When There’s No Such Thing as Too Much Information

When There's
Illustration: James Yang

Here is an excerpt from an article by Steve Lohr for The New York Times. To read the complete article, check out others, and obtain subscription information, please click here.

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Information overload is a headache for individuals and a huge challenge for businesses. Companies are swimming, if not drowning, in wave after wave of data — from increasingly sophisticated computer tracking of shipments, sales, suppliers and customers, as well as e-mail, Web traffic and social-network comments. These Internet-era technologies, by one estimate, are doubling the quantity of business data every 1.2 years.

Yet the data explosion is also an enormous opportunity. In a modern economy, information should be the prime asset — the raw material of new products and services, smarter decisions, competitive advantage for companies, and greater growth and productivity.

Is there any real evidence of a “data payoff” across the corporate world? It has taken a while, but new research led by Erik Brynjolfsson, an economist at the Sloan School of Management at the Massachusetts Institute of Technology, suggests that the beginnings are now visible.

Mr. Brynjolfsson and his colleagues, Lorin Hitt, a professor at the Wharton School of the University of Pennsylvania, and Heekyung Kim, a graduate student at M.I.T., studied 179 large companies. Those that adopted “data-driven decision making” achieved productivity that was 5 to 6 percent higher than could be explained by other factors, including how much the companies invested in technology, the researchers said.

In the study, based on a survey and follow-up interviews, data-driven decision making was defined not only by collecting data, but also by how it is used — or not — in making crucial decisions, like whether to create a new product or service. The central distinction, according to Mr. Brynjolfsson, is between decisions based mainly on “data and analysis” and on the traditional management arts of “experience and intuition.”

A 5 percent increase in output and productivity, he says, is significant enough to separate winners from losers in most industries.

The companies that are guided by data analysis, Mr. Brynjolfsson says, are “harbingers of a trend in how managers make decisions.”

“And it has huge implications for competitiveness and growth,” he adds.

The research is not yet published, but it was presented at an academic conference this month. The conclusion that companies that rely heavily on data analysis are likely to outperform others is not new. Notably, Thomas H. Davenport, a professor of information technology and management at Babson College, has made that point, and his most recent book, with Jeanne G. Harris and Robert Morison, is Analytics at Work: Smarter Decisions, Better Results (Harvard Business Press, 2010).

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Here is a direct link to the complete article.

Lohr-1Steve Lohr reports on technology, business and economics. He was a foreign correspondent for The Times for a decade and served brief stints as an editor, before covering technology, starting in the early 1990s. In 2013, he was part of the team awarded the Pulitzer Prize for Explanatory Reporting “for its penetrating look into business practices by Apple and other technology companies that illustrates the darker side of a changing global economy for workers and consumers.”

He has written for magazines including The New York Times Magazine, The Atlantic Monthly and The Washington Monthly. He is the author of a history of computer programming, Go To: The Story of the Math Majors, Bridge Players, Engineers, Chess Wizards, Maverick Scientists and Iconoclasts — The Programmers Who Created the Software Revolution (Basic Books, 2001; paperback, 2002).

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