Preview Issue XII March 2024 - Leading in the age of AI

A BILLION CUSTOMERS CAN’T BE WRONG

Alibaba’s Chris Tung on how the company integrates AI to optimize its customer experience.

EDUCATION’S DYSTOPIAN FUTURE

Regular columnist Jerry Davis explores the dark side of GenAI’s influence on colleges.

IN PRAISE OF THE COOPERATIVE ECONOMY

In our in-depth read, Dovev Lavie explains how a ‘prosocial’ economy can fix our broken system.

AI: TO BOLDLY GO?

Dear Eliza, what would you make of our brave new world?

In late July 2022, Google fired Blake Lemoine for claiming that the AI technology being developed there was sentient. This incident caught my attention, evoking memories of the experiences documented with what we now recognize as the world’s first chatbot, ELIZA. Developed by Joseph Weizenbaum at MIT in the mid-1960s, ELIZA engaged users in conversations, employing the technique of clientcentered therapy to reframe questions that were asked of it. Many who interacted with ELIZA reported feeling as though they were communicating with a sentient entity. Fast forward to November 2022, and we see the entire world experiencing this phenomenon of transference, where a generative AI encounter can evoke a sense of human connection.

AI tools like ChatGPT have sparked more discussions about disruption and opportunity in the business world than perhaps any other innovation since the inception of the internet. Some of this attention is, of course, the typical hype surrounding novel technologies. However, generative AI represents more than just another fleeting trend. Even in its initial stages, the wide range of applications already leveraging this technology indicates its potential to revolutionize various facets of our professional endeavors. Moreover, it seems that the greatest potential for generative AI lies in its integration with human skills and capabilities.

We appear to be at a new inflection point for business, where the oncedreamt-of possibilities of artificial intelligence are coming true.

How should decision-makers react to this rapidly evolving technology? This, for many organizations and industries, is the multi-million-dollar question. Where do we invest? How do we manage the risks? How fast do we move? Will our competitors’ AI eat our lunch?

In this new-look edition of I by IMD , we present a range of contributions from experts and practitioners in the field to help executives navigate the chaotic world of AI development and understand the true implications for business. Covering topics ranging from sustainability and ethics to productivity and strategy, we delve into practical ways to harness AI to generate tangible impact and value for you, your teams, and your organizations.

Our lead article, by IMD experts, frames the AI conversation around five key tensions that need to be resolved to make informed strategic choices, alongside a case study into our own experiences grappling with AI implementation. We also hear from Alibaba’s Chris Tung about AI’s potential to revolutionize marketing. We present research from the St. Gallen Endowment for Prosperity through Trade into the acceleration in global AI regulation since the launch of ChatGPT in an eye-opening graphic.

Elsewhere, away from the world of AI, we introduce four new features: Brain Circuits, which will provide a short, simple exercise to improve your leadership skills; A Board’s Eye View, sharing insights from the world of board governance; In Depth, where we offer a longer read to explore a thought-provoking idea in greater detail; and, The Final Word, a quickfire Q&A with a leading CEO.

As ever, we hope you find this edition of I by IMD an informative, inspiring, and enjoyable read. Please feel free to share any thoughts or feedback you might have.

Anand Narasimhan, Dean of Research

04 [ In good company ]

Jerry Davis explains why he fears academic freedom may be at risk in a dystopian future.

AI:

[ Integrating AI ]

Are you struggling to separate the hype surrounding AI from the reality? Our experts offer crucial insights into how to survive and prosper in revolutionary times.

Cover: Image generated using Midjourney V6

06 Michael Wade, Sarah Toms, Amit Joshi, and Michael Watkins offer guidance on resolving five key tensions to capture value for AI.

10 Sarah Toms explains how IMD puts AI at the heart of its operating system.

13 Alibaba’s Chris Tung tells Amit Joshi how the company is integrating AI to optimize its customer experience.

16 In a stunning graphic, we show how AI regulations differ in speed of implementation around the world.

18 Trust and transparency are crucial factors when it comes to integrating AI systems into your company, says Öykü Işık

23 AI-as-a-Service will impact executives and their strategic decisions. It’s crucial to assess the benefits and repercussions it will bring, argues Annabelle Gawer

26 José Parra Moyano, Christine Legner, and Konrad Schulte offer three ways to address the problem of storing and processing data sustainably.

