Mr. Algorithms: The New Member in the Board Room to Discuss Algorithm Economy

The single greatest instrument of change in today’s business world, and the one that is creating major uncertainties for an ever-growing universe of companies, is the advancement of mathematical algorithms and their related sophisticated software. Never before has so much artificial mental power been available to so many—power to deconstruct and predict patterns and changes in everything from consumer behavior to the maintenance requirements and operating lifetimes of industrial machinery. In combination with other technological factors—including broadband mobility, sensors, and vastly increased data-crunching capacity—algorithms are dramatically changing both the structure of the global economy and the nature of business.

Mature data science & analytics adopters have refined their decision-making processes as part of a data-driven culture and achieved superior financial performance. Hence the next competitive advantage in Analytics space will be focused on how you do something with data, not just what you do with it. The biggest internet companies are not centered on data, but the company’s most precious resource – its algorithms. Google is one of the most valuable brands in the world because of its closely guarded secret which is a range of algorithms which powers everything from Search Platform to its proprietary driverless cars.

Companies Turning Math Houses

The companies that have the new mathematical capabilities possess a huge advantage over those that don’t. Google, Facebook, and Amazon were created as mathematical corporations. Apple became a math corporation after Steve Jobs returned as CEO. This trend will accelerate. Legacy companies that can’t make the shift will be vulnerable to digitally minded competitors. To some degree, every company will have to become a math house. This will require more than hiring new kinds of expertise and grafting new skills onto the existing organization. Many companies will need to substantially change the way they are organized, managed, and led. Every organization will have to make use of algorithms in its decision-making.

In today’s online math houses, by contrast, actual users are increasingly interacting directly with the company—buying and giving feedback without any intermediaries. The companies can track and even predict consumer preferences in real time and adjust strategies and offerings on the run to meet changing demands, which gives consumers leverage they never had before. The data accumulated from these interactions can be used for a variety of purposes. A company can map out in extreme detail all touch points of a user or buyer, gather information at each touch point, and convert it to a math engine from which managerial decisions can be made about resource allocation, product modification, innovation, and/or new product development. The data can also be used as a diagnostic tool—for example, it can reveal signals and seeds of potential external change and help identify uncertainties and new opportunities. It can point to anomalies from past trends and whether they are becoming a pattern, and help spot new needs or trends that are emerging and could make a business obsolete.

Algorithm Economy

Superior Algorithms would lead to extended Competitive Advantage that involves not only better returns and lesser costs for a company by its implementation, but also opportunities in monetizing their proprietary algorithms by offering licensing to other non-competing organizations.

The heightened demands for faster and better decision making, teamed with Democratization of Big Data and Data-as-a-Service (DaaS) going mainstream, will inevitably create entirely new markets to buy and sell advanced analytics algorithms. This will lead to the emergence of niche technology start-ups dealing with both targeted plug-and-play analytics algorithm portfolio and a more service-oriented end-to-end approach to uncovering advanced analytical insights using customized algorithms.

This algorithm economy would have millions of algorithms available, each one representing a piece of software code that solves a business problem or creates a new opportunity, operating in data-driven analytics space. Analytics Products will be defined by the sophistication of their algorithms. Organizations will be valued based not just on their big data, but the algorithms that turn that data into insights into action and ultimately to customer impact.

The Top Level Management Strategy

CIOs have long been called upon to drop any geeky attributes and learn to speak the language of business. But emerging importance of algorithms, along with technologies, such as analytics, sensors, cloud and mobility as well as the success of Internet-based companies delivering cutting-edge software can lead CIOs to focus more on their technological skills.

Together, the CIO and CEO must hone a business strategy based on customer data. But how will they do that? By using analytic algorithms, ostensibly human decisions converted into a set of equations, to drive competitive advantages. For example, the founders of Amazon.com, Google and Facebook, disrupted e-commerce, search and social software markets with unique algorithms. To make a mark in their industries, CIOs must analyze customer data, iterate on it several times, and compare it to other data sets for answers. Analytics could be used to better understand consumers’ experiences interfacing with the business. It’s incumbent on the CIO to use the data to connect the dots.

The use of algorithms will have to become as much a part of tomorrow’s management vocabulary as, say, profit margins and the supply chain are today. And every member of the executive team will need to understand his or her role in growing the business.

IoT and Future Evolution of Algorithms

Now the revolution is entering a new and vastly expansive stage in which machines are communicating with other machines without human intervention, learning through artificial intelligence and making consistent decisions based on prescribed rules and processed through algorithms. This capability has rapidly expanded into potential connections between billions and billions of devices in the ever-expanding “Internet of things,” which integrates machines and devices with networked sensors and software, allowing the remote monitoring and adjustment of industrial machinery, for instance, or the management of supply chains.

The future shall have algorithm economy driving the Internet-of-Things where inert machines can communicate autonomously to take actions without human intervention, powered by replaceable algorithms. Autonomous Software that thinks and does. The detachment of smart things from its internal operating algorithm will lead to autonomous machines whose “personality” could be changed at will.