AY23 AAI2007 1. What is Artificial Intelligence.pdf

AAI2007 Artificial Intelligence in Business and Society Topic 1 What is Artificial Intelligence? Learning Outcomes At the end of this lesson, you will be able to: ▪ Articulate the goals of Artificial Intelligence. ▪ Describe the four key fields of Artificial Intelligence. 1. What are the Goals o...

AAI2007 Artificial Intelligence in Business and Society Topic 1 What is Artificial Intelligence? Learning Outcomes At the end of this lesson, you will be able to: ▪ Articulate the goals of Artificial Intelligence. ▪ Describe the four key fields of Artificial Intelligence. 1. What are the Goals of AI? 2. Key Fields of AI  What is AI? What do AI Want to Achieve? ▪ From Russell, & Norvig, P. (2021). Artificial Intelligence a modern approach (4th ed.). Pearson. ▪ “The field of artificial intelligence, or AI, is concerned with not just understanding but also building intelligent entities - machines that can compute how to act effectively and safely in a wide variety of novel situations.” ▪ Acting Humanly – The Turing test approach ▪ Thinking Humanly – The cognitive modelling approach ▪ Thinking Rationally – The first order logic approach ▪ Acting Rationally – The rational agent approach Source: Russell, & Norvig, P. (2021). Artificial Intelligence a modern approach (4th ed.). Pearson.  Act Humanly – The Turing Test Approach ▪ The Turing test is trying answer the question “Can a machine think?” ▪ “A computer passes the test if a human interrogator, after posing some written questions, cannot tell whether the written responses come from a person or from a computer.” ▪ To pass the test, a computer would need: ▪ Natural language processing ▪ Knowledge representation ▪ Automated reasoning ▪ Machine learning ▪ For the computer to interact with the real world, it also need: ▪ Computer vision and speech recognition ▪ Robotics Source: Russell, & Norvig, P. (2021). Artificial Intelligence a modern approach (4th ed.). Pearson.  Think Humanly – The Cognitive Modelling Approach ▪ For “a program to think like a human, we must know how human think.” ▪ We learn about human thoughts in three ways: least suitable task for ▪ Introspection – examination of own thoughts and feelings cognitive engagement : ▪ Psychological experiments – observing a person in action system to handle customers complains ▪ Brain imaging – observing the brain in action ▪ Express theory as a computer program. ▪ Cognitive science brings together computer models from AI and experimental techniques from psychology to construct precise and testable theories of the human mind. Source: Russell, & Norvig, P. (2021). Artificial Intelligence a modern approach (4th ed.). Pearson.  Think Rationally – The First Order Logic Approach ▪ “A precise notation for statements about objects in the world and the relations among them.” ▪ Programs could, in principle, solve any solvable problem described in logical notation. ▪ But not everything can be encoded into rules e.g., politics and warfare. ▪ The theory of probability fills this gap, allowing rigorous reasoning with uncertain information. ▪ “Allows the construction of comprehensive model of rational thought” to base “understanding of how the world works to predictions about the future.” ▪ Does not generate intelligent behaviour. Source: Russell, & Norvig, P. (2021). Artificial Intelligence a modern approach (4th ed.). Pearson.  Act Rationally – The Rational Agent Approach ▪ A rational agent is one that acts to achieve the best outcome or, when there is uncertainty, the best expected outcome. ▪ One way to act rationally is to deduce that a given action is best and then to act on that conclusion. ▪ However, “there are ways of acting rationally that cannot be said to involve inference.” ▪ Make decisions under uncertainty to attain the best expected outcome. ▪ Do the right thing to meet the given objective. ▪ A fully specified objective is very difficult. Source: Russell, & Norvig, P. (2021). Artificial Intelligence a modern approach (4th ed.). Pearson. 1. What are the Goals of AI? 2. Key Fields of AI Key Fields of AI The key fields of AI we are investigating in this module: ▪ Machine Learning ▪ Deep Learning ▪ Computer Vision ▪ Natural Language Processing  Machine Learning ▪ “A computer observes some data, builds a model based on the data, and uses the model as both a hypothesis about the world and a piece of software that can solve problems.” ▪ Why should machine learn? ▪ Cannot anticipate all possible future situations. ▪ Sometimes no idea how to program a solution. ▪ Three main types of machine learning based on the types of feedback that accompany the inputs:- ▪ Supervised Learning ▪ Unsupervised Learning ▪ Reinforcement Learning Source: Russell, & Norvig, P. (2021). Artificial Intelligence a modern approach (4th ed.). Pearson.  Supervised Learning “Dog” “Dog” Classification Regression Decision Tree Not “Dog” Source: Russell, & Norvig, P. (2021). Artificial Intelligence a modern approach (4th ed.). Pearson.  Unsupervised Learning Clustering Association Source: Russell, & Norvig, P. (2021). Artificial Intelligence a modern approach (4th ed.). Pearson.  Reinforcement Learning Source: Russell, & Norvig, P. (2021). Artificial Intelligence a modern approach (4th ed.). Pearson.  Deep Learning ▪ Deep refers to the many layers in the model. ▪ “Computation paths from inputs to outputs have many steps.” ▪ Learns by processing and analysing input using several models until the desirable output is found. ▪ Models improves over time and hence the accuracy also improves. ▪ Widely used for:- ▪ Visual object recognition ▪ Machine translation ▪ Speech recognition ▪ Speech and image synthesis ▪ Reinforcement learning applications ▪ Drew inspiration from neuron networks of the brain hence it is often called Neural Networks. Source: Russell, & Norvig, P. (2021). Artificial Intelligence a modern approach (4th ed.). Pearson.  Computer Vision ▪ "An agent that can see can predict the future.“ ▪ Receives a stimulus and form a representation of the world. ▪ Passive sensing where "they do not need to send out light to see." ▪ Active sensing where a signal is sent out like radar or ultrasound. ▪ Reconstruction where “an agent builds a model of the world from an image or a set of images.” ▪ Recognition where “an agent draws distinctions among the objects it encounters based on visual and other information.” Source: Russell, & Norvig, P. (2021). Artificial Intelligence a modern approach (4th ed.). Pearson.  Natural Language Processing ▪ Computers use “natural language to communicate with humans and learn from what they have written.” ▪ “A grammar defines the syntax of legal sentences and semantic rules define the meaning.” ▪ “Natural languages cannot be so neatly characterised.” ▪ “A language model is a probability distribution describing the likelihood of any string.” ▪ Natural languages are complex, at times subjective and ambiguous, hence “any language model will be, at best, an approximation.” Source: Russell, & Norvig, P. (2021). Artificial Intelligence a modern approach (4th ed.). Pearson. The End ① 3 types of Al : ① Process Automation tasks ③ Cognitive Engagement ↳ Automation of digital & physical ↳ engage employees & customers using NLP - replacing lost of credit card ↓ reaching into multiple systems to update records ② Cognitive insights ① predict what customers will buy ② identify credit fraud in real time ② Business Benefits of Al & Ennance features , functions & performance of products ② Make better decisions ③ create new products ① optimise internal business operations marketing & sales ⑤ optimise external processes like Framework ③ : Four Step Up ① understanding the technologies ① Scaling need detailed plans ↳ strength & limitations ↳ companies business process & experts owners of ↳ performs what tasks ↳ collaboration w/ technology being. automated ② creating a portfolio of projects ↳ evaluate needs & capabilities ↳ develop a prioritised portfolio of projects 4 Identifying opportunities ↳ Business can benefit most from cognitive applications ③ Launching pilots not obvious ↳ current & desired Al capabilities y create pilot projects for cognitive applications AAI2007 Artificial Intelligence in Business and Society Topic 2 Business Environment and Business Operating Activities  This model focuses on 3 stem questions: “What?”, “So what?” and “Now what?” Matching these questions to an experiential learning cycle and adding trigger questions which can be used to promote the learning experience and reflect on what was learnt. Feedback for Week 1  What? – What is AI? What is the type(s) of AI are you focusing on?  So What? – What are the impacts, good and bad, of using AI to students?  Now What? – What are the “good” that can be enhanced, and how? What are the “bad” that can be avoided or mitigated, and how? Learning Outcomes At the end of this lesson, you will be able to:  Articulate what is business.  Describe the use of Artificial Intelligence in business and industries.  Articulate the typical business operating activities.  Ascertain the use of Artificial Intelligence in business operating activities  1. What is Business? 2. What are Business Operating Activities? 3. Value Chain vs Supply Chain  What is Business?  “A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities.” ~~ Investopedia.com Source: https://www.investopedia.com/terms/b/business.asp  Types of Business Structure  A business organisation or enterprising entity refers to types of business structure.  