The essence of formulating a competitive strategy is to relate a business to its environment. Today, few conversations about industry environment and market forces can go very far without discussing data, its challenges, and the opportunities it presents. Almost every legal department and law firm has invested time and resources in developing strategies to harness the value of data through cross-functional teams and advanced exploration tools. For a business to achieve its goals, it must develop the appropriate policies for the implementation of artificial intelligence (AI) and automation across the enterprise.
While it sounds simple, it is not such a simple task given the forces at play. After all, competition in an industry is rooted in its underlying economic structure and goes far beyond the behavior of current competitors. . The state of competition in an industry depends on five fundamental competitive forces: the threat of new entrants; bargaining power of suppliers; the bargaining power of buyers; rivalry between existing businesses; and the threat of substitute products or services. In the AI world, there is a clear advantage to those who are starting the process of introducing AI solutions to better understand their data. The more AI initiatives are left on the ‘road map’ or unfinished, the more threatened a business is from the forces listed above.
The acceleration of our innovation in recent times is a reaction to forces that have been underway for centuries, leading boards to a point where new strategies are needed to meet the challenge. The fourth industrial revolution (IR) is well underway, heralding a series of social, political, cultural and economic upheavals that will take place during the 21st century. The first IR (1760-1840) gave birth to the mechanization of industry through the use of steam and hydraulic energy. The impact was primarily felt by the farming community, transforming an agrarian society into an industrial society based on consumption. Many people could no longer cultivate as their land was occupied by factories, necessitating massive retraining into trades such as boilermakers, ironworkers, mechanics, and other roles that supported machines that needed to be made or repaired.
The second IR (1870-1914) saw the expansion of electricity, oil and steel. It was a phase of rapid standardization and industrialization, leading to the introduction of public transport and airplanes. Introducing these two things would transform the world forever. Steel would replace iron in the construction industry as a sturdy, cheaper alternative to building railroads, ships, skyscrapers, and larger bridges. Michael Faraday began to play with the idea of electricity. Then, a few years later, Thomas Edison and Sir Joseph Swan perfected their design of a practical light bulb for home use.
The third IR (1970-2000) can be summed up by globalization and the birth of the Internet. Hailing from the United States, Japan and Europe, the third IR gave birth to new ways of communicating across and within national borders. This would radically change the nature of supply chains, social interactions, the financial services industry, connectivity, defense technologies and finally give birth to e-commerce. The third IR made the world a smaller place and would lay the foundation for the fourth IR through the standardized use and access to information technology and the explosive growth of data that resulted from it.
We are now in a period of opportunity, but it is clear that fortune favors the daring. The argument that it’s worth the wait and see how early adopters test the application of AI solutions across different functions is valid, but not everyone is a big ship that needs leeway. important to adjust heading. Waiting too long presents its share of problems, it is only in the age of AI that these concerns can be magnified given the accelerated returns once a company has done the hard work and created libraries of AI models. Early adopters with consistent competitive strategies will differentiate themselves by instantly delivering valuable information that previously required teams of specialized knowledge workers. Would you hire a company that has built its human capital around sophisticated technology, or a company that leverages AI tools in addition to the human knowledge worker? One option allows a company’s talent, the other gives AI a supporting role.
To guard against this outcome, a company can begin the process of defining its AI strategy in a consistent and meaningful way. For example, to deal with the five competitive forces, there are three generic strategic approaches that are potentially effective in outperforming other companies in a sector:
- Global cost leadership
- To concentrate
Overall cost control is achieved through a set of functional policies aimed at this fundamental objective. This requires the aggressive construction of large-scale facilities; vigorous search for cost reductions based on experience; strict control of costs and overheads; avoidance of accounts receivable on margin; minimization of costs in areas such as R&D, service, sales force, advertising, etc. A low-cost position defends the business against strong buyers, as buyers can only exercise their power to lower prices to the next most efficient competitor. Achieving a low overall cost position often requires a high relative market share or other benefits, such as favorable access to raw materials. This may well require designing products to facilitate manufacturing, maintaining a wide range of related products to spread cost and service to all major customer groups to create volume.
Differentiation is achieved by creating something industry-wide that is considered unique. Differentiation approaches can take many forms, including design or branding, technology, special features, customer service, dealer network, or other dimensions. Differentiation, if achieved, is a viable strategy for achieving above-average returns in an industry, as it creates a defensible position with the five competitive forces, albeit in a different way than leadership in costs. Differentiation provides isolation from competitive rivalry due to customers’ brand loyalty and resulting lower price sensitivity. Differentiation can sometimes prevent gaining high market share. It often requires a perception of exclusivity, incompatible with a high market share.
The focus is to focus on a group of buyers, a segment of the product line or a particular geographic market. The whole focus strategy is built around serving a particular target very well, and each functional policy is built with this in mind. The strategy is based on the premise that the company can serve its narrow strategic target more effectively or efficiently than competitors who compete more widely. As a result, the company manages either to differentiate itself by better meeting the needs of the target, or to reduce its costs to serve this target, or both. Even if the concentration strategy does not achieve low cost or market differentiation, it does achieve one or both positions vis-à-vis its narrow target market.
Whichever route the management team decides to take, the growing influence of the Fourth IR has made the development of these strategies a time sensitive issue. Basically, we are talking about harnessing useful information in order to make good decisions. Mankind has operated on these terms ever since we understood the need to build a fire for food, warmth, and protection. The difference with the fourth IR over its predecessors is the speed of innovation itself. The very nature of our organization as a society is changing under our feet as we venture into a new world of surveillance, virtual reality, and questions regarding the state’s responsibility to provide a universal basic income to sections of the world. most at-risk workforce. for automation. Competing in this world requires dedication and resources deployed across the company. Without a commitment to invest in their future, businesses risk being left in the past.