The onslaught of “Big Data” available via modern technology is exciting yet overwhelming. It’s possible to analyze anything, anywhere, anytime – but how do you take it all in without encountering analysis paralysis? Find that answer, and you find the pot of gold at the end of the rainbow.Let’s start by defining Big Data, and understanding how it affects you. The very definition provided by Wikipedia is enough to make your head spin:
“In information technology, big data is a collection of data sets so large and complex that it becomes difficult to process using on-hand database management tools. The challenges include capture, curation, storage, search, sharing, analysis, and visualization. The trend to larger data sets is due to the additional information derivable from analysis of a single large set of related data, as compared to separate smaller sets with the same total amount of data, allowing correlations to be found to "spot business trends, determine quality of research, prevent diseases, link legal citations, combat crime, and determine real-time roadway traffic conditions."
Whew – you get all that?
For an example of how it looks in action, check out this video of McLaren driver Lewis Hamilton explaining telemetry acquired from his F1 car. It’s amazing how real-time data is fused with Hamilton’s reaction on the road.
Big Data is active in other segments of the sports world, as exemplified by SAP’s partnership with pro football San Francisco 49ers. The NFL team’s practice facility will be named “SAP Training Center,” but there is more than naming rights on the line here.
SAP will be a sponsor for the $1.2 billion venture and will serve as the 49ers exclusive business software, statistics, and performance partner. This was reported in a fantastic Forbes article by Dave Feinleib.
Check out this comment made by SAP Chief Marketing Officer Jonathan Becher regarding Big Data and sports:
“Sports teams are never content to rest on their laurels; they are constantly measuring performance to look for ways to improve. Improving the performance of a sports team includes their internal operations, the performance of their employees (both those on and off the field), attracting and retaining customers (the fans), and benchmarking themselves against the competition. These are the exact same challenges that other businesses face.” – SAP Chief Marketing Officer Jonathan Becher.
Big Data is coming on fast and furious, but statistical analyst Nate Silver, who writes the FiveThirtyEight Blog, urges caution. This may be surprising to many, considering Silver’s amazing ability at the art of prediction.
Nate Silver - photo from time.com
In 2008, he predicted the presidential winner of 49 out of 50 states, and the winners of all 35 senate races. He has also developed a system for analyzing baseball players’ potential and he made his living as a poker player.
During a recent interview on Fresh Air, he said, “According to IBM, 90 percent of the data in the world was created within the last two years. So one problem is what we call the signal-to-noise ratio – the amount of meaningful information relative to the overall amount of information is declining. We’re not that much smarter than we used to be, even though we have more information – and that means the real skill now is learning how to pick out the useful information from all that noise.”
Here’s a link to the podcast interview with Silver – it’s fascinating stuff.
Silver refers to the prominent role stats play in sports, brilliantly portrayed in the movie Moneyball. He notes that today’s scouts, who in the movie were resistant to the inclusion of statistical analysis in the player judgement, are now fusing the data with their own inherent knowledge.
Which brings us back to…you. How are you going to make heads or tails of all the data that’s available to you?
The Two Keys to Avoiding Paralysis by Analysis
I would offer up two approaches: One, find a system that tracks the key data points. And two, be willing to accept it.
1. Finding a System That Tracks the Key Data Points
In Dave Feinleib’s Forbes article, he cites an experiment being conducted by the Manchester City Football Club (MCFC). Instead of partnering with a company like SAP, MCFC is crowd-sourcing its data analysis. They’re allowing open access to all their performance data, and asking all number-crunchers to provide their input.
It’s a novel approach, and will probably save them some cash, but I question whether clarity will result from chaos.
Any analysis of a printing company, for example, begins by isolating key financial statistics. These include:
- A cash flow analysis, including your cash flow statement. Ideally, your cash flow analysis should provide analysis of the previous six weeks, and a projection of six weeks into the future. You’ll also want to extend your cash flow statement for 3 to 5 years, every month.
- Key financial ratios, including liquidity ratios such as the Current Ratio, Quick Ratio and the Sales/Receivables Ratio. I’ll be detailing these in future posts, so be sure to subscribe to my blog if you’re interested, or contact me directly for an in-depth explanation.
- Competitive analysis of the industry, which includes understanding benchmarks of marketplace leaders.
From these findings, we can drill down into specific areas in which we see an impact. This is similar to the Big Data approach. Find the key elements to your business, and then analyze them to see the impact.
2. Adapt the Humility to Accept the Data
My father often spoke about the one prevailing weakness among all business owners: An insatiable need for prestige. That includes wanting to have the biggest house, drive the nicest car, and basically be the big shot.
To be honest with you, I have no problem with that. If you want to adapt the kind of attitude in your life, go right ahead. But be sure you have a successful business to back up that kind of persona.
The problem with many business owners is they put the cart before the horse. They think because they’ve struck gold with a business in the past, they can do it the same way again now that they’re in a slump.
Unfortunately, they’re overlooking current realities, and the need to approach newfound data in the proper frame of mind. As the article about Nate Silver indicates, “Those who succeed at spotting new trends and understanding the future are careful to acknowledge what they don’t know – and examine the assumptions that underlie their thinking. Humility is critical."
You have to be willing to face the music. I can’t tell you how many clients I’ve met with who are given the facts, plain as day, and then proceed to stick their heads in the sand. It’s human nature, yes, but it’s also tremendously bad for business.
That being said, you also need to do more than just gaze vacantly at the numbers. You have to be able to apply them to your business, and understand how they can impact your operations. The principles of lean operation come into play in this situation.
Big Data will continue to drive decision making in Big Business. There’s no escaping that reality. You need to keep up with the Joneses by developing your own system of analytics, and then applying them to your business.
Doing that may require the humility that Nate Silver described earlier. And as we’ve seen from the survivors of the 2008 recession, a little humility these days can take you a very long way.