The last few years have witnessed the rise of start-ups that are rapidly growing and bringing about a massive shift.

Leaving aside the traditional market disrupters viz. Facebook, Apple, Google, Amazon, etc there is a new wave of emerging leaders viz. Alibaba, Uber, Air BnB, etc that are disrupting markets in a similar pattern.

Interestingly, they both use a common denominator to rapidly grow their market share while decimating their competition. They personalise their customer’s experiences using sophisticated algorithms and in the process attain a unique stickiness to their products and services.

What is an algorithm?

In its simplest form, an algorithm is a logic based step-by-step procedure for solving a particular problem or for consistently achieving a desired outcome, if followed correctly.

For instance, airports all over the world follow predefined procedures to ensure their passenger’s travel safety; restaurants follow procedures of using a kitchen order ticket, while taking a customer’s dining order which in turn is sent to the kitchen to prepare the meal and subsequently bill the diner; banks follow a set procedure for opening a new customer account or issuing a new credit card.

Today we live in a digital world, where every browse, click, swipe, like, comment, post, tweet, etc is captured and leaves behind a digital trail.

This human to machine (H2M) data is poised to grow, backed by the growth in smartphones, which is estimated to reach 6 billion devices by 2020. Fuelling this data growth is a massive influx of machine to machine (M2M) data, driven by IoT (internet of things), which is estimated to cross 20 billion connected things by 2020. The cumulative value of this data is multiplied N folds, by the interconnections they establish between themselves and by the algorithms that drive the relationship of these interconnections.

How are algorithms helping companies grow?

The data, which is continuously generated by these interconnections, in isolation have no value. It is the sophisticated algorithms which identify patterns in the data, that add value and meaning to it. This derived meaning, enables companies to predict the preferences and future behaviour of their users.

Traditional industries have been using algorithms for decades. The difference now has been in the huge quantum of unstructured data continuously generated by the H2M and M2M interconnections that need a machine learning algorithm.

The machine learning algorithms go through iterative loops of continuously processing the data generated and build their own artificial intelligence. They are intermittently tweaked and updated for higher optimisation. The H2M and M2M interconnections, and the relationship they forge based on these sophisticated algorithms is what will drive the future of businesses across industries and markets.

The digital business has merged the physical and digital worlds to provide a seamless experience to its consumers.

For instance, Facebook uses a complex machine learning algorithm that personalises a user’s experience and powers your Facebook News Feed; Zomato uses algorithms to identify the frequency and objectivity of a restaurant’s review; Netflix’s ratings-based algorithm recommends which movies and TV shows its users could watch based on past preferences; Amazon uses its algorithm to create a better user experience by placing the right products in front of right customers; Disney’s MyMagic+ allows visitors to customise their experience by combining their FastPass+, MagicBands and My Disney Experience; Omni channel experiences offered through an integrated multichannel allows customers to bank seamlessly across various channels, such as initiating a transaction in a branch and finalising it in a mobile app.

How should companies rapidly scale in the algorithmic economy?

Traditionally, managed companies have built their digital platform on top of their legacy or existing IT systems. These existing technology and enterprise systems were not designed to serve the dynamically evolving digital business.

Gartner recommends that companies should build a “bimodal IT platform”, where “Mode 1” is to run the company’s business with their existing IT platform and “Mode 2” is to transform their business, leveraging the digital platform. Start-ups companies, despite their inherent limitations, have the advantage of directly building their IT platform in “Mode 2” i.e. digital platform.

Companies should leverage the digital platform by building algorithms that will solve a particular problem. Over a period of time they would accumulate a repository of algorithms that would solve a multitude of problems.

Algorithms that are core to their business and which provide a competitive advantage should be kept private. Other algorithms could be made public by licensing or selling them to other industries or even sharing it with their customers and partners to help build a stronger algorithmic based community.

The algorithmic economy is here. The inevitable journey to this new found economy starts by ideation and innovation, driven through digital transformation.

The writer is the Executive Vice-President of Dubai-based TransSys Solutions. He can be contacted via Twitter @Stephen_Fdes