Unlocking the Power of Data:
A Comprehensive Approach to how Firms Create Value from Data
In today’s digital age, data has become one of the most valuable assets for businesses. However, many firms struggle to understand and optimise the process of creating value from their data.
To effectively unlock the power of data, it is crucial to have a comprehensive methodology and framework that maps out the data-based production process and connects management decisions with the various payoffs that data enables across a firm.
The Data-Driven Value Creation Framework:
At the core of a successful data-driven value creation approach is an extensible model that incorporates the unique characteristics of data, such as non-rivalry, excludability, and conditional network effects, as well as the fixed and variable costs incurred by the firm. By understanding these factors, businesses can make informed decisions about how to invest in and leverage their data assets.
One of the key insights from this framework is that a single decision to invest in data can enable a firm to simultaneously:
- Monetise their data: Firms can identify opportunities to sell their data directly to other businesses or organisations that can benefit from the insights it provides.
- Use data to improve other products and services: By analysing data on customer preferences, behaviour, and feedback, firms can enhance their existing offerings and create new, data-driven products and services.
- Incorporate data as data-enabled learning: Data can be used to continuously improve a firm’s operations, processes, and decision-making by providing real-time insights and feedback loops.
Applying the Framework in Practice:
The data-driven value creation framework can be applied to both internal “data projects” and externally connected, data-based business models. For example, when a firm is looking to optimise its internal operations, the framework can be used to identify areas where data can be collected, analysed, and used to drive efficiency and cost savings. On the other hand, when a firm is looking to create a new data-driven product or service, the methodology can be leveraged to map out the various ways in which data can be monetised and used to create value for customers.
One of the key challenges in applying this approach is determining the optimal level of investment in data. Through extensive research and experience, techniques have been developed to calculate whether a firm is over- or under-investing in data, and to identify conditions where constantly updating insight creates sub-optimum profits. By understanding these dynamics, firms can make more informed decisions about how to allocate resources and prioritise data initiatives.
The Future of Data-Driven Value Creation:
As data continues to grow in importance and value, this methodology and framework will become increasingly critical for businesses looking to stay competitive and create value in the digital age. By providing a comprehensive, scientifically grounded approach to understanding and optimising the data-based production process, firms can transform the way they approach data management and value creation.
However, this approach also highlights the broader challenge of value creation versus capture between data trading platforms and their participants. As more and more firms rely on external data sources and platforms to drive their operations and decision-making, it will be important to develop new models and strategies for ensuring that value is distributed fairly and sustainably across the data ecosystem.
The data-driven value creation framework represents a major step forward in understanding how firms can create value from data. By providing a comprehensive, scientifically grounded approach to mapping out the data-based production process, practitioners can calculate efficiencies, benchmark processes, and make more informed decisions about how to invest in and leverage their data assets. At the same time, the methodology and framework serve as a powerful tool for organising the rapidly expanding corpus of data management theory and engaging practitioners with grounded predictions and insights.
As data continues to grow in importance and value, this approach will become an increasingly critical tool for businesses looking to stay competitive and create value in the digital age. By investing in the necessary skills, tools, and processes, firms can position themselves to thrive in the data-driven future.