The problem with big data – Maryam Farboodi

Maryam Farboodi, Assistant Professor of Finance, MIT Sloan Management

From MIT Sloan Management Review

As technology improves, larger companies continue to gain disproportionate shares of the processing power and financial value big data offers.

Because of big data — a term that has come to refer to the immense amount of digital material we generate, store, and manipulate with increasing ability — managers can measure more about their companies and then use that information to drive performance. Need to heighten the productivity of your workforce? Big data can help. Want to analyze customers’ preferences and purchase patterns? Big data can do that, too. Looking for ways to cut costs and increase profitability? Big data: At your service.

But not all companies are flourishing in this new era. Small companies are struggling. Over the last three decades, the annual rate of new startups has fallen from 13% to less than 8%. During that time, the percentage of employment at companies with fewer than 100 workers has decreased by 5%. Meanwhile, big companies are thriving. The share of revenue of the top 5% of businesses has increased by 10% since the 1980s. Large companies also employ a greater share of the U.S. labor force: from one-quarter in the 1980s to about one-third today. What accounts for this discrepancy?

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