Big oil, big pharma, and now comes….big data?
Analyzing 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, says McKinsey in a new report.
The research by McKinsey Global Institute and McKinsey’s Business Technology Office examines the state of digital data and documents the significant value that can potentially be unlocked.
For example, a retailer using big data to the full could increase its operating margin by more than 60 percent. Harnessing big data in the public sector has enormous potential, too.
If US health care were to use big data creatively and effectively to drive efficiency and quality, the sector could create more than $300 billion in value every year.
Two-thirds of that would be in the form of reducing US health care expenditure by about 8 percent. In the developed economies of Europe, government administrators could save more than €100 billion ($149 billion) in operational efficiency improvements alone by using big data, not including using big data to reduce fraud and errors and boost the collection of tax revenues. And users of services enabled by personal location data could capture $600 billion in consumer surplus.
McKinsey says computer and electronic products, information, finance and insurance and government are the sectors that are best placed to benefit from leveraging big data.
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The report identified five broadly applicable ways to leverage big data:
- Make big data more accessible and timely. Transparency, enabled by big data, can unlock a great deal of value. In the public sector, increasing access to data across separate departments can sharply reduce search and processing times. In manufacturing, integrating data from R&D, engineering, and manufacturing units to facilitate concurrent engineering can cut time to market.
- Use data and experiments to expose variability and raise performance. As organizations create and store more transactional data in digital form, they can collect more accurate and detailed performance information on everything from product inventories to sick days.
- Segment populations to customize. Big data allow organizations to create ever-narrowing segmentations and to tailor services precisely to meet customer needs. This approach is well known in marketing and risk management but can be revolutionary in areas such as the public sector.
- Use automated algorithms to replace and support human decision making. Sophisticated analytics can substantially improve decision making, minimize risks, and unearth valuable insights that would otherwise remain hidden. Such analytics have applications from tax agencies to retailers.
- Innovate with new business models, products, and services. To improve the development of next-generation offerings and to create innovative after-sales services, manufacturers are leveraging data obtained from the use of products. The emergence of real-time location data has created a new set of location-based mobile services from navigation to people tracking.
The New York Times has more on the potential, and also on the challenges of mining big data, including the shortage of trained staff.