinating different parts of the company and aligning the incentives of local managers with corporate goals. The result of the tension between economies of scale and diseconomies of scale leads us to see only a few airplane manufacturers but plenty of independent restaurants. AI will likely shift the balance in some industries. We will see some areas where mergers work well for both companies and consumers, and other cases where small companies out-compete big business.

The make or buy decision is critical to most businesses, and AI may well change the practices that work best. On the service side, AI may lead businesses to bring in house activities such as accounting, legal advice and marketing. If that happens it will be difficult for the independent companies which have provided the services, and it will also change the whole ecosystem for the broader sector.

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