Competing in the Age of AI: Strategy and Leadership When Algorithms and Networks Run the World

Artificial Intelligence, Networks, the Internet, and Cloud Computing and Cloud Computing

Article Snapshot


Marco Iansiti and Karim R. Lakhani


Harvard Business Review Press, 2020


Artificial intelligence (AI) will transform the economy. Layered AI-based firm architecture and agile teams will replace silos. Network effects and learning effects will result in winner-take-all markets.

Policy Relevance

Firms and regulators should collaborate to address AI ethical challenges.

Main Points

  • In a traditional business, growth has disadvantages such as overwhelming complexity; in a digital firm, human limits on complexity do not apply, and the system does not decrease in efficiency as it grows.
  • Traditional firms are organized into “silos,” each with its own specialized function and its own data; firms need a new architecture to realize the full potential of AI and digital networks.
  • An AI-based firm is organized in layers, starting with a foundation of data, topped by a layer of applications served by many agile teams; managers are innovators rather than supervisors.
  • Microsoft’s classic business model was shipping software on CDs; today, Microsoft has transformed itself into a services-based firm supported by a cloud-based architecture enabled by AI.
  • Firms should follow five principles in changing to an AI-based architecture; the firm should:
    • Develop strategic clarity.
    • Understand that AI requires a single central repository of data.
    • Develop agile teams focused on the product.
    • Strengthen capability in software.
    • Develop governance systems to address unintended consequences and sudden failure.
  • Digital firms must adopt new strategies; key questions include:
    • What core service does the firm deliver to create value?
    • Do key networks have strong network effects, making the service more valuable when there are more users?
    • Will strong learning effects allow the service to improve markedly with more access to data?
    • Can the service best be monetized by fees or by advertising?
    • Is the firm’s network valuable to another network?
  • When digital firms compete with traditional firms, a new winner-take-all dynamic is emerging.
  • Leaders of digital firms should respond to ethical challenges created by firms’ transformation, including the echo chamber created by social media, which fostered the growth of the anti-vax movement.
  • Regulators should collaborate with technology firms to address competition, privacy, and bias issues.
    • Communities like Wikipedia can play a leadership role.
    • Firms like Facebook and Tencent should recognize the impact of their decisions on all network stakeholders.

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