Senior Partner & Managing Director, Director of the BCG Henderson Institute
Back when Stirling Moss was winning Formula One races, the car and driver determined who won. Now the sport has become as much about processing complex signals and adaptive decision making as it is about mechanics and driving prowess. With as many as 200 sensors built into their vehicles, race teams continuously collect and process data on 3,000 different variables—ranging from weather and road conditions on race day to the RPMs of the car’s engine and the angles on the track’s curves—and feed them into dynamic simulation models that guide the drivers’ split-second decisions. A telemetric innovation by one race team can instantly raise the bar for all competitors.
Adaptation to incessant change is also essential in today’s business world, where key variables are volatile and difficult to forecast. Escalating levels of digitization, connectivity, and processing power are making the rapid interpretation of external signals increasingly possible—even as the avalanche of data has made it much more challenging. Smart competitors are already raising the competitive bar in many industries and pursuing signal advantage—the ability to rapidly capture, interpret, and act upon signals gleaned from rich and dynamic data.
The volume of data confronting organizations has risen dramatically—a nearly fivefold increase is projected between 2009 and 2013—as has its complexity. At the same time, the shelf life of data has declined dramatically as a result of rapid replication and diffusion. Storage capacity has also grown but not at a sufficient pace to accommodate the explosion of information generated.
Most businesses are effectively information businesses, although few are using information for competitive advantage. Many are still struggling to update and connect complex legacy systems to manage an overwhelming stream of incoming data. As a result, although IT spending continues to mount, several studies have demonstrated that it has not driven differential performance. Companies that fail to embrace signal advantage will likely be left behind by information-agile competitors.
A handful of leading companies across many industries are already building signal advantage. They capture a ladder of benefits by focusing on the right information, extracting relevant signals, acting upon them rapidly, leveraging them to reinvent business models, and even reshaping the information landscape of their industries. (See the Exhibit “The Evolutionary Stages of Signal Advantage.”)
Consider, for example, the steps that the following advantaged players have taken:
How is it that these companies have been able to embrace signal advantage so effectively? To be sure, some are harnessing state-of-the-art computing technologies, such as dynamic signal processing and neural networks. More importantly, however, companies have gained the capability to build and exploit signal advantage by rethinking their approach to information and embracing the following shifts in mindset:
Before setting out to create signal advantage, it is important to assess one’s starting position by considering the following questions:
Of course, not every company will master these capabilities immediately, but we believe that all companies should chart a course to higher levels of signal advantage. Companies should advance at a pace determined by their starting position relative to competitors, the rate of external change, and internal barriers to change.
The power that has traditionally resided in merely possessing information is dwindling fast. Increasingly, advantage will come from an organization’s ability to rapidly interpret and act on signals. Information systems will become the central nervous systems of adaptive enterprises, as they shift from knowing and optimizing to learning and adapting.