How Retailers Can Unlock Big Data To Increase Operating Margins More Than 60%

Can Big Data leverage data-driven strategies to increase operating margin by more than 60%? Big Data evolved as a treasure trove of massive information, and, in a twisted version of a pirate epic, retailers discover this buried treasure, but then they must unlock it and understand it.  Once Big Data is tapped properly, pricing intelligence and pricing intelligence tools, already indispensable, will become even more valuable -- for collection and analysis of data; providing shortcuts to turn data into insights; and establishing valuable benchmark data.  

In the early days, waaay back in May 2011, McKinsey Global Institute and McKinsey's Business Technology Office rightfully hailed Big Data as, "The next frontier for innovation, competition, and productivity." They said the increasing volume and detail of information available, coupled with the rise of multimedia, social media, and the internet would fuel exponential growth in data for the foreseeable future. They said that a retailer using big data to the full could increase its operating margin by more than 60 percent; that Big Data would become a key basis of competition, hailing new waves of productivity growth, innovation, and consumer surplus; and that leaders, as well as data-oriented managers, would have to become involved with the implications of big data.

It's much easier to look back and see what happened than predict what's going to happen.

I have no quibble with any of the information.  There are still plenty of articles and research on this subject. This is just one example. The key takeaway here is the use of big data will become a key basis of competition and growth for individual firms.

Here are some of the predictions made at the time of the research:

1. Big Data is present in every industry and business function. The Report estimated that, by 2009, nearly all sectors of the US economy had at least an average of 200 terabytes of stored data per company with more than 1,000 employees (twice the size of US retailer WalMart's data warehouse in 1999).

2. There are five broad ways in which using big data could create value:

  • 1) Big Data can unlock significant value by making information transparent and usable at much higher frequency.
  • 2) As organizations create and store more transactional data in digital form, they can collect more accurate and detailed performance information -- and therefore expose variability and boost performance. Leading companies are using data collection and analysis to conduct controlled experiments to make better management decisions. Using data for basic low-frequency forecasting to high-frequency nowcasting to adjust their business levers just in time.
  • 3) Big data allows ever-narrower segmentation of customers and thereby the ability to offer much more precisely-tailored products or services.
  • 4) Sophisticated analytics can substantially improve decision-making.
  • 5) Big data can be used to improve the development of the next generation of products and services. (e.g. sensors embedded in products to create innovative after-sales services, such as maintenance).

3. The use of big data will become a key basis of competition and growth for individual firms. Established competitors and new entrants alike will leverage data-driven strategies to innovate, compete, and capture value from deep and up-to-real-time information.

4. The use of big data will underpin new waves of productivity growth and consumer surplus. For example, they estimate that a retailer using big data to the full has the potential to increase operating margin by more than 60 percent. Advantages to consumers as well as to companies and organizations. For instance, services enabled by personal-location data (geographic) can allow consumers to capture $600 billion in economic surplus.

5. Some sectors, such as computer and electronic products and information sectors, as well as finance and insurance, and government are set for greater gains from Big Data.

6. There will be a shortage of talent necessary for organizations to take advantage of Big Data.

7. Privacy, security, intellectual property, and even liability will be important issues that must be addressed, as will workflows and incentives to optimize the use of big data. Finally, access to data is critical -- companies will increasingly need to integrate information from multiple data sources, often from third parties, and the incentives have to be in place to enable this.

Bottom Line For Your Bottom Line: 

Established competitors and new entrants alike will leverage data-driven strategies to innovate, compete, and capture value from deep and up-to-real-time information. The talk of using data for "high-frequency nowcasting" and "real-time capability" are key elements of modern competition. But even today, potential Big Data beneficiaries are finding that just opening the treasure chest of Big Data isn't enough. Big Data is difficult to tame. 

 

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Gilon Miller, CMO

About Author

Gilon is a seasoned marketing, sales and business development executive with over 15 years of experience in the software and Internet business. He is the Founder and CEO of GuruShots. Previously, Gilon was the CMO of Upstream Commerce, VP of Marketing at iMDsoft and Director of Global Marketing at SAP. He earned an MBA at the MIT Sloan School of Management and a BS in Electrical Engineering from Tufts University.
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