Prestige Institute of Global

Management

PGDM 2023-25
Strategic Management
Project Report
AI Industry
Topic - Open AI
Question 1: Examine the website of selected company and analyze aspiration statements
(Vision and Mission) using TWO DIMENSIONAL STRATEGIC and MOTIVATIONAL
frameworks. Justify your answer with facts from the available secondary data.

Answer : OpenAI’s Mission and Vision Statement are as follows:

Mission Statement:

"To ensure that artificial general intelligence (AGI) benefits all of humanity."

Vision Statement:

"To develop artificial general intelligence (AGI) that is highly autonomous and can outperform
humans at most economically valuable work, ensuring that the technology benefits all of
humanity."

Two-Dimensional Strategic and Motivational Framework of OpenAi:

This framework assesses organizations' vision and mission statements based on two dimensions:

1. Strategic Orientation : Focuses on the organization's goals, scope, and competitive

advantage.
2. Motivational Orientation : Emphasizes inspiring and motivating stakeholders.

Analysis:

Strategic Orientation : OpenAI's vision and mission statements focus on artificial general
intelligence (AGI), indicating a clear scope and goal. The emphasis on benefiting humanity and
society suggests a stakeholder-oriented approach, considering the broader impact.

By this OpenAI gets a competitive advantage by focusing on AGI and commitment to

responsible AI development sets it apart.

Motivational Orientation : The vision statement's simplicity and clarity inspire confidence in
OpenAI's purpose. The mission statement's emphasis on benefiting society motivates
stakeholders to work towards a shared goal.

By this OpenAI emotional connection commitment to responsible AI development resonates

with concerns about AI's impact.

On the basis of Secondary Data:

● OpenAI's website highlights its commitment to transparency, accountability, and ethical

considerations in AI development.
● Founder Elon Musk's statements emphasize the importance of responsible AI
development.
● Partnerships with organizations like Microsoft and research institutions demonstrate
OpenAI's collaborative approach.
Question 2: Perform external analysis using the PESTEL tool. Explore the trends, forces,
and changes in the external environment of the company that helped in the company’s
success and growth or created threats.

Answer: The PESTEL framework helps us look at external factors that influence OpenAI's
success and challenges. These factors include Political, Economic, Social, Technological,
Environmental, and Legal aspects are as follows:

1. Political Factors: Political factors play a big role in how OpenAI operates, especially with
governments paying close attention to AI.

Government Rules: Government regulations significantly impact Open AI ‘s operations. Many

governments, like those in the U.S. and Europe, are creating regulations around AI to protect
privacy and ensure safety. This benefits OpenAI since they already focus on safe and ethical AI,
aligning with these rules. However, too many different regulations across countries can slow
them down.

Global Cooperation: OpenAI’s partnerships with global organizations, such as Microsoft, help
them grow and influence AI development. However, international tensions could make it harder
to collaborate with certain countries, potentially limiting their reach.

2. Economic Factors: Economic conditions affect how OpenAI gets funding and resources.

Funding and Investment: The boom in AI has allowed OpenAI to secure huge investments,
like the billions from Microsoft, which fuels their growth. But if the economy takes a downturn
or investors lose interest, it could impact how quickly OpenAI can expand.

AI as an Economic Driver: AI is transforming industries and boosting productivity in sectors

like healthcare, education, and finance. OpenAI’s AI tools, such as GPT models, are central to
this change, helping their position in the market.

3. Social Factors: Society’s attitudes and trends impact how AI is used and accepted

Public Concerns: As AI becomes more common, people are worried about issues like privacy,
job losses, and the misuse of AI. OpenAI’s focus on creating ethical and safe AI helps them build
trust with the public, which is crucial for their success.

AI Talent Demand: There’s a growing need for skilled AI professionals, and OpenAI attracts
some of the best talent due to its mission-driven focus. However, the global shortage of AI
experts could slow down their progress if they can’t find enough talent to meet demand.
4. Technological Factors: Technological factors include the heart of what OpenAI does,
and keeping up with improvements and innovations advances in technology.

