The potential of “big data” and “artificial intelligence” to revolutionize business is routinely valued by everyone, from entrepreneurs to managers in established listed companies. Many of these claims have sparked growing public skepticism.
However, a provocative new book by two professors from Harvard Business School argues that the transformation effect of “The Age of I.” has been underestimated, if at all.
Marco Iansiti and Karim R. Lakhani point out in “In the age of AI: strategy and leadership when algorithms and networks rule the world” that the current era was far more revolutionary than the industrial revolution.
The benefits of mass production and specialization during this earlier period were limited by two key factors, they argue.
First, the advantages of size have practical limitations. The growth in traditional organizations eventually reaches a point from which the company will suffer disScale, scope and learning savings. “In contrast,“ A.I.'s algorithmic operating models ” Efficiency is "almost unlimitedly scalable". In fact, the “self-reinforcing loops” of network and learning effects that enable digital environments can actually accelerate returns with scaling. They argue that the resulting economic effects are "many times" greater than the industrial revolution and lead to a "world of winners".
Second, while the efficiency of the industrial revolution depended on the benefits of vertical specialization, the A.I. The era lives from smashing what Mr. Iansiti and Mr. Lakhani now see as anachronistic silos. According to you, A.I. This affects the entire company horizontally and "fundamentally changes the core of the company by building a data-centric operational architecture." As a result, the competitive advantage shifts from vertical skills to universal skills in data acquisition, processing, analysis and algorithm development , "Which, in their view," leads to the gradual decline of traditional specialization ".
The authors analyzed the A.I. The skills of hundreds of companies and some of the best aspects of Competing in the Age of AI are these case studies. The discussion about Satya Nadella's turn to Microsoft is particularly instructive. But their broad conclusions are often exaggerated and sometimes contradictory.
How do you reconcile the argument that our economy is increasingly dominated by "a small number of digital superpowers" with the claim that "the age of AI may have created the greatest business opportunity in the history of civilization"? And the authors use Amazon as the figurehead of a company for which "almost every human interaction is torn from the actual critical path of service delivery". However, given the company's approximately 600,000 employees, this is a burden.
The use of software is not new. The core algorithms that underlie a large part of the algorithms that Iansiti and Lakhani call artificial intelligence have been around for decades. There is no question that the increased availability of computing power and data has further strengthened these technologies. Nevertheless, the benefits of network and learning effects are in many cases subject to the same decreasing returns – or even economies of scale – as traditional business models. Once Uber or Lyft have attracted enough drivers in a city to deliver a car in three minutes, attracting more drivers is no added benefit. And over the years, many social networks have collapsed because they attract too many wrong members.
A more balanced representation of the impact of the explosion of data and connections created by digital networks can be found in "The Platform Business: Strategy in the Age of Digital Competition, Innovation and Power". Michael A. Cusumano, Annabelle Gawer and David B. Yoffie – three economics professors – examine a wide range of factors that prevent most markets from becoming winners.
They argue that "digital technologies have consistently created more opportunities for network effects" and other valuable attributes that conventional companies are not normally able to use. However, the overall effect is very different. This is because advances in digital technology have significantly reduced the "initial cost of entry" and made it much easier to move from one platform to another. As a result, the digital revolution has "lowered and raised barriers to entry in many industries." In other words, careful strategic analysis requires an assessment of the net impact of these competing influences.
Despite their different perspectives, both groups of professors share similar concerns about the ethical and regulatory implications of these digital platforms that dominate the markets. “Compete in the age of AI" proposes "collaborative structures and approaches" for regulation, while "The Business of Platforms" emphasizes the need for "preventive" self-regulation and curation. At least implicitly, both books indicate that the current number of leading companies has been neglected in their efforts to achieve growth without abusing market power. As a result, "a new kind of leadership knowledge" is required to realize the full promise of this new technology.
"We need to choose a next generation of leaders," concludes the otherwise mild "Business of Platforms" for leaders and politicians, "with a better understanding of how platforms and digital technologies can affect society and the global economy."
Jonathan A. Knee is a professor of professional practice at Columbia Business School and a senior consultant at Evercore. His latest book is "Class Clowns: How the Smartest Investors Lost Billions of Education".