The thought of this article has come about after listening to an interview with Jack Ma in the David Rubenstein Show and the various thoughts shared during the interview.
Let’s understand how Ali Baba evolved into the situation that it is presently in. The initial ecosystem that was build was a simple network where a large number of small sellers were connected to various buyers. As more buyers came in and business prospered more number of smaller business also came on the platform. None of the business retailing on the platform were charged anything for the same. As the business prospered and technology improved more and more functions got added to the platform or through other platforms which were part of the Ant group such as advertising, marketing, logistics, financing options, product recommendations, social media linkages etc.
To explain smart business let me bring about the evolution of Alibaba microloans to SMEs who are operating on their platform. When Alibaba got into this business around 2012 the minimum loan amounts given by Chinese banks was about 1 million dollars which was way above what any of the SME needed.
In the present platform of loan disbursal Alibaba can easily process loans as small as 50 dollars in a few minutes. It is able to do the same because as and when a SME who is using the Alibaba platform asks for a loan the algorithms are able to based on the data available quickly answer the three crucial questions that needs to be answered for any institution before they give any loan. Should they lend, how much should they lend and at what interest rate should they lend.
So, in a smart business as shown above all players who are part of the ecosystem for achieving a particular goal whether its retailing or ride hailing work toghter in a common network and use machine learning techniques to effectively leverage data in real time. Hence the ecosystems that they create are vastly more economically efficient and customer centric than those operated by traditional businesses. This explains why most of the top 10 valued business are today smart business using the above techniques.
Some of the key changes made by Alibaba to become a smart business are as listed below which could serve as a benchmark while embarking on the same for any business.
We are all used to new companies that have been set up in the internet age having all their customer interactions online and hence capturing all data that happens during each interaction. Like we have got used to buying our daily provisions including milk and vegetables in big basket and such apps, hailing cabs using uber ordering dresses and books on amazon and so on. There are also several interactions which were all totally manual which have shifted totally to digital. Let’s consider a few...
Paying electricity charges to state run electricity boards online and also receiving advance SMS from them whenever power was getting switched off for any planned maintenance activities, paying your credit card bills online, paying your land and income taxes online ...i remember one of the usual disputes with paying taxes and credit card companies in the earlier days would be the date your payment cheque has been received by them or returns submitted and so on. One major challenge for traditional organizations is that since data enablement would have happened at different times and different phases in their various departments many of these data collection software’s work in silos and do not talk to each other thus making complete and effective usage of the data collected across the organization difficult.
Another challenge is that traditionally while deciding data collection we have specified certain fields as critical and actual analysis happens centered around these fields. In the case of smart business every data collected is treated equally and all data is used to determine which is important or can be used for which requirement.
Traditionally when a running process is converted into software it makes the whole process more rigid and shifts the decision making to a central resource. Earlier people used to take decisions at their levels as per the laid down set of process which led to more innovation at all levels.
In smart business the concept is to create process and convert them into software to ape the way human beings would think and decide. This will need to include a lot of the simpler things that get considered when a human being makes a decision. Converting these steps into software is not always easy as most of human decisions are also based on common sense and also on subconscious thoughts which are also based on our earlier experiences which we often refer to as gut feel.
Human decisions are also based on continuous inputs from the surroundings and the concerned stake holders and so in smart business live data gets collected continuously as part of the laid down process to enable machine learning technologies to create a human like decision making matrix
All business today run-in ecosystems where the ecosystem can be internal to the organization or external. Smart Business will run seamlessly only when there is there is complete and seamless coordination with all concerned players.
Like in the case of android, Alibaba has also developed a set of APIS (Application programmable interface) which ensure that even independent developers also use these API while developing supporting software so that all players in the ecosystem talk to each other continuously and data flows seamlessly among all players.
In addition to technical infrastructure there must be a common standard so that all data can be used and interpreted in the same way across all concerned units
There must also be the right incentive structures to ensure that all players in the ecosystem are equally motivated to follow all the laid down process and systems and data flows seamlessly between all relevant players
Once the earlier mentioned three steps are done it will lead to a deluge of data. To assimilate, interpret and use the data to its advantage Alibaba like all other smart business that we know of create models and algorithms that clearly understand the underlying product logic or market dynamics that the business is trying to optimize.
What the algorithms are doing is understanding the way humans would take decisions but using the available computing power do it at a scale which is thousand times more than what humans can do. This explains how ride hailing apps are able to give you personalized service in a quick second or shopping sites can provide you personalized offers based on your earlier searches and streaming services can provide personalized viewing options based on your earlier watches and searches in the said ecosystem and do the same personalization for millions of customers in their portals.
The leadership that’s required in a smart business scenario is also very different from what was required in a traditional kind of set up. Leaders of such companies are the most visible among all leaders whether they are a Steve Jobs or Jack Maa or Sundar Pichai. This is also because smart organizations need to mobilize a network to realize their vision and to do that the concerned leaders have to inspire their employees, partners and customers who make up their said network.
As we evolve to managing smart business, we no longer will need to manage but build in capability to enable everyone in the organization to innovate and facilitate the core feedback of user responses to firm decisions and execution.
In smart business with machine learning as their core decision making like in the case of Alibaba the machine learning algorithms will take up much of the burden of incremental improvements by automatically making adjustments that increase systemwide efficiency. Thus, the role of human leaders will shift more to increasing creativity and innovation from the present pattern of spending more time on improving the efficiency of the operation.
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By Rejo Francis
Keywords: Ecosystems, Entrepreneurship, Innovation