Chapter 2: Artificial Intelligence Concepts, Drivers, Major Technologies, and Business Applications

Artificial Intelligence
It can be said that AI’s aim is to make machines exhibit intelligence as close as possible to what people
exhibit, hopefully for the benefit of humans.

AI is concerned with two basic ideas:

1. The study of human thought processes (to understand what intelligence is)
2. The representation and duplication of those thought processes in machines (e.g., computers,
robots)

The artificial brain is a people-made machine that is desired to be as intelligent, creative, and self-aware
as humans.

Elements of AI

Goals of AI
The overall goal of AI is to create intelligent machines that are capable of executing a variety of tasks
currently done by people. Ideally, AI machines should be able to reason, think abstractly, plan, solve
problems, and learn. Some specific goals are to:

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 Perceive and properly react to changes in the environment that influence specific business
processes and operations.
 Introduce creativity in business processes and decision making

Drivers of AI
 People’s interest in smart machines and artificial brains
 The low cost of AI applications versus the high cost of manual labor (doing the same work)
 The desire of large tech companies to capture competitive advantage and market share of the AI
market and their willingness to invest billions of dollars in AI
 The pressure on management to increase productivity and speed
 The availability of quality data contributing to the progress of AI
 The increasing functionalities and reduced cost of computers in general
 The development of new technologies, particularly cloud computing

Benefits of AI
 AI has the ability to complete certain tasks much faster than humans.
 The consistency of the completed AI work can be much better than that of humans. AI machines
do not make mistakes.
 AI systems allow for continuous improvement projects.
 AI can be used for predictive analysis via its capability of pattern recognition.
 AI can manage delays and blockages in business processes.
 AI machines do not stop to rest or sleep.
 AI machines can work autonomously or be assistants to humans.
 The functionalities of AI machines are ever increasing.
 AI machines can learn and improve their performance.
 AI machines can work in environments that are hazardous to people.
 AI machines can facilitate innovations by human (i.e., support research and development [R&D]).
 No emotional barriers interfere with AI work.
 AI excels in fraud detection and in security facilitations.
 AI improves industrial operations.
 AI optimizes knowledge work.
 AI increases speed and enables scale.
 AI helps with the integration and consolidating of business operations.
 AI applications can reduce risk.
 AI can free employees to work on more complex and productive jobs.
 AI improves customer care.
 AI can solve difficult problems that previously were unsolved (Kharpal, 2017).
 AI increases collaboration and speeds up learning.

Limitation of AI
 Lack human touch and feel
 Lack attention to non-task surroundings

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 Can lead people to rely on AI machines too much (e.g., people may stop to think on their own) •
Can be programmed to create destruction.
 Can cause many people to lose their jobs.
 Can start to think by themselves, causing significant damage.

Flavors of AI
Assisted Intelligence: is equivalent mostly to weak AI, which works only in narrow domains. It requires
clearly defined inputs and outputs.

Autonomous AI: These systems are in the realm of the strong AI but in a very narrow domain.
Eventually, a computer will take over many tasks, automating them completely. Machines act as experts
and have absolute decision-making power.

Augmented Intelligence: Most of the existing AI applications, which are between assisted and
autonomous, are referred to as augmented intelligence (or intelligence augmentation). Their technology
can augment computer tasks to extend human cognitive, resulting in high performance.

 Augmented machines extend human thinking capabilities rather than replace human decision
making. These machines facilitate creativity.
 Augmentation excels in solving complex human and industry problems in specific domains in
contrast with strong, general AI machines, which are still in development.
 In contrast with a “black box” model of some AI and analytics, the augmented intelligence
provides insights and recommendations, including explanations.
 In addition, augmented technology can offer new solutions by combining existing and discovered
information in contrast to assisted AI that identifies problems or symptoms and suggests
predetermined known solutions.

