While modern day A.I. or machine intelligence (MI) hype revolves around big ”eureka” moments and broad scale “disruption”, expecting these events to occur regularly is unrealistic. The reality is that working with AI’s on simple routine tasks will drive better decision making systemically as people become comfortable with the questions and strategies that are now possible. And hopefully, it will also build the foundation for more of those eureka(!) moments. Regardless, technological instruments allow workers to process information at a faster rate while increasing the precision of understanding. Enabling more complex and accurate strategies. In short, it’s s now possible to do in hours what it once took weeks to do. Below are a few things I’ve found helpful to think about when drive machine intelligence at a large organization, as well as what is possible.
- Algorithm Aversion — humans are more willing to accept the flawed human judgment. However, people are very judgmental if a machine makes a mistake – even within the lowest margin or error. Decisions generated by simple algorithms are often more accurate than those made by experts, even when the experts have access to more information than the formulas use. For further elaboration on making better predictions, the book Superforecasting is a must read.
- Only 21% of managers who implement strategy actually test how KPI’s actually link back to organizational performance, and many of those tested found their early assumptions flawed.Companies in the top third of data-driven decision making are 5% more productive and 6% more profitable.
- Silos! The value of keeping your data/information a secret as a competitive edge does not outrun the value of potential innovation or insights if data is liberated within the broader organization. If this is possible build what I call diplomatic back channels where teams or analysts can sure data with each other.
- To find opportunity or address problems the organization will need to quickly move from linear analytics or business intelligence to weighting/graphing of disparate data sets with artificial intelligence. Machines are far less biased than people and better at weighting the relationships between desperate events, objects, and data sets. Even simple statistics have been shown to outperform even the most experienced analyst.
- Build a culture of capacity. The majority of abstract, complex and pressing work is typically outsourced, not built internally. Managers are willing to spend 42 percent more on the outside competitor’s ideas. “This is why consultants get hired,” Leigh Thompson, a professor of management and organizations at the Kellogg School says. “We bring in outside people to tell us something that we already know,” because it paradoxically means all the wannabe “winners” in the team can avoid losing face. It’s not so much that it is a bad thing to seek external help, but in reality, this translates into a lack of strategic capacity internally, and as a residual, the organization will lose the opportunity to build those thinking, strategic and technological muscles for the long term. In short, avoid the temptation to outsource everything because nothing seems to be going anywhere right away. That 100-page power point deck the consultant gave you, while interesting, isn’t going to help if you don’t have the infrastructure to drive the suggested outputs nor mindset to change processes.
- Those that generally push for everything to be outsourced probably are doing so to limit exposure of their lack of skills & vision. In short be skeptical of managers who always want to outsource opposed to building a solid foundation in MI. Usually, there are ulterior motives at play. This is the derivative of a strong management culture which emphasizes generalists, not novel, unorthodox or technical thinkers in leadership roles. Research shows general managerial styles are less successful in technical or data-driven tasks than their counterpart (and most work is data or technology related these days). Further, they also foster a culture where exercising intellectual integrity or novelty on subject matters are a liability for one’s career. In turn, you end up in an environment where technology is appropriated at legacy processes & thinking i.e. not as efficient nor effective.
- Organizations need to evolve their processes in step with technology. Not fit new technologies to old/outdated processes. If so “money” is left on the table that isn’t even considered or known due to lack of domain depth, which creates hierarchical bottlenecks that inhibit innovation and merit-based thinking. As a result, the talented people in your organization will defect, leaving mediocre skill sets to run general operations which standardize low common denominator outputs. As well as not maximize the prior investment in capabilities or assets which may have offered a competitive edge had they been seen through sufficiency.
- Be more introspective and strategic with assets and cash. By integrating sensors (Internet of things), more sophisticated tracking and the understanding and integration of physical and cash assets, organizations have the opportunity to maximize the utility of its assets. In turn, this would foster a “trading desk mentality” where companies would operate more like a hedge fund on its own cash flow and purchases, as well as being mindful of foreign exchange rates & commodities markets. This approach could also take advantage of assets such as shelf space and storage – much like AirBNB did with extra home space. Generally, over the last 10 years, companies with multiple revenue streams and consumer offerings such as Apple and Amazon have weathered the storm better than companies whose focus remains narrow.
