Guide to Algorithmic Business: An introduction

For many, the word “algorithm” brings back memories of mathematics classes we didn’t pay attention to as we put the term in the same “I’ll never actually need to use this” category as quadratic equations and standard deviation. However, the reality is that if you’re in business algorithms are all around you – and how you use algorithms could make all the difference in the impact your organisation can make.

Algorithm application in business

Algorithms have actually been at the heart of some of the most successful corporate empires in the world. Google was born from an algorithm helping internet users find the information they need; while Coca-Cola boasts of its “secret recipe” – its own version of an algorithm. Meanwhile, the likes of the traders from Wall Street, Amazon and more have all relied on algorithms in the way they work. With organisations now generating more data than ever, collecting data is no longer a problem – instead, it’s all about how that data can be used: and processing data is done best when it’s achieved through algorithmic software.

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The reality is that algorithms are not new: they have been at the core of marketing automation, manufacturing control systems and campaign management for years. They have an impact on everything from social media to fabric automation and mobile commerce. They go beyond simple business intelligence and are now finding smarter and more effective ways to tap into data resources.

How you can apply algorithms in your business

There are several potential applications for algorithms in a business. Here are some possibilities:

Customer interaction

The most obvious use of algorithms in business is in defining what the vast amounts of data collected by businesses actually mean. Algorithms can be used to make business processes clear and more unique – and also to ensure that you’re providing the right solutions for individual customers based on the experiences they want.

There are already many examples of this in business – with one of the most obvious being from Amazon. Visit an Amazon home page and you’ll find it’s filled with items you might want to put into your shopping cart based on your purchases and other variables. These “suggestions” are, of course, based on algorithms driven from your customer behaviour.

Slim-line a workforce

It’s a controversial issue to suggest it’s a good thing for a business to operate with fewer staff – but the reality is that for most organisations one of the biggest expenses is their employees. However, this massive overhead can be reduced with algorithms able to take on many of the tasks typically assigned to workers. Gartner research suggests that 20 per cent of all business content will be generated by machines by 2018 – the idea is that companies can become smaller and also more profitable.

Real-time accuracy

Recognising patterns and trends and being able to react and adjust to them is vital for a business’s success. Waiting for weeks to run through this data can see others steal a march and get ahead of your company – whereas being able to operate in real-time can give a business a massive competitive advantage. For example, imagine you’re in a business that relies on the fluctuations of the stock market – being able to react quickly to the market’s movements is vital – when you see a certain stock falling you can seek alternative revenue streams quickly and this can boost cash flow.Processing data | It’s not just customer data for which algorithms are proving vital. They play a role in almost every fast and efficient data process. Look no further than the vehicles we drive as an example. Telematics is being used to share information about road conditions and when applied to businesses with large fleets it could allow truck drivers to avoid certain routes and keep drivers safe.

Processing data

It’s not just customer data for which algorithms are proving vital. They play a role in almost every fast and efficient data process. Look no further than the vehicles we drive as an example. Telematics is being used to share information about road conditions and when applied to businesses with large fleets it could allow truck drivers to avoid certain routes and keep drivers safe.

Challenges that algorithms can create in an organisation

While there are massive advantages to using algorithms within a business’s operations there are also some challenges that will need to be addressed. These include:

Context sensitivity

Algorithms, of course, present a very “cold” perspective on the facts. For example, they can make a judgement on how a customer reacts to a product – but they can’t put this reaction into a specific context. So, for example, a customer may give their opinion on a product but that can be influenced by external factors such as how they slept the night before or other things that are impacting their life. Therefore, basing things purely on an algorithm can backfire in terms of an assessment of customer data.

Human element

Similarly, algorithms simply can’t make the same judgements that humans can. For example, if you’re dealing with a supplier, an algorithm can judge their supply rates and delivery times but can’t make an assessment of their personal contact and demeanour. Similarly, algorithms can’t negotiate in a way that a human can in order to achieve the best rates.

Are algorithms going to impact your organisation?

Failure to implement algorithms in your organisation is likely to see you lose a competitive advantage to your rivals. According to Gartner estimates, 20 per cent of all business content will come from machines by 2018; while autonomous software agents will participate in five per cent of all economic transactions by 2020.

With suitable data sources, algorithms have the potential to offer quantifiable results while making vital predictions in real time. While the human element cannot be subtracted altogether, IDC’s Worldwide Big Data and Analytics 2016 Predictions state that organisations that are able to analyse data while delivering actionable information are able to enjoy as much as $430 billion in productivity gains compared to their peers. And that should be all the motivation you need to stay awake in algorithm class.

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