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How to Use Algorithms to Scale Digital Business

Chet Geschickter, Research DirectorOctober 3, 2016

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In 2020, Things Dominate!

The network of physical objects that contain embedded technology to

sense or interact with their internal state or external environment

Gartner estimates more than21 billion connected devicesby 2020.

(Around 150 new devices every second, 24/7!)

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What Is Algorithmic Business?

A way to package and productize intellectual property, knowledge and

insight in a reusable form.

Algorithms:An encapsulated set of rules that

act on data to determine an outcome.

DATA ACTIONALGORITHM

"Algorithmic business is the industrialized use of complex mathematical algorithms pivotal to driving improved business decisions or process automation

for competitive differentiation"

Can be thought of as an applet,,function or solution.

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Business Already Uses Algorithms Every Day …

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What Is Changed?

The Internet of Things creates a digital version of physical world devices.

Digital business creates new business designs through merging the

physical with the digital.

Algorithmic business applies the knowledge encapsulated in algorithms — business gets

smarter and more powerful!

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Advanced analytics creates: Outputs that can be used to

optimize or improve outcomes Mathematical algorithms that generate

repeatable results

Algorithmic business adds: Speed — how quickly transactions

can be processed Scale — number of both simultaneous

and interrelated connections

Advanced Analytics Feeds Algorithmic Business

Output

CognitionAnalysis

Data DecisionPredictiveWhat will happen?

DiagnosticWhy did it happen?

DescriptiveWhat happened?

Action

Decision Automation

Decision SupportPrescriptiveWhat should I do?

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Digital Business Is Still Evolving

Autonomous Business: The optimization of business outcomes through the inclusion of goal-seeking, self-learning artificial agents.

Web

2000

E-Business

2005

DigitalBusiness

2020

DigitalMarketing

2013

AutonomousBusiness

Algorithms

AlgorithmicBusiness

Beyond

Smart Machines

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What’s Next? Things as Customers

RequestsService

Receivesmessages

ReportsDisputes

Makes itsown purchases

Negotiates forthe best deal

ExecutesDirections

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Customers Will Also Be Autonomous

FixedTake action on behalf of parameters

set by humans

AdaptableChooseamongmultiple

options, with outcomes set by humans

AutonomousDecide and take action

independentof humans

Basic Advanced

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Autonomous Business Will…

Abstract processes, programs, people and products/services into algorithms that minimize human involvement… other than setting goals and constraints.

Drive new business disciplines, designs and models. Disrupt all industries and markets, customer relationships and economic

architectures, but at different rates.

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Constraints and Caveats

– Regulatory roadblocks

– Legal and intellectual property issues

– Employee resistance

– Developing talent for a data- and analytics-driven enterprise

– Customer backlash against poor "digital ethics"

– Algorithm "fragility," lack of data stewardship, poor execution

– Business cases to support investment

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Business Impacts and Actions

The drive to algorithmic and autonomous business will be relentless; Analytics Leaders must spearhead adoption of technology and information tools.

Digital leaders are accelerating entry into numerous industries; business leaders must address the threats by embracing "digital weaponry."

Algorithmic business supports industrial automation and should upskill jobs rather than eliminate them.

Autonomous business and things as customers will catalyze disruptions to economic architectures; Analytics Leaders must create new capabilities within their organizations.

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