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The Hype Gap in AI – CEO Daily, Tuesday 5th September

Good morning.

There’s a new report out this morning from MIT Sloan Management Review, in collaboration with The Boston Consulting Group, that documents just how far expectations about artificial intelligence exceed current reality. Based on a survey of more than 3,000 executives worldwide, the study shows some 85% of them believe AI will be transformative for their companies, enabling them to either enter a new business or sustain a competitive advantage. But only one in five actually has incorporated AI into any offering or process, and only 39% report having a strategy for AI.

In the last year, AI has surged up the hype curve. A majority of executives in every industry now see large effects over the next five years, in a wide range of activities, including information technology, customer service, supply chain management, R&D, and manufacturing operations.

But actual adoption of AI remains at a very early stage. The study finds only about 19% of companies both understand and have adopted AI; the rest are in various stages of investigation, experimentation, and watchful waiting. The biggest obstacle they face? A lack of understanding —about how to adapt their data for algorithmic training, about how to alter their business models to take advantage of AI, and about how to train their workforces for use of AI.

“For AI to become a prominent feature in future strategies,” the report concludes, “companies must figure out how humans and computers can build off each other’s strengths to create competitive advantage.”

You can read the report here.

And if you missed it last week, take a look at Bloomberg Businessweek’s cover story on Unilever’s Paul Polman, and his continuing fight to make capitalism virtuous—in spite of the threat of potential takeover by the likes of 3-G-owned Kraft Heinz.

“Do we choose to serve a few billionaires?” Polman asks at the end of the piece, “Or do we choose to serve the billions? Over time, I think the billions will win.”

Footnote: Last time I wrote about this “battle for the soul of capitalism,” I received an early morning phone call from a Fortune 50 CEO who passionately argued that it’s a “false choice.” Capitalism, he said, needs both its Paul Polmans and its 3-Gs to survive.

News below.

Alan Murray

Top News

Kim Capitalizes on Xi’s Hesitancy

North Korea is “begging for war,” and the U.S.’s patience is nearing exhaustion, Ambassador Nikki Haley told a special session of the UN Security Council. China continued to urge diplomacy, and to talk up the dangers of U.S. escalation of the military situation (President Trump Monday authorized in principle the lifting of payload limits on South Korea’s missiles). Hosting a summit of “BRICS” nations, President Xi Jinping appeared caught between the twin embarrassments of either abandoning a long-term ally or continuing to empower a rogue nation, a dilemma he can do without in the run-up to a Communist Party congress that will determine the country’s leadership for the next five years. South Korea’s spy agency, meanwhile, reported that the North is planning more long-range missile launches in the next few days.   Time

Joe Jimenez Steps Down As Novartis CEO

Joe Jimenez is to step down as CEO of Novartis after eight years at the helm. He’ll be succeeded by Vas Narasimhan, who has overseen the creation of a strong drug pipeline as head of research and development. Narasimhan is something of an exception to the rule, being a scientist at the head of a global pharma giant. The appointment is all the more conspicuous for Novartis since it’s facing a number of challenges arguably more suited to a corporate finance whizz, such as what to do with eye-care business Alcon and its 14% stake in Swiss rival Roche. Jimenez said he intends to return to the U.S. and to Silicon Valley.   Fortune

Texas Turns the Taps Back on

Benchmark U.S. gasoline futures tumbled 3% Monday, and retail prices appeared close to topping out, after climbing by more than 20 cents in the wake of Hurricane Harvey. There is much riding on a speedy return to normal for Texas and Louisiana refineries: their inability to accept crude shipments—and ports’ inability to load fuel tankers—has caused short-term cash flow problems for shale producers who can ill afford them in a world where they have to produce twice as much oil as they once thought in order to repay the debt they took on. Some port operations across the Gulf Coast resumed Monday, although many still had restrictions on vessel draft, according to Coast Guard updates. Key fuel pipelines also planned to restart as more oil refineries that feed them ramped up production.    Reuters

UTC-Rockwell Cleared for Take-Off

United Technologies and Rockwell agreed to merge in a deal that values the latter at $23 billion, or $140 a share, in addition to $7 billion in debt. Rockwell investors will get $93.33 a share in cash and the remaining $46.67 in United Technologies stock, according to The Wall Street Journal’s sources. That’s some 30% above where Rockwell was trading at the end of July. Wall Street analysts like the deal because of its “merge-to-demerge” nature, akin to the Dow-Dupont deal in chemicals. It appears to pave the way for the sale of UTC’s buildings division that makes Otis elevators and Carrier air conditioners. That would create two separate and more sharply focused companies, and leave the job of risk diversification to investors rather than conglomerate bosses.   WSJ, subscription required

Around the Water Cooler

What Does China Know That Paris Hilton Doesn’t?

The prices of Bitcoin and, particularly, Ethereum slumped after Chinese regulators banned “initial coin offerings,” the process of raising investment capital through the minting of new digital currency. Beijing came to the conclusion that most ICOs were little more than a scam. China’s move comes shortly after the U.S. Securities and Exchange Commission (SEC) warned investors that companies might be using ICOs to pump and dump their shares. Nobody appears to have told Paris Hilton yet.   Fortune

Dream On, for Now

President Donald Trump will reportedly give Congress six months on Tuesday to work out a solution that will prevent the deportation of nearly 800,000 individuals who have taken advantage of the ‘Dreamers’ program. The president had made ending the program a key campaign promise, but the program has strong support among business leaders and GOP Republicans. Speaker of the House Paul Ryan and other leading Republicans publicly urged the White House to maintain the program.   Fortune

•  Putin Jumps on the AI Bandwagon

Vladimir Putin jumped on board the AI bandwagon, saying that whoever mastered it would control the world. “It would be strongly undesirable if someone wins a monopolist position,” the Kremlin boss said. The comment shows nothing if not the continuity of Russian thinking: Stalin had applied exactly the same logic in the 1940s to justify the theft of U.S./U.K. nuclear technology. “If we become leaders in this area, we will share this know-how with the whole world, the same way we share our nuclear technologies today,” said the man who stood by Iran for a decade while it pursued a nuclear program outside of UN supervision. Fortune

•  The Newspaper as Real Estate Play

Tronc, the owner of the Chicago Tribune and L.A. Times, is taking over the New York Daily News from real estate mogul Mort Zuckerman. Zuckerman handed over the tabloid and 49.9% of a joint venture that owns the 25-acre site in Jersey City where it is printed, as the price for finding someone to share its running losses and pension liabilities. The Daily News’s 25 million monthly unique visitors will give tronc a foothold in one of the country’s largest local media markets. Current editor-in-chief Arthur Browne has been named as publisher. Fortune

Summaries by Geoffrey Smith;