Five Keys to Understanding Algorithmic Business

April 15, 2016

Contributor: Christy Pettey

While algorithms are not new, they are moving front and center as leading organizations uncover their true value.

Algorithmic business is vital for growth in the digital economy, but working out what to do, and how to do, it remains difficult for IT, data and business leaders alike.

According to Alan Duncan, research director at Gartner, organizations will be valued not only for their big data, but also for the algorithms that turn that data into actions and, ultimately, improve the customer experience

“Algorithmic business is pivotal to competitive advantage,” said Mr. Duncan. “By 2018, more than 50 percent of large organizations globally will compete using advanced analytics and proprietary algorithms, causing the disruption of entire industries.”

Mr. Duncan highlighted the top five things that CIOs and chief data officers (CDOs) need to know about algorithmic business:

1. Algorithms Are Not New

Algorithms have been at the core of manufacturing control systems, marketing automation and campaign management and have played a pivotal role in financial services for the past few years. We are now starting to see the broadening introduction of algorithms as researchers develop ways to make algorithms smarter and more effective at mining new or previously untapped data resources.

2. Algorithmic Business Is Different From Business Intelligence

BI focuses on the analysis of data to describe and understand prior events, ideally with the aim of predicting future opportunities and challenges. Algorithms have an impact on everything we do — including planning, control, Internet, social media, mobile commerce and fabric automation. BI is just one part of that and will, of course, be affected like everything else.

3.The Advantages of Algorithms Are Speed and Scale

Algorithms work at a speed and scale that cannot be easily matched simply by scaling the human workforce. As digital business takes hold, increasing the use of algorithms represents the most cost-effective and efficient way to handle the volumes of data and to exploit the growing numbers of business moments that arise.

4. The Accelerating Rate of Technological Change Is Driving the Emergence of Algorithmic Business

The rapid rate of technology change, the growing levels of connectivity between individuals, business and smart devices, and the growing volatility and flux in the marketplace all conspire to favor the increased use of non-human systems to identify and exploit opportunities. Background trends - such as cloud computing, ubiquitous connectivity, growth in smart connected devices, more data and the growing social acceptance of in-line activity and technology based solutions - all contribute toward growing acceptability while providing  the infrastructure to support data collection and analysis on a hitherto impossible scale.

5. Algorithmic Business Creates Both Opportunities and Threats for Employees

The opportunities are the ability to automate and apply both speed and scale to manage new transactions in an accurate, appropriate and personalized manner. The threats relate to ethical considerations: "Is this the right thing to do; what are the unintended consequences?" For many knowledge-based industries that are practice based, such as law or medicine, algorithms threaten the status and standing of consultants, practice leaders and others and can change the economics of lower level knowledge work - such as searching for legal precedents.

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