How Can a Whale’s Tail Guide My AI Transformation Efforts? Part 7

AI Landscapes: Redefining Commerce, Careers, and Communities - Article 7 of 8

Winners of past disruptions have shown us how technology can be used to make fundamental changes to accepted operating models that upend the status quo and force incumbents into a defensive position. Here are two examples:

• Globalization. Technology and reduced transportation costs made the world a lot smaller in the 90s. Adopters of this trend were able to dramatically lower the cost of production, giving them a competitive advantage.
• Uber. Advances in handheld technology converged location, communications, and purchasing data. These changes were leveraged to produce a whole new mode of transportation - rideshare. Customer acquisition became easier, staffing and capacity issues were crowdsourced, and a community rating feature provided a sense of safety with the change. Incumbent taxi operators were crowded out of the new, redefined market.

In both cases, incumbents lost agency. They were behind the change and had to react. Manufacturers went out of business or were hastily forced to move production, devastating communities. Our nation is highly polarized today, in part, due to firms not being aggressive enough in embracing change and not being deliberate in developing and protecting our workforce. It doesn’t have to be this way.

We know AI is powerful enough to change how people do business today. If you already know how - you’re in great shape! The rest of us need a method to uncover and exploit opportunities.

We recommend embarking on a fully allocated cost analysis of your customers. Companies today all engage in some form of this, but we have a few suggestions to encourage a different perspective.

• Net, not gross. Gross margins are most popular across multiple industries for gauging how products and services are delivered. Revenue minus Cost of Goods Sold has been a mantra of financial management for eons, but it misses the full picture of the total cost of doing business. It is not unusual for us to see product lines with healthy 35% gross margins be redefined as negative margin business.
• Product, or service, level. Individual products and services will have different cost profiles. Include them all. It’s possible to attribute overhead costs to products and services by weighing them against the products or services produced.
• Customer aggregation. Once a method for assigning overhead costs to products and services has been devised, the data can be aggregated to the customer level, providing a clear view of the real cost of serving different customers. We know customers are different, but it’s hard to see how their differences impact profitability without undertaking this exercise.

We then create a graph ordering the customers left to right in order of declining profitability and create a plot line of cumulative net margin. No matter the client or industry, we always see the same shape:

Your organization is likely highly profitable with the “Value Drivers” – customers that generate a lot of net margin. “Value Contributors” add a lot of volume but little net margin. “Complexity Drivers” continue to add volume but add no, or even declining, net margin. Lastly, “Value Destroyers” are literally eating into your bottom line. The curve looked so much like a whale that we’ve taken to adding a tail to the side!

The Whale’s Tail visualization gives you four clear lenses to evaluate your customer base and improve financial performance. In our next article, we’ll explain how this ties into to preparation for AI-driven change.

This series will explore four steps we believe you should be taking – now.

Diagnose and Futurecast: AI isn’t coming. It’s here. Involve your staff – especially those in roles with a lot of human capital – in assessing use cases to boost their knowledge of what is possible and demystify the nature of the change. We now know enough to futurecast roles and understand what they will look like in an AI-enabled world. We can be precisely wrong but directionally accurate about the next five years to develop a plan for how our workforce will change.

Reskilling Human Capital: This country has never experienced a technological shift against a declining labor force. Add to this that AI-experienced resources you might want to acquire will be limited and in very high demand. Just like back in Y2K, hiring your way out of this change will be hard. We must embrace a skills-based understanding of future roles and alternative paths for impacted people.

Content, Education, and Change Management: Change management was huge in the 1990s, and it’s time this discipline came back into fashion. We’ll discuss why acting to control the narrative is crucial and share some ways to do this effectively.

Reimagined Operating Models: All past disruption winners could reimagine a product or service leveraging technology to change the dominant operating model of the day. Uber & Lyft with taxis and Netflix with video streaming are great examples of changed operating models equating to success. We’ll explore how this can be done in a way that reduces risk and can provide speedy returns.

Over this series of eight articles, we’ll touch on all these paths of success to prepare you, your business, and AI's evolving impact on the workforce. Thanks for reading. Let’s talk AI implementation. Send me a note at wade@batonglobal.com.

‍

About Wade Britt‍

Wade Hampton Britt, IV is a partner and the Managing Director at Bâton Global. He has lived and worked in a dozen countries in the global express and edtech sectors before joining Bâton Global in 2016. Wade is passionate about helping clients and their communities navigate the AI disruption better than previous technological changes.