Pop quiz: Which Detroit automaker received a prestigious award for its analytics team? If you answered Ford Motor Company (NYSE:F), you'd be correct. (And I'd also call you out for guessing because you had no clue. Admit it.)
Ford has an industry-leading analytics team, which won last year's INFORMS Prize from the Institute for Operations Research and the Management Sciences for its use of data science and predictive analytics to improve operational performance.
With that mouthful aside, what does that mean and what exactly is Ford planning to do with "big data"? A recent move gives us a clue.
Who's this Paul Ballew guy?
On Monday Ford appointed analytics expert Paul Ballew as executive director and chief data and analytics officer to help speed the development of Ford's research into data science and innovation. His track record is impressive, with 20 years in business and the auto industry in multiple positions researching and analyzing consumer trends. Those positions include stints at the Federal Reserve and J.D. Power, as well as at crosstown rival General Motors.
So, why does this all matter, you ask? According to his boss, Chief Financial Officer Bob Shanks, "He will turn what has been a secret weapon for us into a companywide endeavor, driving growth in all parts of our business."
While that statement is a little vague, here are a couple of micro and macro examples of how this should impact Ford and its investors.
The small and big pictures
One way Ford's improving analytical team impacts business in a positive way is with the company's inventory data. For example, Ford created a better system for ordering vehicles for its dealers through analysis of sales and inventory data from any given region of the country. The system even suggests which type of cars to sell where, and with what premium options -- for example, Texas is the largest market for full-size trucks. The result is that Ford's vehicles are being sold off dealership lots at a faster rate.
That's one example of how big data can help improve Ford's operational performance, but the bigger picture is more important for investors looking years down the road.
One complex and fascinating thing to consider for automakers' business is the trend of urbanization, which shows that more people are being drawn to cities. That in turn makes owning a personal vehicle much less appealing, and could thus hurt long-term automotive sales. Ford's jump into big data can help drive the company's vision for different business models to help offset this.
"As society faces the increasing challenges of traffic congestion, crowded cities and poor infrastructure, we must reinvent the way we live and do business if we want to make a positive impact on future generations," said Ford Executive Chairman Bill Ford in a press release. "We're seeing some of the most exciting consumer products and services on the market today coming from innovative start-up companies. It will be great to be part of bringing that type of new thinking to Detroit and the automotive industry."
There isn't a precise roadmap for using big data down the road; however, it figures to play a factor in many different projects. There will likely be significantly more interaction between individual cars on our roads, because of the surge in computing, connectivity, and sensors in vehicles, that could benefit from Ford's use of data. Ford could also use data from third parties to alert drivers to traffic jams, accidents, or other imperative information. Those are just two of a vast multitude of possibilities that could give Ford's vehicles a slight competitive advantage, while improving customer satisfaction and loyalty -- very important things in the highly competitive automotive industry.
While the recent hiring of Ballew may seem like a non-event for Ford investors, that couldn't be further from the truth. As an investor, you're essentially placing your trust in company management to foresee and adapt to problems you don't have time to explore. Ford's jump into big data, and its proven analysis of said data, will help improve the company's operating and financial performance on big and small projects in the years ahead. Ford's increased use of big data is something that investors won't always be able to see develop, but it will help you rest assured that Ford is on top of its game.