The Transformative Potential of Generative AI in Business - Beyond Cost Savings

Generative AI (GenAI) has received quite a bit of attention in the business world. While artificial intelligence, machine learning and GenAI are not new developments per se, the topic has gained significant momentum with the launch of ChatGPT, promising unprecedented productivity gains and business transformation opportunities across all industries. However, to realize the full potential, it is necessary to move beyond a narrow focus on cost savings and develop a mindset of exponential value creation.

Yet amongst business leaders, a split mentality persists. While one camp fixates on near-term productivity enhancements, the other dismisses the capabilities as hype. Neither fully grasps the transformative nature at hand. For C-level and top decision-makers, understanding the capabilities and implications of advanced AI technologies is critical.

Wharton School's Prof. Ethan Mollick raises an alarm that resonates across boardrooms:

“I really worry that people are not taking this seriously enough … this fundamentally is going to be a shift in how we work and how we interact at a level that’s as big as anything we’ve seen in our lifetimes.”
Despite advancements, the full capabilities of current LLMs (Large Language Models) remain largely unexplored in real-world applications, leaving a gap in awareness among business leaders and executives. The prevailing underestimation of AI's potential extends beyond hardware efficiencies to strategic applications that can lead to profound industry transformations.

To engage with AI effectively, decision-makers must immerse themselves in the technology, using it as a lens through which they reassess their operational models.

Four Key Questions for Leaders Engaging with AI

To harness the advanced capabilities of AI, leaders should engage firsthand with these technologies and contemplate pivotal questions:

As with most technologies, GenAI is not just a single step towards improvement, but a ladder with multiple stages, each of which takes organizations to new heights of efficiency, differentiation and transformation.

Unlike previous computing shifts, running LLMs incurs major structural costs for specialized hardware and elevated cloud usage. Vendor pricing models remain unclear and in flux with frequent changes likely as the market matures. Leaders must wargame uncertainty by simulating best and worst case scenarios when assessing ROI.

Always treat disruptive scenarios reshaping business models with a venture capitalist mindset prioritizing strategic and market metrics over short-term ROI

The Business Case for Generative AI Investment

When building a business case for GenAI investments, it's imperative to consider not only cost savings but primarily the strategic advantage and business model transformation potential. This requires matching use cases to strategic intent across three horizons:

Quick Wins Drive Early Productivity Gains

Initially, the low hanging fruit will come from task automation. GenAI excels in areas like creating new data, rather than simply making predictions about specific existing datasets. GenAI learns to generate more objects that look like the data it was trained on. The associated initial efficiency gains and cost savings can be quite substantial!

But even if this approach can significantly and sustainably increase developer productivity or customer service agent productivity, more than half of the initial value is derived from leading indicators that enable future direct financial benefits and not just immediate expense reduction.

The way how benefits from increased productivity translate to tangible ROI, depends greatly on how leaders strategically harness and manage the freed capacity.

Custom Solutions Unlock Competitive Advantage

Truly differentiated and defensible value comes from building custom AI solutions deeply integrated with proprietary data and industry-specific business processes. While more complex, the problem-solving potential far outweighs out-of-the-box approaches.

We see early promise in use cases ranging from hyper-personalized marketing to predictive maintenance across healthcare, finance, retail, and manufacturing.

The fusion of enterprise data, industry expertise, and AI drives exponential change, fueled by advanced algorithms and data accessibility.

Ultimately, a holistic approach is crucial for success

Beyond getting the technology right, change management across people and processes proves decisive. Leading organizations proactively invest in upskilling workforces, redefining workflows, and instilling cultures of responsible experimentation.

Executives who view generative AI merely as a cost-cutting tool are missing out on the broader benefits of AI, which include revolutionizing business models, unleashing creativity, democratizing premium services, and achieving personalization at scale.

Realizing the disruptive Potential

For industry leaders, it is critical to embrace this technology, understand its evolving capabilities and integrate it into strategic thinking for a future defined not by incremental change, but rather by the transition to an exponential approach to value creation.

At SKAD, we are comfortable in both spheres - the commercial side in a wide range of industries as well as the technical side when it comes to putting technology into operation. Our experts are here to support you in bringing your AI use-cases to life - from strategy- and business case development, through technical and legal evaluation, to implementation and scaling.

Our “SKAD AI SpeedBoats” enable executives to accelerate their AI initiatives ensuring swift and legally compliant implementation results.

Wilko Wolters is Director at SKAD. He has a proven track record of leading complex initiatives, driving business model innovation and delivering significant efficiency gains for industrial and automotive clients. His expertise spans deep automotive domain knowledge, developing digital and AI strategies as well as creating industry-leading B2B customer experiences.

For any queries, reach out to him at w.wolters@sk-advisory.com.