In Singapore, the five main types of business structures are:  Sole-Proprietorship (one owner)  Partnership (two or more owners)  Limited Partnership (LP)  Limited Liability Partnership (LLP)  Company  Ownership – How many people have shares in the business?  Legal status – Is it a separate legal entity from its owner(s)?  Tax – How are the profit taxed?  Continuity in Law – When does the business cease to exist? Source: https://www.acra.gov.sg/how-to-guides/before-you-start/choosing-a-business-structure Exercise 1 (10 minutes)  Differentiate the following business structures in terms of their ownership, legal status, tax and continuity in law, in Singapore’s context.  Sole Proprietorship  Partnership  Limited Partnership  Limited Liability Partnership  You can use any means at your disposal to find the answers including search engine and AI tools.  Place your answer in the shared ppt deck and clearly state your reference.  Appoint one group member to explain your answer.  Incorporation  Incorporation refers to "the process of constituting a company as a legal corporation.”  An incorporated company becomes a separate legal entity which means the owners’ personal assets are protected from the company’s liabilities i.e., it has limited liability.  In another word, any loss incurred will not exceed the amount invested in the limited liability business or company, keeping personal assets of owners and investors off-limits.  A company may own assets, incur debts and enter into contracts on its own.  Starting and maintaining the registration of a company cost money.  Application for a company name cost $15 and the registration fee is $300.  The company is required to keep proper records of its financial transactions and accounts.  All companies are required to file their financial statements, except when exempted, annually.  Annual filing fee is $60.  Accounting and Corporate Regulatory Authority (ACRA) administers a repository of basic information of registered businesses and companies. These Business Profiles are accessible for a fee and intended to uphold transparency and trust. Source: https://www.acra.gov.sg/how-to-guides/before-you-start/choosing-a-business-structure  Sole Proprietorship  A sole proprietorship is an unincorporate business.  It does not exist as a separate legal identity from its owner hence the owner has unlimited liability.  The business owner is personally liable for all debts and losses incurred.  The business can sue or be sued in the owner’s name.  Profits from the business are taxed at owner’s personal income tax rates.  The business exists so long the owner is alive and has desire to continue. Source: https://www.acra.gov.sg/how-to-guides/starting-sole-proprietorships/what-is-a-sole-proprietorship  Partnership  A partnership is an unincorporate business.  It does not exist as a separate legal identity from its partners hence the partners have unlimited liability.  There can be between 2 to 20 partners.  The partners are personally liable for all debts and losses incurred.  The partnership can sue or be sued in the partners’ name.  Profits from the partnership are taxed at partners’ personal income tax rates.  Its business existence is subject to partnership agreement. Source: https://www.acra.gov.sg/how-to-guides/starting-sole-proprietorships/what-is-a-partnership  Limited Partnership  A Limited Partnership (LP) is an unincorporate business.  It does not exist as a separate legal identity from its partners.  There must be a minimum of two partners, with at least one general partner and one limited partner.  The general partner has unlimited liability and can take part in the management of LP.  The general partner can be an individual or a company.  The limited partner has limited liability and cannot take part in the management of LP.  The limited partner can be an individual, a company or an unregistered foreign company.  The LP can sue or be sued in the firm’s name.  Profits from the LP are taxed at partners’ personal income tax rates (if individual) or corporate tax rate (if corporation).  Its business existence is subject to partnership agreement. Source: https://www.acra.gov.sg/how-to-guides/registering-a-limited-partnership/partners-and-managers-of-limited-partnerships  Limited Liability Partnership  A Limited Liability Partnership (LLP) exist as a separate legal identity from its partners hence the partners have limited liability.. separate business risk  There must be a minimum of two partners. away from personal life  The partners can be an individual, a local company, a foreign company or another LLP.  The LLP can sue or be sued in the firm’s name.  Profits from the LLP are taxed at partners’ personal income tax rates (if individual) or corporate tax rate (if corporation).  Its business has perpetual succession until wound up or struck off. Source: https://www.acra.gov.sg/how-to-guides/registering-a-llp/understanding-llps  Incorporated Company: Company Officers  A company must appoint at least one director and a company secretary.  A company director is responsible for charting the company’s strategic direction as well as to ensure the company complies legal requirements like the accuracy of financial statements and timely submission of annual filing.  A company director has fiduciary duty to act in the interest of the company, honestly and in good faith.  A company secretary is responsible for the administration of the company as well as to ensure all directors and shareholders are informed of their legal obligations. Source: https://www.acra.gov.sg/how-to-guides/setting-up-a-local-company/appointing-directors-company-secretary-and-other-key-personnel  Incorporated Company: Shares and Shareholders  A share is a portion of a company owned by a shareholder in exchange for financial contribution towards the company’s share capital.  In another word, a shareholder has partial ownership in a company. A shareholder can be a person, business or company.  A common type of share is ordinary shares which carries voting rights and shall receive dividends.  Shares of a Private Limited Company (Pte Ltd) are not publicly traded and there can be a maximum of 50 shareholders. offers shares easily  Most incorporated companies in Singapore are Pte Ltd.  Shares of a Public Limited Company (Ltd) are publicly traded in a stock exchange and there can be more than 50 shareholders. Source: https://www.acra.gov.sg/how-to-guides/setting-up-a-local-company/shares-and-shareholders  What is an Industry?  “An industry is a group of companies that are related based on their primary business activities.” ~~ Investopedia.com  Companies operating in the same industry tends to face similar opportunities and challenges, hence they can used to evaluate the relative attractiveness of another company within that industry.  A sector is a group of companies engaged in similar business activities. A sector is broader in scope than industry. There can be many industries in one sector.  For example, the Information and Communication Technology (ICT) sector is made up of the software, hardware and services industry.  The Singapore Standard Industrial Classification (SSIC) is used by the government to classify business activities in the country. Source: https://www.investopedia.com/terms/i/industry.asp  ICT-related Businesses  In the 2020 edition of SSIC, ICT-related businesses are classified in several industries.  For example,  262 Manufacture of Computers and Peripheral Equipment  4651 Wholesale of Computers, Computer Peripheral Equipment and Equipment  4741 Retail Sale of Computers, Peripheral Equipment, Software and Telecommunications Equipment in Specialised Stores  582 Software Publishing  620 Computer Programming, Information Technology Consultancy and related activities  631 Data Analytics, Processing, Hosting and related activities; Internet Search Engines  632 Online Marketplaces  85405 Training Courses for Information and Communications, Finance and Professional Services  9511 Repair of Computers and Peripheral Equipment Source: https://www.singstat.gov.sg/-/media/files/standards_and_classifications/industrial_classification/ssic2020report.ashx  ICT Industry in Singapore  The InfoComm Media Development Authority (IMDA) is responsible for the development of the ICT and Media Industry in Singapore.  IMDA envisage better quality lives for Singaporean enabled by technology through connectivity and content.  IMDA is actively promoting innovation and nurturing talents in areas such as emerging technologies and digital business. Source: https://www.imda.gov.sg/infocomm-media-landscape  1. What is Business? 2. What are Business Operating Activities? 3. Value Chain vs Supply Chain  What are Business Operating Activities?  “Operating activities are the functions of a business directly related to providing its goods and/or services to the market.” ~~ Investopedia.com  Operating activates contribute to most of a business’ cash flow and expenses.  Cash is the lifeblood of a business and there must be enough cash flow to pay expenses, repay investors and grow the business.  Examples of operating activities are:-  Production of products and services  Marketing  Sales  Non-operating activates are investing and financing activities, unless the business is providing these as a service. Source: https://www.investopedia.com/terms/o/operating-activities.asp Exercise 2 (15 minutes)  Contrast the following terms.  Financial Accounting vs Management Accounting  Operating Revenues vs Operating Expenses  You can use any means at your disposal to find the answers including search engine and AI tools.  Place your answer in the shared ppt deck and clearly state your reference.  Appoint one group member to explain your answer.  