‘Open data’ can raise company performance

We estimate the potential value that can be unlocked through the use of open and shared data are $3,000bn annually in seven “domains” of the global economy. The actual value may be far larger, write Steve Van Kuiken and Michael Chui in Financial Times.

Mention the term ‘open data’ to business leaders and many might assume what you’re talking about is the growing trend to open up government data files to increase transparency and citizen engagement and find better ways of delivering government services.

But there is a much larger trend of data broadly becoming more “liquid,” which when shared by public and private organisation – and crunched using big data techniques – can generate large amounts of value, both for companies and individuals.

We estimate the potential value that can be unlocked through the use of open and shared data are $3,000bn annually in seven “domains” of the global economy. The actual value may be far larger.

Clearly open data are a phenomenon that business leaders need to know about. Open data has great potential to create value for business, but also poses new challenges and risks. For example, about one-third of the potential value that we see in the seven domains could come in the form of improved performance through benchmarking.

By sharing “anonymised” data across an industry, companies can see where they could raise the efficiency of processes and operations or better manage capital projects. If all oil and gas companies adopted best-in-class processes for selecting and managing investments in new production, for example, that could be worth $230bn a year. Benchmarking can also be a great source of value to consumers by allowing them to compare their habits to those of other people to improve health or save energy, for example.

On the other hand, one of the largest sources of value from open data – greater transparency about products, and services – can shift value from producers to consumers. Consumers are gaining access not only to pricing data (in both online and offline stores), but also to aggregated data about quality, reliability, and factors such as provenance (is it organic?) and the environmental and labour practices of suppliers.

This information could enable consumers to make better-informed choices about their purchases, which might be worth $1,000bn a year. Some consumers might be willing to pay a premium for certain products about which they can obtain this data.

How can companies make sure they are on the receiving end of open data value creation?

First, companies should identify sources of useful open and liquid data. This could be from government sources, from other companies, or from data brokers. A key question, particularly for companies hoping to gain access to benchmarking data, is what can their companies offer to convince peers that is worthwhile sharing data with them.

Then executives need to figure out how open data could potentially create (or destroy) value in their industries. In consumer-facing companies, open data provides a new window into consumer thinking as well as new ways to segment markets. Comments and likes on social media reveal how consumers view products, features, and the merits of different vendors – that is a form of open data.

Used in conjunction with other data, such as proprietary surveys, this open data can show manufacturers what customers value most – and what they are not interested in paying extra for.

Consumer product companies are already using open data, along with their own information and algorithms, to segment markets more granularly. Some retailers are using this process to customise shelf layouts for specific neighbourhoods. Consumer goods manufacturers also can share benchmarking data to improve yield and efficiency.

Another opportunity for consumer-facing companies is to make use of “my data.” This is the information about individual consumers that they gather in the course of doing business. By sharing my data with customers, companies can create a more trust-based relationships and can even allow consumers to provide more accurate information or direct how their data are used.This data can then be used to recommend additional products or remind consumers when they are due to order new supplies of consumables.

Next, executives need to look at how open data will work in their organisations. One of the biggest questions is how the company can use open data to improve performance. What benchmarks would be most useful to the company? Are there already sources of relevant data? Are there industry groups or third parties that can be trusted to aggregate sensitive operating data and protect each company’s identity and intellectual property? Organisations must also have the capabilities to leverage open data.

Few companies have the required talent in data analytics or a strong cadre of managers across functions who understand how to apply data effectively. Some leaders have a sense that open data could be a source of competitive advantage, but they need to invest in the people and tools (and even the technical standards) to make open data work for them.

Open data are also a great source of ideas for new businesses. Leaders should study the opportunities. Zillow grew into a resource for home buyers in the US by aggregating public and non-public data about house prices. Climate Corparation, another start-up that recently agreed to be sold for nearly $1bn, gathers a huge range of weather and harvest data to help price crop insurance.

New open data businesses are not just for start-ups: NextBus, an open data smartphone app that tells commuters in New York, San Diego and other cities when their buses will arrive, is a subsidiary of a 60-year-old electronics and defence contracting company.

Finally, companies need to identify and manage the risks of open data. In addition to its ability to shift value to consumers, some kinds of open data can also harm a company’s reputation. This could involve revelations of improper activities or product safety issues culled from public records.

Another risk lies in how companies use open data that they gather about customers. If consumers feel that their private data are being misused or that companies are too intrusive, they react swiftly and harshly. Companies must also weigh the risks of sharing proprietary data for benchmarking.

Open and liquid data are clearly the next step in the evolution of IT and data-driven management. It can help companies operate more effectively, connect with customers, and define new products and lines of business. Today, it is largely the province of the early adopters – ambitious start-ups and some major corporations that have moved quickly to find commercial uses of open data. In the not-too-distant future, it will be an important basis for differentiated performance.

This article originally ran in Financial Times.

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