Category: work

Five unexpected learnings from Ray Dalio’s Principles

Sure, Ray Dalio is well known for his approach to “radical transparency” and the uncompromising way he has implemented that (as well as the extraordinary investment success of his firm, Bridgewater), but his recent book Principles held learnings for me in a number of unexpected areas including: mistakes and failure , the art of disagreement and what might be described as “soft skills”.

Underneath what might seem on the surface – to some-  a set of stark, tough, emotionless dictats I found something a little different – there is a deeper truth – Dalio is asking people to have a sense of introspection and humility, to sincerely believe that they might be wrong and open themselves to other viewpoints and critiques, and to reflect hard on their mistakes as this is where the best learnings are to be found.

And the reason for writing and sharing the principles? It all started with a meeting between Dalio and some of his key partners in the early 1990’s where they presented him with a candid – and stark – picture of the negative effects that his focus and determination had on others in the organisation – that they felt belittled, unnecessary, incompetent and overwhemled. In addressing this, Dalio decided it was important to set out the principles he was operating by, in a way to try and get in sync with his employees so that they could see where he was coming from more easily. Which could mean they would be more understanding of his approach, and less likely to be affected in negative ways.

The big question reading Principles is of course what valuable read-across can one take into other organisations. I would argue plenty, but even for those that disagree surely setting out principles and spending time getting in sync on them is universally a good thing for meaningful work and meaningful relationships.

Here are my top 5 least-expected takeaways from Principles:

 

  • Making mistakes & learning from failure. At the heart of the book is Dalio’s own story and evolution. He shares a story from the early days of Bridgewater –  he took too much risk betting on the bond market in the early 1980’s that the firm imploded and he lost almost everything he had built (he had to let go all the people working for him at the time). In reflecting on that he developed some clear thinking about how to respond to failure, and he is convinced that we can learn a lot more from our failures than our successes (self evident perhaps, but worth lingering on as it can be all too easily overlooked or forgotten). Treat the pain of failure -and yes, you need to feel pain- as a trigger. A trigger to reflect deeply, reflect objectively from a higher level. Reflect both on the proximate cause of the “case-at-hand” but also at the “machine design” level (that is, the organisational, workflow or systems design construct that generated the mistake). To evolve successfully one must first correctly perceive and diagnose the problem (objectively), identify a better design, and push through on implementation. Experience creates an internalized learning that book learning can’t replace, so in that sense mistakes and failure should be treated as valuable opportunities to create powerful learnings.

 

  • The art of thoughtful disagreement. Open-mindedness is clearly pretty key to Dalio’s worldview and is behind, in his view, the extraordinary success that Bridgewater has had over the years. He talks at length about the principles behind ensuring that disagreement is fostered, and this I think is the key bit – is handled and resolved in efficient and amicable ways that move everyone forward. There are a handful of principles that get at this – including sincerely believing that you might be wrong, treating a disagreement as an “open exploration of what is true”, rather than an “I win you lose” clash of ideas (which happens all too easily, in my experience), doing everything you can to understand how others come by their opinions, and focus on being “open minded and assertive” (the idea being, it’s easy to be assertive when you are pushing a point of view, but more helpful to be assertive but neutral, to explore what’s true). At the end of the day what matters is moving forward, and his ideas around a “believability weighted” meritocracy are compelling. Dalio’s view is that two of the biggest barriers to progress are our individual egos (and the dogged attachment to our own ideas that generates) and our un-awareness of our own blindspots. This insight is well worth reflecting on and I for one know I could strive to do better on both of these fronts (both un-attaching myself from my views and ego, and working harder to understand blindspots).

 

  • Invest as much time as possible “getting in sync”. In an unexpected nod to what might be described as “softer skills” Dalio talks at length of the need to invest in getting in sync with others (colleagues, peers etc) mainly to compare your principles against those of others and check where there is disalignment. Being clear on principles is, key to moving efficiently from disagreement to decision, hence “getting in sync” on one another’s principles and knowing what you have in common sets up the systems for resolving future conflict and disagreement. In the long run it increases efficiency, but you need to prioritise because of time constraints. Priority should be important issues with the most believable and relevant parties. Again you could argue this is good sense rather than revelatory, but probably all too easily forgotten or missed out in the whirl of the day-to-day and the temptation to focus on the new, the urgent or the interesting. I have certainly resolved to to spend more time focusing on this.

