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eight teams did better than the human benchmark, and the best team had fewer than half as many
mistakes. Machines could identify these types of images better than people.9

FIGURE 3-1

Image classification error over time

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 Judging Fraud

Credit card networks such as Mastercard, Visa, and American Express predict and judge all the
time. They have to predict whether card applicants meet their standards for credit worthiness. If
the individual doesn’t, then the company will deny them credit. You might think that’s pure
prediction, but a significant element of judgment is involved as well. Being credit worthy is a
sliding scale, and the credit card company has to decide how much risk it’s willing to take on at
different interest and default rates. Those decisions lead to significantly different business
models—the difference between American Express’s high-end platinum card and an entry-level
card aimed at college students.
The company also needs to predict whether any given transaction is legitimate. As with your
decision to carry an umbrella or not, the company must weigh four distinct outcomes (see figure
8-1). The company has to predict if the charge is fraudulent or legitimate, decide whether to
authorize or decline the transaction, and then to evaluate each outcome (denying a fraudulent
charge is good, angering a customer with the denial of a legitimate transaction is bad). If the
credit card companies were perfect at predicting fraud, all would be well. But they’re not.

FIGURE 8-1

Four outcomes for credit card companies

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another example, Mutual Benefit Life, a large life insurance company, found that in processing
applications, nineteen people in five departments took thirty distinct steps. If you walked a
typical application through this maze, you could actually finish it in a day. But, instead, an
application was taking from five to twenty-five days. Why? Time in transit. Worse, a variety of
other inefficiencies piled on because they could stick themselves to a slow-moving target. Once
again, a shared database powered by an enterprise computer system improved decision making,
reduced handling, and dramatically improved productivity. In the end, one person had authority
over an application, with processing falling to between four hours and a few days.
Like classical computing, AI is a general-purpose technology. It has the potential to affect
every decision, because prediction is a key input to decision making. Hence, no manager is going
to achieve large gains in productivity by just “throwing some AI” at a problem or into an existing
process. Instead, AI is the type of technology that requires rethinking processes in the same way
that Hammer and Champy did.
Businesses are already conducting analyses that take work flows and break them down into
constituent tasks. Goldman Sachs’s CFO R. Martin Chavez remarked that many of the 146
distinct tasks in the initial public offering process were “begging to be automated.”4 Many of
those 146 tasks are predicated on decisions that AI tools will significantly enhance. When
somebody writes about the transformation of Goldman Sachs a decade from now, a major part of
the story will be about how the rise of AI played a meaningful role in that transformation.
The actual implementation of AI is through the development of tools. The unit of AI tool
design is not “the job” or “the occupation” or “the strategy,” but rather “the task.” Tasks are
collections of decisions (like the ones represented by figure 7-1 and analyzed in part two).
Decisions are based on prediction and judgment and informed by data. The decisions within a
task often share these elements in common. Where they differ is in the action that follows. (See
figure 12-1.)

FIGURE 12-1

Thinking about how to redesign and automate entire processes

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 The AI Canvas

The CDL exposed us to many startups taking advantage of recent machine-learning technologies
to build new AI tools. Each company in the lab is predicated on building a specific tool, some for
consumer experiences, but most for enterprise customers. The latter type focus on identifying
task opportunities within enterprise work flows to focus and position their offering. They
deconstruct work flows, identify a task with a prediction element, and build their business based
on the provision of a tool for delivering that prediction.
In advising them, we found it useful to separate the parts of a decision into each of its elements
(refer to figure 7-1): prediction, input, judgment, training, action, outcome, and feedback. In the
process, we developed an “AI canvas” to help decompose tasks in order to understand the
potential role of a prediction machine (see figure 13-1). The canvas is an aid for contemplating,
building, and assessing AI tools. It provides discipline in identifying each component of a task’s
decision. It forces clarity in describing each component.

FIGURE 13-1

The AI canvas

To see how this works, let’s consider the startup Atomwise, which offers a prediction tool that
aims to shorten the time involved in discovering promising pharmaceutical drug prospects.
Millions of possible drug molecules might become drugs, but purchasing and testing each drug is

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 OUTCOME: What are your metrics for task success? For Atomwise, it’s the results of the
test. Ultimately, did the test lead to a new drug?
INPUT: What data do you need to run the predictive algorithm? Atomwise uses data on the
characteristics of the disease proteins to predict.
TRAINING: What data do you need to train the predictive algorithm? Atomwise employs
data on the binding affinity of molecules and proteins, along with molecule and protein
characteristics.
FEEDBACK: How can you use the outcomes to improve the algorithm? Atomwise uses
test outcomes, regardless of their success, to improve future predictions.

FIGURE 13-2

The AI canvas for Atomwise

Atomwise’s value proposition lies in delivering an AI tool that supports a prediction task in its
customers’ drug discovery work flow. It removes the prediction task from human hands. To
provide that value, it amassed a unique data set to predict binding affinity. The prediction’s value
is in reducing the cost and increasing the likelihood of success for drug development.
Atomwise’s clients use the prediction in combination with their own expert judgment of the
payoffs to molecules with different binding affinities to different kinds of proteins.

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 An AI Canvas for MBA Recruiting

The canvas is also useful in large organizations. To apply it, we break down the work flow into
tasks. Here, we consider an AI canvas centered on the decision of which MBA applicants to
accept into a program. Figure 13-3 provides a possible canvas.

FIGURE 13-3

The AI canvas for MBA recruiting offer

Where did the canvas come from? First, recruiting requires a prediction: Who will be a best or
high-value student? That seems straightforward. We simply need to define “best.” The school’s
strategy can help identify this. However, many organizations have vague, multifaceted mission
statements that lend themselves well to marketing brochures but not so well to identifying the
prediction objective for an AI.
Business schools have many strategies that implicitly or explicitly define what they mean by
“best.” They may be simple indicators such as maximizing standardized test scores like the
GMAT or broader goals such as recruiting students who will boost the school’s rankings in the
Financial Times or US News & World Report. They may also want students who have a mix of
quantitative and qualitative skills. Or they may want international students. Or they may want
diversity. No school can pursue all these goals simultaneously and must exercise some choice.
Otherwise, it will compromise on all dimensions and excel at none.

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 Impact of AI: Labor

Banks rolled out the automatic teller machine (ATM), developed during the 1970s, extensively
throughout the 1980s. The potentially labor-saving technology was—as the name implies—
designed to automate tellers.
According to the Bureau of Labor Statistics, tellers were not being automated out of a job (see
figure 16-1). However, they were automated out of the bank-telling task. Tellers ended up
becoming the marketing and customer service agents for bank products beyond the collection
and dispensing of cash. The machines handled that, more securely than humans. One reason
banks did not want to open more branches was precisely because of the security issue and the
human cost of spending time on something as transactional as bank telling. Freed from those
constraints, bank branches proliferated (43 percent more in urban areas), in more shapes and
sizes, and with them, a staff that was anachronistically called “tellers.”

FIGURE 16-1

Bank tellers and ATMs over time

Source: Courtesy James E. Bessen, “How Computer Automation Affects Occupations: Technology, Jobs, and
Skills,” Boston University School of Law, Law and Economics Research Paper No. 15-49 (October 3, 2016);
http://dx.doi.org/10.2139/ssrn.2690435.

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