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Are you ready for the era of ‘big data’

Are you ready for the era of ‘big data’

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Published by Justin Souter

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Published by: Justin Souter on Nov 16, 2011
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05/12/2014

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The top marketing executive
at a sizable US retailer recently ound hersel perplexed by the sales reports she was getting. A majorcompetitor was steadily gaining market share across a range o proitable segments. Despite a counterpunch that combined onlinepromotions with merchandizing improvements, her company keptlosing ground. When the executive convened a group o senior leaders to dig into thecompetitor’s practices, they ound that the challenge ran deeper thanthey had imagined. The competitor had made massive investments inits ability to collect, integrate, and analyze data rom each storeand every sales unit and had used this ability to run myriad real-worldexperiments. At the same time, it had linked this inormation tosuppliers’ databases, making it possible to adjust prices in real time, toreorder hot-selling items automatically, and to shit items romstore to store easily. By constantly testing, bundling, synthesizing, andmaking inormation instantly available across the organization—rom the store loor to the CFO’s oice—the rival company had becomea dierent, ar nimbler type o business. What this executive team had witnessed irst hand was the game-changing eects o big data. O course, data characterized the inormationage rom the start. It underpins processes that manage employees;it helps to track purchases and sales; and it oers clues about howcustomers will behave.
Radical customization, constant experimentation,and novel business models will be newhallmarks o competition as companies captureand analyze huge volumes o data. Here’swhat you should know.
 Are you ready or theera o ‘big data’? 
Brad Brown, Michael Chui, and James Manyika
OCTOBER 2011
mckinsey 
 
global
 
institute
 
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But over the last ew years, the volume o data has exploded. In 15 o the US economy’s 17 sectors, companies with more than 1,000employees store, on average, over 235 terabytes o data—more datathan is contained in the US Library o Congress. Reams o datastill low rom inancial transactions and customer interactions butalso cascade in at unparalleled rates rom new devices and multiplepoints along the value chain. Just think about what could be hap-pening at your own company right now: sensors embedded in processmachinery may be collecting operations data, while marketers scansocial media or use location data rom smartphones to understand teens’ buying quirks. Data exchanges may be networking your supply chain partners, and employees could be swapping best practices oncorporate wikis. All o this new inormation is laden with implications or leaders andtheir enterprises.
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Emerging academic research suggests that com-panies that use data and business analytics to guide decision makingare more productive and experience higher returns on equity thancompetitors that don’t.
2
That’s consistent with research we’ve conductedshowing that “networked organizations” can gain an edge by openinginormation conduits internally and by engaging customers and sup-pliers strategically through Web-based exchanges o inormation.
3
Over time, we believe big data may well become a new type o corporateasset that will cut across business units and unction much as apowerul brand does, representing a key basis or competition. I that’sright, companies need to start thinking in earnest about whetherthey are organized to exploit big data’s potential and to manage thethreats it can pose. Success will demand not only new skills but alsonew perspectives on how the era o big data could evolve—the wideningcircle o management practices it may aect and the oundation itrepresents or new, potentially disruptive business models.
1
For more, see the McKinsey Global Institute report
 Big data: The next frontier  for innovation, competition, and productivity
, available ree o charge online atmckinsey.com/mgi.
2
See Erik Brynjolsson, Lorin M. Hitt, and Heekyung Hellen Kim, “Strength in numbers: Howdoes data-driven decisionmaking aect frm perormance?” Social ScienceResearch Network (SSRN), April 2011. In this study, the authors ound that eective useo data and analytics correlated with a 5 to 6 percent improvement in productivity,as well as higher proftability and market value. For more, see the orthcoming e-book by Brynjolsson and coauthor Andrew McAee,
 Race Against the Machine: How thedigital revolution accelerates innovation, drives productivity, and irreversibly transformsemployment and the economy
(Digital Frontier Press, October 2011).
3
See Jacques Bughin and Michael Chui, “The rise o the networked enterprise: Web 2.0fnds its payday,” mckinseyquarterly.com, December 2010.
 
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Five big questions about big data
In the remainder o this article, we outline important ways big datacould change competition: by transorming processes, alteringcorporate ecosystems, and acilitating innovation. We’ve organized thediscussion around ive questions we think all senior executivesshould be asking themselves today. At the outset, we’ll acknowledge that these are still early days or bigdata, which is evolving as a business concept in tandem with the under-lying technologies. Nonetheless, we can identiy big data’s key ele-ments. First, companies can now collect data across business units and,increasingly, even rom partners and customers (some o this is truly  big, some more granular and complex). Second, a lexible inrastructurecan integrate inormation and scale up eectively to meet the surge.Finally, experiments, algorithms, and analytics can make sense o allthis inormation. We also can identiy organizations that are makingdata a core element o strategy. In the discussion that ollows and else- where in this issue, we have assembled case studies o early movers inthe big data realm (see “Seizing the potential o ‘big data’” andthe accompanying sidebar, “AstraZeneca’s ‘big data’ partnership,” onmckinseyquarterly.com).In addition, we’d suggest that executives look to history or clues about what’s coming next. Earlier waves o technology adoption, or example,show that productivity surges not only because companies adopt newtechnologies but also, more critically, because they can adapt their man-agement practices and change their organizations to maximize thepotential. We examined the possible impact o big data across a numbero industries and ound that while it will be important in every sectorand unction, some industries will realize beneits sooner because they are more ready to capitalize on data or have strong market incentivesto do so (see sidebar, “Parsing the beneits: Not all industries arecreated equal”).The era o big data also could yield new management principles. Inthe early days o proessionalized corporate management, leaders dis-covered that minimum eicient scale was a key determinant o competitive success. Likewise, uture competitive beneits may accrueto companies that can not only capture more and better data butalso use that data eectively at scale. We hope that by relecting onsuch issues and the ive questions that ollow, executives will be

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