 

  • Be clear & honest on personality and attribute dimensions. Understanding that people are wired very differently (for example: task vs goal oriented, an aptitude for concepts vs plans, an intuitive vs sensing approach and whether detail or big-picture focused. ) and that for an organisation to functionally optimally you need the right design of skill and capability comb’s in the right roles. Be honest about the suitability of individuals for roles by focusing on capability dimensions ( in practice probably too often overlooked in light of someone’s likability, social skills or similarity to the decision maker/interviewer). I would be grateful to see what the underlying personality dimensions are behind the tools that Dalio refers to (eg Baseball cards and Dot Collector). He mentioned these may be released soon in a “Principles app”, so i look forward to that.

 

  • In meetings, ensure levels are navigated effectively and synthesis is achieved. We’ve all been there – that meeting that gets dragged “into the weeds”, (that is to say a granular debate on points several levels below that of the real question at hand), possibly never to be recovered. “Reality exists at different levels and each of them gives you different but valuable perspectives”. Synthesis refers to the mental combining/processing of data points across levels in forming an overall picture (and coming to a decision). So the key to an effective meeting, is an exchange that can achieve synthesis by successfully navigating levels effectively, that is lower levels might be explored to degrees of various depth to gain insight along the way, but the main level is returned to, and progress made along that level. Another area of insight into “soft skills” that I was not expecting – but really resonated. This picture from the book sums it up well –


My favourite Dalio quotes:

 

 

 

Two Days with Biohackers

Last weekend we spent a fascinating two days at the Bio-hackers summit at a disused power station on the outskirts of Helsinki. A number of people have already asked me what my main takeaways were so I wanted to get some of them down straight away before memory fades too much, hopefully I’ll add to this through time.

One pleasant surprise about the event generally was how practically focused a lot of the speakers were. It was unexpected. I had expected a lot more high-tech focused sessions around apps, gadgets and medical innovation. While there was some of this, a lot of it was much more “ground level” (perhaps the clue was in the word “hack”) and gave me a huge number of immediately actionable ideas – some of which I had already started thinking about myself, which is always nice! It’s helped me progress some of my own thinking on productivity for knowledge work.

Top 5 takeaways –

  1. Understanding basics of nervous system can give simple insights

The basics of our nervous system have remained essentially unchanged for thousands of years, and evolved to suit a very different environment to that which we now live. This simple insight can unearth a lot of useful thoughts. For example, understanding the basic roles of dopamine, serotonin and cortisol in controlling our levels of motivation, happiness and stress – and the natural triggers to activate each of these can play a key role in helping us modulate our moods and control stress.

Probably the biggest insight I gained on the nervous system was the difference between the sympathetic (fight/flight) nervous system and the parasympathetic (“rest/digest”). As a species we evolved to survive first, then thrive, which means that triggers linked to survival promote incredibly strong nervous reactions. During the day we operate on a spectrum between these two extremes. Ancient humans would achieve balance between the two by resting in their cave following attempts to hunt animals. The modern world is set up to trigger fight/flight reactions more than it is set up to allow rest/digest – environmental triggers play a big role in switching between these modes, and triggers that promoted survival have become deeply encoded. Hence, to achieve the balance we need for optimum wellness and performance we need to work hard to find environments where rest/digest is possible (we need to find our “cave” – this insight helps understand why travel and moving house can both be stressful/tiring). If we are not careful we can set a new baseline at higher levels of sympathetic nervous system usage, which is damaging to wellbeing.

The role of natural light in the way we function and our own circadian rhythm – we are all set up to function optimally for different tasks at different times of the day, and achieving optimal productivity is about understanding this rhythm not trying to control it. For example most morning-people are able to achieve peak mental focus around 10am, best working memory around midday, peak co-ordination around 2pm, reactions around 3pm and peak cardiovascular ability at around 5pm.