Human and Computer Intelligence

Intelligence can be considered to be an umbrella term and is usually measured by an IQ test. However,
some claim that there are several types of intelligence:

 Linguistic and verbal

 Logical
 Spatial
 Body/movement
 Musical
 Interpersonal
 Intrapersonal
 Naturalist

Intelligence is composed of reasoning, learning, logic, problem-solving ability, perception, and linguistic
ability. The signs of human intelligence:

 Learning or understanding from experience

 Making sense out of ambiguous, incomplete, or even contradictory messages and information
 Responding quickly and successfully to a new situation (i.e., using the most correct responses)

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 Understanding and inferring in a rational way, solving problems, and directing conduct
effectively 84 Part I
 Introduction to Analytics and AI
 Applying knowledge to manipulate environments and situations
 Recognizing and judging the relative importance of different elements in a situation

Measuring AI
Turing Test: The classical Measure of Machine Intelligence, according to this test, a computer can be
considered smart only when a human interviewer asking the same questions to both an unseen human
and an unseen computer cannot determine which is which. This test is limited to a question-and-answer
(Q&A) mode. To pass the Turing Test, a computer needs to be able to understand a human language
(NLP), to possess human intelligence (e.g., have a knowledge base), to reason using its stored knowledge,
and to be able to learn from its experiences (machine learning).

AI Technologies & Derivatives

An intelligent agent (IA) is an autonomous, relatively small computer software program that observes
and acts upon changes in its environment by running specific tasks autonomously. An IA directs an
agent’s activities to achieve specific goals related to the changes in the surrounding environment.
Intelligent agents may have the ability to learn by using and expanding the knowledge embedded in
them. Intelligent agents are effective tools for overcoming the most critical burden of the Internet
information overload and making computers more viable decision support tools.

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Machine learning is a scientific discipline concerned with the design and development of algorithms that
allow computers to learn based on data coming from sensors, databases, and other sources. This
learning is then used for making predictions, recognizing patterns, and supporting decision makers.

Deep learning tries to mimic how the human brain works. It uses artificial neural technology and plays a
major role in dealing with complex applications that regular machine learning and other AI technologies
cannot handle. DL is mostly useful in real-time interactive applications in the areas of machine vision,
scene recognition, robotics, and speech and voice processing. The key is continuous learning. As long as
new data arrive, learning occurs. DL is a key technology in:

 Autonomous vehicles by helping to  Tablets

interpret road signs and road obstacles.  Smart homes
 Smartphones  Smart cities
 Robotics
Machine and Computer Vision
Definitions Similarities
Includes “the technology and methods used to Both computer vision and
provide imaging-based automated inspection machine vision automate many
and analysis for applications such as robot human tasks.
guidance, process control, autonomous The major benefit of both
vehicles, and inspection.” Machine vision is an technologies is lowering the
important tool for the optimization of costs of performing tasks,
production and robotic processes. A major especially those that are
Machine Vision part of machine vision is the industrial camera. repetitive and make the human
Machine vision is treated more as an eyes tired.
engineering subfield, while computer vision The two technologies are also
belongs to the computer science area combined with image processing
that facilitates complex
applications
Another view shows them as
being interrelated based on
image processing and sharing a
variety of contributing fields
Is an interdisciplinary field that deals with how
computers can be made for gaining high-level
understanding from digital images or videos.
From the perspective of engineering, it seeks
to automate tasks that the human visual
Computer Vision system can do. Scene and item recognitions
are important elements in computer vision.
The computer vision field plays a vital role in
the domains of safety, security, health, and
entertainment. Computer vision is considered
a technology of AI, which enables robots and
autonomous vehicles to see

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Scene recognition is an applied area of machine vision which is performed by computer vision. It enables
recognition and interpretation of objects, scenery, and photos.

Video analytics: applying computer vision techniques to videos enables the recognition of patterns (e.g.,
for detecting fraud) and identifying events. This is a derivative application of computer vision.

Robotic Systems
Sensory systems, such as those for scene recognition and signal processing, when combined with other
AI technologies, define a broad category of integrated, possibly complex, systems, generally called
robotics.

A classical definition is this: “A robot is an electromechanical device that is guided by a computer

program to perform manual and/or mental tasks.” The Robotics Institute of America formally defines a
robot as “a programmable multifunctional manipulator designed to move materials, parts, tools, or
specialized devices through variable programmed motions for the performance of a variety of tasks.”

An “intelligent” robot has some kind of sensory apparatus, such as a camera, that collects information
about the robot’s surroundings and its operations. The collected data are interpreted by the robot’s
“brain,” allowing it to respond to the changes in the environment.

