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Peter Drucker

Developing an AI Strategy: Four Points of View

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An AI strategy is component strategy supporting an overall corporate or organizational strategy. Source of image: Open Data Press.

Although the name of the blog is Analytic Strategy, we haven’t discussed analytic strategy per se in a while, and it is time to return to the topic. An analytic strategy is a functional component of a corporate or organizational strategy. Other functional component strategies include: a product strategy, a marketing strategy and an IT strategy. In this post, we discuss four points of view for developing a corporate or business strategy in general that might be helpful as you develop an analytic or AI strategy component strategy.

Strategy through systematic planning

What is sometimes called the classical approach to business strategy is focused on profitability and using systematic planning to achieve it.  An exemplar of this approach was the strategy pursued by General Motors under the leadership of Alfred Sloan as President of the company from 1923-1943 and as Chairman of the Board from 1937-1956.  Under his leadership, GM sales grew over 10 percent per year for thirty-three years, and by 1956 GM was double the size of the next largest company [1].   Profits in 1955 were 50% higher than those at each of the next three largest companies [1].  The importance of focusing on profitability achieved by systematic planning was codified during the 1960’s with the writings of Alfred Chandler [2], Alfred Sloan [3] and Igor Ansoff [4]. 

Strategy through competitive positioning

One of the most influential contemporary thinkers about business strategy is Michael Porter, who is the Bishop William Lawrence University Professor at Harvard Business School.  His 1980 book Competitive Strategy [5] book was selected as one of the most influential management books of the 20th century by the Academy of Management [6].

Porter views strategy as a competition between firms in a market and recommends positioning a firm within a sector using a framework called the five forces so that there are structural barriers allowing the firm to sustain above average profits over a long a time period [5].  The five forces are competitive rivalry, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitution, and the threat of new competitors. 

In 1983, Michael Porter co-founded a consulting company called the Monitor Group to help companies implement his view of competitive strategy [6].  It’s important to keep in mind that external forces can overwhelm even the best strategy. The Monitor group was quite successful for over 25 years, but struggled during the 2008 financial crisis, declared bankruptcy in 2012, and was acquired by Deloitte Consulting in 2013 [7].

Strategy through CEO leadership and management excellence

Around the same time, Tom Peters and Robert H. Waterman, Jr. wrote In Search of Excellence [8], which was published in 1982 and sold over 3 million copies in its first four years.  In this book, they told stories about how companies achieved excellence and organized the stories around what they called their 7S Framework, which consisted of strategy, structure, systems, staff, style, skills, and shared values. The focus was less on the economics of competitive positioning and more on the people, processes, culture, and leadership, with the emphasis on the leadership, that could lead to excellence. 

Most people views of complex subjects like strategy are shaped through stories, and good stories about CEOs are quite sticky [9].

Strategy through sustainable technological innovation

Beginning in the late 1990’s and early 2000’s, a different view of strategy began to emerge that used technology, innovation, and large amounts of digital data to steadily improve a product or service.  A particularly powerful approach was to create digital platforms that linked producers and consumers [10].  This data driven and analytics-based approach led to the success of companies like Amazon (founded 1994), Google (founded 1998), and Facebook (founded 2004).  The technology was enabled by software, and in the words that captured this insight, “software began eating the world [11].”

You can think of the recent advances in deep learning and AI as a natural trajectory that began in the 1990’s and has continued as Moore’s law led to more computational power; the growth of the internet, mobile devices and the internet of things (IoT) led to more data; and powerful open source software frameworks began transforming processes [12]. 

The Practice of Management by Peter Drucker

This post started with Alfred Sloan and GM and it’s a good way to end it. Peter Drucker was invited by General Motors to spend the two year period 1943-1945 studying the company, which led to his 1946 book The Concept of the Corporation [13]. This book was one of the early books to focus on the corporation as an entity worth studying and helped popularize viewing strategy through the lens of systematic planning, the first tradition described above. Alfred Sloan’s book My Years at General Motors can be viewed in part as a counterpoint to Drucker’s book [14]. For those interested in the history of strategy, both books are still worth reading today, as well as Drucker’s 1954 book The Practice of Management [15].     

On the other hand, in the current era, digital technology has fundamentally changed how we work, manage, plan, live, and play, and has created new capabilities that in turn has created new businesses and new business models.  For this reason, with the commoditization of data, computing power, network bandwidth, and software [12], it’s a good time to rethink and reinterpret your business strategy.  

