Strategy in an Era of Abundant Expertise

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AI is changing the cost and availability of expertise, and that will fundamentally alter how businesses organize and compete. At its most basic level a business can be considered a differentiated bundle of expertise organized to accomplish specific tasks. Expertise—which can be defined as a combination of deep theoretical knowledge and practical know-how in a specific domain—can take many forms within a business. 

Companies create value by applying their expertise efficiently at scale to solve problems for their customers. Typically they possess it in a variety of areas, but most differentiate themselves through their unique proficiency in just a handful of activities that are fundamental to how they create competitive advantage.

The evolution of expertise defines the evolution of business. Given the unrelenting nature of competition, companies must continually improve how they deploy expertise to remain relevant. We’ve seen the competitive advantage of many incumbents erode when new expertise becomes critical for success in a market.

Remaining on the frontier of expertise in important areas is critical to any company’s success. Technological progress creates two fundamental forces that complicate that challenge.  First, the overall body of expertise in the world is constantly expanding, making it harder to stay at the leading edge in every relevant area. Second, the cost of accessing expertise is constantly falling. Although that can benefit existing companies, it can also lower the barriers for new entrants.  The authors believe that the interplay between these two factors—the increasing amount of expertise required to create value and the decreasing cost of accessing that expertise—shapes companies and affects the scope of their operations. 

Friedrich Hayek, a contemporary of Coase’s, believed that markets and price systems would be more effective than companies at accessing and managing dispersed knowledge in society. Since the 1980s several technological innovations have led companies to rely more and more on markets to access expertise far broader and deeper than what could practically exist within a single entity. Those that use third-party business and technology platform services have been able to narrow the scope of their in-house expertise, allowing internal resources to focus on the areas that drive their competitive differentiation.  Developments in communications technology have played an important role in this transition. 

We are at an early stage in the AI era, and the technology is evolving extremely quickly. Providers are rapidly introducing AI “copilots,” “bots,” and “assistants” into applications to augment employees’ workflows. Although the quality of expertise embedded in such tools is already relatively high, the amount of it continues to grow swiftly while the cost of accessing it decreases.  Companies that take advantage of AI will benefit from what the author call the triple product: more-efficient operations, more-productive workforces, and growth with a sharper vision and focus.

If companies derive value from providing a differentiated bundle of expertise, how can they continue to be relevant when improvements in AI’s core capabilities make some or all of that expertise more easily available to competitors and customers? What is the basis for value capture in an era of abundant expertise?  The authors believe that every company will need to reevaluate its strategy in this changing era and will have to ask itself three questions.  Which aspects of the problem we now solve for customers will customers use AI to solve themselves?  Which types of expertise that we currently possess will need to evolve most if we are to remain ahead of AI’s capabilities?  And which assets can we build or augment to enhance our ability to stay competitive as AI advances?

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