Know the Risks: AI & GenAI in the Consumer Industry: Embracing Innovation, Managing Risks

Welcome to our latest installment of the "Know the Risks" consumer blog series, where we explore evolving industry themes to highlight risks and strategies for mitigation. This post zeroes in on the Consumer Industry's use of Artificial Intelligence (AI) and Generative AI (GenAI), featuring insights from #EY Americas Consumer Technology Leader, Cordry Johns along with my takes on the associated risks.

In an era where AI and GenAI promise revolutionary changes for consumer businesses, understanding the risks and opportunities is paramount. Through this dialogue we discuss the balance between leveraging these technologies for growth and navigating the challenges they present.

Join us as we uncover how to effectively harness AI and GenAI's potential in the consumer industry, ensuring innovation thrives alongside robust risk management.

How are consumer businesses currently harnessing the power of generative AI, and what potential does it offer for the future of the consumer products and retail industry?

Cordry: AI and generative AI (GenAI) will continue to inspire all of us for many years to come. It’s both exciting and scary right now because we’re watching the leading edge of such transformative technology. We will look back at this moment maybe a year from now, but certainly five years from now, and realize much we have learned. It will be a hyper-exponential learning curve, with unforeseen possibilities yet to be invented. Companies can’t afford to wait for it to settle before acting.

The consumer company’s approach should sit on three pillars: protecting the enterprise, educating the enterprise and expanding the enterprise. First, there is a pressing need to address the inherent risks associated with AI and GenAI, “protecting your enterprise,” proactively managing the threats posed by these technologies, both to your company and to your consumers, rather than adopting a defensive stance.

Second, and especially for the consumer industry, companies should focus on the significance of education, “teach your enterprise,” demystifying it, understanding its applications, exploring the realm of possibilities and strategizing on implementation timelines.

The third pillar is termed as “expand your enterprise” or innovation. This is probably the most exciting area for the consumer industry, and it entails going beyond mere protection and education. Brands and retailers must actively seek avenues for innovation and growth by leveraging the transformative power of GenAI and how it may influence their inherent value in the market and to consumers.

Over the past year, there has been a disproportionate focus within the industry on the first two pillars: risk management and education. CEOs, CTOs and boards of directors have been grappling with the challenges posed by GenAI, seeking guidance on how to navigate this evolving landscape. The industry is gradually transitioning toward the third pillar of innovation.

As understanding deepens and risks become more discernible, the conversation is evolving from a fear-driven response to an exploration of opportunities for innovation and expansion. Armed with a clearer comprehension of the risks and a solid educational foundation, companies will shift their focus toward greater adoption through innovation powered by GenAI.

The October 2023 EY CEO Outlook Pulse  (CEO Outlook January 2024 on transformation strategy | EY UK) revealed that an overwhelming majority of CEOs (99%) are planning to invest in GenAI. In your experience, what’s the level of maturity for the consumer companies that have started to adopt it?  

 Cordry: It is complex to assess maturity levels with such hyper-paced and dynamic technology against a rapidly shifting normative model. Many consumer organizations are present and attentive, and they are taking initial steps in integrating GenAI into their operations.

Fear is a prevalent factor in business decisions, especially in an industry with such a high touch with such a large scale of consumers. This becomes a driving force behind the adoption or hesitation toward GenAI. The choice isn’t simply to adopt or not, but to act in alignment with an organization’s pace, comfort and safety.

 There are a few consumer organizations on the leading edge, some keeping pace with peers, and many brands and retailers are striving to catch up. An important consideration for some is whether AI can empower mid-tier companies to leapfrog their counterparts.

What’s impeding consumer companies from adopting it?

Cordry: The pervasive influence of fear and barriers of education. This fear stems from the legitimate risks associated with GenAI, acting as a natural deterrent for organizations that are cautious about potential pitfalls.

The education hurdle within the consumer industry underscores the need for a deeper understanding of GenAI. While there is great optimism that this barrier will diminish over time, the current lack of comprehensive knowledge inhibits smoother adoption. This educational gap prevents organizations from “seeing the forest for the trees,” often hampering the potential benefits and navigating the complexities of integrating GenAI into their operations.

The consumer industry is at a hyper-excitement phase. It doesn't diminish the significance of GenAI, but it acknowledges that the market is inundated with a multitude of offerings, akin to the proliferation of internet browsers or enterprise resource planning (ERP) software in their early stages. The absence of a contraction phase, where the field consolidates around key players, creates uncertainty for potential adopters. This uncertainty, rooted in the fear of investing in solutions that might become obsolete, compounds the challenges associated with GenAI adoption.

These challenges collectively contribute to the hesitancy observed among companies as they navigate the dynamic landscape of AI.

 My take:

 What are the risks?

The consumer industry has been navigating the realm of AI for several years and more recently GenAI. Its associated pitfalls are well recognized. As machines increasingly make decisions impacting individuals and consumers, there is a growing emphasis on safeguarding personal data and ensuring that decision-making is devoid of bias. Mitigating reputational risks is also a priority. In the pursuit of dependable GenAI applications that consistently deliver high-quality performance, emerging regulation poses an inherent uncertainty, potentially restricting its usage and benefits.

It’s imperative to consider GenAI as a distinct subset of AI with its own set of incremental risks. Often provided as software-as-a-service, GenAI introduces additional concerns related to data protection and legal compliance. Legal ramifications loom prominently in the GenAI sphere, where the delivery of reliable content is paramount. Moreover, the ease of access to GenAI platforms raises apprehensions regarding potential misuse, as individuals, including employees, can readily create personal accounts, circumventing company policies in the process.

What’s the action?

First, for those brands and retailers that are embarking on their AI and GenAI journey, establishing a collaborative forum, such as a working group, is imperative. This forum should include key stakeholders, such as users, senior leadership, vendor management, privacy and IT. Regular meetings of this team should focus on crafting governance frameworks covering various aspects, such as use cases, access protocols, Proof of Concepts (PoCs) and security measures.

Second, they should foster an environment of internal engagement by bringing together employees interested in AI and GenAI. Conducting informational webinars serves as an effective means to educate the workforce while encouraging dialogue around potential applications and experimentation. Additionally, these sessions present an opportunity to reinforce company policies regarding AI usage and highlight what constitutes policy violations.

Last, action is essential for adoption in the consumer industry. A pipeline should be established for potential PoCs and should prioritize those with the potential for rapid value production. Once the value is validated, companies should move swiftly to scale up successful initiatives, ensuring a proactive approach to leveraging AI and GenAI technologies for organizational benefit and consumer satisfaction.

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.