There are two types of returns from AI: tactical and strategic. And you need to know the difference.

Many companies are already getting tactical returns, usually from cool projects to improve a specific business process, such as streamlining a repetitive task using generative AI to create simple NDAs (nondisclosure agreements) so lawyers don’t have to. Since these are existing processes, most companies have KPIs in place so it’s usually easy to measure how much AI moved the needle. These projects and demos and prototypes of ways to use AI for other use cases tend to generate a lot of excitement that executives can point to with pride to show that their companies are using AI.

But don’t get snookered by tactical returns, because the much bigger wins are the strategic ones. It’s not how many use cases you’ve come up with for AI. It’s whether you have created any game-changing capabilities that let you develop a new product, go after a new market, or create a new business model. It’s about creating a competitive advantage. Case in point: A multibillion-dollar pharmaceutical company that we work with is pouring major resources into AI to rapidly accelerate early-stage drug discovery and the time it takes to move through clinical trials. It’s a strategic investment that’s central to the company’s achieving its core business strategy, even if it might not yield measurable returns in the short term.

Getting strategic returns is more difficult and imprecise than getting tactical ones; therefore, it’s harder to get started. Often, management teams see an existential threat that will require them to use AI, but everyone is busy and that Kodak moment when their current business is disrupted is three to five years off. Too often, they don’t start until there’s already a crisis.

Avoiding this requires a lot of management oversight. I tell the CEOs I work with that it could take years to even know what the return will be and that they need to be personally involved. A lot of it isn’t even about AI; it’s about change management and internal politics and getting people aligned. It’s about finding a way to secure the necessary resources that’s outside of the normal budgeting process; otherwise, it won’t happen. Often, only the CEO can drive all this.