Open data and the economy – value creation and government ... · Open data can come from individuals, companies, or governments, and it differs from other data types in its degree

Open data and the economy – value creation and government’s role and opportunity

November, 2014

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited

Discussion document

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‘Openness’ or ‘liquidity’ of data can be defined by four characteristics

Completelyopen

Completelyclosed

More liquid

AccessibilityEveryone has access Access to data is to a subset

of individuals or organizations

Machine readability

Data are available in formats that can be easily retrieved and processed by computers

Data are in formats not easily retrieved and processed by computers

Cost No cost to obtain Offered only at a significant fee

RightsUnlimited rights to reuse and redistribute data

Reuse, republishing, or distribution of data is forbidden

McKinsey & Company | 1|

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Open data can come from individuals, companies, or governments, and it differs from other data types in its degree of accessibility

Accessibility

More closed More open

My data

Proprietary data

Open data

Big data

� Financial reports (public companies)

� Census data� Military plans

� Employee performance reviews

� Income tax returns

� Individual genome � Health-care records

� Property records

Government

Data source

Corporate

Citizen / consumer


McKinsey & Company |

A growing torrent of data is available as everyone, everything, and every interaction leaves a data vapor trail

SOURCE: McKinsey Global Institute, Hilbert and López, “The world’s technological capacity to store, communicate, and compute information,” Science, 2011

▪ Transactions: Trillions of data points from enterprise systems (e.g., ERP), inter-company activities (e.g., clearinghouses), consumer activity

▪ Mobile: 5 billion phones worldwide; growing share of smartphones

▪ Sensors: Embedded M2M sensors growing 30% annually, installed in everything from cars, roads, buildings, appliances

▪ Social: 30 billion items shared on Facebook alone; 200 million tweets a day

▪ Scientific/engineering: satellite images, geophysical data, genetic data

▪ Audio/video: increasing ability to automatically scan and extract information (e.g., facial recognition)

Greater volume

One exabyte represents over 4,000 times theinformation stored in the US Library of Congress

More sources

2013 790EB

X 4.4

2003 500EB

2020

35ZB

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Five overarching levers create value for individuals, companies and the economy overall through open data and big data analytics

Value lever

Transparency and accountability

Description

▪ Create ways to reduce fraud and mitigate risks for customers and companies

Benchmarking and experimentation

Customer segmentation

Augmented / automated decision-making

New or improved products and services

▪ Use internal and external benchmarks to create standards, and to test and evaluate pilots

▪ Segment populations to customize actions, product line/services to meet preferences

▪ Enable faster, more accurate, and less biased choices with greater ability to test and learn

▪ Innovate new or improved business modelsbased on refined opportunity assessment

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Open data can help unlock $3.2 trillion to $5.4 trillion in economic value per year across seven “domains”

SOURCE: McKinsey Global Institute analysis

$ billion

Total 3,220–5,390

Consumer finance 210–280

Health care1 300–450

Five domains 2,710–4,660

Oil and gas 240–510

Electricity 340–580

Consumer products 520–1,470

Transportation 720–920

Education 890–1,180

Values represent examples of

open data potential, not

comprehensive sizing of

potential value across sectors

1 Includes US values only.NOTE: Numbers may not sum due to rounding.

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How five open data levers can create over $890 billion of value in education


Improved instructionMatching students to programs

Matching students to employment

Efficient system administration

Transparent education financing

$230 290$230–290$190 240$190–240

$90–190$70–100$310 370$310–370

▪ Enhanced procurement and shared purchasing programs

▪ Data-driven siting strategy

▪ Loan transparency

▪ Personalized net price comparisons

▪ Personalized learning plans

▪ Frequent feedback on teaching performance

▪ Student-teacher matching

▪ Professional development

▪ Benchmarking of educational value/performance

▪ Transparency of programs/ institution offerings

▪ Transparency of skills demanded by employers

▪ Enhanced employer-candidate matching

▪ Clearer signaling of candidate skills

$890–1,190

Total

Annual economic value

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How three levers can create over $720 billion of value in transportation


