CEO’s Point of View: Uncovering the Big and Early Returns on Big Data
By N Chandrasekaran,
CEO and Managing Director, Tata Consultancy Services
There’s a point in the life of every Big Data project when the data scientists realize they may have made a few big discoveries and yet believe more important ones are to come.
My TCS colleagues and I believe that the market’s understanding of Big Data’s impact on large companies is in a similar nascent state. That’s what we learned when we designed this research in November 2012 – and something we confirmed after finding that nearly half of companies aren’t doing anything with Big Data. Before we conducted our survey and interviews, we came across numerous quality studies that had been published since 2010 when the marketplace began embracing the term “Big Data.”
But we also found few studies could incisively answer four questions: How are companies using Big Data – specifically, what business activities are they focusing on? How much are they spending on Big Data? What kinds of returns are they getting? And what are companies with the greatest returns doing differently than the rest?
Our study focused on those four issues. We conducted the research between December 2012 and this February. We surveyed mostly large companies in 12 global industries1 — 1,217 firms in all — in the US, Europe, Asia-Pacific and Latin America. We also had in-depth conversations with more than a dozen executives who manage Big Data initiatives, as well as experts in the technology itself. And we collected copious amounts of secondary research to uncover what companies have stated publicly about their Big Data initiatives.
So what did we find to be the state of Big Data in big business on these four questions? In summary, 53% of the 1,217 companies we surveyed had Big Data initiatives in 2012,2 and median spending among them was $10 million per company. In companies with Big Data initiatives, average spending was much higher — $88 million/company. The reason it was so far above the median number was a great polarity in spending among companies. Some 15% spent more than $100 million per company, with 7% investing at least $500 million apiece. On the other end of the spectrum, nearly one-quarter (24%) spent less than $2.5 million/company. It shows that a distinct minority of companies have gotten religion around Big Data and are investing massive sums on it.
Furthermore, many of companies with Big Data initiatives are getting healthy returns on moderate investments. Many (43%) projected a healthy return on their spending, that is, an ROI of more than 25%. About one in six expected a return of between 51% and 100%. And a select few (7%) said their ROI would be more than 100%, a return of more than double the investment. All in all, the average projected ROI on Big Data for 2012 was 46%. So Big Data is clearly paying off for many companies, and big time in some.
So where are the returns coming from? Companies with the highest ROI on Big Data believe the biggest benefits of Big Data are from discerning what’s on the minds of their most valuable customers (especially those that are about to defect).
In addition, companies can market to them when they’re out and about (which is what mobile technology enables us to do and is something we researched last year), and tracking the performance of the products they purchased.
In a nutshell, the “gold” of Big Data is to be found in new and timely insights on a company’s customers (especially on how to sell and market to them) and how its products are performing for them (where customer service and R&D have much data). Increasingly, this data is of the “unstructured” and “external” types. By unstructured, we mean data in the form of text, digitized video and audio files, sensor data and other information that isn’t processed easily like conventional database data is. And by external, we mean digital data that a company traditionally does not collect on its own.
The Returns Company Expected from Big Data in 2012
Companies are concentrating the majority of their investments (55%) in four business functions: sales, marketing, R&D/product development and customer service – because they believe these functions have the greatest potential to benefit from a Big Data center on customers (especially in identifying the most valuable ones and discerning customer needs) and products (particularly, their quality performance and where they are in the distribution chain).
So how does your company get the outsized benefits that Big Data is bringing to some organizations? To answer this question, we turn to our data, both structured (from our 643 executives who answered 23 survey questions about their Big Data initiatives) and unstructured (our research interviews and growing body of consulting work in this arena). The companies with the biggest projected returns last year on Big Data (those with ROI of more than 50%) are different than the rest in many respects. We believe four are among the most important:
- They pan for Big Data gold in places whose potential the laggards aren’t as excited about – especially in marketing and sales. Companies with the highest projected ROI on Big Data last year see much greater value than those with the lowest ROI in five marketing activities: monitoring and improving the offline customer experience; marketing to consumers based on their physical location; understanding competitors’ moves; tracking customer and market perceptions of the brand; and finding new geographic markets for products. In the sales function, ROI leaders see much greater potential than do laggards in using Big Data to size and structure sales territories, and improve sales approaches.
