It is hard being a small business. I know it from experience. There is something to be said about financial muscle, economies of scale and scope, access to the best and the brightest, etc. – things that big businesses enjoy by virtue of being big.
Yet, there is one area where I believe that smaller businesses can have considerable advantage – only if they were to recognize and seize the opportunity.
That area is analytics.
Before we talk about what advantages small business can have, let us reflect for a moment on the purpose of analytics. All analytics exists to drive better decision making. When we talk about decisions made using analytics, we are mostly talking about tactical or operational decisions, although sometimes the decisions involved could be quite strategic in nature.
Optimization of scarce resources is applicable to businesses of all sizes, but in the case of small businesses, even the survival can sometimes depend on how they utilize their resources. It is in this context that analytics is even more relevant to small businesses, than it is to big businesses.
According to a seminal paper by Richard Hackathorn, the value of data [and consequently the decision made using that data] decreases with time as shown in the graphic:
Big businesses are generally excellent at making the right investments that reduce Data Latency and Analysis Latency, but they struggle with reducing Decision Latency. This is because unlike Data Latency and Analysis Latency, Decision Latency cannot be automated away. It depends on the culture that you build over a period of time, and big businesses don’t always have the right cultures that enable reduction of Decision Latency.
Small businesses are relatively new to the field of extracting value from data. There used to be a time when capturing data and analyzing it was the preserve of big businesses only, because the technology to do so was prohibitively expensive and it did not make sense for small businesses to invest in it. But today, it is no longer the case. Cloud based tools are as easy for small businesses to adopt, as they are for large businesses.
As technology takes care of the Data Latency and Analysis Latency for most part, there isn’t a significant difference between how these two affect small and large businesses.
But when it comes to Decision Latency, small businesses can really outperform their larger peers. Small businesses need not have the kind of bureaucratic, inertia-laden decision making that large businesses have and so they can have almost negligible Decision Latency.
And so, with every decision, small businesses can aim to realize a little extra value as compared to larger businesses. If done systematically over a sustained period of time, this can easily be turned into a significant competitive advantage.
This post was originally published here.