Rapid Advances: AI technology is advancing quickly, and OpenAI has stayed at the forefront
with innovations like GPT-3. Their collaboration with Microsoft also helps them access the cloud
infrastructure needed for large-scale AI projects.

Competition: The fast pace of AI development means OpenAI faces competition from other
tech giants like Google and Amazon. To stay ahead, OpenAI must continue innovating and
maintaining its leadership in the field.

5. Environmental Factors: While OpenAI is a tech company, environmental concerns are

still relevant.

Energy Use: Training large AI models consumes a lot of energy, raising concerns about the
environmental impact. OpenAI has an opportunity to lead in creating more energy-efficient AI
technologies. Ignoring this issue could lead to criticism from the public and possible regulations.

AI for Environmental Solutions: On the bright side, AI can help solve environmental
problems. OpenAI’s technology can contribute to smarter energy use and help with research on
climate change, which gives them a role in addressing global challenges.

6. Legal Factors: Legal regulations surrounding AI are still being shaped, but they impact
OpenAI’s operations.

Data Privacy: With laws like the GDPR in Europe, OpenAI needs to be careful about how they
collect and use data. While these laws protect users, they also make it more complex for OpenAI
to operate globally.

AI Regulations: Governments are working on creating rules for AI, especially around liability if
something goes wrong. OpenAI’s proactive approach to working with policymakers is smart, as
it helps them shape favorable regulations and stay ahead of legal issues.

However, OpenAI’s success is largely due to favorable external factors, such as strong
government support, economic investments, and rapid technological advances. Their focus on
ethical AI helps address social concerns, and they’re positioned to lead in solving environmental
challenges. However, they also face threats from intense competition, regulatory changes, and
sustainability issues. By addressing these challenges, OpenAI has positioned itself as a leader in
AI, prepared for future growth in a changing world.
Question 3: Perform industry analysis using PORTER FIVE FORCES MODEL and
address following points:

❖ Define the industry.

❖ Identify the participants and structural forces.
❖ Assess and mention the underlying drivers of only those competitive forces that are
relevant for the company
❖ Determine overall industry structure and attractiveness.
❖ Analyze recent and likely future changes

Answer3- Industry Analysis of OpenAI Using Porter's Five Forces Model

Industry Definition

OpenAI operates within the artificial intelligence (AI) industry, focusing on developing advanced
AI technologies, including machine learning models, natural language processing systems, and
general-purpose AI applications. The industry encompasses various sectors, including
technology, research, and applications in diverse fields such as healthcare, finance, and consumer
services. OpenAI's offerings, such as the GPT series, position it at the forefront of the AI
research and development segment, emphasizing cutting-edge technologies and applications.

Participants and Structural Forces

1. Suppliers:
In the AI industry, suppliers include cloud computing providers, data sources, and hardware
manufacturers. Major cloud providers like Amazon Web Services (AWS), Microsoft Azure, and
Google Cloud offer essential infrastructure for training and running large-scale AI models. Data
sources are crucial for model training and validation, and hardware suppliers, such as NVIDIA
(for GPUs) and Intel, provide the computing power necessary for AI model development.

2. Buyers:
Buyers in the AI industry range from enterprises seeking AI solutions for automation and data
analysis to individual developers and researchers. Customers include technology firms, financial
institutions, healthcare providers, and government agencies. These buyers demand advanced AI
capabilities to enhance their operations, improve decision-making, and drive innovation.

3. Competitors:
Competitors in the AI space include other tech giants like Google DeepMind, Microsoft
Research, IBM Watson, and emerging AI startups. Each competitor brings unique strengths, such
as Google's extensive data infrastructure and IBM's enterprise solutions. The competitive
landscape is characterized by rapid technological advancements and significant investments in
R&D.

4. Potential Entrants:
New entrants face high barriers to entry due to the substantial capital requirements for advanced
hardware and infrastructure, the need for extensive data sets, and the specialized expertise
required in AI research and development. However, the rise of open-source AI tools and
platforms can lower some of these barriers, allowing smaller players and startups to enter the
market.

