In a new research report, McKinsey Global Institute projects that open data can “help unlock” $3 trillion to $5 trillion in economic value annually across transportation, consumer products, electricity, oil and gas, health care and consumer finance.
How does McKinsey see value being created? McKinsey researcher Michael Chui, co-author of Open Data: Unlocking Innovation and Performance with Liquid Information, counted the ways during his presentation at Strata Conference + Hadoop World 2013 in New York.
1. Open data creates transparency. Openness and transparency are words commonly heard in connection with governmental agencies, and for good reason: The public sector is a leader in the open data trend. “In the United States, California and Texas have identified millions of dollars a year in savings by releasing budgetary information and enabling citizens to spot potential opportunities to cut costs,” according to the report. But Chui argues open data can be useful to the private sector as well. Businesses that open up data can build deeper relationships with their customers by, for example, giving greater visibility into household energy spending, medical expenses and how financial products are built.
2. Open data improves performance. Open data can help businesses compare performance. Several of the examples contained within the report suggest sharing benchmarking data to create operational and even project management efficiencies. For example, sharing budgetary information can help keep procurement costs in check or opening up manufacturing benchmarks can help businesses increase precision in production. “About a third of the value from open data comes from benchmarking,” Chui said.
3. Open data creates new products and services. Think The Climate Corporation. Established by two former Google employees and purchased by the Monsanto Company for about $1 billion, The Climate Corp. supplies farmers with weather insurance by incorporating years and years of open data from places like the National Weather Service into its analysis. Insuring against harsh weather conditions isn’t new, but how Climate Corp. doles out that insurance is. The process is a more streamlined, self-service model. Farmers can purchase coverage online; the policy is customized to their specific location and the policy pays out after the coverage period ends.
4. Open data matches supply and demand. “We’ve studied a problem we’ve called ‘education to employment,’” said Chui. The problem, in short: Students don’t know what skills are needed to acquire a job and employers don’t know what skills potential employees have. In fact, according to the McKinsey report, “Today, school reputation is often used by many employers as a proxy for a candidate’s skill level.” Open data could help change that. How? The report points to Mozilla’s Open Badges platform as an example: Users earn badges by demonstrating mastery of certain skills, such as proficiency in a programming language. Businesses can study the badges earned by their own employees and seek out others who match the profile.
5. Open data helps to collaborate at scale. “Those of us who are geeks remember the Eric S. Raymond thing about open source: With enough eyeballs, all bugs are shallow,” Chui said. “That’s in code.” Extend that argument to data, and could open data make all insights shallow? “That’s probably not exactly true, but if you have more eyeballs working on data, you’re more likely to get better insights and better analysis,” he said.