Is your business digital? Like Domino’s Pizza, do you realize that you are not a product or service business, rather you are a software and data business that provides products or services? Do you exploit all of your customers' data to know them inside-out? Are customers flocking to you because you are driving every engagement with insight about them? If the answer to any of these questions is not a resounding, “Yes!”, then you are losing revenue and shareholder value.
In Forrester’s new report, The Insight Driven Business, my colleagues Ted Schadler, James McCormick and I identify a type of business that ignores the "data driven" hype. Instead, insights-driven businesses focus on implementing insights – that is actionable knowledge in the context of a process or decision – in the software that drives every aspect of their business. This is a big shift from most firms that fret over big data and technology. Instead insights-driven businesses focus on turning insights into action. The big data and technology pieces come along naturally as a consequence.
To gauge the economic impact of insights-driven businesses, Forrester built a revenue model that conservatively forecasts insights-driven businesses will earn about $400 billion in 2016; however, by 2020 they will be making over $1.2 trillion a year due to an astonishing compound annual growth rate between 27% and 40%. Given that global growth is less than 4%, how will they pull this off? Plain and simple, they’ll do this by understanding customers more deeply and using that insight to steal them from their competition.
You know a lot of these businesses already as first generation digital disruptors – Facebook, Amazon, Google, Uber, Netflix etc. But what you may not know about is the horde of next generation innovators – like StitchFix and Earnest – that are applying lessons learned at first generation firms to overturn many other industries. We also found insights-driven practices cropping up in traditional enterprises, such as Alaska Airlines and The Washington Post. My point is that while these practices may have started in the 'born digital' bunch, they are not staying there. All businesses can do these things — if they have leadership.
The rapid growth of insights-driven businesses may already be causing your firm some pain, but it will only get worse. You must learn how they are different and how to beat or join them. Our research found they are built differently and, as a result, operate differently. Specifically, they:
● Operate in closed-loop systems of insight. These systems connect the implementation of insight in software to the measurement of actions and outcomes to the acquisition of more data for continuous learning and optimization. Insights-driven businesses iterate around the insight loop much faster than their competition using small, agile insights teams and next generation insights platforms.
● Marry algorithms and expertise. Insights-driven businesses recognize that humans are still much smarter than machines. They take advantage of employee know-how by capturing human knowledge and then baking this back into their algorithms, which in turn make employees smarter.
● Tap more and more data in order to build up a huge corpus over time. Insights-driven businesses don’t obsess over more data, believe it or not. Instead, they add data to systems of insight as they learn and optimize. This process builds a large body of data over time which they use to erect high competitive barriers.
● Invest strategically in data analytics, always starting with the C-suite. Insights-driven businesses know where insight delivers a competitive advantage, while other firms struggle over “business cases” and look for “low-hanging fruit” in order to invest in “big data.” ROI is not the gating factor for them — competitive advantage is.
This is a CEO and board discussion that must start happening today. Trust us, insights-driven businesses are going to be the ones that win in the age of the customer because they have the data and apply the insight to be customer obssessed. You must become one.
This report is the culmination of two years of research that included speaking to hundreds of firms and pouring over three years of survey data with nearly 10,000 responses. Also check out James’ blog post on this report for additional perspective — one of the coolest things was collaborating with him and Ted Schadler to bring all of our findings and opinions together. We are excited to share our perspectives and would love to hear your opinion in the comments section below.