  1. Connectedness to nature is shown to have a variety of positive benefits

Humans spent >99% of evolutionary history in natural environments, which is where nervous system evolved, said Olli Sovijarvi. Connectedness to nature has been scientifically linked to improved cognitive performance and happiness. This can be as simple as “grounding” – walking barefoot on soil or grass. Nature sounds eg birdsong shown to lower stress hormone cortisol. Having just moved away from central London, we now have the luxury of a garden and greater access to nature than we did before – I want to make sure we’re making full use of this everyday (see morning routine below!).

  1. You can use technology to provide “memory as a service”

Spending time recalling enjoyable events and moments of connection with others can be key positive influences on happiness. Don’t rely on your own highly imperfect memory to recall important and enjoyable events, Chris Dancy explained how social media can play a great role here. Apps like timehop, or facebook can surface previous memories for you each day. It’s possible to add songs, videos and locations to instagram posts to make the memory even richer. It’s even possible to time travel forward using facebook by writing posts to your future self, which will get re-shown to you a year hence (you can arrange the setting such that only you can see it). What better way to help your future self reflect than to pose the big questions or challenges that are occupying your mind today.

We had already started doing this to some extent, using particular hashtags on instagram to record our summer hihglights or information about our visits to particular cities (check our #djfrenglishsummer2017 or #djfrenglishstats if you’d like to see). It’s always interesting when a speaker takes a topic that you have taken the first few steps on yourself, and shows you a load more.

 

  1. Think about mindfulness (as part of a morning ritual)

Mindfulness was a recurring theme at the biohacker event, with multiple speakers referring to it. Clearly it’s a big theme in its own right, with plenty of literature and buzz around its usefulness in the corporate world. You might even say it’s being overdone.

I found it helpful to hear about mindfulness from some thoughtful speakers, including doctors, and in particular how people had used it in their own lives. As many others have said, taking the first steps toward practicing mindfulness can be as simple as spending a few minutes each morning focusing on breathing and trying to control the distractions that enter the mind. We have started doing this more consistently each morning.

  1. The role of a morning routine

Tomi Kokko took us through his morning routine and the logic behind it, which really got us thinking. Since we’ve been back we’ve worked on our own version. Tomi gives himself a minute after waking up to get into a cold shower – while that isn’t quite for us we’ve been thinking about how a combination of mindfulness, breathing, short intense bursts of exercise designed to get oxygen flowing can be combined with being outdoors, barefoot and the right combination of nutrition in the mornings(lemon water for hydration, coffee, fats for brain function and spices for increased blood flow). It would be too early to claim this as a success but I’ll aim to report back in a few months on how this is going. Taking time to recognise things in your life that you are grateful for on a daily basis is also something I aim to get better at.

All in all it was a thoroughly fascinating and engaging two days, with the vast majority of speakers being really engaging and impactful. The timing of each session was well-judged with 40 minute keynotes early in the day falling to 30 and 20 minute sessions later on with frequent breaks, and room to stand as well as sit in the main hall (conference organisers everywhere, take note!). I’d encourage anyone thinking of going to check it out, we are hoping to make it to next year’s event which is in Sweden and the Netherlands.

The end of email?

 

Email is like a tax that we all collect from each other.

Tiago Forte

Over recent years the influence of changes in technology has changed the way we communicate in our personal lives. We are the whatsapp, Facebook and Instagram generation. The number of different available platforms and formats has led to helpful thinking about the relative pros and cons of different channels and the structure of communication.

In business the default method for digital communication is email.

Let’s be honest, email is starting to look more and more like a relic of the 1990’s that really should be going the way of the curtains haircut and Dawson’s Creek. While it’s associated with modern tech, email inherited it’s communication norms from a different era, decades before the likes of Whatsapp showed us how good communication really works in the digital age.

We’re in the Whatsapp generation – Why should we lug around these overflowing message boxes with message piled on message without context, structure or prioritisation?

