Why AI Will Not Provide Sustainable Competitive Advantage

It is tempting for a company to believe that it will somehow benefit from AI while others will not, but history teaches a different lesson: Every serious technical advance ultimately becomes equally accessible to every company. Personal computers, the internet, semiconductor fabs, blockchain technology, genetic sequencing — these technologies are no longer competitive advantages for any organization.

AI is similar, and its increasing ubiquity should cause us to rethink our assumptions about how it will — and will not — change competitive dynamics. It is easy to paint a picture of a glistening, AI-driven future and the untold riches it harbors, ripe for the taking; it is just as easy to believe that companies that invest heavily in AI technology or move first will reap the lion’s share of potential profits.

But all such narratives obscure a critical point: While there will doubtless be transitory competitive advantages in embracing AI, AI does not change the fundamentals of what makes for a sustainable competitive advantage.

How can AI be the centerpiece of a sustained competitive advantage when everyone has it? We argue that it simply cannot. The value that AI unlocks will be unlocked for all. The advantages AI confers will be conferred on all. By definition, if everyone has access to the same technology — even if it is new and valuable — it may move the market as a whole but will not uniquely advantage anyone.

Far from being a source of differentiation, artificial intelligence will be a source of homogenization.  Realistic thinking about this homogenization clarifies where a business should be strategically aiming for advantage. The leveling effect of AI will amplify the value of what we term residual heterogeneity — the ability of a company to go beyond what is accessible to everyone else and create something unique. It is not enough just to have AI; companies must still go beyond it. Therefore, the key to unlocking sustained advantage is the same as it always has been: Companies must cultivate creativity, drive, and passion. That creativity must be technical, involving research and development. It must include novel ways to use AI. But it also includes conceiving of novel partnerships and finding novel ways to connect with customers. These are the same pillars of innovativeness that have always distinguished great companies; AI does not change any of it.

AI can be at the center of a product, a strategy, or even a company’s DNA, but it cannot be at the center of a sustainable competitive advantage. Testing AI against the three defining aspects of a sustainable advantage reveals why: To be sustainable, an advantage must be valuable, unique to an organization, and inimitable by other businesses. If a technology is valuable but not unique, then it is not an advantage; similarly, if a technology is unique to a company but not valuable, it is not an advantage. If a technology is valuable and unique to a company but can be imitated by others, then it does not confer a sustainable advantage. AI is unquestionably valuable, but it fails the other two tests because it is neither unique to any organization nor inimitable.

Why might a company believe that the benefits of AI will somehow accrue to it but not to its competitors? Some reasons include access to capital or hardware, novel algorithms, advanced models, superior engineering talent, business insight, or proprietary data.  Dissecting each of these reasons reveals that none is sustainable.

Fundamental hallmarks of human intelligence — the ability to see novel possibilities, forge unexpected connections, and make leaps of logic — are still unmatched by AI. Human creativity will be the greatest source of sustainable advantage companies can rely on in an uncertain world, and companies must not lose sight of the individuals and relationships that drive that creativity. Investing in untapped individual potential, promoting training and upskilling, and rewarding innovation will result in human capital that can sustain companies no matter how the technological landscape morphs.

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