BARCELONA: Algorithms not big data will be the main driver of digital business as organisations look set to spend over $1tn on IT in 2016, according to Gartner.
At the Gartner Symposium 2015 in Barcelona, Peter Sondergaard, senior vice president and head of research at the analyst house, said digital businesses will need to do more than simply collect and analyse big data.
"Organisations will be valued not just on their big data, but the algorithms that turn that data into actions and ultimately impact customers," he said in a keynote speech attended by V3. "Algorithms are the innovations that make digital business work.
"If the most important thing you offer is data you are in trouble. Big data is not where the value is; sure data is necessary but it is transient," he said.
"By itself it will not be transformative. Anybody can gather data, anybody can store it. You may be able to do good analysis, which is worth a little more, but anybody can hire somebody to do data analysis, no matter how big the dataset."
Sondergaard and Gartner see algorithms as the key to making big data work for enterprises by automatically putting insights gleaned from analytics into action.
"Data is inherently dumb, it doesn't actually do anything unless you know how to use it and how to act on it, because algorithms are where the real value lies; algorithms define action," he said.
He also noted how algorithms in the financial industry have led to the rise of the financial technology sector, and are becoming more prevalent in other industries such as healthcare and retail.
Sondergaard said there is a need for companies and their chief information officers (CIOs) to take note of the algorithms they have or need in their enterprise, as good algorithms help to define how business processes work in a dynamic way, such as automatically attracting and engaging with customers.
"Algorithms define business processes, how your organisation works in the supply chain, or using algorithms to create differentiated customer experience, to dynamically assess risk," he said.
"Dynamic algorithms are at the core of new customer interactions; Amazon's recommendation algorithm keeps [customers] engaged and buying. Netflix's dynamic algorithm, built through crowd watching, keeps you watching all the time. The Waze algorithm directs thousands of independent cars on roads."
Sondergaard noted that as digital-savvy enterprises make better use of algorithms they will effectively look to become algorithmic businesses, driven by the creation and consumption of code.
Part of becoming an algorithmic business is creating an ecosystem of algorithms fuelled by digital companies sharing source code with other businesses and industries.
Such an ecosystem will lead to more algorithm innovation and development at a scale that businesses are unable to carry out alone.
Gartner vice president Daryl Plummer said he does not expect businesses to open up the code to their critical applications and processes, but instead share algorithms that are less important to an individual enterprise but are still valuable to the wider business community.
"What we're finding in this digital world is that increasingly the value that exposing your algorithm to someone else might be worth more than keeping it secret," he said, noting how companies can make use of the source code of others within their own businesses, then build upon it and in time feed it back into the ecosystem.
"This idea of sharing your algorithms becomes very important, because if you don't share them you can never keep up with the volume of connections someone else is creating. What we mean here is this: all across the world there are people ready and willing to extend what you do," he added.
Making code, software and algorithms available to others is something already being championed by some technology companies, notably Facebook with its dedication to making its developer tools available as open source software, and IBM's recent move to open source its app in the cloud.
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