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Does your service business need AI? Here are 4 rules to help you decide

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theconversation.com – David Cohen, Associate Professor of Management and Business, Skidmore College – 2024-05-30 07:23:00

Not everyone needs to jump on the AI train.

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David Cohen, Skidmore College; Christopher Meyer, Baruch College, CUNY, and Sudhir Nair, University of Victoria

Artificial intelligence is the big thing right now, with industries from finance to health care to retail scrambling to adopt AI or risk being left behind. But speaking as professors of business, we think some companies might be jumping the gun.

Our recent research suggests that service providers shouldn't automatically jump on the AI bandwagon. Instead, they should make a choice informed by their strategy. In short, when it comes to AI and service firms, more isn't necessarily better.

Why service providers face a different calculation

Are you a manufacturer? Then if AI reduces your costs without lowering quality and gives you the return on investment you need, go ahead and try it.

But service businesses – firms that do things for customers, rather than making physical products – are different. Unlike manufactured items, services are “co-produced” by the customer. Customers can complicate something as simple as ordering pie.

Dealing with customers introduces what academics call customer interaction uncertainty. That uncertainty comes from two sources: the extent of interaction with customers, and – because customers may want a lot of different things – a potentially wide range of offerings.

As an example, consider a restaurant. A customer orders what they want, combines different dishes as they see fit, and then eats the food when it comes out. The customer might make bad decisions, but the restaurant is stuck with them.

If you let the customer interact with a server – or, even worse, the cook – they may ask for substitutes, question the ingredients or try to convince you to make something special. None of that will happen if you confine them to choosing from a set menu via a tablet. To continue the analogy, a restaurant can offer a small number of standard dishes, or it can offer many dishes the customer can customize.

If you run a service business, you've already made any number of choices based on your customer interaction strategy. Imagine, for example, you run a financial services firm. Are your offices comfortable and convenient for your customers, designed for long meetings to go over their needs? Or do you restrict your time with your customers and work with them over the phone or even an app?

Similarly, do you limit your offerings so that you know pretty much what you'll be doing for each customer? Or do your services vary widely depending on the customer's needs and the choices they make? Think, for example, of CPAs versus tax preparation apps.

Doing business in an uncertain world

How much uncertainty do you allow your customer to introduce into your production process? This should be one of the main things guiding whether your service business adopts AI.

To understand why, let's take a detour into what academics call information processing theory. According to this body of work, organizations cope with uncertainty by using knowledge to reduce risk. The core challenge for service firms is deploying knowledge in service production.

Individual knowledge – also known as human capital – reduces uncertainty in service production as human workers solve problems and meet customer needs. But human capital has its problems: It belongs to the employee and not to the firm, and it's not scalable. On the plus side, customers still value human interaction.

The other form of knowledge is known as “organizational capital”: codified knowledge that the firm itself owns. Organizational capital has inherent advatages: It belongs to the firm, and it scales. AI, a form of organizational capital, clearly has these advantages.

Information processing theory gives us three techniques for organizing knowledge to deal with uncertainty.

The first is having rules and programs – a form of organizational capital. The second is having hierarchical structures. Here, front-line workers escalate intricate matters to more knowledgeable managers. The third is goal-oriented coordination: Businesses can deal with uncertainty by empowering lower-tier employees with decision-making autonomy, guided by overarching organizational objectives. These last two rely on knowledgeable, experienced workers – human capital.

Here's how that fits with service strategy. Mostly, firms with fewer options for consumers and limited customer interaction use organizational capital. Nowadays, that typically means tech solutions on top of rules and programs. Firms with a wide range of offerings but limited customer interaction use a hierarchy, where challenges get passed up the chain. And firms with both a wide range of offerings and high customer interaction use front-line knowledge workers coordinated by targets or goals.

Tech may augment the latter two modes, but the cost of offering a wider range of services or greater customer choice is that the firm becomes more dependent on human knowledge workers.

The strategic use of AI

AI, a sophisticated form of organizational capital, can reduce customer interaction uncertainty. The firm owns it and can scale it. Yet it is still bound by its rules and dataset, and there are areas of uncertainty where human capital still offers advantages: finding creative solutions, linking disparate concepts and understanding the nuances of human interaction, to name a few.

The challenge is to strategically navigate all of this, combining customer strategy and human and organizational capital in a cohesive way. We came up with four rules that should help:

  1. Strike a strategic balance. For predictable tasks, such as payments, automation enhances efficiency and sacrifices little. Complex and varied customer needs, however, demand the flexibility and empathy of human expertise and interaction. The optimal approach often lies in a balanced integration of both, where automation supports routine tasks and humans take care of those nuances that automation can't handle.

