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
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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
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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
SOURCE: McKinsey Global Institute analysis
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
SOURCE: McKinsey Global Institute analysis
▪ 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
Annual economic value
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How five open data levers can create over $520 billion of value in consumer products
SOURCE: McKinsey Global Institute analysis
▪ 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
Annual economic value
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How five open data levers can create over $340 billion of value in electricity
SOURCE: McKinsey Global Institute analysis
▪ 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
▪ Lean construction
▪ 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
Annual economic value
$340–580
Total
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How five levers can create over $240 billion of value in oil and gas
SOURCE: McKinsey Global Institute analysis
▪ Pipeline site strategy
▪ More successful discovery through shared data
▪ Higher capital productivity
▪ Lean construction
▪ Faster/cheaper permitting
▪ Workforce optimization
▪ Benchmarking best practices
▪ Process, reliability, and maintenance optimization
▪ Efficient procurement/supply management
Optimized upstream investment
Efficient upstream operations
▪ Demand management
▪ Investments in energy efficiency
▪ Commercial and residential user benchmarking
▪ Efficient procurement/supply management
▪ 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
Annual economic value
$240–510
Total
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How five levers in health care can create over $300 billion of value in the US alone
SOURCE: McKinsey Global Institute analysis
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
Annual economic value
$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
SOURCE: McKinsey Global Institute analysis
Annual economic value
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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Today government data is being applied across domains and helping enable all value levers
SOURCE: McKinsey Global Institute analysis
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
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▪ 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
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▪ 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)
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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
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