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11.1 Introduction
Learning Objectives
- Understand how increasingly standardized data, access to third-party data sets, cheap, fast computing and easier-to-use software are collectively enabling a new age of decision making.
- Be familiar with some of the enterprises that have benefited from data-driven, fact-based decision making.
The planet is awash in data. Cash registers ring up transactions worldwide. Web browsers leave a trail of cookie crumbs nearly everywhere they go. And with radio frequency identification (RFID), inventory can literally announce its presence so that firms can precisely journal every hop their products make along the value chain: “I’m arriving in the warehouse,” “I’m on the store shelf,” “I’m leaving out the front door.”
A study by Gartner Research claims that the amount of data on corporate hard drives doubles every six months,C. Babcock, “Data, Data, Everywhere”, InformationWeek, January 9, 2006. while IDC states that the collective number of those bits already exceeds the number of stars in the universe.L. Mearian, “Digital Universe and Its Impact Bigger Than We Thought,” Computerworld, March 18, 2008. Wal-Mart alone boasts a data volume well over 125 times as large as the entire print collection of the U.S. Library of Congress, and rising.Derived by comparing Wal-Mart’s 2.5 petabytes (E. Lai, “Teradata Creates Elite Club for Petabyte-Plus Data Warehouse Customers,” Computerworld, October 18, 2008) to the Library of Congress estimate of 20 TB (D. Gewirtz, “What If Someone Stole the Library of Congress?” CNN.com/AC360, May 25, 2009). It’s further noted that the Wal-Mart figure is just for data stored on systems provided by the vendor Teradata. Wal-Mart has many systems outside its Teradata-sourced warehouses, too.
And with this flood of data comes a tidal wave of opportunity. Increasingly standardized corporate data, and access to rich, third-party data sets—all leveraged by cheap, fast computing and easier-to-use software—are collectively enabling a new age of data-driven, fact-based decision making. You’re less likely to hear old-school terms like “decision support systems” used to describe what’s going on here. The phrase of the day is business intelligence (BI)A term combining aspects of reporting, data exploration and ad hoc queries, and sophisticated data modeling and analysis., a catchall term combining aspects of reporting, data exploration and ad hoc queries, and sophisticated data modeling and analysis. Alongside business intelligence in the new managerial lexicon is the phrase analyticsA term describing the extensive use of data, statistical and quantitative analysis, explanatory and predictive models, and fact-based management to drive decisions and actions., a term describing the extensive use of data, statistical and quantitative analysis, explanatory and predictive models, and fact-based management to drive decisions and actions.T. Davenport and J. Harris, Competing on Analytics: The New Science of Winning (Boston: Harvard Business School Press, 2007).
The benefits of all this data and number crunching are very real, indeed. Data leverage lies at the center of competitive advantage we’ve studied in the Zara, Netflix, and Google cases. Data mastery has helped vault Wal-Mart to the top of the Fortune 500 list. It helped Harrah’s Casino Hotels grow to be twice as profitable as similarly sized Caesars and rich enough to acquire this rival (Harrah’s did decide that it liked the Caesars name better and is now known as Caesars Entertainment). And data helped Capital One find valuable customers that competitors were ignoring, delivering ten-year financial performance a full ten times greater than the S&P 500. Data-driven decision making is even credited with helping the Red Sox win their first World Series in eighty-three years and with helping the New England Patriots win three Super Bowls in four years. To quote from a BusinessWeek cover story on analytics, “Math Will Rock Your World!”S. Baker, “Math Will Rock Your World,” BusinessWeek, January 23, 2006, http://www.businessweek.com/magazine/content/06_04/b3968001.htm.htm.
Sounds great, but it can be a tough slog getting an organization to the point where it has a leveragable data asset. In many organizations data lies dormant, spread across inconsistent formats and incompatible systems, unable to be turned into anything of value. Many firms have been shocked at the amount of work and complexity required to pull together an infrastructure that empowers its managers. But not only can this be done, it must be done. Firms that are basing decisions on hunches aren’t managing; they’re gambling. And today’s markets have no tolerance for uninformed managerial dice rolling.
While we’ll study technology in this chapter, our focus isn’t as much on the technology itself as it is on what you can do with that technology. Consumer products giant P&G believes in this distinction so thoroughly that the firm renamed its IT function as “Information and Decision Solutions.”J. Soat, “P&G’s CIO Puts IT at Users’ Service,” InformationWeek, December 15, 2007. Solutions drive technology decisions, not the other way around.
In this chapter we’ll study the data asset, how it’s created, how it’s stored, and how it’s accessed and leveraged. We’ll also study many of the firms mentioned above, and more; providing a context for understanding how managers are leveraging data to create winning models, and how those that have failed to realize the power of data have been left in the dust.
Data, Analytics, and Competitive Advantage
Anyone can acquire technology—but data is oftentimes considered a defensible source of competitive advantage. The data a firm can leverage is a true strategic asset when it’s rare, valuable, imperfectly imitable, and lacking in substitutes (see Chapter 2 "Strategy and Technology: Concepts and Frameworks for Understanding What Separates Winners from Losers").
If more data brings more accurate modeling, moving early to capture this rare asset can be the difference between a dominating firm and an also-ran. But be forewarned, there’s no monopoly on math. Advantages based on capabilities and data that others can acquire will be short-lived. Those advances leveraged by the Red Sox were originally pioneered by the Oakland A’s and are now used by nearly every team in the major leagues.
This doesn’t mean that firms can ignore the importance data can play in lowering costs, increasing customer service, and other ways that boost performance. But differentiation will be key in distinguishing operationally effective data use from those efforts that can yield true strategic positioning.
Key Takeaways
- The amount of data on corporate hard drives doubles every six months.
- In many organizations, available data is not exploited to advantage.
- Data is oftentimes considered a defensible source of competitive advantage; however, advantages based on capabilities and data that others can acquire will be short-lived.
Questions and Exercises
- Name and define the terms that are supplanting discussions of decision support systems in the modern IS lexicon.
- Is data a source of competitive advantage? Describe situations in which data might be a source for sustainable competitive advantage. When might data not yield sustainable advantage?
- Are advantages based on analytics and modeling potentially sustainable? Why or why not?
- What role do technology and timing play in realizing advantages from the data asset?