  2. Leverage strengths. Use AI to navigate tasks such as data analysis and decision-making processes where objectivity and comprehensiveness are crucial. This ensures precision and reliability in services where mistakes can have big consequences, such as finance and health care. On the other hand, in services where trust, personal rapport and reputation are vital, prioritize human interaction to build and maintain strong client relationships.

  3. Seek opportunities for synergy. Encourage dynamic interaction between human capabilities and AI technologies, so each can learn from the other. This not only enhances current operations but also fosters an environment where both humans and AI can evolve. This can lead to a sustainable competitive advantage over rivals by continuously expanding the firm's knowledge base and adaptability.

  4. Consider the context. Assess the specific needs and values of your customers to determine the appropriate mix of human and technological resources. Recognize that this balance may shift over time as technologies advance and client expectations change.

By following these guidelines, service firms can navigate the complexities of integrating AI into their operations, leveraging the best of all worlds to meet their clients' needs effectively and sustainably.The Conversation

David Cohen, Associate Professor of Management and Business, Skidmore College; Christopher Meyer, Lecturer, Zicklin College of Business; Advisor, Lawrence N. Field Center for Entrepreneurship, Baruch College, CUNY, and Sudhir Nair, Associate Professor of Business, University of Victoria

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The Conversation

American slavery wasn’t just a white man’s business − new research shows how white women profited, too

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theconversation.com – Trevon Logan, Professor of Economics, The Ohio State University – 2024-06-10 07:39:44

Trevon Logan, The Ohio State University

As the United States continues to confront the realities and legacy of slavery, Americans continue to challenge myths about the country's history. One enduring myth is that slavery was a largely male endeavor — that, for the most part, the buying, selling, trading and profiting from enslavement were carried out by white men alone.

While white women certainly interacted with enslaved people in household management and day-to-day tasks, historians once argued that they weren't active owners and had very limited involvement in transactions. This was once widely believed to be a reason why Southern white women supported the institution – they were assumed to be blind to its darker side.

As an expert in the economic history of slavery, I know the story is far more complex. In fact, slavery was unique in economically empowering women. It was, in essence, an early feminist institution – but exclusively for white women.

A lasting myth

The myth that women didn't profit from slavery has endured for several reasons. First, before the American Civil War, married women generally owned nothing of their own. The legal institution of coverture made the property a woman brought into her marriage into the property of her husband. This also meant that if a husband was in debt, a creditor could claim the wife's property for payment.

In addition, there are very few surviving records that show Southern white women discussing the business of slavery. And finally, in cases where women were owners of enslaved people – say, through the death of a husband – they often used agents or male relatives to handle their affairs. Added together, there's very little to suggest that white women were deeply involved in the slavery business.

Researchers have started to challenge this view by moving beyond the traditional archival sources. The innovative historian Stephanie Jones-Rogers has documented how regularly white women were seen in all aspects of American enslavement. Her most compelling evidence comes from interviews with the formerly enslaved people themselves, who noted who they were owned by and explained how belonging to the “misses” affected every aspect of their life.

The ‘white feminism' of American slavery

Historians have also started grappling with the ways American slavery was uniquely gender-egalitarian – at least for white women. While Northern women were trapped in coverture, Southern states were bypassing coverture specifically for the purpose of giving married women rights to own enslaved people.

The earliest such act passed in the United States was the Mississippi Married Women's Property Law of 1839. This law explicitly awarded married white women ownership status over enslaved individuals. Slavery was the driver of this change: Four of the five sections of the act refer only to property in enslaved people.

Similar acts were passed by other Southern states in the antebellum era to shield married women from responsibility of their husband's debts and also to allow women to independently accumulate wealth during marriage.

Of course, laws on the books may not reflect how people actually behaved. But new research shows that white women were very involved in the business of slavery. In states where enslaved people were titled property – like a house or car today – sales were recorded with names of buyers, sellers and the names of the enslaved people in the transaction. White women in states where legislation formally protected their property rights to enslaved property were much more likely to be active in the market.

Kean Collection/Archive Photos/Getty Images
An antebellum print advertisement announces the sale of ‘valuable slaves.'
Kean Collection/Archive Photos/Getty Images

Further analysis of these records shows that white women were involved in nearly a third of all transactions, buying and selling in equal proportion. White women were especially likely to buy and sell enslaved women, making up nearly 40% of the people doing the buying and selling.

Enslaved women were especially economically valuable because if someone owned an enslaved women, they automatically became the owner of all of her children. For slave owners, owning an enslaved woman was an intergenerational wealth-building activity.

