What Company Boards Need To Know About AI

(THIS ARTICLE IS COURTESY OF HARVARD BUSINESS REVIEW)

 

What Boards Need to Know About AI

MAY 24, 2019

C. J. BURTON/GETTY IMAGES

Being a board member is a hard job — ask anyone who has ever been one. Company directors have to understand the nature of the business, review documents, engage in meaningful conversation with CEOs, and give feedback while still maintaining positive relationships with management. These are all hard things to balance. But, normally, boards don’t have to get involved with individual operational projects, especially technical ones. In fact, a majority of boards have very few members who are comfortable with advanced technology, and this generally has little impact on the company.

This is about to change, thanks to machine learning and artificial intelligence.

More than half of technology executives in the 2019 Gartner CIO Survey say they intend to employ AI before the end of 2020, up from 14% today. If you’re moving too slowly, a competitor could use AI to put you out of business. But if you move too quickly, you risk taking an approach the company doesn’t truly know how to manage. In a recent report by NewVantage Partners, 75% of companies cited fear of disruption from data-driven digital competitors as the top reason they’re investing.

The questions boards are going to have to ask themselves are similar to those they would ask in the face of any large opportunity investment: Why are we spending all this money? What’s the economic benefit? How does it impact our people and our long-term competitiveness?

INSIGHT CENTER

Answering these questions requires expertise in technology. But you can’t just add a tech expert to the board and count on him or her to keep the rest of the board up to speed. Having served in that role, I have found it to be at best a useful half-step. Relying on a single techie is no replacement for having a full board mastering at least a basic understanding of AI and its disruptive potential.

Every board’s comfort level is going to differ depending on the industry. Manufacturers well understand how robots can free up people to do higher-order work by taking on repetitive and potentially dangerous jobs. Hospitals and health insurers are starting to deploy AI widely, but big successes have been elusive. By contrast, the financial services business is ripe for disruption by AI. Lenders have massive amounts of data and the potential to free up billions in cash flow by finding new efficiencies through applications that will, for example, help bankers make smarter lending decisions and create new revenue opportunities by offering customers better, more tailored products.

That said, here are four guideposts that board members in any industry can use to orient themselves when they begin the journey:

It’s math, not magic. Boards shouldn’t be intimidated by AI. Members don’t need to have degrees in computer engineering to understand the technology behind AI, just like they don’t need to be CPAs to understand the company’s balance sheet. Any good use of ML or AI is going to be an outgrowth of what the company is already doing, not some kind of universal all-knowing Skynet type of AI. Keeping that perspective at the forefront and gaining a basic understanding of AI will help boards better decide how to direct AI use.

Well-run AI projects should be easily understood. When evaluating if a project is right for their company, boards should feel confident enough to say when something doesn’t make sense. The best-run AI projects should be explainable in plain English. It should be clear how real groups of people, whether employees, customers or management, will be affected. If a vendor or internal team can’t explain how an AI project works, it may not be the right fit for your company. This is not unique to ML — it used to be true for ERP implementations — but ML is moving more quickly through the corporate world than ERPs did. For example, when I presented an ML-underwriting project to the board of one top credit-card issuer, I started with the economic impact to their business, the timeframe for delivery, what the roadblocks might be for IT and compliance, and who would need to get involved.

You don’t have to get creepy to get value out of data. Too often, companies assume that in order to make the most out of AI, they need to be like Facebook or Google and pull in every last bit of data they can find. But that can get creepy fast and, usually, there’s no need for that level of data. Our work developing machine learning-based credit underwriting models with banks and lenders has shown that social media data doesn’t provide such strong signals, anyway. Most companies are already sitting on a ton of pretty banal data that’s full of signal and insights that can be unlocked using ML.

AI is an operating expense, not a capital investment. If management’s plan for getting on the AI bandwagon revolves around a big one-time investment, chances are they are going about it wrong. AI has the potential to enhance the bottom line by boosting revenue and cutting costs, but budget needs to be put aside to ensure the algorithms and models are functioning properly and are being rebuilt or refit as macro factors change and new sources of data emerge. Think of AI as you would a Formula 1 race car, which performs best when its support team has a real-time view of the vehicle’s health as it’s zipping around the track.

Widespread adoption of AI in business is still in its infancy. Boards that fail to get in front of this trend will pay the price.


Douglas Merrill is the CEO and founder of ZestFinance, a Los Angeles-based financial services technology company. He was previously CIO and VP of Engineering at Google.

