Good morning. Many CFOs are exploring use cases for generative AI. But some companies have decided to create a new senior management position with enterprise-wide oversight of AI activities—a chief AI officer (CAIO). Is that necessary?
“Do You Really Need a Chief AI Officer?” is the title of an interesting new report in MIT Sloan Management Review that delves into this topic. The authors have experience in analyzing the potential value of CAIOs, and four have been chief digital officers across a variety of industries. Some of the pros of having a CAIO is to steer the AI focus and prioritization companywide, which can centralize management of AI risks, and reduce internal deficiencies.
But there are cons as well. For example, adding the position of CAIO can create tension in the existing C-suite with the CIO, CTO, chief operating officer, or the chief digital or chief data officer, according to the report. Another obstacle: “CAIOs could be tempted to pursue AI for the sake of AI rather than in the service of business objectives,” the authors write. And the additional costs of adding a CAIO position may outweigh the benefits.
I asked a coauthor of the report, Michael Wade, TONOMUS Professor of Strategy and Digital at the International Institute for Management Development, how a company can effectively assess the need to create this C-suite role. There are a number of factors, like current AI competence, he said. However, there is one particularly important factor.
“In organizations where AI can have a major impact on competitiveness, the scales may be tipped in favor of appointing a CAIO,” Wade said. For example, companies in the tech or financial services sectors, “where data management and insights are key sources of differentiation, may see significant benefits from coordinating AI initiatives centrally,” he said.
How does he think a CAIO could work in tandem with a CFO to implement AI strategy across the organization? Wade referred to the importance of not getting “caught up in the hype and jumping on AI for the sake of AI.” In terms of ROI expectations, the CAIO should be held to the same standards as other parts of the organization, he said. “CFOs can work with CAIOs to set financial goals for AI projects, and where necessary, hold them accountable,” Wade said.
Regarding the use of artificial intelligence in the finance function, Wade said that legacy AI is already being used to improve outcomes and streamline operations, and should become more embedded to support automation, reduce risk, and lower costs.
“Generative AI is a somewhat different beast,” he said. “For purposes of official automation work, generative AI can be used to improve finance productivity. It can also be used for scenario planning and some creative tasks. However, in its use for core finance operations, it should be approached with caution.”
The place of AI in the C-Suite was the subject of a survey released in August 2023 by Foundry, and based on a poll of 965 global IT decision-makers at organizations of all sizes. It found that, overall, just 21% of respondents were actively seeking to fill the position of CIAO. And, 15% of enterprise companies surveyed have a chief AI officer and 24% are seeking candidates.
But Wade doesn’t think the CAIO role will eventually become a mainstay in the C-suite. When appointing a CAIO is advisable, the role should not become a permanent position, the authors state in the report. They advise for it to be a fixed-term appointment building a set of enterprise AI capabilities that will ultimately be handed over to the business or technology organizations.
To find out which stage of a company’s AI journey could benefit from a CAIO’s expertise, you can read the complete report here.
Sheryl Estrada
sheryl.estrada@fortune.com
The following sections of CFO Daily were curated by Greg McKenna.
Leaderboard
Matteo Anversa was appointed CFO of Logitech (Nasdaq: LOGI), a Swiss computer hardware manufacturer, effective Sept. 1. He will succeed interim CFO Meeta Sunderwala, the company’s chief accounting officer. Anversa was previously CFO of Michigan-based thermal management company Gentherm and has held the same position at various companies, including Ferrari.
Doran Hole was appointed CFO of renewable energy company Stem (NYSE: STEM), where he will also oversee the company’s software and services group, effective Sept. 2. He will succeed current CFO Bill Bush, who will continue to lead the company’s public power and large-scale front-of-meter projects, as well as its supply chain team. Hole’s experience in renewable energy includes his most recent stop as EVP and CFO of Ameresco and previously serving as CEO of ReneSola.
Big Deal
U.S. corporate bankruptcy filings cooled slightly in July but remain on track for one of the worst years since the onset of the COVID-19 pandemic, according to a report from S&P Global Market Intelligence. Over 392 public and qualifying private companies filed for bankruptcy through the first seven months of this year, the highest number since 2020, when there were 407 filings through July.
The consumer discretionary sector has been hit hardest as high inflation and borrowing costs continue to impact demand, the report said. Sixty companies in the sector filed for bankruptcy, followed by industrials (45) and healthcare (42).
Going deeper
Most men (82%) and women (73%) in the U.S. aged 25-34 have a goal to start their own business, according to the annual Global Financial Wellbeing Report from nudge, a financial literacy company. The report suggests this entrepreneurial bent is partly fueled by employees feeling undervalued at work. Almost 70% of respondents from the age group said their employers see them as easily replaceable and interchangeable.
Overheard
“Investors seem to have been inclined to dismiss Trump policies with more extreme economic outcomes as a case of the former president not being serious. If there were evidence that Trump were to be serious about these policies, markets would probably react.”
—Paul Donovan, chief economist at UBS Global Wealth Management, wrote in a research note to clients about Republican presidential nominee Former President Donald Trump suggesting he would seek to undermine the Fed’s independence, Fortune reported.