What does it really mean to be a data-driven business?

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Analyst studying results of being a data-driven businessIf data really is so vital to a firm's present and future, then why do so many firms struggle at managing it?

Are there exceptions here? Of course. I've often written about companies whose management has clearly demonstrated as much (read: that they truly understand the import and value of data). At present, Amazon, Facebook, Google, Microsoft and Netflix are the exceptions that prove the rule – and I'm hardly the only one who feels this way. Gartner VP Doug Laney writes about the relative dearth of progressive data-driven companies in his new and insightful book Infonomics: How to Monetize, Manage, and Measure Information as an Asset for Competitive Advantage.

Signs

So what does it really mean to be a data-driven business? Here are a few telltale signs.

  • It means being willing to complement human decision making with data and analytics. Terminators haven't arrived yet. We still make decisions but, as many books and studies have shown, we're not terribly good at it. We frequently make bad decisions based upon cognitive biases. Data and analytics can alleviate our very fallible human tendencies.
  • It means running business experiments and split tests. As powerful as Amazon is, the company isn't sitting on its laurels. To optimize its products, webpages and recommendations, the e-commerce juggernaut constantly runs A/B tests.
  • It means being willing to make large acquisitions largely for data. Case in point: Microsoft's $26B acquisition of LinkedIn. Many analysts viewed Microsoft's purchase as largely a data play.
  • It means stitching together data from disparate sources. Case in point: Even though they are two different apps, Instagram and Facebook share data. Do you think that your ads in Gmail are reflected in your YouTube history by accident? Think again.
  • It means analyzing new data sources even though the rewards are uncertain. Think Netflix knew ahead of time that the colors in movie imagery affected subscriber choice? It does.
  • It means moving beyond Microsoft Excel and using interactive data visualizations. Netflix allows employees to explore data sets. As I write in The Visual Organization, the company makes data available by default, not unavailable. The difference in mindset is huge.
  • Making sense out of unstructured data. Sure, the structured stuff is important, but foolish is the soul who believes that blogs, tweets, photos, videos and the like don't matter.

It's also important to note that being a data-driven business does not entail:

  • Merely installing Hadoop or an NoSQL database in a test environment.
  • Purchasing fancy business intelligence applications but not using them.
  • Inserting the IT department into every reporting or data request.
  • Merely hiring a chief data officer (CDO).

Simon Says

Note that the above traits aren't easy to attain. Change is hard, as is building a culture of analytics. As the loft market capitalizations of Amazon, Facebook, Google et. al prove, though, there's enormous value in embracing data and analytics. I for one don't see that abating anytime soon.

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About Author

Phil Simon

Author, Speaker, and Professor

Phil Simon is a keynote speaker and recognized technology expert. He is the award-winning author of eight management books, most recently Analytics: The Agile Way. He consults organizations on matters related to strategy, data, analytics, and technology. His contributions have been featured on The Harvard Business Review, CNN, Wired, The New York Times, and many other sites. He is a full-time faculty member Arizona State University’s W. P. Carey School of Business (Department of Information Systems). He also runs 5marbles, a Agile software-development shop.

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