Optimizing Enterprise Adaptability to Inflationary Situations : Modeling the Implementation of AI in e -Management

Mamadou MBAYE; Ibrahima THIAM

Research Article: 2024 Vol: 28 Issue: 4

Optimizing Enterprise Adaptability to Inflationary Situations : Modeling the Implementation of AI in e -Management

Mamadou MBAYE, Université Iba Der Thiam de Thiès

Ibrahima THIAM, Université Iba Der Thiam de Thiès

Citation Information: MBAYE, M., THIAM, I., (2024). Optimizing Enterprise Adaptability to Inflationary Situations : Modeling The Implementation of AI in E -Management. International Journal of Entrepreneurship, 28(S4),1-11

Abstract

In an environment marked by rampant inflation, organizational adaptability takes on crucial importance in maintaining companies' competitiveness. This article aims to explore the implementation of artificial intelligence (AI) in internal e-management to optimize this adaptability in the face of this major economic challenge. Through an approach based on a robust theoretical model, we analyze the mechanisms for incorporating AI into internal management processes, aiming to improve decision-making, enhance responsiveness to market fluctuations, and foster organizational innovation. Special attention is paid to modeling this integration, identifying key variables and their interactions to ensure its effectiveness. The combined use of qualitative and quantitative analyses allows us to evaluate the results obtained, particularly in terms of organizational performance, operational agility, and the ability to adapt to economic variations. Our methodology includes a discussion of the model, offering relevant recommendations to enable efficient application of the principles of prospective, agile, and innovative management, taking into account AI in management practices. The results provide valuable insights for its successful integration into internal e-management within organizations. Finally, the implications arising from the study enrich the academic understanding of the synergies necessary for organizational adaptability in a volatile economic environment

Keywords

Inflation, Management, Modeling, Artificial Intelligence

JEL Classification

E31, D21, G11

Introduction

Managing a company is not an easy task because several internal and external variables challenge the cohesion and consistency of the strategies implemented to achieve customer satisfaction. To lead such a complex structure, more than a mechanical and rigid application of management techniques is required. Management, in a more holistic sense, will allow control over the company regardless of environmental turbulence and countercyclical forces (Göçer & Tansel, 2022). The manager has the delicate mission of quickly identifying variables that may impact their operational and strategic objectives to ensure the sustainability of their company.

Traditionally, the goals pursued by private entities have been well defined; the most accepted is certainly the creation of wealth, with profit being the main indicator (Kim & Lee, 2022). However, there is a conceptual shift and the generalization of new concepts focused on value-added since the advent of Michael Porter's value chain theory. This holistic approach encompasses not only the financial gains from activity but also all benefits and advantages, often grouped under the generic term "value". This inclusive vision requires proactive and agile market share management, taking into account the product life cycle and external variables such as inflation.

In this dynamic economic ecosystem, companies must constantly adapt their internal management strategies to maintain competitiveness. It is in this context that the integration of artificial intelligence (AI) into internal e-management becomes crucial. This strategy, still emerging but promising, offers innovative tools and perspectives to optimize organizational adaptability in the face of rampant inflation. By providing advanced mechanisms for data collection, analysis, and utilization, AI helps companies anticipate market trends, make more informed decisions, and quickly adjust their strategies in response to rapid and unpredictable economic changes.

Thus, exploring this relationship between AI and internal management in the context of organizational adaptability provides a fertile ground for academic research and an exciting perspective for practitioners seeking to strengthen their company's resilience in a perpetually changing economic environment. Inflation is a complex and recurrent economic phenomenon that has significant consequences for the company and its environment. It is currently almost universal, affecting all sectors of the global economy. It is noteworthy that no continent is spared, as illustrated by the following data (Table 1/Table 2) regarding inflation levels for the year 2022.

