During our annual planning session, we are struggling to allocate capital between upgrading our AI systems and expanding our payroll. How do we use the concepts of economic thinkers like Erik Brynjolfsson and Andrew McAfee to determine whether a strategic budget item should be allocated to software development or to high-value human recruitment?

Question

Tyler Smith · Accepted Answer

When allocating strategic capital, you must apply the core insight of Erik Brynjolfsson and Andrew McAfee: seek to be an indispensable complement to technologies that are becoming cheap and plentiful. Do not spend capital on technology that merely automates tasks you can buy cheaply off the shelf, and do not hire humans to do work that machines can do faster and cheaper.

To make this decision during your annual planning session, analyze the specific bottleneck in your business. If the bottleneck is execution, data processing, or basic analysis, allocate your budget to integrating standard AI tools. These tools are cheap and plentiful, and using them to streamline operations will immediately improve your employee productivity and protect your P&L.

If the bottleneck is customer trust, strategic relationship management, or creative problem-solving, allocate your capital to hiring high-value human talent. These human skills are highly scarce and represent the ultimate complement to your technology.

Ask your leadership team to evaluate each budget request by asking if the investment makes your existing team more valuable or if it merely duplicates cheap technological capabilities. If a proposed new hire is simply going to perform manual tasks that could be streamlined with AI, reject the hire and invest in automation. If the software upgrade frees your team to deliver unmatched strategic value to your clients, fund the software and prepare your team to step into those elevated strategic roles.