How disruptive is AI for your organisation?

While artificial intelligence (AI) is changing society, the biggest concern of executives is the potential disruption (disruption) of their organisation and the market in which they operate. They worry that they will lose their market position if they do not respond quickly enough to emerging technologies such as AI.

But artificial intelligence will not disrupt all sectors to the same degree. While new technology creates both threats and opportunities, most organisations - especially those with physical offerings - will see AI as a supporting rather than disruptive force.

Where is your opportunity or threat?

AI and other digital technology can bring about major changes on both the demand side and the supply side, or both. It is important to assess where potential opportunities and threats lie. And to then develop a strategy that takes advantage of the opportunities and adequately address or even turn any threats into opportunities.

Julian Birkinshaw has developed a questionnaire that uses a few practical questions to help determine the specific impact of AI and other emerging digital technologies.

Disruption in supply

The biggest concern on the supply side is the redundant capabilities companies have built up over the years. Today, for example, AI makes the internal capabilities of many professional services firms redundant, such as reviewing legal documents or translating advertising copy into multiple languages.

Ask yourself three questions about the supply-side effects of AI.

1. Does the new technology help you perform specific activities better or cheaper than before?

The benefits of AI may be the characteristics of a assistive technology, not a disruptive technology, because they relate to optimising an existing system rather than changing that system.

2. Can the new technology reconfigure or simplify the entire value chain of operations?

Once technology has shown that it can do specific things better, there is a good chance that AI can then drive large-scale improvements in organisations.

3. Do you have ongoing access to the “complementary assets” needed to make or develop your product, even if new technology makes some assets obsolete?

Business scholars use the term complementary assets to describe all the key assets that combine to make a product valuable. Even if a new technology leads to major changes in the way a product is developed or manufactured, it is unlikely that the entire portfolio of complementary assets will become redundant. It is important to keep an eye on the assets that remain unaffected because they can be a continuing source of benefit.

Demand-side Disruption

The concern on the demand side is that your customers may no longer need you when new options emerge. Sometimes a new technology changes the way people behave in a way that shuts you out or makes your offering so unprofitable that you have to exit the market anyway.

Ask yourself these questions about demand-side disruption:

4. Can the new technology actually perform the service for the user?

There are many examples from the Internet revolution of emerging technologies responding to user needs in new ways - think e-commerce, online learning and music streaming. The same revolution seems to be occurring again with AI as certain industries may fall into oblivion.

5. Does the user still have a role to play by offering intangible expertise alongside new technology?

Despite the scary stories about super-intelligent bots, it is difficult to identify cases where AI is so good that there is no role for human involvement. Generative AI still hallucinates, generates incorrect answers and adapts poorly to different contexts.

6. Can you still make money once this new technology is operational (with or without human assistance)?

Even if the answer to the previous question is “yes,” think about the overall economics of your industry once the demand-side effects are worked out.

7. Will the new technology affect how you distribute and sell your offerings?

The Internet has changed consumer purchases. Product companies saw their margins shrink as they sold through Amazon, and hotel chains and airlines gave fees to Expedia and Booking.com. B2B companies, on the other hand, were much less affected because they typically do more complex, often multi-year deals, where relationships matter.

8. Does new technology affect user awareness of your offerings?

Perhaps a bigger concern for companies that distribute through retail channels is that AI makes it much harder to maintain control over their marketing messages. Executives from a major diaper manufacturer, for example, told Julian that their products are increasingly being sold online rather than through supermarkets, and that TikTok influencers are dramatically influencing buyer behaviour.

9. Can you use the new technology to bundle additional services with your offering?

Finally, new technologies can enrich the product you sell by adding services to it. Take the Internet revolution: On the consumer side, Domino's Pizza developed new features, including an online order tracker and an app to assemble pizzas, to make its sales proposition more appealing. On the industrial side, mining company Sandvik created a digital platform called My Sandvik to help its customers monitor their machines and schedule maintenance.

And as a final question:

10. Is government policy or industry regulation powerful enough to stop the changes enabled by new technology?

During recent technological revolutions, many of the major impacts on incumbents were the direct result of regulatory changes. In many cases, regulations have favoured incumbents.

Feed for discussion

Organise a meeting in which each participant answers this questionnaire for themselves. Then discuss the results together and reflect on your organisation's position (supply side) and the market (demand side). Now is the time to have a discussion about the insights and any disagreements.

Is there an opportunity for disruption? Or is it more about an opportunity for greater efficiency? Then develop a strategy to adequately address these opportunities and threats. Don't wait until the competitor or a totally new party is the first to successfully use AI. By then it may already be too late for your organisation.

Read the MIT Sloan article Will AI Disrupt Your Business? by Julian Birkinshaw.

Take the test How disruptive is this new technology to my organisation?