Algorithmic business is more than just the future of successful enterprise. Algorithmic business is already here, and enterprises that fail to adapt to this reality run the risk of being left behind by competitors that make the transition. To understand why algorithmic business is here, consider the following. By 2020, over 6 billion people will own a smartphone worldwide, and there are already billions of mobile users with smartphone. Additionally, research shows that “Internet of Things” connected devices are expected to triple to 38 billion units by 2020.

In the immediacy of the here and now, Global 2000 companies are left with a pressing question. When a global Internet of Things that numbers tens of billions connects with businesses and billions of smartphones, what should they do with all the data collected? Merely collecting big data is of little benefit to an enterprise since big data needs to be put to effective use in order to matter. Tapping into the benefits of big data requires companies to think bigger.

Research shows that “Internet of Things” connected devices are expected to triple to 38 billion units by 2020.

In the 21st century, thinking bigger and making effective use of big data requires enterprises to think like an algorithmic business.

What Is an Algorithmic Business?

As the name suggests, an algorithmic business taps into the potential of using smart algorithms that provide key business insights and define company processes, the way customer service is handled and help businesses analyze data and make impactful decisions in seconds, as opposed to weeks. Simply put, algorithmic business is a way to describe how enterprises rely on algorithms more than ever before.

Applying unique algorithms to the information and big data an enterprise collects may sound like something out of science fiction, but the reality is far simpler. The word algorithm is a fancy

“Data is inherently dumb — Algorithms are where the real value lies. Algorithms define action,” Peter Sondergaard, Gartner Research

way to describe a set of instructions that must be followed in order to complete a given process. By extension, every piece of software used by an enterprise is algorithmic, meaning enterprises have already used algorithms for many years. As such, a CIO may be curious as to why the term “algorithmic business” is catching on now if algorithms have already been in use for years.

While algorithms have existed for years now, they have rarely (if every) been central to any part of the business. Today, rather than using algorithms tangentially or only occasionally, enterprises are increasingly reliant on the ability of algorithms to help business decision making. In effect, algorithms may have been involved in sending invoices or performing basic business functions, but they can now be used to spot business insights enterprise executives would miss. Similarly, algorithms are being used to help enterprises make business decisions based on information that would not have been noticed or obtained without algorithms.

Indeed, today entire business models are built around smart business algorithms. This is why the term algorithmic business is taking off. Now more than ever, enterprises are capable of being transformed via smart business algorithms.

Transforming Enterprise Via Smart Business Algorithms

Transforming big data into unique and proprietary business algorithms translates into transforming the entire enterprise. The only way to process data into actionable insight is to create an algorithm-based software. Making sense of large amounts of data via algorithms will improve business decision-making, which translates into significant improvements to business performance.

Netflix as we know it would not exist but for sophisticated algorithms that allow Netflix executives to take meaningful action based on an algorithm’s ability to provide clear insight into the big picture of big data.

Netflix is a classic example of an algorithmic business model. In fact, the success of their streaming video service is owed almost entirely to algorithms. How does Netflix learn your preferences and make quality viewing recommendations? Algorithms. How does viewer behavior inform Netflix on the shows to make and the viewing demographics to cater their content toward? Once again, algorithms. Netflix as we know it would not exist but for sophisticated algorithms that allow Netflix executives to take meaningful action based on an algorithm’s ability to provide clear insight into the big picture of big data.

To use another example, consider a shipping company such as UPS. Dropping off packages efficiently is a critical component of their business model, but there are a number of variables to consider. Truck maintenance, employee work hours, traffic and more all impact the ability to follow through on delivery times. A quality algorithm could sift through vast amounts of applicable data to determine the best route and delivery strategies for all the packages on each truck.

Companies cannot afford to ignore this level of advanced efficiency. Before business algorithms transformed enterprise, companies were forced to rely on teams of analysts to find patterns that were used to create data trends to use for better decision-making. This advanced work may take weeks to complete and calculate, whereas business algorithms are equipped to perform those same calculations in mere seconds.

These potential enterprise-changing benefits all hinge on how an algorithm is applied, however. This should not be a problem for enterprises with sufficient data sources since there will be enough data to ensure algorithms are capable of offering real-time and actionable results that benefit the enterprise.

“In algorithms, as in life, persistence usually pays off.”
Steven S. Skiena, The Algorithm Design Manual

The Value of Algorithms

As mentioned in the UPS example, the primary advantages of business algorithms are unprecedented speed and scale. Were that not the case, enterprises could simply scale up their workforce capabilities to enjoy the same benefit. In effect, it is the speed of an algorithmic business that makes embracing this innovation essential. As digital business will only continue to grow in the Internet of Things and mobile era, using algorithms will remain the fastest and most cost-effective way to handle the massive amounts of data and moment to moment business opportunities.

In fact, the push toward algorithms is likely to be so pronounced that it will usher in a “post-app era”. Transitioning from apps to algorithms will not happen overnight, but by 2020, some experts believe that consumers will no longer use apps on their devices. Instead, consumers will learn to rely on trusted virtual assistants in the cloud that are based on sophisticated algorithms. Algorithms will be integrated into the Internet of Things in ways that allow an algorithm to evolve and adapt in ways that could define an economic revolution for digital businesses.

The enhanced insight capabilities and future possibilities made possible by algorithms are not the only reason to embrace algorithmic business. With the rise of digital business, algorithms also help companies set themselves apart from competitors by offering a different experience to customers and mobile users. Individuals and businesses are more connected than ever before thanks to the infusion of smart devices and social media, and this level of connectivity exists, in large part, because of algorithms.

With billions of devices, things and people all interacting with businesses around the world, the marketplace is too volatile and complex for human systems to identify opportunities and seize on those insights. In effect, digital business requires the embrace of algorithmic business to thrive. Beyond the basics of this reality, cloud computing, smart devices and the growth of technology-based solutions all continue to push towards the inevitable necessity of algorithms. More importantly, these technologies and solutions provide the infrastructure support necessary to collect data and analyze it on an algorithmic scale that was previously impossible to achieve. Tapping into all these features is needed to give customers an experience and services that competitors have not yet noticed or exploited.

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Speaking of the enterprise’s customers, in time consumers will come to increasingly rely on algorithms in the years ahead. With cloud technology and the continued growth of smart agents, customer interactions will only become more reliant on cloud-based advisors and virtual assistants. Technologies such as Google Now, Apple’s Siri, Microsoft’s Cortana and Amazon Echo are likely to displace the typical interaction with device-specific apps. In this respect, apps are on borrowed time thanks to the algorithmic capabilities of these smart agent technologies. It would be altogether unsurprising, then, if algorithms push industries forward into a “post-app” era that enables cross-device functionality and encourages platform agnosticism.

Are you considering transforming your enterprise into an Algorithmic Business? What are some ideas and innovations you are pursuing? Please share your ideas.