Robots can be

 Fully autonomous (programmed to do tasks completely on their own, even repair themselves),
 Remotely controlled by a human

Natural Language Processing

Is a technology that gives users the ability to communicate with a computer in their native language. The
communication can be in written text and/or in voice (speech). NLP includes two subfields:

 Natural language understanding that investigates methods of enabling computers to

comprehend instructions or queries provided in ordinary English or other human languages.
 Natural language generation that strives to have computers produce ordinary spoken language
so that people can understand the computers more easily. For details and the history of NLP

Speech (voice) understanding is the recognition and understanding of spoken languages by a computer

Machine translation uses computer programs to translate words and sentences from one language to
another

Knowledge and Expert Systems and Recommenders

Are computer programs that store knowledge, which their applications use to generate expert advice
and/or perform problem solving. Knowledge-based expert systems also help people to verify information
and make certain types of automated routine decisions. Recommendation systems are knowledge-
based systems that make shopping and other recommendations to people. Another knowledge system is
chatbots

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Knowledge Sources and Acquisition for Intelligent Systems: This activity can be complex because

 It is necessary to make sure what knowledge is needed.

 It must fit the desired system.
 The sources of the knowledge need to be identified to ensure the feasibility of acquiring the
knowledge. The specific methods of acquiring the knowledge need to be identified and if
expert(s) are the source of knowledge, their cooperation must be ensured.
 The method of knowledge representation and reasoning from the collected knowledge must be
taken into account, and knowledge must be validated and be consistent.

Knowledge Representation: Acquired knowledge needs to be organized and stored. There are several
methods of doing this, depending on what the knowledge will be used for, how the reasoning from this
knowledge will be done, how users will interact with the knowledge, and more. A simple way to
represent knowledge is in the form of questions and matching answers.

Reasoning from Knowledge: is the most important component in an intelligent system. This feature
processes users’ requests and provides answers (e.g., solutions, recommendations) to the user. The
major difference among the various types of the intelligent technologies is the type of reasoning they
use.

Chatbots
Is a conversional robot that is used for chatting with people. (A “bot” is short for “robot.”) Depending on
the purpose of the chat, which can be done in writing or by voice, bots can be in the form of intelligent
agents that retrieve information or personal assistants that provide advice. In either case, chatbots are
usually equipped with NLP that enables conversations in natural human languages rather than in a
programmed computer language.

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Emerging AI Technologies
Effective Computing: These technologies detect the emotional conditions of people and suggest how to
deal with discovered problems

Biometric Analysis: These technologies can verify an identity based on unique biological traits that are
compared to stored ones

Cognitive computing is the application of knowledge derived from cognitive science (the study of the
human brain) and computer science theories in order to simulate the human thought processes (an AI
objective) so that computers can exhibit and/or support decision-making and problem-solving
capabilities. To do so, computers must be able to use self-learning algorithms, pattern recognition, NLP,
machine vision, and other AI technologies.

Augmented reality (AR) refers to the integration of digital information with the user environment in real
time (mostly vision and sound). The technology provides people real-world interactive experience with
the environment.

AI Support for Decision Making

AI technologies allow people to make better decisions as it can:

 Solve complex problems that people have not been able to solve. (Note that solving problems
frequently involves making decisions.)
 Make much faster decisions. For example, Amazon makes millions of pricing and
recommendation decisions, each in a split second.
 Find relevant information, even in large data sources, very fast.
 Make complex calculations rapidly.
 Conduct complex comparisons and evaluations in real time.

Some Issues and Factors in Using AI in Decision Making

Several issues determine the justification of using AI and its chance of success. These include:

 The nature of the decision. For example, routine decisions are more likely to be fully automated,
especially if they are simple.
 The method of support, what technology(ies) is (are) used
 Cost-benefit and risk analyses. These are necessary for making large-scale decisions, but
computing these values may not be simple with AI models due to difficulties in measuring costs,
risks, and benefits. For example, as we cited earlier, researchers used 100 metrics to measure
the intelligence level of vacuum cleaners.
 Using business rules. Many AI systems are based on business or other types of rules. The quality
of automated decisions depends on the quality of these rules. Advanced AI systems can learn
and improve business rules.
 AI algorithms. There is an explosion in the number of AI algorithms that are the basis for
automated decisions and decision support. The quality of the decisions depends on the input of
the algorithms, which may be affected by changes in the business environment.
 Speed. Decision automation is also dependent on the speed within which decisions need to be
made. Some decisions cannot be automated because it takes too much time to get all the

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relevant input data. On the other hand, manual decisions may be too slow for certain
circumstances.

