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Big Data – The Next Frontier

by Boris Lublinsky on Jun 07, 2011 |

Last month McKinsey Global Institute (MGI) released a new report - "Big data: The next frontier for innovation, competition, and productivity" examining the state of digital data and documents and defining the value that can potentially be unlocked by processing this data.

In order to see how big data can create value and examine its transformational potential the report studies in depth five domains - US healthcare, Europeans’ Union public sector administration, US retail, global manufacturing and personal location data. These five domains, according to the report, represent a broad spectrum of key segments of global economy and capture a range of regional perspectives. They also vary in their sophistication and maturity of big data usage and, as a result, offer different business lessons.

Drawing on detailed analysis of these domains the research identifies five broadly applicable ways to leverage big data that offers transformational potential to create value and have implications on how individual organizations will have to be designed, organized and managed.

  • Creating Transparency.
    Making big data more easily accessible to relevant stakeholders in a timely way can create tremendous value. Indeed this aspect of creating value is a prerequisite for all other levels and is the most immediate way... to capture that potential. In many cases these opportunities exist where there is a misalignment of incentives for creating data transparency, such as lack of performance imperative.
  • Enabling experimentation to discover needs, expose variability and improve performance.
    The ability for organizations to instrument - to deploy technology that allows them to collect data - and sense the world is continually improving. More and more companies are digitizing and storing an increasing amount of highly detailed data about [business] transactions... Having access to all of these data and in some cases being able to manipulate conditions under which they are generated enable a very different way making decisions that involves bringing more science into management - i.e. applying classic scientific methods to the practice of management. Specifically managers now can use a scientific process of controlled experimentation that includes the formulation of specific hypotheses designing and conducting experiments... and then rigorously analyzing the quantitative results before making the decision
  • Segmenting populations to customize actions.
    Big data allow organizations to create ever-narrower segmentations and to tailor services precisely to meet customer needs. This approach is well-known in marketing and risk management, but can be revolutionary in places like the public sector..
  • Replacing or supporting human decision-making with automated algorithms.
    Sophisticated analytics can substantially improve decision making, minimize risks, and unearth valuable insights that would otherwise remain hidden. Big data either provides the raw material needed to develop algorithms or for these algorithms to operate... Big-data-based analytics today include rule-based systems, statistical analysis and machine-learning techniques such as neural networks.
  • Innovating new business models, products, and services.
    Big data enables enterprises of all kinds to create new products and services, enhance existing ones, and invent entirely new business models

The report has caused quite a few reactions on the Web. According to Economist’ Schumpeter:

In a suitably fact-packed new report... MGI argues that data are becoming a factor of production, like physical or human capital. Companies that can harness big data will trample data-incompetents. Data equity, to coin a phrase, will become as important as brand equity. MGI insists that this is not just idle futurology: businesses are already adapting to big data... The data revolution is disrupting established industries and business models. IT firms are nosing their way into the health-care market: Google Health and Microsoft HealthVault both allow consumers to track their health and record their treatments. Manufacturers are hastening their transformation into service companies: all those sensors allow them to monitor their products and see if they need repairing long before they break down.

Richard Maddox in his blog wrote:

The report describes the state and growing role of digital data that has now entered every sector and economy... there is strong evidence that Big Data can contribute significantly to national economies, creating substantial value for the overall world economy... However, MGI notes the challenges organizations face with reaching the full potential of Big Data, such as limited analytical and managerial talent to make big data advantageous and valuable for businesses.

And, finally, Stowe Boyd noted :

MGI’s analysis shows that companies and policy makers must tackle significant hurdles to fully capture big data’s potential. The United States alone faces a shortage of 140,000 to 190,000 people with analytical and managerial expertise and 1.5 million managers and analysts with the skills to understand and make decisions based on the study of big data (exhibit). Companies and policy makers must also tackle misaligned incentives around issues such as privacy and security, access to data, and technology deployment.

Big data is exploding as more and more information is collected and stored daily. MGI estimates that enterprises globally stored more than 7 exabytes of new data on disk drives in 2010, while consumers stored more than 6 exabytes of new data on devices such as PCs and notebooks [as well as mobile devices]. If utilized correctly, this data can give a significant boost to today’s economy.

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