Erik Brynjolfsson and Andrew McAfee of MIT have posted an interesting entry to the Harvard Business Review Blog about big data and corporate management:
Big data has the potential to revolutionize management. Simply put, because of big data, managers can measure, and hence know, radically more about their businesses, and directly translate that knowledge into improved decision making and performance. Of course, companies such as Google and Amazon are already doing this. After all, we expect companies that were born digital to accomplish things that business executives could only dream of a generation ago. But in fact the use of big data has the potential to transform traditional businesses as well.
We’ve seen big data used in supply chain management to understand why a carmaker’s defect rates in the field suddenly increased, in customer service to continually scan and intervene in the health care practices of millions of people, in planning and forecasting to better anticipate online sales on the basis of a data set of product characteristics, and so on.
Here’s how two companies, both far from Silicon Valley upstarts, used new flows of information to radically improve performance.
Case #1: Using Big Data to Improve Predictions
Minutes matter in airports. So does accurate information about flight arrival times: If a plane lands before the ground staff is ready for it, the passengers and crew are effectively trapped, and if it shows up later than expected, the staff sits idle, driving up costs. So when a major U.S. airline learned from an internal study that about 10% of the flights into its major hub had at least a 10-minute gap between the estimated time of arrival and the actual arrival time — and 30% had a gap of at least five minutes — it decided to take action.
At the time, the airline was relying on the aviation industry’s long-standing practice of using the ETAs provided by pilots. The pilots made these estimates during their final approach to the airport, when they had many other demands on their time and attention. In search of a better solution, the airline turned to PASSUR Aerospace, a provider of decision-support technologies for the aviation industry.
In 2001 PASSUR began offering its own arrival estimates as a service called RightETA. It calculated these times by combining publicly available data about weather, flight schedules, and other factors with proprietary data the company itself collected, including feeds from a network of passive radar stations it had installed near airports to gather data about every plane in the local sky.
PASSUR started with just a few of these installations, but by 2012 it had more than 155. Every 4.6 seconds it collects a wide range of information about every plane that it “sees.” This yields a huge and constant flood of digital data. What’s more, the company keeps all the data it has gathered over time, so it has an immense body of multidimensional information spanning more than a decade. RightETA essentially works by asking itself “What happened all the previous times a plane approached this airport under these conditions? When did it actually land?”
After switching to RightETA, the airline virtually eliminated gaps between estimated and actual arrival times. PASSUR believes that enabling an airline to know when its planes are going to land and plan accordingly is worth several million dollars a year at each airport. It’s a simple formula: Using big data leads to better predictions, and better predictions yield better decisions…
Check out the second case study in the original post on the HBR Blog Network.
(Contributed by Erwin Gianchandani, CCC Director)
