Introduction
The data revolution: optimisation gain, strategic strain?
There is much hype about the strategic impact of data, and many new bets on it will undoubtedly pay off. However, while some companies are making strategic changes based on data, as distinct from optimisation gains, many are yet to do so.
Discussions about the transformational power of data have been hard to miss in recent years. Indeed, speculation over the impact of all aspects of data, including so-called "big data", has become so frequent and over-hyped that it is difficult to separate the signal from the noise. It is now two years since the McKinsey Global Institute released its landmark study on the subject, which marked an inflection point for business. McKinsey argued that the subject was now relevant "for leaders across every sector", with business "on the cusp of a tremendous wave of innovation, productivity and growth" as a result of data.
In many respects, the current data gold rush is reminiscent of the latter part of the 1990s and the rush to get to grips with the emerging Internet era. Today, just as then, profound promises are being made about the strategic impact of data, but for the time being examples of the potential coming to fruition remain few.
This report agrees wholeheartedly that many of these new bets on data will pay off. However, for the majority of businesses, much evolution lies ahead. Philip Clement, the global chief marketing officer of Aon, an insurance company, gives the analogy of how Amazon.com, in the mid-1990s, promised to become one of the biggest global retailers. It seemed like a joke at the time, he says. "It was true, but it just took 15 years longer than anyone imagined."
This is not to suggest that the issue of data is not a priority in boardroom discussions today. This survey of over 300 C-suite executives, spanning a range of industries and functions, suggests that only a tiny fraction (3%) are not currently prioritising the collection of data. Whether social media feeds, machine-generated data via sensors and telematics, call-centre recordings, staff emails, syndicated information, or data from other more exotic sources, a high proportion of companies are storing increasing amounts of data in the belief that it will be of value to them. McKinsey's 2011 report already highlighted that 15 out of 17 sectors in the US had more data stored per company than the information contained in the US Library of Congress.
Moreover, while it is true that 72% of executives polled consider themselves effective in translating these data sources into insightful information that can drive changes of strategy (Figure 1), only a small minority (12%) consider themselves "highly effective" in this regard. As this report will argue, there are many impressive examples of how companies are using data to optimise many aspects of their business. However, there is far less evidence that corporate leaders are systematically using it to strategically transform their companies or business models. "This is the continuum," argues Kenneth Cukier, The Economist's data correspondent and author of the recently released Big data, "By being a data-driven company, are you using data to optimise what you're doing today, or are you taking this information to do something totally new?"
Of course, there are many examples of companies who've made data the core of their business models and who couldn't exist without it. These firms are predominantly within the high-tech sector and financial services sector-whether Google, Amazon, or one of many hedge funds that compete on their ability to uncover insights from information. Overall, a small core of businesses are genuinely rethinking what data means for them, and how to organise themselves around it. But apart from these outliers, there are relatively few that have worked out how to truly reshape their business around data. Quite simply, for many companies today, the real data revolution still lies ahead. "This is the breakout moment," believes Mr Cukier. "Everyone has been learning about it, figuring out what it can do, but for most companies, they haven't done it yet."
What a difference a few years make. Back in 2006, Universal Music made headlines with a lawsuit filed against MySpace, the entertainment-oriented social network, for copyright infringement. Since then, the world of music has gone increasingly digital, with wholly new music distribution models emerging, even as MySpace has faded. But Universal Music has been constantly evolving over the past decade too, using data to help it shift from a defensive risk-oriented strategy to an offensive, opportunity-led one.
In many respects, this is a very literal transition: the same data team that once worked to contain digital piracy risks has been transformed into a source of insight for signing and marketing new hits. This Digital Tools team, lead by Paul Gathercole, has spearheaded the creation of a powerful data platform, which now helps to guide executives on their decisions and investments. This platform draws on diverse data, from online music services' streaming data, to social media and web sentiment analysis, to physical sales, to stars' concert and TV appearances, among other things, and it is reshaping how the company works and thinks. "Our data team now handles queries from all parts of the business, such as asking for a precise breakdown of how popular a given artist might be across various digital and analogue channels," explains Mr Gathercole.
As this data platform has grown in scale and capability, it is in turn changing the business. "The key thing that can change people's perceptions is the nuance you can get from the data," says Mr Gathercole. "It's a long path, but Universal has changed a lot in the last three years and the degree of openness to data has changed dramatically. The questions we receive are better and meatier, which is indicative of an organisation educating itself and raising its ability to use and converse about data meaningfully."