- The biggest challenges in getting value from Big Data are as much cultural as they are technological. Much has been written about the technological barriers of Big Data, often expressed in the vernacular of the “V’s”: the velocity at which data must be gathered, processed, analyzed and acted upon; the ever-growing variety of data that companies must deal with, especially unstructured data such as video, audio, social media banter and sensor information; and the sheer volume of digital data, which is predicted to grow 40% per year worldwide through 2020, fueled by the rapid adoption of mobile devices, the proliferation of sensors installed on machines, and other factors.3 And yet the companies we surveyed say a bigger barrier to exploiting Big Data is a cultural one: getting business units to share information across organizational silos. Handling the three “V’s” of Big Data was a close second. Another cultural issue – building trust between a company’s data scientists and the functional managers who need to make decisions based on data – ranked high as well.
Key Challenges of Big Data Across Regions of World
Q23: Mean Rating of 16 Challenges in Getting Business Value from Big Data (Scale of 1-5)
- They are more likely to give their data scientists a corporate home of their own. Top-notch analysts who are paid to glean big insights from Big Data are a rare breed. A McKinsey study forecasts the need for at least 140,000 of such people this decade in the US alone amidst an acute shortage of supply. The leading companies that we surveyed, spoke to and work with are more likely to have a central analytics group, and for good reason. One is to free them of the pressure to tell business unit, product heads and functional managers what they want to hear about their strategies (to confirm their current thinking). Not reporting to such functions and business units appears to give data scientists a greater latitude to tell you what you need to hear — whether a current strategy is optimal, and if not, why.
- They have more interaction with customers through digital channels, which will give them deeper insights on customer behavior and needs. Companies with the highest ROI on Big Data last year generate a much larger percentage of their business through digital channels (e-commerce sites, mobile apps, etc.). About a third of the ROI leaders generate more than half their revenue via digital channels; only 14% of the laggards do so. In many ways, companies that take in more customer orders through digital channels have much better information about their customers than companies that derive a low percentage of revenue online. Consider the example of Netflix. The $3.6 billion company brought a new hit TV series to market this year after determining exactly what kinds of TV fare its 27 million US customers would like the most based on years of their viewing habits. What companies that don’t do as much business through digital channels as, say, Amazon, eBay or Netflix must do is to: a) get better at doing business with customers through digital channels, and b) turn traditionally external data (especially about the performance of your products with customers) into internal data. Big manufacturers such as General Electric and Xerox are doing this by attaching sensors to the products they ship. They and a growing number of other companies see major opportunities from doing so.
There are a number of other factors beyond these four that correlate with success at Big Data. And, of course, as the technology continues to evolve rapidly, it enables companies to do things that most are not even dreaming about today. All to say that ideas about how companies should use Big Data will be a moving target. Where your company invests needs to be based on your customers’ biggest demands, your competitors’ increasing Big Data capabilities and the rapid evolution of the technology itself.
What we do know for sure is that a number of companies have taken a lead in Big Data in the 12 global industries we studied. What these companies are doing provide lessons and a wakeup call, for many of the rest.
- The industries surveyed are banking/financial services, insurance, high technology, heavy manufacturing, retailing, telecommunications services, consumer products manufacturing, pharmaceuticals/life sciences, energy and resources, media and entertainment, travel/hospitality/airlines, and utilities. [↩]
- With the 1,217 executives whom we surveyed, we defined Big Data as “the collection, processing and usage of large volumes of digitized data to improve how companies make important decisions and operate the business.” Some 53% (or 643) said their companies had at least one initiative in 2012 that could be defined that way, and 47% said their company had no such initiatives. [↩]
- From an estimate by IDC, as mentioned in a 2011 report by the McKinsey Global Institute, “Big data: The next frontier for innovation, competition, and productivity,” p. 16. [↩]