There is no shortage of compelling visions for an AI-transformed business.
The major consulting firms describe organizations where AI is embedded throughout the business, humans and AI work together, decisions happen faster, workflows become more autonomous, data becomes a strategic asset, and organizations become more innovative and adaptive.
Those are great destinations. The harder question for executives is much more practical.
How does our company get from where it is today to those destinations?
Two companies can pursue the same objective and require completely different journeys. One may have excellent data and processes and poor technology. The other may have strong technology and inconsistent processes, poor data, insufficient expertise or organizational resistance. The destination is the same. The starting points, and therefore the journeys, are not.
Start With the Business, Not AI
A practical transformation begins by understanding the journey from the now to the future.
What are we trying to accomplish?
What capabilities already exist?
What constraints are preventing progress?
What opportunities could create more leveraged value?
What risks need to be considered?
Then, management can determine where AI solves a business problem that is valuable to solve.
This leads to a practical sequence:
Strategy → Decisions → Execution → Capabilities → Enterprise Capital → Value Drivers → Enterprise Value
Strategy provides the direction and the objectives. Constraints and opportunities determine how priorities should be established. Decisions must allocate resources because resources are finite. Execution turns those decisions into action that makes the individuals and the organization more capable.
Transformation Should Build Enterprise Capital
A successful AI initiative should create better processes, stronger data, improved employee judgment, reusable workflows, decision models, institutional knowledge and other assets the organization can use again. These assets become Enterprise Capital and this is where the assets compound.
The first initiative makes the organization more capable of completing the second. The second initiative makes the organizational more capable of completing the third. The organization begins transforming itself.
The Journey Must Still Create Economic Value
None of this should become an intellectual exercise. Every significant initiative should point to a predictable and measurable rate of return that is higher than other investments. What will it cost? What value should it create? What risks could prevent success? What capabilities and assets will remain afterward? Which business outcomes should improve?
Ultimately those outcomes have to reach the things that create more business value: growth, margins, recurring revenue, cash flow, customer retention, scalability, reduced dependency and sustainable competitive advantage.
Those factors influence earnings and confidence in future earnings. Each initiative should be driving EBITDA, the sales multiple, or both.
The Compounding Enterprise
The most valuable enterprise is a Compounding Enterprise. A company whose capabilities become stronger each year creates more knowledge, more assets, and reduced dependencies. Their adaptability improves, their opportunities increase, their capability to maximize those opportunities strengthens.
The major consulting firms have given executives plenty of ideas about where AI is going. The immediate management challenge is building the journey from today's organization to those destinations with measurable and predictable outcomes.
What is the first step that you are going to take?