- Create a data markets or indices that your suppliers/vendors can opt in. In doing so it helps compress prices by sharing the burden of costs associated with market research and or supply chains. Furthermore, how to create value from data quickly will perhaps be the more pressing issue for large organizations. This will inherently drive the need for all of these organizations to be more strategic with their data and technology, not like a commodity to be hoarded. Remember data is only valuable if acted on.
- Create a social graph of your organization to understand how information becomes action. By leveraging machines to analyze internal information and asset flows & allocation through building a connect graph-based of the organization, it’s possible to systemize and automate many routine processes such as meetings or approval processes that humans currently do. Furthermore, intelligence agents analyzing the graph can bring together people working on disparate projects that have the same goals and concepts to address.
Our traditional institutions, leaders, and experts have shown to be incapable of understanding and accounting for the multi – dimensionality and connectivity of systems and events. The rise of the far-right parties in Europe. The disillusionment of European Parliament elections as evidenced by voter turnout in 2009 and 2014 (despite spending more money than ever), the Brexit and now the election of Donald Trump as president of the United States of America. In short, there is little reason to trust experts without multiple data streams to contextualize and back up their hypothesis.
How could experts get it wrong? Frankly, it’s time to shift out of the conventional ways that we try to make sense of events in the political, market and business domain. The first variable is reimagining information from a cognitive linguistic standpoint. Probably the most neglected area in all of business and politics – at least within the mainstream. The basic idea? Words have meaning. Meaning generates beliefs. And beliefs create outcomes, which in turn can be quantified. The explosion of mass media, followed by identity driven media, followed by social media, and alternative media. We are at the mercy of media systems that frame our reality. If you doubt this, reference the charts below. Google trends is deadly accurate in illustrating what is on people’s mind the most, bad or good, wins – at least when it comes to U.S. presidential elections. The saying bad press is good press is quantified here. As is George Lakoff’s thinking on framing and repetition (Google search trends can be used to easily see which frame is winning BTW ).
Within this system, there is little reason to challenge one’s beliefs and almost nothing forcing anyone to question their own. Institutions and old media systems used to be able to bottleneck this, they were the only one with a soap box and information was reasonably slow enough. To outthink current systems there is a need for a combination of sharper thinking, being able to quantify unorthodox data such as open source intelligence (OSINT) and creativity that traditional systems of measurement and strategy lack. Business, markets, and people strive, to a fault, for simple, linear and binary solutions or answers. Unfortunately, complexity doesn’t dashboard into nice charts like the one below. The root causes of issues are ignored due to a lack of context, which in turns create a large window for false assumptions on what affects business initiatives. These are approaches are for the most part only helpful at the superficial level.
I know this may feel like a reach in terms of how all that is mentioned is connected so more on OSINT, data, framing, information, outcomes, and markets to come.
While investors were in shock, open source signals such as Google trends pointed to “Leave” being predominate the majority of the time, illustrating expert and market biases. Perhaps they should work on how to integrate these unconventional data streams better (sorry couldn’t help it). The UK’s decision to exit from the EU is part of a larger global phenomena that could have been understood better with open source, not just market, data.
The world is growing more complex. Information is moving faster. Humans were not evolved to retain or understand this mass output of (dis)information in any logical way. As a response, a retreat to simple explanations and self-censorship towards new ideas, that might challenge one’s frame, are ignored and become the norm. Populist decisions are made and embraced, often times reactionary towards the establishment or elite. Multi-national corporations and elites will need to step outside of their bubble and take note of nationalist, albeit sometimes isolationist, such as Donald Trump, Bernie Sanders, President Erdogan of Turkey, Marie Le Pen’s Front National of France, Boris Johnson – Former Mayor of London and Brexit backer (good chance he take David Cameron’s place), Germany’s AFD and the 5 star movement in Italy gain in both popularity and power.
