Henri Eliot: Is big data a governance issue?

Research has found productivity and operating profit benefits from investing in big data. Photo / Getty Images

Management consultancy firm McKinsey & Company published research in April 2016 that found that most businesses in its survey made significant investments in big data and advanced analytics.

The big question has been raised about the return on investment attached to these expenses, effectively elevating the big data issue to board level.

The research, based on a random sample of 714 global businesses, found significant productivity and operating profit benefits from investing in big data assets such as data warehouses. But to achieve these benefits the business must have access to data analytics talent and big data IT capabilities.

According to Richard McLaren, digital vice president at McKinsey, big data is a board issue. "The world is changing rapidly. Many boards use their intuition to make decisions, but this is no longer enough," he says.

"It's the board's role to ensure the company and its executives make decisions on outwardly focused evidence. This is not just about big data. The idea that what worked last year will work in the future is a fallacy. External data must play a key role in decision-making," he explains.

One of the conundrums which businesses grapple with when putting systems in place to manage and analyse data is how to extract the right information to make better decisions, which comes down to the availability, volume and relevance of the data.

McLaren says this means businesses must be aware of the information flows that matter to customers, as well as information about operations, safety information and data about how the business is meeting its compliance requirements.

"Does the organisation have a plan to obtain and capture the best available information? Does it have the right capabilities to handle this information?" he queries.

Directors must also have a handle on information that can prove the business is complying with the relevant laws and regulations that determine how it carries out its activities.

In terms of proper governance of business data, McLaren says the board must be able to satisfy itself that information is securily stored. "They need to know how information is held and how sensitive it is. They must also know whether there are sufficient plans to protect data and how the business will respond in the event of a cyber breach."

The world is changing rapidly. Many boards use their intuition to make decisions, but this is no longer enough.

McLaren also notes big data can lead to substantial opportunities for businesses, especially consumer ones. "The key is in understanding information flows because not all data is created equal."

All organisations have growing obligations to protect their customer data, especially in light of upcoming changes to privacy laws that are likely to make it mandatory for businesses of a certain size to disclose when customer information has been inadvertently accessed, for instance by hackers.

This means it's essential for companies to be able to know where and how their customer data is held. They must also have plans in place to respond if there is a data breach.

It's essential for the directors to understand information flows and the underlying strategy to take advantage of opportunities that arise from being able to analyse this data.

When it comes to measuring return on investment, McLaren says the starting point is to apply specific value to decisions made using big data. An example is measurement of sales through digital channels after marketing campaigns.

The baseline is sales made as a result of digital marketing when there is no segmentation of the customer base. Compare and contrast this with a marketing campaign where messages are targeted to consumers based on the information the company has about their preferences and demographics - information that could be classified as big data.

The business will be able to measure the sales made in the campaign in which messages were sent to customers on a segmented basis, and attribute this to the data used in the campaign. In this way it is able to determine a return on its investment in the business's ability to store and segment data.

Says McLaren: "In a board context, directors must appreciate the way information creates value in the business. It's essential for the directors to understand information flows and the underlying strategy to take advantage of opportunities that arise from being able to analyse this data."

Henri Eliot is CEO of Board Dynamics.