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How AI Create a Competitive Advantage?
- Authors
- Name
- Marc-Etienne Dartus
I. How to Achieve a Competitive Advatange With AIĀ ?
According to Ransbotham et al. (2017) 84% of companies want to maintain or gain an advantage over their competitors. According to research by Ransbotham et al. (2017) and Agrawal et al. (2020), there are 3 keys to meet this need:
- Access Large Amout of Data: If companies are not the first to use a data source, it is advisable to find one that is different from their competitors to avoid having the same result and be able to differentiate their services. While both articles do not address data quality, it is critical for artificial intelligence. It doesnāt matter how much data you can access if itās not exploitable.
- Rapid Iterative Process: It is important to have a process for rapid correction and refinement of the algorithm. For this, it is necessary to have a system that can examine the difference between the predicted value and the actual value in order to continuously rectify the prediction.
- Select a Niche: Agrawal et al. (2020) explain that for equal accuracy, the cheapest AI solution will be used. Since it is sometimes difficult to adjust the price of this type of service, it is therefore necessary to have the best prediction. To do so, the selection of a niche not well covered by a competitor could be a solution to this problem.
Anderson et al. (2006) confirm this idea that if two products are identical, the consumer will always choose the cheaper one. According to them, the best technique to differentiate a solution is to present one point of comparison and one or two points of differentiation from the best competitor.
Furthermore, they add that the value proposition "We save you money" is generic and irrelevant without an explanation of how this is achieved.
II. How Does This Competitive Advantage Materialize?
To understand how this brings a competitive advantage to companies, I interviewed multiple Chief Technical Officer and Chief Data Officer of companies that are using IA. The following sections will be segmented according to company size to better represent what the interviewees said.
1. Startups
Within startups, the competitive advantage brought by AI comes from the fact that the integration of this new technology is easier for them than for large companies. Because of the complex business logic already in place in large companies, it would be more difficult to implement a similar solution as quickly as a startup.
Also, in the beginning, most startups are looking to grow rather than find direct financial returns. With this shift in focus and the integration of AI, it is possible for them to create a competitive advantage that allows them to compete with companies that are already well established in their industry.
2. Medium and Large Companies
According to the different interviews, AI is more an asset to their projects rather than a necessity. However, AI is partly perceived as a long-term investment with the aim of giving the company a competitive advantage in the future even if its materialisation is still uncertain. This is why companies are investing in projects even with low returns on investment.
Among other things, doing AI projects allows them to train their teams in these new technologies, which will eventually enable them to carry out more complex projects. However, even if Artificial Intelligence is not yet perceived as a competitive advantage, the integration and use of Big Data is. For many, investment in storing, understanding and analysing data is necessary for future projects that could ultimately create this advantage.
3. GAFA and Other Big Tech Companies
The use of AI addresses several risks before creating a competitive advantage. For them, the risk of not using this technology is too great. The implementation of projects using this technology prevents them from falling behind in their understanding and innovation in this field.
Furthermore, it allows them to maintain their image as a forerunner in the field and avoid being perceived as less innovative than their competitors. By doing early research, GAFAs have mitigated these risks and are now showing the true potential of this technology.
However, AI is part of a more global strategy that directs all decisions taken within these companies. For example, for some "AI as a Service" helps to develop their cloud offerings by attracting new customers and indirectly generating growth. If an AI project aligns with this global vision, this opportunity is a good way to gain market share even if it has to be charged at cost. In this context, the competitive advantage of AI lies in its potential use as a growth lever.
III. Conclusion
The use of this technology is not an objective in itself, as it responds to a need for innovation. In this regard, the competitive advantage of AI does not lie directly in its implementation, but rather in its integration into the companyās overall strategy. According to Ransbotham et al. (2017), 84% of companies use AI to gain a competitive advantage, however, the responses obtained show that it is often difficult for them to express how it brings them a real advantage.
Agrawal, A., Gans, J., & Goldfarb, A. (2020). How to win with machine learning. Harvard Business Review, 98(5), 126ā133.
Anderson, J. C., Narus, J. A., & van Rossum, W. (2006). Customer Value Propositions in Business Markets. Harvard Business Review, 11.
Ransbotham, S., Kiron, D., Gerbert, Ph., & Reeves, M. (2017). Reshaping Business With Artificial IntelligenceĀ : Closing the Gap Between Ambition and Action. MIT Sloan Mangement Review and The Boston Consulting Group, 59(1), 1ā17.