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Technical briefing — Big data
It’s the era of big data, and with claims that ‘data is the new oil’*, what is
the value of data analytics to today’s directors and leaders, and how can
they navigate this complex world and derive sustained competitive
advantage? Graham Harrison, IoD Member and Ambassador for Digital
for the Greater Lincolnshire & Rutland Branch, explores this fascinating
subject and reaches some surprising conclusions about the continuing
role that directors and leaders play in this brave new world.
Having the data helps – but so
does asking the right questions
What are the benefits to firms
leveraging data analytics?
It’s worth beginning by asking whether
firms that leverage data analytics have
access to a capability that differentiates
them and gives them an edge over their
competitors.
It turns out that there is a wide body of
evidence that confirms that the answer to
this question is “yes”, including a report
from Wegener & Sinha showing that firms
using data analytics are twice as likely to
be top-quartile financial performers, while
another from McKinsey & Company
showed that data-analytic firms increase
their earnings before tax by 20 per cent
compared with those who did not.
Beyond these two examples there is a
wide body of research and evidence
supporting the view that embracing data
analytics will improve business outcomes
and deliver competitive advantage.
But what are the strategic benefits?
There is a traditional view that firms
* Intro quote courtesy of Clive Humby
16
with good data analytics maturity start
every meeting by reviewing the corporate
data dashboard, with every decision
maker having immediate access to reams
of spreadsheets detailing the minutiae of
company performance.
There may be some truth in that but at a
higher level directors and leaders of firms
that have a mature data analytics
capability know how to ask and answer
the right questions giving them unique
insight and an ability to make the right
decisions to drive company performance.
Victor Kiam famously “liked the shaver
so much, he bought the company” – in his
case, shaver maker Remington – but in
hindsight this decision was an example of
something called “substitution”, a famous
psychological effect that has ramifications
for data-driven firms.
There are many questions that should
be asked during a corporate acquisition
but in asking the question “by how much
is Remington company stock undervalued?”
Victor appears to have answered
the question “how much do I personally
like just one of its products?”.
The substitution effect can be addressed
in data analytics firms simply by seeking
the data and information that will inform
the decision. In the Remington example it
is likely the main data required would have
been on historical stock market
performance and sales trends, not a single
sample product survey, and this would
have led to correctly answering the right
questions relating to the acquisition
decision.
As well as avoiding substituting a
different question to the one being asked,
data analytic directors and firms are far
more likely to frame the right question in
the first place.
During the ‘Cola Wars’ one of the two
leading firms produced a new, attractive
glass bottle and raced ahead of its main
competitor in terms of sales. The
competitor swiftly formed a task force to
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