Core strengths: what today’s Chief Operating Officer will need to know to make the most of the AI opportunity

It stands to reason that the COO is one of the prime users applying process-centric AI solutions. Being in charge of ‘running’ the core operations of the company means many high-value applications of AI will be their responsibility.

Although you might not find the COO role on every board, the following challenges apply equally to the Divisional Directors or Production/Procurement Directors, respectively.

Their central role in all of this is just one of the areas of focus in our report, Artificial Intelligence for Boards - Gearing up for the Future of Business.  

The report describes in detail how AI will impact company boards (management and supervisory), role by role, individually and collectively. It also contains important guidance on managing the AI opportunity.

“Artificial Intelligence is the most powerful new tool to optimize operations across the board: production, infrastructure and networks, all the way to customer- facing commercial processes.” Karsten Wildberger, Board Member and COO – Commercial of E.ON

Production gains

For discrete production processes, many applications of AI are already in use, primarily around predictive maintenance. However, AI can power entirely new production approaches, creating structures that can only be produced using new additive production methods.

Moreover, the more AI supports automation, the weaker the labor-cost argument for off-shore manufacturing, particularly when you add global supply chain risks (very much exposed recently). AI makes it possible to align production footprints with the market instead.

Within the process industry, applying AI allows for the holistic control and optimization of the process, replacing traditional and more limited linear control systems.

Google, for example, allowed the cooling of its data centers to be controlled by a self-learning AI system. This leads to significant savings in energy consumption.

A common trap is to focus on an incremental optimization of individual steps of a process.

While applying AI to separate steps of any process might bring in some value, greater value is often achieved via a full transformation of the production process.

Martin Weidlich, Member of the MAHLE Management Board, explains their approach.

“For our company, AI will play a key role in the coming years. AI allows us to optimize pro- duction as well as SG&A processes in a holistic way and realize completely new efficiency potentials. However, we as a company have to approach the topic step-by-step and learn how AI creates the most value for us.”

New tools for logistics and integrated supply chains

Traditionally, logistics and supply chain management uses mathematical methods for optimization.  AI changes all that. It adds completely new tools that can use of much larger amounts of data and thus produce significant leaps in performance.

AI can be used to optimize many processes, from demand forecasting to production steering.

AI allows you to optimize entire systems, whereas traditional methods emphasize the optimization of parts. Accordingly, making full use of AI requires—as described above—a holistic approach, not just an optimization of the different steps in the process.

However, any further automation of the supply chain via AI also leads to greater vulnerability to unexpected events and makes it harder to predict response patterns. A good COO will need to develop an understanding of robust AI systems.

The big procurement opportunity

Procurement is a data-driven process, so AI offers great potential. You can find new and better suppliers, optimize running contracts, sift through masses of procurement data to find savings, optimize prices in auction-based contracts, and integrate data from various sources for a continuous supply-risk assessment.

Companies need to be careful not to miss the boat here. Once suppliers and competitors rely on AI-based systems, slow adopters may find themselves becoming uncompetitive very quickly.

Quality management’s opportunity and challenge

The use of AI is both a great opportunity and a great challenge when it comes to managing quality. On one hand, AI-based systems enable improved quality assurance. Computer vision-based systems can automatically inspect all parts at virtual zero marginal costs, compared to previous random visual inspections which had cost limitations.

However, the use of AI in the product itself requires a whole new understanding and approach to product quality issues.

AI’s unprecedented speed and scale can drastically amplify mistakes, while the machine learning algorithm means it’s hard to predict how AI-based system will behave in all circumstances.

Shared Services face a paradigm shift

Today, it is common for Shared Services in Finance, IT, and HR to pool, and often off- shore, routine processes. These are likely to be amongst the first candidates to be fully automated, with AI addressing the limited tasks still requiring judgement or ‘intelligence’.

These activities range from reading and classifying documents to simple communication and decision making.

In India, where business process outsourcing is a major industry, providers sounded the alarm about the traditional approach, based on labor cost arbitrage, about five years ago.

Shared Service providers are now trying to switch their offering towards AI solutions, shifting towards a competence-based business model.

The COO should understand such paradigm shifts, the changed economics involved, and the phase-out of the labor arbitrage model in such services.

Artificial Intelligence for Boards - Gearing up for the Future of Business

How COOs and Boards can prepare for the coming AI revolution.

Download now.

The next step forward

Central to the efficient running of any organization, the COO will be one of the major players in the roll-out of the most revolutionary technology since modern computing.

To discuss your organization’s talent plans, or your personal career, in the light of our report, and your adoption of AI, please get in touch. We will be happy to discuss how we can help.