5. Substitutes:
Substitutes for AI solutions include traditional software systems and manual processes that
businesses might use for tasks like data analysis and decision-making. While these alternatives
may be less advanced, they can still serve specific needs and may be preferred in cases where AI
solutions are too complex or costly.

Underlying Drivers of Relevant Competitive Forces

1. Threat of New Entrants:

The threat of new entrants is moderated by high entry barriers. Significant investments are
required in terms of capital for computing infrastructure, research, and data acquisition.
Moreover, established firms have the advantage of brand reputation, existing customer bases, and
advanced technology stacks, which further deters new players. However, the increasing
availability of open-source AI tools and cloud-based infrastructure can reduce these barriers,
making it easier for new entrants to participate in niche areas of the AI market.

2. Bargaining Power of Suppliers:

Suppliers hold considerable power due to the specialized nature of the hardware and cloud
computing services required for AI development. For instance, companies like NVIDIA
dominate the GPU market, which is critical for training AI models. The reliance on these
suppliers gives them leverage in negotiations. However, as technology evolves, alternatives to
existing suppliers may emerge, potentially reducing their bargaining power over time.

3. Bargaining Power of Buyers:

Buyers have substantial bargaining power due to the availability of multiple AI providers and
solutions. Enterprises and organizations have the option to choose between different AI
platforms and vendors based on their specific needs, pricing, and technological capabilities. This
competition among AI providers forces companies like OpenAI to continually innovate and offer
competitive pricing to retain customers.

4. Threat of Substitutes:
The threat of substitutes is relatively low in the context of AI, given the advanced capabilities
and efficiencies that AI solutions offer compared to traditional methods. While manual processes
and traditional software can address some needs, they often lack the scalability and
sophistication of AI technologies. However, developments in alternative technologies or new
software solutions could potentially pose a threat in the future.

5. Industry Rivalry:
Industry rivalry is intense, driven by rapid technological advancements and substantial
investments in AI research and development. Major tech companies and startups are
continuously striving to outperform each other by developing more advanced models, achieving
better performance metrics, and capturing market share. This high level of competition
accelerates innovation but also pressures companies to maintain a competitive edge.

Overall Industry Structure and Attractiveness

The AI industry is characterized by a dynamic and competitive structure. While there are high
barriers to entry, established players benefit from significant economies of scale, strong brand
recognition, and advanced technological capabilities. The industry’s attractiveness is supported
by its potential for high growth, driven by increasing demand for AI solutions across various
sectors.

However, the high level of competition and the rapid pace of technological change necessitate
continuous innovation and substantial investment. Companies must navigate challenges related
to data privacy, ethical considerations, and regulatory compliance, which can impact their
operational efficiency and market positioning.

Recent and Likely Future Changes

1. Advancements in Technology:
Recent advancements include the development of more sophisticated AI models, such as GPT-4
and beyond, which offer improved language understanding and generation capabilities. The
ongoing evolution of AI technologies is likely to bring about even more advanced models with
broader applications.

2. Increased Regulation:
There is a growing focus on regulating AI technologies to address ethical concerns, data privacy
issues, and potential misuse. Governments and regulatory bodies are likely to implement more
stringent guidelines, impacting how companies like OpenAI develop and deploy their
technologies.

3. Market Expansion:
The application of AI is expanding into new industries and regions. Emerging markets and new
sectors are likely to adopt AI solutions, presenting growth opportunities for companies.
Additionally, advancements in AI will enable the development of novel applications, further
broadening the market.

4. Ethical and Societal Impacts:

The societal impacts of AI, including issues related to bias, transparency, and job displacement,
are becoming increasingly prominent. Addressing these concerns will be crucial for maintaining
public trust and ensuring the responsible development of AI technologies.

5. Competitive Dynamics:
The competitive landscape will continue to evolve with the entry of new players and the strategic
moves of existing companies. Collaboration, mergers, and acquisitions may reshape the industry,
leading to new alliances and competitive dynamics.