Table 1 Inflation Rates for These Countries
Countries	Inflation rates
India	6.23
United States	2.60
Brazil	5.57
Germany	1.80
China	1.50
Source : Mert (2022)

Table 2 Inflation Rates for these Countries
Countries	Inflation rates
Nigeria	12.10
Egypt	7.20
Kenya	7.90
South Africa	4.50
Morocco	1.80
Source : Mert (2022)

It is important to note that these inflation rates are influenced by various macroeconomic factors such as economic growth, monetary and fiscal policies, fluctuations in commodity prices, among others. For the following African countries, we have the following indications for the same period:

Finally, in the European Union, the inflation rate (EU) in 2022 was approximately 1.50%. This is a weighted average of the rates of the various EU members, which vary considerably between countries and years, depending on specific macroeconomic factors within the union. To contain this inflation and manage its impacts on business performance, managers adopt several strategies. They must constantly challenge organizational and operational processes to maximize efficiency and explore new sources of consumables to limit its impact on production costs (Tchuindjo, 2021).

The aim of this article is to model the implementation of AI in companies to boost their resilience in an inflationary environment. The methodology adopted relies on an integrative approach. First, a comprehensive analysis of the literature is conducted to understand the challenges posed by the current economic environment and the limitations of traditional management. Then, an exploration of prospective, agile, and innovative management models is undertaken based on the work of Göçer & Tansel (2022) to highlight the importance of the company's flexibility and adaptability.

Finally, a discussion of the results obtained through modeling is conducted, accompanied by practical recommendations to help companies effectively implement the principles of prospective, agile, and innovative management, and the implementation of AI in their management practices. This methodology offers a comprehensive and rigorous approach to addressing the challenge of organizational adaptability in an inflationary context, highlighting the importance of AI in internal e-management. The article is composed of four parts: an introduction, a section on classical management, another on management adaptability, then modeling, and finally the conclusion and recommendations.

Rigidity of Classic Company Management

Inflation is a complex economic phenomenon that impacts the purchasing power of various economic agents. Due to its impact on production costs and companies' profit margins, it is crucial to rethink the internal management of organizations for better adaptability to the environment. In an inflationary context, managers must adopt different strategies that involve functional reorganization and the readjustment of operational processes to maximize productivity and reduce costs by exploring and appropriating new sources of raw materials. In such an environment, it is the role of internal management to take appropriate measures (Yalçin & Ünal, 2021) to enable the company to be resilient and limit the impact of inflation on profitability objectives.Internal management is defined as a set of processes, decisions, and practices that enable an organization to operate effectively. However, in a dynamic and changing environment, its rigidity makes the company ill-suited and incapable of facing growth challenges. Its inadequacy is due to a variety of factors, such as organizational inflexibility in operational processes, decision-making method, resistance to change, distrust of innovation, and poor understanding of market trends and the economic environment.

Indeed, one of the most notable consequences of the inadequacy of internal management is the rigidity of operational processes (Kiliç & Sengül, 2021), which make companies prisoners of obsolete work methods, preventing them from being competitive in a dynamic, competitive, and changing environment. In such an organization, corporate culture influences employees who show some reluctance to adopt new work methods or processes, making it difficult to implement significant improvements within the company. This rigidity hinders innovation and the adoption of new technologies to enhance productivity. Thus, the company, being too cautious, rejects the implementation of new work methods and does not take advantage of the potential benefits of innovation. The poor understanding of market trends and the economic environment makes internal management unsuitable in an inflationary environment, as companies, insensitive to market developments, become increasingly uncompetitive against an increasingly aggressive competition. To meet these challenges, they must adopt a flexible approach and be open to change. They must be willing to review their organizations and operational processes, adopt new technologies, and adapt to changes in demand. It is also necessary for managers to assess the financial risks associated with inflation and to implement cost-cutting techniques.

In an inflationary environment, companies face significant challenges in cost management, profitability, and business survival. In these difficult economic conditions where expenses are increasingly growing, classic company management proves to be rigid and unsuitable for performance challenges. Indeed, under the effect of inflation, raw materials, wages, and other expenses increase, while profitability decreases. The manager must be able to mitigate them without compromising the quality of products and services. In this task, classic management proves to be limited, as traditional methods of staff layoffs and marketing expenses negatively impact the quality of deliverables (Guo & Wang, 2021), compromise customer satisfaction, and damage the company's reputation; this penny-pinching approach is completely ineffective. In an inflationary environment, cash management is also a challenge for companies. Cash flows are disrupted due to price fluctuations and cost increases. Companies must be able to manage their cash effectively to avoid illiquidity. Classic company management could be limited in this task, as traditional cash management methods such as expense reduction negatively affect the company's ability to generate sufficient flows to cover solvency needs.