Financial Accounting  Financial accounting shows the financial health of a company over a period to external audiences such as investors, creditors and regulators. It shows past performance.  Limited liability companies must keep accounting records in exchange of that privilege.  Public limited companies are required under the law to publish audited financial statements in their annual report.  The financial statements are balance sheet, profit and loss statement as well as cash flow statement.  Balance sheet shows a snapshot of the company’s assets (what it owns), liabilities D (what it owes) and shareholder equity (money invested in the company).  Profit and loss statement shows the revenue and cost from operating and non-operating activities over a specific period.  Cash flow statement shows the movement of cash in and out of a company, that is the immediate accessible capital it has from its operating, investing and financing activities. Source: https://www.investopedia.com/terms/f/financialaccounting.asp  Management Accounting  Management accounting shows financial information of a company to help internal audiences make better business decisions for the future.  Common management accounting statements are budget statement and cashflow forecast. D  Budget statement resembles the profit and loss statement in that it shows the revenue and cost from operating and non-operating activities over a specific period except that it is a forecast of future performance.  Cash flow forecast projects the cash requirement or working capital, typically over a rolling twelve-month basis, by forecasting the movement of cash in and out of a company from its operating activities. Source: https://www.investopedia.com/terms/o/operating-activities.asp  Operating Revenues  Operating revenues are the income generated from its operating activities.  A company may produce its own (manufacture) or sell other companies’ (trade) products and services.  A company may sell to another business (B2B) or directly to consumers (B2C).  A company generates revenue by acting as a retailer, wholesaler and/or distributor.  A retailer typically sells small quantities of products or services.  A wholesaler typically sells products or services in bulk.  A distributor typically represent manufacturers and are bounded by exclusive agreement to cover a certain territory or segment of the market, to sell products through retailers and/or wholesalers.  Interest, dividend earned and profit from investment are not considered operating revenues as they are not part of a company’s core business activities. Source: https://www.investopedia.com/terms/m/managerialaccounting.asp  Operating Expenses  Operating expenses are cost incurred from its operating activities.  Generally, a company needs to pay for materials or inventories, rental, utilities, manpower, equipment, transportation, marketing and insurance to produce or acquire products and services to sell.  Operating expenses can be fixed (same regardless of production level) or variable (changes with the production level).  Operating activities, and hence operating expenses, differs from companies’ organisation, size, operations and industry.  Interest charges, cost of borrowing and losses from disposal of assets are not considered operating expenses as they are not part of a company’s core business activities.  Capital expenses are usually made to acquire or upgrade assets for long-term or investment purposes. For example, buying a van for delivery purposes or a new office space. Source: https://www.investopedia.com/terms/m/managerialaccounting.asp  1. What is Business? 2. What are Business Operating Activities? 3. Value Chain vs Supply Chain  What is a Value Chain?  A value chain describes “the full range of activities needed to create a product or service” to maximise value for consumers for the least possible cost. ~~ Investopedia.com  Value chain aims to give a company a competitive advantage in the industry.  A value chain splits a company’s activities into primary activities and support activities.  Primary activities of a value chain are:  Inbound logistics  Operations  Outbound logistics  Marketing and sales  Service  Support activities of a value chain are:-  Procurement  Technical development  Human resources management  Infrastructure Source: https://www.investopedia.com/terms/v/valuechain.asp  What is a Supply Chain?  “A supply chain is a network of companies and people that are involved in the production and delivery of a product or service.” ~~ Investopedia.com  A supply chain aims to optimise the movement of raw materials and finished products and a more efficient production cycle.  A supply chain involves a network of suppliers, warehouses, transport companies, distribution centers and retailers.  Many supply chains are global.  The supply chain starts when a company receives an order to the fulfillment of that order to the customer and involves coordination of how and when products are produced and transported.  The supply chain may involve product development, operations, distribution, finance and customer service. Source: https://www.investopedia.com/terms/s/supplychain.asp  What is a Competitive Advantage?  “Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product.“ ~~ Michael Porter  Competitive advantage helps a company to produce products and services better or cheaper and can be broken down into comparative and differential advantages.  Comparative advantage is a company’s ability to produce more effectively, resulting in higher profit margins.  Differential advantage is when a company’s product is seen as unique and higher quality.  Value chain focus less on cost reduction and more on innovation and value to customer.  Value chain aims to give a company a competitive advantage.  All value chain involves the supply chain but not all supply chain are value chain. Source: https://www.investopedia.com/terms/c/competitive_advantage.asp Workshop Task 2.1. AI Through Business Lens  Read: Davenport, & Ronanki, R. (2018). Artificial intelligence for the real world : don’t start with moon shots. Harvard Business Review, 96(1), 108–116.  Focus on the Three Types of AI and the first two steps of the Four-Step Framework (pages 112 to 114) understanding the technology Step 1 : portfolio of projects Step 2 creating : a Step 3 : Launching pilots Step 4 : scaling up Task 2.2. Ice Cream Town  You are the consultant to a new ice cream business.  Contribute to the business plan on xSiTe > Assessments > Quizzes (Workshop Quiz). Task 2.3. Group Assignment - Industry  Your group shall identify the relevant industry or industries your client may operate in.  Your group can choose to support client from any of SIT’s undergraduate degree programme except for those under the ICT cluster. You can find more information about our academic cluster at https://www.singaporetech.edu.sg/about/academic-clusters  With the chosen undergraduate degree programme, identify X number of industries the students may go into.  Find out about each industry and its value chain.  Identify at least one potential project for each industry that would give a Future Cognitive Company in a competitive advantage. To do this, use the first two steps of the Four-Step Framework:  Identify the opportunities and challenges the project seek to address.  Determine the use cases that will generate value to the business.  Select the relevant AI technology. * X = number of members in the assignment group The End AAI2007 Artificial Intelligence in Business and Society Topic 3 Artificial Intelligence and Work  Attempts increased to 5.  Deadline = EOD 23/5. Learning Outcomes At the end of this lesson, you will be able to:  Describe the use of Artificial Intelligence in the Fourth Industrial Revolution.  Describe the effect of use of Artificial Intelligence in work.  Ascertain the impact of using Artificial Intelligence on human workforce. 1. What is the Fourth Industrial Revolution? 2. What is AI-Enabled Automation? 3. How Will AI change Work?  The First Three Industrial Revolution  Before the Industrial Revolution  Humans have moved from foraging to farming and the domestication of animals.  Animals were used for production, transportation and communication.  First Industrial Revolution (circa 1760s-1840s)  Triggered by steam and water powered machine and railroad enabling mechanical production.  Craftsmen to unskilled labour operating machines.  Second Industrial Revolution (circa 1870s-1914) – Technological Revolution  Triggered by electricity (oil and gas) and assembly line enabling mass production. replace routine &  Factories, automobiles, telephone and telegraph. unskilled jobs  Increasingly professional skilled labour; introduction of white collared jobs.  Third Industrial Revolution (circa 1947-1990s) – Digital Revolution  Triggered by semiconductors, computers and the Internet.  Robotic technologies transforming manufacturing reducing the need for human power.  Synthesis, critical thinking, analytic skills favoured. Source: Schwab, K. (2017). The Fourth Industrial Revolution. Currency  The Fourth Industrial Revolution  Fourth Industrial Revolution (circa 1947-)  Triggered by fusion of technologies and their interaction across the physical, digital and biological domains enabling automation and complex data exchange.  Artificial Intelligence, Augmented Reality, Autonomous vehicles, Big Data, Blockchain, 3D printing, Internet of Things, Robotics, etc.  Smart manufacturing – production facilities and logistics systems without human intervention.  Knowledge economy – products and services based on knowledge intensive activities.  