• Sam Taylor, Director |
4 min read

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:

  1. Threat of new entrants
  2. Bargaining power of suppliers
  3. Bargaining power of buyers
  4. Threat of substitutes
  5. 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

Generative AIs potential impact across Porters Five Forces

VRIO framework

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
  • Brand reputation
  • Any patents held
  • High-quality customer service
  • A skilled workforce
  • Access to distribution channels
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.
  • The unique expertise of staff
  • Secure access to natural resources
  • Any exclusive partnerships
  • Proprietary software
  • Unique locations
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
  • A unique company culture
  • Any patented processes
  • Proprietary technology
  • Any strategic partnerships
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
  • Strong leadership
  • A flexible organisational structure
  • Effective knowledge management
  • Efficient communication channels
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:

Figure 3 – KPMG’s Nine Levers of Value Framework

Figure 3 – KPMGs Nine Levers of Value Framework

The impact of generative AI across the nine levers varies significantly. It would be a brave CEO who asked a chatbot to decide on the ambition and financial outcomes a business should strive for. But generative AI could be a significant research aid when developing a cohesive business model, such as deciding which products and propositions to develop, or identifying the customers and channels that should yield the greatest return.

There is even more scope for generative AI to add value when developing the operating model, as improving core business processes is well within its capabilities. Likewise, technology and operations infrastructure could be simplified and overheads reduced; and governance, structure and risk could be vastly improved. Elements of people and culture could benefit by identifying which processes cause the greatest friction for staff, while measures and incentives could be automated, with generative AI able to answer specific questions on metrics in a meaningful and actionable way. 

How can businesses prepare?

Across all three of these strategy development frameworks, the potential of generative AI to transform ‘business as normal’ is all too clear. To maximise the opportunities this creates for enhancing business strategies, we have identified five priority areas to focus on:

  1. Plan how to develop, engage, and adopt generative AI at pace to stay ahead of the competition. 
  2. Consider how to design and transform your organisation structure, at both an enterprise and department level, to capitalise on the opportunities of generative AI
  3. Data access will be critical. Ensure you can connect and access previously unconnected data sources to create a proprietary internal knowledge bank.
  4. Upskill staff to ensure they understand how AI tools work and how to use them effectively.
  5. Establish mitigation frameworks to manage the risks associated with IP loss, data leakages, ethical usage, and incorrect data.

So, what next?

Any advisor that tells you they have all the answers about generative AI is probably being economical with the truth. However, KPMG has a successful track record of helping businesses integrate technology into their operations that could aid in developing generative AI integration and adoption plans. Our Strategy Consulting, Connected Tech, and Digital Ninjas teams can provide expertise and support to help you exploit generative AI quickly, build out test cases, and enhance digital learning across your organisation. Ultimately, we believe in learning with our clients to provide customised solutions that meet the unique needs of you and your business.

To learn more on this topic, see our next article on the role of consulting in the AI age.