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February 1, 2016

Investors Await Clearer Big Data Strategies

George Leopold

Institutional investors and financial market analysts are bullish about the value of data analytics, according to a recent survey by financial advisor KPMG, but are still waiting to see how it can create a competitive advantage for early adopters.

Data and analytics “will indeed alter the competitive landscape—rewarding some companies and punishing others—especially in the longer term,” concluded Bradley Fisher, U.S. leader for data and analytics at KPMG and a partner in the firm. “Investors and analysts see greatest opportunity for companies to use [data and analytics] to improve operating performance, along with topline growth and product innovation.”

The survey of 260 investors and “sell-side” market analysts, mostly in the U.S., found that nearly one-quarter had over the past year revised an investment opinion and, with it, a company valuation based on its big data strategy. That sentiment is expected to jump 45 percent over the next two years as investors become more likely to attach greater value to companies with clear big data strategies, KPMG reported.

The study also came with a caveat: “What seems to be missing, say study participants, is a close integration of data and analytics into companies’ broader business strategies—and also clear and concise explanations of this integration,” Fisher noted. Only 40 percent of respondents said companies they track offered a clear explanation of their big data strategy. Thirty-seven percent said companies they track do a poor job of explaining their data analytics plans while 23 percent don’t even make an effort, the survey found.

Hence, the study emphasizes the importance of a “first-mover” advantage for companies that have their ducks in a row when it comes to data analytics. “Large companies that have the infrastructure to support ambitious [data analytics] initiatives are likely to prevail” by creating barriers to new market entrants, the financial advisor asserted.

Among the metrics investors use to assess companies performance is how they use data analytics to generate growth and profits while managing risk. For example, investors increasingly consider whether companies they track are leveraging big data to limit supply chain disruptions by mining transaction data about suppliers and partners. Another risk mitigation consideration is use data analytics to expose fraud and “irregular busy practices” among customers, employees, suppliers and partners.

Meanwhile, the IT boom of the last decade has given publicly traded companies access to massive amounts of data. Still, the survey found that many companies tracked by investors and asset managers fall short when it comes to connecting the dots. Said one portfolio manager quoted in the study: “Data is a huge advantage for a company, but it’s not just all about the collection of data. It’s about how you use the data in planning a strategy.”

He added: “You’ve got to become much more customer-focused on what type of data you’re collecting and how you use it.” Ultimately, these analysts are making judgments on how the companies they track are using data analytics to create a competitive advantage.

The survey included 130 investors from pension funds, sovereign wealth funds, mutual funds, asset management firms and insurance companies along with foundations and endowments. Seventy-two percent were based in the U.S., with the rest spread across Europe, South America and Asia.

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