28 Women should be brave and embrace the possibilities of AI, advises, Shelley Zalis

30 Organizations must have a strategy for AI’s governance and ethical oversight. DE&I principles and practices can inform decision-makers, explain Heather Cairns-Lee, Öykü Işık, Sarah Toms, and Josefine van Zanten

34 In our I-reader series, Öykü Işık recommends six books that help de-mystify the world of AI.

36 Quentin Gallea explores how GenAI can allow us to focus on more creative, complex tasks, leading to greater job satisfaction and well-being.

40 [Digital governance] UNESCO’s new guidelines for the governance of digital platforms offer timely lessons for more effective collaboration between private companies, civil society, and governments, says Tawfik Jelassi.

44 [Strategy] Konstantinos Trantopoulos explains how businesses can retain and attract customers and influence their perceptions and choices by incorporating three key game design elements.

48 [The art of business] Canadian artist Benjamin Von Wong suggests ways in which his bold and experimental work can offer valuable lessons to the business community.

52 [Governance] In our new series, A Board’s Eye View, Axel P Lehmann assesses the impact that board members’ behavior and decisions can have on companies when the going gets tough.

54 [CEO dialogue] ‘You don’t need to thump a table to achieve what you want to achieve,' Tata Steel’s CEO and Managing Director TV Narendran tells IMD President Jean-François Manzoni.

57 [Coaching Corner] Angelica Adamski discusses the challenge facing Lyndsey, a senior executive in a multinational organization who has recently taken on a new leadership role, managing a global team.

58 [In the mind’s eye] George Kohlrieser gives expert guidance on how and when to make concessions to foster healthy relationships and encourage a collaborative working environment.

60 [Strategy] Michael Watkins explains how learning the art of strategic thinking will give you clarity in turbulent times.

63 [Brain Circuits] Without attentional control, leaders may make rash decisions, letting their emotions take over. Tania Lennon invites you to play the Mind Balance game to assess your abilities.

64 [In depth] Dovev Lavie sets out his vision for a cooperative economy that he believes can offer a long-term fix for our broken system.

73 [The forecaster] It takes time to create a future-proof company, argues Howard Yu. As GenAI captures the world’s imagination, executives should pause and reflect.

76 [CEO questionnaire ] In the Final Word, the first of a new series, we asked Alexis Nasard, CEO of Swarovski, 15 rapid-fire questions to find out what makes him tick.

International Institute for Management Development, Ch. de Bellerive 23, P.O. Box 915, CH-1001 Lausanne | Switzerland

EDITORIAL ADVISORY BOARD

Anand Narasimhan (Chair) Professor of Global Leadership and Dean of Research

Christine Batruch Sustainability Advisor, Lundin Group; President, Bohdan Hawrylyshyn Family Foundation

Vincent Bieri Co-Founder Nexthink; Member of the Board of Advisors Trust Valley

Jean-Philippe Bonardi Professor of Strategic Management and Dean at HEC Lausanne, University of Lausanne

Stuart Crainer Thinkers50 Founder and author

Michel Demaré Chairman of IMD; Chair of the Board at AstraZeneca Plc. and Nomoko AG; member of

the supervisory boards at Vodafone Group Plc and Louis-Dreyfus Company International Holdings B.V.

Cynthia Hansen Managing Director of the Innovation Foundation, empowered by the Adecco Group

Prince Michael of Liechtenstein Founder and Chairman of Geopolitical Intelligence Services AG; Chairman of the European Centre of Austrian Economics Foundation in Vaduz; Member of STEP

Ann-Marie Sevcsik Catalyst of social change through innovative partnerships

Michael Skapinker Financial Times contributing editor

Ian Charles Stewart Executive in Residence, IMD; Main Board Director Trustee International

Institute for Sustainable Development; Co-Founder of WiReD Magazine

Su-Mei Thompson CEO at Media Trust

EDITORIAL

Delia Fischer, Matt Falloon, Ken Toner

ART DIRECTOR

Catharina De Gregorio

PRINTING IMD – Printshop

Send Letters to the Editor to: content@imd.org

A dystopian future for academic freedom?

GenAI can deliver cost and productivity benefits for colleges, but there is a dark side, warns Jerry Davis

Higher education is one of America’s most successful industries, serving three million students annually. Colleges and universities drive discovery and innovation, civilize young adults, and educate our future workforce. They are also shockingly expensive – you could buy a house or open a fast-food franchise for the cost of a four-year degree at a typical private college. Generative AI offers the potential to reduce significantly the cost structure and raise the productivity of higher education. Unlike earlier tech innovations that failed to gain traction, such as educational television and massive open online courses (MOOCs), GenAI can be engaging and customized – like always having a personal tutor. GenAI trained on a corpus of elite scholars offers an unprecedented opportunity: individual tutorials with Michael Porter, Peter Drucker, or Aristotle.