Digital Platforms versus pipelines – aid the creation of value by producers in their network, versus creating products and services through a linear value chain. most professional Surgeon , when & - secured worker social skilled sopassion are , less likely - creativityred jobs artist labor be replaced by A least secured > - security guards, radiologist, customer support jobs Source: Schwab, K. (2017). The Fourth Industrial Revolution. Currency  Impact of 4IR on Business  Many industries are using technologies to create entirely new ways of serving existing needs, hence significantly disrupting existing value chains.  Innovative competitors can replace well-established incumbents quicker by improving the quality, speed or price.  Growing transparency, consumer engagement and new patterns of consumer behaviour force companies to adapt how they design, market and deliver products and services.  Technology-enabled platforms allowing sharing or on-demand economy.  Lowering the barriers for businesses and individuals to create wealth.  Personal and professional environments of workers are altered.  In essence, the four main impacts 4IR has on business across industries are:  Impacting customer expectations  Product enhancement *  Collaborative innovation  How businesses are organized and operate. Source: Schwab, K. (2017). The Fourth Industrial Revolution: its meaning and how to respond. Logistics and Transport Focus, 19(2), 40–41  Customer Expectations  Shift from customer expectations to customer experiences.  Shift from demographic segmentation to identifying potential customers based on their willingness to share data and interact.  Multiple sources of data offers granular insights into customer’s purchasing journey.  More data in the supply chain and at the fingertips of consumers enabled more comparison on the performance and price of products hence shifting power to consumers.  Companies are required to respond in real time wherever they or their customers are. Source: Schwab, K. (2017). The Fourth Industrial Revolution. Currency  Data-Enhanced Products  Products and services are enhanced with digital capabilities that increase their value.  Data (e.g., from sensors) and analytics are transforming the role of maintenance through monitoring and proactive maintenance.  The ability to predict the performance of an asset provides insights on operational tolerances and provide the basis for outsourcing non-core products.  The ability to predict the performance of an asset also made it possible to pay service providers by actual rather than expected performance. Source: Schwab, K. (2017). The Fourth Industrial Revolution. Currency  Collaborative Innovation  When companies share resources through collaborative innovation, significant value can be created for all parties.  Could potentially spawn new business models which bring businesses from multiple industries to provide an integrated business experience.  Companies need to think about how offline and online worlds can work together in practice. Source: Schwab, K. (2017). The Fourth Industrial Revolution. Currency  New Operating Models  All the impacts require companies to rethink their operating models.  Companies need to operate faster and with greater agility.  Emergence of digital platform operating globally that are intimately connected to the physical world.  Companies shift from a focus on selling products to delivering services.  Consumers shift from a focus on owning physical objects to accessing underlying digital services via digital platform.  Data-powered business models uses analytics to unlock insights from their access to information on customers in a broad context.  Companies need to invest on the security of their digital systems.  Talent and culture must be upgraded and evolve in the light of new skill requirements.  Organisational structures must be redesigned to balance employee motivation and communication with business priorities. Source: Schwab, K. (2017). The Fourth Industrial Revolution. Currency Exercise 1 (10 minutes)  Identify at least 3 concrete examples on how the impact of 4IR has on business is already taking shape.  Impacting customer expectations  Product enhancement  Collaborative innovation  How businesses are organized and operate  Identify the companies and how 4IR has changed how it operates.  You can use any means at your disposal to find the answers including search engine and AI tools.  Place your answer in the shared ppt deck and clearly state your reference.  Appoint one group member to explain your answer. 1. What is the Fourth Industrial Revolution? 2. What is AI-Enabled Automation? 3. How Will AI change Work?  What is AI-Enable Automation?  Automation is the use of technology to reduce human intervention in the process.  Muscle power  Mechanical power  Assembly line to enable mass production  Robots; programmable controls and computers  Smart machines; autonomous, interconnected, adaptable  4IR is more than “better” automation but moving from “dumb” machines and made them “smart”, which stands for Self-Monitoring, Analysis and Reporting Technology.  AI-Enable Automation are software and robots that can collect new data during its operation, share the data with other authorised devices on the network, analyse the data and use the results to update its course of action. Source: https://en.wikipedia.org/wiki/Automation  Human vs AI-Enabled Automation  Human labour are potentially replaced by an automated machine when the outcome of using a machine is equal or better than using the former.  Cost of human labour vs cost of acquiring and maintaining machines.  Can the human labour be better employed elsewhere?  Can an algorithm be written to substitute the work done by a human labour?  Leads to behavioural changes as technology evolves – do workers face real prospect of being replaced, or have more opportunities ahead of them?  Three kinds of human capabilities that cannot be sustainably substituted by AI.  Developing creative interventions from mistakes or motivated by emotions.  Exercising judgement or manifesting “deep” creativity or strategy.  Modelling tacit knowledge Source: Johnson, N., & Markey-Towler, B. (2020). Economics of the fourth industrial revolution: Internet, artificial intelligence and blockchain. Routledge. The Foundation of Innovation https://www.youtube.com/watch?v=kjOT_2Bcoi4 Exercise 2 (10 minutes)  Refer to Johnson, N., & Markey-Towler, B. (2020). Economics of the fourth industrial revolution: Internet, artificial intelligence and blockchain. Routledge.  Expound on the three kinds of human capabilities that cannot be sustainably substituted by AI.  Developing creative interventions from mistakes or motivated by emotions (pp 104-105).  Exercising judgement or manifesting “deep” creativity or strategy (pp 105-106).  Modelling tacit knowledge (pp 106-107).  In your presentation, address to what extent do you agree with the authors.  You can use any means at your disposal to find the answers including search engine and AI tools.  Place your answer in the shared ppt deck and clearly state your reference.  Appoint one group member to explain your answer.  Learning from Mistakes and Emotions  Many great inventions were discovered by accident.  Is there an algorithm that allows mistake or accident?  Is there an algorithm that can recognise malfunction to be of value without human intervention?  AI is unable to uncover valuable new techniques by mistake.  Boredom and fear are two emotions that can be powerful motivators to develop new techniques.  Work have been redesigned to keep workers away from monotony and from feeling afraid.  AI does not get affected by boredom and fear hence are unable to uncover new valuable techniques motivated by those emotions. Source: Johnson, N., & Markey-Towler, B. (2020). Economics of the fourth industrial revolution: Internet, artificial intelligence and blockchain. Routledge.  Judgement and Deep Creativity  Gödel’s incompleteness theorems proved that there were certain true statements which could not be verified, hence shows that human can discern truth where logic fails.  Human can exercise judgement in a way that is not (currently) possible for a machine, especially when there is conflicting data.  AI can complement human in exercising judgement by providing information for decision making which could be too much for a human’s capacity and capability. However, AI is unlikely to exercise of judgement.  Human can create connection “out of nothing” where genius has shown to recognise a connection between objects and events in the world which has not been recognised or connected until that point in time.  AI, at the present state, is unable to exercise deep creativity or strategy. Source: Johnson, N., & Markey-Towler, B. (2020). Economics of the fourth industrial revolution: Internet, artificial intelligence and blockchain. Routledge.  Tacit Knowledge  The human mind has natural abilities which have been shaped by millions years of evolution.  These abilities are deeply embedded within the non-conscious brain and entangled with developed structures.  The human mind develops structures as it matures by creating new connections through play and experiments, forming mental schema for categorisation and classification.  These schema help the mind to orientate to the environment and behave in the appropriate manner in these complex and distinctive environments.  Humans find it extremely difficult to express these mental schema in a linguistic system.  