Developing an AI or analytic strategy

I wrote a short primer about Analytic Strategy that discusses how to develop an AI or analytic strategy from several different points of view.  It is designed to be self-contained and provides short introductions to both analytics and strategy

The primer covers seven standard strategy tools and frameworks that can be adapted to analytics and AI, including: analytic SWOT, Analytic Ansoff Matrix, Porter’s Five Forces, Blue Ocean Analysis, the Analytic Experience Curve, and PESTEL analysis.

The book also covers specialized tools and frameworks that I have developed to support analytic strategy, including the Analytic Diamond and the Analytic Value Chain.

You can buy Developing an AI Strategy: A Primer online.

References

[1] Hoover, Gary, The Greatest Businessman in American History: Alfred P. Sloan, Jr., American Business History Center, November 4, 2021. Retrieved from https://americanbusinesshistory.org/the-greatest-businessman-in-american-history-alfred-p-sloan-jr.

[2] Chandler, Alfred D. Strategy and structure, MIT Press, 1962

[3] Sloan, Alfred My Years with General Motors, Doubleday & Company, 1963

[4] Ansoff, Igor H, Corporate Strategy, 1965

[5] Porter, Michael, Competitive Strategy, Free Press, New York, 1980.

[6] Bedeian, Arthur G., and Daniel A. Wren. “Most influential management books of the 20th century.” Organizational Dynamics 3, no. 29 (2001): 221-225.

[7] Denning, Steve, What Killed Michael Porter’s Monitor Group? The One Force That Really Matters, Forbes, November 20, 2012.

[8] Peters, Thomas J. and Robert H. Waterman, In Search of Excellence: Lessons from America’s Best-Run Companies, Harper & Row, 1982

[9] Heath, Chip and Dan Heath, Made to Stick: Why Some Ideas Survive and Others Die, Random House, 2007.

[10] Parker, Geoffrey G., Marshall W. Van Alstyne, and Sangeet Paul Choudary. Platform Revolution: How Networked Markets Are Transforming the Economy? and How to Make Them Work for You. WW Norton & Company, 2016.

[11] Marc Andreessen, Why Software Is Eating the World, Wall Street Journal, August 20, 2011.

[12] Grossman, Robert, The structure of digital computing: from mainframes to big data. Open Data Press, 2012.

[13] Drucker, Peter F., Concept of the Corporation, John Day, 1946

[14] Kay, John, The concept of the corporation, 2017, retrieved from https://www.johnkay.com/2017/03/16/the-concept-of-the-corporation/

[15] Drucker, Peter, The Practice of Management, Harper, 1954.

Analytic Strategies for Not-for-Profit Organizations: Chasing Down Root Causes

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Lessons from the Rockefeller Sanitary Commission in 1902

Figure 1. The incident levels of some diseases are concentrated in certain geographic regions. This post is about the incidence of Hookworm diseases in the Southern states in 1902. The figure above shows the incident level of hypertensive heart disease (ICD-9 402) for the period 2003-2010 is higher in certain Southern US states. Source [1].

Peter Drucker’s General Advice About Strategy for a NFP

Peter Drucker wrote in Managing the Nonprofit Organization:

There’s an old saying that good intentions don’t move mountains, bulldozers too. In nonprofit management, the mission and the plan – if that is all there is – are good intentions. Strategies are the bulldozers.

They convert what you want to do into accomplishment. They are particularly important in nonprofit organizations. Strategies lead you to work for results. They convert what you want to do into accomplishment. They also tell you what you need to have by the way of resources and people to get the results.

Peter Drucker, Managing the Nonprofit Organization [2].

Lazy Workers in Southern States – The View in 1902

The quote above from Peter Drucker is inspirational, but not particularly helpful for those broadly familiar with strategy and analytics. In this post, we look at a data driven strategy developed by John D. Rockefeller and those around him to improve living conditions and worker productivity in southern US states at the turn of the 20th Century. We follow [3] and [4].

The story begins with the US Public Health scientist Charles Stiles who identified diseases caused by hookworms (Necator americanus) as prevalent in Southern states, especially on farms and plantations in sandy areas. Hookworms are parasites, and those infected with them were anemic and had difficulty working [3]. To outsiders, workers infected with hookworms appeared to be lazy.

