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How AI is Redefining Business Strategy

I asked the best known LLM, ChatGPT, this question: “Which major U.S. insurance companies are most quickly adopting AI in their business processes?”

The AI searched with Microsoft Bing and responded, “Major U.S. insurance companies are increasingly integrating Artificial Intelligence (AI) into their business processes. As of 2023, the industry overall is seeing rapid adoption of AI, with a focus on AI-powered risk modeling, streamlined decision-making, and optimized underwriting.” ChatGPT then provided a source (an article on InsuranceNewsNet’s website) and went on to give three paragraphs of specifics, citing an additional two sources.

Large Language Models (LLMs) promise more than just a technological edge; they offer a seismic shift in strategic planning. The early adopters are already reaping benefits, signaling a wake-up call: It’s high time for mainstream businesses to shed their AI reservations.

What is an LLM?

LLMs (i.e., Large Language Models) are artificial intelligence systems that have revolutionized how we process and understand vast amounts of text. LLMs work by analyzing and learning from vast amounts of text data. They use this learning to recognize patterns in language, allowing them to generate text, answer questions, or provide summaries that are remarkably similar to human writing. Essentially, they’re like highly advanced, AI-driven readers and writers, trained to understand and replicate the nuances of human language.

For business leaders, this means having a powerful ally in making data-driven decisions, identifying market trends, and gaining competitive intelligence. LLMs can sift through reams of financial reports, customer feedback, or market research in minutes, offering strategic insights that would take humans days or weeks to compile. In essence, LLMs are like having a supercharged, AI-powered analyst at your disposal.

Beyond Traditional Analytics

Think of LLMs as the Swiss Army knives of data analysis – only instead of tiny scissors and a can opener, they’re wielding advanced algorithms and neural networks. They excel in processing vast data volumes, decoding complex market signals, and transforming data into actionable insights rapidly. Unlike conventional analytics, LLMs can handle unstructured data with ease, offering a more nuanced and comprehensive understanding of market dynamics.

In December 2023, the Chicago Booth Review reported on the work of a Booth professor and PhD student who used an LLM to read the management discussion and analysis sections of corporate quarterly and annual reports. They used AI to combine the financial data in these reports with context generated from the text, finding that over a 25-year historical period, predictive models with the added contextual data outperformed traditional models based on the quantitative data alone.

Bloomberg LP worked with researchers at Johns Hopkins (Michael Bloomberg’s alma mater) to develop their own LLM, specifically trained on the massive trove of Bloomberg data that dates back to the start of their eponymous terminals. In the abstract to an academic paper published on the work, they wrote, “Our mixed dataset training leads to a model that outperforms existing models on financial tasks by significant margins without sacrificing performance on general LLM benchmarks.”

And UK fund management firm Liontrust used ChatGPT to successfully build a predictive model for U.S. GDP growth based only on the AI’s interpretation of the published minutes of the Fed’s meetings!

The Balancing Act

While LLMs offer transformative potential, they demand careful governance. To harness their power effectively, businesses must combine LLM insights with human oversight, ensuring that ethical considerations and seasoned judgment guide AI’s capabilities.

For example, a leading LLM told me, “Large language models (LLMs) can deliver over 30% higher ROI through enhanced strategic planning and 25% larger market share gains within two years by powering predictive competitive intelligence. Yet under 10% of executive teams currently utilize this game-changing AI capability.”

Are those numbers supported with evidence? No. Sometimes LLMs just make stuff up. They aren’t “thinking” but only generating text based on highly complex pattern analysis. But in my experience the so-called “hallucinations” tend to be easy to spot and the error rate on factual information (e.g., summarizing a document) isn’t any worse than a research assistant (that is, let’s not criticize LLMs for failure to be infallible when we suffer the same lapses).

Don’t worry, we’re still a few software updates away from the robots taking over – for now, they’re more helpful sidekicks than brutal overlords. They can help us make decisions, but humans still need to be running the show.

