Imagine your company has a treasure trove of data – customer demographics, website behavior, social media sentiment – just sitting there, untapped. It's valuable information, but it's not generating any returns. You could keep collecting it, hoping for some future insight. You could analyze it superficially, getting a basic understanding. Or, you could treat it like an investment portfolio, strategically analyzing it to unlock its full growth potential.
The same is true with a pile of cash sitting unused in your bank account. It's safe, but it's not doing much for you. You could leave it there, earning a measly interest rate. You could invest in a broad market exchange-traded fund (ETF) for a decent, but potentially less exciting return.
Or, you could become a stock picker, diving deep into individual companies, hoping to strike gold with high-growth, high-risk investments.
"The purpose of collecting data is not to have data. It is to make decisions." - Tom Peters
The same principles apply to your company. You have expenses, but you also have resources to invest in the future. You wouldn't just leave money in a low-interest account – you'd invest in things like product development, marketing, and hiring great people to drive growth. But what about data?
From the dusty corners of server rooms to the bustling boardrooms of corporate headquarters, the journey to unlock the full potential of data is one fraught with challenges and opportunities. Join us as we embark on a quest to transform data from a dormant asset into a dynamic force driving business success
Data as Your Investment Portfolio
Data is often seen as a cost center, a necessary evil. But just like with your finances, data can be viewed as an investment portfolio. Every data source you tap into, whether it's customer demographics, website analytics, or social media sentiment, is like an individual stock.
Here's the key: These data sources become an ETF combined strategically. They paint a broader picture, providing valuable insights to drive better organizational decision-making.
Building a Winning Data Strategy
However, simply collecting data isn't enough. To create a truly valuable data portfolio, you need a solid strategy. Here's a step-by-step approach:
- Planning, not Plumbing: Don't get bogged down by technology. Before diving into data management tools, create a clear data strategy. What are the key performance indicators (KPIs) you want to track? What data sources are crucial to understanding those KPIs?
- Mapping Your Data Universe: Think about your data as a map. Identify the data producers within your company, and establish clear data contracts. Explain what data is needed, why it's important, and what format it should be in. With Data Mesh, many data producer teams feel data production is something they are forced to do, rather than a company-generated value as they can’t see the ROI of their investment in the data.
- The Data Whisperers: Assign subject matter experts as "owners" for your data ETFs. These individuals understand the data inside and out and can ensure its quality and relevance. They need to have the skill of evaluating the costs vs the return and determining if they are willing to add more stocks to the ETF portfolio or not based on the possible value it will generate for the company.
- The Bottom Line: Just like with your investments, you need a data controller. Someone who can track the costs associated with each data source and measure/validate its return on investment (ROI). This allows for a clear picture of how your data portfolio is performing. This controller should make it visible for management what is the current health of the data investment.
Track Data Investment Performance: Following Pearl Zhu, CEO of GE Healthcare, who emphasizes the importance of turning data into actionable insights, monitor two key data investment metrics: Data ROI (return on investment) and Data health. Data ROI measures the value generated from data utilization, while data health ensures decisions are based on accurate information. Tracking these metrics helps you understand the effectiveness of your data portfolio and identify areas for improvement.
Return on Investment Evaluation
There are two main ways to evaluate the ROI of your data "stocks":
Return by Having Data:
Every day, a mobile game app has a budget of €1,000 to advertise on social media, the company collects the campaigns and conversion data via an API from different social media. By having this data, marketers can optimize their budget spending by killing bad campaigns to save costs on ads that do not convert or increase ads spends on better-converting ads, which means that every day the data is available, there is some money saved or optimized.
Return by Increased Revenues:
Another example: website analytics data can be used to build a recommendation engine. Imagine your company built a recommendation engine based on user browsing behavior that increased the average order value by €10. This directly translates to increased revenue.
For example, in e-commerce, if you’re looking to send out a newsletter to your user base, the main key for conversion will be items that are as relevant as possible for the user’s past purchases or possible future ones.
If you know that users who bought iPhones in the time frame of the past two weeks looking for cases to protect their expensive by, and you find popular cases based on the historic purchase data, you can personalize the newsletter to increase this conversion.
By having this data, you create a 12% increase in the chance of a second purchase and the average income of this second purchase is €10 you can evaluate the possible return on investment by holding the purchase history data.
Investing in the Future:
Sometimes, data investments might seem like a gamble. You might collect data on a new customer segment, unsure of the immediate payoff. However, like investing in a promising but unproven startup, this data could be crucial for future growth. Techniques like scenario planning can help estimate the potential future value of this data based on market trends.
By constantly evaluating the ROI of your data "stocks," you can optimize your portfolio. The data controller plays a vital role, in ensuring everyone understands the value and health of the data used across the company.
Data as a Trading Floor
Imagine a company board meeting where data is presented just like a stock market report. Each data source, your "ETF," is assessed based on its cost and benefits. This data-driven approach allows for informed decisions about where to invest further and which sources might need replacing.
Selecting a new KPI is like choosing a stock – thorough research is key. Just like analyzing market trends and competitor strategies before investing, understanding the potential impact of a KPI is crucial. Some KPIs, like customer lifetime value, might be long-term investments that can significantly impact future revenue streams.
Others, like website traffic, might require a shorter-term evaluation to ensure efficient resource allocation. By carefully analyzing data and understanding market needs, companies can make informed decisions about which KPIs are the best 'stocks' to invest in for their data portfolio.
The Final Word
Don't let your data languish like a low-interest account. Treat it as an investment portfolio, strategically analyzing it to unlock its full growth potential. Just like the financial markets, data can be complex, but by focusing on ROI and building a well-researched portfolio, companies can gain a competitive edge, make smarter decisions, and achieve long-term success.
Data is a powerful tool waiting to be harnessed. Invest in your data, and unlock its potential to drive business success. By building a strong data portfolio, companies can gain a competitive edge, make smarter decisions, and achieve long-term success
Please share how you deal with ROI in your organization.