Big Data Can Yield Extra Profit

The whole world is streaming real-time data. It used to just be stock markets that gushed high volumes of real-time data, but now your car, your smartphone and everything in your company—including your website and your CRM system—is spewing data like a firehose. What are we supposed to do with it?

There are patterns in the data for those who can see them, and there are signals for those who can hear them. The term for this phenomenon is big data. A flood of data is filling in formerly blank spaces where we once had to navigate by intuition alone. Now we have the opportunity to test our intuitions against the facts and continuously improve our intuition—and our profitability.

But first we have to admit that our intuitions are often wrong. For example, we’ve been taught to think that the most important things in business are efficiency and low prices. But it turns out that a relentless focus on efficiency alone will kill your company. Responsiveness—being agile enough to respond to changing customer demands—is more profitable than efficiency.

Efficiency requires predictability and long product lifecycles. Both of these are now conspicuously absent from today’s economy. Consider the case of Motorola, a fine company that owned the mobile phone market at the turn of the century. It made the lowest-cost and highest-quality phone on the market. Yet over the past 10 years, while Motorola focused on efficiency, the market left it far behind. The company failed to respond to changing customer needs and desires.

What is left of its phone business will be acquired by a relatively new company—Google—that understands big data and how to see the patterns it contains. Apparently Google is buying Motorola Mobility more for its patents than for its ability to make mobile phones.

Here’s another example of data at work: Several years ago I was CIO of the company that supplied paper cups to all the Starbucks stores in the country. We surrounded our paper cups with a blanket of data services that increased the price we could charge for them.

Starbucks can buy in bulk and has many options for buying paper cups. Yet it bought cups from us, even though we weren’t the lowest-cost provider. We found 20 things we could do to make our cups easier to order, easier to use, easier to pay for and easier to plan and budget for.

No one of these things was a “gotta-have” feature that would win Starbucks’ business by itself. But when we combined them all into one tailored offering—and kept enhancing this offering as Starbucks’ business needs changed—we provided a compelling reason to buy from us.

Because we delivered more value than Starbucks could have gotten from a plain, low-priced paper cup, and because we were agile and responsive to the evolving needs of a high-value customer, we earned 2 percent more than the market price on our cups. I call this extra profit the “agility dividend.”

You can apply these same principles to your company. If you use big data to study the patterns and behaviors of your most important customers, you too will find 20 little things you can do to make your product more valuable to your high-value customers. You too can earn the agility dividend and turn IT into a profit center, rather than a cost center.

Learn to swim in the ocean of big data and see the patterns and hear the signals. Otherwise, misguided intuitions from the last century will make your products irrelevant and your company will die.

Michael Hugos, a former CIO, is a principal at the Center for Systems Innovation. He can be reached via his website at www.MichaelHugos.com.