Stiles lectured on his investigations at a 1902 Sanitary Conference meeting in Washington and his findings were reported in newspapers, such as the New York Sun, which used the headline “Germ of Laziness Found [3].”

European physicians by the mid 1870’s linked the parasitic worms to human symptoms of severe anemia, pallor, and weakness [3]. Hookworms could enter through the souls of your feet, infect your body, were passed in your stools, returned to the ground, and could then infect others.

Rockefeller Sanitary Commission

In 1909, Stiles attracted the attention of John D. Rockefeller, who was by then a philanthropist, and Rockefeller provided $1 million (equivalent to about $27 million in 2021) to establish the Rockefeller Sanitary Commission for the Eradication of Hookworm Disease. Rockefeller hired Stiles and project administrators [3].

The conditions in the Southern US were conducive to the spread of hookworm disease. As summarized in [3]: “Primitive living standards increased Black and White farm families’ vulnerability to disease. The risk of exposure to hookworm infection was great as well; John A. Ferrell noted that in the Southern rural sections, ‘open privies and, far too often, no privies at all, are used, [so that] millions upon millions of [hookworm] eggs are scattered over the earth, and develop into minute, infecting worms ready to attack.’ … The climate favored wide regional geographic distribution of hookworm as the land, marked by warmth, moisture, and aerated sandy or loamy soils, allowed hookworm larvae to burrow for protection from the sun, perhaps for years. Hookworm also was endemic in the mining towns of North Carolina, Tennessee, Kentucky, and West Virginia, where the parasite found protection in mines from extremes of temperature and dryness [3].

The Rockefeller Sanitary Commission [RSC] developed and executed a three prong strategy over the years 1909-1914:

  1. estimate hookworm prevalence in the American South;
  2. provide treatment;
  3. and eradicate the disease.

The RSC surveyed populations in 11 Southern states and found that about 40% of the population surveyed were infected with hookworms. Hookworms are still a problem today, with 500 million to 750 million individuals around the world estimated to be infected.

Reducing the prevalence of hookworm required understanding how it was spread:

Human transmission occurred as newly hatched hookworm larvae from eggs in contaminated soils entered hosts via direct, physical contact through a foot or hand. After penetrating the skin, they traveled to the heart and lungs and then to the small intestine, where they attached to capillaries to feed, remaining from 2 to 13 years. Females released thousands of eggs per day (9000–25000) into the intestine, which, after expulsion from the human body into inadequately designed privies or moist dirt, hatched in the soil and waited to enter human hosts, thus completing the cycle [3].

A campaign to educate people about the disease and how it was spread and to install latrines and toilets dramatically reduced the prevalence of the disease [3].

Three Lessons for Data Driven Not for Profits

The RSC was remarkably effective and there are many lessons that can be learned from it. Here we focus on just three.

Lesson 1. Use data to identify the problem and inform a solution. The RSC first surveyed the southern states to understand the problem and how best to deploy their resources. A large part of the effort was to collect appropriate data in order to develop an appropriate solution. Note that they did not rely on third party data from others, but funded efforts to collect the data that was needed.

Lesson 2. Make sure you understand the root cause of the problem so that appropriate actions can be taken. Here the actions was not just treating the disease, but even more important was understanding that the root cause of the disease was poor sanitary conditions that enabled the parasite to spread, and encouraging the use of latrines and toilets to stop the spread of the disease.

Lesson 3. Look at the problem holistically and deploy your funds to attack the problem as a whole. The RSC split their $1M of funding between i) research into the problem, ii) actions to treat patients and improve living conditions, and iii) education to change people’s behavior.

References

[1] Patterson, Maria T., and Robert L. Grossman. “Detecting spatial patterns of disease in large collections of electronic medical records using neighbor-based bootstrapping.” Big data 5, no. 3 (2017): 213-224.

[2] Drucker, Peter. Managing the non-profit organization. Routledge, 2012. Chapter 2.

[3] Elman, Cheryl, Robert A. McGuire, and Barbara Wittman. “Extending public health: the Rockefeller Sanitary Commission and hookworm in the American south.” American journal of public health 104, no. 1 (2014): 47-58.

[4] Bleakley, Hoyt. “Disease and development: evidence from hookworm eradication in the American South.” The quarterly journal of economics 122, no. 1 (2007): 73-117.