Designed to make sense of how to stay compliant while using data to inform business decisions.
12 min read
Account Partner & Leader, IBM
Big business thrives on personal data. To keep up, small and medium-sized enterprises must follow suit. But how can data-based business models succeed in the age of GDPR, compliance hurdles and consumer mistrust? We spoke to IBM’s Britta Daffner, who works on data and compliance topics with a wide variety of clients. Through helping companies become more data-driven and analytical, Daffner sees on a daily basis the opportunities and challenges involved in handling large amounts of personal data.
This already gives dominant tech companies like Alphabet, Amazon and Meta a big competitive advantage, which begs the question – can the smaller ones ever catch up? Or is the game already over?
“Now they’re trapped,” says Daffner. “Every company must become data-driven, not only in their own processes but also when communicating with customers. However, it’s quite hard as many of them don’t know what to do, or how to do it.”
Why do many companies struggle to leverage the data they have? Well, partly due to the considerable technological and infrastructural challenges involved. Partly because of cultural resistance to risks and uncertainties. And, yes, partly because of compliance obligations.
So what should a forward-thinking company do? “Unfortunately I don’t have the million-dollar answer,” laments Daffner. “I discuss this topic a lot with the DIHK [German business chamber]: how to create a more competitive environment.
“Companies have to decide for themselves what business models they might want in the future. They should look at the data they already have in their CRM systems, and look at what’s possible. Not shoot for the moon, but take smaller steps [towards a data-driven future].”
These smaller steps might include looking more closely at user information from their website, bringing every piece of it into a CRM system or data warehouse, so they have a single source of truth. And perhaps reconsider the infrastructure that they use, beyond data silos.
“In reality, of course, this is expensive, it’s risky, so we have to work step by step, do one transformation after the other, and work with the low-hanging fruits first,” adds Daffner.
Paramount, she says, is to be smart about the type of data you focus on (“more information does not mean better insights”), and be creative about how you use it to provide value to customers. An example given is the online retailer Zalando, which tracks clothing items returned due to wrong sizing, and uses this information to make personal sizing recommendations.
It’s clear then that the famed German Mittelstand (and SMEs elsewhere) must learn to harness their own customer data in ever more sophisticated ways. And compliance regulations can undoubtedly be onerous and complex. So does this mean that unfettered market forces should prevail? Or is more regulation the solution? The answer, of course, is not simple and lies in between two extremes…
“It’s a moral question,” says Daffner. “On the one hand, we have the ethical part that we have to find good rules and regulations. But what is already done cannot be undone – companies, especially here in Germany, have to innovate in order to succeed in the market.”
This “Pandora’s box” of technological innovation makes it very hard to regulate away the data-driven business models that have emerged with Amazon, Google et alia.
However, in recent years there have been developments like the Digital Services Act and Digital Markets Act, established to make it easier for small and medium-sized companies to stay competitive while protecting consumers’ “right to be forgotten”. So it would appear that help is on the horizon.
“GDPR is a lot of processes and effort,” concedes Daffner. “My concern is that these processes don’t really help us. I haven’t seen that they have given much benefit. Certainly for the DACH market it’s a big burden for innovation.” In a Bitkom study, 64 percent of the companies surveyed even stated that data protection very specifically inhibits the implementation of data-driven business models in their company.
Of course, every company with ambitions to become data-driven needs reliable solutions that minimize the risks of handling personal data. This challenge must be overcome in order to create the kind of value-driven innovations that increase customer loyalty and revenues.
So where are we going with all this? Is the logical endpoint a scenario akin to the novel “Qualityland”, where certain online retailers know what you want to buy even before you do?
Well, consumers have shown themselves willing to give up a lot of personal data in return for a great service. Billion-dollar businesses are built on this model. It’s the primary driver of search engines and online advertising, for example.
However, we must consider the extent to which an informed decision can be made, and if we need regulators to step in. After all, every personalized recommendation requires some sort of profiling. So who should you trust with your personal data?
“Maybe one possibility will be to regulate companies so that they don't exist in such a dominant form in the future,” suggests Daffner. “That already happened before, with other large companies.”
This approach might include splitting up certain companies into different operating divisions, so that they can’t share personal data across big horizontal data knowledge chains. This would certainly limit their power, and give smaller companies a fighting chance in the market.
What’s clear is that compliance concerns are here to stay. Consumers are now wise to the fact that their personal data is being pursued and used on an industrial scale. Which means that every company needs to earn a lot of trust here, if it wants to keep up with the data giants.
How are data and compliance regulations changing our digital world? We asked Britta Daffner to take a look at current media headlines around data processing & GDPR, and share her thoughts with us in an additional Inside Story.
Britta Daffner is an Account Partner and Leader at IBM. In her career, she has built an AI and Data development team, which she has been developing since 2016. She has been intensively following the topic of AI development and data for years.
Britta Daffner, Account Partner & Pratice Leader, IBM
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