The Economist, Harvard Business Review and McKinsey have all made the case for messenger apps over email. They make the point that the low “cost” of sending messages, coupled with the unstructured, unprioritised and context-free architecture of the system kills productivity and ensures that knowledge workers can spend as long communicating about the work they do as doing the work itself.

I see four main benefits of chat/messenger based apps (such as Slack, Hipchat, or Teams) for business:

  • Context-driven Structure (different channels can exist for different projects or teams)
  • Prioritisation (notifications can be prioritised for particular channels)
  • Reflects actual communication norms (no “Dear X …. regards, Dan”)
  • Threaded structure & retrieval (previous messages are immediately there when you refer back to a channel, test search is generally effective)

There are also some common criticisms, which I see more as issues with the way we work rather than the system itself. More on all of this below.

What the research says

A number of articles have been written citing the efficiency gains from alternative methods of communication, and the disadvantages of email:

The Economist May 2016 – The Slack Generation

How workplace messaging could replace other missives

http://www.economist.com/news/business/21698659-how-workplace-messaging-could-replace-other-missives-slack-generation

Short summary: workplace messaging systems such as Slack can improve productivity by up to 30% due to: contextual structuring of messages into channels, less formal and more natural style of communication and the ability to work seamlessly across desktop and mobile devices.

Harvard Business Review Feb 2016 – A Modest Proposal – Eliminate Email

https://hbr.org/2016/02/a-modest-proposal-eliminate-email

Short summary: email engenders an unstructured workflow that can be damaging to productivity, this arises from the architecture of the system: the low cost of messages combined with the association of messages with an individual, rather than a project or task. The attention-switching that the need to constantly check email entails is also very disruptive.

McKinsey & Company 2012 – Unlocking value & productivity through social technologies

http://www.mckinsey.com/industries/high-tech/our-insights/the-social-economy

Short summary: McKinsey wrote in 2012 that using communication tools that leveraged social-media functionality in a business context could enhance communication, knowledge sharing and collaboration. They estimate this could enhance the productivity of knowledge-workers by 20-25%. They find that the average knowledge-worker spends half their time in the office communicating about their work and a third actually doing the work they were hired to do.

Email for work, particularly internally, is starting to feel more and more like a relic of the 1990’s. Why should we lug around these overflowing message boxes with one message piled on top of another without context, structure or prioritisation?

Business comms for the whatsapp generation

I see four main benefits of chat based apps (such as Slack, Hipchat, or Teams) for business:

  • Prioritisation

Many knowledge workers receive hundreds of emails a day (non-spam), being away from the desk for an hour can easily result in 50+ unread messages at certain times. While all of these messages may be valuable at some level they will generally have a very different prioritisation level,which isn’t obvious without sorting through them. Some might be a cc to keep you in the loop on something, or an update from a supplier (which are valuable but not urgent). Others might be a request to urgently review a piece of client work.

A chat application gives one clear channel for high-priority messaging that can be accessed easily and distinctly from email. We already have this in our personal lives with text and whatsapp. Would you email your friend if you were on the way to meet them and needed to let them know something? It isn’t realistic to rely on email – messenger releases what would otherwise be a bottleneck to making fast decisions in certain areas.

Some of the chat platforms allow notifications to be set up and “pushed” selectively (ie from certain groups but not others), or to set up do-not-disturb messages.

  • Structure

A common criticism of email (repeated in the HBR article cited above) is the lack of structure, and the unstructured workflow that email facilitates can be quite negative for productivity. Messages of varying priority, both internal and external, connected to a myriad of projects or clients land in the inbox one after the other. One of the benefits of the messenger apps is the creation of channels relating to specific teams or project groups, which helps structure incoming messages. Ultimately this facilitates more effective  collaboration (also cited in the Economist article above). Due to the structure, emails quickly become unmanageable when multiple people in a project team reply to the same thread, whereas the messenger format helps responses to be more organised. This is particularly important in environments with more remote-working, which is the direction we are going in. 

