As the use of big data among companies continues to grow, Alexandra Cain explains why boards can no longer ignore the opportunities and risks presented by this phenomenon.
Big data is the latest business buzzword and there are predictions it will be the hottest topic in boardrooms in 2015. The key questions are how to use it to your advantage without compromising the privacy of customers.
Before any examination of how boards are using big data, it is useful to define what it is. It is an amorphous term that reflects the fact the digital age has produced previously unimaginable amounts of information that organisations can use to help make better decisions.
Here is an example — years ago, if you wanted milk, you would go to the supermarket, pick up a litre and take it home. The business that sold the milk did not know who you were, where you lived or anything else about you. That has all changed with big data.
If you buy a litre of milk today, you probably swipe the supermarket’s loyalty card at the start of the transaction. From this, the business can tell your gender, age, address and how much milk you have bought. It can add this data to the information it already has about you, such as the last time you bought milk, what you bought at the same time, other purchasing decisions, whether you “liked” the supermarket’s Facebook page, and even whether you order it online.
Swipe your credit card to pay for it, and your bank will also store information about what you bought, which it can combine with information such as when and where you last used your card and your demographics.
Both businesses will use this information for planning purposes. They both have literally billions of lines of data at their fingertips. In particular, the supermarket will use this information to work out how much milk it needs to order, when it needs to stock shelves and where it should open its next store. And all you thought you were doing was buying a carton of milk.
Big data allows businesses to combine seemingly disparate data sets, such as purchasing patterns and consumer use of social media, with information mobile devices can produce. The latter might include where and when someone searched for information and be used to produce insights businesses can use to guide their thinking.
“It draws on lots of information from many sources. From a board perspective it can produce information about business risks, competitive information and brand perceptions, and many factors that have the potential to affect the share price,” says Chad Gates, chief operating officer at Pronto Software (Twitter @ProntoSoftware), which develops software so companies can harness business intelligence.
“The nature of big data is its ability to combine structured information such as sales data with feeds from social media and make sense of all that information.
“It gives boards insights into spikes, trends and exceptions. They can work out whether sentiment is going up or down. It gives them the ability to make small decisions at a point in time, based on a large amount of information,” he adds.
The real difference between big data and more traditional ways of analysing information is the compounding effect it produces; combining knowledge from multiple sources delivers a huge opportunity to better understand sales channels, audience groups and product development opportunities. It means different messages can be more finely crafted for different audiences, depending on the information you have about them.
Graham Bradley AM FAICD, former Business Council of Australia president and chair of HSBC Australia, EnergyAustralia and property group Stockland, is a passionate advocate for the use of big data.
He has been drawing on big data at Stockland for about three years. Specifically, the property group has worked with a business that has access to billions of lines of data about credit card transactions, which can be analysed to understand purchasing preferences and patterns. It also draws on supermarket data that shows transactions made in its centres.
“At Stockland, we use big data to define the catchment area for shoppers at a centre, to examine what they buy, so we can make the size of the centre appropriate and reduce the risk of under or over-building a development. We also use it to ensure the mix of shops in a centre is attractive to shoppers, to reduce the risks attached to our leasing strategy,” says Bradley.
Craig Scroggie FAICD, CEO and executive director of data centre NEXTDC (Twitter @NEXTDC), says his board sees big data as a differentiator for his business. Some of the most significant data sets the business collects are about temperatures maintained at its five data centres around the country, energy feeds and security levels. This information helps them to operate air-conditioning units, as well as use power more effectively, so it can constantly tweak its operations to be as efficient as possible.
In addition, big data is used to generate insights about return on capital, time to return, alternate investment possibilities and opportunity cost, to help determine the business’ priorities.
“We provide the board with information about this, which gives them insights into how efficient our systems are. We also give them information about the methodologies we use to arrive at our recommendations. The board will always ask to see the detail, to make sure we’re making the right decisions,” says Scroggie.
“As a board, it gives them the ability to ask questions and constantly challenge management. That’s the role of a great board; to improve processes and outcomes,” he adds.
