Why is milk always at the back of the grocery store? Because of the precursor of Big Data. Let’s call it Little Data.
Retailers have always studied their customers’ behavior. An astute observer is just as valuable as mountains of data. In the era of Little Data, grocers noticed that shoppers usually waited until they needed several items before going to the store. Milk was different, however. If a household were out of milk, a family member would go to the store for the express purpose of buying milk – and only milk.
Once grocers noticed this, they moved the milk to the back of the store. Shoppers who came in only for milk might notice several other things they needed (or wanted) on the trip through the store. Rather than buying one item, they might buy half a dozen. By relocating the milk, the grocer could sell more.
What happened next is instructive. Once one grocer figured out the pattern and moved the milk to the back, all other grocers followed suit. I’ve verified this in at least a dozen countries. The milk is always at the back. No grocer can establish a competitive advantage by putting the milk at the back of the store.
What does this have to do with strategy? I’ve always subscribed to Michael Porter’s insights on the difference between operational effectiveness and strategy. In his classic article, What Is Strategy?, Porter defines operational effectiveness as doing the same things as competitors but doing them better. Strategy, on the other hand, means, “… preserving what is distinctive about a company. It means performing different activities from rivals or performing similar activities in different ways.”
In the era of Little Data, we could figure out simple things like how consumers buy milk. Now, in the era of Big Data, we can identify much more subtle patterns in much greater detail. However, the underlying dynamic doesn’t change. Once one company figures out a new pattern, every one of its competitors can also implement it. As Porter points out, “…the problem with operational effectiveness is that best practices are easily emulated. … competition produces absolute improvement in operational effectiveness, but relative improvement for no one.”
Big Data, then, is about operational effectiveness, not strategy. Yet when I read about Big Data in management journals, I sense that it’s being treated as strategic weapon. It’s not. Companies may have to invest in Big Data to keep up with the Joneses but it’s never going to be a fundamental differentiator or a strategic advantage. It’s time for Big Companies to wise up about Big Data.