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M AY 2 0 11

m c k i n s e y

g l o b a l

i n s t i t u t e

The challengeand opportunity of big data

A new report explores the explosive growth of digital information and its potential uses.

The proliferation of data has always been part of the impact of information and communications technology. Now, as computers and cell phones continue to pervade our daily activities and as millions of networked sensors are being embedded in these devices (as well as in automobiles, smart meters, and other machines), the amount of data available for analysis is exploding. The scale and scope of the changes that such big data are bringing about have reached an inflection point. Companies capture trillions of bytes of information about customers, suppliers, and operations. Many citizens look with suspicion at the amount of data collected on every aspect of their lives. Can big data play a useful role? New research from the McKinsey Global Institute (MGI) finds that collecting, storing, and mining big data for insights can create significant value for the world economy, enhancing the productivity and competitiveness of companies and the public sector and creating a substantial economic surplus for consumers. The report Big data: The next frontier for innovation, competition, and productivity explores the state of digital data, how different domains can use large data sets to create value, and the implications for the leaders of private-sector companies and public-sector organizations, as well as for policy makers. The reports analysis is supplemented by a detailed examination of five domainshealth care, retailing, the public sector, manufacturing, and personal-location data. MGIs analysis shows that companies and policy makers must tackle significant hurdles to fully capture big datas potential. The United States alone faces a shortage of 140,000 to 190,000 people with analytical and managerial expertise and 1.5 million managers and analysts with the skills to understand and make decisions based on the study of big data (exhibit). Companies and policy makers must also tackle misaligned incentives around issues such as privacy and security, access to data, and technology deployment. The report identified five broadly applicable ways to leverage big data: 1. Make big data more accessible and timely. Transparency, enabled by big data, can unlock a great deal of value. In the public sector, increasing access to data across separate departments can sharply reduce search and processing times. In manufacturing, integrating data from R&D, engineering, and manufacturing units to facilitate concurrent engineering can cut time to market. 2. Use data and experiments to expose variability and raise performance. As organizations create and store more transactional data in digital form, they can collect more accurate and detailed performance information on everything from product inventories to sick days. 3. Segment populations to customize. Big data allow organizations to create ever-narrowing segmentations and to tailor services precisely to meet customer needs. This approach is well known in marketing and risk management but can be revolutionary in areas such as the public sector.

Web 2011 Big data teaser Exhibit 1 of 1

Exhibit

Demand in the United States for people with deep expertise in data analysis could be greater than its projected supply in 2018.
Deep analytical talent, thousands of FTEs1 Supply 2008 employment Forecast of graduates Net of additions through immigration and reemployment of previously unemployed minus expected attrition Projected 2018 supply 2018 demand to realize full potential of big data 156 +161 32 285 425475 5060% gap relative to supply given current trends, equal to 140,000190,000 unlled positions

1 Deep

analytical talent are people who have advanced training with statistics or machine learning. FTE = full-time equivalent. Source: Dun & Bradstreet; company interviews; US Bureau of Labor Statistics; US Census Bureau; McKinsey Global Institute analysis

Related thinking Clouds, big data, and smart assets: Ten techenabled business trends to watch The Internet of Things The global grid Meeting the demand for data storage

4. Use automated algorithms to replace and support human decision making. Sophisticated analytics can substantially improve decision making, minimize risks, and unearth valuable insights that would otherwise remain hidden. Such analytics have applications from tax agencies to retailers. 5. Innovate with new business models, products, and services. To improve the development of next-generation offerings and to create innovative after-sales services, manufacturers are leveraging data obtained from the use of products. The emergence of real-time location data has created a new set of location-based mobile services from navigation to people tracking. Read the executive summary or download the full report on the McKinsey & Company Web site.

Copyright 2011 McKinsey & Company. All rights reserved.