The term data flywheel effect originates from the fields of big data and smart data, automation and digital transformation. It describes how the collection and utilisation of large amounts of data leads to ever better results - similar to a flywheel that turns faster with every revolution.

The more data a company collects through digital processes, the better it can recognise correlations and make decisions. These new insights in turn improve the processes, resulting in even more and better data. This creates a virtuous circle that drives the growth and efficiency of digital applications.

An illustrative example: An online shop uses customer data to improve its product recommendations. Initially, the recommendations are still imprecise. However, with every order and every piece of feedback from users, the suggestions get better and better. The better the recommendations become, the more customers buy - and in turn provide even more data. In this way, the data flywheel effect constantly accelerates improvements to the system, from which everyone benefits.

Companies that make use of this effect can gain a real competitive advantage and drive forward their digitalisation in a targeted manner.