  • Casual: reflects actual communication

As noted in the Economist article quoted above, the protocols around composing email are still relatively formal (“Dear X …. Regards Dan”) which in many situations is less efficient than how we would communicate in face-to-face. Messenger applications facilitate communication in the  same way as we would interact in person so can be quicker and more to the point. Email tends to be hierarchical and a one-way broadcast. It does not tend to be a tool that naturally prompts feedback or discussion. 

Some message platforms allow “liking” of messages which – given how social media has evolved – represents a more natural and elegant way of indicating agreement than adding another message to the system.

  • Thread structure

The discrete nature of each email means that communication by email frequently results in searching through an inbox for previous communications on the same subject. There is an advantage to preserving the thread in a group chat channel for everyone to see and easily refer back to. In addition some of the messenger platforms have deep search capability due to indexing all the contents of messages and attachments. I for one would love to get back all those working hours I have wasted searching through old emails for something crucial. If used well this can also serve the function of replacing frequent update meetings where face-to-face meeting needs to co-ordinated (which is time consuming, and also less easy with remote working).

The main challenges that need to be solved in adopting a messaging app for business purposes are around information and data security and setting the right boundaries around work/home life such that it does not lead to unwanted out-of-hours bombardment.

Having used Teams at Redington for about 6 months I’m a huge convert – simply put, it makes your comms more organised, more efficient and urgent. It un-clutters your workflow and will make you more productive.

Criticisms

However, there are some commonly cited criticisms which are worth addressing as I don’t see these as negatives in themselves but rather they reveal deeper issues with how work is structured in general.

Criticism #1 “I’m in too many Teams channels”

This isn’t an issue with the app, it’s because you are working in too many teams! The HBR article The Overcommitted Organisation put this really well in describing the situation that many knowledge-work organisations find themselves in whereby multi-teaming (deploying individuals over a variety of teams simultaneously) whilst efficient can also stretch the organisation. This isn’t the fault of a messaging app per se, but structuring messages in channels is more likely to reveal this as an issue.

Criticism #2 “I can’t copy people in who aren’t in the Team”

Ah yes. The Cc box. That brilliant invention of the email era, that lets us push out our messages to anyone and everyone that we like. Adding and removing names, allowing the channeling of information to ebb and flow between varying groups  as we wish. But think about it for a second. This isn’t how communication should work. We shouldn’t be adding and removing people from groups and teams with each message we send. Those that are on the team should see all the messages. Those that aren’t, don’t need to be bothered by them. By all means welcome new people to the team (and some might join for a short period of time, others longer), but much better to be clear about who is on the team and who isn’t, and messenger apps bring this to the fore, whereas email allows us to be too lazy about it.

Here’s to the end of email!

https://hbr.org/2014/03/stop-using-your-inbox-as-a-to-do-list

Getting Sh*t done in a distracted world 

Could it be that human attention is the most scarce resource of our time?
We are surrounded by distraction, inside and outside of work. But for today’s knowledge workers that can be particularly damaging to productivity.

In this short blog I review some of the most interesting thoughts I’ve read recently on how to beat distraction, increase focus and maximise productivity. Highlights include

Dave Allen’s Getting Things Done (GTD) method

Cal Newport’s advocacy of Deep Work

Tiago Forte’s concept of Small Batch Productivity

Knowledge Work & Productivity 

Knowledge work comprises a range of roles in the modern economy but broadly can be thought to consist of things such as: generating insights from data, applying experience and expertise, stakeholder communication and managing, teaching others.
In the eras of manual work, innovations such as tools, organised labour, the production line and batch production all dramatically increased productivity. We’re only at the start of trying to figure out what the equivalents are for knowledge work, although there’s already some great thinking out there on this point. What’s clear is that the difference between low and high productivity in knowledge work can be many times the difference in manual work.
A distraction when we’re doing a manual job (digging a hole say) is bad enough, but one that interrupts a diffuse flow of partly formed thoughts, logic, ideas and a flow of not yet formed connections –  possibly never to be recovered – can be really damaging to productivity as a knowledge worker. Carl Richards neatly illustrates how the time spent on distractions can add up, in this blog and how we can find a lot of time if we have the discipline to reallocate and focus on what really matters. Gloria Mark has done work to attempt to quantify the impact of switching – finding that information professionals work in 12 different spheres per day, switching between them every 10 minutes on average and suffering interruptions every 2 minutes. Work resumed after an interruption on average 23 minutes later. Here’s a cool infographic from inc. that captures some of the stats… but don’t let that distract you!

