The analytical firm: Estimating the effect of data and online analytics on firm performance

Despite numerous claims that data is a critical source of competitive advantage for firms, there is little empirical analysis of its link with firm performance. This paper uses a survey of data activity for 500 UK firms which are commercially active online to quantify the contribution that online data use – that is, the collection, analysis and deployment of online customer data – makes to business productivity. We find that a one-standard deviation greater use of online data is associated with a 8% higher level of productivity (TFP): firms in the top quartile of online data use are, other things being equal, 13% more productive than those in the bottom quartile. When we distinguish between the different data-related activities that firms undertake, we find that greater data analysis and reporting of data insights have the strongest link with productivity, whereas amassing data has little or no effect on its own. Consistent with this, we report significant links between online data analysis and reporting and profitability measures. We also study the complementarities between online data activity and other organisational attributes and behaviours. We find that the impact of online data use is stronger for firms with higher levels of employee autonomy, and for firms willing to disrupt their business processes. An implication for managers is that their data investments stand to generate more benefits when they are accompanied by other organisational changes.

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