A historical irony

We are left to confront a deep irony in American history. Slavery gave white women in the South significantly more economic independence than those in the North, and they used this freedom with remarkable regularity. Women in slave states had legal rights to property that was half of the wealth in the southern United States at the time. Women in the North could only dream of such economic independence.

While historians once claimed that white women supported the Confederacy because they were blind to the reality of slavery, researchers now know that they could have been motivated by the same economic impulses as their husbands. Slavery was actually a more gender-egalitarian institution than other forms of property or wealth accumulation, so it's not surprising that white women would have a vested interest in it.

Slavery was white men's and women's business.The Conversation

Trevon Logan, Professor of Economics, The Ohio State University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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The warming ocean is leaving coastal economies in hot water

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theconversation.com – Charles Colgan, Director of Research for the Center for the Blue Economy, Middlebury Institute of International Studies – 2024-06-10 07:39:10
Warm water expands, raising sea levels, which worsens storm surge during hurricanes. It's only one risk from warming oceans.
AP Photo/Gerald Herbert

Charles Colgan, Middlebury Institute of International Studies

Ocean-related tourism and recreation supports more than 320,000 jobs and US$13.5 billion in goods and services in Florida. But a swim in the ocean became much less attractive in the summer of 2023, when the water temperatures off Miami reached as high as 101 degrees Fahrenheit (37.8 Celsius).

The future of some jobs and businesses across the ocean economy have also become less secure as the ocean warms and damage from storms, sea-level rise and marine heat waves increases.

Ocean temperatures have been heating up over the past century, and hitting record highs for much of the past year, driven primarily by the rise in greenhouse gas emissions from burning fossil fuels. Scientists estimate that more than 90% of the excess heat produced by human activities has been taken up by the ocean.

That warming, hidden for years in data of interest only to oceanographers, is now having profound consequences for coastal economies around the world.

Understanding the role of the ocean in the economy is something I have been working on for more than 40 years, currently at the Center for the Blue Economy of the Middlebury Institute of International Studies. Mostly, I study the positive contributions of the ocean, but this has begun to change, sometimes dramatically. Climate change has made the ocean a threat to the economy in multiple ways.

The dangers of sea-level rise

One of the big threats to economies from ocean warming is sea-level rise. As water warms, it expands. Along with meltwater from glaciers and ice sheets, thermal expansion of the water has increased flooding in low-lying coastal areas and put the future of island nations at risk.

In the U.S., rising sea levels will soon overwhelm Isle de Jean Charles in Louisiana and Tangier Island in Chesapeake Bay.

Flooding at high tide, even on sunny days, is becoming increasingly common in places such as Miami Beach; Annapolis, Maryland; Norfolk, Virginia; and San Francisco. High-tide flooding has more than doubled since 2000 and is on track to triple by 2050 along the country's coasts.

Maps show temperatures and sea level rise, with the fastest ris along the Gulf and Atlantic coasts, and lower rates on the Pacific.
Satellite and tide gauge data show sea-level change from 1993 to 2020.
National Climate Assessment 2023

Rising sea levels also push salt water into freshwater aquifers, from which water is drawn to support agriculture. The strawberry crop in coastal California is already being affected.

These effects are still small and highly localized. Much larger effects come with storms enhanced by sea level.

Higher sea level can worsen storm damage

Warmer ocean water fuels tropical storms. It's one reason forecasters are warning of a busy 2024 hurricane season.

Tropical storms pick up moisture over warm water and transfer it to cooler areas. The warmer the water, the faster the storm can form, the quicker it can intensify and the longer it can last, resulting in destructive storms and heavy downpours that can flood cities even far from the coasts.

When these storms now come in on top of already higher sea levels, the waves and storm surge can dramatically increase coastal flooding.

What Hurricane Hugo's flooding would look like in Charleston, S.C., with today's higher sea levels.

Tropical cyclones caused more than $1.3 trillion in damage in the U.S. from 1980 to 2023, with an average cost of $22.8 billion per storm. Much of that cost has been absorbed by federal taxpayers.

It is not just tropical storms. Maine saw what can happen when a winter storm in January 2024 generated tides 5 feet above normal that filled coastal streets with seawater.

A firefighter walks through seawater running knee-deep in a commercial street with a sign for J's Oysters behind him.
A winter storm that hit at high tide sent water rushing into streets in Portland, Maine, in January 2024.
AP Photo/Robert F. Bukaty

What does that mean for the economy?

The possible future economic damages from sea-level rise are not known because the pace and extent of rising sea levels are unknown.

