Algorithms rule the world. What does this mean for business and its managers?
Business leaders need to better understand the “remarkable” advances taking place on the back of relatively simple algorithms. They need to work on transforming their operating models to survive and take advantage of the opportunities arising from artificial intelligence (AI). And they need to drive business model innovation.
“Simple AI is changing the way firms are built, run and managed,” says Karim R Lakhani, Charles E Wilson professor of business administration at Harvard Business School.
Indeed, in his new book Competing in the Age of AI Lakhani and co-author Marco Iansiti, David Sarnoff professor of business administration at Harvard Business School, say that we can almost guarantee that no field of human endeavour will remain independent of AI.
AI is not only displacing human activity, it is changing the very concept of the firm
“In discipline after discipline and industry after industry, digital networks and AI are becoming pervasive, defining a new age for business and for all of us,” they say. “AI is becoming the new operating foundation of business – the core of a company’s operating model, defining how the company drives the execution of tasks.
“AI is not only displacing human activity, it is changing the very concept of the firm.”
As networks and algorithms are woven into the fabric of the company, digital and AI can no longer be viewed as a specific set of skills, job role or function and the very nature of management and leadership needs to be redefined. Becoming a software-based, AI-driven organisation means becoming accustomed to ongoing transformation and changing the core of the company by building a data-centric operating architecture, not setting up a separate AI department.
Removing the human bottleneck
Iansiti and Lakhani point out that in a digital operating model employees do not deliver the product or service but instead design and oversee a software-automated, algorithm-driven ‘organisation’ that delivers the goods. Think Netflix.
What this does is to transform the growth process by removing the bottlenecks that traditionally constrain the scale, scope and learning potential of the firm. Thus Chinese financial services company Ant Financial was able to scale in just four years to serve more than 700 million customers on the back of fewer than 10,000 employees, while Bank of America has taken nearly 100 years to deliver a more limited offer to 67 million customers using some 209,000 staff.
This type of AI-driven organisation changes the role of managers. Managers in such a context are:
- Designers: shaping, improving and controlling the digital systems that sense customer needs and deliver value
- Innovators: envisioning how these digital systems will need to evolve over time
- Integrators: working to connect disparate digital systems and identify new connections between the company’s operating model and the customers it services
- Guardians: preserving the quality, reliability, security and responsibility of the digital systems they control.
As Iansiti and Lakhani say: “Digital, AI-centred operating models challenge virtually every traditional managerial and operational assumption, forcing us to fundamentally rethink the nature of firms and their management teams, their ability to grow and the constraints on their impact and power.”
It is still not clear what the overall impact of the AI revolution will have on leadership but, say the authors, we need to find wiser ways to lead the increasingly digital firm. Leadership must not be limited to the top of the firm. Everyone can play a critical leadership role. Many managers will have to learn about the ways AI can effectively be deployed in their organisation’s business and operating model. But just as important is that leaders master the human side and understand the issues that will come up as workers interact with increasingly digital models. As Iansiti and Lakhani say: “A leader deep in technology and driven by a strong sense of entrepreneurship, but less well rounded on the human nature of leadership and its impact on people, organisations and institutions may be as poorly qualified as a great traditional manager with no understanding of digital models, agile methods or AI.”
Karim R Lakhani and Marco Iansiti (pictured respectively below) are professors at Harvard Business School and authors of Competing in the Age of AI: Strategy and Leadership When Algorithms and Networks Run the World
Photo credit Fyfephoto.com