"Algorithms: Business by numbers"

Read the Briefing in The Economist (September 13th 2007) subtitled "Consumers and companies increasingly depend on a hidden mathematical world".

Excerpts:

• computers have made algorithms far more valuable to companies. “A computer program is a written encoding of an algorithm,” explains Andrew Herbert, who runs Microsoft Research in Cambridge, Britain. The speed and processing power of computers mean that algorithms can execute tasks with blinding speed using vast amounts of data.
• UPS uses algorithms to help deliver the millions of packages that pass through its transportation network every day in the most efficient way possible. The simplest routes are easy to draw up. If a driver has only three destinations to visit, he can take only six possible routes. But the number of possible routes explodes as the destinations increase. There are more than 15 trillion, trillion possible routes to take on a journey with just 25 drop-off points—and an average day for a UPS driver in America involves 150 destinations. The picture is further complicated by constraints such as specified drop-off and pick-up times for drivers or runway lengths and noise restrictions for aircraft. “Algorithms provide benefits when the choices are so great that they are impossible to process in your head,” says UPS's Jack Levis....UPS reckons that VOLCANO (its computer system for aircraft routing) has saved the company tens of millions of dollars since its introduction in 2000.
• Jeff Gordon, who looks after innovation for Convergys, a call-centre operator, says that the efficiency of algorithms is as crucial to his industry as the quality of call agents: “If you get the algorithm wrong and put customers into the wrong hands you degrade the experience. No one likes being handed off to someone else.”
• Dunnhumby, a data-analysis firm, uses algorithms to crunch data on customer behaviour for a number of clients. Its best-known customer (and majority-owner) is Tesco, a British supermarket with a Clubcard loyalty-card scheme that generates a mind-numbing flow of data on the purchases of 13m members across 55,000 product lines. To make sense of it all, Dunnhumby's analysts cooked up an algorithm called the rolling ball.....The rolling-ball algorithm is in its fourth version. Refinements occur every year or two, to add new attributes or to tweak the maths. All these data then feed into a variety of decisions, such as the ranges to put into each store and which products should sit next to each other on the shelves. “All this sophisticated data analysis and it comes down to where you put the biscuits,” laments Martin Hayward, director of consumer strategy at Dunnhumby.
• Algorithms are most commonly associated with internet-search engines. “The tussle between MSN, Google and Yahoo! is about whose algorithm produces the best results to a query,” observes Microsoft's Mr Herbert. Ask.com, another search engine, has even tried to popularise the term in an advertising campaign. Few other types of companies are so obviously dependent on algorithms for success, but the role that they play is rising in importance for two reasons.

Comment: Most of us use personal computers for things which now seem pretty pedestrian such as word processing, email, and searching the net. Most of us don't use much math. But the computer is a marvel at data crunching.

I recently heard a former astronaut mentioning that his young son wanted a new iPod with twice the memory of his current iPod. The astronaut said "no way", since the kid's current iPod already had one million times as much memory as the computers on the space craft that first took him into space. My point is that the PC on your desk or in your lap is a very powerful computational engine.

The economic benefits from computers are probably going to come from the big returns from relatively few, very smart large scale applications as much as from the millions of relatively simple, straight forward, small applications. JAD