Scroggie says the business collects an inordinate amount of information and makes an important point about big data. “Good decisions are informed by good data. But having data is different to using it. Collecting it is just the beginning of the journey of making informed decisions about analysing data.”
Susan Peterson, director of film software business Vista Group International and crime analytics software firm Wynyard Group (Twitter @WynyardGroup), has a slightly different take on the way companies can maximise value from big data. Both these companies have product offerings that give their business customers the ability to turn big data into “smart data” to better target their activities and investment towards areas of greatest strategic value.
Wynyard Group’s crime solving software algorithms are used by investigative and intelligence teams to help detect and solve crime. Movio (Twitter @MovioHQ), a Vista Group company, analyses movie audience behaviour in a way that enables the cinema or studio to present moviegoers with personalised and targeted offerings, to maximise the cinema or studio’s return on investment.
Referring to Wynyard, Peterson says: “Our customers lawfully collected structured and unstructured data such as publicly available information from the internet, legally intercepted communications and other intelligence sources. Powerful crime-solving algorithms are then run that connect the dots, helping front-line intelligence agents and investigators to identify entities, relationships and events of interest to prevent and solve crime.”
The insights provided by Movio can be used to provide information about moviegoer preferences. Cinemas and movie studios use this intelligence to select the movies that are likely to be the most successful. The insights can help to identify optimum show times, plots and themes with which audiences will engage. It also helps determine the timing of launches and which actors should be cast in particular movies.
Peterson is in no doubt that “smart” insights are of enormous economic value to those companies using the intelligent software systems. But she also says it is important to remember the role of big data is to serve consumers, not stalk them.
“The information can be used to increase operational effectiveness, to make more informed decisions around company strategy and to make more targeted marketing investment decisions. This information should inform decisions around strategy and the board can have a high degree of confidence in any recommendations from management that have been validated through the use of big data research.”
According to Peterson, big data can also be immensely valuable for businesses in helping to reduce expenses. But she says boards have to be careful not to use big data to interfere in management’s responsibilities.
“The board is accountable for approving strategy and challenging management on the veracity of their reasoning and the tools they use to get there,” she says.
“Directors have to be careful not to jump into management matters, like the designing of marketing campaigns, just because they have access to big data. It will be increasingly important for boards to respect the role of management and maintain their governance role.”
Management and board crossover notwithstanding, despite the power of big data, there seems to be reluctance at board level to embrace it. None of the big banks or telecommunications companies, businesses that should be using big data, would agree to be interviewed for this story. Which is not to say they are not using big data; just that they are disinclined to go public about how they are using it, perhaps for competitive reasons.
Karl Treacher, CEO of The Brand Institute (Twitter @TheBrandInst), which consults to businesses about how to use big data, says one of the reasons there is a reluctance at board level to engage with big data is because directors are uncomfortable about engaging consultants and giving a third party access to the information.
“Large organisations are having a stab at it; but they don’t know how to make sense of it and they’re not comfortable outsourcing it. Many directors don’t have a background in this area, so they don’t know the right questions to ask,” says Treacher.
“But when one business gets it right and starts talking about it and they can explain the benefits to the business, there will be a tipping point,” he predicts.
Companies do have to grapple with privacy issues related to big data. Anthony Woodward, director and CEO of IT business Bulletproof Group (Twitter @bulletproofnet), acknowledges this is a key concern.
“There are a number of tenets in the privacy regulations about personal data. They tell you how you should store data and that you have to give customers the ability to access the data you store about them and to remove any data you hold on them. As a service provider with integrity at its core, you want to make sure you have discussed how you use data. It’s all about having the right policy,” he says.
“The privacy laws are a good thing because they make you think about how you store information.”
Despite the issues surrounding this emerging field, boards can no longer ignore the opportunities – and risks – big data presents. As Graham Bradley says: “Directors don’t know enough about this and few have been exposed to the power of these tools. But they need to become more familiar with this because it’s going to be one of the big issues of 2015.”
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