Author(s)
Marco Iansiti and Karim R. Lakhani
Source
Harvard Business Review Press, 2020
Summary
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.