AI Support of the Decision-Making Process

1. AI systems are used extensively in problem identification typically in diagnosing equipment
malfunction and medical problems, finding security breaches, estimating financial health, and so
on.
2. Several AI technologies offer alternative solutions by matching problem characteristics with best
practices or proven solutions stored in databases. Both expert systems and chatbots employ this
approach.
3. AI models are used to evaluate proposed solutions.
4. AI can be used to support the implementation of complex solutions

Automated Decision Making

The process starts with knowledge acquisition and creation of a knowledge repository. Users submit
questions to the system brain, which generates a response and submits it to the users. In addition, the
solutions are evaluated so that the knowledge repository and the reasoning from it can be improved.
Complex situations are forwarded to humans’ attention. This process is especially used in knowledge-
based systems. ( See last figure)

Schrage (2017) of MIT’s Sloan School has proposed the following four models for AI to make
autonomous business decisions:

1. The Autonomous Advisor. This is a data-driven management model that uses AI algorithms to
generate best strategies and instructions on what to do and makes specific recommendations.
However, only humans can approve the recommendations (e.g., proposed solutions). Schrage
provided an example in which an American retailing company replaced an entire merchandising
department with an AI machine, ordering employees to obey directives from it. Obviously,
resistance and resentment followed. To ensure compliance, the company had to install monitoring
and auditing software.
2. The Autonomous Outsource. Here, the traditional business process outsourcing model is changed
to a business process algorithm. To automate this activity, it is necessary to create crystal-clear rules
and instructions. It is a complex scenario since it involves resource allocation. Correct predictability
and reliability are essential.
3. People–Machine Collaboration. Assuming that algorithms can generate optimal decisions in this
model, humans need to collaborate with the brilliant, but constrained, fully automated machines. To
ensure such collaboration, it is necessary to train people to work with the AI machines. This model is
used by tech giants such as Netflix, Alibaba, and Google.
4. Complete Machine Autonomy. In this model, organizations fully automate entire processes.
Management needs to completely trust AI models, a process that may take years.

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AI Applications
In Accounting
The ICAEW information technology (IT) faculty provides a free comprehensive study, “AI and the Future
of Accountancy.” This report (ICAEW, 2017) provides an assessment of AI use in accounting today and in
the future. The report sees the advantage of AI by:

 Providing cheaper and better data to support decision making and solve accounting problems
 Generating insight from data analysis
 Freeing time of accountants to concentrate on problem solving and decision making

The report points to the use of the following:

 Machine learning for detecting fraud and predicting fraudulent activities

 Machine-learning and knowledge-based systems for verifying of accounting tasks
 Deep learning to analyze unstructured data, such as in contracts and e-mails

AI and analytics will automate many routine tasks done today by accountants, many of whom may
lose their jobs. On the other hand, accountants will need to manage AI-based accounting systems.
Finally, accountants need to drive AI innovation in order to succeed or even survive

In Financial Services
Singh (2017) observed the following activities that may be found across various types of financial
services:

 Extreme personalization (e.g., using chatbots, personal assistants, and robo investment advisors)
 Shifting customer behavior both online and in brick-and-mortar branches • Facilitating trust in
digital identity
 Revolutionizing payments
 Sharing economic activities (e.g., person-to-person loans) • Offering financial services 24/7 and
globally (connecting the world)

Banking
 All AI technologies listed are included in banking along with several other analytical tools.
 These technologies help banks improve both their front-office and back-office operations.
 Major activities are the use of chatbots to improve customer service and communicating with
customers and robo advising is used by some financial institutions
 Facial recognition is used for safer online banking.
 Advanced analytics helps customers with investment decisions. For examples of this help, see
Nordrum (2017), E. V. Staff (2017), and Agrawal (2018).
 AI algorithms help banks identify and block fraudulent activities including money laundering.
 AI algorithms can help in assessing the creditworthiness of loan applicants.

