McKinsey's 2016 Analytics Study

Defines The Future Of Machine

Learning

Louis Columbus , CONTRIBUTOR

Opinions expressed by Forbes Contributors are their own.

U.S. retailer supply chain operations who have adopted data and
analytics have seen up to a 19% increase in operating margin over
the last five years.

Design-to-value, supply chain management and after-sales support

are three areas where analytics are making a financial contribution in
manufacturing.
 40% of all the potential value associated with the Internet of Things
requires interoperability between IoT systems.

These and many other insights are from the McKinsey Global Institutes study The
Age of Analytics: Competing In A Data-Driven World published in collaboration
with McKinsey Analytics this month. You can get a copy of the Executive
Summary here (28 pp., free, no opt-in, PDF) and the full report(136 pp., free, no
opt-in, PDF) here. Five years ago the McKinsey Global Institute (MGI) released Big
Data: The Next Frontier For Innovation, Competition, and Productivity (156 pp.,
free no opt-in, PDF), and in the years since McKinsey sees data science adoption
and value accelerate, specifically in the areas of machine learning and deep
learning. The study underscores how critical integration is for gaining greater
value from data and analytics.

Key takeaways from the study include the following:

Location-based services and U.S. retail are showing the greatest

progress capturing value from data and analytics. Location-based
services are capturing up to 60% of data and analytics value today
predicted by McKinsey in their 2011 report. McKinsey predicts there
are growing opportunities for businesses to use geospatial data to
track assets, teams, and customers across dispersed locations to
generate new insights and improve efficiency. U.S. Retail is
capturing up to 40%, and Manufacturing, 30%. The following
graphic compares the potential impact as predicted in McKinseys
2011 study with the value captured by segment today, including a
definition of major barriers to adoption.
 Machine learnings greatest potential across industries includes
improving forecasting and predictive analytics. McKinsey analyzed
the 120 use cases their research found as most significant in machine
learning and then weighted them based on respondents mention of
each. The result is a heat map of machine learnings greatest
potential impact across industries and use case types. Please see the
report for detailed scorecards of each industrys use case ranked by
impact and data richness.
 Machine learning's potential to deliver real-time optimization
across industries is just starting to evolve and will quickly
accelerate in the next three years. McKinsey analyzed the data
richness associated with each of the 300 machine learning use cases,
defining this attribute as a combination of data volume and variety.
Please see page 105 of the study for a thorough explanation of
McKinseys definition of data volume and variety used in the context
of this study The result of evaluating machine learnings data
richness by industry is shown in the following heat map:
 Enabling autonomous vehicles and personalizing advertising are
two of the highest opportunity use cases for machine learning
today. Additional use cases with high potential include optimizing
pricing, routing, and scheduling based on real-time data in travel and
logistics; predicting personalized health outcomes, and optimizing
merchandising strategy in retail. McKinsey identified 120 potential
use cases of machine learning in 12 industries and surveyed more
than 600 industry experts on their potential impact. They found an
extraordinary breadth of potential applications for machine
learning. Each of the use cases was identified as being one of the
top three in an industry by at least one expert in that industry.
McKinsey plotted the top 120 use cases below, with the y-axis shows
the volume of available data (encompassing its breadth and
frequency), while the x-axis shows the potential impact, based on
surveys of more than 600 industry experts. The size of the bubble
reflects the diversity of the available data sources.
 Designing an appropriate organizational structure to support
data and analytics activities (45%), Ensuring senior management
involvement (42%), and designing effective data architecture and
technology infrastructure (36%) are the three most significant
challenges to attaining data and analytics objectives. McKinsey
found that the barriers break into the three categories: strategy,
leadership, and talent; organizational structure and processes; and
technology infrastructure. Approximately half of executives across
geographies and industries reported greater difficulty recruiting
analytical talent than any other kind of talent. 40% say retention is
also an issue.
 U.S. retailer supply chain operations who have adopted data and
analytics have seen up to a 19% increase in operating margin over
the last five years. Using data and analytics to improve
merchandising including pricing, assortment, and placement
optimization is leading to an additional 16% in operating margin
improvement. The following table illustrates data and analytics
contribution to U.S. retail operations by area.
 Design-to-value, supply chain management and after-sales
support are three areas where analytics are making a financial
contribution in manufacturing. McKinsey estimates that analytics
have increased manufacturers gross margins by as much as 40%
when used in design-to-value workflows and projects. Up to 15% of
after-sales costs have been reduced through the use of analytics that
includes product sensor data analysis for after-sales service. There
are several interesting companies to watch in this area, with two of
the most innovative being Sight Machine and enosiX, with the latter
enabling real-time integration between SAP and Salesforce systems.
The following graphic illustrates the estimated impact of analytics
on manufacturing financial performance by area.