But today’s authoritarian and anti-intellectual currents suggest a more dystopian possibility: “education” driven by a narrow ideological agenda and optimized by technology. In some places, this may be a likely outcome.

The landscape of American higher education today

America's colleges and universities are a vast enterprise and a wildly successful export industry. There are roughly 4,000 degree-granting colleges and universities in the US, graduating over three million students a year. Over one million of these students come from outside the US.

Higher education in the US is priced as a luxury product, financed mainly by individuals and their families, often via loans. A four-year stay at a private college can easily cost $350,000 – not far from the median US home price. Student loans outstanding total almost $1.8 trillion.

Why are the costs of higher education so high? Critics suggest that colleges spend too much on layers of staff and administration or luxury gyms and other non-pedagogical amenities. However, economists such as William Baumol have pointed out that cost increases may be built into many parts of the service sector, including education, where labor productivity does not increase much over time but wages have to keep pace with more productive sectors. It won't do to have a string quartet play a concert with only two musicians and call it a productivity increase, yet skilled musicians still expect their wages to keep pace. Similarly, there are inherent productivity limits on what happens in a classroom – I can try to lecture twice as fast in an auditorium with 1,000 students, but it may not create the education we want. (And, of course, much the same applies to all those new layers of staff and administration.)

This so-called “cost disease of the service sector” is a familiar issue in education, and every generation seems to address it with a new solution. We elders recall that when broadcast television spread to homes across the land, there was a (brief) enthusiasm for “educational television”, where people could watch college lectures at home. This was followed by educational videos when VHS players became common and MOOCs after the advent of the World Wide Web. Each of these innovations had the potential to raise educational productivity by increasing the ratio of student learning to faculty effort. Yet somehow, students continued to

Illustration: Jörn Kaspuhl

enroll in pricey in-person colleges rather than accept an on-screen substitute. Somehow, watching videos does not replicate the educational benefits of being there.

The politicization of higher education: why do politicians hate gender studies majors?

The idea that colleges are left-wing brainwashing factories has been a cliche since William Buckley wrote about godless liberals at Yale in the 1950s and Ronald Reagan warned of outside agitators when he was governor of California in the 1960s. The numbers tell a different story.

By far the most popular college major in America is business, with nearly 400,000 people completing undergraduate degrees every year. In second place stand “health professions and related programs” at 260,000, with “social sciences and history” a distant third at 150,000. Meanwhile, majors in “area, ethnic, cultural, gender, and group studies” total under 7,000 a year. So, there are over 50 business majors for every gender/ethnic/cultural studies major. Sliced another way: the 2,600 four-year US colleges annually graduate an average of 2.5 gender studies majors each.

‘There are over 50 business majors for every gender/ethnic/cultural studies major'

Just as Reagan used his apocryphal “welfare queen” to demonize government support for family well-being, current demagogues use a vastly exaggerated incidence of “gender studies majors” to argue for cuts in funding for higher education or student debt relief.

However, the threat goes deeper than cost-cutting through the victimization of a minority of students.

Florida demonstrates what can happen when political officials seek to impose an agenda on higher education. An energetic governor has transformed Florida's 350,000-student state university system with an aggressive ideology and the ability to select its board of governors personally. A recent report by the American Association of University Professors documents Florida’s comprehensive assault on academic freedom and longstanding traditions of faculty governance, including mandates on what can and cannot be taught in university classrooms. The December 2023 report, Political Interference and Academic Freedom in Florida’s Public Higher Education System, concludes that “the threat from authoritarian politicians who use phrases like ‘Stop WOKE’, ‘DEI bureaucracy’, and ‘indoctrination’ to limit academic freedom while imposing their worldview upon institutions of higher education cannot be overstated”. Neither can the threat of Florida-style legislation spreading across the country.

Unfortunately, the financial impact of higher education can provide political cover for such efforts. The high cost of college is a potent issue, both for those paying tuition fees and the taxpayers supporting the enterprise of higher education. GenAI threatens to accelerate the slide toward an Orwellian agenda for academic freedom – the right to teach, research, and learn free from outside interference.

Is GenAI the technology that will bend the college cost curve?

