How to use data in companies:

the organization of AI factories

(Part A)
Paolo Neirotti
Innovation Management course
M.SC. Degree program in “Data Science and Engineering”
Academic year 2021/22
Toward new kind of companies [1]

Companies are experiencing a fundamental transformation.

Modern firm are called: AI Factories:
• mass data gathering processes
• Automated analytics and data-driven decision making

Various forms of AI Factories:

• Information-based services
o AI support the creation of information flows.

e.g. autosuggest box

• Physical-product based ones:

o AI decides how companies build, deliver or operates physical goods

2
The AI Virtuous Circle

Up to a certain point
Toward new kind of companies [2]

Consequence of AI Factory:
managerial decisions are embedded in software, which digitizes many processes that have
traditionally carried out by humans

• Human dispatchers decide • Algorithm decides which car is

which car is chosen chosen

• Human centered decisions • Built on Digital Core

(e.g. loans) • No Humans on its critical
operations (AI runs the show)
• Serves 10x customers of the
largest US bank with 1/10 of
employees 4
The unfair advantage of AI Factories

• Employees do not deliver the product

or service; instead, they design and
oversee a software-automated,
algorithm-driven digital
“organization” that actually delivers
the goods.
• A nexus between scale,
scope and speed

(Source: HBR, Competing in the Age of AI, from the Edition January-February 2020) 5
The Organization of AI Factories

6
The Organization of AI Factories: Data Pipeline

This process allows organizations to gather, input, clean, integrate and safeguard data in a
systematic, sustainable and scalable way.

• Data is the essential input of AI factories. Every aspect of UX generates data.

• Velocity, Variety and Volume of data has exploded over time.

• Receive Millions of Ratings per day.

• Receive Several Millions stream play per day (including duration, device...)
• Each item in databases have rich meta data (e.g. actors, genre..)
• Other than internal data, Netflix gather information from external sources (e.g.
critics)

• Companies are “datafying” industries = systematically extract data from transactions that are
naturally ongoing in any business.
o Uber: creation of integrated data layer with real time traffic data (unprecedented).

• Efficient pipelines must rely on integrated data sources, consistent information, clean data

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Netflix. From content distribution to content generation
• “We have projection models that
help us understand, for a given idea
or area, how large we think an
audience size might be, given
certain attributes about it. We have
a construct for genres that basically
gives us areas where we have a
bunch of programs and others that
are areas of opportunity.”
Cindy Holland, vice president of
original series at Netflix
• Five years after Netflix’s gamble
with “House of Cards,”
• the company plans to release about
700 original TV series, movies and
other types of programming around
the world this year. [2018[
The Organization of AI Factories: Algorithm Development

Algorithms allow organizations to generate predictions about future states or actions of the
business. They are the beating hart of the AI company, driving its most critical activities.

Different kinds of algorithms with different scopes:

• Supervised Learning: come as close as possible to a human expert in predicting an
outcome.
anti spam filter image recognition matching engine

Many traditional sectors already have decades of data to implement supervised learning
procedures.

• Unsupervised Learning: uncover data structures that may be not obvious to the observer.
There are 3 types of business application of UL:

1. 2000 microcluster (taste 2. Association rule mining 3. Anomalies detection (e.g.

communities) (allows price discrimination) Seon detects frauds with AI)
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Diapers and beers
The Organization of AI Factories: Experimentation Platform

Experimentation Platform: mechanism through which

hypotheses regarding new predictions and decisions are
ensure that business implications suggested by algorithms
have the intended causal effect.

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Siloed
Siloed and
and unsiloed
unsiloed organizational
organizational architectures
architectures

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Characterizing unsiloed organizational architectures

• Gone are the days of massive, custom-built applications, each

hardwired to specific datasets, executed by armies of consultants,
• While the data is centralized, the company’s experimentation
capability is highly decentralized; almost anyone with a hypothesis
can launch a live experiment and use the results to implement
meaningful changes. => high entrepreneurial orientation
• From a focus on proprietary technologies and software to an
emphasis on shared development and open source.
Rethinking traditional companies: Putting AI the the core

The key principles that should drive transformation are:

o One Integrated Strategy: rebuild each business unit on a new integrated
foundation of data.
o Clear architecture: AI requires centralization and consistency. Data assets
should be integrated across a range of applications in order to maximize
their impact on business.
o Integrate the right capabilities: AI Strategy is not only data-analysis.
Companies needs to hires various kind of experts and set up data-science
teams.
o Agile Product Focus: companies needs to be product-oriented and work
with agile methodologies.
o Multidisciplinary governance: AI companies face various kind of
challenges: cybersecurity, data privacy, algorithmic bias and even
government intervention.
Putting AI at the core: the Microsoft case

• “Our product is the process. We are going to think like a

product development team, and we are going to be agile” [Kurt
Del Bene].
• Today many of Microsoft processes that were performed
separately are all integrated in Microsoft Azure cloud.
• “We leverage on AI when things start going in unexpected
ways. We are able to prevent negative occurrences such as
bad contracts and cyberbreaches” [Kurt Del Bene]
• In 2011,, Azure had been run as a separate, autonomous
organization. Azure had been conceived as a new platform, to be
offered as a service but disconnected from Microsoft’s other product
lines. the Azure team was often at odds with the rest of the server
and tools group, as Azure continued to build incompatible software
and fought for resources and status.
How many more times?
Compliance
Putting AI at vs.
the legitimacy in data use
core: the Microsoft case
Compliance vs long-term
Putting AI at the core: the Microsoftlegitimacy
case

• Facebook and Cambridge Analytica. Compliant, but legitimate?

• “That’s because what happened with Cambridge Analytica was not a matter
of Facebook’s systems being infiltrated, but of Facebook’s systems working as
designed: data was amassed, data was extracted, and data was exploited”.
The Guardian,

• Organizational concept of “routines” as “mindlessness behaviours”

Putting
Putting AI
AI at
at the
the core:
core: the
the role of managers
Microsoft case

• Management as supervision, especially of employees performing

routine tasks, is finally over.
• In an AI-powered operating model, managers are
• designers, shaping, improving and controlling the digital systems that sense
customer needs and respond
• innovators, as they envision how these digital systems will need to evolve
over time.
• integrators, as they work to connect disparate digital systems and identify
new connections between the firm’s operating model and the customers it
serves.
• guardians, as they work to preserve the quality, reliability, security, and
responsibility of the digital systems they control.
Putting AI at the core: what can be the response of non digitally
native companies?

• Hard to develop the capabilities to change mindset, organizational

and operating models, business models, core competencies (concept
of dynamic capabilities in strategic management, e.g. Kodak)
• Useful reference come from the concept of architectural product
innovation and its linkage with the organizational architecture
(mirroring hypothesis)
• Three stages of maturity (Venkatraman, The Digital Transformation
Matrix)
• Experimentation at the edge
• “Collision” at the core
• “Reinvention” at the Root
Takeways

• More automation due to algorithms implies scalability

• Scalability and growth is not for everybody, requires time and an
evolutionary trajectory made of different steps. The processes to
organize and use data are difficult to be “industrialized” for non-
digital born companies.
• Processes are linked to
• Mindsets
• Structures (determine the incentives of workers with different accountability
and specialization to collaborate)
• Activities
Takeaways