The AI-Based Competitive Revolution

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The AI-Based Competitive Revolution

The Golden Age of the Fifth Techno-economic Revolution has been characterized by the rise of AI-based firms including giants like Google, Facebook, Amazon, and Tencent, as well as smaller, rapidly growing firms, ranging from Zebra Medical Vision and Wayfair to Indigo Ag and Ocado.  And that’s why experts like Marco Iansiti and Karim Lakhani of Harvard Business School refer to our current era as “the Age of AI.”

Consider this.  Every time we use a service from one of those companies, the same remarkable thing happens. Rather than relying on traditional business processes operated by workers, managers, process engineers, supervisors, or customer service representatives, the value we get is served up by algorithms.  True, managers and engineers design the AI and the software that makes the algorithms work, but after that, the system delivers value on its own, through digital automation or by leveraging an ecosystem of providers outside the firm.  AI sets the prices on Amazon, recommends songs on Spotify, matches buyers and sellers on Indigo’s marketplace, and qualifies borrowers for an Ant Financial loan.

The elimination of traditional constraints transforms the rules of competition.  As digital networks and algorithms are woven into the fabric of firms, industries begin to function differently and the lines between them blur.  The changes extend well beyond “born-digital” firms, as more-traditional organizations, confronted by new rivals, move toward AI-based models too.  Walmart, Fidelity, Honeywell, and Comcast are now tapping extensively into data, algorithms, and digital networks to compete convincingly in this new era.  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.

At the core of the new firm is a “decision factory” also called an “AI factory.”  Its software runs the millions of daily ad auctions at Google and Baidu.  Its algorithms decide which cars offer rides on Didi, Lyft, and Uber.  It sets the prices of TVs and polo shirts on Amazon and runs the robots that clean floors in some Walmart locations...

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