digital At the simplest level, algorithmic business is about the delivery of business value from algorithms and data, but this is a very broad description. Source: Gartner Inc. March 2016
At the simplest level, algorithmic business is about the delivery of business value from algorithms and data, but this is a very broad description. Source: Gartner Inc. March 2016
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Economic Agents In A Digital Ecosystem

Gartner says organizations must use digital economics to fully exploit the value of digital business. Organizations that have been able to cause real market disruptions have done so because they have applied digital economics to exploit new value creation opportunities, according to Gartner.

“The deepening and widening of digital business initiatives puts CIOs, chief data officers and digital leaders at the center of creating measurable new business value. These leaders are uniquely positioned to connect digital technology advances with emerging flexible business models to fuel growth,” said Chris Howard, vice president and distinguished analyst at Gartner:

“Digital technologies are expanding the value of traditional products and services by using data, content, algorithms, analytics, and the connections between economic agents in a digital ecosystem. Algorithmic business provides the speed and scale to accelerate digital business to deliver even greater impact. Algorithmic business is the industrialized use of complex mathematical algorithms that are pivotal to competitive advantage. Gartner sees a change in the way that new business value is being derived through the action of algorithms on data.”

Gartner defines digital economics as the creation, consumption and control of value associated with digital products, services and assets in organizations. Digital economics creates a framework for organizations to understand and account for how much of an organization’s business value can be defined as potential or realized digital value. It guides CIOs and CDOs in creating new value mechanisms and complementing or extending existing ones. By doing so, they are able to monetize the value of digital innovation and link that value with the organization’s business objectives.

“All too often IT leaders focus value creation more narrowly, with the result that most digital initiatives are aimed at operational improvements, rather than value transformation,” said Saul Judah, research director at Gartner. “While this tactical approach to digital value can result in very real process and financial improvements, the greatest potential for digital value lies in more strategic initiatives, such as creating new markets, empowering employees, changing the basis of competition and crossing industry boundaries.”

To tap into this value, IT leaders should begin by engaging with business leaders to identify the sources of digital value, catalogue existing digital assets, products and services, and assess and assign value to them. Digital products, assets and services can be understood, catalogued and valued based on several methods:

Exploiting the Economics of Connections

Gartner predicts that by 2018, the new economics of connections will drive organizations to increase investments in connected physical assets and systems by 30 per cent. Connections between people, businesses and things have business value. That business value exists in the connection itself (for example, charging for usage of an API) as well as the asset being exchanged through the connection. Economic value, therefore, is a function of the number, context and usage of connections in the business.

Exploiting the Power of Algorithms

Algorithms and analytics offer accelerators of value and are themselves of exchangeable and monetisable value. An analytics process may use algorithms in its creation, which could also be monetisable through an algorithmic marketplace, making it available to enterprises of all types and sizes to use.

In the digital business world, organizations will be valued not only for their big data, but also for the algorithms that turn that data into actions and, ultimately, improve the customer experience and increase customer impact.

The introduction of algorithms is broadening as researchers develop ways to make them smarter and more effective at mining new or previously untapped data resources.

Algorithms effectively capture knowledge and work at a speed and scale that cannot be easily matched simply by scaling the human workforce. Although this will create a shift in the overall workforce, the advantage of skills, organization and cultural agility will remain intact.

“Without a corresponding economic framework, however, these elements of digital value remain a loose collection of digital tools and techniques,” said Mr. Judah. “IT leaders should establish a digital economic framework that connects digital value to a renovated economic architecture. This will help them establish a strategic, commercially sustainable foundation for creating new markets and new revenue sources.”

Algorithmic business is vital for growth in the digital economy, but working out what to do and how to do it remains difficult for IT, data and business leaders. Gartner provides a top 10 list of things that CIOs and chief data officers need to know to succeed.

  1. Algorithms Are Nothing New
  2. Algorithmic Business Is Different from Business Intelligence
  3. The Advantages of Algorithms Are Speed and Scale
  4. The Accelerating Rate of Technological Change Is Driving the Emergence of Algorithmic Business
  5. Algorithmic Business Creates Both Opportunities and Threats for Employees
  6. Business Awareness of Algorithms Remains Inconsistent
  7. Algorithms Will Create New Areas of Competition
  8. Proprietary Algorithms Will Be the Secret Source
  9. Algorithms Can Either Mask or Expose Complexity
  10. Some Examples of Algorithmic Business

Gartner Inc. Press

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