How does Artificial Intelligence and Business relate to each other, what does AI do for the business model and how could you approach thinking about it?
In its most basic form the mission of any business is to increase its trading power which means the business ability to buy and sell, material, product, services and even idéas. The businesses can achieve this by creating something that is of valuable for someone else. The goal for the business is to make trades that will increase their greater trading power and influence in society.
In this article I will use the example of a fictional Toothbrush Company that creates toothbrushes for customers that value their dental health. For the customers to obtain this value they are willing to pay a certain price which in this example is monetary. For each customer that pays to obtain the value of using the toothbrush to the Toothbrush company, the company can increase their trade power by creating more toothbrushes for more customers, and/ or develop other types of toothbrushes to reach different customers.
And in extension, the Toothbrush Company has to make other value trades to be able to create its products. The company too has to pay different prices to obtain different values. For example the Toothbrush Company has to pay different prices to receive the values from labour, competence, resources etc. in order to deliver that product.
So any business can be described by its value chains and different challenges can be described by how to make these trade chains as beneficial and effective as possible for the business and this is also the mission of AI in business. Basically how could we increase the value for the lowest price.
This example of the business value chain is a simplified one. The values and prices that are traded can come in many different shapes and sizes e.g. prices that are paid can be cash, time, data, intellectual etc. and values can be both an actual value and perceived value. The constructs of these value chains can also be long and intricate but in the perspective of the business their mission is to strengthen the power and influence of the business.
How could AI impact the value chain?
To put AI in the context of business I will give you an idea of how AI could be used to increase the trading power for the toothbrush company. I will walk you thru two different examples of how AI could be used to impact the Toothbrush company’s value chain.
In the first example I will show you how AI could be used to optimise a part of the value chain by reducing costs, and in the second example I’ll show you how AI can be used to create new business opportunities.
To create the toothbrush they will need raw material for the manufacturing process, they pay a price to the supplier to receive the value of being able to create the product.
To turn this raw material to a product they need specialised equipment and processes to produce the end product. The company pays a price of maintenance and running costs to receive the value of continuously supplying their customers with a great product.
Knowledge, competence & labour
To make all this happen, and to keep being relevant, innovate, keep machines running and growing they need people with knowledge, competence and the ability to support the production line with labour. The price the company pays is a salary for the value of their time, mind and body.
Reducing raw material with AI
So if we take a closer look at this value chain of sourcing material to create the toothbrushes we could ask ourselves: How could we lower the price the company pays for the raw material for the value it brings?
They could find cheaper suppliers, smarter ways to buy the material or use less material or all of them, but in this case we’ll take a look at how AI could be used to reduce the amount of material in the toothbrush.
One AI approach to this could be to apply generative design to design the toothbrushes. Generative design mimics the process that nature uses to create natural structures of animals and plants. Designers and engineers input different goals and constraints into specialised software that generates, tests and explores thousands of possible design versions in order to find the most optimal design.
In the picture Sam Whitworth used generative algorithms to design a series of toothbrush handles that utilises 23% less plastic than a conventional toothbrush while retaining its structural integrity.
If the toothbrush company applied this manufacturing approach they could reduce the price they pay for raw material while maintaining the value for the product.
And at the same time as they reduce costs they also increase the perceived value for the customer by being more friendly for the environment by using less material.
Generative design is just one example of how AI can impact the value chain for the Toothbrush company. In reality changing manufacturing processes may not be the most beneficial move for the business, but a direction worth exploring and a area that the business can invest in experiments for.
How could AI be used to find new business opportunities?
In the previous example we went thru how AI could be applied to an existing part of the value chain. In this example we will zoom out and expand our approach to see how AI could be applied to create business opportunities and new value chains.
When we widen our view of the value chain we’ll also expand our view around the end customer to se if there is other value chains around the customers dental health that we could tap into.
As we can se in the illustration above, the customer is attached to two other value chains in the area of dental health. With this image and customer centric view we could start asking our selfs questions like: “If we knew this then we could do that.
AI and machine learning is simply put models of algorithms that adjust them selfs and learns from data and improves over time. The insights generated from the data could then be used in a various of different variations e.g. as we mentioned earlier in this article.
AI applications is generally good for applications where you don’t know exactly all the information needed to carry out an event or action. E.g. you don’t need AI to turn on the light when you flick the light switch, you know exactly what action should trigger what event.
But say that you want to trigger the light for a specific person, then you could use AI and face recognition to estimate how likely it is that that specific person is in the room, and then trigger the light if the model is confident enough.
You could argue that AI is the worlds best guesser and when brainstorming ideas on what application is a good fit for AI you can use the fraise “If we knew this then we could do that”.
What things could your business do if you had all the information? Type out “If we knew_____ then we could____ and try to fill in the blanks.
So if we relate back to the Toothbrush company, what could they do if they What information? If the Toothbrush company knew how well people takes care of their dental health then they could make more personalised dental insurance plans.
This is the Oral-B Genius X, it is an electric toothbrush that learns how you brush your teeth and gives you feedback on how to improve your brushing. If the Toothbrush company where to develop a product like this, they could use the data from each user in order to make more personalised insurance offerings. An AI model could estimating the likelihood of one person needing professional dental care by analysing how well they brush their teeth.
Now, setting up new revenue streams and value chain is not perhaps a starter AI project for a company, but it provides an example of how AI could be used to enhance existing products and enable opportunities for creating new business if you widen your approach.
To sum it up the key take aways from this article should be that understanding your business value chain is crucial in order to understand where improvements and opportunities could be found and AI is just a method and not the mission for a business.
So how does your business value chain look like? What value do you create and for whom? What could you do if you had all the information?
Thank you for reading!
Link to article on medium: https://medium.com/@filip_70113/how-do-you-apply-ai-to-the-value-chain-e7c329b1579b