AI, Value Creation, and Competitive Advantage

AI, Value Creation, and Competitive Advantage

Steve Hinson

Professor of Economics and MBA Program Director at Webster University

October 9, 2025

The spread of artificial intelligence promises to upend existing business practice as a source of competitive advantage across industries.  To understand how, recall the three primary means of creating value: the introduction of new or improved offerings, the production of existing products or services, but using fewer resources, and finally, by extending existing offerings and processes to new markets.

Let’s take each in turn.  AI can improve product innovation through expedited prototyping, analysis of customer feedback, market trends, and competitor data, and through the personalization of the customer experience.  Nestle uses a proprietary AI tool to review market and internal data to suggest new product concepts.  Use of the tool has reduced the concept stage from approximately three months to three weeks.  To date, this approach  has produced roughly 1,300 product ideas with about 30 moving on to the product development stage.

It can reduce costs through process management, inventory control, enhanced risk management, and quality control.  Amazon has invested heavily in AI enabled robotics in its fulfillment centers, dramatically increasing speed while reducing errors.  It also uses predictive analytics to analyze buying patterns, weather, and other data to optimize the distribution of inventory across fulfillment centers and to manage dynamic inventory management.  Finally, AI is used to optimize logistics including local delivery by mapping optimal routes, building entrances, etc.

And finally, it can assist in identifying and validating new markets.  Nike uses AI to analyze proprietary data collected from apps, social media, purchasing behavior, and other sources for market segmentation and predictive modeling to determine what markets have the greatest growth potential.  Further, Nike uses AI for virtual product development to pretest market acceptance substantially reducing financial and reputational risk.

But this introduces a paradox.  By enhancing the ability of all business to create value, value creation alone ceases to be a source of sustained competitive advantage.  Instead, it will come from having superior data, better questions, and faster execution.  In other words, those who were already winning?