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Algorithmic management is is a system where algorithms rather than humans decide how business operations should be performed. Charles Schwab and Uber are two companies that are already experimenting with the use of algorithmic decision making.
Uber’s app, for example, controls the fares that drivers change and raises rates during busy periods. Drivers are automatically sent notifications when potential passengers are nearby. The algorithms of Uber even create performance reports for its 200,000 drivers. Schwab is using algorithms to automatically manage portfolio investments.
As algorithms become smarter it is increasingly likely that organizations will turn to algorithms to assist with management and decision making. The role of algorithms can be advisory. Hybrid decision making combines objective analysis from algorithms with heuristic input from humans.
Peter Sondergaard, Gartner senior vice president, said that “algorithms define action. Amazon’s algorithm keeps you buying. Netflix keeps you watching. And newer algorithmic applications like Waze keep you moving. Algorithms define business. They encode the rules, the behaviours and the decision-making abilities into software. I now have so many smart devices, that the only thing is not smart, is me.”