These are the tacit knowledge which human have a “feeling” about a particular situation based on cues in the environment but find it extremely difficult to explain why.  In principle, machines are able to mimic the building of developed structures but it is extremely expensive to reach the same level of sophistication as humans.  A human labour is endowed with tacit knowledge developed over a long evolution process and at least two decades of development to reach maturity. Source: Johnson, N., & Markey-Towler, B. (2020). Economics of the fourth industrial revolution: Internet, artificial intelligence and blockchain. Routledge.  Why and When to Use AI-Enabled Automation?  The most obvious value derived from using AI-enabled automation is the partial outsourcing of complex or mentally draining repetitive tasks. These tasks need not be part of the core operation.  For example, to optimise a possible solution to a complex problem.  For example, to automate the part or entire processes in the supply chain.  For routine tasks that can be easily automated, operations using such systems tend to provide more value in the long run than human-centric operations.  Automation frees up human for higher value tasks like solving complex problems, embarking on new ambitious projects and creating more value.  Automation can complement humans in these tasks.  Tasks that are narrow, well-defined and does require much flexibility are good candidates for automation but not necessarily low-skill jobs.  For example, translation, preparing of legal documents Source: Johnson, N., & Markey-Towler, B. (2020). Economics of the fourth industrial revolution: Internet, artificial intelligence and blockchain. Routledge.  Why and When to Use AI-Enabled Automation?  Tasks that requires processing of large amounts of information and data in a relatively short time preclude humans from undertaking them due to the sheer amount and urgency involved.  For example, cancer detection, identity verification, fault and fraud detection  AI machines have been known to predict best responses and optimal strategies by examining (tens of) millions of potential moves over a short timeframe.  For example, chess and Go games.  Such systems can aid humans in complex and constantly shifting situations as well as in situations where relevant information are scattered and not apparent.  The ideal scenario is there is “Known Known” where data is accessible and known to be reliable. Source: Johnson, N., & Markey-Towler, B. (2020). Economics of the fourth industrial revolution: Internet, artificial intelligence and blockchain. Routledge.  The Four Data Scenarios We have accessible information We do not have accessible and data information and data We know the “Known Known” “Known Unknown” information and data is reliable We know the “Unknown Known” “Unknown Unknown” information and data is unreliable Source: Johnson, N., & Markey-Towler, B. (2020). Economics of the fourth industrial revolution: Internet, artificial intelligence and blockchain. Routledge.  The Four Data Scenarios We have accessible information We do not have accessible and data information and data Information and data are We know the accessible and reliable; hence, “Known Known” “Known machine Unknown” prediction engines information and data is reliable perform at their best. As more high-quality data is fed to them, their predictive ability We know the increases. Here, machines tend “Unknown Known” “Unknown Unknown” to outperform human. information and data is unreliable Source: Johnson, N., & Markey-Towler, B. (2020). Economics of the fourth industrial revolution: Internet, artificial intelligence and blockchain. Routledge.  The Four Data Scenarios We have accessible information We do not have accessible and data information and data Information and data are not We know the readily accessible but when “Known available, Known” they are reliable. The “Known Unknown” information and data is reliable lack of comparable data makes it difficult for machine to deliver prediction and form framework. We know the “Unknown Known” “Unknown Unknown” information and Here, human intuition and data is unreliable judgment are better predictor than machines. Source: Johnson, N., & Markey-Towler, B. (2020). Economics of the fourth industrial revolution: Internet, artificial intelligence and blockchain. Routledge.  The Four Data Scenarios We have accessible information We do not have accessible and data information and data We know the “Known information and Information and Known” data are not “Known Unknown” data is reliable accessible nor reliable. Something new or unexpected takes place which bears only some similarity to the past, We know the hence, little or no data exists. “Unknown Known” “Unknown Unknown” information and data is unreliable Here, both human and machine struggles. Source: Johnson, N., & Markey-Towler, B. (2020). Economics of the fourth industrial revolution: Internet, artificial intelligence and blockchain. Routledge.  The Four Data Scenarios We have accessible information We do not have accessible and data information and data Information and data are We know the accessible but not reliable hence “Known Known” “Known Unknown” unable to be used by machine. information and data is reliable Results are almost guaranteed to be biased unless the exact nature of the bias can be understood, then humans may We know the “Unknown Known” interfere and attempt “Unknown to correct Unknown” information and the basis. data is unreliable Here, machine are biased. Source: Johnson, N., & Markey-Towler, B. (2020). Economics of the fourth industrial revolution: Internet, artificial intelligence and blockchain. Routledge.  The Four Data Scenarios We have accessible information We do not have accessible and data information and data We know the “Known Known” “Known Unknown” information and data is reliable Human intuition and Machines tend to judgment are better outperform human. predictor than machines. We know the “Unknown Known” “Unknown Unknown” information and data is unreliable Both human and machine Machine are biased. struggles. Source: Johnson, N., & Markey-Towler, B. (2020). Economics of the fourth industrial revolution: Internet, artificial intelligence and blockchain. Routledge. 1. What is the Fourth Industrial Revolution? 2. What is AI-Enabled Automation? 3. How Will AI change Work?  Five School of Thoughts  Companies are acquiring new capabilities to create the workforce of the future as they recognise the need for new tools to keep up with rivals in terms of improving productivity and finding new sources of growth.  Some companies are transforming themselves into “intelligent enterprises” in which processes are digitized, decisions are data-driven, and machines do the heavy-lifting, both physically and cognitively.  There are five school of thoughts in the debate over productivity and jobs of the future.  The Dystopian  The Utopian  The Technology Optimist  The Productivity Sceptic  The Optimistic Realist Source: Knickrehm, M. (2018). How will AI change work? Here are 5 schools of thought. Harvard Business Review.  The Dystopian and Utopian  The Dystopian believes that man and machine will face off in a struggle for existence which the machines will win.  AI systems will take on tasks at the core of middle and high skills jobs while robots will perform menial work that requires low skill labour.  There will be massive unemployment, falling wages and economic dislocation.  The Utopians are of the opinion that intelligent machines will take on more work, but the result will be economic growth instead of decline.  Advancement in AI and computing power will enable machines to emulate the working of human brain in its entirety.  Human memory and knowledge can be downloaded to computers and replicated human brains will do most of the cognitive work while robots will do all the heavy lifting.  Little human labour is required but universal income can be given out to cover basic needs, and human can apply their talents to meaningful pursuits. Source: Knickrehm, M. (2018). How will AI change work? Here are 5 schools of thought. Harvard Business Review.  The Technology Optimist and Productivity Sceptic  The Technology Optimist sees a burst of productivity has already begun but not captured in official data.  When companies have learnt to take full advantage of AI technologies, a leap in productivity will spur economic growth and living standards.  However, the fruits of the economic growth will not be distributed evenly, and many jobs will be displaced.  To avoid the negative effect, investment in technology must be coupled by investment in education and training.  The Productivity Sceptics reckon that gains in productivity levels will be low despite the use of intelligent machines.  Advanced economies facing aging population, income inequality, rising costs and other issues will see stagnant growth. Source: Knickrehm, M. (2018). How will AI change work? Here are 5 schools of thought. Harvard Business Review.  The Optimistic Realist  The Optimistic Realist opines that intelligent machines can spur productivity gains that match previous technological waves.  Productivity will advance rapidly in certain sectors and companies while new jobs will be created.  The demand for high and low skill workers, whose jobs could be easily automated, will rise while demand for middle skill workers fell.  Studies are still being carried out to define the true relationship between productivity, employment and wages. Source: Knickrehm, M. (2018). How will AI change work? Here are 5 schools of thought. Harvard Business Review.  