In such an environment, companies face increased cash tension risks related to price volatility and rising expenses. They must therefore be able to effectively address these risks to minimize their impacts on company profitability. In this context as well, we observe the limitations of management, as traditional risk management methods, such as insurance, diversification, or hedging (Adhikari & Agrawal, 2021), are not sufficient to protect against inflation. As a reminder, internal management is based on principles such as strategic planning, prioritization, centralization, and bureaucracy developed in the early twentieth century and which have been widely tested over the years. However, in an ever-changing economic environment, they are unsuitable for current profitability challenges and especially for flexibility.Firstly, prioritization, which is one of the fundamental principles of classic company management, leads to a loss of creativity and innovation.

Employees at the bottom of the ladder often hold little power and are not encouraged to propose new ideas or challenge decisions made by superiors. It is an organizational structure of a pyramidal type in which decisions are made at the top and mechanically transmitted downward (Hamza & Mir, 2021); this in turn leads to high costs and excessive bureaucracy. Decisions transmitted through different functional levels circulate difficultly, are interpreted differently, lose relevance, and result in operational dysfunction and non-quality costs for the company. Centralization, another fundamental principle of classic company management, implies a certain loss of flexibility.

Decisions made at the central level are often disconnected from operations and prevent the company from quickly adapting to changing demand. It also comes with heavy bureaucracy with strict rules and fixed procedures that weigh down efficiency and prevent employees from making quick and effective decisions. In conclusion, inflation has many impacts on organizations, but by rethinking internal management and working collaboratively with all stakeholders, companies can adapt and minimize its consequences on their growth. They must assess and anticipate its potential impacts, work with partners on flexible contracts, maintain transparent communication with customers, and collaborate with authorities to obtain tax incentives.

Prospective, Agile, and Innovative Management Against Inflation

Inflation is a general increase in the prices of goods and services over a given period. Generally, it negatively impacts businesses that must deal with rising costs while trying to maintain a reasonable level of profitability. To meet these challenges, they must rethink their internal management methods and adopt a more agile and innovative approach. Agile management has the advantage of focusing on flexibility, speed of execution, and the company's ability to adapt to changes. It relies on a flexible work style and simplified operational processes, allowing the organization to keep pace with environmental changes. This approach effectively helps to cope with rampant inflation.

In an ever-evolving economic context, companies must adopt efficient management techniques to maintain their competitiveness. The agile method, notably Scrum (Table 3), is increasingly used. It is an approach that focuses on flexibility, collaboration, and communication. It is particularly suitable for dynamic companies seeking to respond quickly to economic changes, such as inflation. It relies on teamwork, with well-defined tasks organized into sprints, which are intense work periods of a few weeks during which specific activities and performance objectives are focused on.

Table 3 Agile Method (Scrum)
Rôles	Rituels	Artefacts	Valeurs	Piliers
Product Owner	Backlog Refinement	Product Backlog	Engagement	Transparence
Équipe de réalisation - autoorganisée			Ouverture
Équipe de réalisation - autoorganisée	Sprint planning	Sprint Backlog		Inspection
Scrum Master	Sprint	Definition of Done	Focus	Adaptation
	DailyScrum	Increment	Respect
	Sprint Review	BurndownChart	Courage
	Sprint retrospective
Source : Sanaei & Mahdavi (2021)

Data collection is a key element of Scrum. Companies regularly need economic data to understand the impact of inflation on their activities. This includes information on production costs, inflation rates, consumption trends, and economic forecasts; the collected data is used to plan sprints so that the Scrum team can focus on the most important tasks aimed at countering inflation. Through meticulous planning, it regularly organizes meetings to review progress and adjust priorities.

