Why business leaders need a basic understanding of algorithms

Why does Netflix recommend a particular show? How does Amazon know what product you might want to buy next? Why does Google show some search results before others?

Behind many of these decisions is an algorithm.

Most people associate algorithms with programming and computer science. However, in today's business world, algorithms influence everything from marketing campaigns and customer recommendations to inventory planning and financial decision-making.

This shift is already visible across organizations. McKinsey's 2026 State of AI survey found that nearly nine in ten respondents reported regular AI use in at least one business function, while 44% said AI was being scaled across their enterprise.

As businesses become more data-driven, understanding algorithms is no longer just a technical concern. It is becoming an important business capability.

What is an algorithm?

An algorithm is a set of instructions used to solve a problem, process information, or make a decision.

You interact with algorithms every day, often without realizing it.

While the technology behind these systems may be complex, their purpose is usually simple: helping users find the most relevant information, product, or solution.

Why do business leaders need to understand algorithms?

Business leaders don't need to become software developers or data scientists. However, they do need to understand how algorithm-driven systems influence business decisions.

Organizations use algorithms to:

• Analyze customer behavior
• Forecast demand
• Improve operational efficiency
• Detect risks and fraud
• Personalize customer experiences
• Support strategic planning

As a result, leaders are increasingly presented with recommendations generated by AI and algorithm-driven tools.

McKinsey's 2026 survey highlights both the opportunity and the challenge. While 80% of respondents reported that AI improved their individual productivity and around 50% said it helped them make better decisions, only 37% reported a positive contribution to organizational EBIT. 

That gap matters.

It suggests that using AI or algorithms is not enough. Leaders still need to determine:

• What business problem is being solved?
• What data is being used?
• How reliable are the recommendations?
• What risks or biases may exist?
• How should success be measured?

A basic understanding of algorithms helps leaders ask these questions instead of simply accepting automated outputs.

Algorithms influence more than technology

When people hear the word "algorithm," they often think about software development. In reality, algorithms can have a direct impact on business performance.

They can help organizations:

• Improve productivity
• Reduce inefficiencies
• Optimize resources
• Enhance customer experiences
• Support faster decision-making

Even small improvements in how information is processed can lead to better outcomes, lower costs, and improved business performance over time.

This is why algorithms are no longer just a technology topic. They are increasingly a business topic.

How algorithms are used across business functions?

Algorithms are used across almost every business function.

Understanding these applications helps leaders make informed decisions and work more effectively with technical teams.

Why human judgment still matters?

Algorithms can process vast amounts of data, identify patterns, and generate recommendations in seconds. They can tell a retailer what products are likely to sell, help a bank assess risk, or suggest the most efficient delivery route.

However, business decisions are rarely based on data alone.

Leaders must also consider factors that algorithms cannot fully understand, such as market conditions, customer sentiment, ethical concerns, long-term business goals, and organizational priorities. This requires:

• Understanding context
• Evaluating risks
• Weighing trade-offs
• Thinking strategically
• Making informed final decisions

The most successful organizations do not rely solely on algorithm-driven recommendations. Instead, they combine the speed and efficiency of technology with human experience, critical thinking, and sound business judgment.

After all, algorithms can provide answers, but leadership is ultimately about deciding which answers matter most.

How education is preparing future leaders for a data-driven world?

As businesses increasingly rely on data, AI, and algorithm-driven systems, the expectations from future professionals are changing as well. Business leaders are no longer expected to understand only markets, customers, and strategy. They are also expected to understand how technology influences decisions, drives efficiency, and creates competitive advantage.

This shift is reshaping higher education.

A growing number of industry-integrated degrees are moving beyond traditional classroom learning by combining academic foundations with practical exposure to the realities of the modern workplace. The focus is not on turning students into programmers or technology specialists. Instead, it is on helping them develop the confidence to work in technology-enabled environments and understand how business decisions are increasingly influenced by data and digital technologies.

Many industry-integrated degrees now expose students to:

• Core business and management concepts
• AI, data, and emerging technologies
• Digital and technology literacy
• Real-world projects, simulations, and case studies
• Industry mentorship and practitioner insights

This approach helps students see how concepts learnt in the classroom connect to real business challenges. More importantly, it helps them understand how technologies such as algorithms, analytics, and AI are influencing everything from customer experiences and operations to strategic decision-making.

As organizations look for professionals who can combine business understanding with technological awareness, industry-integrated degrees are helping bridge that gap. They reflect an emerging reality of the workplace: success increasingly depends not just on knowing how businesses work, but also on understanding the technologies shaping them.

What this means for future business leaders?

Whether someone plans to work in marketing, finance, consulting, operations, entrepreneurship, or general management, they will likely encounter algorithm-driven systems throughout their career.

Understanding how these systems work can help professionals:

• Make smarter business decisions
• Collaborate effectively with technical teams
• Evaluate technology-driven opportunities
• Adapt to changing workplace demands
• Build stronger problem-solving capabilities

Increasingly, algorithm literacy is becoming part of business literacy.

The way forward

Algorithms already influence many of the decisions organizations make every day. From customer recommendations and fraud detection to forecasting and operational planning, they have become an integral part of modern business.

Business leaders do not need to know how to build algorithms. However, they do need to understand how algorithms influence decisions, customers, risks, and business performance.

Because as businesses become increasingly data-driven, the leaders who create the most value may not be those who build the technology, but those who understand how to use it effectively.

Frequently Asked Questions

Q1. Do business leaders need to learn coding to understand algorithms?

No. Business leaders do not need to become programmers. However, understanding the basic role algorithms play in decision-making, customer experiences, and business operations can help them evaluate recommendations, ask better questions, and make more informed strategic decisions in technology-driven environments.

Q2. How do algorithms impact everyday business decisions?

Algorithms help organizations analyze data, forecast demand, personalize customer experiences, optimize operations, and identify trends. They support decisions across functions such as marketing, finance, supply chain, and customer service, making them an increasingly important part of modern business strategy.

Q3. Why is algorithm literacy becoming important for future leaders?

As businesses rely more on AI, automation, and analytics, future leaders will regularly work with algorithm-driven systems. A basic understanding of algorithms can help them collaborate with technical teams, interpret insights more effectively, evaluate technology investments, and make better business decisions.