Topics:   Regulations & Legislation,Risk Management,Strategy,Technology

Topics:   Regulations & Legislation,Risk Management,Strategy,Technology

July 30, 2019

Marketing and AI: What Boards Need to Know

July 30, 2019

Artificial Intelligence (AI) is about to exit the hype cycle, and innovative boards should be empowering and positioning their companies to take on the advantages and challenges that come with it. Chief marketing officers (CMO) in particular are either using AI for competitive advantage already, or they are chafing at the bit to do so. The directors of companies need to be ready to oversee the work they are doing with the technology.

Whether used by marketing departments for customer data analytics, targeting, recommendations, or chatbot support within a company, there are implications to AI implementation for a company’s leadership, strategy, risk, ethics, and corporate social responsibility. The good news is that board members do not need to understand the working of every feature, part, and possibility of AI to be able to govern its use. This is like driving and even enjoying a Tesla—business principles apply to and drive governance. Understanding exactly what is under the hood can come a bit later.

Four broad areas exist for company directors to consider:

  • Understanding and staying abreast of developments in AI;
  • Implementing AI within marketing;
  • Governing AI initiatives after implementation; and
  • Continuing with AI in the future.

Understanding: Institute an AI Council Within the Board

One of the most significant challenges involved in governing the use of AI is the frenetic pace at which the technology is advancing. Boards should be aware that AI can be applied to a variety of traditional marketing functions: dynamic pricing, demand forecasting, increasing conversion, customer support, and even for customer retention. A recent McKinsey study found that AI will make an impact on various retail sector business functions to the tune of  $600 billion, with other sectors facing significant disruption, too.

Meanwhile, boards should also understand the race across the world that is happening to understand, apply, and reap the benefits of AI. Eighty-five percent of Chinese companies are actively working in AI and China is dominating AI research and implementations. The European Commission chartered with ensuring trust about the use of AI published seven essential guidelines on ethics for AI including human agency, transparency, bias, social and environmental wellbeing and privacy.

While these are not yet governance laws, boards should expect to see laws sometime in the near future. For instance, the General Data Protection Regulation (GDPR)  already requires transparency about any algorithms used. Algorithms need auditing for bias from both technical and social perspectives. A similar law could emerge for use of AI, or GDPR could be more broadly applied to AI, for instance.

For these reasons, it is useful to constitute an AI council within your company that is specifically charged with educating the board on the technology and related regulations, monitoring strategic AI initiatives and competition, reporting on risk and ethics, and bringing the board up to speed on other related AI oversight matters. An AI council with a diverse set of experts is best suited to create a detailed and feasible transformation plan to ensure longevity and staying ahead of the competition. With the help of an AI council, the rest of the board can understand the landscape quickly in the business context and be ready to take on strategic and governance challenges.

Implementing: AI As a Platform, Not A Point Solution

AI presents a unique opportunity to market across the customer lifecycle. Companies currently struggle to consolidate customer data from channel silos and rely either on human skill or chance to drive conversion. AI presents the real possibility of running one-to-one marketing and sales to increase conversion based on individual customer insight.

By consolidating customer data across traditional marketing channels along with transactional, customer support, and loyalty programs into a customer 360 database, AI can provide the following: highly targeted messaging, individualized promotions and pricing, and automated customer engagement and support, all in order to increase repeat and first time conversion.

Siloed marketing departments with inadequate IT support find expensive and ineffective external point solutions to make this type of marketing happen. A comprehensive data and customer lifecycle platform that uses machine learning and AI is able to model the data as required for differentiation and success at greater speed. 

To realize this potential, boards must drive transformation and sustained long term strategy. Technology implementation should start with clarity on business goals and continued transformation. Here are pitfalls to consider during implementation of such transformations that boards can help companies avoid.

Governing: Oversight Framework

Since AI adds new challenges and opportunities to marketing, directors need to be able to understand the motivations, results, and risks for any marketing processes that use it. At the outset of the board’s work to oversee AI practices within the company, the board should request from the CEO and CMO a summary of the following:

  • opportunities being pursued via AI;
  • functions and features in use;
  • types of data and how they are being used;
  • privacy, bias, and ethics considerations paired with measures or audit trails to track them;
  • any findings by AI such as new customer micro-segments or product and service features needed;
  • any external sources of data being used;
  • any data partners who might share data and how they might do that; and  
  • any explanations or assurances provided to stockholders, particularly around any rulings around data, ethics, and corporate social responsibility.

Thereafter, a report every six months on changes or progress within these areas is a good way to keep the board informed about AI’s use and role within the company.

In regular reports, the CMO typically presents metrics such as “ad to sales” ratio and “contribution to sales.” Most marketing departments still struggle with attribution of marketing spend to conversion and cannot readily cite customer acquisition cost (CAC). The use of AI along with customer 360 data enables clarity on customer acquisition, conversion, satisfaction and retention or customer lifetime value (CLV). CMOs in concert with business unit owners should then present KPIs such as CAC, CLV, and sales growth, as improved by AI every half year.

Audit also plays an important role in the board’s ability to oversee AI marketing efforts. Audit reports on privacy and bias provided by the audit measures and independent auditors must be presented yearly. The strategic plan should have half yearly and yearly benchmarks for the use of AI. The board should gauge the need for adjustments in strategy or actual progress based on the goals in the plan.

Continuing: Future-Proofing and Longevity

Faced with ever-faster disruption, companies must future-proof themselves and their technology with continual transformation. Even the government is doing it. Boards must support a culture of measured risk-taking and agile culture and process. Preventing regime change from restarting and reinvesting is a key board responsibility. The AI council should work in concert with the board to list anticipated market changes and product or service features that drive deep differentiation. Whether by internal efforts or by acquisition, strategic planning and preparedness will ensure companies survive.

Comments

Michael GabrielAugust 07, 2019

I love the focused and practical nature of this article, and totally agree with your position on the AI council function and its role in updating and advising the Board. Well done.

Tina ManiAugust 02, 2019

Very in depth treatment of the topic. The best part about the latest technologies is that they are not as hard or s art as they seem. Large businesses must work with new age startups and they will be pleasantly surprised at the ease of adoption of AI and the very clear benefits.