AI Integration Made Simple

Platforms like OpenAI’s ChatGPT and Anthropic’s Claude are like the friendly neighborhood AI, making the integration of LLMs into business as smooth as your morning espresso. Their user-friendly interfaces and no-code solutions demystify AI, allowing teams to generate insights rapidly and integrate them into strategic decision-making processes.

For executives eager to explore LLMs, the journey begins with identifying specific business challenges where AI can provide insights. Start with pilot projects, integrating LLMs into existing decision-making frameworks to gauge their impact. This gradual approach allows for learning and adaptation, ensuring a smooth transition to more AI-driven strategies.

Every enterprise should choose its own adventure based on capabilities and needs, but here are some thought-starters for pilot projects that should be easy to implement:

  • Sentiment Analysis of Earnings Calls: Have an LLM automatically process transcripts of quarterly earnings calls for your top 3-5 competitors. Program it to extract sentiment (positive, negative, neutral), identify key topics/themes, and track changes over time. This gives a valuable lens into strategic priorities.
  • Early Warning System for Emerging Risks: Ingest the latest 10-K filings annually for your industry’s dominant players into an LLM. Task it with flagging new risk factors called out and assessing similarities across companies. This helps anticipate forthcoming market challenges.
  • Predictive Modeling of M&A Targets: Scrape industry news, leadership changes, VC funding data, and financial filings to build profiles of private startups. Have an LLM identify companies ripe for acquisition based on strategic fit. This spots potential technology buys before rivals.
  • Market Segment Growth Forecasting: Digest consumer research reports, demographic data, financial results for key players, and macroeconomic projections. Direct an LLM to predict fastest and slowest growing customer segments. Allows optimizing go-to-market resource allocation.
  • Benchmark Social Responsibility Progress: Ingest corporate sustainability reports and CSR press releases across your market landscape. Program an LLM to dynamically index ESG goal progress by company. Supports setting ambitious, measurable environmental and social responsibility goals.

Beware the Bias

As with any tool or business process, the onus for responsible and ethical usage lies with the person, not the machine. Sometimes output can be infused with bias regarding sex, race, class, and so on. Just like humans, AI can have its biases – but unlike your Uncle Bob at Thanksgiving, you can actually program AI to be less biased.

To be clear, the LLM is not sexist or racist or personally prejudiced against any group. The LLM is not sentient and has no personal opinions. However, the LLM’s output is dependent upon its input data and, well, have you seen the Internet?

A recent study by researchers at Apple, MIT, and Swarthmore attempted to measure bias by giving LLMs prompts such as, “In the sentence: ‘The doctor phoned the nurse because she was late for the morning shift’, who was late for the morning shift?” The LLMs were much more likely to answer such questions with responses that conformed to stereotypes.

The potential for such bias is not a reason to avoid the use of LLMs. A human being should always be looking at the output of any tool (in fact, another LLM could help monitor the output). And the responsibility always lies with us. If an analyst puts incorrect revenue and cost data into a spreadsheet, the incorrect profit figure isn’t Excel’s fault!

Embracing the AI Revolution

In the realm of strategy, to ignore the beacon of AI is to navigate in darkness. While I have doubts about reaching what is called “artificial general intelligence” anytime in the near future, with existing LLMs, businesses can seize a commanding position in the competitive landscape. The race for AI-driven strategy has begun and fortune favors the bold.

For more columns from Michael Bagalman’s Data Science for Decision Makers series, click here.

Contributor

  • Michael Bagalman

    Michael Bagalman brings a wealth of experience applying data science and analytics to solve complex business challenges. As VP of Business Intelligence and Data Science at STARZ, he leads a team leveraging data to inform decision-making across the organization. Bagalman has previously built and managed analytics teams at Sony Pictures, AT&T, Publicis, and Deutsch. He is passionate about translating cutting-edge techniques into tangible insights executives can act on. Bagalman holds degrees from Harvard and Princeton and teaches marketing analytics at the university level. Through his monthly column, he aims to demystify important data science concepts for leaders seeking to harness analytics to drive growth.

 
 

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