“Big Data” has become a significant force in the business community, but what does Big Data actually mean for your business? According to a contributor at Forbes, the definition has morphed over time – so there is not a consensus on one definition of Big Data. In our observations, Big Data has can have a positive impact on business performance for those who know how to harness the information.
As a consumer, Big Data means the companies you do business with (grocery stores, retailers, online shopping) collect information to gain insights on your behavior. With your permission (through loyalty programs, etc), companies will tag transactions to your account in order to find patterns in the things that you buy or do, and in aggregate across all customers. A classic example is that diapers and beer purchases are closely correlated. Some experts believe this is because when Daddy is sent to the store to buy diapers, he also picks up something for himself. Another, more modern, example is that search engines collect information about your search history in order to provide targeted advertising.
As a business, Big Data means it’s possible to gain insights into behaviors of your market, vendors, customers, and internal operations. If you have strategic questions such as:
- Where are your customers concentrated geographically?
- What are the buying cycles in your market?
- What is the reason for the spike in customer returns this period?
Data can put you on a path to finding a solution, as long as you’re measuring the right things. It’s important to realize that Data by itself is meaningless. It requires skill, domain expertise, and curiosity to understand patterns in data, which is why titles such as “Chief Data Scientist” or “Director of Analytics” exist. If these titles seem superfluous, try the following exercise on your own; it may give you a better appreciation for the importance of skill and domain experience.
Exercise: Consolidating Purchases
Many companies would love to save on costs, and one approach is to negotiate better pricing for critical purchases. To better understand if it’s even worth pursuing such an effort, you will want to first answer these questions, probably by going through your own purchasing history data:
- Who are your largest vendors by volume? By dollars spent?
- Do you have secondary or tertiary suppliers? How reliable are they?
- What is the shape of your purchasing cycle? Is it cyclical, constant, seasonal?
- Are you anticipating an increase, decrease, or constant rate of purchases for the next year?
Understanding how and when you make purchases can equip you with more information to be in a better position when it’s time to decide on renewing or selecting a new vendor. It will also help you to understand if the purchasing function is in alignment with other downstream functions.
There is value in your data; the trick is asking the right questions and having the skill and domain expertise to make sense of it all.