Its widely accepted that generative AI could drive the biggest transformation in business since the dawn of the internet, with very few areas left untouched. From market position to competitive advantage, operational efficiency to enterprise value (EV).
In our previous article in this series of four, we outlined the potential of AI to revolutionise business operations. In this article, we explore the impact of generative AI on business strategy, using three strategic frameworks in our analysis: Porter’s Five Forces, the VRIO framework, and KPMG’s own Nine Levers of Value.
Porter’s Five Forces
Porter's Five Forces is a framework for analysing the competitive environment of a business. The five forces are:
- Threat of new entrants
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of substitutes
- Intensity of competitive rivalry
Generative AI is likely to have a considerable impact on all five of these forces, as shown in Figure 1 below. The precise impact will depend on the specific industry and market conditions, but the potential for significant disruption is clear, creating new opportunities for both existing firms and new entrants.
Figure 1 – Generative AI’s potential impact across Porter’s Five Forces
The VRIO framework uses four lenses (Value, Rarity, Imitability, and Organisation) to evaluate a firm's resources and how they define its potential for competitive advantage. Again, all four are likely to be hugely influenced by generative AI technologies, depending on the business sector, available resources, and how technology is implemented.
|Description||VRIO Examples||Generative AI Potential Impact||Impact Example|
|Value||The resource or capability can be used to create value for customers or improve the firm's efficiency and effectiveness||
||Generative AI can create new products, services, or features that provide value to your customers||Generative AI can be used to generate personalised product recommendations, which can enhance the customer experience and improve satisfaction|
|Rarity||The resource or capability is unique and not widely available to competitors.||
||When coupled with your own IP, Generative AI can create unique products or services that are not easily replicated by your competitors||Generative AI can be used to create unique designs for products or develop new content for marketing campaigns, which can set you apart from your competitors|
|Imitability||How difficult it is for competitors to imitate or replicate the resource or capability||
||If not guarded against, Generative AI can make it easier for competitors to replicate your rare products or services||If you were to use generative AI to create designs for your products, competitors could potentially use the same AI technology to create similar designs|
|Organisation||Whether the firm is organised in a way that allows it to fully exploit the resource or capability||
||Generative AI could impact your organisational structure and processes||You may need to invest in new technology and hire specialised staff to implement generative AI effectively. Additionally, you may need to change your decision-making processes to provide insights and recommendations that were not previously available|
Figure 2 – VRIO framework, with examples of Generative AI’s potential impact on resources as a source of competitive advantage
As indicated in Figure 2, if used effectively, generative AI can create new opportunities for competitive advantage. But get it wrong, and it could see you falling behind the competition.
KPMG’s Nine Levers of Value
KPMG's Nine Levers of Value help businesses identify opportunities to improve EV by aligning the financial, business and operating model. All nine ‘levers’ and, crucially, their interdependencies, need to be considered together, otherwise the devised strategy is likely to be unsuccessful. The nine levers are: