Algorithm, AI and the Firm
Artificial intelligence (AI) and algorithms are beginning to take over many functions in the
firm including content creation, data generation, contract design, pricing, recruitment,
talent promotion, advertising, loan issuance, default risk prediction, supply chain and
inventory management and demand prediction. Algorithms have already shaped many
industries including advertising, insurance and banking. How will the rise of AI–based
algorithms and, in particular, generative AI reshape corporations and industries? Your
task in this essay:
a) Select an industry of your choice (e.g., education, banking sector, insurance, health-
care, retail etc.,). Explain how advances in machine learning algorithms, AI, and
generative AI may enable firms in the sector to create value and competitive advan-
tage. The analysis must refer to distinct channels through which these technologies
enhance performance like data-driven decision making, error-reduction, behavioural
targeting in the advertising market, revenue management in the airline industry,
Robo-advising in the banking sector and recommender systems in retail.
b) Focusing on the sector, explore how the rise of AI algorithms (particularly, genera-
tive AI) may affect a firm’s business model and shape its growth and competition
strategies. How will algorithmic firms in the sector grow and compete with each
other?
c) Reflect on how the management of AI-driven firms differs from the management
of traditional firms.
Will AI algorithms (including generative AI) substitute or
complement managers? How do leading AI-driven firms differ from leading tradi-
tional organisations? Richly draw on relevant peer-reviewed academic literature on
management and leadership.
d) What will it take for an AI-driven firm to outcompete its rivals? Could AI or ML
algorithms be a source of lasting competitive advantage?
Sample Solution
The healthcare industry stands to benefit greatly from advances in machine learning algorithms, AI, and generative AI. Machine learning can help identify patterns and trends in patient data that could otherwise be overlooked by humans. This can lead to improved accuracy of diagnoses as well as better predictions of future outcomes. Additionally, artificial intelligence technology can automate tedious tasks while freeing up valuable resources for more important activities such as providing personalized care or offering new services. Finally, generative AI allows hospitals and clinics to generate synthetic data sets which could be used for training models without the need to collect actual patient information (Jiang et al., 2020). All these technologies have tremendous potential when leveraged correctly, enabling firms in the healthcare sector to create value and gain a competitive edge over their rivals.