Shaping the Future Regardless of the school of thought a business may subscribe to, there are some fundamental questions to consider on how to shape a workforce:  How can AI be used to augment human skills and reinvent operating models?  How can AI be a catalyst to redefine jobs and rethink organisational design?  How can AI be your employees’ partners in building an intelligent organisation?  How do you unleash human talents that machines cannot match that are essential to growth like creativity, empathy, communications, adaptability and problem solving? Source: Knickrehm, M. (2018). How will AI change work? Here are 5 schools of thought. Harvard Business Review. Workshop Task 3.1. AI’s Threats to Jobs  Read: Strickland, E. (2022, May 12). AI’s Threats to Jobs and Human. IEEE Spectrum. Download from https://spectrum.ieee.org/kai-fu-lee-ai-jobs  Focus on the responses of the first two questions (AI’s effect on jobs and Why this wave of automation is different).  Watch the video “How AI can save our humanity?” (14’49”) https://www.youtube.com/watch?v=ajGgd9Ld-Wc Task 3.2. Ice Cream Town  You are the consultant to a new ice cream business.  Contribute to the business plan on xSiTe > Assessments > Quizzes (Workshop Quiz). Task 3.3. Planning Your Company  Using the Compassion-Creativity Matrix by Dr Lee Kai Fu, map out at least Y* jobs and their corresponding skills required for your Future Cognitive Company.  Provide reasons for your decision. * Y = number of members in the assignment group multiply by two Compassion Needed Optimisation Creativity Compassion Not Needed Task 3.3. Planning Your Company Job Role Core Skills Required Reasons Clues for Job Roles: What are your client’s company primary and support activities? What are some customer facing job roles in the company? What are some “back-end” job roles in the company? What are some job roles that may give your client’s company a competitive advantage?  The End Y ~ Y ~ AAI2007 Artificial Intelligence in Business and Society Topic 4 Artificial Intelligence and Business Strategy Learning Outcomes At the end of this lesson, you will be able to: ▪ Describe the use of Artificial Intelligence in formulating and implementing of business strategies. ▪ Ascertain the impact of using Artificial Intelligence in formulating and implementing an organisation’s strategy  1. What is Strategy? 2. Porter’s Five Forces 3. Porter’s Generic Strategies  What is Strategy? ▪ Strategy is about being different and deliberately choosing to do things differently, or to do different things than your competitors, to deliver a unique mix of value to your customers. ▪ Strategy is making trade-offs in competing, that is choosing what not to do. ▪ Strategy is creating fit amongst your company’s activities and integrating them. ▪ Operational effectiveness, while necessary, is about achieving excellence in individual activities; strategy is about combining activities. ▪ Operational effectiveness alone is not sufficient to bring superior performance to a company. Source: Porter, M. E. (1996). What is strategy?  What is Operational Effectiveness? ▪ Operational effectiveness – the quest for productivity, quality, speed – often does not translate to sustainable profitability. ▪ Operational effectiveness means performing similar activities better than competitors, for example reducing defects or producing better products faster. ▪ Strategic positioning means performing different activities from your competitor or performing similar activities in different ways. ▪ Constant improvement in operational effectiveness is necessary to achieve superior profitability but not sufficient in the long run due to the following reasons: ▪ Competitors can quickly imitate your products, processes, techniques and technologies. ▪ Competition based on operational effectiveness alone leads to wars of attrition. ▪ Companies must constantly catch up with diminishing returns on effectiveness and profitability which could unwittingly draw them towards imitating competitors and eroding competitive advantages. Source: Porter, M. E. (1996). What is strategy?  What is Strategic Positioning? ▪ Strategic positing is choosing to do things differently, or to do different things than your competitors. ▪ For example, Ikea and (some) low-cost airlines. ▪ Strategic positions can be based on three sources which could overlap:- & ▪ Variety-based positioning is choosing to compete on products and services variety rather offers dairy target than customer segments. A company positions itself to service a wide spectrum of customers free gluten free and , diverse by focusing on a particular area but will only meet a subset of customers’ needs. Vegan options preferences S ▪ Needs-based positioning is targeting a segment of customers with a tailored set of activities understand that can serve their needs best. Sometimes the same customer can have different needs on What is needed in a different occasion and companies should consider if their value chain can meet those needs. the society ▪ Access-based positioning is segmenting customers based on how they could be reached, which could be geographic or scale. A company must identify a different set of activities to reach these customers in the best way. online shopping attract & retain customers whoneed - prefer online shopping rides who in urban areas uber-provides easy-to-use app , people ▪ Strategy is the creation of a unique and valuable position, involving a different set of activities. Source: Porter, M. E. (1996). What is strategy? Operational Effectiveness vs Strategic Positioning Operational Effectiveness Strategic Positioning To ensure quality consistency, Ice Ice Cream Town aim to supply hotels, Cream Town has a process to evenly caterers and ice cream shops with high distribute the exact same quantity of quality customised and all-time key ingredient in every bite / scoop. favourite flavours. To reduce loss during the freezing Ice Cream Town plan to produce a line process, Ice Cream Town has a quick of product catered for people with deep freezer to bring the product to special diet needs e.g., diabetic, optimal storage temperature fast. ketogenic, gluten-free, etc. To constantly remind employees about Ice Cream Town intend to open a few product and work safety, Ice Cream boutique ice cream shops near Town has a wall filled with pictures of popular shopping area with plenty of real customers enjoying their products car park lots. at their factory lobby. Exercise 1 (10 minutes) ▪ Identify one brand or company each that utilizes the following strategic positioning. Support your answer with evidences. ▪ Variety-based positioning ▪ Needs-based positioning ▪ Access-based positioning ▪ You can use any means at your disposal to find the answers including search engine and AI tools. ▪ Place your answer in the shared ppt deck and clearly state your reference. ▪ Appoint one group member to explain your answer.  What is Strategic Trade-Offs? ▪ An attractive position attracts imitation in one of the two ways. ▪ A company repositions itself to be a clone of a competitor. ▪ A straddler seeks to match the benefits of a successful position while maintaining its existing position. ▪ A strategic position is not sustainable unless there are trade-offs with other positions. ▪ Trade-off means choosing not to do something incompatible in favour of another. ▪ Trade-off creates the need for choice and protect against re-positioners and straddlers. ▪ A company known for one service is likely to confuse customers when attempting to deliver two different kinds of values at the same time. ▪ Different positions require a different set of activities, or a different way to carry out the same activities. Activities that are over-designed or under-designed leads to diminishing value, wastage and unsatisfied customers. ▪ Companies trying to be all things to all customers risk confusion amongst employees. Source: Porter, M. E. (1996). What is strategy?  What is Strategic Fit? ▪ An attractive and sustainable position requires choosing the right activities and these activities must fit one another. ▪ A strategy involves a system of activities, not a collection of parts, where the activities fit and reinforce one another. ▪ A strategy must see a company as a whole and not silos. ▪ There are three types of fit which could overlap: ▪ Activities must be consistent with one another and the overall strategy. Consistency ensures that the activities build on and not cancel one another. ▪ Activities must reinforce one another to unlock greater values to the strategy. ▪ Activities must be an optimization of effort. Close coordination and efficient information exchange across activities eliminate redundancy and minimize wastage. ▪ Strategic fit among a company’s activities is fundamental to competitive advantage but to the sustainability of these advantages. Strategic fit increase barriers to imitation. ▪ Strategic fit creates pressure and incentives to improve operational effectiveness. Source: Porter, M. E. (1996). What is strategy? Strategic Trade-Offs and Strategic Fit Strategic Positioning Strategic Trade-Offs Ice Cream Town aim to supply hotels, Ice Cream Town should avoid caterers and ice cream shops with high compromising on the tastiness and quality customised and all-time freshness of raw ingredients. favourite flavours. Ice Cream Town plan to produce a line Ice Cream Town should avoid dropping of product catered for people with special products with lower demand to special diet needs e.g., diabetic, offer something for everyone in the ketogenic, gluten-free, etc. family. Ice Cream Town intend to open a few Ice Cream Town should avoid