The Golden Age of Algorithms
November 20, 2018
Most people don’t use the word algorithm every day. Many think it refers to lines of code or the latest Diplo beat. Yet, algorithms are ubiquitous and there is an increasing urgency of action around them.
Almost every company in the world realizes the importance of developing algorithms that help them run their business. Algorithms are formulas—sometimes digital, sometimes captured in a spreadsheet–that allow your company to operate smarter and meet customer needs. The best algorithms are proprietary; that is to say that only your company has the formula. They are also backed up by Artificial Intelligence (AI)/Machine Learning (ML) technologies so that they have the capacity to get smarter and make better decisions after each and every transaction.
Most companies recognize that the explosion of data from sensors and intelligent devices and new information from social media and other sources make now the right time to invest in a more comprehensive algorithm strategy. The truth is that most companies have a hard time managing the streams of data that they already have, let alone handling new sources of data. Algorithms are the key to making your current data useful and making smart, timely decisions based on that data possible.
What has been missing thus far is focus on how to manage this critical resource and the assets they produce. Markets will be won by companies that effectively create, manage, and deploy algorithms for everything from customer demand sensing to data cleansing to inventory management! Companies that are faster and smarter at developing and managing algorithms are going to win in industry after industry.
And yet, almost all companies report difficulty in moving ahead for several reasons:
- No one owns algorithms. They exist across business units and functions. No one is setting priorities and deciding where algorithms can make customers the happiest. Few are aligning technology investments against the most important algorithms.
- Algorithms exist in every company. They might not be backed by accurate data. They might not be shared between business units. But they exist and are being used to influence or drive some decisions.
- People know that a more data-based, analytically driven, algorithm supported management process is required. They just want management to be smart about setting priorities and getting algorithms better every day.
It is amazing how much better decisions are when, for example, an algorithm has analyzed the past eight years of purchasing data, ingested the latest social media buzz, and considered customer usage patterns as reported back by a sensor built into the product. Even the most experienced human demand planner with an Excel tool (with macros) can’t compete!
For most companies, developing an organization, culture, and process driven by algorithms requires transformational change. While Google, Amazon, and Uber are great examples of digital natives that create and use algorithms; some of the most interesting work is being done by sector-leading companies such as Dell, Colgate-Palmolive, Under Armour, Li & Fung, Corning and others.
All companies are different. They have different strategies within specific industries, different degrees of automation, and distinctive approaches to their customer. Still, there are a series of Universal Algorithm Action Steps that apply across companies and industries. Here is what can usher in your company’s Golden Age of Algorithms:
- Create an Algorithm Council comprised of representatives from Finance, Supply Chain, Sales, Marketing, IT and HR. Why? Because all game-winning algorithms exist across organizational boundaries, aka silos. The Algorithm Council will prioritize the algorithms and back them up with the necessary technology investment.
- Inventory all existing algorithms and prioritize them. Decide what improvements can be made in investment and focus. It turns out that most companies have a good start on algorithms and data. But not many have managed and invested in the space. Invest, focus and execute the great algorithms that you already have in-house.
- Develop a people strategy that will make all this happen. You are probably missing some data-driven, systematic thinking, algorithm producing people. Go out and hire them, contract for them or acquire them. Now! Sometimes these people are called data-scientists. And train your workforce in algorithm-driven decision-making.
Look at the world’s great supply chain companies like Dell, Colgate-Palmolive, Li & Fung. They continue on this journey toward algorithms that will make their customers not just satisfied, but happy–and keep their businesses expanding and generating the profit that market leaders deserve.
Maybe you should use the word algorithm every day!