Signs of an Analytics Revolution

This is part 2 of 10 from the 2013 Data & Analytics Global Executive Study and Research Project.

Increasingly, top thinkers in academia and business believe that analytics, especially analytics connected with big data, is going to be a driving force in our economy and society in the next 10 to 20 years. This belief is being matched with action in the public and private sectors.

In February 2013, MIT Sloan launched a digital economy initiative to explore how digital technologies are influencing both productivity and employment, declaring, “The digitization of the economy is one of the most critical issues of our time.”1 The broad use of analytics is an important factor in the development of the emergent digital economy.

This view is supported by General Electric Company executives Peter Evans and Marco Annunziata, who argue that the “industrial Internet” — a system of machine-to-machine sensors — will add $10 trillion to $15 trillion in economic benefit to the global gross domestic product through 2030.2 GE is putting its money where its mouth is, investing $1 billion in developing the talent, software and analytic tools to better identify when machines need fixing or replacement.3

A recent study of senior executives at Fortune 500 companies found that 85% of those organizations had launched big data initiatives.4 Intel announced a five-year, $12.5 million partnership with MIT to create a research center that will focus on big data. The state of Massachusetts, host to more than 100 companies that employ more than 12,000 people in big data-related businesses, has launched a public-private Big Data Consortium to grow its innovation economy.5 In 2011, big data companies received more than $350 million in venture capital.6

Alex “Sandy” Pentland, director of the Human Dynamics group at the MIT Media Lab, argues that as we move into a society driven by big data, “most of the ways that we think about the world change in a rather dramatic way”:

This is the first time in human history that we have the ability to see enough about ourselves that we can hope to actually build social systems that work qualitatively better than the systems we’ve always had. … We can potentially design companies, organizations, and societies that are more fair, stable and efficient as we get to really understand human physics at this fine-grain scale. This new computational social science offers incredible possibilities.7

While much of the promise of data and analytics is couched in terms of “big data,” some suggest that today’s big data will likely become just tomorrow’s data.8 If we are to achieve anything close to the promise of big data (or data), it will need to become, as one research report says, “a key basis of competition, underpinning new waves of productivity growth, innovation, and consumer surplus.”9

And this is precisely what our research team and others are beginning to see in the market. Companies that are leading the analytics revolution are already making data and analytics a source of competitive differentiation. In 2012, the MIT Center for Digital Business, along with research sponsor Capgemini Consulting, completed a two-year study with more than 400 companies to determine which companies were achieving a “digital advantage” over industry peers through their use of analytics, social media, mobile and embedded devices. The study found that companies that do more with digital technologies — and support their digital investments with leadership and governance capabilities — are 26% more profitable than their industry peers, and outperform average industry performance by 6% to 9%.10

Companies that many of us deal with every day are already making use of data to advance a variety of business goals and to help consumers:

  • Kaiser Permanente collects petabytes of health information on its 8-million-plus members, a fantastic amount. Some of this data was used in an FDA-sponsored study to identify risks with Vioxx, Merck’s pain medication, which was pulled shortly after the research identified a greater risk of heart attack in a subset of the patient population.
  • Southern California Edison is collecting hourly (rather than monthly) data on customer usage from new digital smart meters in millions of residences. It will soon be monitoring and giving frequent feedback to customers about their energy use, a significant benefit for energy grid management and customer service.
  • Pepsi has an ordering algorithm that lowers the rate of inventory out-of-stocks. The company shares information from this application with partners and retailers, improving its relationships with key stakeholders.

1.The New Initiative on the Digital Economy,” press release, MIT Sloan School of Management, n.d.

2. P.C. Evans and M. Annunziata, “Industrial Internet: Pushing the Boundaries of Minds and Machines,” GE Reports, November 26, 2012.

3. Evans, “Industrial Internet.”

4. R. Bean and D. Kiron, “Organizational Alignment Is Key to Big Data Success,” January 28, 2013.

5.Governor Patrick Announces New Initiative to Strengthen Massachusetts’ Position as a World Leader in Big Data,” press release, Commonwealth of Massachusetts, May 30, 2012.

6. ”Governor Patrick Announces New Initiative.”

7. A. Pentland, “Reinventing Society in the Wake of Big Data,” August 30, 2012.

8. Tweeted by Joel Cherkis on 10/21/12.

9. J. Manyika, M. Chui, et. al, “Big Data: The Next Frontier for Innovation, Competition and Productivity,” May 2011.

10. Capgemini Consulting and MIT Center for Digital Business, “The Digital Advantage: How Digital Leaders Outperform Their Peers in Every Industry,” November 5, 2012.

11. E. Brynjolfsson and A. McAfee,“Big Data, The Management Revolution,” Harvard Business Review 90 (October 2012): 61-67.

12. T.H. Davenport and J.G. Harris, “Competing on Analytics: The New Science of Winning” (Cambridge, MA: Harvard Business School Press, 2007).

13. M. Lewis, “Moneyball: The Art of Winning an Unfair Game” (New York: W.W. Norton, 2004).

14. L. Melnick, "Moneyball Strikes Again: How to Use Analytics for Sustained Competitive Advantage,” October 3, 2012.

15. The two questions were:

(a) To what extent does information and business analytics create a competitive advantage for your organization within its industry or markets?

(b) To what extent do you agree with the following statement? Analytics has helped improve my organization’s ability to innovate.

Managers that checked “great extent” for both questions were placed in the Analytical Innovators category.

16. T.H. Davenport and D.J. Patil, “Data Scientist: The Sexiest Job of the 21st Century,” Harvard Business Review 90 (October 2012): 70-76.

17. “Chief Consumer Advocate: How Social Data Elevates CMOs,” white paper, Bazaarvoice and the CMO Club, Austin, TX, July 25, 2012.

18. Respondents in Analytically Challenged companies differ demographically in subtle but important ways from other survey participants. They tend to be in less senior management positions and have a slightly higher likelihood than other survey participants to work in operational functions. These demographic differences might be a contributing factor to their evaluations of their organizations as less analytically mature.

19. The prisoner’s dilemma refers to a non-zero-sum game that shows why two people may choose to betray each other even if cooperation is in their best interest. It’s based on the premise that two isolated prisoners involved in the same crime have the independent opportunity to either collaborate with each other by remaining silent or sell the other prisoner out. Each combination of possibilities results in a different outcome, with the best for both stemming from cooperation. The sucker’s side is the prisoner who remains silent but is betrayed by the other prisoner.

i. K.T. Greenfeld, “Loveman Plays ‘Purely Empirical’ Game as Harrah’s CEO,” August 6, 2010.