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Three Keys To Building A Data Driven Strategy

Three keys to building a data-driven strategy are: (1) Choosing the right data by sourcing data creatively from internal and external sources and getting necessary IT support; (2) Building models that predict and optimize business outcomes by focusing on identifying business opportunities and designing simple, practical models; (3) Transforming organizational culture by developing business-relevant analytics, embedding analytics in frontline tools, and developing analytical skills. Executives should focus on targeted efforts in these three areas to fully leverage big data and analytics.

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62 views

Three Keys To Building A Data Driven Strategy

Three keys to building a data-driven strategy are: (1) Choosing the right data by sourcing data creatively from internal and external sources and getting necessary IT support; (2) Building models that predict and optimize business outcomes by focusing on identifying business opportunities and designing simple, practical models; (3) Transforming organizational culture by developing business-relevant analytics, embedding analytics in frontline tools, and developing analytical skills. Executives should focus on targeted efforts in these three areas to fully leverage big data and analytics.

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MAB MAB
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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March 2013

Three keys to building a data-


driven strategy
Dominic Barton and David Court

Executives should focus on targeted efforts to source data,


build models, and transform organizational culture.

Big data and analytics have climbed to the top of the corporate agenda. Together, they
promise to transform the way companies do business, delivering the kind of performance
gains last seen in the 1990s, when organizations redesigned their core processes. And
as data-driven strategies take hold, they will become an increasingly important point of
competitive differentiation.

In our work with dozens of companies in six data-rich industries, we have found that
fully exploiting data and analytics requires three mutually supportive capabilities. First,
companies must be able to identify, combine, and manage multiple sources of data. Second,
they need the capability to build advanced-analytics models for predicting and optimizing
outcomes. Third, and most critical, management must possess the muscle to transform the
organization so that the data and models actually yield better decisions. Two important
features underpin those competencies: a clear strategy for how to use data and analytics to
compete and the deployment of the right technology architecture and capabilities.

Just as important, a clear vision of the desired business impact must shape the integrated
approach to data sourcing, model building, and organizational transformation. That helps
you avoid the common trap of starting by asking what the data can do for you. Leaders
should invest sufficient time and energy in aligning managers across the organization in
support of the mission.

1. Choose the right data


The universe of data and modeling has changed vastly over the past few years. The volume
of information is growing rapidly, while opportunities to expand insights by combining
data are accelerating. Bigger and better data give companies both more panoramic and
more granular views of their business environment. The ability to see what was previously
invisible improves operations, customer experiences, and strategy. That means upping
your game in two areas.
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Source data creatively


Often, companies already have the data they need to tackle business problems, but
managers simply don’t know how they can use this information to make key decisions.
Operations executives, for instance, might not grasp the potential value of the daily
or hourly factory and customer-service data they possess. Companies can encourage
a more comprehensive look at data by being specific about the business problems and
opportunities they need to address.

Managers also need to get creative about the potential of external and new sources of
data. Social media generates terabytes of nontraditional, unstructured data in the form of
conversations, photos, and video. Add to that the streams of data flowing in from sensors,
monitored processes, and external sources ranging from local demographics to weather
forecasts. One way to prompt broader thinking about potential data is to ask, “What
decisions could we make if we had all the information we need?”

Get the necessary IT support


Legacy IT structures may hinder new types of data sourcing, storage, and analysis.
Existing IT architectures may prevent the integration of siloed information, and managing
unstructured data often remains beyond traditional IT capabilities. Fully resolving these
issues often takes years. However, business leaders can address short-term big-data needs
by working with CIOs to prioritize requirements. This means quickly identifying and
connecting the most important data for use in analytics and then mounting a cleanup
operation to synchronize and merge overlapping data and to work around missing
information.

2. Build models that predict and optimize business outcomes


Data are essential, but performance improvements and competitive advantage arise from
analytics models that allow managers to predict and optimize outcomes. More important,
the most effective approach to building a model usually starts, not with the data, but
with identifying a business opportunity and determining how the model can improve
performance. We have found that such hypothesis-led modeling generates faster outcomes
and roots models in practical data relationships that are more broadly understood
by managers.

Remember, too, that any modeling exercise has inherent risk. Although advanced
statistical methods indisputably make for better models, statistics experts sometimes
design models that are too complex to be practical and may exhaust most organizations’
capabilities. Companies should repeatedly ask, “What’s the least complex model that would
improve our performance?”
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3. Transform your company’s capabilities


The lead concern senior executives express to us is that their managers don’t
understand or trust big data–based models and, consequently, don’t use them.

Such problems often arise because of a mismatch between an organization’s existing


culture and capabilities and emerging tactics to exploit analytics successfully. The new
approaches either don’t align with how companies actually arrive at decisions or fail
to provide a clear blueprint for realizing business goals. Tools seem to be designed for
experts in modeling rather than for people on the front lines, and few managers find
the models engaging enough to champion their use—a key failing if companies want
the new methods to permeate the organization. Bottom line: using big data requires
thoughtful organizational change, and three areas of action can get you there.

Develop business-relevant analytics that can be put to use


Many initial implementations of big data and analytics fail because they aren’t in sync
with a company’s day-to-day processes and decision-making norms. Model designers
need to understand the types of business judgments that managers make to align their
actions with broader company goals. Conversations with frontline managers will ensure
that analytics and tools complement existing decision processes, so companies can
manage a range of trade-offs effectively.

Embed analytics in simple tools for the front lines


Managers need transparent methods for using the new models and algorithms on a
daily basis. By necessity, terabytes of data and sophisticated modeling are required
to sharpen marketing, risk management, and operations. The key is to separate the
statistics experts and software developers from the managers who use the data-driven
insights. The goal: to give frontline managers intuitive tools and interfaces that help
them with their jobs.

Develop capabilities to exploit big data


Even with simple and usable models, most organizations will need to upgrade their
analytical skills and literacy. To make analytics part of the fabric of daily operations,
managers must view it as central to solving problems and identifying opportunities.
Efforts will vary, depending on a company’s goals and desired time line. Adjusting
cultures and mind-sets typically requires a multifaceted approach that includes
training, role modeling by leaders, and incentives and metrics to reinforce behavior.
Adult learners, for instance, often benefit from a “field and forum” approach, in which
they participate in real-world, analytics-based workplace decisions that allow them to
learn by doing.
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Our experience suggests that executives should act now to implement big data and
analytics. But rather than undertaking massive change, executives should concentrate
on targeted efforts to source data, build models, and transform the organizational
culture. Such efforts help maintain flexibility. That’s essential, since the information
itself—along with the technology for managing and analyzing it—will continue to grow
and change, yielding new opportunities. As more companies learn the core skills of
using big data, building superior capabilities will become a decisive competitive asset.

For more, see the full Harvard Business Review article, “Making advanced analytics
work for you,” from which this summary is drawn (registration required).

Dominic Barton, based in McKinsey’s London office, is the firm’s global managing director.
David Court, based in the Dallas office, leads the firm’s advanced-analytics practice.

Copyright © 2013 McKinsey & Company. All rights reserved.

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