AI IS A HAMMER LOOKING FOR A NAIL AT TOO MANY COMPANIES

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Dec 04, 2024, 09:15 ET

Too Few Businesses Are Reaping the Potential of AI Transformation Because They're Taking A "Hackathon" Rather Than A CEO-Led Approach Focused on Specific Strategic Goals, Says L.E.K. Consulting Study

BOSTON, Dec. 4, 2024 /PRNewswire/ -- The artificial intelligence revolution is here, but many businesses are struggling to use AI in ways that lead to performance gains, competitive advantage and new revenue streams.

That's in part because they're not successfully navigating the "AI Delta" – the performance gap between creating value from successful AI adoption and value erosion from poor AI strategy or execution.

Success requires a different kind of strategic and management approach than earlier forms of digital transformation, according to Your AI Transformation Needs a Different Leadership Approach, a new report from global strategy consultancy L.E.K. Consulting.

"Prior waves of transformation were based on technology that had very specific benefits and very specific functions for specific kinds of businesses," said report co-author Darren Perry, Managing Director at L.E.K. "E-commerce is a case in point. Organizing and collecting data is another. Those earlier waves of digital transformation – they were technology-focused challenges."

"By contrast, AI transformation is not fundamentally about technology. It's about automating decisions with data, which is a different kind of challenge," Perry said.

Given the broad range of possibilities for AI and its array of applications, it has significant implications not only for how a company approaches strategy, but also for how it manages talent and for the qualities and sensibilities of c-suite leadership, in particular the CEO and CFO.

"You'd be hard pressed to find an industry, business, role in the value chain of a company or function that won't be materially affected by AI, which can be very enticing and interesting. But it can be paralyzing for a business to think about what to do with it. People are falling into the trap of 'let's run the thousand-person hackathon to gin up ideas.' That will not get you far when it comes to creating value," said co-author Chuck Reynolds, Managing Director at L.E.K.

Identifying the strategic problems AI must solve at the company

The L.E.K. study involved a survey of 150 c-suite leaders from a range of industries. Fifty-seven percent of those whose companies are finding early success with AI adoption said "strategic vision" was a top factor in their readiness for AI transformation. In other words, these companies choose one or two strategic problems they need to solve to avoid being disrupted – customer experience shortcomings or supply chain issues, for instance – and focus AI efforts on those areas.

"AI transformation entails thinking about and approaching data as a product of the organization, not a byproduct. It's not just one team's responsibility to do that. In addition, the culture needs to be one of disruption," said Perry.

Meaningful direction from the very top

"Since AI transformation needs to come from the connective tissue, the lifeblood of the organization, it's the CEO who needs to pull all the different parts together," said Reynolds.

The approach that some organizations have taken is to set an AI policy and then encourage employees to explore and use the technology as they see fit. This is a positive step, but it isn't enough.

"Bottom-up strategies are too disorganized for a successful AI transformation. A top-down strategy, with a plan and implementation guidelines set by leadership, or a hybrid strategy, with top-down directives and a combination of bottom-up initiatives, yields much better outcomes. It just won't work unless leadership owns it. You can't delegate it," said Reynolds.

At companies successfully transforming with AI, 67% have CEOs who are highly or fully engaged in the process, according to the L.E.K. survey. That's only true for 34% of CEOs at companies that aren't meeting with significant success.

A new kind of company leadership for AI transformation

Modulating company culture and getting multiple parts of the organization collaborating on AI transformation demands a new kind of leadership, according to the report.

"Executive teams needn't be technology experts to lead a successful AI transformation. But they do need to know about AI and its possibilities to understand how they can create value or introduce risk for the business. Hence, improving AI literacy in the C-suite – including the CEO and CFO – must be a top priority," said Perry. "You need a CEO who's willing to embrace AI transformation as a strategic challenge and bring various pieces of the organization together to solve it. It's a matter of active leadership as much as it is a particular skillset."

A level of AI literacy must infiltrate the organization

AI transformation requires a new talent strategy. Forty-one percent of executives reported a mismatch between the AI talent the organization has and the AI talent they need. Another 47% said that while they have the right AI team, its efforts are too siloed. It takes a different set of capabilities to think about decisions that organizations make, understand the data and deploy AI solutions to create value for organizations.

The breadth of AI as a discipline may be exacerbating the situation. For instance, Generative AI or AI-based agentic workflows requires different expertise than traditional machine learning, making it hard to scale the overall AI capability.

About L.E.K. Consulting
We're L.E.K. Consulting, a global strategy consultancy working with business leaders to seize competitive advantage and amplify growth. Our insights are catalysts that reshape the trajectory of our clients' businesses, uncovering opportunities and empowering them to master their moments of truth. Since 1983, our worldwide practice — spanning the Americas, Asia-Pacific and Europe — has guided leaders across all industries, from global corporations to emerging entrepreneurial businesses and private equity investors. Looking for more? Visit www.lek.com.

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SOURCE L.E.K. Consulting