The six burning questions for firms looking to make money from big data
In the fast moving world of big data, firms big and small are increasingly looking to capitalise on the use of information to improve their business model and offer their customers better value. But if big data is the “new oil” for business how should they go about using it?
We know that in the publishing business, newspapers have had to adapt to new digital business models because advances in technology may initially have been disruptive for them. But the newer platforms like Google and Facebook have from the outset collected data from their customers and effectively they have started out with data-driven models.
At the Cambridge Service Alliance, we have just published new research which aims to facilitate the use of big data in businesses today. We have studied 20 start-up firms and 20 very different established firms, from The New York Times, to the bank Goldman Sachs (who plan years in advance), to the fashion and retail chain Zara, and also in the music business we looked at Next Big Sound.
Extracting, refining and ultimately capitalising on data is notoriously difficult, particularly for existing firms who have to contend with an ingrained company structure, culture and traditional revenue streams. But it is the competitive advantage associated with effective big data utilisation that is driving the desire for existing mainstream businesses to become data-driven.
Up to now there has been no systematic framework to enable established organisations and business start-ups to transform an innovative data-driven idea into a feasible business model that is driven by data.
As a result of our research, we have devised a template for what we call the Data-Driven Business Model (DDBM) Innovation Blueprint. From the evidence we have collected there are six basic questions that firms need to ask themselves to capitalise on these trends:
- What are you trying to achieve by using big data?
You will need to look at the outcome your customer wants and how data will help you to deliver that.
- What is your desired offering?
You will need to think how you are going to package that offering, and if you will pool your data.
- What data do you require and how are you going to acquire it?
You will need to think about the technology needed to do this, and if you will need to build relationships with other firms to acquire it.
- In what ways are you going to process and apply this data to make sense of it?
You will need to think about how the key activities that will be utilized to process data enables the business to plan accordingly, ensuring that the necessary hardware, software and employee skill sets are in place.
- How do I monetise it, and get a return on my investment?
You might give some bits away free and charge for other bits.
- What are the barriers that stop my achieving a Data Driven Business Model?
You will need to look at the specific inhibitors to the implementation of a DDBM and how you can tackle them.
We found out from our study that firms were using a variety of different sources to collect data. Some took publicly available information and offered analysis around it, while others analysed data they had already acquired.
Video - How can big data create value for companies?
When the data is used sensibly and in an appropriate way we know from our research evidence that it allows firms to make faster decisions and that it can confer competitive advantage in terms of better customer service, better firm efficiency and increased productivity by up to 6 per cent.
When you connect up across different data sources you can get some interesting insights, but there are also some important ethical questions that need to be addressed, such as privacy and customer consent.
As the world becomes more interconnected, more instrumented and more intelligent, we will see greater interest in how firms make better use of the data they have gathered. We also know that they often move to a DDBM because their competitors have.
We are never going to get to a situation where decisions are made on the basis of data alone. Business decisions will always be made by a combination of judgement, experience and gut feel too, which is then supplemented by the data.
But if the use of data gives us better insights into the supply chain, and how customers use the product they are being sold, it will ultimately result in a better-designed product in the future. In the past this information was often hidden behind the curtain but now new technology allows firms to access it and make it more transparent.
Older, more established, companies can compete with the new start-ups in this world of big data, but both old and new firms will all need to answer the six questions we have set them. The DDBM-Innovation Blueprint enables organisations to construct their own DDBM that is unique to their business and environment. It should no longer be a question of whether firms should become data-driven, but rather how and when.
Published in The Telegraph in April.