Strategy & Leadership

How strategists use big data to support internal business decisions, discovery and production
Thomas H. Davenport

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Thomas H. Davenport , (2014),"How strategists use big data to support internal business decisions, discovery and
production", Strategy & Leadership, Vol. 42 Iss 4 pp. 45 - 50
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How strategists use big data to support

internal business decisions, discovery
and production

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Thomas H. Davenport

Thomas H. Davenports
most recent book is Big
Data@Work: Dispelling
the Myths, Uncovering the
Opportunities (Harvard
Business Review Press,
2013). He is a Professor
of Information Technology
and Management at
Babson College, a fellow
of the MIT Center for
Digital Business and
cofounder and Director of
Research at the
International Institute for
Analytics. This article is
based on research for
the book.

ver the last 45 years, the general activity of making sense of data has evolved from
decision support, to executive support, to online analytical processing, to business
intelligence, to analytics and now to big data (see Table 1-3). But what is big
data? A general definition is, the collection and interpretation of massive data sets, made
possible by vast computing power that monitors a variety of digital streams such as
sensors, marketplace interactions and social information exchanges and analyses them
using smart algorithms. In short, big data searches comb massive amounts of digital
information looking for useful correlations. For example, colloquially speaking, big data
could be used as a smart way to discover which are the most valuable needles in a needle
factory or who recently has been sewing with needles near haystacks.

Technical issues aside, from a strategic management perspective, how is big data different
from previous data analysis systems? The primary purpose behind traditional small data
analytics that all managers are more or less familiar with is to support internal business
decisions. Examples include: What offers should you present to a customer? Which
customers are most likely to stop being customers soon? How much inventory should we
hold in the warehouse? How should we price our products? With some creative tweaking,
big data analysis can be used to produce insights on these issues. But big data also offers
a promising new dimension: to discover new opportunities to offer customers high-value
products and services.
Big data is notably different from traditional information management and analytics in this
regard. Instead of just creating reports or presentations that advise senior executives on
internal decisions, big data scientists commonly work on customer-facing products and
services.
This is particularly true in big data start-ups, but its also the case in larger, more
established companies. For example:

DOI 10.1108/SL-05-2014-0034

Reid Hoffman, the cofounder and chairman of LinkedIn, made his data scientists a line
product team for the company, and they have developed such products as People You
May Know, Groups You May Like, Jobs You May Be Interested In, Whos Viewed My
Profile, and several others.

General Electric is primarily focused on using big data for improving services and is
already using data science to optimize the service contracts and maintenance intervals
for industrial products.

Google, of course the ultimate big data firm uses data scientists to refine its core
search and ad-serving algorithms.

Zynga uses data scientists to target games and game-related products to customers.

VOL. 42 NO. 4 2014, pp. 45-50, Emerald Group Publishing Limited, ISSN 1087-8572 STRATEGY & LEADERSHIP

PAGE 45

Table 1-3 Terminology for using and analyzing data

Term

Time frame

Decision support
Executive support

19701985
19801990

Online analytical
processing (OLAP)
Business
intelligence
Analytics

19902000

Big data

19892005
20052010
2010present

Specific meaning
Use of data analysis to support decision making
Focus on data analysis for decisions by senior
executives
Software for analyzing multidimensional data
tables
Tools to support data-driven decisions, with
emphasis on reporting
Focus on statistical and mathematical analysis
for decisions
Focus on very large, unstructured, fast-moving
data

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Source: From Big Data@Work: Dispelling the Myths, Uncovering the Opportunities by Thomas H.
Davenport (Harvard business Review Press, 2013), by permission

Netflix created the well-known Netflix Prize for the data science team that could optimize
the companys movie recommendations for customers.

The testing firm Kaplan uses its data scientists to begin advising customers on effective
learning and test-preparation strategies.

