Productivity and profitability improved with effective data use by Hasan Bakhshi, Director Policy and Research, Nesta on 11-Mar-2014

New evidence shows that businesses can become more profitable and productive if they use their online customer data - information gathered from web sources including marketing campaigns, social media and web analytics - effectively. This evidence is published in a report called Inside the Datavores from Nesta and Hasan Bakhshi, Director of Creative Economy, Policy and Research at Nesta, tells us about the research.

If you believe what you read, businesses in seemingly every sector of the economy can reap rewards by making better use of their customer data, from information gathered through marketing campaigns to web analytics and transaction data. Advances in data mining, artificial intelligence and network science have also made it easier to extract valuable insights from data.

Big data has been touted as a vital resource for business, but until now, there has been little hard evidence of its positive impact on the bottom-line. The research found that businesses that make greater use of their online customer data – those that collect, analyse and deploy data – are eight per cent more productive as a result (measured by value added).

When considering data activities separately, our results show that data analysis has the strongest effect on productivity. Businesses that are more analytical in their approach to data are 11% more productive than the average. Analytical businesses explore their data using a multitude of techniques, including regression analysis, data mining and text mining; they run A/B experiments on their websites and they disseminate the insights generated from their data through reports, dashboards and visualisations.

Greater data analysis is associated with higher profitability too. It generates a return on equity that is 4.3% higher than the average and a boost in profits of £3180 per employee.

By contrast, we find that more comprehensive data collection on its own is not associated with higher productivity or profitability. Echoing what we know about the adoption of other Information Technologies, collecting data on its own does not yield business benefits – the data must be analysed, and the resulting insights used to drive action.

The report also found that businesses that grant their employees greater autonomy to make decisions report a productivity premium from data use that is almost four times as high as those with centralised decision-making.

"Believe the hype," says Hasan. "The report shows that data has clear benefits for businesses, but collecting it alone is not enough. Businesses must analyse their data and create an environment where workers are empowered to use it to generate positive returns. Our report makes a strong case that no business should ignore its data."

500 businesses from a variety of sectors, including information and communications; wholesale; business support services; retail; professional activities; knowledge-intensive business services; manufacturing and financial services were surveyed for this research and their responses were matched with historical performance measures taken from a company accounts.

This work is called The Rise of the Datavores and can be read on the Nesta website here

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