Kathy Gibson reports from Gartner Symposium in Cape Town – Digital disruption is affecting everyone and, like it or not, it’s a journey that just about every company will have to take at some stage in the future.

“When we talk about digital, we talk about the fusion of the physical and virtual world,” says Gartner analyst Steven Prentice.

The world has seen the advent of the Web, of e-business, digital marketing and the digital business. “So what’s next?” asks Prentice. “This is algorithmic business and it’s where companies should be aiming for now.”

Data is driving many of the changes in business, particularly its inexorable growth. The world creates 25 exabytes of data every day – and 90% of all the data in the wolrd has been created in the last two years; and most of it is unstructured.

This wealth of data creates massive challenges, and companies are battling just to use the data that they already have.

“Your competitive advantage will come from being able to combine your data, analyse it and use it ethically and effectively,” Prentice told delegates.

From a business perspective, better data should translate to better decisions. Now the business has to change the way they make decisions.

“As a CIO you have to make sure you have the systems and engines you need to analyse the data, to help people make decisions that will make a material difference to the business,” he says.

It’s not just the volume of data that is a challenge – there are new types and sources of data available. As people and things come online, the physical and digital worlds blur and digital business merges.

The business opportunity is in having accurate data that reflects the physical world, so there is a search for incremental revenue streams from new products and services enabled by the availability of data.

There are a number of business opportunities that could arise from analysing data. An example is of companies that no longer see themselves as product suppliers, but as service suppliers.

In many instances, information about the availability of an asset can transform the need to own the asset, Prentice says.

By combining realtime data from multiple sources – including open data – companies can create new opportunities.

But CIOs have to address two critical issues: Who owns the data; and what can we do with it?

“This is not necessarily a legal issue, but it is a legal issue,” Prentice says. “If you don’t use the data at all, you will be uncompetitive. If you use it inappropriately, you could be severely embarrassed.”

This seems like it should be a clear-cut issue, but it isn’t, says Prentice. “Ownership of data is not clear-cut – but you need to establish that. Think about the ownership question. You need to clarify these issues.” And companies need to make very clear statements about what they will do with that data.

“Understanding when it is right to use the data and when it is not is an interesting point,” Prentice says. “With every use, the same data could be valuable or unethical.”

Combining data with analytics leads to the algorithmic business.

“Algorithmic business is the industrialised use of complex mathematical algorithms pivotal to driving improved business decisions or process automation or competitive differentiation,” he says.

The business case argues that algorithms applied to huge datasets allows highly accurate, personalised offerings – and businesses can take advantage of this to drive revenue and differentiation.

“The technology is an enabler to help you collect information; the analytics help you to come up with better business.”

Examples of algorithmic businesses today include insurance risk analysis and claims management; robo wealth advisers; robo news/press writers; legal research and precedents; medical conditions, treatment and outcome analysis, e-commerce recommendation engines; service scheduling; and inquiry scheduling.

“They are already being used a lot,” Prentice says. “And you need to think about how you can use them internally. And if you are very good at something, you could sell a particular capability.” This is leading to the emergence of algorithm stores, he adds.

Ecosystems are also driven by algorithms. Prentice points out that companies can’t ignore ecosystems. “You must decide if you are going to create and control your own; or which ecosystems you are going to be part of.”

He stresses that the pace of digital disruption demands a new approach to IT. So CIOs must design and deploy their own digital technology platforms.

Artificial intelligence (AI) has made massive strides in the last few years, he says, AI with deep neural network (DNN) learning is able to outperform humans in some areas.

“It doesn’t mean that everyone is going to be out of a job,” Prentice explains. “Just because you can, doesn’t mean people are going to do it.”

AI is very good at extracting real insights from large volumes of data , but humans are needed for understanding, guidance, sense and limits, Prentice says.

“Machines are not that dangerous. AI does not represent an existential threat to mankind. We will learn to live with machines.”

Narrow AI is getting to be very good, he says. General AI is not reality and is not likely to be reality for a couple of decades at least.

It does change the relationship, though. Technology now has a personality, and we could hand over control to automated systems in some instances.

CEOs need to be objective about AI – it will be the single most disruptive technology in the next few years, Prentice says.

Bots are going to be a reality as well.  Algorithms, AI, bots and chatbots will transform user experiences.

In addition, bots will soon get physical, driven by algorithms and AI, Prentice warns. These include a new generation of robots , cobots (collaborative robots), drones and self-driving vehicles.

“AI is enabling you to automate your business in the physical sense and not just in the virtual sense,” he says.

And, in the future, customers could be things rather than people. “When my bot is dealing with your bot; or my refrigerator is buying milk, CRM gets difficult,” Prentice explains. This scenario will drive a large number of micro-transactions, which traditional payment systems will struggle to cope with.

The next generation business model will be completely different, Prentice explains.

Algorithms, AI, bots and smart things will dominate business interactions in the next few years – so CIOs need to focus their business models on these new market issues.

Prentice has some recommendations for CIOs on their journey to algorithmic business:

  • Be rational , be careful, be bold.
  • Explore new sources and types of data to discover new revenue.
  • Fuelled by data, analytics and AI, digital business and algorithmic business will grow and disrupt industries.
  • AI is not a silver bullet, and digital ethics will  be interesting – don’t allow this to become IT’s problem
  • Define your algorithm, AI, ecosystem and digital platform strategy.
  • As bots and chatbots develop, connected things will become customers – and AI is going to be important in managing these relationships.