Specific sprints (Sharma & Bhatnagar, 2021) can be organized for cost reduction or the implementation of new marketing strategies to adapt to the dynamics of the environment. This requires constant, cross-functional, open, and transparent communication among developers to discuss any issues. This collaboration helps the company to react in time; it is indeed an essential pillar of strategic monitoring and economic intelligence.

Although Scrum is effective in combating inflation, it has significant limitations. Firstly, it is best suited for short-term projects; large companies with multiple strategic business areas must regularly plan sectoral sprints to counter inflation. Furthermore, it is difficult to implement in companies with a pyramidal management style and an internal organization that lacks flexibility see figure 1.

Figure 1 The Spring

In a constantly evolving economic environment, it is necessary for businesses to adapt quickly to changes to remain competitive. Innovation is also a key aspect of management to mitigate inflation. Companies must be able to generate new ideas, products, and processes to address market challenges and environmental dynamics to strengthen their competitive position and increase market share. Innovation-focused management helps better understand trends and anticipate competition developments (Ntinda, Kinyua & Ng’ang’a, 2021). Indeed, it enables companies to collect and analyze data on PESTEL variables to adopt more appropriate policies and anticipate the impacts of inflation.

It is also important to note that companies must be more open and adopt more collaborative approaches with their various partners. They must cooperate with subcontractors, service providers, and government authorities to find concerted solutions aimed at stabilizing and even reducing costs. Faced with inflation, they would benefit from adopting a flexible, agile, and innovative approach that requires reflection on internal management processes, the implementation of flexible working methods, the implementation of an innovative strategy, and frank collaboration with other economic actors. By embracing such approaches, companies adapt more easily to the challenges of inflation and strengthen their financial stability and competitive position.

This flexible management relies on adaptability and agility. These key principles should initially concern the organizational structure because, instead of a rigid hierarchy and strict centralization, the company must have flexible structures including autonomous teams allowing decision-making at the local (operational or tactical) rather than strategic level. Thus, it reacts quickly to economic changes related to evolving demand and customer requirements.

Workforce flexibility is another component. It can be translated into flexible working hours, more independent employees, or sometimes, depending on the context, performance contracts that allow the company to quickly adapt to changing needs and costs. This can be particularly useful for companies facing economic pressures (Salarzadeh & Alizadeh, 2020) such as inflation and competitive pressure. Indeed, if costs increase, reducing staff or adjusting working hours leads to lower expenses.

Flexibility also concerns the process and allows the company better adaptability of its production tool and could include process automation and better use of technology. For example, if production costs increase due to inflation, processes can be automated to act as cost killers. However, flexible management also has limitations to consider, the most important of which is the risk of loss of control of the steering process by managers. Hence the need for realistic but also prospective and proactive management to remain competitive by anticipating economic changes, planning consequences, and remaining in control of the company.

To survive, companies must identify the variables that could affect their activities, including data on inflation, production costs, exchange rates, and consumption trends. This approach leads to the identification of new niches to reduce risks related to cost volatility. It facilitates the implementation of product diversification strategies to avoid excessive charges (Kiliç & Sengül, 2021). These strategies enable companies to cope with unforeseen economic situations of great magnitude.

However, it should be noted that it is difficult for companies to regularly collect and analyze economic data. This is particularly true for SMEs/SMBs that lack the necessary resources to allocate specifically to this task. Moreover, even if this economic monitoring helps companies anticipate inflation, it is difficult to predict exactly when it will occur and to what extent it will affect the company. Therefore, the strategies adopted show limitations that must always be taken into account.

Modeling the Implementation of AI

Presentation of the Model :

This is a theoretical model intended for internal management through artificial intelligence, with a focus on the company's adaptability to inflation :

Identification of Key Performance Indicators (KPIs) related to inflation :

- Define and select relevant KPIs that are likely to be impacted by inflation, such as production costs, profit margins, selling prices, etc.

Data Collection and Inflation Forecasting :

- Implement automated systems to collect and aggregate relevant economic data, including inflation indices, market data, price trends, etc.

