Thursday, December 13, 2012

Why economic policymakers in the UK should listen to what the data are telling them

Hasan Bakhshi is Director, Creative Economy and Juan Mateos-Garcia is Research Fellow in Nesta’s Policy & Research Unit.

Boston Consulting Group says that the UK is the largest nation in the G20 as a percentage of GDP—8.3% compared to an average of 4.1%. The UK is a nation of e-shoppers, with almost two-thirds of consumers reporting having purchased goods or services online in the previous three months. That’s almost twice the average for the countries in the Eurozone. The UK was also the first country in the world where online advertising spend overtook TV advertising in 2009.

Yet, a recent study of digital readiness from Booz & Co. puts the UK in an unimpressive twelfth place and ranks the nation eighteenth on average broadband connection speeds. They find that two-thirds of UK SMEs have "little or no presence online." Only 14% of UK SMEs sell online compared 30% in Norway. Eurostat data confirm that UK businesses are not among the leading pack of countries in e-commerce markets.

Our new research on how UK businesses collate and use their online customer data adds to this picture of lagging engagement with digital. Our findings suggest that collection of data is patchy, and that four out of five businesses with active online operations are not making full use of their data for decision making.

Even in our Internet-active sample, only 38% of businesses collect comprehensive transactions data. In the majority of businesses, the analysis of online data is only basic and descriptive. For example, only 27% run A/B experiments and other controlled trials and an even lower 13% use statistical techniques such as regression analysis.

Only 41% of businesses in our sample use online data to inform their business strategy, and fewer use it to optimise prices. Even among the sub-sample of firms for whom e-commerce makes up more than half of overall revenues, less than four in ten use their online customer data to set prices.

However, 18% of businesses in our sample—the 'datavores'—are showing the way. They are likely to collect, analyse, and, above all, act on their online customer data. They appear to be investing more aggressively in data capabilities than other firms, suggesting that companies who don’t learn to use data will be left even further behind.

Datavores are four times more likely than intuition-driven companies to report a positive contribution from their online data and are even more likely to be product innovators. The implication here is that that there may be an immediate benefit to the UK economy if more businesses made use of online data.

What might all this mean for policy?

Policymakers need to think about how to create a regulatory environment that strikes the right balance for consumers between data privacy and the potential benefits to be gleaned from data use, like more efficient pricing of products and rapid product innovation. Concerns about data privacy and security ranked highly as a barrier to greater use of online data by the datavores in our survey.

Policymakers should also heed the importance of sound analytical and management skills if the wish to encourage data-driven business. They should ask whether the education system attaches enough importance to such skills, and whether the system is prepared to cope with increasing demands as more businesses begin to unlock the value of data.

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