Data-Driven Companies Outperform Competitors Financially
- 19 March, 2013 16:55
Working with and making business decisions based on data is good for your company's bottom line. Companies that have embraced a data-driven culture--rating themselves substantially ahead of their peers in their use of data--are three times more likely to rate themselves as substantially ahead of their peers in financial performance, according to findings by the Economist Intelligence Unit in a survey sponsored by Tableau Software.
In October 2012, the Economist Intelligence Unit surveyed 530 senior executives from North America, Asia Pacific, Western Europe and Latin America across a broad range of industries. The survey found that the most successful companies have adopted a data-driven culture in which they maximise the use of data by providing necessary training and promoting the sharing of data across all levels of employees and departments.
"The importance of data-driven thinking is not new," says Jim Giles, author of the Economist Intelligence Unit report, Fostering a Data-Driven Culture. Many executives are familiar with the concept. The rise of data-driven companies, from Facebook to Walmart, shows how powerful the approach can be. But what does it mean in practice? And what are the benefits of adopting a data-driven culture within an organisation?
Data-Driven Culture Is About More than Data Specialists
"Let us start with what a data-driven culture is not," Giles says. "It is not a belief that data are an issue for someone else in the company, a job for a data specialist or perhaps the IT department. There is still a perception that a data specialist, perhaps a recent statistics graduate, should be parachuted into an organisation to advise on how to work magic with data, much as a computer security expert would be called on to help shore up a company's IT networks."
This, Giles says, is flawed thinking. Instead, he says, forward-looking organisations don't concentrate data in the hands of an individual or small group but integrate data into their day-to-day operations.
"They are placing data at the heart of almost all important decisions," he says. "And they are tolerant of questioning--even dissent--about business decisions being made, as long as the questioning is based on data and their analysis. This is what it means to adopt a data-driven culture."
Top-Performing Companies Have Adopted a Data-Driven Culture
And the adoption of data-driven culture is bearing fruit for many organisations. The Economist Intelligence Unit found that only 11 per cent of respondents felt their organisations make substantially better use of data than their peers. But more than one-third of that group was comprised of top-performing companies.
On the flip side, of the 17 per cent of executives that said their companies lagged peers in financial performance, none felt their organisations made better use of data than their peers.
In all, 76 per cent of executives from top-performing companies cited data collection as very important/essential, compared with only 42 per cent from companies that lag their peers in performance.
The differences are stark. But adopting a data-driven culture is not necessarily easy, especially for older companies that have achieved success with minimal use of data.
"Many of my clients are clearly aware of the importance of data," says Jerry O'Dwyer, a principal at Deloitte Consulting. "But they don't know where to start in terms of where they should focus to get the most value, as well as how to translate the data into actionable insight."
In some industries, executives may perceive a shift to a more data-driven approach as a threat. For instance, marketing has been the domain of creative for decades, but now, Giles says, it is as much a quantitative science as an exercise in art and design. Executives who built their careers on smart, instinctive decisions may perceive their value as declining as data's star rises.
Data-Driven Culture Requires a C-suite Champion
One of the most important steps, Giles says, is to break down data silos and promote sharing. More than half of respondents from top-performing companies said that promotion of data-sharing helped generate a data-driven culture in their organisation. Such sharing does not arise organically. Someone in the C-suite needs to champion data-driven decision making and use top-down mandates and guidance to drive the shift in culture.
"Someone needs to see the appeal and step up," says Sidney Minassian, CEO of Contexti, a big-data analytics company that operates in the US, Australia and Asia. "It could be anyone from the C-suite."
More than two-thirds of executives from top-performing companies in the survey agreed, citing the importance of C-level leadership on data issues.
Of course, even with C-suite buy-in, there are challenges to integrating data use into the heart of an organisation, not the least of which is training employees to leverage data and recruiting and retaining data specialists for tasks like predictive modelling. Nearly 70 per cent of respondents said recruiting and retaining people who are effective at analysing data is 'somewhat' or 'very' difficult.
Underperforming companies, as well as companies in the Asia-Pacific region, rated the problem even more severe. Respondents cited lack of professional expertise among applicants, a shortage of analysts in their sector and high salary costs as the principal reasons for the difficulty.
Data-Driven Companies Democratise Data
However, the top-performing companies don't just leave data in the hands of specialists. They seek to democratise data use. Fifty per cent of the top-performing companies said training employees to be more data literate is highly important.
Colin Hill, CEO at GNS Healthcare notes that in-house experts create the algorithms behind the tools it uses to assess the comparative effectiveness of different drugs, but the tools themselves are designed to be used by employees across the healthcare industry.
"Part of this is about making the complex simple," Hill says. "Computers are very good at the complex, but ultimately we have to break it down to the human level."
"Leading companies realise that being successful means giving people the opportunity to work with data," says Elissa Fink, chief marketing officer at Tableau Software. "Making data available and easy to use for all employees can transform an organisation's culture. It's good for the company's bottom line."
Common Features of Data-Driven Companies
Ultimately, while there is no one path to becoming a data-driven company, those organisations that have achieved success do share some common features:
- Data-driven companies value sharing. They believe companies, not employees, own data and that data is a resource for powering growth, not something to be hoarded.
- Data-driven companies believe shared data should be used by as many employees as possible, training employees as needed to help them make use of data.
- Data-driven companies make data collection a primary activity across departments.
- Data-driven companies have buy-in from the top with one or more executives committed to implementing a data-driven culture.