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Big Data Investments Are Starting To Pay Off Big Time For Enterprises

 

Data is great, but you need to use it effectively.

A research report by Keystone Strategy said that big data investments are a logical path in the new era of the connected society.

Yet spending money on data-centric practices does not always mean that a company will use that information effectively.

According to Keystone’s analysis, companies fall into two categories: digital leaders and digital laggards. The report said that companies that utilize data effectively are not able to generate increased revenue but also  have difficulty improving employee productivity.

Companies no longer have an excuse for not embracing a digital transformation. Although there is a common perception that only “digital native” companies such as Uber and Facebook that effectively use big data, traditional industry sectors are also reaping the benefits, the report said.

The Microsoft-funded study was based on a series of telephone interviews with 344 upper mid-market and enterprise organizations. A median number of 6,000 employees and company revenue of $3.4 billion was the starting point. For the purposes of the study, Keystone asked company decision makers around 74 questions about technology investments and that company’s approach to data.

“To have a data culture, you’ve got to get your hands dirty,” said Microsoft’s general manager of business applications and data analytics product marketing Barb Edson,in a blog post. “We’ve seen a lot of great success stories, and those companies share the same characteristics: They are willing to do trials and proof of concepts. They’re willing to invest in partnerships with experts and try new technologies. It’s the willingness to lean in, even in starting small and looking at where the true impact lies, that leads to success.”

The results state that digital transformation makes a huge difference in terms of gross profit margins and overall operating margins.

Digital leaders can count on a theoretical three-year average gross margin of 55% as compared to 37% for laggards. At the same time, three-year average net income is 11% for leaders and 7% for laggards. According to Keystone, this can produce an average gap in margins between leaders and laggards of nearly $100 million. Employee productivity for digital leaders was around $507,000 in average revenue per employee compared to $473,000 per employee at digital laggards.

“Ten years from now, our economy will draw from more than one thousand times the aggregate computing power that is available today,” the authors of the study said. “More powerful, and even more connected, digital technology will continue to drive social and economic change, and do so at an even greater rate than we witnessed over the last ten years. Our economy is now on Moore’s law and digital transformation has become the new normal.”

What Exactly Is A Digital Transformation?

Companies have heard for years that they need to have a “digital culture” or embrace a “digital transformation” and embrace big data. These days, companies are now being bombarded with the siren’s call of machine learning and artificial intelligence.

After a while, all of these words are just … words.

So, what do companies really need to focus on to begin these mythical, revenue building data models?

Companies that want to make the most of a digital business model need to build a digital operating model. A successful digital transformation is created around the following key pillars, said Keystone:

  • Customer Interaction and Relationship Management.
  • Manufacturing, Product and Service Delivery
  • Product and Service Development
  • Human Capital Management and Employee Productivity

All four of these pillars must be leveraged effectively for a company to become a digital leader as opposed to a digital laggard, at least in Keystone’s metrics.

Keystone detailed the benefits of maximizing digital capabilities in the helpful table below:

keystone

Source: Keystone Strategy, The Digital Business Divide

The difference between being a leader or a laggard is not predicated on IT spend. There is a tiny difference in IT investment as a percentage of revenue between the two categories—less than 1%.

“Unlike earlier ideas about Internet disruption, modern notions of digital transformation build on the older, analog world,” concluded the report. “But like any significant building addition, doing it well requires modifying the existing structure. There are no blank sheets of paper. Digital transformation is about reconstructing the firm around digital operating principles, integrating traditional assets with new opportunities.

 

This article was originally published on arc.applause.com and can be viewed in full here

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