Last week, I penned a blog series around a special White-Collar Crime section in the July Harvard Business Review (HBR). This week, I propose to write a multipart blog post series based upon the MIT Sloan Management Review Special Report: Making Good on the Promise of AI. Today, I want to consider the article Strategy For and With AI by David Kiron and Michael Schrage. The author’s premise is, “A company’s strategy is defined by its key performance indicators. Artificial intelligence can help determine which outcomes to measure, how to measure them, and how to prioritize them.”
Their article had several insights for the Chief Compliance Officer (CCO) or compliance practitioner who is looking to employ Artificial intelligence (AI) to help move their compliance program up a level. One of the first key insights is that it is not enough to simply have a strategy for AI. The authors stated, “Creating strategy with AI matters as much — or even more — in terms of exploring and exploiting strategic opportunity. This distinction is not semantic gamesmanship; it’s at the core of how algorithmic innovation truly works in organizations. Real-world success requires making these strategies both complementary and interdependent. Strategies for novel capabilities demand different managerial skills and emphases than strategies with them.”
This makes clear that AI does not supplant the compliance function or the compliance professional, AI complements what the compliance professional can do with the information available to them. Yet the authors believe that when it comes to machine learning, an appropriate compliance strategy is defined by the key performance indicators (KPIs) leaders choose to optimize. This means that a CCO who cannot clearly identify and justify their strategic KPI portfolios has no strategy.
Distinct Compliments – For & With
It is not simply about having a strategy for AI but more about having a strategy with AI. For the compliance practitioner this means creating a compliance strategy for developing or applying a capability is not organizationally, culturally, or operationally the same as cultivating a strategy with that capability. Both the ‘for’ and ‘with’ are complementary. The authors put it more succinctly when they say, “A strategy for sustainability (such as lowering one’s carbon footprint or reducing waste) should not be divorced from having a sustainable overall strategy enabling the business to operate in thriving communities. Similarly, a strategy for AI shouldn’t be viewed as a substitute for creating a strategy with AI.”
Where Opportunities Lies
What does strategy with AI pragmatically mean for the compliance professional? Like any other compliance strategy, it expresses what the compliance function seeks to emphasize and prioritize over a given time frame. Compliance strategies may focus on how and why an organization should conduct business in a high-risk market. As the authors note, such “aspirations might involve, for example, superior customer experience and satisfaction, increased growth or profitability, greater market share, or agile fast-followership when rivals out-innovate the company.” CCOs must work to set their priorities or, as the authors say, “where the opportunities lie.”
Looking Forward to Look Back
Most interestingly, the authors believe that it is critical to have a time component in this process. Compliance leaders have the duty and responsibility to pick which time horizons and “objective functions” to optimize. In the compliance world this could be the lifecycle of third-party risk management, the Quote-to-Cash (QTC) or Procure to Pay (P2P) processes. Each of these cycles lends itself to an AI strategy with KPIs. The authors quote Andrew Low Ah Kee, Chief Operating Officer (COO) of GoDaddy.com, for the following insight on this time component, ““As you start to extend the time horizon, I think the degree of [organizational] misalignment tends to go down.” It’s easier to miss long-term goals if the focus is on short-term tactics.”
Making Smarter Trade-Offs
If there is one thing every CCO or compliance practitioner should understand it is making trade-offs. Yet the authors believe that by managing KPIs, you can move towards more optimization. This is certainly true as well in the compliance function. The authors are careful to point out that “optimization in this context does not mean maximization. On the contrary, it means computationally learning to advance toward desired strategic outcomes through carefully calculated and calibrated KPI trade-offs. Understanding trade-offs among and between competing — and complementary — KPIs is essential. Simply optimizing individual KPIs by priority or rank ignores their inherent interdependence. For any KPI portfolio, identifying and calculating how best to weight and balance individual KPIs becomes the strategic optimization challenge.” The bottom line is that you should strive to strike a balance and the use of AI can help you to understand between competing risk scenarios.
Data, Data, and Data
Ten years ago, the three most important words in any best practices compliance program were Document, Document, and Document. Into 2020 and beyond this may well become Data, Data, and Data. This is because there is no compliance “strategy for or with AI without an enterprise strategy for — and with — data. It is the essential ingredient for machine learning and dynamic optimization.”
This in turns, “makes data governance key. Organizations must invest in recognizing which data might enhance or elevate their KPIs — and which data will help their machines learn. Digital processes and platforms that combine and analyze data, siloed and scattered, empower the company’s artificial intelligentsia.” As a CCO or compliance professional, you must learn to “embrace comprehensive data strategies and practices” and then to manage data as an asset. This may well require you to “employ chief data officers, data scientists, and data wranglers, holding people and processes accountable for getting value from data. Increasingly, much of that value comes from how quickly, accurately, and reliably that data trains machines.”
The bottom line? AI plays a critical role in determining what and how compliance KPIs are measured and how best to optimize them. Optimizing carefully selected compliance KPIs becomes AI’s strategic purpose in the compliance function. Understanding the value of optimization is key to aligning and integrating strategies forand withAI and machine learning. KPIs create accountability for optimizing strategic aspirations, including compliance.
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