Zimbabwe’s Powerful Dictator Mugabe: Running Out Of Money, Running Out Of Power

(THIS ARTICLE IS COURTESY OF REUTERS NEWS AGENCY)

As Zimbabwe’s money runs out, so does Mugabe’s power

President Robert Mugabe addresses to his supporters during an election rally in Chitungwiza, Zimbabwe June 26, 2008.REUTERS/Philimon Bulawayo/File Photo
By Ed Cropley | HARARE

In Zimbabwe, where worthless $100 trillion notes serve as reminders of the perils of hyperinflation, President Robert Mugabe is printing a new currency that jeopardizes not just the economy but his own long grip on power.

Six months ago, the 92-year-old announced plans to address chronic cash shortages by supplementing the dwindling U.S. dollars in circulation over the past seven years with ‘bond notes’, a quasi-currency expected at the end of November.

According to the Reserve Bank of Zimbabwe (RBZ), the bond notes will be officially interchangeable 1:1 with the U.S. dollar and should ease the cash crunch. The central bank also promised to keep a tight lid on issuance.

After a 2008 multi-billion percent inflationary meltdown caused by rampant money-printing, many Zimbabweans are skeptical. The plan has already caused a run on the banks as Zimbabweans empty their accounts of hard currency.

Internal intelligence briefings seen by Reuters raise the possibility that the bond notes, if they crash, could spell the end of Mugabe’s 36 years in charge.

A Sept. 29 Central Intelligence Organisation (CIO) report revealed the powerful army was as unhappy as the rest of the population with the new notes and had told Africa’s oldest leader to “wake up and smell the coffee”.

“Top security officers have told Mugabe not to blame them if Rome starts to burn,” the report said.

Reuters was unable to determine the author of the report. It is also unclear if Mugabe has seen the report, whose final audience is not specified. Mugabe’s spokesman did not respond to requests for comment, nor was the CIO available.

But the report offers a rare glimpse into the thinking of Mugabe’s security forces – the backbone of his power – and their concerns about the implosion of what used to be one of Africa’s most promising economies.

“Mugabe was openly told that the bond notes are going to cause his downfall,” the report said.

WAITING FOR THE DROP

The notes’ first test will come in the informal foreign exchange markets on the streets of Harare.

If they fall heavily in value, they are likely to unleash an inflationary spiral that could bleed the banking system of its last few dollars and wipe out Zimbabweans’ savings for the second time in less than a decade, economists say.

The same happened in 2008: powerful individuals with access to dollars at the official 1:1 rate were able to buy bond notes at a discount on the unofficial market and then convert them back to dollars at face value.

“You start with one dollar, then you’ve got 10, then you’ve got 100, then you’ve got 1,000 – and it’s not even lunchtime,” said John Robertson, one of Zimbabwe’s most respected private economists.

In Harare’s chaotic Road Port bus station, the main terminus for those heading to and from South Africa, Zimbabwe’s biggest trading partner, some bus operators are fearing the worst.

Required to pay nearly all their expenses – fuel, road tolls and police bribes in Zimbabwe and South Africa – in hard currency cash, they are particularly exposed.

“It’s like being on death row. You don’t know when the hangman is going to open your cell door,” said ticket-seller Simba Muchenje, pulling a wad of worthless 2008 Zimbabwe dollars from his briefcase and tossing them onto the counter.

“It’s just taking us back to the bad old days.”

In interviews, none of eight money-changers trading South African rand and U.S. dollars said they would accept bond notes at their $1 face value because of fears of immediate depreciation. The rand and the U.S. dollar have become Zimbabwe’s currencies since the local dollar was scrapped in 2009

“The banks may say 1:1, but here we say 2:1. We can’t afford to pay the same as the banks. I’m running a business, not a bank,” said Patience, a 32-year-old money-changer.

REASSURING WORDS

Given Zimbabwe’s recent history of hyperinflation, the RBZ is keen to allay fears the printing presses are about to go into overdrive, and that the bond notes are a roundabout route to a new Zimbabwe dollar.

“The introduction of bond notes does not mark the return of the Zimbabwe dollar through the back door,” it said in a statement on its website.

Instead, the bank has presented the notes as a 5 percent “export incentive” – a top-up added by the central bank to the accounts of those receiving foreign exchange either from overseas remittances or via farming, manufacturing and mining exports.

