Big data: The next frontier for innovation, competition, and productivity (McKinsey)
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Big data: The next frontier for innovation, competition, and productivity (McKinsey)

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McKinsey Global Institute June 2011 Big data: The next frontier for innovation, competition, and productivity The McKinsey Global Institute The McKinsey Global Institute (MGI), established in 1990, is McKinsey & Company’s business and economics research arm. MGI’s mission is to help leaders in the commercial, public, and social sectors develop a deeper understanding of the evolution of the global economy and to provide a fact base that contributes to decision making on critical management and policy issues. MGI research combines two disciplines: economics and management. Economists often have limited access to the practical problems facing senior managers, while senior managers often lack the time and incentive to look beyond their own industry to the larger issues of the global economy. By integrating these perspectives, MGI is able to gain insights into the microeconomic underpinnings of the long-term macroeconomic trends affecting business strategy and policy making. For nearly two decades, MGI has utilized this “micro-to-macro” approach in research covering more than 20 countries and 30 industry sectors. MGI’s current research agenda focuses on three broad areas: productivity, competitiveness, and growth; the evolution of global financial markets; and the economic impact of technology.

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McKinsey Global Institute
June 2011
Big data: The next frontier
for innovation, competition,
and productivityThe McKinsey Global Institute
The McKinsey Global Institute (MGI), established in 1990, is McKinsey &
Company’s business and economics research arm.
MGI’s mission is to help leaders in the commercial, public, and social sectors
develop a deeper understanding of the evolution of the global economy and to
provide a fact base that contributes to decision making on critical management
and policy issues.
MGI research combines two disciplines: economics and management.
Economists often have limited access to the practical problems facing
senior managers, while senior managers often lack the time and incentive
to look beyond their own industry to the larger issues of the global economy.
By integrating these perspectives, MGI is able to gain insights into the
microeconomic underpinnings of the long-term macroeconomic trends
affecting business strategy and policy making. For nearly two decades, MGI
has utilized this “micro-to-macro” approach in research covering more than 20
countries and 30 industry sectors.
MGI’s current research agenda focuses on three broad areas: productivity,
competitiveness, and growth; the evolution of global financial markets; and the
economic impact of technology. Recent research has examined a program
of reform to bolster growth and renewal in Europe and the United States
through accelerated productivity growth; Africa’s economic potential; debt
and deleveraging and the end of cheap capital; the impact of multinational
companies on the US economy; technology-enabled business trends;
urbanization in India and China; and the competitiveness of sectors and
industrial policy.
MGI is led by three McKinsey & Company directors: Richard Dobbs, James
Manyika, and Charles Roxburgh. Susan Lund serves as MGI’s director of
research. MGI project teams are led by a group of senior fellows and include
consultants from McKinsey’s offices around the world. These teams draw on
McKinsey’s global network of industry and management experts and partners.
In addition, MGI works with leading economists, including Nobel laureates, who
act as advisers to MGI projects.
The partners of McKinsey & Company fund MGI’s research, which is not
commissioned by any business, government, or other institution.
Further information about MGI and copies of MGI’s published reports can be
found at www.mckinsey.com/mgi.
Copyright © McKinsey & Company 2011McKinsey Global Institute
May 2011
Big data: The next frontier
for innovation, competition,
and productivity
James Manyika
Michael Chui
Brad Brown
Jacques Bughin
Richard Dobbs
Charles Roxburgh
Angela Hung ByersPreface
The amount of data in our world has been exploding. Companies capture trillions of
bytes of information about their customers, suppliers, and operations, and millions
of networked sensors are being embedded in the physical world in devices such
as mobile phones and automobiles, sensing, creating, and communicating data.
Multimedia and individuals with smartphones and on social network sites will
continue to fuel exponential growth. Big data—large pools of data that can be
captured, communicated, aggregated, stored, and analyzed—is now part of every
sector and function of the global economy. Like other essential factors of production
such as hard assets and human capital, it is increasingly the case that much of
modern economic activity, innovation, and growth simply couldn’t take place without
data.
The question is what this phenomenon means. Is the proliferation of data simply
evidence of an increasingly intrusive world? Or can big data play a useful economic
role? While most research into big data thus far has focused on the question of its
volume, our study makes the case that the business and economic possibilities of big
data and its wider implications are important issues that business leaders and policy
makers must tackle. To inform the debate, this study examines the potential value
that big data can create for organizations and sectors of the economy and seeks to
illustrate and quantify that value. We also explore what leaders of organizations and
policy makers need to do to capture it.
James Manyika and Michael Chui led this project, working closely with Brad Brown,
Jacques Bughin, and Richard Dobbs. Charles Roxburgh also made a valuable
contribution. Angela Hung Byers managed the project team, which comprised
Markus Allesch, Alex Ince-Cushman, Hans Henrik Knudsen, Soyoko Umeno, and
JiaJing Wang. Martin N. Baily, a senior adviser to McKinsey and a senior fellow at
the Brookings Institution, and Hal R. Varian, emeritus professor in the School of
Information, the Haas School of Business and the Department of Economics at
the University of California at Berkeley, and chief economist at Google, served as
academic advisers to this work. We are also grateful for the input provided by Erik
Brynjolfsson, Schussel Family Professor at the MIT Sloan School of Management
and director of the MIT Center for Digital Business, and Andrew McAfee, principal
research scientist at the MIT Center for Digital Business.
