Harvard Business School Professor: How to Lead Enterprise AI

Learn from Harvard Business School professor Iavor Bojinov on CXOTalk episode 803 how to achieve enterprise AI success. Prioritize projects, build an AI-ready culture, and establish trust.

42:45

Aug 25, 2023
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On CXOTalk episode number 803, Harvard Business School professor Iavor Bojinov explains how to make enterprise AI projects successful, given their high rate of failure. 

Here are key points from the discussion:

  • Prioritize Projects: Focus on AI initiatives that align with your business goals and are feasible to implement.
  • Leadership and Culture: Make sure your company culture is open to AI, with leaders who grasp both the technical and commercial dimensions.
  • Scalable Systems: Develop an 'AI factory' to streamline and scale AI development.
  • Vendor Flexibility: When working with outside partners, don't lock yourself into one platform. Be ready to switch if necessary.
  • Trust: Ensure that AI systems are transparent, audit for bias, and establish clear lines of accountability for failures.

Bojinov stresses that each stage of an AI project, from conception to ongoing management, needs expertise, adaptability, a receptive culture, and trust. With a well-thought-out strategy, companies can navigate typical challenges and harness AI's full potential.

Our guest co-host for this episode is QuHarrison Terry.

Iavor Bojinov is an Assistant Professor of Business Administration and the Richard Hodgson Fellow at Harvard Business School. He is the co-PI of the AI and Data Science Operations Lab and a faculty affiliate in the Department of Statistics at Harvard University and the Harvard Data Science Initiative. His research and writings center on data science strategy and operations, aiming to understand how companies should overcome the methodological and operational challenges presented by the novel applications of AI. His work has been published in top academic journals such as Annals of Applied Statistics, Biometrika, The Journal of the American Statistical Association, Quantitative Economics, Management Science, and Science, and has been cited in Forbes, The New York Times, The Washingon Post, and Reuters, among other outlets. Before joining Harvard Business School, Professor Bojinov worked as a data scientist leading the causal inference effort within the Applied Research Group at LinkedIn. He holds a Ph.D. and an MA in Statistics from Harvard and an MSci in Mathematics from King’s College London.

QuHarrison Terry is head of growth marketing at Mark Cuban Companies, a Texas venture capital firm, where he advises and assists portfolio companies with their marketing strategies and objectives.

Michael Krigsman is an industry analyst and publisher of CXOTalk. For three decades, he has advised enterprise technology companies on market messaging and positioning strategy. He has written over 1,000 blogs on leadership and digital transformation and created almost 1,000 video interviews with the world’s top business leaders on these topics. His work has been referenced in the media over 1,000 times and in over 50 books. He has presented and moderated panels at numerous industry events around the world.

Transcript

Michael Krigsman: Today on Episode #803 of CXOTalk, we're discussing how to lead and manage enterprise AI projects. We're speaking with Iavor Bojinov from the Harvard Business School, and my esteemed guest co-host is QuHarrison Terry.

Iavor Bojinov: My research is on AI strategy and operations. What that basically means is I work with organizations to help them overcome their operational and methodological challenges that they face in implementing AI within their whole organization. So, pretty much everything we're going to be talking about today.

How enterprise AI projects are unique

Michael Krigsman: Iavor, when we talk about an AI project, what do we mean, and how is this any different from other kinds of technology projects?

Iavor Bojinov: AI projects fall within two buckets. One is internal-facing and the other is external-facing.

Internal-facing projects are ones which are designed to help employees do their job better. For example, this could be lead recommendations. It could be supply chain optimizations or really anything that a company's employees interact with.

External-facing projects, those are AI projects which are deployed where the end user is actually the company's customer. This is like Netflix's recommendation engine, ChatGPT, and pretty much everything that you see around you that's leveraging AI.

That's sort of high-level what an AI project is. 

There was a second part to your question, which is, what's different about AI projects? Why is this not your traditional IT project that we've been dealing with for 20, 30+ years? 

Well, there's one big fundamental difference here, and that is that AI is random. What that means is that, Michael, if you open up your ChatGPT, and you ask it a question, and I open up my ChatGPT and ask the same question, and Qu opens up his ChatGPT and he asks the same questions, we're going to get three different answers.

Even though that seems like a small change, it has major implications for the whole project. This inherent randomness essentially makes things much, much harder to deal with.

Transitioning to the cloud for AI implementation and data management

QuHarrison Terry: AI today is very reminiscent of cloud computing, as we can think about in 2010. Which shift should I think about? It seems like if I'm still implementing my cloud strategy or that migration and then AI pops up and I've got AI projects to maintain, one of the things I'm wondering is, do you run them on-prem where the data is really good or should we finish the transition to the cloud and then begin with AI (because data is such an integral part of it)?

Iavor Bojinov: This is really thinking about the overall strategy, the AI strategy that companies have. Now, I think what's become a standard is that you need to have the cloud infrastructure in order to be able to leverage AI because, to use AI, you need data. 

What companies are doing now is they're transitioning to the cloud. That's where all of their data is going to be stored. 

I kind of think of it as this is all part of that big digital transformation that many companies are undergoing. One of the motivations for that, actually, is to be able to develop and deploy AI because AI is the thing that removes the human bottleneck that leads to efficiencies, so really allows you to optimize your operations. But at the same time, in the future, it's going to enable completely new business models. 

This is the big thing that is, I think, quite different from cloud. Cloud is a tool. It allows you to really sort of scale your operations. And of course, if you're a cloud provider, you have your new business model. But for most companies, it's not really redesigning their whole value proposition, whereas that's what AI can essentially do for you.

I kind of see it as cloud is necessary and it's part of the digital transformation. That's what's going to become the foundational thing that you need to have. But AI is the thing that's really going to transform your organization.

QuHarrison Terry: This is right off the tails of Nvidia's recent earnings calls, which I'm sure you're familiar with; $13.5 billion in revenue, $6 billion of that in profit, largely driven by these cloud computing providers (AWS, Azure, GCP) and their shift from general computing to accelerated computing where they can supply their customers with AI. You bring up a good point. 

Start AI projects with a business case and the right metrics

As that shift happens, what's the mindset that I need as an enterprise leader to have and maintain because this isn't an instance where we go to the cloud and we're just moving one file that was traditionally stored offline to online? This is, if I get this right, I literally can have a 24% increase in the performance at my company or my organization instantly. That's absurd, and we have records of that already.

Iavor Bojinov: It's really easy to sort of look at this high level and be like, "I need to have a successful AI strategy," but it all begins with AI projects. What I would advise leaders is, of course, have your high-level strategy that you're going to improve your operations. You're going to redesign your business model. That's going to come down the line.

But what you need to do right now is ensure that every single one of your AI projects begins from inception. It gets built successfully. It gets evaluated. It's shown to add real value. Then it's being adopted. Then it moves into the steady state of management.

That's a really big takeaway for me is to have that big strategy, but really focus on each and every single project. This is one of the things that we wanted to talk about today.

A lot of these AI projects fail because it's not as simple as just taking something that's offline and putting it online. We can do the cloud transition. It's really hard. It's really costly. But when it comes to AI projects, most of them tend to fail. 

What I would encourage leaders to think about is to focus on each project and ensure that they can implement that successfully. That would be my big difference here.

The reality of enterprise AI project failure rates

Michael Krigsman: What you're just describing, the issue of AI projects and succeeding with these projects, there is an inherent marketing problem, which is, everybody loves talking about AI and the broad strategy, and as Qu was saying, we're going to be in the cloud. Now you're kind of raining on our parade because you're saying, "Well, we need to focus on this as a project." We're strategists, and that's not what we want to do.

Iavor Bojinov: Here's the thing. Around 80% of AI projects fail. That's a shocking number. If you compare this to big IT projects, the number was somewhere in the 40%, so twice as many of those initiatives fail.

This is extremely costly because, if you think about if you want to deploy AI, you need to invest in the data. It needs to be on the cloud. That's not cheap.

You need to hire the right team. AI engineers are very expensive.

You need to have the right computation. We're speaking about Nvidia. Those chips are not cheap, right? If you want to do large-scale computing, it's extremely expensive.

If you have this failure rate where the vast majority of AI projects you're working on are not going to be successful, they're not going to pay off, well, not only do you lose the money. You lose the momentum. You lose the organizational trust. Then companies start to doubt if they can even do this. 

That's why I like to... Of course, the strategy is super important and you want to think about that big picture. But if you can't deliver on the project, you're not going to get anywhere.

Michael Krigsman: Please subscribe to our YouTube channel. Hit the subscribe button on the CXOTalk website.

I'm hearing two distinct differences between AI projects and traditional IT projects. Number one is the uncertain nature of the results that AI produces. And number two is the nature of the infrastructure requires tremendous and specialized compute. 

Iavor Bojinov: Yes.

Overcoming AI adoption challenges to build trust in AI

Michael Krigsman: It projects, if you're running business process software, you need fast computers and a database. But with AI, you need GPUs and all of that data infrastructure at a very high level. Is that an accurate way of looking at it, Iavor?

Iavor Bojinov: There's one extra piece of this puzzle that's quite different between IT and AI projects, and that's really how you drive adoption. This becomes really challenging because people don't really understand AI. They don't understand the uncertainty. When it comes to getting people to use it, that can be another big failure point. 

Of course, we've learned a lot from the IT industry in terms of how you do change management, and that's all really, really useful information. But it still doesn't tackle how you build trust between a human and an AI. That's a whole new area of research that's emerging right now. In addition to those two, I think that's the third big difference.

QuHarrison Terry: You have also this knowledge that 80% of AI projects fail. 

Iavor Bojinov: Yes.

QuHarrison Terry: Eighty percent is a large number, and yet we're seeing every organization in various industries (whether it be healthcare, media and entertainment, logistics, you name it), AI is being thrown into it, and it's being looked at as the savior. But with such a large number – 80% is large – why should I be running towards this AI revolution or transformation?

Iavor Bojinov: Absolutely. I mean it's that 20% that's adding tremendous value. That 20% is completely transformative because it completely removes the human bottleneck, so it allows you to have scale that's completely unprecedented.

If you look at companies like Ant Financial in China. They have more customers than any of the big banks in the U.S. and Europe, and they have a fraction of the employees. Yet they're still able to serve those customers effectively, and they do that because of algorithms.

Even though you have this really high failure rate... Maybe I should just quantify this a little bit. I'm speaking sort of failure in a really broad term here. 

Of course, there's the failure where you don't have the right data. You can't even build the product. But I'm also including projects which just fail to deliver on the promised value.

Maybe you built it, you deployed it, and only 10% of your employees ended up using this product. It's not really adding that much value to the whole organization.

Or you really overestimated how useful this product is, and then people... You don't really get the ROI on that. That goes into that 80% number. That's why you are seeing it. 

One thing I've noticed is a lot of companies are happy to talk about their AI initiatives and very few of them are able to really quantify and say, "This is how much value that actually added." A lot of them are just like, "Hey, we have this. Trust us; it adds value." But if you look down, it doesn't give you a specific number. That's, yeah, the 80%.

Cultural and leadership aspects of AI adoption in the enterprise

Michael Krigsman: This intersection of value and failure is quite interesting to me. In order to accomplish the value that QuHarrison was referencing earlier, this real leap of value, not just incremental, seems to me you need to have a new infrastructure, as we were just talking. Okay, you need to have the right infrastructure. Here's the hard part. You need to have a new culture.

Iavor Bojinov: Yeah. 

Michael Krigsman: Most organizations are not optimized for great leaps in value. We're going to innovate at a rapid clip, and we're going to change everything we're going to do. And we're going to disrupt what we're doing. Right?

Iavor Bojinov: Yeah.

Michael Krigsman: Organizations are focused on process. You, as the operations expert, know that more than anybody else. How do we handle that? 

Iavor Bojinov: The first one is you have to think really hard about which projects you're going after. That means you have to think about both the feasibility and the impact of that project. This is where you need leaders that are versed in both sort of the technical know-how around AI and data science, but also the business know-how.

Let me just sort of try to make this a little bit more concrete. If you have a leader who is leading your AI organization that's really good at the technical aspects of it, they're going to focus on projects which are very feasible that can be done, but they might not be impactful because they don't really understand the nature of the business. They don't understand the processes the company has in place and how they're going to plug into that.

On the flip side, if you have a leader that's only versed in the domain knowledge, they understand the business through and through, they're going to identify those really high impact projects, but they're just not going to be feasible. That will lead to a failure because they'll pick the best project, they'll start working on it, and then six months down the line, they will have nothing to show because they didn't understand that maybe this isn't even an AI project. Maybe they don't have the right data. 

I think the culture piece begins with the leadership. You need to have a leader that deeply understands the domain knowledge and the technical expertise. This is why I'm starting to see a lot more companies creating this role of the chief AI officer because that's a person who bridges the gap, and they can be a big part of transforming the organization's culture.

Then there's one other piece I think often gets really forgotten, and I want to call it out here, which are the processes around developing AI. 

Right now, when you go to most organizations, their AI development process very much looks like the pre-industrial age. You have these amazing engineers and experts running around doing everything from data collection and data storage to building the thing. It's even delivering it to you. That process is extremely inefficient, extremely prone to mistakes, and just not the right way of developing algorithms.

What you're starting to see now is a few of the tech leaders and a few of the companies that have undergone a digital transformation. They've started to build what my colleagues Marco Iansiti and Karim Lakhani (who you had as guests here a little while ago) called the AI Factory. 

This is basically a representation of the company's operating model where data is at the heart of it. Then it makes it really easy to develop and scale AI for every use case.

Just to summarize that, you have the culture piece but then you also have the actual processes in terms of how you're going to build that AI. That is absolutely critical.

QuHarrison Terry: You made a lot of great points. Let's say I'm at the enterprise. I understand that culture eats strategy for breakfast. I've still got to deliver results quarter after quarter.

Iavor Bojinov: Yes.

QuHarrison Terry: I've spent a lot of time and resources on building my culture. We just got out of a pandemic, and we're trying to return to profits. Then this thing, AI, comes into the foray just eight months ago. 

Largely, the things that people are excited about in AI have existed. But in the last eight months, things have really taken a turn.

Iavor Bojinov: Yeah. 

Generative AI still in early stages for enterprise adoption

QuHarrison Terry: With that, I'm looking at it. AI, if I'm looking at the generative AI side, a lot of it is party tricks, to me, as an organization. I'm seeing it. I'm asking my team, "Can it do this?" 

To your point on the 80% of failure rates, it's just not happening. It's not clicking.

I, as an executive, don't want to bring that into the boardroom just yet. I know it's a priority, but what are some of the areas for us to really understand it?

To just be quite frank, the moment of AI and generative AI, it seems like it's a startup game. It doesn't feel like it's an enterprise game, or we haven't met that wave of enterprise really catching their strides with AI. 

Again, it's very early. But I'm curious of your take on that.

Iavor Bojinov: I think this is a matter for the board. I was recently at this board of directors summit which was all around what should the board strategy be when it comes to AI and generative AI. It's very much top of mind for most board members right now because it really is mainstream.

When ChatGPT came out, it became the fastest-growing app of all time. It is something you are seeing. It's something you can touch. It's something you can play with.

What I've been saying to leaders is you have to be curious; you have to interact with this technology, and you have to start experimenting. 

I agree with you. I think right now we are at the beginning of it. We haven't really figured out how we're going to use this technology and where it's going to be transformative. But if you're not experimenting, you're going to fall behind. 

It's similar with the Internet. If you think of the companies who started to experiment in the early days with the Internet, they were so far ahead. 

Sure, it wasn't delivering value for the first few years. But they were ready when that technology matured. They could actually bring it on board. 

They knew about it. It was integrated into different parts of the organization. They weren't playing to catch up.

My advice is this is a matter for the board to be discussing, and it's something the CFO needs to think hard about, like, "How much of the budget can I put on this?"

QuHarrison Terry: If I were implementing generative AI in its current state, you can see some really large, transformative efforts occur in the marketing sense. 

Iavor Bojinov: Yeah. 

QuHarrison Terry: All the categories that are marketed, it's very easy to come up with a plan for that. I don't know every single company, but one of the strategies that I would recommend would be to take... You have to build that AI team, as you mentioned.

Iavor Bojinov: Yes.

Deploying embedded vs. centralized teams for AI

QuHarrison Terry: But that AI team, the critical component is the data, like the data scientists or the data engineer or someone in a data role. Would it make sense for you to just have a data person go to each department, look at what the congruence is, and start to say, "Here are some of the experiments"? Or do you think each team should make their own experiments in this? That's kind of where you're going to start to build that culture and that strategy from that you would take to the board, in my opinion.

Iavor Bojinov: It actually comes down to what Michael was saying earlier around the culture piece. The way it sort of comes down to that is how data-driven is your culture. If you have an extremely data-driven culture, then you can go for this embedded model, so you look at places like Amazon. 

Meta recently did a major restructuring where they basically moved to this embedded model where all their data scientists and AI experts actually sit within each of the business units. They go through and find those problems, and then you can create a task force across the different business units to find those applications of generative AI.

But if you don't have a culture that's very data-driven, that understands AI, having that centralized team can be really helpful because they can work with each other. You have enough people that can go from problem to problem.

The one thing I would add to that, again coming back to what I was saying earlier, which is you need a business leader that understands the data science, the AI, and the business problem so they can help do that translation and really find those opportunities. 

I would encourage every team right now. This is actually something I've been hearing from many companies that I've been speaking with. They're all trying to find those experiments that they can have with generative AI. 

Most of them tend to be sort of internal-facing, really trying to help their employees do a better job. Because of hallucination and other things, it's a little bit too risky to maybe expose your customers to conversations with versions of ChatGPT, so that's something companies are staying away from.

Michael Krigsman: We have a really interesting question from Twitter from Arsalan Khan who is hitting on this exact point. He's saying, as you just mentioned, Iavor, that many organizations (or most) are looking at generative AI internally. He's saying, "What about partnering with external, narrowly focused companies?"

Iavor Bojinov: Yes.

Michael Krigsman: For example, AI with cybersecurity, AI for cybersecurity, by partnering with ISPs. As an organization is looking to implement AI, how should they be thinking about their partnership strategy?

Iavor Bojinov: The first one is, what is your timeframe? Are you hoping to deliver something within the next few weeks, or are you okay if you take your time? If you want to deliver something quickly, then you absolutely need to partner with another organization.

The second pillar is really the technical expertise and the know-how. There aren't that many people who are experts on generative AI. 

There are a lot of people right now who have watched a couple of YouTube videos and are calling themselves gen-AI experts, but they're not. So, you have to be really careful about that.

Here, for most organizations, it's really hard for them to recruit enough experts to do this internally. I think, in the short term, you're going to find that partnering might be the best way to go when it comes to the skill portion of it.

Then the third pillar is really around the complexity of the problem you're trying to solve. Is there something that an external organization can provide a solution which is sort of compatible with what you're doing and you can just sort of plug into it, or do you have a really complex, nuanced problem? If you have a really complex, nuanced problem, then an external partner (unless they are willing to give you this amazing white glove service where they're going to just rewrite everything for you) that might not be the way to go. 

Those are the three pillars. I don't think there's anything new here. This is the typical "do we buy" versus build debate that strategy classes have been having and companies have been thinking about for many years. It's the same idea here. 

Michael Krigsman: Given the nature of these projects, especially generative AI, again coming back to your initial point where the outputs are indeterminant. 

Iavor Bojinov: Yeah.

Evaluating the success of generative AI projects in the enterprise

Michael Krigsman: How do you recommend that organizations evaluate the success of these projects? It seems much trickier than traditional business process software.

Iavor Bojinov: This comes back to understanding the impact or the potential impact of a project. 

One of the things I always encourage people to do is to think of the if-then-by-because hypothesis, which basically says, "If I have this project, then this outcome will be improved by X percent because," and then here is my evidence. In that moment, you think really carefully about what you're trying to transform. 

When it comes to AI, there are, broadly speaking, two big outcomes that people are tracking. 

The first one is just pure engagement and usage. Are people actually using the AI solution? Are they going to it to help them improve their job, to help them (whatever it's supposed to do)? Are they using it? 

Then the second one is the financial one. This could be revenue. It could be cutting costs. It could be increasing sales. Whatever it is supposed to do, is it doing it?

First, you want to identify how you're going to measure success. You have the engagement part, and then you have the financial aspects of it. 

Then the next part is you have to run some sort of experiment. 

Now, if you're doing an external-facing project, if you're someone like Netflix, you can very easily experiment because you've got a million or a billion customers. You give some of them the new tool. Some of them, you don't give access to a new tool. Then you see, is it driving your KPIs and your business metrics? 

When it comes to internal-facing projects on your employees, that experimentation becomes a little bit trickier, so you have to do it maybe not quite as traditional, clinical trial of experimentation. But again, you want to have that experimentation mindset and that desire to really measure the impact of it. It's tricky, but it is doable.

QuHarrison Terry: I want to go back to Arsalan Khan's question because it's a very interesting question. I think that when you consider partnering, like in the traditional sense (like if I have a company and I partner with someone on cybersecurity), I'm omitting myself, obviously, of some of those problems because I have a partner that can share in that responsibility. But if things were to go wrong, there are things that I can also blame on that partner, like liability or we can have a postmortem and figure that out.

The thing that is fascinating here with AI is there is a lot of regulation that is yet to happen. Some of that regulation is very scary when you think about how fast and just the exponential growth of AI, especially generative AI (as it stands today). And a lot of the partners or a lot of the companies that you would partner with, yeah, they're very young. Some of their biggest deals are happening yesterday. 

Even today, as we're recording this, Hugging Face just had their raise just this morning. It's like, "Okay," and how many people are using Hugging Face to train their datasets and things of that nature?

These are the players that you have to work with. When it comes to sharing the responsibility, it's going to be very hard if I'm at a very large enterprise to say, "Oh, we had this unfortunate calamity occur. We were working with this partner. They're going to take some of that blame."

I don't think that's going to cut it, so what's your take there? Where does the responsibility fall when we know that 80% of these projects fail and failure in the enterprise leads to often times lawsuits?

Iavor Bojinov: This is very deeply connected to the notion of trust that I mentioned earlier because another one of the challenges (if you are partnering) is it can be quite tricky, especially if it's in an internal-facing product, to get your employees to adopt it because people don't trust AI. They're worried that it's going to take their jobs, so they just don't want to use it.

This is where my framework for trust in AI is really helpful and is really connected to your question. The way to think about trust here is it has three elements. 

You have trust between the human and the algorithm. Is the algorithm interpretable? Is it transparent? Is it privacy-preserving? All these typical ethical considerations that you have around the AI.

The second one is, do you trust the developer? Do you trust the person, team, or organization that built what you're going to be using?

Qu, that's kind of what you were getting at here, which is, when you're using this external partner, maybe you don't really trust them. Maybe they're not following best practices. Maybe they're not going to preserve your data in a way that's suitable for you. This is something that's really important and you have to think about.

Then the third piece of trust is trust in the processes, which is the organizational trust. This is essentially how you handle things going wrong. Who is to blame? 

All of these things need to be agreed upfront, and it becomes really tricky when you're partnering with an eternal organization to figure out, "Okay. The algorithm recommended X. That was the wrong thing. But none of the employees overruled it, so we just lost $10 million. Who is to blame?" 

You can't do a postmortem on that. You have to figure that out before you've even deployed this because then you don't really have trust. That's how I would think about it.

QuHarrison Terry: That's difficult, right? Some of the negative sides of these partners are, like, if you look at OpenAI. I believe in Sam Altman and his ability to fundraise, but we also have to realize that some of the costs that have been shared (that it's just taking to maintain even ChatGPT) could potentially lead them to bankruptcy or them being insolvent.

Iavor Bojinov: Yes.

QuHarrison Terry: When you know that, and that's something that is a fundamental question, how do I justify that to my board saying that they're the leading experts? But the leading experts are a startup, and it's not uncommon for startups to exist today and not exist tomorrow, even leading, prominent startups. 

Just look at crypto for a better reference point there. We had some incredible companies that cease to exist today. 

Partnering with AI and infrastructure companies

How do I know when to get on this AI hype train and partner with some of these people so I can not have that problem that you just described?

Iavor Bojinov: It's something we face in previous versions, not with AI but with cloud, for example. Right now, the big cloud providers are really big tech companies. But in the beginning, when you were trying to convince people to go to cloud, it was a bit like, "What is this cloud thing? Should we really be investing in it?"

One of the big advices I would give organizations (and this is something that I've seen companies sort of having to backtrack a lot) is when you do end up partnering, partner in a way that makes you agnostic to the person you're working with and a way that if that company fails, you've built your system in a modular way where you can just pick another company. For every problem you're looking at, right now there are about 20 startups trying to solve it.

The high-level solution here that I would encourage organizations to have is to own all of the individual pieces of infrastructure. Then just plug in that little piece of generative AI that you need in a way that you can just swap them out. 

That also protects you because one of the things we've seen with cloud providers is if they lock you in, that price goes up. A lot of companies are now sort of backtracking and trying to be cloud-agnostic in a lot of their offerings. But it's really hard because if you moved everything to one of the cloud providers, it's hard to get off them. 

That's one way I would really mitigate that risk is basically be like, "Yes. We're using them. But it's this tiny little piece of it. And if they fail, we get someone else to do it."

Michael Krigsman: This issue of trust is so important and complicated. In the past, trust with enterprise or business process software basically boiled down to, "Do we have confidence that the vendor is keeping our data safe in the cloud?"

Iavor Bojinov: Yes. 

Michael Krigsman: "And no one is stealing our money," really is what it ultimately comes down to. Now, we have all of these questions about the ethical use, the bias, and we have a question from Arsalan Khan on exactly this point. He says, "If organizations are using AI to make important financial and insurance decisions, how can consumers make sure that the algorithms aren't biased and the data is not skewed in these AI systems?"

Iavor Bojinov: Yes.

Michael Krigsman: "Organizations don't share this yet."

Iavor Bojinov: Yes.

The need for transparency and auditing in AI systems

Michael Krigsman: "It becomes another layer of lack of trust or distrust for AI systems and the implications that flow from that."

Iavor Bojinov: A financial regulation does, to some extent, require you to be able to explain if you're using algorithms for, say, lending decisions. You need to be able to explain why that person was accepted or rejected for a particular loan. There is a little bit of regulation in that. 

The European regulations that are coming out (or are already out), the AI regulations, they're going to require this type of transparency and explainability for these important decisions. 

I think what's going to happen is – and Qu was speaking about this – there are going to be more and more regulations around this. We're going to need that transparency. 

We're going to need to have AI audits. Companies that are starting to do this where they basically go in. In addition to auditing a company's finances, they're going in, and they're actually auditing their algorithms. 

They're checking for bias. They're checking for fairness. They're checking for privacy leaks and all of these things. You're going to see more and more of that. 

You essentially need to do these types of audits because algorithms have unintended consequences, even the best-designed ones, and I'll give you a really fun example.

I was working with LinkedIn. We actually have a paper that came out about a year ago in Science.

One of the things, basically, that we leveraged to write this paper was the fact that this algorithm on LinkedIn that recommended people you should connect with had this long-term, unintended consequence that the people that were using it who were expanding their network were applying to more jobs and were getting more jobs. 

This algorithm was designed to grow your network. It was actually helping you get more jobs. 

Here this was really beneficial. But you can imagine these types of knock-on effects. Because everything is really connected online, they can actually be huge, and they could be really, really negative. So, you need to have these types of audits to capture these unintended consequences.

Choosing between regular AI and generative AI initiatives

Michael Krigsman: Now we have a very interesting question from Twitter from Lisbeth Shaw who says, "How should organizations choose an appropriate type of AI initiative, whether it's "regular" or generative AI? And then, how should they begin?" 

I'll qualify this by saying we're just about out of time, and we could spend an hour talking about this. But I'll have to ask you to keep it really fast.

Iavor Bojinov: It comes back to thinking about impact and feasibility. You have to make sure that, for the impact, it's aligned with your strategy, it's going to deliver real value, and you expect it to deliver real value. Then the feasibility is that you're going to be able to do it.

One thing I will say about impact and feasibility is researchers and some of my colleagues (Jackie Lane and Karim Lakhani) have shown that we're really bad at compounding the two. We tend to think the things that are high impact are high feasibility, and vice versa, which is not true.

What I would encourage you to do is to try to disentangle those and then find the projects which are truly high impact and high feasibility. Then go after those ones.

Michael Krigsman: Just as a very quick follow-up, between generative AI and traditional AI, how do you choose?

Iavor Bojinov: The big difference is that generative AI is a more general tool. I think you have to look at the problem. There's no right answer or clear framework for when one is going to be far superior to the other.

Traditional ML is really, really good at predictions. Generative AI is really good at having human-like conversations. If the problem you're working on is this type of human-like conversation, generative AI is the way to go. If you want pure predictions on whether Michael is going to buy this product today, you probably want to use traditional AI.

But the other interesting thing that's happening is generative AI can help you build traditional AI. Now generative AI is becoming a tool for developing traditional AI, which I think is also really fascinating.

QuHarrison Terry: I want to ask you some questions about two enterprise companies that I find super fascinating in this space that have deployed both traditional ML and generative AI. 

The first company I'm going to touch on is Nvidia. We talked about them earlier but they've done a great job of being very nimble. Their chips have been used in everything from automotive to gaming to now AI more broadly (both generative and ML).

One of the things that really shocked me in the enterprise (and I'm curious your takeaways from) is Meta. Meta is largely... They've been on the press circuit for the last five, six years, and it hasn't been that great. But if you look at the last year, and you look at what they're doing at Meta AI, they're actually doing phenomenal as far as some of the announcements, even their most recent one. 

They did one this morning. I haven't read the paper, but they did Seamless M4T the other day, 100 languages that we can translate into seamlessly. Now they've got a coding LLM that they've adopted Llama for.

Meta's success in AI through open sourcing and leadership

Why is Meta winning in AI right now? I'm curious your take on that.

Iavor Bojinov: One of the things that we've seen in previous waves of technology (and we saw it with Google's open-sourcing Chrome, open-sourcing multiple other technologies), they sort of became the foundation that everyone built on. What happened with generative AI is that a lot of companies were sort of doing this in closed doors because I think they believed that the ability to train these models is what's going to give them the competitive edge and they were worried about open-sourcing them.

Meta was actually a little bit on the flip side of it. They've always open-sourced some stuff, but they were a little bit behind on this generative AI. But they had the strategy that we're going to just open-source everything in the hope that everyone is going to build on top of that.

Right now, we don't really know if that's what's going to happen. We're in this stage where it could or it might be just too costly to really train these models any further. You just kind of use the default, so it doesn't really matter.

I don't know. I think time will tell.

QuHarrison Terry: Zuckerberg acting more like an entrepreneur in the startup sense is helping them right now. That's what you're gleaming?

Iavor Bojinov: I think they have amazing AI leadership. If you look at some of their leaders in AI, they are the world experts in that area. And they have a strong commitment to open-source. I think you're seeing that influence. 

I think Meta also realized that they were going to fall behind if they didn't try to do this open-sourcing because they didn't really have... They're not really set up in a way that's going to monetize this really easily. 

If you look at someone like Google, they can monetize this pretty easily through their search. They're basically redesigning how search works with them. If you look at OpenAI, that's essentially what they're designed to do. Those companies are like, "Oh, this is going to be my core." 

For Meta, right now, it's unclear. Having a chatbot in WhatsApp, that's not really going to add that much value to WhatsApp, so they're going for this open-source. Maybe they'll become the foundation that everyone builds on. Then they can figure out how to really monetize that later. I think that's the strategy that they're going after. 

It's a really interesting space, and it's great to see how it's evolving.

Advice for enterprise AI success

Michael Krigsman: You're an operations professor at the Harvard Business School, so give us your advice of the patterns you've seen that make AI projects succeed or fail. Give us the top three, and really fast.

Iavor Bojinov: At a high level, what you have to remember is that a project is not just a single entity. It goes through five distinct steps. It goes through the selection, the development, the evaluation, the adoption, and the management. 

You have to look at each of these pieces individually and really try to optimize for it. That's really how you'll be successful.

You can't just think of a project from start to finish. Break it down. Focus on each of the parts of it, and really try to optimize each individual process. 

Don't forget the management and auditing piece. That often gets neglected.

Michael Krigsman: Qu, you know it strikes me that Iavor's advice to optimize each piece of course makes sense. But without the expertise of how to optimize, it's like, "Okay, what do we do?"

Iavor Bojinov: There's a lot of research happening in each of these stages to try to help companies figure out how to really optimally do it right. In the development, we talked about the AI factory. In the evaluation, we talked about experimentation. In the adoption, we talked about my framework for trust in the algorithm, in the development, in the processes, and then in the management. There's a whole slew of tools out there to help with this. 

QuHarrison Terry: We're out of time, Iavor, but we'd love to have you back. There's a lot to be discussed here.

Michael Krigsman: With that, a huge thank you to Iavor Bojinov. He is a professor at Harvard Business School. Iavor, thank you for being here. As Qu says, we hope you'll come back.

Iavor Bojinov: Thank you.

Michael Krigsman: Of course, a huge thank you to my co-host for this episode, QuHarrison Terry. Qu, it's always awesome to see you. Thank you for joining us today.

QuHarrison Terry: Thank you. Thank you.

Michael Krigsman: Now before you go, please subscribe to our YouTube channel. Hit the subscribe button on the CXOTalk website. Check out our newsletter. We'll send you our upcoming shows. We want you to be part of this community. 

Thank you so much, everybody. I hope you have a great day, and we'll see you again next time.

Published Date: Aug 25, 2023

Author: Michael Krigsman

Episode ID: 803