Suppose you could turn back time and re-evaluate your company’s response to the coronavirus. There’s no crystal ball, but you have something that offers great insight – alternative data.
How would you use it and what would you do differently? Which data sources would you trust the most and how would you reformulate your company’s response?
Instead of reviewing medical record data from the World Health Organization – which confirms illness after it has happened – would it have been better to use predictive data that measures atypical illness by zip code? And would this have been a better indicator for the next infection hotspot? Or would satellite imagery from China showing fields of recently dug graves, disturbing as they would be, have been the signal of the danger that the United States would face without a proper plan?
This is just one way that alternative data increasingly influences decision-making in today’s business climate, with growing accuracy, and impact, on today’s economy.
Companies can now leverage social media images to assess the impact of social distancing in consumer spending. They can leverage algorithms that scrape websites to assess unemployment inquiries and assess the availability of labor. They can rush to structure internal data sets to predict customer behaviors and measure risk. Location data can track the movement of individuals in a community – though there are strong concerns about privacy that nations must wrestle with.
The middle market
The recent health pandemic puts alternative data to the ultimate test to prove its merits. Certain industries, like alternative investing, have long used these newer forms of data to enable better predictive outcomes, but widespread use has been lacking, especially in the middle market.
But that is rapidly changing. And as the pandemic evolves, alternative data has the ability to give insight beyond what is gleaned from traditional data, which companies have long relied upon to make decisions but which has its limitations.
Traditional economic data like initial jobless claims and consumer spending relies on human behavior, which can be irrational and unpredictable. This hinders managers’ ability to predict markets’ performance accurately and know exactly how certain policies will affect different sectors and economies.
It creates a false sense of precision when compared to alternative data, which offers automated decision-making that limits error and provides up-to-date, real-time information.
For example, subway and train ridership in and around major metropolitan areas like New York may be the first sign of a workforce returning to normal, not monthly payroll reports.
OpenTable reservations will indicate increased consumer confidence, not the Bureau of Economic Analysis’s monthly index. Telehealth subscribership and related health findings will signal improved health, not the World Health Organization’s known incident report.
And what this data shows us will inevitably lead to the structural changes we’ll make as a global society. Which trading partners will we open our borders to, and will a made-in-America approach serve as a form of insurance for the harsh economic loss that follows a pandemic?
How can we empower a remote workforce and which new and improved technologies will drive this shift? And how will companies approach borrowing as the role of the central bank evolves and the Fed’s balance sheet approaches record highs?
One things is for sure: The broader application of alternative data across all industries will follow the coronavirus pandemic. To do otherwise poses too much of a risk.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.