In the wake of the recent breaches at Epsilon and Sony and the scrutiny Apple and Google are facing for their geolocation data tracking practices, there has been little media focus on the benefits of data collection and analysis. Indeed, most of the coverage has been trained on proposed legislation and new regulations that would restrict data collection practices. A research study released earlier in May 2011 by McKinsey Global Institute, however, suggests that utilization of “big data” could lead to billions of dollars in annual value in the private and public sectors.
The study, Big data: The next frontier for innovation, competition, and productivity, is a 156-page effort that looks at the proliferation of large datasets and finds that data can create “significant value for the world economy.” The source of data include customer transactions, networked sensors and actuators (the so-called “Internet of Things”), social media sites, smartphones, PCs, and laptops. And after identifying the techniques and technologies used capture and analyze big data, the study concludes that “[a]nalyzing large data sets—so called big data—will become a key basis of competition, underpinning new waves of productivity growth, innovation, and consumer surplus as long as the right policies and enablers are in place.”
The study cites examples of companies that have effectively used big data to create economic value through increased productivity and customer loyalty, including Tesco’s use of customer loyalty card data, Wal-Mart’s use of vendor-managed data to optimize its supply chain, and Amazon’s use of customer data to make “you may also like” recommendations. McKinsey looked at five domains—health care, retailing, the public sector, manufacturing, and personal location data. From this research, the study identified five ways to leverage big data: (1) Making big data more accessible in a timely manner; (2) Using data and experimentation to expose variability and improve performance; (3) Segmenting populations to customize actions; (4) Replacing and supporting human decision-making with automated algorithms; and (5) Innovating new business models, products, and services.
For the healthcare industry, after making certain assumptions (e.g. necessary IT investment, analytical capabilities, privacy protections, and economic incentives), the study predicts that in ten years there will be an opportunity to capture $300 billion annually in new value, “with two-thirds of that in the form of reductions to national health care expenditure.” In the public sector, the study projects that the EU could use “big data levers” to increase productivity and efficiency that would result in administrative cost savings of up to $446 billion. In retail, “pioneers” are projected to have the ability to reduce operating margins by up to 60%. Similarly, the manufacturing sector could use big data to reduce costs and increase innovation. Lastly, the study projects that use of geolocation data will create $100 billion in revenue to service providers over the next ten years and as much as $700 billion in annual value to customers.
In response to skeptics who suggest that the economic benefit of big data is still wishful thinking and that productivity gains driven by data analytics has peaked, the authors of the study suggest that economic statistics will not show productivity gains for a few years, similar to the delay in measuring the productivity gains from the use of computers.