The team also appreciates the contribution made by our academic research
collaboration with the Global Information Industry Center (GIIC) at the University
of California, San Diego, which aimed to reach a better understanding of data
generation in health care and the public sector, as well as in the area of personal
location data. We are grateful to Roger E. Bohn, professor of management and
director at the GIIC, and James E. Short, the Center’s research director, the principal
investigators, as well as to graduate students Coralie Bordes, Kylie Canaday, and
John Petrequin.McKinsey Global Institute
Big data: The next frontier for innovation, competition, and productivity
We are grateful for the vital input and support of numerous MGI and McKinsey
colleagues including senior expert Thomas Herbig; Simon London, McKinsey
director of digital communications; MGI senior fellow Jaana Remes; and expert
principals William Forrest and Roger Roberts. From McKinsey’s health care practice,
we would like to thank Stefan Biesdorf, Basel Kayyali, Bob Kocher, Paul Mango, Sam
Marwaha, Brian Milch, David Nuzum, Vivian Riefberg, Saum Sutaria, Steve Savas,
and Steve Van Kuiken. From the public sector practice, we would like to acknowledge
the input of Kalle Bengtsson, David Chinn, MGI fellow Karen Croxson, Thomas
Dohrmann, Tim Kelsey, Alastair Levy, Lenny Mendonca, Sebastian Muschter,
and Gary Pinshaw. From the retail practice, we are grateful to MGI Economics
Research knowledge specialists Imran Ahmed, David Court, Karel Dörner, and
John Livingston. From the manufacturing practice, we would like to thank André
Andonian, Markus Löffler, Daniel Pacthod, Asutosh Padhi, Matt Rogers, and Gernot
Strube. On the topic of personal location data, we would like to acknowledge the help
we received from Kalle Greven, Marc de Jong, Rebecca Millman, Julian Mills, and
Stephan Zimmermann. We would like to thank Martha Laboissiere for her help on
our analysis of talent and Anoop Sinha and Siddhartha S for their help on mapping
big data. The team also drew on previous MGI research, as well as other McKinsey
research including global iConsumer surveys, McKinsey Quarterly Web 2.0 surveys,
health care system and hospital performance benchmarking, multicountry tax
benchmarking, public sector productivity, and research for the Internet Advertising
Board of Europe. The team appreciates the contributions of Janet Bush, MGI
senior editor, who provided editorial support; Rebeca Robboy, MGI external
communications manager; Charles Barthold, external communications manager
in McKinsey’s Business Technology Office; Julie Philpot, MGI editorial production
manager; and graphic design specialists Therese Khoury, Marisa Carder, and Bill
Carlson.
This report contributes to MGI’s mission to help global leaders understand the
forces transforming the global economy, improve company performance, and work
for better national and international policies. As with all MGI research, we would
like to emphasize that this work is independent and has not been commissioned or
sponsored in any way by any business, government, or other institution.
Richard Dobbs
Director, McKinsey Global Institute
Seoul
James Manyika
Director, McKinsey Global Institute
San Francisco
Charles Roxburgh
Director, McKinsey Global Institute
London
Susan Lund
Director of Research, McKinsey Global Institute
Washington, DC
June 2011vi
Big data—a growing torrent
to buy a disk drive that can $600 store all of the world’s music
mobile phones 5 billion in use in 2010
pieces of content shared 30 billion on Facebook every month
projected growth in 40% global data generated
per year vs. 5%
growth in global
IT spending
terabytes data collected by 235 the US Library of Congress
by April 2011
15 out of 17
sectors in the United States have
more data stored per company
than the US Library of CongressMcKinsey Global Institute
Big data: The next frontier for innovation, competition, and productivity vii
Big data—capturing its value
$300 billion
potential annual value to US health care—more than
double the total annual health care spending in Spain
€250 billion
potential annual value to Europe’s public sector
administration—more than GDP of Greece
$600 billion
potential annual consumer surplus from
using personal location data globally
potential increase in 60% retailers’ operating margins
possible with big data
140,000–190,000
more deep analytical talent positions, and
1.5 million
more data-savvy managers
needed to take full advantage
of big data in the United StatesMcKinsey Global Institute
Big data: The next frontier for innovation, competition, and productivity
Contents
Executive summary 1
1. Mapping global data: Growth and value creation 15
2. Big data techniques and technologies 27
3. The transformative potential of big data in five domains 37
3a. Health care (United States) 39
3b. Public sector administration (European Union) 54
3c. Retail (United States) 64
3d. Manufacturing (global) 76
3e. Personal location data (global) 85
4. Key findings that apply across sectors 97
5. Implications for organization leaders 111
6. Implications for policy makers 117
Appendix 123
Construction of indices on value potential
and ease of capture 123
Data map methodology 126
Estimating value potential in health care (United States) 127
Estimating value potential in public sector administration (European Union) 129
Estimating value potential in retail (United States) 130
Estimating value potential in personal location data (global) 133
Methodology for analyzing the supply and demand of analytical talent 134
Bibliography 137