The full version of this post originally appeared in Teradata Magazine.
Increasing competition, global markets and customers who are in control define today’s business environment. Many organizations are missing opportunities to gain a deeper perspective of their customers and business, be the first to act on trends and most importantly, seize new revenues and cut costs.
The fact that data analytics can deliver extreme ROI isn’t exactly breaking news. What is new is that researchers can now quantify how much potential revenue and cost savings are at stake. Organizations that leverage business analytics reap approximately $766 billion in economic benefits annually, according to a 2013 report by the Cognizant Center for the Future of Work “The Value of Signal (and the Cost of Noise).” Furthermore, if those same companies were to use all of the analytics techniques currently available, they could generate an additional $91 billion in the next 12 months.
You have the opportunity to add some of that money to your coffers. If you’re not willing to take it, then you’re leaving it on the table for your competition to scoop up.
Innovation Trumps Inaction
When organizations collect, use and reuse data for purposes that they might not have originally envisioned, they seize the power of analytics to make sense of and deliver deeper perspectives into the business. With the resulting data-driven innovation, they can retain their own leadership position or even reinvent themselves to dethrone the reigning industry leader and emerge as the new front-runner.
Consider the classic example of Netflix, the company that turned the DVD rental industry on its head with a disruptive business model that brick-and-mortar stores simply could not match: monthly subscriptions offering flat-fee unlimited rentals with no due dates, late fees, or shipping and handling charges—all from the comfort of home.
It was a case of good vision by a data-driven company. And because Netflix understands that the marketplace and customer expectations are constantly evolving, it has continued to set the pace with new offerings such as Internet streaming and original programming. With 50 million members in 40 countries consuming more than one billion hours of TV shows and movies per month, the company grew its revenue to nearly $1.3 billion last year.
“Netflix began to understand the data, what we call the ‘code halo,’ around its customers, and as a result, it was able to read your mind. ‘If you liked this, then maybe you’ll like that,’” explains Ben Pring, co-director of the Cognizant Center for the Future of Work and co-author of the 2013 report. “That was a revolution. It really changed commerce, selling and the customer interface.”
In today’s volatile environment, any company that wants to claim its share of the billions available must apply analytics against a range of integrated data to connect with consumers, and to identify new opportunities that can define—and redefine—industries.
Lead with Vision
The ability to spot trends and quickly act on them can lead to an 11.3% boost in revenue and a 10.7% reduction in costs, according to Cognizant’s 2013 report. Those gains are nearly double the performance of companies that simply capture data as opposed to analyzing and acting on it. Leading companies also experience triple the rate of sustained growth compared to businesses that don’t practice data-driven innovation.
However, the gains don’t happen overnight. “We tend to associate any IT initiative with a quick return on investment,” notes Karthik Krishnamurthy, vice president and global business leader for the Enterprise Information Management Practice at Cognizant. “We don’t give it enough time to fail and gain and fail again. With innovation, it’s important to treat it like a science experiment. Create an experimentation platform, make a hypothesis, test the hypothesis, prove or disprove it and move on to the next hypothesis. If you think of innovation as a classic waterfall model, you won’t get very far.”
The difference between the leaders and the laggards is in the size of their vision. “You really need to embrace the art of the possible,” says Krishnamurthy. “Many organizations start thinking about what they have today from a data perspective and what they can do with it. What we’ve seen organizations do that have really driven innovation to a level that others haven’t is to think about what they are not doing today and how they can actually achieve that through data.”
Make the Next Move
Data-driven innovation unleashes tremendous economic and social value capable of transforming the way we work, communicate, learn and do business.
“Big data, analytics, connected devices, seamless communication—all of these things are going to pervade all industries,” says Mack Institute executive director Saikat Chaudhuri. “It’s just that some industries will use it more on the front end of the value chain and others will use it more on the back end.”
You have the chance to choose your future. The question is, will it be the status quo or will you use data analytics to uncover and exploit new opportunities for innovation, growth and profit?
3 Key Areas of Opportunity
Data-driven innovation can open business opportunities and deliver myriad benefits:
Products and services
Without data informing product and service developments, businesses must operate blindly. It’s hard to come up with the right products and services without information. With data analytics, you get a lot of information quickly to better understand the manufacturing process. Then you can incorporate that insight into development processes to produce a higher quality product.
Insights made possible through data analytics can help companies rethink how they do business. By changing organizational structures and processes, you’re going to be able to take advantage of the opportunities available today. Strategy, organization, process—everything—has to be aligned, and that’s what distinguishes firms that do well versus those that don’t.
If a business is not paying attention, it can miss the changes and shifts that take place in the market. A major technology company completely changed the music industry by rethinking the CD-based business model. By paying attention to where the technology and the consumer experience were heading and then taking quick action, the company had a significant advantage that helped it emerge as a leader. You have to keep on producing new goods and services, new processes and new business models.
—Saikat Chaudhuri, Mack Institute Executive Director
Course for Action
Organizations like the Mack Institute have studied the behaviors of data-driven companies. They found several best practices that can help any organization achieve success in leveraging data:
Start with a Strategy. It’s easy to collect data, but organizations must also think about how to use that information and tie it back to key business decisions. “Leaders think about the strategic dimension first,” notes Chaudhuri. “Then they ask the question, ‘How are we going to get there?’”
Get inspiration from others. “Look at the broader dimensions that are sweeping your industry, then identify other industries where those innovations are already present,” says Karthik Krishnamurthy, vice president and global business leader for the Enterprise Information Management Practice at Cognizant. “Healthcare is focusing more and more on consumerization. Where has consumerization existed for many years? Retail and financial services. What are the data-driven opportunities in those industries, and can we adapt them to healthcare?”
Start small, but don’t stay there. You don’t need a billion records to derive business meaning and drive innovation. Start by exploring the data that already exists, asking questions like “What do we already know?” and “What else do we need to know?”