These companies big data efforts are directly focused on products, services and
customers. This has important implications, of course, for the organizational locus of big
data and the processes and pace of new product development.
For those uses of big data that do involve internal decisions, new management approaches are
still necessary, but not yet fully resolved in practice. This is because big data just keeps on
flowing. In traditional decision support situations, an analyst takes a pool of data, sets it aside
for analysis, comes up with a model, and advises the decision maker on the results. However,
with big data, the data resembles not so much a pool as an ongoing, fast-flowing stream.
Therefore, a more continuous approach to sampling, analyzing and acting on data is
necessary.
This is particularly at issue for applications involving ongoing monitoring of data on stakeholder
perceptions, as in social media sentiment analysis. Sentiment analysis allows an organization
to assess whether the comments about its brands and products in blogs, tweets, and
Facebook pages are positive or negative on balance. One potential problem with such
monitoring applications is the tendency for managers to view a continuing stream of analysis
and reports without making any decisions or taking any action. Sentiment is up . . . no, its
down . . . hooray, its back up again! For ongoing monitoring work, there should be processes
for determining when specific decisions and actions are necessary when, for example, data
values fall outside certain limits. Such information helps to determine decision stakeholders,
decision processes and the criteria and timeframes for which decisions need to be made.
Even the United Nations an organization typically not known for its agility is getting in on this
new approach to deciding. The UNs Global Pulse innovation lab has developed a big
data-related tool called HunchWorks, which is clearly a monitoring-oriented application of big
data. The lab describes HunchWorks as the worlds first social network for hypothesis
formation, evidence collection, and collective decision-making.[1] The idea is that as data
begin to reveal a trend or finding say, for example, weather data suggesting a drought that
could lead to famine in a part of Africa an analyst would post the hunch and the data on which
it was based, and others could weigh in with new analyses and data. Such suggestive
hypotheses have been described as digital smoke signals.[2] One goal is to determine how
likely the hunch is to be worthy of detailed analysis and action. But the idea that the UN would
have a system for circulating data-driven hunches marks a major change in that organizations
culture.

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VOL. 42 NO. 4 2014

Big data [. . .] offers a promising new dimension: to discover

new opportunities to offer customers high-value products
and services.

Whether the analysis and decision processes are social or individual, the continuing stream of
big data suggests that organizations need to think about new ways of making decisions with
this resource. If its worth investing in the collection and analysis of big data, its also worth
thinking about how the outcome of the analysis will have an impact on decisions and actions.

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Customer satisfaction
Nowadays its possible to use big data analysis methods on new, less-structured data
sources and utilize the resulting information to make better internal decisions. For example,
United Healthcare, a large health insurance company, is focused on the customer
satisfaction and attrition issue. A lot of data about how the companys customers feel is
sitting in recorded voice files from customer calls to call centers. The level of customer
satisfaction is increasingly important to health insurers because it is being monitored by
state and federal government groups and published by organizations such as Consumers
Union. In the past, that valuable data from calls couldnt be analyzed.
Now United is turning it into text and then analyzing it with natural language processing
software, a way to extract meaning from text. The analysis process can identify customers
who use terms suggesting strong dissatisfaction. The insurer can then make some sort of
intervention perhaps a call exploring the source of the dissatisfaction. The decision is the
same as in the past how to identify a dissatisfied customer but the tools are different.

Customer journeys
A number of major financial services firms Wells Fargo, Bank of America, and Discover are
also using big data to understand aspects of the customer relationship that they couldnt
previously get at. In that industry as well as several others, including retail the big challenge
is to understand multichannel-customer relationships. They are using customer journeys
through the tangle of websites, call centers, tellers and other branch personnel to better
understand the paths that customers follow through the organization, and how those paths
affect attrition or the purchase of particular financial services.
The data sources on multichannel customer journeys are unstructured or semi-structured. They
include website clicks, transaction records, bankers notes, and voice recordings from call
centers. The volumes are quite large 12 billion rows of data for one of the banks. The firms are
beginning to understand common journeys, describing them with segment names, ensuring
that the customer interactions are high quality, and correlating journeys with customer
opportunities and problems. Its a complex set of problems and decisions to analyze, but the
potential payoff is high half a billion dollars is the estimate at one of the banks.