- Use predictive analytics techniques to anticipate future inflation fluctuations and assess their potential impact on the company's operations.

Scenario Modeling and Strategic Planning :

- Scenarioize different inflation projections to assess financial and operational implications for the company;

- Develop flexible strategic plans that incorporate specific adaptation measures based on the various inflation scenarios envisaged.

Optimization of Operational Processes:

- Deploy optimization solutions to dynamically adjust the company's internal processes, such as inventory management, product pricing, procurement decisions, etc., in response to inflation variations ;

- Automate recurring tasks and standardize processes to improve operational efficiency and reduce costs.

AI-assisted Decision Making:

- Use AI systems to analyze real-time data and provide intelligent recommendations for decision-making, considering financial goals, budget constraints, and inflation-related risks;

- Integrate machine learning algorithms to enhance the accuracy of forecasts and recommendations over time, adapting to changes in the economic environment.

Continuous Monitoring and Evaluation :

- Establish mechanisms for continuous monitoring of the company's financial and operational performance, focusing on inflation-related indicators;

- Conduct regular assessments to measure the effectiveness of inflation adaptation strategies and adjust approaches accordingly.

Training and Skills Development:

- Train employees in key concepts related to inflation, the use of data analysis tools, and the interpretation of recommendations provided by AI systems;

- Encourage the development of problem-solving and decision-making skills in a complex and changing economic environment.

By applying this theoretical model, companies enhance their ability to anticipate and react proactively to the challenges posed by inflation, while improving their agility and competitiveness in the market.

Model Formulation

FIA=∑ ni=1(Pi×Wi)

Where,

• FIA represents the company's adaptability factor to inflation through artificial intelligence.

• Pi represents the contribution of each component of the model (identification of inflation-related KPIs, data collection, scenario modeling, etc.).

• Wi represents the weight assigned to each component based on its relative importance in the overall model

The weights Wi are determined by a multicriteria analysis taking into account factors such as potential impact on company performance, implementation complexity, and resource availability.

This formula allows quantifying the overall effectiveness of the theoretical model by aggregating the individual contributions of its components, facilitating the evaluation and comparison of different internal management approaches by AI in the context of adaptability to inflation.

Model Specifications:

Suppose a consumer goods manufacturing company uses the theoretical model to manage its inflation impact. Let's consider estimating the contributions of each component of the model to its overall adaptability factor, using a scale of 1 to 10 to represent their relative importance, and assuming equal weight assigned to each component :

• Identification of inflation-related key performance indicators (KPIs) : P1=8

• Data collection and inflation forecasting : P2=7

• Scenario modeling and strategic planning : P3=9

• Optimization of operational processes: P4=8

• AI-assisted decision-making: P5=9

• Continuous monitoring and evaluation : P6=8

• Training and skill development: P7=7

Since we assumed equal weights for each component, each Wi will be (1/7).

Using the formula of the theoretical model, we can calculate the company's overall adaptability factor (FIA) to inflation :

FIA= (1/7) × (8+7+9+8+9+8+7)

FIA= (1/7) ×56

FIA ≈ 8

Thus, in this example, the company's overall adaptability factor to inflation through the use of the theoretical internal management model by AI is evaluated at around 8 on a scale of 1 to 10. This suggests that the company is well positioned to address the challenges of inflation by implementing this model.

Discussion and Recommendations

The proposed model offers a comprehensive approach to improve the company's adaptability to inflation using advanced AI techniques. It integrates essential components such as identification of inflation-related KPIs, data collection and analysis, scenario modeling, AI-assisted decision-making, and continuous monitoring.

Recommendations

To optimize the model, it is important to focus on the following points:

• Validation and Calibration: It is recommended to validate the model using real data and to calibrate it regularly to ensure its accuracy and reliability.

• Flexibility and Agility: The model should be designed to be flexible and agile, capable of quickly adapting to economic and political changes.

• Training and Awareness: Investing in employee training and awareness is important to maximize the effective use of the model and ensure successful adoption within the company's internal management.