One estimate puts the costs from sea-level rise and storm surge alone at over $990 billion this century, with adaptation measures able to reduce this by only $100 billion. These estimates include direct property damage and damage to infrastructure such as transportation, water systems and ports. Not included are impacts on agriculture from saltwater intrusion into aquifers that support agriculture.

Marine heat waves leave fisheries in trouble

Rising ocean temperatures are also affecting marine life through extreme events, known as marine heat waves, and more gradual long-term shifts in temperature.

In spring 2024, one third of the global ocean was experiencing heat waves. Corals are struggling through their fourth global bleaching event on record as warm ocean temperatures cause them to expel the algae that live in their shells and give the corals color and provide food. While corals sometimes recover from bleaching, about half of the world's coral reefs have died since 1950, and their future beyond the middle of this century is bleak.

A school of fish with yellow tails swim over a reef in July 2023.
Healthy coral reefs serve as fish nurseries and habitat. These schoolmaster snappers were spotted on Davey Crocker Reef near Islamorada in the Florida Keys.
Jstuby/wikimedia, CC BY

Losing coral reefs is about more than their beauty. Coral reefs serve as nurseries and feeding grounds for thousands of species of fish. By NOAA's estimate, about half of all federally managed fisheries, including snapper and grouper, rely on reefs at some point in their life cycle.

Warmer waters cause fish to migrate to cooler areas. This is particularly notable with species that like cold water, such as lobsters, which have been steadily migrating north to flee warming seas. Once-robust lobstering in southern New England has declined significantly.

Map shows how the average locations of lobster, red hake and black sea bass changed over 45 year, 1974-2019. Smaller charts show each moving
How three fish and shellfish species migrated between 1974 and 2019 off the U.S. Atlantic Coast. Dots shows the annual average location.
NOAA

In the Gulf of Alaska, rising temperatures almost wiped out the snow crabs, and a $270 million fishery had to be completely closed for two years. A major heat wave off the Pacific coast extended over several years in the 2010s and disrupted fishing from Alaska to Oregon.

This won't turn around soon

The accumulated ocean heat and greenhouse gases in the atmosphere will continue to affect ocean temperatures for centuries, even if countries cut their greenhouse gas emissions to net zero by 2050 as hoped. So, while ocean temperatures fluctuate year to year, the overall trend is likely to continue upward for at least a century.

There is no cold-water tap that we can simply turn on to quickly return ocean temperatures to “normal,” so communities will have to adapt while the entire planet works to slow greenhouse gas emissions to protect ocean economies for the future.The Conversation

Charles Colgan, Director of Research for the Center for the Blue Economy, Middlebury Institute of International Studies

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Getting services to people in need often relies on partnerships between government and nonprofits, but reporting requirements can be too onerous

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theconversation.com – David C. Campbell, Professor Emeritus of Human Ecology, University of California, Davis – 2024-06-10 07:36:49
Volunteers can help reduce costs, but most nonprofit social service groups rely heavily on government funding.
Brittany Murray/MediaNews Group/Long Beach Press-Telegram via Getty Images

David C. Campbell, University of California, Davis

Many Americans celebrate philanthropic donations to privately run institutions of all kinds – from Boys and Girls Clubs to church-sponsored charities – while bemoaning big government.

But they may not realize how heavily nonprofits, especially those providing services for people in need, rely on the public sector for their budgets.

Beginning as early as the 1930s and accelerating during the 1960s, many important social services in the U.S. have been largely funded by government but delivered by privately run nonprofits operating job training programs, health clinics, child development centers, etc.

By the late 1970s, nonprofit social service agencies received almost half their funding from local, state or federal governments. That share gradually grew to over 60% by 2010 and has remained near that level since then.

In my new book, “Democracy's Hidden Heroes: Fitting Policy to People and Place,” I examine the promise and pitfalls of these partnerships between government agencies and nonprofits. By relying heavily on privately run organizations to deliver social services, the government can employ fewer people, reducing the size of its bureaucracy and payroll.

But these partnerships can flounder. Ironically, a key reason is one of the most widely used strategies for improving and tracking the impact of these services, commonly called “results accountability.”

Funding and flexibility

Here's how results accountability works:

Government agencies specify the desired outcomes of a program or policy initiative they're funding. They then hold the nonprofits implementing that program accountable for meeting these predetermined goals. For example, workforce and job training programs are asked to report the percentage of their clients who become gainfully employed and retain their jobs after six months or a year.

At the same time, nonprofits are given the flexibility to decide how to achieve the goals. When projects are completed, nonprofits report not only on what they did with the money but what they achieved.

