I recently had the good fortune of leading our Diamond Exchange, where we discussed how companies could create competitive advantage through better use of data. For this event we created a short (3-4 min) video to help business executives get a feel for just how quickly the torrent of information is increasing. If you are having a hard time getting someone in your life to understand how quickly things are changing — feel free to show them this.
Serious organizations care about this flood of information. In fact, if you look at the core of a host of great companies: Goldman Sachs, Wal-Mart, UPS, Amazon, you find a digital heart and brain. Each of these companies do a superior job of gathering, organizing, analyzing and acting on the data that streams through their organizations and in their markets. (See also my 1995 Harvard Business Review article on Exploiting the Virtual Value Chain.) As Andrew Ross Sorkin’s book Too Big to Fail pointed out, Goldman has an integrated securities database called SecDB, which gives them a complete picture of their positions around the globe, which in turn, allows them to exercise superior risk management and pricing. Wal-Mart’s automation and information advantage have been reported so extensively as to make it almost cliche. Under the covers of most great companies is a high information IQ.
Why? Why is information processing capability so essential to the robust functioning of large complex enterprises? There are at least five reasons:
- First, information is an organizational problem. If a firm allows data to slosh around with the carelessness that old factories used to handle work in process inventory, the inefficiencies multiply. Heck, every personal productivity guru starts with advice that includes the importance of handling information once, and only once.
- Second, information are the reflexes of the organization. The military talk about “operating within the OODA Loop of the enemy”. Observe, orient, decide and act is the decision cycle of any combatant, and if you can do it better and faster than the enemy — you can usually win. The same holds for non-lethal competitions.
- Third, superior information usually enables better negotiating leverage. If you know the true demand and supply in a marketplace, you can usually extract a significant price advantage over your competition. The entire discipline of programmed trading, which accounts for a significant part of profits of Wall Street firms, is built on the premise of profit by superior information.
- Fourth, dominating data allows an organization to manage its risk better. If UPS knows that there are forest fires in Russia, the company can change its routes, assets and operations to lower risk and improve service.
- Fifth, it creates a culture of managerial excellence when executives operate from the numbers, not just their gut. I know Malcolm Gladwell’s book Blink has popularized the notion of going with your gut, but, I’m still too much of a hard headed capitalist to not look at the facts first if I can.
So, you have to ask yourself, are you taming the torrent or getting swamped by it? Now’s the time to ask, because things are only going to get worse, or better, depending on if you’re surfing or drowning!