They will also be backed by a $200 million “loan facility” from Afreximbank, a Cairo-based lender owned by the African Development Bank and dozens of African governments and central banks. Afreximbank declined to comment.

Given monthly exports of roughly $250 million, the 5 percent ‘top-up’ suggests a monthly liquidity injection of just $12.5 million, or $1 for every Zimbabwean.

In public statements, the RBZ has given assurances it will not exceed the $200 million issuance ceiling.

But it has not clarified how bond note balances will be recorded in U.S. dollar accounts, nor how ATMs will distinguish between greenbacks and bond notes when they issue cash.

“Upon withdrawal, banks have an option to pay in any one of the legal tenders,” the RBZ said.

RBZ Governor John Mangudya missed a scheduled interview with Reuters and did not respond to emailed questions.

NO DOLLARS, NO FUN

Few Zimbabweans interviewed believed the RBZ would stick to the issuance limits, especially while a large current account deficit continues to suck dollars out of the country.

After the bond notes’ announcement, #ThisFlag and #Tajamuka, social media campaigns targeting the new system, drew the biggest anti-Mugabe protests in a decade before being crushed by riot police and the CIO.

Meanwhile, tens of thousands across the country lined up through the night to empty their accounts the moment their pay or pensions arrive, exacerbating the liquidity crunch. Banks have responded with daily withdrawal limits: $100 one day, $50 another, none another. Customers have no idea until the banks open their doors at 8 a.m.

“Sometimes you get to the end of the line and there’s no money,” said industrial fitter Edmund Panganai, 40, outside a CABS building society branch in Harare. Every month, it takes him at least seven nights of queuing to get his hands on his pay.

In Harare, where most U.S. dollar bills are stained deep brown with grime, a crisp 2009-edition $100 note is now worth as much as $115.

Conversely, the plastic and mobile money introduced to ease physical cash shortages is depreciating, forcing vendors to charge a 10-15 percent premium.

One prostitute, who had been relying on e-wallet payment systems such as Ecocash, run by mobile firm Econet Wireless (ECO.ZI), said she and other sex workers were turning away customers without hard cash.

“Ecocash? No thank you. Dollars, dollars, dollars,” said Patience, a 22-year-old working a Harare street corner. “No dollars, no fun.”

ARMY RATIONED

Combined with unemployment at 90 percent and a government budget crunch that has seen delays in payment of state wages, the discontent is also pervading the army.

The Sept. 29 CIO report said soldiers had applauded the social media protests because they had led to an improvement in daily rations.

“Before the demonstrations government had stopped supplying them with breakfast. At lunch they were being fed with sadza (maize meal) and cabbage without cooking oil. Mugabe instructed for the army officers to be given descent [sic] meals so they will rally behind him,” the report said.

Other intelligence reports from late September and early October suggested Mugabe was having doubts about the bond notes. Reuters was unable to confirm this.

“The issue of the bond notes is giving Mugabe sleepless nights,” one said. “Mugabe is serious [sic] thinking of delaying the introduction of the bond until January next year.”

Another report said army officers were frustrated with pay delays and withdrawal limits.

“They are very angry as they are failing to access their money from the banks and do not want to be issued with bonds,” it said.

“These junior and middle-ranked officers reckon that Mugabe has failed, hence he needs to step down for new blood to replace him.”

VETERANS AT WAR

In July, veterans of the 1964-1979 liberation war that brought Mugabe to power broke ranks, accusing him of “dictatorial tendencies” and blaming him for the “serious plight” of the economy and discord in the ruling ZANU-PF party.

“We are dedicated to stop this rot,” they said in a statement.

As fears over the bond notes have grown and the battle to succeed Mugabe has intensified, they have continued to flex their muscle.

“Once you go wrong with us, you automatically go wrong with the whole state apparatus,” veterans leader Chris Mutsvangwa told Reuters.

The veterans enjoy warm ties with the army and security services, and want Vice-President Emmerson Mnangagwa, a former security chief nicknamed “The Crocodile”, to take over from Mugabe, political analysts say. On the other side is a faction attached to Mugabe’s 51-year-old wife, Grace.

Mugabe responded to the growing pressure on Nov. 19 with an address in which he admitted fallibility and gave a rare hint at retirement.

“If I am making mistakes, you should tell me. I will go,” he said, before adding: “Change should come in a proper way. If I have to retire, let me retire properly.”

(Additional reporting by MacDonald Dzirutwe; Editing by Janet McBride)