It can be argued that data is not an important input into the production process in that more data does not necessarily directly cause more output to be produced in the way that conventional inputs like labour and capital do. However, data has an important indirect role in improving the profitability of businesses. It can increase revenue by helping identify target customer bases in a way that maximises sales. It can also optimise costs by helping assess beforehand the demand in a particular market for a particular product or service, thereby, preemptively avoiding projects that are likely to be unprofitable. Both these effects — increasing revenue and optimising costs — work towards increasing the profit margins of businesses. Especially in a market like India, with several regional markets where success in one market does not imply success in others, leveraging the power of data is vital for businesses to improve their scale and reach.
Role and Impact
Large businesses and corporations have typically relied on huge amounts of data to aid decisions, as well as for purposes of research and development. For example, in the insurance sector, Exide Life Insurance powered data with a machine learning model to predict the consistency of customers in paying premiums over the year. In the healthcare sector, Columbia Asia managed to save more than Rs. 7 crore last year with an optimization technique based on healthcare data wherein assets in hospitals across India were managed effectively.
However, there are a growing number of Micro, Small and Medium Enterprises (MSMEs), currently numbered at around 6.5 crores, comprising 30 per cent of GDP, with aims to increase the figure to 40 per cent. Further, the growth in entrepreneurial spirit and endeavours, coupled with the availability of funding has resulted in the creation of several high-growth start-ups. This growth can be accelerated and efficiency can be compounded if such businesses become data-driven by effectively leveraging the power of data. While the extent to which a particular business stands to benefit from doing so may depend on the sector in which it operates and other specifics, the use of data can certainly optimise it in some form.
Larger companies are able to rely on designated teams and solutions to analyse and make inferences from data using in-house data processing expertise. Though those of smaller scale lack the budgets to implement the same, they can rely on cheaper tools such as Google Analytics, IBM Watson Analytics, Microsoft Power BI, and other business intelligence tools. An important role of data, specific to small and medium businesses, is related to the fact that they have relatively smaller cash buffers in the event of unmitigated demand fluctuations, which makes them more harmful. Such fluctuations can not only be predicted better through data but also, due to insights provided about consumer behaviour, be managed better. Insights can be used to modify products, designs, and marketing campaigns in response to fluctuations.
This need to be robust to shocks has been demonstrated by the impact that the pandemic has had. A study undertaken by Tableau Software and YouGov based on businesses across India, Singapore, Japan and Australia has reported that, despite the uncertain environment, around 83% of data-driven companies in India gained critical business advantages during the pandemic. This provides much reason for companies to ramp up investments in becoming data-driven not just to gain current advantages, but to become much more resilient and flexible to business shocks in the future. On the level of policy, there is much to gain from incentivising companies to do so in order to have much more economic stability as well as accelerated growth.
Required Digital Infrastructure
Data Centres are physical facilities that organizations can use to house their data. The data centre market in India is expected to grow at a 12% compounded annual growth rate from 2019-2024. In the wake of the pandemic, increased demand for bandwidth as well as cloud capacity has led to the further upheaval of the data centre market. The sector is also an avenue for foreign investment, as evidenced by Amazon Web Services (AWS) finalising an investment of Rs. 20,761 crores to set up multiple data centres in Telangana.
The promising growth of this sector provides a positive opportunity for businesses that are looking to become data-driven. In order to process huge amounts of data and draw inferences, companies would have to bear sizable costs in the form of required storage technology as well as power and maintenance. Thus, in the face of a booming data centre market, these third-party data centres can offer the required services at a lower cost since they enjoy economies of scale. Therefore, creating the right ecosystem for the development of such data centres can further the goal of having more data-enabled businesses. This includes measures such as uninterrupted power supply to data centres, and setting up special Data Centre Economic Zones and parks.
Data Security Concerns
When businesses use large amounts of data, particularly private data and financial data, there are key concerns about data security and privacy to be addressed. Possibilities for data breaches and loss arise within organisations, as well as from external threats that data must be adequately shielded from. Internal threats may arise out of the access that employees, business partners, and contractors have to the data which can be abused. In cases where there is no abuse of access, the risk still exists in the form of negligence or error. This risk can be minimised by being prudent about the level of access granted to employees and segmenting access based on departments, as well as keeping those that work with data up to date with the systems being used.
External threats, the other primary source of data breaches and data loss, are a huge concern because sensitive data can be misused and the reputation of organisations can suffer. This is evidenced from the fact that 70% of companies in India use as many as 10 solutions simultaneously for data protection and cybersecurity. Despite this, 57% of them suffered unexpected downtime due to data loss in the last one year.
A notable recent example is the case of BigBasket, where a breach led to the personal information of over 20 million customers being allegedly sold on the dark web, initially leading to panic among customers on the nature of the data lost. Companies that use large amounts of data must therefore adequately invest in data protection and cybersecurity. In the event of a breach, there is incentive for companies to conceal it as it is damaging to reputation. Thus, they must be mandated by laws to report the breach immediately, as is the case with the GDPR, where companies are mandated to report data breaches to the relevant regulator within 72 hours.
The Indian Context
India is experiencing a huge wave of entrepreneurial endeavours leading to several successful businesses of smaller scale but great potential for growth and disruption. Big Data can help generate actionable insights to allow such businesses to achieve the scale required to cause disruption faster. With the right legal framework, digital infrastructure, and skilled workforce in place, they can make the most of data to grow faster, while at the same time improving the general consumer experience by innovating in sectors that are in need of innovation.
Arvind Gururaj is a second-year undergraduate student at Ashoka University, majoring in Economics and Finance and minoring in Mathematics.