Artificial intelligence (AI) is crucial to business strategy, with 42 percent of large companies deploying it to enhance operations and gain a competitive edge.
At this revolution’s heart is the AI factory, which enables you to automate processes and make more informed decisions by integrating AI into business operations.
If you want to harness AI’s potential, understanding how the AI factory functions is essential.
Free E-Book: Your Guide to Online Learning Success
Access your free e-book today.
DOWNLOAD NOWWhat Is the AI Factory?
The AI factory transforms internal and external data into actionable insights through advanced analytics.
According to the Harvard Business Review, AI factories power millions of Google’s daily ad auctions, determine ride availability on digital platforms like Uber, set Amazon’s product prices, and even manage robots that clean Walmart’s floors.
“The AI factory, as its output, does three things,” says Harvard Business School Professor Karim Lakhani, who co-teaches the online course AI Essentials for Business with HBS Professor Marco Iansiti. “Predictions, pattern recognition, and process automation.”
Those outputs allow you to:
- Forecast events—like customer behavior or inventory needs—to enhance decisions and customer retention
- Identify data trends to uncover and adapt to opportunities and risks
- Automate routine tasks—from customer service to medical image analysis— by combining predictions and pattern recognition
If you want to improve your decision-making and help your organization be more AI-driven, here are the four components that power the AI factory.
Related: Listen to Jen Stave, launch director of Harvard’s Digital Data Design (D^3) Institute, discuss AI's transformative impact across industries on The Parlor Room podcast.
4 Components of the AI Factory
1. Data Pipeline
A key component of the AI factory is the data pipeline, a semi-automated, systematic process for gathering, cleaning, integrating, and securing company data to ensure it’s sustainable and scalable for AI technologies.
The process, known as datafication, transforms raw data into a usable format for AI models. High-quality data is crucial because AI models’ accuracy and reliability heavily depend on their inputs’ quality.
“As the saying goes: ‘Garbage in, garbage out,’” Lakhani says in AI Essentials for Business. “If your data isn't set up in a way that enables you to learn from across your enterprise or your customers, you're going to have garbage coming out of your AI factory.”
For example, Amazon uses a sophisticated data pipeline to manage and analyze vast amounts of customer data, including browsing histories and purchase behaviors. Through cleaning and organizing that data, its AI models can accurately predict customer preferences and personalize recommendations.
Establishing a strong data pipeline requires setting up systems and processes. Without a foundation of clean, well-organized data, the AI factory can’t effectively support decision-making and innovation.
2. Algorithm Development
Beyond a strong pipeline, you need algorithms to transform data into actionable insights that allow you to anticipate trends and make data-driven decisions.
“Data by itself doesn't do anything,” Iansiti says in AI Essentials for Business. “You actually need to figure out which algorithm you're going to choose. You're going to figure out what type of algorithm you need. You need to figure out what to do with it.”
Not every algorithm is created equal. With a range of data types, you must select one that aligns with your business goals and objectives. That involves considering your data’s characteristics and the predictions or outcomes you want to achieve.
In the automotive industry, for example, Tesla's goal of creating safe, efficient autonomous vehicles drives its algorithm choices. It uses advanced machine-learning algorithms to analyze camera, sensor, and radar data to generate real-time predictions that guide steering, braking, and acceleration decisions.
By choosing algorithms designed to handle complex data inputs and make accurate predictions, Tesla continually refines its technology to enhance safety and the driving experience.
Your AI factory’s effectiveness similarly depends not just on your data’s quality but your algorithm’s sophistication and suitability.
3. Software Infrastructure
Software infrastructure provides the foundational architecture that supports your AI factory’s data pipeline and algorithm.
“Infrastructure is actually a really important point,” Lakhani says in AI Essentials for Business. “You can have the fanciest data pipelines, the fanciest algorithms—but if your infrastructure can't make this work, can't do this at scale, then you run into problems.”
Infrastructure is the AI factory’s backbone, connecting internal teams and external users to streamline operations. It includes the hardware, software, and networks that manage data storage, processing, and movement.
For example, while Netflix's early algorithms were advanced, its infrastructure couldn’t handle large-scale processing, creating a poor recommendation experience. To address that, Netflix invested in more scalable cloud-based infrastructure to process large volumes of data and deliver accurate recommendations to millions of subscribers—significantly enhancing the user experience and helping maintain a high retention rate compared to competitors.
4. Experimentation Platform
The AI factory’s final component is the experimentation platform, where your team can test, refine, and optimize AI models and predict outcomes based on different conditions.
“The experimentation platform is important because your algorithms are basically going to generate a range of hypotheses,” Lakhani says in AI Essentials for Business. “They're going to say, take action X to increase customer satisfaction, take action Y to potentially increase sales, take action Z to change the dynamics of who pays first.”
Your hypotheses can include questions like:
- Will a new pricing algorithm increase sales?
- Can a machine-learning model more accurately predict customer churn?
- Will a new AI-based process improve operational efficiency?
By providing a space to innovate and test, your experimentation platform can enable you to explore AI’s possibilities, adjust to changes, and seize market opportunities.
“Your job with the experimentation platform is to take those predictions from your algorithmic development and test them to say that, ‘In fact, are these predictions doing what they are supposed to be doing?’” Lakhani says in AI Essentials for Business.
Become an AI-First Firm
Establishing and maintaining your organization’s AI factory is essential to fostering innovation and efficiency. By using AI to automate complex tasks and generate data-driven insights, you can improve decision-making processes and compete in a dynamic market.
To capitalize on AI’s opportunities, you need a solid understanding of the AI factory’s core principles and applications. AI Essentials for Business can equip you with practical skills and strategies for building a responsible AI-powered organization.
Do you want to learn more about the AI factory? Explore our online course AI Essentials for Business—one of our online digital transformation courses—and download our online learning success guide to prepare for the program experience.