Most companies are capturing only a fraction of the potential value of big data and analytics according to a report from McKinsey and Company.
Despite this the impact of data science on business is already clear.
“Data and analytics are already shaking up multiple industries, and the effects will only become more pronounced as adoption reaches critical mass,” the report said.
“Organisations that can harness these capabilities effectively will be able to create significant value and differentiate themselves, while others will find themselves increasingly at a disadvantage.”
The report, The age of analytics: competing in a data-driven world, is based on over five years of research and follows up on on 2011 research that identified five areas of potential value in data and analytics, and suggested their impact would be significant.
“We remain convinced that this potential has not been oversold. In fact, the convergence of several technology trends is accelerating progress,” the report said.
“Leading companies are using their capabilities not only to improve their core operations but also to launch entirely new business models. The network effects of digital platforms are creating a winner-take-most situation in some markets.”
Comparing actual progress to the areas of potential earmarked five years ago “shows a great deal of value still on the table,” the authors said.
“The greatest progress has occurred in location-based services and in retail, both areas with digital native competitors. In contrast, manufacturing, the public sector, and health care have captured less than 30 percent of the potential value we highlighted five years ago.”
The digital natives reaping the rewards are “built for analytics”, while legacy organisations have faced the challenging prospect of overhauling and adapting systems, according to McKinsey and Company.
The changes required involve more than technology. Capturing full value from analytics also requires greater organisational change, something many businesses are struggling with, the report said.
“Many are struggling to develop the talent, business processes, and organisational muscle to capture real value from analytics.”
“It is not enough simply to layer powerful technology systems on top of existing business operations. All these aspects of transformation need to come together to realise the full potential of data and analytics.”
Accelerating analytics transformation
The report outlines a five step transformation strategy for organisations looking to harness data and analytics.
Firstly, businesses must consider fundamental questions pertaining to what they are hoping to achieve with data and analytics, including “what will data and analytics be used for? How will the insights drive value? How will the value be measured?” the authors said.
The next step involves building out data architecture and data generation/collection capabilities, the report said. Transitioning organisations should also consider digitising their operations further, a key differentiator for leaders, the author said.
With technology and systems in place, organisations require the personnel to operate them according to the report.
“The third piece is acquiring the analytics capabilities needed to derive insights from data; organisations may choose to add in-house capabilities or outsource to specialists.”
Data scientists, in particular, are currently in high demand, according to the report.
The fourth step, “changing business processes to incorporate data insights into the actual
workflow” is a common roadblock for many organisations, the authors said. It requires “getting the right data insights into the hands of the right personnel”.
The final step is ensuring leaders within organisations understand and are willing to implement data driven insights, the authors said.
Leaders widening the gap
The organisations who are doing well with data and analytics are creating “major disparities” between themselves and the average company —“in some cases creating winner-take-most dynamics”, according to the report.
This includes the usual suspects – Apple, Alphabet/Google, Amazon, Facebook, Microsoft, GE, and Alibaba Group, as well as private companies whose business models are predicated on data and analytics, the authors said.
“Uber, Lyft, Didi Chuxing, Palantir, Flipkart, Airbnb, DJI, Snapchat, Pinterest, BlaBlaCar, and Spotify. These companies differentiate themselves through their data and analytics assets, processes, and strategies,” the report said.
The great promise of data and analytics, and something these leaders are leveraging, is that decisions will no longer have to be made on “gut instinct”. Instead, “they can use data and analytics to make faster decisions and more accurate forecasts supported by a mountain of evidence,” the authors said.