Find out how to find focus

“People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things.” ( Steve Jobs. Apple Worldwide Developers’ Conference, 1997)

Not all distractions are bad of course, the 21st century office is set up to facilitate interactions and collaboration, and of course one person’s collaboration is another’s distraction depending on viewpoint and timing. However most of us are also vulnerable to distraction from apps and notifications (from email, social media, messengers etc) all promising us that small hit of dopamine we get when we seek and find an uncertain reward. We become physically addicted to the trigger / uncertain reward dynamic that these apps employ (this is brilliantly articulated by Nir Ayal in his book Hooked). That little red circle with a white number inside it generates a powerful hold over us! I’m not arguing that social media is a bad thing in itself, clearly it can be powerful in connecting people and satisfying our innate desire for social connections, it can even be powerful in a work context. However what I am trying to say is that when it comes to getting things done, viewed through the strict lens of productivity it is something that must be carefully managed to avoid damaging our productivity.

How to fight back

The good news is we can use some of these behaviour insights to our advantage to design systems around us to utilise the same reward loops in a more positive way, as well as to plug holes in some of the shortcoming in our natural mental systems such as storage and timely recollection, and to create timely nudges. Something as simple as a to do list is a good start – the brain responds to earned markers of success with dopamine, even if they are as simple as placing a tick in a box (check out this blog from trello).
Even retaining some of the bad distractions as rewards to allow us the will power to create a period of focus followed by unfocus/reward can be productivity enhancing. After all, we aren’t robots and trying to work like them isn’t the solution.
The need for a system to buttress our own internal cognitive processes and functions is one of the main insights of Dave Allen’s GTD (getting things done) methodology. A system to log and categorise tasks, projects, ideas. A system that is reviewed regularly & maintained as current, and brings focus onto the right tasks and projects to accomplish both the urgent and the important through time. It helps by recognising that the brain is an excellent problem solving device but a lousy storage device – we need things around us to help with the storage and recall point!
I’d challenge any knowledge worker to put in place a few of the GTD ideas and not report a noticeable improvement in productivity.
In fact, I’d go as far as to say that if you are a knowledge worker in the 21st century and you are not employing a system around you to help overcome distraction, focus and beat mental shortcomings, it’s like trying to farm the land with your bare hands. It might work for a while, but ultimately it unproductive and you’ll get left behind.
The nature of these systems vary, of course, something as simple as a physical notebook could be one example, personally I am a huge fan of trello. Other examples include evernote, google drive, OneNote etc.

Going one step further

Cal Newport highlights what he calls Deep Work “work performed in a state of distraction free concentration that pushes our cognitive abilities to the limit”
And the benefit of deep work? Well, in an era of AI and automation Cal argues persuasively that any task that can be accomplished with a shallow or brief level of focus can and will be automated. We need to go to deep work to stay relevant and generate real value. Deep work is what will be valued.

A different perspective

On the other hand, Tiago Forte argues against deep work and in favor of what he calls “Small Batch Productivity” or intermediate packet delivery (getting something – however small – shipped out for comment/feedback at the end of each short block of work). The idea behind this is to make sure you aren’t asking yourself to return mid-stream to a task after a break – as this is bad for productivity. On the flip side imposing little deadlines and getting things out early for feedback and be very beneficial.

Overall it’s about finding what works best for you, of course. But don’t assume things are just fine as they are because you don’t see any chronic issues – I reckon most knowledge workers could increase their productivity by at least 50% by implementing a few of the thoughts discussed above, but most don’t even know they are doing anything wrong!

