You can't save your way to wealth.
There are many reasons for this and I think it is pretty obvious to most readers why this is the case, so we needn't delve into it now. Instead, I will mention a conversation I was having over lunch with a friend, who heads up the ICT organisation for a very large manufacturing company. We were talking about various things, but AI agents came up and it is obviously an area he knows quite well. Yet, as we were talking he hadn't fully realised the implications of what they are being used for, because what everyone is trying to do with them, is save.
We are fooled by the term "generative".
Of course, the lowest hanging fruit in terms of increasing profits is to reduce costs, but ultimately, it is going to get to a point where two situations are met. One is that there is a floor on savings, which means that at some point, it is no longer possible to save any more, or the law of diminishing returns sets in and the cost of saving more is higher than the gain of the saving. But the other point is that while savings can be made, the potential to generate revenue can also be lost. For a very obvious example, a company can save a huge amount by firing all of their salespeople, but then their sales grind to a halt also.
We were actually talking mostly about the Finnish government and how they keep making cuts in the budget. While most people see this as them trying to plug a sinking boat, I see it more as a way to make people accustomed to having more and more taken away from them, because there is no way that the government can ever save enough to make a significant difference and be able to return to growth, because they aren't investing in anything that has growth potential.
It is the same with the way that most companies are looking to use AI, as while it will create efficiency savings pretty easily, it doesn't mean that it is going to increase revenue. And that means that eventually, the company is salary-capped and without investment into new growth streams, is likely to lose any competitive advantage it might have anyway.
Many people I have talked to who use AI in their work argue that it has made them better at their job, which from an outcome perspective can be true, but not necessarily from a skill perspective. What most deem as "better" is when they can do what they were doing earlier more efficiently, where for instance what took them two hours now takes them one. The problem with this is that while their job efficiency increases, their own skill levels remain stagnant and the more efficiencies they find, the more stagnant the person becomes and eventually, they will be relegated to the jobless queue also.
And as I explained to my friend, operational efficiency doesn't necessarily mean better outcomes. For instance, he uses Copilot to generate reports and also summarise the reports he needs to understand. But what he is summarising are the generated reports that other people have created, based on other AI summaries. Essentially, AIs are talking to each other. But more than that, they are deciding what information is relevant and making business decisions based on their evaluations. Some might be better, some might be worse than human suggestions, but to the inexperienced, it has to be taken as gospel. And while someone like my friend has a broad range and deep experience and knowledge to look at results with a discerning eye, most people and especially the young who have only dealt through AI filters, will have to take it at face value, and act on it.
What is really operating the business?
The more we use an AI to shortcut our own skills, the less experience we have, and that means that even if we are in a role for some years, we can actually know very little, because we are reliant on the service provided by the AI. And when those AI LLMs are all pulling data from the same sources, it means that there is a reduction in the pool of "creativity" and what they are suggesting across the board doesn't bring competitive advantage to any company, because all have the same information.
Many people don't seem to yet understand the implications of this. For instance a lot of sales people I have worked with love how easy it is to get all the information on a prospect now and what kind of time saving it gives them and advantage with the customer. What they have apparently failed to recognise is that all of their competitors have likely run the same searches and have very similar information, so there is no advantage.
And perhaps this is near where I will leave this seemingly ongoing conversation I am having with mostly myself. When there is no advantage in the information, the advantage comes down to what you do with it. If you aren't growing your methods and skills with how to use information to generate growth, there is actually a retraction. In the same way that someone can say they don't have the time to exercise, so they buy gadgets to vacuum the floor and do the dishes, and eat takeout so they don't have to spend time cooking, but with the free time they now have, they do nothing.
AI efficiencies are freeing up people hours but instead of investing that time into growth generation activities and skill development, companies are instead getting rid of people. If they can save one hour a day in a role, it means they only need seven people where before they had eight. But, what companies should be doing is recognising that in order to have a competitive advantage, they need to grow, not just be efficient. That means they have to identify growth potential and develop it which generally takes time and new learning. Instead of getting rid of people to save money, they should be finding ways for at least some of those same people to develop new products and services.
But the thing is, like governments have become, business is incredibly short-sighted, panicking and knee-jerking on quarterly sales figures, making cuts to increase profit margins, and forgetting that for a business to maintain success, it has to build.
For now, savings might be enough for companies, but at some point, the information pool becomes so homogenous, and the savings potential so thin, that it isn't going to be enough to generate the profit returns that investors expect. And by that time, the operating model will be so lean, and the people knowledge and skill base so poor, that there will be nothing left to turn the ship around. And they will be swallowed up by a larger animal, until the economy collapses completely under the weight of capitalistic cannibalism.
But hey, you know what you are doing.
Save a bit more valuable time and energy.
Taraz
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