locations boutique ice cream shops near with overly high footfall like near popular shopping area with plenty of schools or transport hub. car park lots. Strategic Trade-Offs and Strategic Fit Strategic Positioning Strategic Strategic Fit Trade-Offs Ice Cream Ice CreamTownTownaimbelieves that to supply there isIce hotels, a flavour for everyone Cream Town for every should avoid caterers occasion,and icethey and cream shops have thewith high compromising technology to produceon the tastiness them in a safe,and quality customised efficient and all-time and cost-effective way. freshness of raw ingredients. favourite flavours. Ice Cream Town designed their products to keep people happy and Ice CreamTheir healthy. Towniceplan to produce cream a line are ideal Ice Cream Town for celebrations, should avoid dropping conversations and of product catered for people with special products with lower demand to connection building, and best savoured with family and friends. special diet needs e.g. diabetic, offer something for everyone in the Ice Creamgluten-free, ketogenic, Town recommend etc. customers to let their ice cream melt slowly family. in the mouth for the most delightful experience. Ice Cream Town intend to open a few Ice Cream Town should avoid locations Do you boutique icesee consistency, cream shops near reinforcement with overly and optimisation high footfall like near in popular shopping area with plenty of schools or transport hub. Ice Cream Town’s strategy? car park lots.  Threats to Developing Sound Strategies ▪ A sound strategy can be undermined by a misguided view of competition, organizational failures and the desire to grow. ▪ Trade-offs can be frightening and appears to constrain growths. Companies who differentiate will lose sales from some customers. ▪ However, a company pressured to grow with compromises and inconsistencies in strategy leads to confusion amongst its original target customers and employees. ▪ A company should concentrate on deepening its strategic position rather than broadening and compromising it as it grows. ▪ Deepening a position involves making the company’s activities more distinctive, strengthening fit and communicating the strategy better to customers who value it. ▪ Companies seeking to grow through broadening should create separate units. ▪ The leadership must be involved in the company’s strategy – defining and communicating the company’s unique position, making trade-offs and forging fit among activities. ▪ Improving operational effectiveness is a necessary part of management but it is not strategy. Source: Porter, M. E. (1996). What is strategy?  1. What is Strategy? 2. Porter’s Five Forces 3. Porter’s Generic Strategies  Porter’s Five Forces ▪ Rivalry in an industry are shaped by all five competitive forces. ▪ Industries appear different from one another on the surface, but the underlying drivers of profitability are the same. ▪ The five forces are used to understand an industry’s competition and profitability. ▪ While a myriad of factors can affect industry profitability in the short run, industry structure manifested in the competitive forces, sets industry profitability in the mid to long run. ▪ Understanding the competitive forces and their underlying cause can reveal the root of an industry’s current profitability. ▪ The understanding also provides a framework for anticipating and influencing competition over time. ▪ A company needs to defend its position against these competitive factors and shape them in the company’s favour. Source: Porter. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78–137.  Porter’s Five Forces Source: https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis  Threat of New Entrants ▪ A new entrant face barrier to entry when: ▪ Suppliers enjoy economies of scale in production when spreading fixed cost over large volumes. ▪ Buyers are willing to pay for products widely trusted by other buyers. ▪ Buyers face switching costs when changing suppliers. ▪ Large financial resources is needed in order to compete. ▪ Incumbents have significant cost or quality advantages. ▪ There is limited distribution channels, or the existing sellers have tied them up. ▪ There is government policy that hinder new entry or amplify the other barriers. Chose healthy ice cream Source: Porter. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78–137.  Bargaining Power of Suppliers ▪ A supplier is powerful when: ▪ The supplier is the dominant player in a fragmented industry. ▪ The supplier serves many industries and does not depend on one for most of its revenue. ▪ The buyers face switching cost in changing suppliers. ▪ The supplier offers products that are differentiated. ▪ There is no substitute for what the supplier provides. ▪ The supplier can integrate forward into the industry. reaching out directly to end customers Source: Porter. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78–137.  Bargaining Power of Buyers ▪ A buyer is powerful when: ▪ There are only a few buyers. ▪ The buyer purchase in volumes relatively larger than the rest. ▪ The products are standardized and undifferentiated where buyer can always find another equivalent product. ▪ The buyer faces few switching costs in changing supplier. ▪ The buyer can integrate backwards and produce the product itself. ▪ A buyer is price sensitive if: ▪ The product makes up a significant fraction of its cost structure. ▪ The buyer has low profit margin or strapped for cash. ▪ The quality of the product impacts little to buyer’s products or services. ▪ The product has little effect on the buyer’s other cost. a number of major customers Source: Porter. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78–137.  Threat of Substitutes ▪ A substitute performs the same or similar function. ▪ Substitutes are always present but are easy to over-look as they may appear to be very different from the competition product. ▪ For example, a dress may be a substitute for a ring as a gift. ▪ The threat of a substitute is high when: ▪ There are attractive price-performance trade-off to the product. ▪ The buyer’s cost of switching is low. Source: Porter. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78–137.  Rivalry Among Existing Competitors ▪ The intensity of rivalry is greatest when: ▪ There are numerous competitors. the most ▪ Competitors are roughly equal in size and power. well known ▪ Industry growth is slow. ▪ Exit barriers are high. ice creame factory ▪ Rivals are highly committed to the business. with the largest ▪ Firms are not familiar with one another. market share in Singapore Source: Porter. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78–137. Exercise 2 (10 minutes) ▪ How can Ice Cream Town defend its position against Porter's Five Forces and shape them in the company’s favour? ▪ Threat of New Entrants ▪ Bargaining Power of Suppliers ▪ Bargaining Power of Buyers ▪ Threat of Substitutes ▪ Rivalry Among Existing Competitors ▪ You can use any means at your disposal to find the answers including search engine and AI tools. ▪ Place your answer in the shared ppt deck and clearly state your reference. ▪ Appoint one group member to explain your answer.  1. What is Strategy? 2. Porter’s Five Forces 3. Porter’s Generic Strategies  Porter’s Generic Strategies ▪ The five competitive forces describes competitive strategy as actions to create a position in an industry to yield a superior return on investment for a company. ▪ In coping with the five competitive forces, there are three generic strategies that can help a company outperform others in an industry: ▪ Cost leadership ▪ Differentiation ▪ Focus ▪ A company can pursue more than one generic strategy, but rarely possible, as total commitment is required for effective implementation. Source: Porter, M. E. (1997). Competitive strategy. Measuring business excellence  Focus cost leadership : Cost Leadership to be the lowest-cost within a specific become lowest-cost producer producer market niche in the entire industry ▪ Cost leadership refers to having low-cost relative to competitors. ▪ Low cost can be brought about by operational effectiveness. ▪ Lower cost means that a company can still earn returns after its competitors have competed away their profits through rivalry. ▪ Low cost defends a company against powerful buyers as they try to drive down prices. ▪ Low cost defends a company against powerful suppliers by having more flexibility to cope with cost increase. ▪ Low cost provides substantial barrier of entry to the industry in terms of economies of scale or cost advantages. ▪ Low cost places a company in a favourable position against substitutes in the industry. ▪ Achieving a low-cost position requires a relative high market share, favourable access to raw materials, products designed for ease in manufacturing, economic of scale in purchasing, production and in serving similar customers. Source: Porter, M. E. (1997). Competitive strategy. Measuring business excellence  Focus Differentiation : Narrow market segment Differentiation (BroadMarket) ▪ Differentiation refers to creating a unique product or service as perceived by the industry. ▪ A company can differentiate by design or brand image, technology, customer service, sales and distribution network, or other dimensions. Ideally a company should differentiate itself along several dimensions. ▪ Differentiation should not be at the expense of cost, although that is not its primary target. ▪ Differentiation insulates a company against competitors because of customer brand loyalty and the resulting lower sensitivity to price. ▪ Differentiation provides barrier of entry