• Risk Management : It is necessary to implement risk management mechanisms to identify and mitigate potential risks associated with the use of AI in decision-making processes.

• Continuous Evaluation : Continuous evaluation of the model's performance should be planned to identify areas for improvement and make necessary adjustments.

• Strengthening Monitoring and Evaluation : Robust monitoring systems should be implemented to continuously assess the model's performance and identify areas for improvement.

• Interdisciplinary Collaboration : Encouraging collaboration between AI experts, economists, and policymakers is essential to ensure a holistic understanding of economic challenges and an appropriate response.

The model offers a promising approach to address contemporary economic challenges. By integrating advanced data analysis, predictive modeling, and AI techniques, it enables companies to anticipate inflation fluctuations and make informed decisions to maintain their competitiveness.

Conclusion

Inflation is an economic phenomenon that can have significant consequences for businesses. It leads to cost increases, a decrease in demand for products and services, and a decline in consumer and investor confidence. To adapt, it is important for organizations to rethink their internal management by adopting a flexible and proactive approach. Companies must assess the potential impacts of inflation on their business model and strategy to determine measures to minimize costs and maximize profitability. To do so, employees need to be trained to manage changes, negotiate more flexible contracts, and reduce consumables and capital costs.

Customers are also a key element in adapting to inflation ; maintaining open communication with them and understanding their needs and expectations is important to avoid non-quality costs. To optimize cash flow, companies must also engage with government authorities to obtain incentives and various tax benefits to mitigate the impacts of inflation. To rethink internal management to foster better adaptability of the company to inflation, leaders must consider several aspects including the following:

• Adopting a culture of adaptability within the company by encouraging employees to be open to change and react quickly to new situations. Managers should encourage innovation and calculated risk-taking.

• Establishing strategic monitoring to continuously monitor economic developments and market trends, in order to make informed decisions and adapt quickly to changes.

• Encouraging collaboration between different teams and departments to facilitate problem-solving and the implementation of concerted solutions.

• Adopting agile management methods such as Scrum to help the company respond quickly to economic changes through an iterative and collaborative approach.

• Regularly revising the company's strategy to ensure it is aligned with economic trends and adapted to new challenges.

In a context of rampant inflation, where companies are facing unprecedented challenges, the integration of artificial intelligence (AI) into internal e-management offers a promising strategic path to resilience and prosperity. The results of the model clearly demonstrate that this approach can be a crucial lever to strengthen organizational adaptability in the face of increasing economic pressures. AI brings tangible benefits by enabling more informed and rapid decision-making through advanced analysis of data and market trends. Indeed, the model explicates how AI can be synergistically integrated into internal management processes, thereby improving responsiveness to sudden changes and fostering organizational innovation.

To succeed in this transformation, companies must adopt a holistic approach. They must first invest in technological infrastructure and in developing the necessary skills to fully exploit the potential of AI. Additionally, a culture of adaptability and innovation must be encouraged, with strong leadership focused on strategic alignment and stakeholder engagement. The implementation of AI in e-management also requires close collaboration between different teams and departments, as well as transparent, cross-functional, and open communication with customers and business partners. This will enable a better understanding of market needs and rapid adaptation to economic developments.

Finally, ongoing employee training is essential to ensure effective use of AI and a thorough understanding of its economic implications. Companies must invest in empowering their staff to ensure a successful transition to AI-powered e-management. The implementation of AI represents a major strategic opportunity for organizations to thrive in an ever-changing economic environment. By following the recommendations of the model and adopting a proactive and collaborative approach, companies strengthen their resilience and flexibility, thus ensuring their growth and sustainability.

References

Abdul Nifa, F. A. (2013). Development of a framework for partnering through aligning organizational cultures in the Malaysian construction industry (Doctoral dissertation).

International Journal of Entrepreneurship (Print ISSN: 1099-9264; Online ISSN: 1939-4675)

Optimizing Enterprise Adaptability to Inflationary Situations : Modeling the Implementation of AI in e -Management

Abstract

Keywords

JEL Classification

Introduction

Discussion and Recommendations

Conclusion

References