The Age of Analytics: Competing In a Data-Driven World

80% of current work activities are susceptible to existing machine learning capabilities. Which means that competitive advantage is even less sustainable than it already was.

Legacy enterprises have to transform themselves in order to optimize the benefits data offers. This is where understanding the costs and benefits of disruption become imperative. JL

Nikolaus Henke and colleagues report in the McKinsey Quarterly:

The first challenge is incorporating data and analytics into a core strategic vision. The next is developing the right business processes and building capabilities, including data infrastructure and talent. It is not enough to layer powerful technology systems on top of existing business operations. All aspects of transformation need to come together to realize the full potential of data and analytics.

Big data’s potential just keeps growing. Taking full advantage means companies must incorporate analytics into their strategic vision and use it to make better, faster decisions.

Is big data all hype? To the contrary: earlier research may have given only a partial view of the ultimate impact. A new report from the McKinsey Global Institute (MGI), The age of analytics: Competing in a data-driven world, suggests that the range of applications and opportunities has grown and will continue to expand. Given rapid technological advances, the question for companies now is how to integrate new capabilities into their operations and strategies—and position themselves in a world where analytics can upend entire industries.

Big data continues to grow; if anything, earlier estimates understated its potential.

A 2011 MGI report highlighted the transformational potential of big data. Five years later, we remain convinced that this potential has not been oversold. In fact, the convergence of several technology trends is accelerating progress. The volume of data continues to double every three years as information pours in from digital platforms, wireless sensors, virtual-reality applications, and billions of mobile phones. Data-storage capacity has increased, while its cost has plummeted. Data scientists now have unprecedented computing power at their disposal, and they are devising algorithms that are ever more sophisticated.
Earlier, we estimated the potential for big data and analytics to create value in five specific domains. Revisiting them today shows uneven progress and a great deal of that value still on the table (exhibit). The greatest advances have occurred in location-based services and in US retail, both areas with competitors that are digital natives. In contrast, manufacturing, the EU public sector, and healthcare have captured less than 30 percent of the potential value we highlighted five years ago. And new opportunities have arisen since 2011, further widening the gap between the leaders and laggards.

Exhibit

Leading companies are using their capabilities not only to improve their core operations but also to launch entirely new business models. The network effects of digital platforms are creating a winner-take-most situation in some markets. The leading firms have remarkably deep analytical talent taking on various problems—and they are actively looking for ways to enter other industries. These companies can take advantage of their scale and data insights to add new business lines, and those expansions are increasingly blurring traditional sector boundaries.Where digital natives were built for analytics, legacy companies have to do the hard work of overhauling or changing existing systems. Adapting to an era of data-driven decision making is not always a simple proposition. Some companies have invested heavily in technology but have not yet changed their organizations so they can make the most of these investments. Many are struggling to develop the talent, business processes, and organizational muscle to capture real value from analytics.
The first challenge is incorporating data and analytics into a core strategic vision. The next step is developing the right business processes and building capabilities, including both data infrastructure and talent. It is not enough simply to layer powerful technology systems on top of existing business operations. All these aspects of transformation need to come together to realize the full potential of data and analytics. The challenges incumbents face in pulling this off are precisely why much of the value we highlighted in 2011 is still unclaimed.
The urgency for incumbents is growing, since leaders are staking out large advantages, and hesitating increases the risk of being disrupted. Disruption is already happening, and it takes multiple forms. Introducing new types of data sets (“orthogonal data”) can confer a competitive advantage, for instance, while massive integration capabilities can break through organizational silos, enabling new insights and models. Hyperscale digital platforms can match buyers and sellers in real time, transforming inefficient markets. Granular data can be used to personalize products and services—including, most intriguingly, healthcare. New analytical techniques can fuel discovery and innovation. Above all, businesses no longer have to go on gut instinct; they can use data and analytics to make faster decisions and more accurate forecasts supported by a mountain of evidence. The next generation of tools could unleash even bigger changes. New machine-learning and deep-learning capabilities have an enormous variety of applications that stretch into many sectors of the economy. Systems enabled by machine learning can provide customer service, manage logistics, analyze medical records, or even write news stories.
These technologies could generate productivity gains and an improved quality of life, but they carry the risk of causing job losses and dislocations. Previous MGI research found that 45 percent of work activities could be automated using current technologies; some 80 percent of that is attributable to existing machine-learning capabilities. Breakthroughs in natural-language processing could expand that impact.
Data and analytics are already shaking up multiple industries, and the effects will only become more pronounced as adoption reaches critical mass—and as machines gain unprecedented capabilities to solve problems and understand language. Organizations that can harness these capabilities effectively will be able to create significant value and differentiate themselves, while others will find themselves increasingly at a disadvantage.