5/31/2018 The age of analytics: Competing in a data-driven world | McKinsey & Company

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McKinsey Analytics

Report
McKinsey Global Institute
December 2016

The age of analytics: Competing in a data-driven

world
By Nicolaus Henke, Jacques Bughin, Michael Chui, James Manyika, Tamim Saleh, Bill Wiseman, and Guru Sethupathy

Big data’s potential just keeps growing. Taking full advantage means companies must
incorporate analytics into their strategic vision and use it to make better, faster decisions.

I
s big data all hype? To the contrary: earlier research may have given only a partial view of the ultimate impact. A
new report from the McKinsey Global Institute (MGI), The age of analytics: Competing in a data-driven world,
suggests that the range of applications and opportunities has grown and will continue to expand. Given rapid
technological advances, the question for companies now is how to integrate new capabilities into their operations and
strategies—and position themselves in a world where analytics can upend entire industries.

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A 2011 MGI report highlighted the transformational potential of big data. Five years later, we remain convinced that this
potential has not been oversold. In fact, the convergence of several technology trends is accelerating progress. The
volume of data continues to double every three years as information pours in from digital platforms, wireless sensors,
virtual-reality applications, and billions of mobile phones. Data-storage capacity has increased, while its cost has
plummeted. Data scientists now have unprecedented computing power at their disposal, and they are devising algorithms
that are ever more sophisticated.

Earlier, we estimated the potential for big data and analytics to create value in five specific domains. Revisiting them
today shows uneven progress and a great deal of that value still on the table (exhibit). The greatest advances have
occurred in location-based services and in US retail, both areas with competitors that are digital natives. In contrast,
manufacturing, the EU public sector, and healthcare have captured less than 30 percent of the potential value we
highlighted five years ago. And new opportunities have arisen since 2011, further widening the gap between the leaders
and laggards.

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Exhibit

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Leading companies are using their capabilities not only to improve their core operations but also to launch entirely new
business models. The network effects of digital platforms are creating a winner-take-most situation in some markets. The
leading firms have remarkably deep analytical talent taking on various problems—and they are actively looking for ways
to enter other industries. These companies can take advantage of their scale and data insights to add new business lines,
and those expansions are increasingly blurring traditional sector boundaries.

Where digital natives were built for analytics, legacy companies have to do the hard work of overhauling or changing
existing systems. Adapting to an era of data-driven decision making is not always a simple proposition. Some companies
have invested heavily in technology but have not yet changed their organizations so they can make the most of these
investments. Many are struggling to develop the talent, business processes, and organizational muscle to capture real
value from analytics.

The first challenge is incorporating data and analytics into a core strategic vision. The next step is developing the right
business processes and building capabilities, including both data infrastructure and talent. It is not enough simply to
layer powerful technology systems on top of existing business operations. All these aspects of transformation need to
come together to realize the full potential of data and analytics. The challenges incumbents face in pulling this off are
precisely why much of the value we highlighted in 2011 is still unclaimed.

The urgency for incumbents is growing, since leaders are staking out large advantages, and hesitating increases the risk of
being disrupted. Disruption is already happening, and it takes multiple forms. Introducing new types of data sets
(“orthogonal data”) can confer a competitive advantage, for instance, while massive integration capabilities can break
through organizational silos, enabling new insights and models. Hyperscale digital platforms can match buyers and
sellers in real time, transforming inefficient markets. Granular data can be used to personalize products and services—
including, most intriguingly, healthcare. New analytical techniques can fuel discovery and innovation. Above all,
businesses no longer have to go on gut instinct; they can use data and analytics to make faster decisions and more
accurate forecasts supported by a mountain of evidence.

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The next generation of tools could unleash even bigger changes. New machine-learning and deep-learning capabilities
have an enormous variety of applications that stretch into many sectors of the economy. Systems enabled by machine
learning can provide customer service, manage logistics, analyze medical records, or even write news stories.

These technologies could generate productivity gains and an improved quality of life, but they carry the risk of causing
job losses and dislocations. Previous MGI research found that 45 percent of work activities could be automated using
current technologies; some 80 percent of that is attributable to existing machine-learning capabilities. Breakthroughs in
natural-language processing could expand that impact.

Data and analytics are already shaking up multiple industries, and the effects will only become more pronounced as
adoption reaches critical mass—and as machines gain unprecedented capabilities to solve problems and understand
language. Organizations that can harness these capabilities effectively will be able to create significant value and
differentiate themselves, while others will find themselves increasingly at a disadvantage.

About the author(s)

Jacques Bughin and James Manyika are directors of the McKinsey Global Institute, and Michael
Chui is an MGI partner; Nicolaus Henke and Tamim Saleh are senior partners in McKinsey’s London
office, Bill Wiseman is a senior partner in the Taipei office, and Guru Sethupathy is a consultant in the
Washington, DC, office.

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