Conclusion

The AI industry, in which OpenAI operates, is characterized by high competition, significant

technological advancements, and substantial investment requirements. While the industry
presents numerous opportunities for growth and innovation, it also involves navigating
challenges related to competition, regulation, and ethical considerations. Understanding these
dynamics and staying ahead of technological and market trends will be crucial for OpenAI to
maintain its leadership position and capitalize on emerging opportunities in the evolving AI
landscape.
Question 4: Perform internal analysis using VRIO and Value chain analysis frameworks to
identify valuable resources and capabilities (mention only those resources and capabilities
that are strategic and relevant for the company). Evaluate the extent to which the resources
and capabilities of the company give them the potential to realize competitive disadvantage,
parity, temporary advantage, or sustained advantage.

Answer:

VRIO Analysis of OpenAI: Identifying Strategic Resources and Capabilities:

· Valuable: Does the resource or capability contribute to value creation?

· Rare: Is the resource or capability rare?

· Imitable: Is the resource or capability difficult to imitate?

· Organized: Is the firm organized to capture the value from the resource or capability?

1. Advanced Language Models:

● Valuable: These models are essential for a wide range of applications, including natural
language processing, text generation, and machine translation.
● Rare: The development of advanced language models requires significant computational
resources, expertise, and data.
● Imitable: While other companies are investing in language models, OpenAI's early
mover advantage and the complexity of training these models make imitation difficult in
the short term.
● Organized: OpenAI has a strong research team and infrastructure to develop and deploy
these models effectively.

Conclusion: OpenAI's advanced language models provide a sustained competitive advantage

due to their value, rarity, and difficulty of imitation.

2. Large-Scale Computing Infrastructure:

● Valuable: This infrastructure is essential for training and deploying large language
models.
● Rare: Access to such infrastructure is limited, especially at the scale required for
OpenAI's research.
● Imitable: While other companies can invest in similar infrastructure, the cost and time
required to build it make it difficult to imitate in the short term.
 ● Organized: OpenAI has the expertise and resources to manage its infrastructure
effectively.

Conclusion: OpenAI's large-scale computing infrastructure provides a temporary competitive

advantage due to its value, rarity, and difficulty of imitation. However, as other companies invest
in similar infrastructure, this advantage may erode over time.

3. Research Talent:

● Valuable: A strong research team is essential for advancing AI research and developing
new applications.
● Rare: Attracting top AI researchers is highly competitive.
● Imitable: While other companies can invest in attracting top talent, OpenAI's reputation
and culture may give it an advantage.
● Organized: OpenAI has a strong research culture and collaborative environment that
fosters innovation.

Conclusion: OpenAI's research talent provides a sustained competitive advantage due to its
value, rarity, and difficulty of imitation.

4. Strong Partnerships and Collaborations:

● Valuable: Partnerships can provide access to new markets, data, and expertise.
● Rare: Building strong partnerships is a strategic skill.
● Imitable: Other companies can also form partnerships, but OpenAI's reputation and track
record may give it an advantage.
● Organized: OpenAI has a strong partnership strategy and has successfully collaborated
with various organizations.

Conclusion: OpenAI's strong partnerships and collaborations provide a temporary competitive

advantage due to their value and rarity. However, other companies can also form partnerships,
and the advantage may erode over time.]
Value Chain Analysis of OpenAI:

