Let's read the text
Required reading: 5 minutes
When we talk about business strategies, we have to mention the economist and Professor Michael Eugene Porter. In the 1980s, the leading management expert described three generic strategic concepts that would enable companies to achieve competitive advantages. The combination of Machine Learning and Porters concepts demonstrates how new technologies can support business success.
- Cost leadership - through the lowest price on the market.
- Differentiation - through a unique service or product.
- Focus strategies - by offering services in a niche market segment
Although these strategies are almost 40 years old, they still serve as the basis for management and marketing tactics. The Age of artificial intelligence (AI) and the machine learning (ML) opens up new possibilities and supports cost leadership or differentiation. In this article we focus on the goal of offering the lowest price on the market.
"Competitive advantages determine the success or failure of a company. A company can have many strengths and weaknesses compared to its competitors, but these can all be reduced to just two basic types: Either a company has a cost advantage or it offers its customers a unique benefit. So one competitive advantage is on the supply side, the other on the demand side."M. E. Porter
AI and cost leadership - a match made in heaven?
Those who want to offer the lowest price on the market can only achieve this by systematically reducing costs. In order to achieve this, Porter believes that a steady increase in efficiency and a stable and solid learning curve for the company and its employees are essential. New technologies contribute decisively to higher performance and reduced effort. Automation through intelligent machines saves time and resources, for example when robots are used instead of humans in production. But anyone who wants to use ML first has to invest. A solid budget is also the basis for a steady learning curve. Leading experts have to be found, hired and paid. This aspect is one of the biggest criticisms of Porter's strategy.
Robots - the ideal tool for cost reduction?
Cost leader Walmart, for example, invests massively in the use of artificial intelligence to gain competitive advantages. The company made the headlines with a Robot called TALLYwho independently scans shelves and products in American Walmart branches. An employee needs on average 25 hours for such an inventory and achieves a correct result of 65 percent. Tally (Simbe Robotics) needs on average half an hour for a complete inventory and achieves a 95 percent correct result. Numbers that people can't keep up with.
However, the investment in robots is an extreme example of the use of AI. These complex but intelligent machines involve comparatively high acquisition costs. And that's just the beginning. Robots require specialist maintenance and a robot-friendly environment. For example, a building with stairs is not suitable for a robot on wheels. For this reason, the autonomous helpers are reserved for companies that were previously financially strong. However, as capabilities evolve and prices fall, this may change in the medium term.
KI saves millions of working hours
The Deloitte Center for Government Insights investigated whether the use of machine learning in government organizations actually saves costs and time. One of the most time-consuming activities in this area is documenting and recording information. The study came to the conclusion that...
"...that cognitive technologies can potentially free up millions of hours of work for government employees."Deloitte Center for Government Insights
In concrete terms, 30 percent of the working time of state workers could be released within five to seven years. However, this depends on the level of investment in new technologies. The smaller the budget, the smaller the savings.
"A minimal investment in AI would result in savings of only two to four percent of total working time."Deloitte Center for Government Insights
AI-based applications are likely to improve certain activities, such as filling out forms. However, interaction with citizens is still reserved for people. The study concludes that AI can be a lever to reduce the number of employees. Or a tool for government employees and civil servants to use the time gained for improved (citizen-oriented) services. The decision lies with the political decision-makers.
"AI will support all these approaches. It is for the heads of government to decide which one will best serve their voters."Deloitte Center for Government Insights
Which tasks should computers do and which should humans do?
Talking about cost leadership therefore means talking about ethics. According to research and consulting firm Gartner, AI will ...
"...improve the productivity of many jobs, eliminate millions of middle and low level positions, but also create millions of new positions for highly qualified employees, management and even for beginners and low -qualified diversity. „Gartner
It remains to be seen which positions these are - in addition to the growing demand for data scientists and programmers. However, the immediate past gives us a preview: The memory of machines helps people find the content that is most relevant to their interests, for example through search engines such as Google. However, the intelligent search service not only replaced librarians who had performed a similar function in the past. Rather, it allowed the creation and search of knowledge and the creation of new jobs for creating, searching and advertising.
If we take this development into account, the logical consequence is that machines should do things that make them better than people. And people should do things that make them better than machines. For example, computers can process and "remember" much larger amounts of data. People are usually better at interacting flexibly with other people.
Wikipedia is a good example of successful cooperation between man and machine. Almost all contents of the online encyclopedia are created and edited by terrestrial citizens. But software applications, like Wikipedia bots, are better and faster at searching for obscene words and plagiarisms from other websites. The combination of humans and bot works better than both on its own.
Anyone considering whether AI can support their own business strategy should first ask themselves whether innovative technologies can actually solve crucial challenges. Even if the use of AI offers a solution, it is sometimes so expensive and difficult to calculate that it does not make economic sense.
- Photo by Photo by Owen Leidner, EyeEm
- Porter M.E. (2007) Competitive advantages. Achieving and maintaining top performance. In: Boersch C., Elschen R. (eds) The Summa Summarum of Management. Gabler