Lighthouse by BCG: High-Frequency Data & Analytics for Uncertain Times
by Sebastian Bak, Mark Abraham, Nicolas De Bellefonds, Aaron Arnoldsen
As the COVID-19 pandemic has brought into high relief, traditional demand forecasting is, for all intents and purposes, dead. Rather than look to the past, companies must reimagine their budgeting and funding capabilities and improve their ability to predict change in an increasingly unpredictable world. Rather than rely on historical data, companies must move towards leveraging high-frequency data and AI solutions to better anticipate demand and adjust their commercial, operational and corporate plans accordingly.
Upgrading demand forecasting capabilities is no longer a COVID-19 specific need, but rather a critical lever to win in the future. With the very notion of a stable future now obsolete, Lighthouse by BCG helps companies use high-frequency data and advanced analytics solutions, and transition into a rapid-decision model.
The Lighthouse Approach: Analytical Power + Human Insight
Lighthouse improves corporate decision making by bringing together several forecasting models that provide insights into the market and the social and regulatory forces at play within specific populations, sectors and regions:
1. Epidemiological modeling: Specific for the current pandemic, these models use the latest machine learning approaches and the best available local data to assess the projected spread of COVID-19 in regions and countries all around the world.
2. Consumer Activity Index (CAI): A proprietary index that aggregates hundreds of high-frequency metrics to measure and forecast the evolution and relative recovery of consumer activity by geography.
3. B2B recovery indexes: Proprietary indexes that measure and forecast the evolution and relative recovery of B2B activity by industry and geography.
4. Digital Metrics: A wealth of digital leading indicators that provide real-time views of demand via analysis of factors such as web traffic, search, industry indexes and statistics and specialized open-source databases to anticipate sales and new attitudes.
5. High frequency data: A long list of highly granular consumer information that enables companies to monitor in real time critical factors about consumers such as their spending patterns, mobility, and behavior. On any given day in any given city, for example, companies can measure how many consumers go to a specific store, what they spend their money on, and when they spend it.
Lighthouse’s power derives from a unique interplay between data, data modeling and human experience and intentions. This nexus of “man + machine” reflects BCG’s “70/20/10” working model, according to which the main challenge businesses face at any moment in history is not simply a matter of getting the data or algorithms right. It is a matter of aligning organizations; of managing the change required to respond to new conditions. When implementing artificial intelligence projects such as Lighthouse, BCG dedicates 70% of project resources to people and processes, 20% to developing the appropriate AI technology, and 10% to building powerful, non-biased algorithms. In other words, we do not consider Lighthouse to be simply a data solution, because data alone is not intelligence. Rather, data is the precursor to intelligence. For instance, data modeling can show the path of the coronavirus in a particular region, but companies need more actionable intelligence to take action.
From Intelligence to Action
Finding the right data, leveraging the right soft skills, building the right algorithms: These are all required steps to managing uncertainty, whether due to COVID-19 or any other market disruptor. But they must lead to concrete action at the following levels:
· Commercial: Reallocate sales force, marketing budget or pricing investments
· Operational: Adjust production, supply chain or inventory management plans
· Corporate: Adapt company strategy, make broad cost-structure adjustments or identify M&A opportunities
Predicting Demand in an Unpredictable World
The COVID-19 virus has taught leaders that they must learn to incorporate information they may not have previously considered relevant or meaningful. They must, in a sense, go from telescope to microscope, seeking insight at more granular levels. Lighthouse by BCG provides this change of lens, giving companies the ability to peer closely at market conditions and consumer trends for each city, county, region and nation in which they do business.
Lighthouse’s fundamental approach of leveraging human insight to assess previously untapped forms of information will benefit decision makers long after COVID-19 has passed. In the future, companies that understand the forces at work at more granular levels will react quicker and target offerings more closely, giving them the competitive advantage they need to maintain hard-fought market positions.