Primary Activities

1. Research and Development (R&D):

○ Key Activity: Developing new AI models, algorithms, and techniques.
○ Competitive Advantage: OpenAI's significant investments in R&D have
positioned it as a leader in the field of AI. Its ability to attract top talent and
allocate substantial resources to research gives it a substantial advantage.
2. Data Acquisition and Curation:
○ Key Activity: Gathering, cleaning, and preparing large datasets for model
training.
○ Competitive Advantage: Access to high-quality, diverse datasets is crucial for
training effective AI models. OpenAI's ability to source and curate such data is a
key strength.
3. Model Training and Optimization:
○ Key Activity: Training AI models on large datasets using advanced computing
infrastructure.
○ Competitive Advantage: OpenAI's access to powerful computing resources,
combined with its expertise in model optimization, allows it to develop highly
efficient and effective models.
4. Product Development:
○ Key Activity: Creating AI-powered products and services, such as language
models and APIs.
○ Competitive Advantage: OpenAI's ability to transform its research into practical
applications is a key differentiator. Its focus on developing user-friendly products
and services has helped it attract a large user base.
5. Sales and Marketing:
○ Key Activity: Promoting and selling AI products and services to businesses and
individuals.
○ Competitive Advantage: OpenAI's strong brand recognition and reputation in
the AI community give it a significant advantage in sales and marketing.

Support Activities

1. Infrastructure:
○ Key Activity: Developing and maintaining the computing infrastructure
necessary for AI research and development.
○ Competitive Advantage: OpenAI's investment in cutting-edge infrastructure has
enabled it to stay ahead of the curve in terms of computational power.
2. Human Resources:
 ○ Key Activity: Attracting and retaining top talent in the fields of AI, machine
learning, and data science.
○ Competitive Advantage: OpenAI's ability to attract and retain highly skilled
researchers and engineers is a key factor in its success.
3. Legal and Compliance:
○ Key Activity: Ensuring compliance with relevant regulations and ethical
guidelines.
○ Competitive Advantage: Given the sensitive nature of AI technology, OpenAI's
commitment to ethical AI development is a significant advantage.
Question 5: Discuss the strategy pursued by the company (cost leadership/ Differentiation/
Integrated) and its strategic position in the industry. Support your answer with facts,
choices, and evidence.

Answer: OpenAI pursues a differentiation strategy in the artificial intelligence industry. This
means the company focuses on creating unique products and services that stand out from
competitors.

1. Innovative Products: OpenAI is known for its advanced AI models, like GPT-3 and GPT-4,
which are among the most powerful language models available. By consistently improving their
technology, OpenAI sets itself apart from other AI companies. For instance, the ability to
generate human-like text, understand context, and perform complex tasks demonstrates their
commitment to innovation.

2. Accessibility and User Experience: OpenAI has made significant efforts to ensure that their
products are user-friendly and accessible. The launch of ChatGPT, for example, allows users to
interact with AI in a conversational manner. This focus on user experience not only attracts
individual users but also businesses looking for AI solutions, making OpenAI a go-to option for
various applications.

3. Research and Development: OpenAI invests heavily in research and development. Their
commitment to pushing the boundaries of AI technology positions them as leaders in the field.
The organization regularly publishes research papers and collaborates with academic institutions,
which enhances its reputation and credibility. This continuous investment in R&D supports their
differentiation strategy, as it leads to cutting-edge products.

4. Ethical Considerations: OpenAI places a strong emphasis on ethical AI use. Their mission to
ensure that artificial general intelligence (AGI) benefits all of humanity sets them apart in an
industry where ethical concerns are growing. Initiatives like the AI Safety Research program and
the focus on responsible deployment of AI technologies show a dedication to creating a positive
impact, which resonates well with users and stakeholders.

5. Strategic Partnerships: OpenAI has formed strategic partnerships, notably with Microsoft.
This collaboration not only provides OpenAI with significant resources but also allows for
deeper integration of their AI models into widely used platforms like Microsoft Azure. These
partnerships enhance their market position by expanding their reach and capabilities.

6. Market Position : In terms of market position, OpenAI is seen as a pioneer in the AI industry.
Its differentiation strategy has allowed it to capture a significant share of the market, particularly
in natural language processing and conversational AI. By offering unique and innovative
solutions, OpenAI is not only a competitor but also a leader that influences industry standards
and practices.

OpenAI's differentiation strategy—centered around innovative products, user experience, ethical

considerations, and strategic partnerships—positions it strongly within the AI industry. By
focusing on what makes it unique, OpenAI continues to lead in technology and shape the future
of AI. This approach not only enhances its competitive edge but also fosters trust and reliability
in an evolving market.