We’re just really at the start of discovering how to knowledge-work most effectively, the issue is many of our structures and institutions are designed around principles from the 19th or 20th century that were optimal for manual-intensive work, but are far from optimal today. We should stop trying to adapt ourselves to outdated processes & structures and find what works best for what we need to achieve today.

 

One minute guide to real-world AI implementation 

McKinsey just published an excellent and comprehensive paper covering how Artificial Intelligence (AI) can deliver real value for business.

tl;dr

The only issue – at 80 pages it’s a lot to read.

A lot of the use cases focus on retail, energy and education, one angle I find particularly are the read-across of these examples into service based and business-to-business environments. There are definitely some relevant points that could map to a services/B2B worlds: for example the automation of admin tasks for teaches, more targeted sales and marketing and more personalised customer service.

Here’s my take on the key points from the document:

1. No shortcuts: first data & digital, then AI

AI becomes impactful when it has access to large amounts of high-quality data and is integrated into automated work processes. AI is not a shortcut to these digital foundations. Rather, it is a powerful extension of them.

The firs thing firm’s need to do is come up with a real business case for AI that relates to the firm’s strategy, this requires separating the hype and buzz around AI from its actual capabilities in a specific, real-world context. It includes a realistic view of AI’s capabilities and an honest accounting of its limitations, which requires at least a high-level grasp of how AI works and how it differs from conventional technological approaches.
Each new generation of tech builds on the previous one – this suggests AI can deliver significant competitive advantages, but only for firms that are fully committed to it. Take any ingredient away—a strong digital starting point, serious adoption of AI, or a proactive strategic posture—and profit margins are much less impressive. This is consistent with McKinsey findings in the broader digital space.
Technology is a tool and in itself does not deliver competitiveness improvements.

2. Areas to focus on to create real value: project, produce, promote or provide 

To fulfil the expectations being heaped upon it, AI will need to deliver economic applications that significantly reduce costs, increase revenue, and enhance asset utilization.

Mckinsey categorized the ways in which AI can create value in four areas:(1) enabling companies to better project and forecast to anticipate demand, optimize R&D, and improve sourcing; (2) increasing companies’ ability to produce goods and services at lower cost and higher quality; (3) helping promote offerings at the right price, with the right message, and to the right target customers; and (4) allowing them to provide rich, personal, and convenient
user experiences

3. Data ecosystem & staff culture to the fore 

Firms must conduct sensible analysis of what the most valuable AI use cases are. They should also build out the supporting digital assets and capabilities. Indeed, the core elements of a successful AI transformation are the same as those for data and analytics generally. This includes building the data ecosystem, adopting the right techniques and tools, integrating technology into workplace processes, and adopting an open, collaborative culture while reskilling the workforce

4. Take a portfolio approach focused on use cases in short, medium and long term, be lean, fail fast & learn

A portfolio-based approach to AI adoption cases, looking at use cases over a one- to five-year horizon, can be helpful.

In the immediate future, McKinsey suggest a focus on use cases where there are proven technology solutions today that can be adopted at scale, such as robotic process automation and some applications of machine learning. Further out, identify use cases where a technology is emerging but not yet proven at scale. Over the longer term, McKinsey’s view is to pick one or two high-impact but unproven use cases and partner with academia or other third parties to innovate, gaining a potential first-mover advantage in the future. Across all horizons, a “test and learn” approach can help validate the business case, conducting time-limited experiments to see what really works and then scaling up successes. Fast, agile approaches are important.

5. Don’t be a hammer in search of a nail … 

To ensure a focus on the most valuable use cases, AI initiatives should be assessed and co-led by both business and technical leaders. Given the significant advancements in AI technologies in recent years, there is a tendency to compartmentalize accountability for AI with functional leaders in IT, digital, or innovation. This can result in a “hammer in search of a nail” outcome, or technologies being rolled out without compelling use cases. The orientation should be the opposite: business led and value focused. This business-led approach follows successful adoption approaches in other digital waves such as mobile, social, and analytics.

McKinsey graphics on AI: