Companies often prioritize internal data when considering analytics and insights. However, they shouldn’t underestimate the significant value derived from analyzing external and third-party datasets.
External data
Information about your own operations, like sales and performance data, reveals past events and aids in predicting future outcomes.
External data sources offer insights into competition, consumer behavior, market trends, and even environmental factors. In today’s data-driven era, a balance between internal and external data is crucial for seizing transformative opportunities through data analytics.
External Data in AI and Machine Learning:
Artificial intelligence (AI) and machine learning, powered by data, are revolutionizing numerous industries. However, not all companies have vast internal data resources like Amazon or Walmart. External data, readily accessible to anyone, proves equally valuable in leveraging data-driven strategies and decision-making processes.
Role of External Data in Adapting to Covid-19 Changes
During the Covid-19 pandemic, many businesses found that their existing models for predicting demand or forecasting changes became obsolete overnight due to rapidly changing behavior. In this context, external data played a crucial role in building new models to predict how people would react to changing circumstances.
Data on internet search traffic proved particularly valuable, aiding in tracking the virus’s spread, predicting areas of severe behavior changes, and understanding people’s new priorities in a shifting world.
Sources of External Data
External datasets can be obtained from public sources like data.gov and data.gov.uk, or from private providers like Nielsen and Experian, offering marketing and demographic data. Niche providers also offer specialized datasets valuable to various industries.
Practical Examples of External Data Utilization
Examples include using crime data for predictions, credit agency data for risk assessment, and public property sales data for market insights.
When a US glass manufacturer sought to diversify its revenue streams, it used publicly available crime data to predict areas where window repairs were likely needed. By optimizing its supply chain and deploying mobile repair units, it created a profitable new business unit for emergency repairs.
Similarly, finance companies use external data from credit agencies to assess lending risks, while real estate businesses use public property sales data to estimate property values.
External data also enhances the “digital twin,” a simulated version of a business, product, or process. While internal data builds the twin, external data simulates the real-world environment, as seen in Goodyear’s tire simulations using road structure, weather, and manufacturing data for predictive performance analysis.
Challenges of Working with External Data:
Certainly, working with external data, even if it’s provided free of charge, presents challenges that cannot be ignored. One major challenge is the lack of direct control over data capture methods, leading to potential over-reliance on data providers who may alter or disappear unexpectedly.
This dependency can be problematic if analytics tools built around these services suddenly become unavailable.
Additionally, technical hurdles arise when integrating multiple datasets from diverse sources, necessitating data formatting for correlation and merging. Valuable insights often stem from combining disparate datasets, requiring data engineering or cleansing efforts to achieve compatibility.
Furthermore, managing numerous data sources, such as satellite imagery, meteorological data, and anonymized customer data, requires establishing and maintaining relationships with multiple data suppliers. This complexity introduces compliance concerns, ensuring data legality and ethical processing to avoid penalties amidst increasing data regulations.
Advantages of External Data
Effective Planning and Strategic Management
Effective planning and strategic management can make working with external data highly rewarding. It shifts focus from internal processes to understanding external environments, enabling streamlined operations, enhanced efficiencies, and potential business model transformations.
Competitive Advantage through External Data
Collecting and analyzing precise, timely information can lead to a competitive advantage, providing insights into business realities, market contexts, adapting to changes, and enhancing organizational flexibility with agile models.
Role of External data in International Marketing
External data plays a critical role in international marketing, especially during the process of internationalization.
The significance of information becomes heightened as Small and Medium-sized Enterprises (SMEs) expand globally. These businesses encounter challenges due to diverse markets and various cultural, legal, and economic barriers.
Limited knowledge of target regions and minimal market experience further complicate matters. To navigate these complexities, companies must enhance their skills and knowledge base by gathering extensive information about new markets.
External data sources, encompassing market insights, demographic data, and competitor analysis, are essential in meeting this need for information.
External Data’s Vital Role in Informed Decision-Making:
External data encompasses information gathered from sources beyond the company’s own organization, such as market data, macroeconomic data, demographics, and competitor analysis.
Analyzing this data offers a wider context beyond internal perspectives, crucial for informed decision-making, especially in unfamiliar contexts like foreign markets.
Major management theories highlight external data’s critical role in environmental analysis, understanding competitive context, and formulating effective strategies, making it a vital knowledge tool for businesses.
Environmental Analysis
Environmental analysis and understanding the competitive context are vital processes for organizations to assess the external market context where they operate.
This involves gathering detailed information to identify market opportunities, accessibility, and reliability factors.
Key information to collect includes country macroeconomic conditions, sectoral data for market segmentation and assessing demand potential, and understanding the product lifecycle in specific markets. ExportPlanning provides product-specific and country-specific indicators for this purpose.
Formulating Suitable Strategies: Integrating External and Internal Data
Formulating suitable strategies involves integrating external and internal data to identify the best approaches for target markets. This includes tailoring marketing, sales, and distribution strategies based on external dynamics.
External data also help assess resources needed for international competition, aligning internal capabilities with external opportunities. Monitoring is crucial due to the dynamic nature of external data, allowing companies to adapt quickly to changes and enhance their competitive position.
This agility includes anticipating changes and increasing organizational flexibility.
Leveraging external data for foreign markets enables businesses to make informed strategic decisions and thrive in diverse business environments.
What is the importance of external data for decision making?
External data plays a crucial role in decision-making for several reasons:
- Broader Insights: External data provides a broader perspective by incorporating information from outside sources, enriching the understanding of market trends, customer behavior, and industry dynamics.
- Validation and Verification: External data can validate internal assumptions and verify the accuracy of internal data, enhancing the credibility and reliability of decision-making processes.
- Risk Management: Access to diverse external data helps in identifying and mitigating risks more effectively, enabling proactive risk management strategies.
- Innovation: External data fuels innovation by providing new ideas, trends, and opportunities that may not be apparent from internal data alone, fostering a culture of innovation within organizations.
- Competitive Advantage: Leveraging external data allows companies to stay ahead of competitors by staying informed about market changes, customer preferences, and emerging technologies.
- Strategic Planning: External data aids in strategic planning by providing valuable insights into industry benchmarks, best practices, and emerging trends, facilitating informed decision-making at a strategic level.
External data complements internal data sources and enhances decision-making processes by providing a comprehensive and diverse information landscape to draw insights from.
