AI Leadership: Focus on the Operating Model
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AI is forcing leaders in the GRC space, and across teams, organizations, and companies to rethink their operating model. Those that don’t, will be left behind.
This is part of an ongoing series of articles for Internal Audit Next that I am writing about the impact AI will have on business teams and leaders in the weeks, months, and years ahead. The focus of these articles is to identify ways of thinking that can help leaders successfully navigate the AI-driven business landscape.
Where it Started: The Functional Org Chart
Not too long ago, I was speaking with a consulting firm about helping build out a transformation initiative. The question they asked of me was to provide them with a functional org chart. By way of review, a functional org chart is defined as (this is as good a definition as any provided by Atlassian - they use “functional organizational structure”): A functional organizational structure is known for its efficiency and clear lines of responsibility. It organizes a company around specialized work functions, allowing employees to focus on their areas of expertise while working under supervisors with similar skill sets.
I paused for a few minutes. As an auditor, I knew that most of the teams and orgs in the companies (all of them) that I had worked for, didn’t have the time nor the inclination to build one. If they did, it was typically out of date. We worked around the challenge and ended up defining an functional org chart for the group in question with the help of the consultants.
I spent most of my career on the business side, primarily operations. As both a consultant and a member of operational teams I learned the value of defining functional responsibilities. What does your team do? What is the expected output? Defining functional responsibilities can help you understand the objectives you are trying to achieve and puts you on the path to better define HOW the work should get done.
AI is Different
Despite all the hype, AI isn’t radically changing the things we do every day. At least not yet. Sure, there have been edge cases that showcase interesting ways to leverage AI technologies that change how work gets done, but the technology has moved into our collective consciousness so quickly that most people are still figuring it out. The “threat” of AI is more scary than today's reality. But that is changing, and quickly. This is where leaders have to be leading. Most are sitting back and pushing down directives to others to “use more AI,” or “find efficiencies with AI.” If you are one of those leaders, it is time to change that thinking.
AI is a completely new generation of technology, unlike the ones that have come before it. AI was purposely built to do what people can do. Not to assist or improve, but to do. It could, and is already, starting to do things that people can do. And that means leaders need to throw out the old playbooks that define the people, processes, and technology that make up what we have traditionally described as the operating model. The time for a complete rethink is now. Why? Because leaders who keep doing what they have always been doing — thinking that AI is just another tool to do things cheaper, faster, or better — are going to wake up one day and find themselves obsolete. You don’t want to be “that” leader.
Starting with the Operating Model
I am going to over simplify a lot of this because, well, the old notions of the slick consultant with an MBA coming from a top tier school working for a big consulting firm talking about complex business frameworks and structures is also something that AI is already starting to push into the obsolescence zone. What should matter to you as a leader is that you understand what your team(s) or Org(s) functional responsibilities are. What are you trying to achieve? What function does your team/org fill within your company? Understanding that is going to be critical for your success as the world pivots from what it WAS doing to what it WILL be doing in the post-AI reality.
If you haven’t taken the time to sit down and build an operating model, that’s your assignment. Be clear about what you have been asked to achieve, write it down. Understand how you are achieving it today. And make sure you think about how you currently measure your success. With this defined, take that first part: what you are trying to achieve, and begin to think about the people and processes that you CAN use to get it done. Leave technology out for a minute, and focus exclusively on AI’s capabilities. I would wager good money that most of you reading this do not actually know what AI is capable of, how it works, or how your teams should be using it. This is a non-negotiable. Learn about AI. I recommend you focus on two models to start:
The greenfield chat style AI tools readily available that can help you learn and analyze.
The fast-growing field of AI based software tools.
For the second item, every software company is saying they do AI. But do they really? Look at your existing technology stack and ask your team to provide a good explanation of how AI is enhancing those tools. Look into start-ups that are leading with AI tools that may impact the day-to-day business activities of your teams. Accept that emerging AI tools may completely up-end how you think about technology.
Once you have gathered that information, you can begin to overlay what AI can do as it relates to people and processes. This is, loosely speaking, your operating model. And it is the first tool you will need to define the AI-powered future where you can be a leader. I don’t know that anybody can, at least not yet, demonstrate that AI is replacing human business activity wholesale. There is no doubt it will impact the way we work. Your job is to define how. It also means you have to be comfortable with the notion that you will not be doing things the way you have been. Get your head around that notion, because you will need to motivate, inspire, and coach your teams to be comfortable with the change that is coming. My experience, so far, is that the emerging AI technologies will force us to rethink HOW work is getting done at almost every point. In some cases it will be major change, in others minor change.
I will be honest, this isn’t something that many leaders are very comfortable with. As an auditor, consultant, and leader in companies, I have come across too many leaders who don’t understand HOW the work gets done. They focus almost entirely on the WHAT and the measurements. This is a mistake. Your AI integration success will hinge on your ability to understand the HOW. Depending on the span of your control, this is where you can leverage directors, managers, or individual contributors to help you reimagine how work will get done as it relates to your functional responsibilities.
When you have an AI powered operating model, go back to that first step and compare the two. Are they different? How different? My opinion is that if they are not very different, you need to go back to the drawing board. The fact that the new operating model may mean a change of people's primary work activities, the technologies they use, or how we measure their success is the point. Once you have the future state AI powered operating model, you can start working from your current state to where you want to be. Here is the rub, that future state will change on you. Be ready for that. Be nimble, be flexible. Imagine you are navigating a ship on the ocean trying to get to another ship that is also moving and you don't know where it is heading.
Rest assured that companies are out there already doing this work across a range of industries. Your suppliers, your competitors, and your customers. Even the AI companies are surprised by what they are learning. As a leader, that should keep you up at night. I am of the opinion that most of the companies that are conducting mass layoffs and using AI as the cover story aren’t really finding the efficiencies they claim. But I am certain that we are months to a year or two away from small disrupters who will provide compelling use cases of AI enabled tools and processes that will disrupt your team directly.
Audit Leaders: Heed the Call
Audit leaders are in the Same Boat. But you have a tactical advantage. Arguably you have spent the last few years understanding how people, process, and technology work in your companies. You can begin engaging front-line leaders immediately and help them understand how the work is getting done and lead the exercise I am describing in this article. You are in a unique position to offer real value. Transformative value to your organizations.
In the coming weeks, months, and years, the leaders who understand that AI is going to be about building new operating models with AI at the center, will be the ones who are successful. They will be the ones in high demand. They will be the ones who lead transformation within companies and, ultimately, lead those companies.
Change is coming for you. I was speaking to a group recently and talked about how a thriving Kodak, in the top ranks of the Fortune 100 in 1995, practically disappeared over the span of a decade because of the change brought on by the internet and digital photography. AI is moving much faster. Adaptation is mandatory now.
Michael Pellet is currently a Customer Success leader for Petual.ai, an agentic AI SaaS product that automates SOX Testing. He is the former Director of Internal Audit at Lyft and Salesforce and has spent years as a consultant and operational leader in technology companies. You can learn more about Michael on LinkedIn.
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