“Whether you’re leading a digital start-up or working to revamp a traditional enterprise, it’s essential to understand the revolutionary impact AI has on operations, strategy, and competition,” wrote Harvard professors Marco Iansiti and Karim Lakhani in “Competing in the Age of AI”, a recently published article in the Harvard Business Review (HBR). Earlier this year, they also published a book of the same title, which expands on the ideas in the article and illustrates them with a number of concrete use cases.
The age of AI is being ushered by the emergence of a new kind of digital firm. Rather than just relying on traditional business processes operated by its workers, these firms are leveraging software and data-driven algorithms to eliminate traditional constraints and transform the rules of competition. Managers and engineers are responsible for the design of the new AI-based operational systems, but the system then runs the operations pretty much on its own.
“At the core of the new firm is a decision factory - what we call the AI factory,” note the authors. “[T]he AI factory treats decision-making as a science. Analytics systematically convert internal and external data into predictions, insights, and choices, which in turn guide and automate operational workflows… As digital networks and algorithms are woven into the fabric of firms, industries begin to function differently and the lines between them blur.”
The Industrial Revolution transformed the economy by developing a scalable, repeatable approach to manufacturing. The AI factory is now driving another fundamental transformation by industrializing the data gathering, decision making, and overall digital operations of 21st century firms.
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