Many key business players and observers, including myself, believe that Big Data is the new thing that is leading some companies to leapfrog others. Those that are using data analytics are quickly becoming the best in class, as Big Data enables better decisions to be made. If my claim seems skeptical, please read this article, and I just might change your mind.
Today, datasets are woven into every sector and function in the global economy. Similarly to other essential factors of production, such as human capital, much of modern economic activity simply could not take place without them.
The use of Big Data (large pools of data that can be brought consolidated and analyzed to discern patterns that yield better decisions) has become the basis of competition and growth for individual firms. Big Data enhances productivity for individual firms. Simultaneously, it creates significant value for the world economy, by reducing waste and increasing the quality of products and services.
Previously, the data flooding our world has been a phenomenon that probably only excited a few data geeks. Today, this is changing. The sheer volume of data generated, stored, and mined is now being used to generate insights that have become economically relevant to businesses, governments, and consumers.
The history of previous trends in IT investment and innovation and its impact on competitiveness and productivity strongly suggest that Big Data can have a similar power. It is said that Big Data has the ability to transform our lives. The same preconditions that allowed previous waves of IT-enabled innovation to fuel productivity, are today, in place for Big Data. We can expect Big Data technology suppliers and advanced analytic capabilities to have at least as much impact on productivity as suppliers of other kinds of technology.
Companies that have a desire to compete need to take Big Data and its potential to create value seriously. It simply helps companies save money, while also making them more money. For example, some retailers that utilize big data can increase their operating margins by 60 per cent.
A new competitive advantage
The use of Big Data is becoming a crucial way for the leading companies to outperform their competitors. Both established competitors and new entrants alike will leverage data-driven strategies in order to innovate, compete, capture and enhance value. In healthcare, data pioneers are analyzing the outcomes of pharmaceuticals that were widely prescribed and comparing them to more limited clinical trials. They can then better analyze the benefits and risks by comparing the datasets.
Other adopters of Big Data are using data from sensors that embedded in products (from children’s toys to industrial goods) to discover how these products are actually being used in the real world. This knowledge often leads to innovation and creation of products and service offerings that better match the desires of consumers.
Big Data will help to create new growth opportunities and entirely new categories of companies. It is likely that positions will be created in companies where employees will aggregate and analyze their data. Many of the companies that will do this will be those that can benefit from Big Data; this means just about everyone. Even today, many companies sit in large pools of information where data about products and services, buyers and suppliers, consumer preferences can be captured and analyzed. Forward-thinking leaders across sectors should begin aggressively to build their organizations’ Big Data capabilities.
In addition to the sheer scale of Big Data, the real-time and high-frequency nature of the data are also quite relevant. For example, the ability to estimate metrics, such as consumer confidence, becoming more extensively used, adding considerable power to prediction. This was something which previously could only be done retrospectively. Similarly, the high frequency of data allows users to test theories in near real-time and to a level never before possible. This can also reduce risk.
There are typically five domains that are studied in relation to Big Data: healthcare and retail in the United States, the public sector in Europe, and manufacturing and personal location data (generated by the smart mobile devices many of us now carry), globally. By studying
How Can You Leverage Big Data?
- Use Big Data to make information transparent.There is still a significant amount of information that is not yet captured in digital form (e.g. data that are on paper, or are not easily accessible and searchable through networks). A great deal of the effort of knowledge workers consists of searching for data and then transferring them to another location. This effort represents a significant source of inefficiency.
- As organizations create and store more transactional data in digital form,they collect more accurate and detailed performance information on everything. This ranges from product inventories to sick days, and therefore expose variability and boosts performance. In fact, some companies are even using their ability to collect and analyze big data to conduct controlled experiments to make better management decisions.
- Big Data allows for the segmentation of customers so that companies can better tailor products and services.
- Sophisticated analytics improve decision-making, minimize risks, and ascertain valuable insights that would otherwise remain hidden.
- Big Data can be used to develop the next generation of products and services.
If the U.S. healthcare system were to use big data creatively and effectively to drive efficiency and quality, it has been estimated that the sector could create more than $300 billion in value every year. Two-thirds of that would be an 8 percent reduction in U.S. healthcare expenditure.
But it’s not just companies and organizations that stand to gain from the value that Big Data can create. Consumers can also reap big data benefits. For instance, users of services enabled by personal-location data can capture $600bn in consumer surplus.
Smart routing uses real-time traffic information, which is one of the most heavily-used applications of personal-location data. As more and more people use smartphones (free navigation applications are included in these devices), it is inevitable that use of smart routing will grow. By 2020, more than 70 percent of mobile phones are expected to have a GPS capability, up from 20 percent in 2010. Therefore, it has been estimated that the potential global value of smart routing in the form of time and fuel savings will be about $500bn by 2020. This will save drivers countless hours on the road, as well as fuel consumption.
Some of the most significant potential to generate value from Big Data will come from combining separate pools of data. The U.S. healthcare system, for instance, has four major pools of data; each of which is primarily captured and managed by a different constituency. MGI estimates that if U.S. healthcare fully used all the available techniques that can be enabled by Big Data, the annual productivity of the sector could grow by an additional 0.7 per cent.
This would yield benefits not just for the various industry players but for patients, who would have broader, clearer access to a wider variety of healthcare information, making them better informed. Patients would be able to compare not only the prices of drugs, treatments, and physicians, but also their relative effectiveness. This enables them to choose more effective, better-targeted medicines. One day soon, it could potentially enable customized medicines and procedures to their personal genetic and molecular make-up. To obtain those broad benefits, healthcare consumers may have to accept a trade-off between their privacy and the benefits of pooling of data would bring.
Sensitivities around privacy and data security are just one hurdle that companies and governments need to overcome. One of the most pressing challenges is a significant shortage of people with the skills to analyze big data. It is estimated that by 2018, the United States alone could face a shortage of 140,000 to 190,000 people with deep analytical training (in statistics or machine learning) and another 1.5m people with the managerial and quantitative skills to be able to frame and interpret analyses effectively enough to base decisions on them.
Additionally, there are many technological issues that need to be resolved to make the most of big data. Legacy systems and incompatible standards and formats frequently prevent the integration of data and the application of the more sophisticated analytics that create value. Ultimately, making use of large digital datasets will require the assembly of a technology stack from storage and computing through analytical and visualization software applications.
Above all, access to data needs to continue to broaden. Increasingly, companies will need to access data from third parties, e.g., business partners or customers, and integrate them with their own. A vital competency for data-driven organizations in the near future will be the ability to create compelling value propositions for others, including consumers, suppliers and potentially even competitors, to share data. If it looks unlikely that data sharing will occur despite the potential for societal benefits, legislators may feel pressured to step in.
As long as companies and governments understand the power of Big Data, there should be a strong enough incentive for them to act robustly to overcome these barriers. By doing so they will unleash avenues to new competitiveness among companies, higher efficiency in the public sector that will enable better services, even in constrained fiscal times, and enable firms and even entire economies to increase their productivity.