Generative AI (GenAI) is making waves across various sectors, and its potential to revolutionize industries has become a hot topic. In a recent discussion, Michael Jacobides, the Sir Donald Gordon Professor of Entrepreneurship and Innovation and Professor of Strategy at London Business School, alongside Yuri Romanenkov, the Academic Director of the Next Generation Digital Strategies Program at LBS, delved into the profound impacts of GenAI on private equity and industry transformation.
This discussion is based on a recent policy paper, published by London Business School and the Institute of Directors (IoD), assessing the expected impact of GenAI on the U.K. competitive landscape. The study was produced by a London Business School team led by Michael and doctoral student Mingyu Dalbert Ma, in cooperation with Faisal Khan, Chair of the IoD’s Expert Advisory Group on Science, Innovation and Technology. It was supported by Evolution Ltd and its advisors including Yuri Romanenkov, Justinas Sukuys, George Alevras and others. The paper was introduced at the 𝗣𝗿𝗶𝘃𝗮𝘁𝗲 𝗖𝗮𝗽𝗶𝘁𝗮𝗹 𝗦𝘆𝗺𝗽𝗼𝘀𝗶𝘂𝗺 𝟮𝟬𝟮𝟰.
Jacobides and Romanenkov’s research aims to evaluate whether the hype around GenAI is justified. They explore not only its current applications but also its broader potential to transform industries. Their findings indicate that GenAI’s impact varies significantly across industries and business models.
Corporate Inequalities and Proprietary Data
One of the most intriguing findings from their research is the potential for GenAI to widen corporate inequalities. Digital technologies often amplify existing disparities by enabling certain firms to scale up and capture larger market shares. With GenAI, companies possessing proprietary data can leverage the technology to uncover patterns and innovate in ways that others cannot. This advantage allows these firms to better serve their customers and even expand their offerings, positioning them as the likely winners in this technological revolution.
Transformative Impact and New Business Models
About 22% of the firms in their sample report experiencing a transformative impact from GenAI. These firms tend to go beyond simple cost and productivity initiatives. Instead, they explore new business models and seek significant changes in customer engagement. The ability to experiment with various value levers is more prevalent among high-impact firms than those with lower impact. This indicates that success with GenAI requires looking beyond the obvious applications and investing in deeper, more strategic uses of the technology.
Interestingly, Jacobides notes that the key to success with GenAI is not merely technological prowess but strategic consistency. Companies that succeed are those that deeply integrate GenAI into their operations and customer engagement strategies. They ensure that they use GenAI consistently and regularly, particularly in sensitive areas of their organization. Winning firms focus on the strategic implementation of GenAI, recognizing that it requires changes in strategy and organization alongside technological adoption.
Implications of GenAI on Private Equity
For private equity investors, the implications of GenAI are multifaceted. Large-cap buyout investors, traditionally concerned with business model changes, might find the disruption caused by GenAI alarming. They need to develop a profound understanding of what GenAI means for the industries they invest in. On the other hand, growth investors, who invest in companies at earlier stages, might find GenAI’s transformative potential exciting. They can bet on winners by evaluating capabilities and value levers effectively.
Private equity investors must adopt new due diligence practices that focus on how technology links to value levers. They need to work closely with portfolio companies to build the right capabilities to harness GenAI’s potential, ensuring they remain competitive in this rapidly evolving technological landscape.
While GenAI offers exciting opportunities for innovation and growth, success requires a strategic approach that goes beyond technological adoption. Firms that can strategically integrate GenAI into their operations and private equity investors who can navigate the new landscape will be best positioned to thrive in this technological revolution.
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