Supply chain risk

Business decisions using big data can also involve other traditional areas for analytics, such as
supply chains, risk management, or pricing. The factor that makes these big, rather than small,
data problems is the use of large volumes of external data to improve the analysis. In supply
chain decisions, for example, companies are increasingly using external data to measure and
monitor supply chain risks. External sources of supplier data can furnish information on
suppliers technical capabilities, financial health, quality management, delivery reliability,
weather and political risk, market reputation, and commercial practices. The most advanced
firms are monitoring not only their own suppliers but their suppliers suppliers.

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Competitive intelligence
Competitive and market intelligence used to be a rather intuitive exercise, but big data is
beginning to change that approach. If you can get more detailed data and do more systematic
analysis on it, the activity will probably improve your strategic decisions. As Joey Fitts, CEO of
Matters Corp., explains, Historically, market and industry intelligence consisted primarily of
company directories indicating who companies are basic information such as their physical
location, phone numbers, SIC code, credit score, etc., but now we can explain what
organizations do in the market. Market factors which were hidden are now visible data,
enabling trend analysis, benchmarking, segmentation, modeling, and recommendations. Its a
much broader set of data, at significantly greater scale, and more real-time. Companies can
lead rather than react.[3]

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For example, a leading software provider sought to better understand the landscape of partner
support for competitive software platforms versus their own offerings. The company used
Matters Corp., which monitors market activities in that industry, to untangle the web of
unstructured data on partnerships and platform support. The data revealed that the
competition was garnering as much as three times the partner attention and platform support.
In customer terms, this meant that a much richer ecosystem of partner services technology
advisory services, assessments, implementation, applications, solutions, technology
extensions and support was available to customers of the competition than they could offer
to their own customers. This recognition resulted in the company leadership proposing $100
million in additional budget to close the competitive partner gap. The company was able to use
the same tools to monitor their relative impact on partner capacity and watch the gap close over
time.

Pricing
Pricing has a long history of applying analytics successfully. Almost every airline and hotel
chain, for example, now uses pricing optimization tools to determine the best price for a
seat or room. Pricing optimization was originally done with internal structured data on what
goods historically sold at what price, and thats still a key element. But pricing software
companies such as PROS now often incorporate external, and somewhat less structured,
big data into the algorithm. For example, a PROS user in the oil industry can incorporate
weather data (which would influence consumer demand) and competitor prices, which can
often be scraped from the internet, into pricing algorithms.

Discovery and experimentation

Perhaps the highest and best use of big data mining it for discovery and experimentation
is still in the learning phase in most companies. To date, the primary focus of business and
technology organizations has been to automate data analysis processes such as marketing,
sales and service. Analytics has been used to understand and tune such business processes,
keeping management informed and alerting them to anomalies exception reporting has
been a key aspect of business intelligence.
Big data flips this approach on its head. The basic tenet is that the world and the data that
describes it are in a constant state of change and flux, and those organizations that can
recognize and react quickly and intelligently have the upper hand. Increasingly the most prized

Big data [. . .] resembles not so much a pool as an ongoing,

fast-owing stream. Therefore, a more continuous approach
to sampling, analyzing and acting on data is necessary.

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VOL. 42 NO. 4 2014

A number of major nancial services rms are using

customer journeys through the tangle of websites, call
centers, tellers and other branch personnel to better
understand the paths that customers follow through the
organization, and how those paths affect attrition or the
purchase of particular nancial services.

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business and IT capabilities are discovery and agility rather than stability. Data scientists
working with big data tools and technologies will be able to continuously mine new and existing
data sources for patterns, events and opportunities at an unprecedented scale and pace.
Increasingly, corporate strategists are recognizing that big data architecture and
management should be designed so that discovery and analysis is the first order of
business.[4] Data scientists, as well as general business analysts, need continuous access
to an analytics platform that supports ready insight to enterprise and external data. The
platform needs to facilitate integrating new data, ad hoc queries and visualization to
accelerate human understanding. As valuable insights emerge from this platform, they
become the requirements for changes to production systems and processes.
Companies also need to adopt new methodologies for insight and data-based product
development. Traditional waterfall highly structured approaches that only yield a result at
the end of a long process methods have been increasingly forced out of system
development processes in favor of faster and more flexible Agile/Scrum processes. Such
Agile approaches, in which relatively little time is spent specifying a system up front and
more emphasis is placed on creating small deliverables quickly, can also apply to analytics
and big data. Imprecise, slow requirements gathering for a new analytical system or
process is replaced by iterative experimentation, insight and validation.

