The answer, to coin a consulting phrase: it depends.
The coronavirus has already caused worldwide disruption not seen for a generation. Yet despite our collective desire to get back to normal after months of lockdown, experts agree that a full recovery is still several years away. In the meantime, most industries are experiencing contraction, and some like travel and tourism are near collapse.
In a downturn, transformation and innovation initiatives are often swept away with other “discretionary” spending. For instance, marketing ad spend, which is usually considered a bellwether for broader discretionary spending, typically drops at least 20% in a recession. Yet those same innovation initiatives can help companies see their way to more revenue, less costs, and even entirely new businesses. Technology and especially AI initiatives such as operations automation, customer service chatbots, and decision support could help businesses weather the storm and come out stronger, if only those companies could find the time, attention, and money to devote.
Cat Casey, Chief Innovation Officer of DISCO, has seen this dilemma play out in the legal profession. “While AI has been slow to take hold broadly, COVID-19 has placed a glaring spotlight on the need for AI and made it clear that legal teams can’t put off the technology evolution any longer. The pandemic has made those lawyers and firms who chose not to innovate recognize just how far behind they really are, and they are frantically scrambling to catch up.”
Whether a company should proceed with an AI initiative depends largely on its industry, business health, and corporate culture. All three are needed to be successful here. Weakness in any of these areas, especially at a time like this, will torpedo the best laid plans. Knowing when to press forward and when to cut bait is one of the toughest decisions a manager needs to make, but never has there been a more critical time to do so thoughtfully.
Nearly every industry is negatively affected by the current downturn. Sure, a few like healthcare and employment law are booming, but that is nothing compared to the broader economic damages sustained in just the first act of this tragedy.
Industries directly impacted by the pandemic, such as travel, tourism, and transportation are seeing dramatic fall offs in business, in some cases as much as 90% nearly overnight. For these businesses, full-blown crisis management and cash position must be the number one and often only priority. Leaders must make incredibly tough decisions on an impossibly short timeline, often laying off a significant portion of the workforce, arranging deals with vendors and creditors, and seeking options for legal protection such as bankruptcy.
For these businesses, the longer this drama plays out, the more existential the situation becomes. In such a scenario, no one in good conscience would argue pursuing long-term bets like AI unless they could fundamentally alter the firm’s business model and opportunities.
By contrast, some industries such as professional services and technology suffer secondary effects from the pandemic and are seeing contractions of 10-20%. Not to belittle such a loss, as it often triggers layoffs, furloughs, and other negative consequences, but in most cases such a reduction can be absorbed without cutting too far into bone. Organizations in these industries can capitalize on transformation initiatives coming out of a downturn to leapfrog more conservative competitors. And AI initiatives, with their focus on customer engagement and operational efficiency, are prime candidates for investment.
Take for instance the real estate market. Vin Vomero, Founder and CEO of the real estate analytics platform Foxy AI, sees a silver lining in an otherwise tough market. “Right now, many organizations are simply trying to keep on the lights, not invest in new technologies. But we expect interest will return quickly and stronger than before as organizations seek out AI applications to streamline workflows and reduce overhead costs. Now that organizations have adjusted their expectations for 2020, we are starting to see interest return."
The Corporate Bottom Line
An industry has significant influence on a business’s success, but it is by no means the only factor. Southwest famously bucked the trend of struggling airlines through its relentless focus on customer engagement. Out of the ashes of the dot com bust rose some of the most profitable companies of the 21st century. And in this current downturn, there will be winners and losers even in distressed industries.
Companies that are financially healthy with solid bottom lines, diverse revenue streams, and long-term stable contracts are more likely to weather the storm than those entering the downturn already financially strained. Cash is still king, and cash flow is a critical component of financial health.
If a company is still moving product, selling services, or collecting on recurring revenue, and customers are still able to pay, then R&D initiatives make sense. Or, if a company has stockpiled cash for a rainy day and can buffer the drop in cash, there can be no better time to reinvest in innovation. But if cash dries up, and every available dollar must be routed to preserving payroll and paying vendors, companies must slash spending on non-essential services.
Companies with access to funding such as lines of credit face a tough choice: take a draw on the bet that business will rebound and funding can be repaid, or play it safe and not risk default. The firms that are data driven and have strong financial planning and analysis teams will be better positioned to predict the future and can take calculated risks.
A Burning Platform
Even in the best of times, transformation initiatives will fail in organizations that refuse to change. Entrenched mindsets like “this is how we’ve always done it” will kill projects in many little subtle ways. It is truly death by a thousand cuts. Effective organizational change programs can help guard against this, but in the worst of companies, even those are insufficient.
The silver lining of a downturn is it forces people to acknowledge the necessity of change. It is the burning platform that forces a call to action. Survival instincts kick in, and managers become open-minded to projects that can improve their situation. This creates an opening for intrapreneurs.
Cat Casey sees this playing out in the legal profession. “In light of the burgeoning economic downturn caused by COVID-19, many firms are taking lessons about the need for adaptability and efficiency from 2008 and proactively increasing their adoption of AI to differentiate, better serve clients, and most importantly do more with less.”
Tony Trippe, Managing Director of business consulting company Patinformatics, sees opportunity as well. “This is a perfect storm for the development and implementation of new technologies and ways of working. We will see this with machine learning and other artificial intelligence systems as well as in automation technologies. The current situation is making business people reconsider the way they work either out of necessity, or because they have an opportunity they wouldn’t normally have to stop and consider ways to be more efficient.”
The rules of organizational change still apply. Intrapreneurs need to build sponsorship across the organization, start small, and build on quick wins to be successful.
A Mixed Bag
In the end, there is no easy answer to the question of whether AI initiatives will advance or languish. The reality is both will happen. This downturn will create winners and losers, and those organizations who embrace AI to build new products, drive efficiencies, or spark innovation will have a better chance of coming out on top.
On a macro level, the same dynamic will play out on the international stage. Those countries that are able to rebound quickly and take advantage of the need for innovation will come out ahead. Asia, and particularly China, stand to gain ground in AI dominance, while countries hit hard by the pandemic such as the United States and Europe may struggle for the next few years. The scars of the pandemic on international growth and power will linger for even longer.
The end result may well be a world where America is no longer at the center. American companies, and the country itself, will need to find ways to work as just one part of an increasingly global network. America First may well be a thing of the past.
Now more than ever, foundational innovation tactics are key: a solid business case, experimentation and iteration, and top management support. AI for the sake of AI will not help firms climb their way out of the current downturn. But those projects that show opportunities to improve top or bottom lines can make a significant impact.
Whether you are a manager deciding whether to fund a project, an intrapreneur trying to get a project off the ground, or a provider attempting to sell services, take this opportunity to assess the business case and make smart decisions on whether to advance a particular AI initiative. Your company will thank you.
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Matt Coatney is a technology executive, entrepreneur, advisor, author, and speaker focused on bringing advanced technologies to market in the fields of artificial intelligence, automation, future of work, data analytics, cloud computing, and digital content. His work has appeared in TED, MIT, and O'Reilly. His newest book, The Human Cloud: How Today's Changemakers Use Artificial Intelligence and the Freelance Economy to Transform Work, with Matthew Mottola and published by HarperCollins Leadership, launches early next year.