The rollout of ChatGPT 3.5 in late 2022 provoked a mix of excitement, curiosity, and dread among academics. Was this the dawning of a new age of scientific discovery, where super-empowered scholars would conquer vast new terrains of knowledge? Or was it like the meteor that killed off the dinosaurs and replaced them with a new species of algo?

Of course, students would use it to cheat and assist in writing papers or code for them. But not just that – ChatGPT quickly started to change how they interacted with the world beyond the classroom. Faculty had to roll out new policies about what was and was not acceptable – for a technology they had just met and did not yet understand. Students weren't the only ones using ChatGPT to write their papers – some faculty got in on the bonanza as well. One medical researcher used ChatGPT to write 16 articles within four months. Colleges were left wrestling with how the labor market would change and how they might prepare students for what is to come. For years, we had been telling students that if they learned to code, the world was theirs. GenAI quickly surpassed the coding skills of grad students in computer science – while Big Tech commenced serial rounds of layoffs. Perhaps coding was not the safe harbor we imagined. At the most basic level, GenAI seems sure to transform the entire enterprise of higher education, from how and what we are taught to how our societal institutions are organized.

Could GenAI finally be the technology that replaces or truly augments the in-person classroom experience? Educational TV, MOOCs, and Zoom classes did not revolutionize education because they provided a flat, generic form of remote education. It's hard to ask questions of a video or to feel fully engaged as one student among thousands in a MOOC.

But ChatGPT and other AI chatbots are interactive and responsive to the person they are chatting with. Khan Academy, the well-regarded nonprofit provider of low-cost online learning tools, quickly prototyped a GenAI tutor called KhanMigo. For $4 per month, students access a personalized AI tutor that goes at exactly their speed, and instructors can have an “on-demand teaching assistant” that provides “X-ray vision into how your students are doing”.

KhanMigo promises precisely the technology needed to increase faculty productivity. My brilliant lectures and classroom discussions coupled with a virtual tutor outside the classroom could finally crack the code and make the education industry more productive.

But why should students settle for me? Why not get the world's best instructor to be your tutor, just as Aristotle tutored Alexander the Great? »

As it happens, GenAI is already there. A former student of the famed psychologist Martin Seligman recently created a Marty-bot. Over two months, as reported by Politico in December, by feeding every word Seligman had ever written into cutting-edge AI software, he and his team had built an eerily accurate version of Seligman himself – a talking chatbot whose answers drew deeply from Seligman’s ideas, whose prose sounded like a folksier version of Seligman’s own speech, and whose wisdom anyone could access. A warm, approachable chatbot version of a world-class professor sounds much more appealing than office hours with a harried TA – and far, far cheaper.

Universities are already seeing the opportunities made possible by such technologies. Arizona State University has partnered with ChatGPT parent OpenAI to build personalized AI tutors for courses such as freshman writing. Left unsaid is the potential impact of this development on the academic workforce. Early studies hinted that Wall Street anticipated an employment bloodbath enabled by the widespread rollout of GenAI in the business world. Higher education will not be immune.

What could go wrong?

Let's return to Florida. Imagine you are the ideological governor of a Confederate state with seemingly unchallenged authority over its higher education system. You have already created policies intended to subjugate your faculty and abandon any principles of academic freedom and faculty governance. Now, technology allows you to generate virtual clones of your faculty based on their published works – and to stipulate what topics can and cannot be taught in the classroom. Moreover, drawing on the insights around algorithmic personalization from Big Tech, you can lay down pathways to guide educational development, just as YouTube's algo guides users down particular alleyways.

Of course, there are dangers, as ChatGPT readily acknowledges: “It's important to note that while AI can address certain aspects of Baumol's cost disease in higher education, it is not a panacea. The personal interaction between students and educators, critical thinking, ethical considerations, and the development of soft skills remain areas where human educators are irreplaceable. Moreover, implementing AI in education raises questions about data privacy, the digital divide, and ensuring that the technology enhances rather than detracts from educational equity and quality."

This is the nightmare scenario: higher education becomes more engaging through personalization and much cheaper while serving a central ideological agenda and abandoning its traditional mission. ■

JERRY DAVIS is the Gilbert and Ruth Whitaker Professor of Business Administration and Professor of Sociology at the University of Michigan’s Ross School of Business. He has published widely on management, sociology and finance. His latest book is Taming Corporate Power in the 21st Century (Cambridge University Press, 2022), part of the Cambridge Elements Series on Reinventing Capitalism.

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