In addition to the more media coverage, people were associated more with the leave campaign, which is an advantage. During a political campaign choices and policy lines are anything but logical, they tend to fall on emotional lines, so it’s important that institutional communications have a noticeable figurehead, especially in the age of media. It says something when the top people that are associated with remain are Barak Obama, Janet Yellen and Christine Lagarde. Note that David Cameron is more central with leave. None the less the pleas by political outsiders and institutions such as the IMF and World Bank for the UK to remain in the EU, potentially caused damage to the “Remain” campaign. UK voters seemed to not want to hear from foreign political elites on the matter. This is illustrated by the connection and proximity of the “Obama Red Cluster” to the French right wing Forest Green cluster (and the results) below. The “Brexit” could lend credence to the possibility of EU exit contagion. There are very real forces in France (led by the Front National) and Italy (led by the 5 Star movement (who just won big in elections) that are driving hard for succession from the EU and or potentially the Eurozone.
- Seeking shelter from volatility, banks (especially European ones) are fleeing to the gold market. While this is to be expected, dividend based stock, as well as oil, would be attractive to those seeking stability as well.
- Thursday’s referendum sent global markets into turmoil. The pound plunged by a record and the euro slid by the most since it was introduced in 1999. Historically, the British Pound reached an all-time high of 2.86 in December of 1957 and a record low of 1.05 in February of 1985.
- Don’t count on US interest rate hikes. Yellen has expressed concern for global volatility on multiple occasions. The Brexit just added to that. The Bank of England could follow the US Fed and drop interest rates on the GBP to account for market uncertainty.
- If aggressive, European uncertainty could be an opportunity for US companies to gain on European competitors. Due to the somber mood within Europe, companies could either be more conservative with investment, leaving them vulnerable.
- Alternatively, the Brexit may trigger more aggressive U.S. or global expansion by European Companies while Brexit ramifications are further understood.
- The political takeaway is the remain campaign was relatively sterile, having no figurehead or clear policy issues directly relating back to the EU. This was reflected by the diversity in associated search terms related to the “Leave” campaign, in addition to Angela Merkel, not an EU leader such as European Commission President Jean-Claude Junker, once again as being seen as the defacto voice of Europe.
Technology has increased access to information, which in turn has made the world more similar on a macro and sub-macro level. However, despite increased similarity, research shows business models are rarely horizontal, emphasizing the importance of micro-level strategic consideration. Companies routinely enter new markets relying on knowledge of how their industry works and the competencies that led to success in their home markets, while not being cognizant of granular details that can make the difference between success and failure in a new market. Only through machine driven intelligence can companies address the level of detail needed in a scalable and fast manner to remain competitive.
Furthermore, machine intelligence and information has led to the rapidly diminishing value of expertise, in addition to eroding the value of information. The level of expertise needed to out-run or beat machine intelligence has exponentially increased every year. Over the next one to two years the most successful companies will come to accept the burden of proof has switched from technologies and A.I. to human expertise. Furthermore, machines will come to reframe what business and strategy means. Business expertise in the future will be the ability to synthesize and explore data sets and create options using augmented intelligence – not being an expert on a subject per se. The game changers will be those that have the fastest “information to action” at scale.
A residual of that characteristic makes a “good” or “ok” decision’s value exponentially highest in the beginning – and often times much more valuable than a perfect decision. To address this trend, organizations will need to focus on developing process and internal communication that foster faster “information-to-action” opportunity cost transaction times, similar to how traders look at financial markets. Those margins of competitive edge will continue to shrink, but will become exponentially more valuable.
How are businesses harnessing AI and other technologies to lead the way ?
Studies show experts consistently fail at forecasting and traditionally perform worse than random guessing in businesses as diverse as medicine, real-estate valuation, and political elections. This is because traditionally people weight experiences and information in very biased ways. In the knowledge economy this is detrimental to strategy and business decisions.
Working with machines enables businesses to learn and quantify connections and influence in a way humans cannot. Rarely is an issue isolated to the confines of a specific domain, and part of Walmart’s analytics strategy is to focus on key variables in the context of other variables that are connected. This can be done in extremely high resolution by taking a machine based approach to mine disparate data sets, which ultimately allows for flexibility and higher resolution KPIs to make business decisions with.
What are the effects of digital disintermediation and the sharing economy on productivity growth?
