When artificial intelligence is bad news for the boss

Jun 13, 2017 | 2181 Views

A new book by the authors of 'The Second Machine Age' suggests that digital disruption is coming to the corner office

Albert Einstein is supposed to have said: "Make things as simple as possible, but not simpler." That advice, quoted in Machine, Platform, Crowd, is well followed by Andrew McAfee and Erik Brynjolfsson in their latest business book, which tries to make sense of the "technology surge" that is bewildering so many executives.

The two academic authors from Massachusetts Institute of Technology, who became the pin-up boys of the Davos crowd for their previous book on The Second Machine Age (2014), do a neat job of scanning the technological horizon and highlighting significant landmarks. This is a clear and crisply written account of machine intelligence, big data and the sharing economy. But McAfee and Brynjolfsson also wisely acknowledge the limitations of their futurology and avoid over-simplification. No one can really have much idea how the business world is going to evolve or predict the precise interplay between all these fast-changing forces.

The first - and strongest - part of the book deals with the impact of machine intelligence as it surreptitiously creeps into ever more nooks in our lives. By 2015 Google had already applied "deep learning" technology to 1,200 projects across the company. We are rapidly moving towards what Marc Benioff, chief executive of the cloud computing company Salesforce, calls an "AI-first world".

The authors make a strong case that in many fields machine intelligence is already superior to the human kind and businesses can profit from recognising that fact. Humans are subject to messy thinking, implicit or explicit bias, and an over-reliance on imperfect instinct. Whether it comes to predicting housing sales or wine prices, or cross-selling products, sensibly deployed machine intelligence can provide invaluable objective analysis. "Too often, we continue to rely on human judgment when machines can do better," they write.

But that is certainly not an argument for blindly following technology like mindless drivers following their malfunctioning satnav over a cliff - a phenomenon known as "death by GPS" syndrome. Good old-fashioned common sense must still be applied to whatever spews out of a computer. It may be an apocryphal story, as the authors admit, but one early English-Russian translation device supposedly rendered "the spirit is willing, but the flesh is weak" as "the whisky is agreeable, but the meat has gone bad". Machine translation has improved drastically since then but the general warning is well made.

The second part of the book highlights the upheaval caused by platform companies such as Amazon, Apple, Uber and Airbnb. Money is most easily made out of information asymmetries. By harvesting vast consumer data sets, platform companies gain an enormous competitive edge. The ability to adjust prices quickly in response to fluctuating demand enables these companies to eat into the "consumer surplus" - defined by economists as the difference between the amount consumers are willing to pay and the market price they usually pay.

The dominance of platform providers is demonstrated by the startling fact that Apple captured 103.9 per cent of total operating profits made by all mobile device manufacturers in the third quarter of 2016, according to BMO Capital Markets. Samsung made 0.9 per cent and all the others lost money.

The third section of the book, focusing on the power of crowds, is perhaps the most intriguing but also the most impressionistic. The ability to harness the power of collective human intelligence opens up phenomenal possibilities, as shown by the creation of the Linux open-source operating system and the Wikipedia digital encyclopedia. Some 11,800 developers around the planet contributed to the success of Linux. By 2016 Wikipedia's voluntary contributors had written 36m articles across 291 languages, making it the world's sixth most popular website.

What is less clear is how traditional businesses can creatively crowdsource such knowledge. The authors urge businesses to call in non-credentialed outsiders, rather than educated experts, which will doubtless endear them to the management consultancy industry. But it is interesting to note that even leading-edge tech companies seem to prefer to buy in innovation. Between 2011 and 2016, Apple, Facebook and Google acquired about 320 companies between them.

The overall message of this book is that corporate leaders should recognise the severe limitations of their own judgment and expertise, delegate more decision-making authority to faceless machines, and seek creative inspiration from outside their companies.

McAfee and Brynjolfsson are rightly withering of HiPPO (Highest Paid Person's Opinion) syndrome, in which the boss's gut instinct trumps evidence-based decision-making, but seem somewhat naive in believing that this is going to change fast in most established companies. It hardly seems likely that managers who have spent their careers trumpeting their own super-competence are going to cede authority so enthusiastically. Why would a chief executive introduce decision-making systems that undermine the mystical powers for which they are so lavishly rewarded?

Therein lies the opportunity for creative insurgents, unencumbered by such perverse incentives and nimble enough to exploit the possibilities of new technologies. Continue Reading>>

Source: FT