Facilitating big data discovery

Discovery is most often done in business units rather than IT organizations, typically by
people who are focused on innovation, product development and research. Some
companies organize them into data labs or analytics sandboxes or a group with a
similar name. They are typically found within the most data-intensive business units of their
organizations for example, the online or distribution channels functions within banks or
marketing functions in retail and consumer products. They know the latest tools, know how
to construct and monitor experiments with data, and arent averse to failing. The classic
view of a data scientist is someone who fits this profile.
The desired outcome of data discovery is an idea a notion of a new product, service, or
feature, or a hypothesis with supporting evidence that an existing model can be
improved. There will be more of the incremental improvements than the grand
breakthroughs; most discoveries are relatively minor. One might find a new factor to better
identify customers who are about to leave, or how to better target an offer. If you keep at
it and have good people and a supportive culture, youll eventually find something big.

The payoff at production time

The ultimate value of an insight follows from the decision to use it or not use in production
processes and systems. Once an insight has been extracted from data, it needs to be
classified as irrelevant to the business, interesting but not useful or the basis for an action.
Similarly, if the big data analysis has led to a new product or feature, it needs to be adopted
or dropped or considered for adoption at a later date.

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Increasingly, corporate strategists are recognizing that big

data architecture and management should be designed so
that discovery and analysis is the rst order of business.

The production stage for big data applications is just that putting the application into
production processes at scale. It might mean merging new data and scoring approaches
into a pricing algorithm, or moving a new product feature from beta release to a full-featured
offering. It requires scale, reliability, security and all those pesky attributes that customers,
partners and regulators care about.
Of course, not all discovery ideas should go into production. Not all ideas fit an
organizations culture or processes or have a clear payoff. If youre sending even half of
your discovery projects into production, youre probably being a bit too liberal.

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But things can also go astray if not enough discovery projects go into production. For example,
I recently conducted interviews at a health-care organization that has done a large number of
discovery projects involving big data, including capturing and analyzing physicians notes,
radiology images and patient behaviors. Many of these projects held considerable potential.
However, the organizations electronic medical record (EMR) system, while being well suited to
capturing transaction data, had limited capabilities to export data for analysis. Each attempt to
do so involved large amounts of time, money and frustration. As a result, the discovery projects
seldom made it into production at all. This organization knew it had a problem in the discovery/
production handoff. It had invested a lot in its EMR system, but it hadnt yet marshaled the
resources and time to create an enterprise warehouse for clinical data.
Whatever task its applied to internal decisions, discovery or production the return on
investment from big data comes from the processing and analysis of it and the insights,
products and services that emerge and become recognized as adding value. The coming
sweeping changes in big data technologies and management approaches need to be
accompanied by similarly dramatic shifts in how data supports decisions and product/
service innovation. There is little doubt that big data analytics can transform organizations,
and the firms that recognize the full extent of their opportunities will seize the most value.

Notes
1. http://www.unglobalpulse.org/technology/hunchworks.
2. Steve Lohr, Searching big data for digital smoke signals, New York Times, August 7, 2013,
http://www.nytimes.com/2013/08/08/technology/development-groups-tap-big-data-to-directhumanitarian-aid.html.
3. Correspondence and conversations in 2013 between the author and Joey Fitts, CEO of Matters Corp.
4. I am grateful to Paul Barth for many of his ideas on experimentation. Some of them appeared in
Thomas H. Davenport, Paul Barth, and Randy Bean, How big data is different, MIT Sloan
Management Review (Fall 2012), http:// sloanreview.mit.edu/the-magazine/2012-fall/54104/howbig-data-is-different/

Corresponding author
Thomas H. Davenport can be contacted at: jdevoll@hbr.org

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VOL. 42 NO. 4 2014