Machines have increased humans ability to synthesize multiple information streams simultaneously, while connecting communication, this could lead to a higher utility on assets. It’s likely that businesses in the future will have to be more focused on opportunity cost and re-imagine asset allocation with increased competition due to lower barriers on entry. Inherently intelligence and insights is about decisions. A residual of that characteristic makes a good or ok decision’s value exponentially highest in the beginning – and often times more valuable than a perfect decision. To address this trend, organizations need to focus on developing process and internal communication that foster faster “information-to-action” transaction times, much like how traders look at financial markets.
Is this the beginning of the end?
Frameworks driven by machines will allow humans to focus on more meaningful and creative strategies that cut through noise to find what variables that can actually be controlled, mitigating superficial processes and problems. As a result, it is the end for people and companies that rely on information and routine for work. And the beginning for those that can solve abstract problems with creative and unorthodox thinking within tight margins. Those that do so will also be able to scale those skills globally with advancements in communication technology and the sharing economy, which will speed up liquidity on hard and knowledge-based assets considerably.
Recently I’ve been thinking of ways to detect bias as well as look into what makes people share. Yes understanding dynamics and trends over time, like the chart below (Topsy is a great simple, free easy tool to get basic Twitter trends), can be helpful – especially with forecasting. None the less they reach their limits when we want to look for deeper meaning – say at the cognitive or “information flow” level.
Enter coordinates and networks. The advantages are not possible to do with a tradition KPI’s like volume over time. Through mapping out the a network based on entities, extracted locations and similar text and language characteristics it’s possible to map coordinates of how a headlines, entities or article exists in space within the specific domain. And this happens to deadly representative of the physical world.. especially since more information is reported online everyday.
When put together (shown below), I found a way to detect bias. Using to online news articles and Bit.ly link data, I found articles with less centrality to their domain, which denote variables being left out (of the article), typically got shared the most on social channels. In short some bias = more sharing… Interesting – although more research is needed.
With the Greece/Eurozone situation reaching the brink, I decided to take a look at what’s been happening over the past week within the European Parliament domain.
Some takeaways after I extracted the top people and issues:
- The Eurozone, Yellen’s decision to be patient with the Fed and housing markets are interlinked (not a surprise), indicating US businesses should be mindful of the Greek debt restructuring. This has affected foreign exchange markets and the domestic retail sector a bit.
- Outside of global finance and the Greek debt restructuring, the European Parliament’s decision to back new limits for food based bio-fuels was the most embedded policy instance. Thomas Nagy, EVP at Novozymes and the most central person to the policy, had this to say: “A stable and effective framework is the only way forward to secure commercial deployment”.
- Climate change and carbon trading (to be reformed in 2018) were most central to the new policy, as well as the EU plans to merge energy markets, which ALDE feels “will be a nightmare for Putin” and weaken Russian grip on Europe’s energy needs.
The bar chart below shows which topics within the European Parliament domain are associated with each person. The people are represented by the colors from the network graph above. It’s in hierarchical form based on centrality (to the European Parliament).
Something to be cognizant of: Data Protection
While the issues are on the edge of EU affairs, as indicated at the top left and bottom right of the network graph below (highlighted in the teal green and dark red), data issues are becoming embedded within the broader scope of the EU Parliament. Note that the range is across network centrality. This indicates that policies will have to be negotiated within a multitude of domains.
Stewart Room, a partner at PwC Legal, warns “businesses that are waiting for the EU General Data Protection Regulation (GDPR) before taking action have already missed the boat.” I agree. Companies will need to be cognizant of the European Union’s penchant to regulate data and technology, often before understanding it.
Multi-sector coalitions have to be built. Framing legislation within global policy that is both considerate to business efficiency, yet empathetic to consumer concerns for privacy, could help avoid the backlash that ACTA and SOPA felt. Data means too much to business. If not addressed in a thoughtful way, it could end up being the Trojan horse to TTIP and TPP and push those negotiations, and therefore economies, backwards.
Isn’t it cool how we can mine and extrapolate information from open source data for strategic intelligence? Much more contextual than Googling everything. Also it illustrates just how interlinked the world has become.