By Oren Askarov, Growth & Operations Marketing Director at SQream
Becoming “data-driven” has become a catch-all phrase in 2024. Leaders understand that this offers a way to unlock business insights and become more efficient, yet initiatives to become a data-driven organization don’t always bear fruits.
Instead, leaders should focus on implementing a data flywheel above all else to reach their goals more quickly and efficiently.
By leveraging a flywheel first, organizations can reap the benefits from the start. That’s because these create value by continuously improving the quality of products and services. The insights gained can drive customer satisfaction, reduce costs, and support innovation, all of which contribute to stronger competitive positions.
However, to gain this competitive advantage organizations still have to tackle common challenges like quality issues and technical limitations.
Let’s take a closer look at how to overcome common hurdles in the year ahead in order to drive sustainable growth.
The concept of a data flywheel
Part of the issue with other data-driven initiatives is that unlocking business growth can be slow and requires significant investment. Further, these are standalone initiatives, so the organizations may have one project that looks at customer success metrics and another standalone project examining internal efficiencies.
In contrast, the data flywheel aims to set up collection and analysis in such a way that the entire process becomes a self-reinforcing cycle. Essentially, once momentum takes hold the insights drive increased learning and better decision making that pushes the process forward more quickly at each turn of the cycle.
The concept of a data flywheel was first proposed in the book Good to Great, where the author Jim Collins explained the term as follows: “Each turn of the flywheel builds upon work done earlier, compounding your investment of effort. A thousand times faster, then ten thousand, then a hundred thousand. The huge heavy disk flies forward, with almost unstoppable momentum.”
The flywheel is essentially a business model that uses continuous insights to enhance and streamline operations, products, and services.
Imagine a physical flywheel – once you start spinning it, its momentum builds, needing less input over time to maintain speed. Similarly, this starts with the collection of high-quality input, which is analyzed for insights, driving actions that lead to more data generation.
This new data, in turn, feeds back into the system, creating an ever-strengthening cycle that drives growth and innovation.
Examples of these in action
Although flywheels may be a new concept to some of us, the benefit of the approach can be seen by the leaders who have plowed ahead with this approach with impressive results:
Amazon is a key example. Here, the e-commerce giant uses customer preferences, purchase history, and browsing behavior to provide highly tailored product recommendations that drive additional sales. Each transaction generates new data, allowing Amazon to refine its recommendation engine continuously.
Moving on to streaming platforms, Netflix pioneered the idea of highly refined viewing recommendations. The streaming giant analyzes user behavior, from what shows users watch to when they pause or skip, using these insights to personalize recommendations. This flywheel effect also informs content creation, as Netflix uses the insights to produce shows that resonate with its audience.
Uber offers another great example of how data is used in real time to drive business decisions. The ride-hailing app leverages information from riders and drivers to optimize routes, reduce wait times, and match drivers with the highest demand.
Each completed ride creates information that improves the overall experience and operational efficiency.
Data-driven organizations must collect and store this from multiple sources. Customer activity/behavior is only one of many places to collect it. Data should be collected, stored, and analyzed from all the organization’s departments: customer success, supply-chain, product, marketing, and finance. This paradigm enables the organization to understand better how its business decisions are affecting growth.
The key inputs needed to be self-sustaining
In order to get your flywheel in motion, it’s important to recognize the individual spokes that contribute to the system. This starts with collection, which should be gathered from a diverse range of sources such as customer interactions, supply chain information, or digital engagement metrics.
Next, this needs to be processed and analyzed in order to produce actionable insights. Depending on the sources, these insights could include identifying customer preferences or locating operational bottlenecks in the supply chain.
With these insights to hand, your team can make relevant adjustments such as adjusting the price point of a service offering to meet demand in a key customer segment or improving supply chain processes to deliver products more quickly.
Following this, the feedback loop is a key part of this concept. Once the initial round of insights and actions have been delivered, the outcomes of these changes should be monitored and fed back into the system to further enhance business performance. Finally, the system unlocks new business growth which then circles back to more collection.
With all of these individual tasks in motion at once, each spin of the flywheel creates more momentum. As the system creates more valuable insights at each, the organization can innovate faster, launch refined products and enhance customer satisfaction. All of this combines to achieve sustainable business growth.
Why these provide benefits
As mentioned, the overarching goal of a flywheel is to drive sustainable business growth. Let’s take a closer look at the many benefits that combine to make this possible across every facet of the business.
For example, the flywheel can drive long-term business growth, but it also stands to deliver an immediate boost to user satisfaction and loyalty. That’s because insights that focus on refining products and services based on customer feedback will immediately cater to how satisfied they are.
Next, the intelligent approach to leverage insights will enable organizations to become more operationally efficient. By monitoring and analyzing internal sources and reacting to places where bottlenecks or problems exist, the organization can streamline operations and reduce waste.
The system also helps to drive innovation and agility. By constantly monitoring a diverse range of sources, organizations can quickly identify opportunities and gaps in the market which could be found in customer interaction data or supply chain demand to name a couple of examples.
In turn, these combined benefits will ensure that the organizations keep ahead of the competition and gain footholds in new areas of demand that puts them ahead of slow-moving peers to offer a clear business edge.
Putting this into action
If the benefits of a flywheel could benefit your organization, it’s time to move forward with a structured approach. First, you need to assess which sources will feed the cycle. These can include transactional data, user interactions, customer feedback, or IoT sensors. If you have advanced analysis capabilities, you can give each one of these sources a different weight based on the feedback you’d like to get.
Once these have been identified you need to ensure that data is collected consistently and accurately, leveraging platforms that automate and streamline this process. After this, the relevant sources have been collected, it’s time to apply an analytical framework. Here, advanced analytics tools can help your organization process vast datasets quickly.
With these insights to hand, your organization can begin to integrate these into the decision-making process across areas like product development, marketing, and customer service.
One more key issue that must be considered is the removal of friction in these stages on one hand and the optimization of the whole process on the other hand. For example: making sure that data is collected from all the relevant sources, and removing duplications to reduce needless storage.
While many initiatives stop at this stage, the flywheel aims to fuel future insights through feedback mechanisms. Regularly review and adjust your approach to ensure the flywheel spins faster with each iteration. Set up feedback channels, including customer surveys and performance metrics, to track the impact of each change.
Finally, as your volume grows, leverage tools that can handle increased demand, ensuring your flywheel remains efficient and sustainable.
Disclosure: This article includes a client of an Espacio portfolio company.