Results accountability may sound like an ideal way to marry the political ideals of a strong government with community engagement. Government leaders gain a way to manage local service providers and to hold them accountable; nonprofits get the funding and the flexibility required to meet the needs of the communities they serve; and legislators can assess the return on investment of government-funded programs.

Support group meeting with all female participants, some with shaved heads.
Keeping track of results is a reasonable goal, but sometimes it's at odds with accomplishing as much as possible.
SDI Productions/E+ via GettyImages

A failure to align

In practice, results accountability requires three different things that seldom align and are often in short supply.

First, the goals must be clear and agreed upon by all parties. This is particularly difficult in collaborative partnerships where goals often diverge or shift over time.

Second, there must be a way to measure outcomes so they can be reported. But outcome data can be difficult or costly to obtain.

Finally, there must be a way to use evidence regarding outcomes to adjust policy and programs. This step is often missing entirely in systems that are awash in numbers but have little time for careful deliberation on what the numbers mean.

In the course of three decades of evaluating grant-funded programs, I have never encountered a situation where all three of these conditions were met at the same time.

Rigid bureaucratic requirements

I have interviewed hundreds of nonprofit directors and other local leaders who have had to contend with results accountability requirements. In “Democracy's Hidden Heroes,” I share their stories of being caught between rigid bureaucratic requirements and unique community circumstances.

These people work in places where bureaucracy and community networks meet and often collide. They tell stories about receiving funds from multiple government agencies with conflicting rules and requirements. They lament preset performance targets that get in the way of promised local flexibility. They worry that grants will lead them to abandon their core mission as they attempt to satisfy funder goals.

Some grant objectives are so broad, such as promoting a healthy community, that they leave nonprofits wondering how to pick and choose among a dizzying number of potential indicators of success. Sometimes small but important community improvement efforts, such as stream cleanup days or street beautification projects, are expected to be measured by sophisticated outcome indicators that are a bad match for the straightforward work being done.

Nonprofit leaders caution that these metrics do not capture the most important parts of their work and are often costly to collect. They repeatedly explain that reporting requirements take valuable staff time away from helping their clients. In some cases, this reporting and other red tape consumes about two workdays a week.

Government agencies and the nonprofits they fund both feel pressure to highlight achievements. They often avoid mentioning what does not work due to the pressure they feel to look successful, motivated by the need to secure future funding. This leads to a tendency in which they fail to learn from mistakes and make corrections that actually improve the system and help clients.

Woman holding clipboard with a badge hanging from a lanyard around her neck smiles during an event where people wearing matching t-shirts.
Every strong nonprofit has at least one strong leader doing a lot of juggling and troubleshooting behind the scenes – including when it comes to reporting requirements.
SDI Productions/E+ via GettyImages

Strategies to get things done

More often than you might expect, many nonprofits do achieve their goal of meeting client needs despite all that red tape.

This is because of the often hidden, yet vitally important, role played by the people I consider to be the hidden heroes who work for nonprofits and other community organizations.

Many of the stories I heard were about workarounds, sidesteps and informal agreements that enabled government and nonprofit partners to get things done.

Hidden heroes learn to straddle the distinct worlds of government bureaucracy and community-based services. They become conversant in both cultures and two different ways to talk about this important work. They encourage government experts to see themselves as community members and urge community members to be viewed as experts on their own situations.

When a funder's rules do not fit their circumstances, these hidden heroes of social services negotiate alternatives or find workarounds that fit better.

Assessing the entire system

The government and nonprofits are, and have long been, partners in providing social services. But my decades of research have made it clear that these partnerships could do a better job of meeting the needs of low-income people and their communities.

More funding would help, after decades of declining social spending and growing inequality. The U.S. spends less on social services than most higher-income countries.

It also matters how that money is spent.

One of my key findings is that people who need social services often receive them from multiple agencies, some of which are nonprofits and some of which are government-run. How well those agencies collaborate with one another influences the degree to which they successfully assist their shared clients. For example, it makes a difference whether the referral process between agencies works smoothly or if local agencies are duplicating programs while some needs aren't being met at all.

Government grants usually fund and evaluate programs one at a time. While that is often necessary, it is also important to assess the entire system and to fund community planning and network development activities so that agencies can work better together to serve client needs.

Metrics that assess outcomes can be helpful, but my research shows why the government, as well as foundations and other private funders, should carefully consider and limit how many things social service nonprofits must measure to meet a grant's requirements.

Finally, my research makes clear that that most government policies and programs need to be adapted to the particularities of local communities or of individual clients. The hidden heroes of nonprofit social services organizations play an important role in making that happen.The Conversation

David C. Campbell, Professor Emeritus of Human Ecology, University of California, Davis

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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