There’s much wisdom in that saying, which has been
attributed to both W. Edwards Deming and Peter
Drucker, and it explains why the recent explosion
of digital data is so important. Simply put, because
of big data, managers can measure, and hence know,
radically more about their businesses, and directly
translate that knowledge into improved decision
making and performance.
Consider retailing. Booksellers in physical stores
could always track which books sold and which did
not. If they had a loyalty program, they could tie
some of those purchases to individual customers.
And that was about it. Once shopping moved online,
though, the understanding of customers increased
dramatically. Online retailers could track not only
what customers bought, but also what else they
looked at; how they navigated through the site; how
much they were influenced by promotions, reviews,
and page layouts; and similarities across individuals
and groups. Before long, they developed algorithms
to predict what books individual customers would
like to read next—algorithms that performed better
every time the customer responded to or ignored
a recommendation. Traditional retailers simply
couldn’t access this kind of information, let alone act
on it in a timely manner. It’s no wonder that Amazon
has put so many brick-and-mortar bookstores out of
business.
The familiarity of the Amazon story almost
masks its power. We expect companies that were
born digital to accomplish things that business executives
could only dream of a generation ago. But
in fact the use of big data has the potential to transform
traditional businesses as well. It may offer
them even greater opportunities for competitive
advantage (online businesses have always known
that they were competing on how well they understood
their data). As we’ll discuss in more detail, the
big data of this revolution is far more powerful than