▪ Right-size network

▪ Network mix optimization

▪ Network sharing

▪ Demand management (strategic route frequency and planning)

▪ Maintenance optimization

▪ Maintenance timing

▪ Congestion pricing

▪ Right-size fleet

▪ Optimal fleet mix

▪ Enhanced procurement (use total cost of ownership)

▪ Vehicle shares

▪ Maintenance optimization (e.g., maintain vs. decommission)

▪ Maintenance timing

▪ Reporting and decision support (cost, reliability, travel time, environmental impact)

▪ Accident prevention

Improved infrastructure planning and management

Optimized fleet investment and management

Better-informed customer decision making

$220 280$220–280$230 370$230–370$270 280$270–280

$720–920

Total


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How five open data levers can create over $520 billion of value in consumer products


▪ Customer service improvements

▪ Customer life-cycle management

▪ Efficiencies in manufacturing operations

▪ Open innovation (e.g., crowdsourcing)

▪ Reduced stock-outs

▪ Increased inventory velocity

▪ Price comparison tools

▪ Product transparency (e.g., recalls, safety violations, complaints, provenance)

▪ MyData services

▪ Granular segmentation

▪ Tailored layouts and assortments

▪ Precisely targeted advertising

Improved post-sales interactions

Improved product design and manufacturing

Efficient store operations

Better-informed consumption

More targeted marketing and sales

$25–35$0.3–0.5$70–290

$25–55$400 1,090$400–1,090

$520–1,490

Total


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How five open data levers can create over $340 billion of value in electricity


▪ Demand management Price transparency

▪ Commercial and residential user benchmarking

▪ Use of smart grid, next-gen technology

▪ Choice of energy-efficiency initiatives

▪ Process optimization/lean operations

▪ Efficient procurement/supply management

▪ Workforce optimization / operations scheduling

▪ Risk-based capital allocation

▪ Procurement, supply management

▪ Design to value

▪ Lean construction

▪ Permitting, siting strategy

▪ Technology deployment

Optimized retail and consumption

▪ Benchmarking best practices


▪ Permitting and siting strategy

▪ Optimization of technology deployment decisions

▪ Design to value

Optimized generation investment

▪ More efficient procurement and supply management

▪ Operations scheduling

▪ Process optimization/operations

▪ Workforce optimization/right-size staffing

Efficient generation operations

Efficient transmission and distribution operations

Optimized investment in transmission and distribution

$180–310$40–60$60–90

$20–60$30–50


$340–580

Total

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How five levers can create over $240 billion of value in oil and gas


▪ Pipeline site strategy

▪ More successful discovery through shared data

▪ Higher capital productivity


▪ Faster/cheaper permitting

▪ Workforce optimization

▪ Benchmarking best practices

▪ Process, reliability, and maintenance optimization


Optimized upstream investment

Efficient upstream operations

▪ Demand management

▪ Investments in energy efficiency

▪ Commercial and residential user benchmarking


▪ Workforce optimization

▪ Process optimization/lean operations

Better-informed consumption

Efficient mid and downstream operations

Optimized mid and downstream investment

$110 230$110–230

$80–160$30–80

$20–40 $110-230


$240–510

Total

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How five levers in health care can create over $300 billion of value in the US alone


NOTE: Data from US only.