The use of AI in banking:

 Step up employee surveillance.

 Tax preparation

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 Answering many queries in real time.

 Fraud detection and anti-money-laundering activities.

Insurance
Agents previously spent considerable time asking routine questions from people submitting insurance
claims. AI machines, according to Beauchamp (2016), provide speed, accuracy, and efficiency in
performing this process. Then AI can facilitate the underwriting process. Similarly, claims processing is
streamlined with the help of AI. It reduces processing time (by up to 90 percent) and improves accuracy.
Capabilities of machine-learning and other AI programs can be shared in seconds in multi-office
configurations, including global settings

In Human Resources Management

Savar (2017) points to the following reasons for AI to transform HRM, especially in recruiting:

 Reducing human bias

 Increasing efficiency, productivity, and insight in evaluating candidates
 Improving relationships with current employees.

Recruitment: Companies that help recruiters and job seekers, especially LinkedIn, are using AI algorithms
to suggest matches to both recruiters and job seekers. Haines (2017) describes the process, noting that a
key benefit of this process is the removal of unconscious biases and prejudices of humans.

AI Facilities Training: The rapid technological developments make it necessary to train and retrain
employees. AI methods can be used to facilitate learning. . In addition, AI can be used to personalize
online teaching for individuals and to design group lectures.

Evaluation: AI tools enable HR management to conduct performance analysis by breaking work into
many small components and by measuring the performance of each employee and team on each
component. The performance is compared to objectives, which are provided to employees and teams. AI
also can track changes and progress by combining AI with analytical tools.

AI Use in Retention and Attrition Detection: In order to keep employees from leaving, it is necessary for
businesses to analyze and predict how to make workers happy. Machine learning can be used to detect
reasons why employees leave companies by identifying influencing patterns.

Introducing AI to HRM operations is similar to introducing AI to other functional areas. Meister (2017)
suggests the following activities:

1. Experiment with a variety of chatbots

2. Develop a team approach involving other functional areas
3. Properly plan a technology roadmap for both the short and long term, including shared vision
with other functional areas
4. Identify new job roles and modifications in existing job roles in the transformed environment
5. Train and educate the HRM team to understand AI and gain expertise in it

In MRK, Advertising, and CRM

Examples of AI in MRK:

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 Product and personal  Mimic the expertise of in-store

recommendations. salespeople
 Lead generation  Speech recognition.
 Improve the sales pipeline  Language translation.
 Smart search engines  Customer segmentation.
 Fraud and data breaches detection.  Sales forecasting.
 Social semantics.  Image recognition.
 Web site design  Content generation.
 Producer pricing.  Using bots, assistants, and robo-
 Predictive customer service. advisors.
 Ad targeting.

Narayan (2018) provides a process of how companies can use AI and robots to improve the sales
pipeline. Robots use three stages:

1. Prepare a list of target customers in the database

2. Send information, ads, videos, and so on to prospects on the list created earlier
3. Provide the company sales department with a list of leads that successfully convert potential
customers to buyers.

Gangwani (2016) lists the following ways to improve customers’ experiences:

 Use NLP for generating user documentation. This capability also improves the customer–
machine dialogue.
 Use visual categorization to organize images (for example, see IBM’s Visual Recognition and
Clarifai)
 Provide personalized and segmented services by analyzing customer data. This includes
improving shopping experience and CRM.

In POM
Bollard, et al. (2017) proposed a five-component model for manufacturing companies to use intelligent
technologies. This model includes:

 Streamlining processes, including minimizing waste, redesigning processes, and using business
process management (BPM)
 Outsourcing certain business processes, including going offshore
 Using intelligence in decision making by deploying AI and analytics
 Replacing human tasks with intelligent automation
 Digitizing customers’ experiences

When a sensor detects a defective product or a malfunction, the data are processed by an AI algorithm.
An action then takes place instantly and automatically. For example, a defective item can be removed or
replaced. AI can even make predictions about equipment failures before they occur .This real-time action
saves a huge amount of money for manufacturers.

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Ultimately, companies will use smart or intelligent factories. These factories use complex software and
sensors.

AI and intelligent robots are used extensively in corporate logistics and internal and external
transportation, as well as in supply chain management

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