Companies with poor understanding of their own data, don’t take the time to fix problems or aren’t accustomed to working with their data struggle to move forward on large initiatives
Archimedes said: “Give me a long enough lever and a place to stand and I’ll move the world”.
When it comes to data innovation, with so many new technologies such as advanced analytics, machine learning and sensors, it’s easy to focus on the lever and forget our goal to move the world.
New Zealand businesses have a good track record of creativity and innovation but there’s a lot we can learn from looking at successful data innovation abroad. Let’s have a look at some examples of global firms using their data smartly in the agriculture, electricity and aviation industries to help their organisations to adapt in rapidly changing markets.
Sustained profit in air travel
Several years ago renowned investor Warren Buffett described the airline industry as a “death-trap for investors”. Despite continued growth though the past sixty years the average annual industry profit through this time was under 1 per cent.. Many airlines were for a very long time under government ownership where promoting national interests was a higher priority than profit but even more than twenty years after privatisation many airlines continue to struggle. In that setting Southwest Airlines has been called “a bright spot in an otherwise stagnant industry”. The Airline recently announced their 44th consecutive year of profitability, a record annual profit and an average return on invested capital of 31 per cent in 2015 and 2016.
A key part of that success has been the data and analytics platform that helps run the business.
Southwest’s data platforms provide insight into refuelling efficiency, arrival gate optimisation, real-time operational disruption recovery and automation of complex decision-making. This functionality has enabled the airline to improve on-time performance by 10 to 15 per cent during severe weather events, and reduce costs in many parts of the business by 3 to 5 per cent. For expenses such as fuel with annual spending of $5 billion and staff expenses over 50,000 employees, these savings have been significant.
Southwest hasn’t taken a revolutionary approach to data but invested in developing and executing on a solid data strategy, automating and removing manual data processes, redesigning data jobs in more efficient ways to reduce runtime from hours to minutes, introducing advanced data engines in specialised areas to enable near real-time data flows to support operational decision making and promoting broader use of self-service analytic tools to encourage decision makers to rely on data and agreed metric definitions.
Establishing a pipeline of data insight priorities and regular discussion about what new insights will enable the organisation to achieve is a powerful way to identify innovation opportunities.
Driving change in the electricity industry
Through the twentieth century the electricity industry was a place of stability where demand increases followed economic growth. This changed abruptly 10 years ago as demand patterns were disrupted by the 2008 global financial crisis. Soon after, the 2011 Fukushima Nuclear incident resulted in the shutdown of all of Japan’s nuclear power plants, with other countries such as Germany following suit. The price of solar panels and battery costs has steadily dropped putting the value of large power plant investments at risk and questioning the future structure of power networks. Smart meters have become commonplace resulting in large streams of data and electricity looks set to become the dominant fuel for vehicles as major car makers prepare to phase out petrol vehicles. Through these changes, the market value of Europe’s top 20 electricity generation firms dropped from 1 trillion Euro in 2008 to half that five years later.
The Dutch electricity supply firm Alliander is using data to drive investments, actions and customer value. The company pursues high quality information to eliminate doubt in crisis situations, ensure maintenance crews have the right information to undertake work, avoid paying incorrect compensation through accurate outage information and improve field force efficiency. Alliander have combined data from past outages, sensors, soil character and more to measure asset health, using analytics and real-time data flows and dashboards to provide awareness of the electricity grid.
This however is just the beginning what Alliander are doing with data, the company have developed a data sharing platform known as “HelloData”. The platform captures data from smart meters and smart devices in an open data platform accessible to partners and app makers to give customers the ability to control what data is shared with which apps and when, promoting data sharing and reuse.
Data has also supported Alliander in its work to rethink their future business model, which earned the company an innovation award earlier this year for deploying a pilot project to create a system of connected houses in a neighbourhood with sensors, solar panels and a smart energy management platform. The system was able to help prevent fifteen power outages and provide a more flexible source of power balancing though automatically predicting power needs and switching off and on power generation capacity.
Another firm creating customer value in the electricity industry is the energy intelligence firm EnerNOC. This company helps organisations to manage their electricity costs. The Harvard Business Review described how EnerNOC supported Kendall-Jackson wineries to reduce their energy bill by close to 40 per cent in 2016, saving it $2 million. Seeing the potential value, EnerNOC was acquired by the multinational power utility Enel in June 2017 for $300 million.
Do you understand how machine learning, sensors and other new data technologies could benefit your own and your customers’ businesses?
Data platforms enabling transformation of agriculture
The agriculture industry is rich in smart data potential given advances in sensors, machine learning, self-driving vehicles and drones.
Monsanto, a major agriculture organisation has embraced data innovation through acquisition. Monsanto acquired Precision Planting in 2012 for $210 million, and Climate Corp in 2013 for $930 million. Each of these businesses recognise the potential to be unlocked through smart use of data.
Climate Corp, which grew from an initial investment of $108 million in 2007 uses thirty years of weather data to predict and underwrite insurance for poor weather conditions for farmers.
Precision Planting enables farms to improve farm output through optimising the amount of fertiliser, chemicals and seeds based on precise location information. The technology makes heavy use of real-time sensor feedback to inform the farmer while working the farm. Monsanto’s investment in data smart innovation led to Bayer, the German chemical and pharmaceutical company, making an offer to acquire Monsanto in 2016 for $66 billion a 44 per cent premium on the previous market value of $46 billion.
Here in New Zealand there are organisations investing and innovating in each of these industries, one example is the Agrigate platform released by Fonterra and Livestock Improvements earlier this year, to enable farmers to make faster and smarter decisions from an online dashboard. But considering the global value of success, there are many areas in which we could do more.
Capturing data opportunities in New Zealand
Southwest Airlines is an example of good data management enabling efficiency and innovation execution. Clear insight guides decisions to ensuring everyone is shooting for the same target. Work to reduce manual effort through automating key data tasks reduces the time consumed running the current system, which frees up time to improve the data landscape to support business improvement and encourage decision makers to use self-service analytics.
In addition to good data management Alliander shows how data acts as the oil of change. Data enables the company to nimbly identify and pursue opportunities to innovate. Companies with poor understanding of their own data, don’t take the time to fix problems or aren’t accustomed to working with their data struggle to move forward on large initiatives—major projects take longer and the effort to execute is more difficult to predict. Data analysis findings frequently provide a guide to new opportunities. Establishing a pipeline of data insight priorities and regular discussion about what new insights will enable the organisation to achieve is a powerful way to identify innovation opportunities. This discussion between IT and the wider business enables technology specialists to suggest technical improvement opportunities while business stakeholders can discuss which information is more valued.
Climate Corp, Precision Planting and Monsanto show how long established industries are beginning to see major productivity increases as a result of data innovation. At the forefront of this march will be machine learning, able to provide farmers with uniquely customised best practice guidance and advice about disease, pest identification and treatment, precision weather prediction and analysis tools to maximise yield for various crops given the specific soil types, risk of extreme weather and expected demand.
Where to from here?
To get started, ask yourself the following four questions:
Do you have a clear understanding of insight priorities within your business?
Do you understand how your customers and suppliers’ value chain could be enriched through greater access to the data you hold?
Do you understand how machine learning, sensors and other new data technologies could benefit your own and your customers’ businesses?
Derek Papesch: "New Zealand businesses have a good track record of creativity and innovation but there’s a lot we can learn from looking at successful data innovation abroad."
Derek Papesch is an independent data consultant experienced in planning and executing data initiatives to achieve organisational results. He has wide industry experience in New Zealand and overseas with a focus on rapid industry change and driving market growth.
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