▪ Trial operations improvement

▪ Avoid repeating failures

▪ Unmet needs identification

▪ Post-approval risk detection

▪ Patient health management

▪ Health education

▪ Prescription adherence

▪ Physician communication

▪ Clinical decision support

▪ Disease/case management

▪ Public health monitoring

▪ Safety detection

▪ Consumer decision making

▪ Patient information exchange

▪ Fraud prevention

▪ Resource/finance optimization

▪ Performance quality measurement

Right innovation

Right living Right care

Right value

Right provider

$50–70$90–110

$40–70$50–100

$70–100


$300–450

Total

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▪ Reduce frequency and magnitude of loss

▪ Improve collection of defaulted debt

▪ Improve product design and pricing

▪ Develop targeted product portfolio

▪ Target and acquire optimal mix of customers

▪ Personalize product recommendations

▪ Improve credit decisions

▪ Understand customer risk

▪ Optimize consumers’ selection with greater transparency

▪ Identify erroneous payments

▪ Understand spending habits

Optimized post credit decision risk management

Enhanced product design, pricing

Refined consumer marketing

Improved credit-offering decisions

Better-informed consumer decisions

$40-60$34-38

$13-28$97-107

$25-44

$209-277

Total



How five levers in consumer finance can create over $209 billion of value

NOTE: Represents only a partial list of value levers; total value likely higher

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McKinsey & Company | 13

Today government data is being applied across domains and helping enable all value levers


Description ImpactCompanyPrimary value lever Domain

▪ Clorox analyzed retailer loyalty card data to determine better shelving locations and used Census data to project segment growth

▪ Increase in cross-sell/up-sell revenue and reduced cost on lost sales or overstocking

3

▪ Starbucks used demographics and geo information data to select new store locations, estimating population growth, shipping costs

▪ New store openings produced best unit economics, with US stores delivering first year sales 10% plus above target

4

▪ Power generators use capital productivity benchmarks and best practices collected by third-party firms to improve investment decisions

▪ ~10-20% reduction in capex▪ Census data enables

company’s products (e.g., energy use, expenditures)

2

5 ▪ GPS-enabled tracker monitors acute and prophylactic inhaler use and reports to central database; combines with GPS/geographic to identify individual, group, and population-based trends

▪ Personalized treatment plans develop in conjunction with established industry guides

▪ Enables greater customer segmentation

▪ E&P operators use best practices and benchmarks from neutral third-party firms (e.g., contractor best practices) to improve investment ROI

▪ 15–25% reduction in capex; 50% reduction in ramp-up; more on-time/accelerated project delivery

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Tools, expertise,

management

User

Catalyst

Provider

Policy maker

There are four main roles of government in the open data ecosystem –as a provider, policy maker, user and catalyst

▪ Build an open-data culture

▪ Convene stakeholders

▪ Champion the movement

▪ Make rules for internal and external use

▪ Establish standards for data quality and format

▪ Ensure privacy and security protections

▪ Capture information electronically

▪ Release data publicly and regularly

▪ Identify ways to improve data quality

▪ Apply analytics to improve decision making, offerings,and accountability

▪ Invest in people, tools, and systems

Details follow


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It is important for public-sector leaders to proactively and continually address risks to protect individuals, organizations and the use of data

▪ Remove identifying information or aggregate data

▪ Invest in technological safeguards, staff training and clear user standards

▪ Engage stakeholders to explain programs, understand concerns and create safeguards

Potential mitigation strategies

Individual risks

Organizational risks

Safety: data made public that could be used to do harm

Security: inadequate protection of data

Privacy: improper sharing of personal information

Intellectual property: lack of ownership standards

Liability: fines or damages from ineffective data protection

Confidentiality: revealing excess information


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Governments

▪ Help develop open-data initiatives▪ Attend government sponsored

events (e.g., hackathons)▪ Contribute data online

▪ Understand and shape government and market rules and standards about data use

Businesses

NGOsMedia

Citizens and consumers

▪ Create innovative products and services

▪ Apply and interpret open data in print, online, and TV pieces

▪ Participate in public dialogue and promote understanding of open data initiatives

▪ Help develop common standards to improve data availability, security

▪ Promote and fund education of data specialists

Among core stakeholders, government is well positioned to represent and advance shared interests and foster collaboration around open data


Documents

Open data and the economy – value creation and government ... · Open data can come from individuals, companies, or governments, and it differs from other data types in its degree