to the industry as competitors need to break through customer loyalty and overcome the company’s uniqueness. ▪ Differentiation defends a company against powerful suppliers with higher margin. ▪ Differentiation defends a company against powerful buyers as they lack comparable alternatives and hence less price sensitive. ▪ Differentiation places a company in a favourable position against substitutes in the industry. Source: Porter, M. E. (1997). Competitive strategy. Measuring business excellence  Focus ▪ Focus refers to serving a particular target group of customer very well. ▪ Focus requires the company to serve a narrow strategic target more effectively and/or efficiently than its competitors who are competing broadly. ▪ A company can focus on differentiation or focus on lower costs to better meet the needs of a particular group, or both. ▪ The focus strategy is only applicable to a narrow market target like a particular group of buyer, a segment of product or geographic market. ▪ The focus strategy protects a company against each competitive force, as seen in the context of cost leadership and differentiation. Source: Porter, M. E. (1997). Competitive strategy. Measuring business excellence  Three Generic Strategies STRATEGIC ADVANTAGE Uniqueness Perceived by Low-Cost Position Customers STRATEGIC TARGET Industry-wide Differentiation Cost Leadership Particular Focus on Segment only Differentiation or Cost Leadership Source: Porter, M. E. (1997). Competitive strategy. Measuring business excellence Three Generic Strategies ▪ Ice Cream Town is adopting a differentiation strategy through ▪ Unique flavours that are not easily replicable. ▪ High quality products perceived to be safe and healthy. ▪ Co-creating flavours with customers to increase their loyalty and lower their price sensitivity. ▪ Competitive pricing achieved through economies of scale. ▪ Heavy investments in AI and other technologies to achieve operational effectiveness and to fulfil its strategic goals. ▪ How can Ice Cream Town pursue a low-cost strategy? ▪ Large customer base. ▪ Small range of similar, standardised products for all customers. ▪ Simple and quick production. ▪ Low-cost raw ingredients. Workshop Task 4.1. AI and Business Strategy ▪ Revisit: Davenport, & Ronanki, R. (2018). Artificial intelligence for the real world : don’t start with moon shots. Harvard Business Review, 96(1), 108–116. ▪ Focus on the section on cognitive insight (page 110 to 112) Supplementary Materials ▪ Watch the video “Michael Porter’s ‘What is Strategy?’ Full Summary” (12’10”) https://www.youtube.com/watch?v=VpRNZFuJ_VU Task 4.2. Ice Cream Town ▪ You are the consultant to a new ice cream business. ▪ Contribute to the business plan on xSiTe > Assessments > Quizzes (Workshop Quiz). Task 4.3. Planning Your Company ▪ Using Porter’s Five Competitive Forces and Generic Strategies, map out your Client’s Future Cognitive Company’s strategy. ▪ Discuss how the potential projects proposed in Workshop 2 fit into the above strategy. ▪ Discuss what cognitive insights are required for each of the potential project. The End The End AAI2007 Artificial Intelligence in Business and Society Topic 5 Artificial Intelligence and Customer Experience Learning Outcomes At the end of this lesson, you will be able to: ▪ Describe the use of Artificial Intelligence in enhancing customer experience. ▪ Ascertain the impact of using Artificial Intelligence in enhancing customer experience. 1. What is Customer Experience? 2. AI in Marketing  What is Customer Experience? ▪ Business is competitive and customers have more choices than every before. ▪ Good experience draw and keep customers. ▪ A customer’s experience is derived from every aspect of a company’s offering, from product to packaging, marketing to customer care. ▪ Customer experience is the internal and subjective response customers have to any direct or indirect contact with a company. ▪ Direct contact is usually initiated by customers like buying, using, servicing. ▪ Indirect contact tends to be unplanned encounters with a company’s product or brand through reviews, recommendations, advertising, news report, etc. ▪ Customer experience aim to meet the real, underlying needs of the customer. Source: Meyer, C., & Schwager, A. (2007). Understanding Customer Experience. Harvard Business Publishing, Boston, MA..  Tracking Customer Experience ▪ There are three patterns of customer experience information. ▪ Past patterns are captured immediately or shortly after an experience. They are useful for measuring impact and identifying issues as well as to track trends. Data collection is persistent (uninterrupted). ▪ Present patterns track the ongoing experience with the intent to identify future opportunities. They draw insights from the customers on what they desire in the future and identify the challenges to its competitiveness. Data collection is periodic (regular). ▪ Potential patterns interpret customer data and observe customer behaviour to uncover opportunities. They tend to be targeted at a particular customer segment and focused on specific or unique problems. Data collection is pulsed (special purpose, one-off). Source: Meyer, C., & Schwager, A. (2007). Understanding Customer Experience. Harvard Business Publishing, Boston, MA.. Exercise 1 (10 minutes) ▪ Identify at least 3 examples on how data collected from each of the patterns of customer experience can be applied. ▪ Past patterns ▪ Present patterns ▪ Potential patterns ▪ You can use any means at your disposal to find the answers including search engine and AI tools. ▪ Place your answer in the shared ppt deck and clearly state your reference. ▪ Appoint one group member to explain your answer.  Improving Customer Experience ▪ Customer experience only improves when it is a priority and involves the entire company. ▪ Every company function has a role to play. ▪ Marketing must capture the taste, preference and expectation of the customers, circulate these knowledge within the company and tailor all customers communications accordingly. ▪ Service operations must ensure that the right process and competencies are in place at every touch point. ▪ Product development must continuously review and refine products and services to address customer needs. ▪ Information technology must collect, analyse and distribute relevant customer experience data to the rest of the company. ▪ Human resources must encourage and reward the right customer experience results. ▪ For the purpose of this module, we shall focus on marketing as a means to improve customer experience. Source: Meyer, C., & Schwager, A. (2007). Understanding Customer Experience. Harvard Business Publishing, Boston, MA.. 1. What is Customer Experience? 2. AI in Marketing  AI in Marketing ▪ AI is used to automate business processes to perform well defined tasks with little or no human interventions. ▪ AI can gain insights from vast volumes of customer and transaction data. These data are not limited to text and numbers but also voice, image and facial expression. ▪ AI can engage customers before and after the sales. ▪ AI offers the potential to increase revenues through improved marketing decisions as well as reduce costs through automation of simple marketing tasks and customer service. ▪ Customers’ reservation about AI has direct impact on the propensity to adopt and use AI. Source: Davenport, T., Guha, A., Grewal, D., & Bressgott, T. (2020). How artificial intelligence will change the future of marketing. Journal of the Academy of Marketing Science, 48(1), 24-42.  Hypotheses on AI Adoption and Usage ▪ Customers trust AI less than human hence they hold AI to a higher standard. ▪ For example, customers generally expect driverless cars to have zero accidents. ▪ Customers are less willing to use AI for tasks involving subjectivity, intuition and affect because they perceive AI as lacking affective capability or empathy. ▪ Customers perceives a higher risk when AI are used for consequential tasks. ▪ For example, receiving recommendation for a movie is less consequential than a driverless car. ▪ Woman are less likely to adopt AI especially when outcomes are consequential. ▪ Customers are less likely to adopt AI for tasks that centers around his identity. ▪ Customers do not associate AI with autonomous goals. ▪ For example, customers do not believe AI has self-driven goal to be the world champion, but it is programmed to play chess effectively. ▪ Customers are more likely to focus on the “how” than “why” AI is used. It is more persuasive when the message is about how AI is used in a product than why it is used. Source: Davenport, T., Guha, A., Grewal, D., & Bressgott, T. (2020). How artificial intelligence will change the future of marketing. Journal of the Academy of Marketing Science, 48(1), 24-42.  Examples of Numerical Data in Marketing ▪ AI can do very well in statistical analyses of numeric data using machine learning. ▪ AI is used to set optimal prices and adjust them in real time. ▪ Prices must be low enough to attract customers yet high enough to make sufficient profit. ▪ AI is used to categorise customers into those who are highly likely to buy, those who are unlikely to buy and those in-between so that resources are directed to the undecided to yield the greatest returns. ▪ AI is used to analyse customers data across multiple channels and identify the products they are likely to be interested. If the customer contacts the company, the AI makes available to the human agent a prioritized list of products to facilitate more relevant conversation. Source: Davenport, T., Guha, A., Grewal, D., & Bressgott, T. (2020).