Analytics Revolution - Why the struggle for growth?

IT majors have been excited about the convergence of Social, Cloud, Analytics and Mobility (SCAM).  It is widely believed that these will be the engines of growth in the future. Rightly so. N Chandrasekaran, CEO of TCS, India’s largest technology services provider, recently referred to the SCAM as "digital forces" and estimates that these digital forces would be a $3-5 billion opportunity in the next few years.  A Gartner study has reported that the SCAM market will be worth $107 billion by 2017.

It is true that Analytics - has generated excitement all around. Everyone can see and experience the impact that this convergence – that engenders Disruptive Innovations  - has on everyone’s life. I personally think that the hype is real and the huge revenue opportunity projected for this market space is based on solid grounds.

What the TCS Chief has not mentioned is that there are significant white spaces – industry-speak for critical gaps and blind spots in the effort to get this revenue. And the fumble, too, is very real. For example, if these projections and forecasts can be translated into revenue, why are we not seeing a Google or a Facebook or even their dwarfs in pure play Analytics?  There appear to be several reasons why IT majors have not been able to take advantage of the opportunities. The revenue is for them to lose unless they learn and take corrective action quickly.

Analytics business is a domain specific, hands-on and a devilish details game where domain expertise is all supreme. However, most global players have not been able to get the right folks to lead the practice. This has proved to be a disastrous non-starter. The problem is also compounded by lack of right skills in the marketplace. The analytics practices at the majors continue to be led by professionals who either have consulting or technology background but weak in hands-on analytics. This has blissfully insulated the practice from the analytic humdrum that businesses are experiencing. This is also reflected in the inability to identify or devise the right vehicle to exploit the surging analytic opportunities. In my view, the lack of appropriate leadership is a major roadblock to growth.

The IT majors also urgently need to revisit the internal business structure. The bunching of analytics catering to different industry segments or verticals under a single business unit may be convenient for administrative and bureaucratic reasons, but has not produced optimal results. This agglutination has come in the way of insight dominance since successful thought leadership in one vertical often has not passed muster at another. I think the analytics practice catering to each industry vertical must be a separate business unit by itself.

The outsourcing industry has mastered the art of building the business via the IT organizations of client companies. However this tested path has not helped build the Analytics business because the key players are not on the IT organization of clients. Outsources need to have a game plan for directly engaging the business side of the house.

Further the majors they are selling software products and tools that are often peripheral and non-core to generating analytical insights. Aided by an expanded definition of analytics, this may help generate revenue in the short run, but this has taken the focus off the insights business.  For example, a hypothetical solution that can build and deliver fraud detection models using large attribute set – including social media attributes – and look-up more than 10,000 datasets and yet instantly deliver accurate detections will be immensely popular.

Big data or new modeling techniques by themselves would not produce a disruptive innovation. The marriage of cutting edge technology and the resulting new innovative analytical techniques that can scale is the winning recipe. This is a keystone for success in analytics practice, yet conspicuous by its absence.

This success recipe has to be combined with a smart go to market strategy. I call it winning-with-a-thousand-cuts strategy. Instead of waiting for the dream multi-million, multi-year project, the focus must shift to building volumes through a huge portfolio of mid-sized projects. Execute several small to medium sized projects that will provide insights to the businesses in short to medium term - 6 to 12 month time frame. This paradigm has the potential for depth - to open up opportunities in every line of business, business unit or team level at clients and hence build scale in the analytics business.

Succeeding in Banking Analytics – Choosing the right business model

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What is an appropriate business engagement model for succeeding in the analytics business?  This is a great question, but has no simple answer. This question seems to be on the minds of leadership in analytics service providers. What engagement model do you choose to build long term trusted relationships with your clients? What is unique in banking analytics space?  In fact, this question also came up recently, rather unexpectedly, when I was having dinner with two old friends in beautiful Los Angeles.

Professional services provided by the vendors range from staff augmentation on one end of the spectrum to high-end solutions consulting that seeks to solve complex business problems.  All this emanates from the thought construct insiders refer to as the engagement maturity model.  This model tracks the morphing of provider-consumer relationship as the two embark on their journey over time. High-end consulting offers higher and obviously desirable ROI. Hence vendors strive to attain this utopia in each of their relationships. In an ideal world, if you can design solutions / offerings that will move clients up on the value chain - from staff augmentation to high end consulting, you have a winning recipe that will make you the top vendor with an enviable revenue stream.  All this is an ideal world. But, how do we work this magic in banking and financial services space in the real world?

Businesses that serve banking and financial services clients face hidden challenges.  It is well known that analytics is what differentiates successful banks. Large, well-run institutions have star-studded analytical teams that have the depth and skills to crunch through well-organized data and come up with insights to make the right decisions.  That is the upside. The down side is that, these teams may sometimes engage in dueling analytics in an effort to be one up on the other, an avoidable waste of resources and talent horsepower. Smaller institutions on the other hand, have smaller talent pool, less organized data and limited capability to undertake complex analytical projects on their own.  

Another key dynamic is that the outcomes of analytical projects impact the banks’ core decisions.  Hence banks often prefer to work with the crème-de-la crème in the business that they can trust. This provides the vendors a great window of opportunity to showcase their excellence in domain expertise, execution and delivery to win the trust of banks. Winning the trust of banks is a prerequisite for deeper, long-term engagements.  

In other words, the analytical ecosystems in these institutions are very different – ranging from the highly competitive and sometimes counterproductive to those with less sophisticated analytical infrastructure. Understanding the extant analytical ecosystem is critical in choosing the right business model for banking analytics providers.

But in the real world what engagement mix should we choose?  Seriously it depends on the prevailing analytical ecosystem of the banking customer. My personal view is that emerging and growing businesses tend to generate a significant proportion of their revenue via an on/off site staff augmentation model. Smaller boutique vendors have successfully demonstrated this as a key entry strategy in a very competitive business.  On the other hand, there seem to be fewer examples of providers choosing high end solutions as the dominant component of their mix. But I think an understanding of the nuances of this industry and the interplay of analytical ecosystem is fundamental to succeeding in banking analytics. This understanding helps discover the right mix.

Social Media Intelligence – A Disaster?

Just read this piece on Bloomberg about how retailers are shutting down their Facebook shops.  I have written in the past about how many companies are using social media to glean actionable intelligence about customers. Very specifically I had discussed how social media has the potential to provide risk intelligence to credit risk managers in banks and financial institutions. While there was flicker of interest, it has not actually picked up for several reasons.

For starters, social media sites like Face book are more an online venting of personal idiosyncrasies and little nonsense we all like to indulge ourselves when our guards are down. Personally I think it is more akin to street corner gathering of teenagers who hangout more for social companionship rather than any serious discussion. Of course, there are serious discussions at these hangouts, but they are heavily outnumbered by the day-to-day sharing of simple trivialities. That is the nature of Facebook transactions.

The most obvious reason seems to be the inability of many leading companies / brands to monetize their huge followings or “likes” on Face book. Many companies opened Facebook stores because they did not want to lose out. However, these initiatives have not provided the expected return on investments and many leading brands -  JC Penny, Gamestop, Gap, Nordstrom, just to name a few – have shut down their Facebook stores. See article for more details.

Banks and financial services, on the other hand, have been more cautious in their social media strategy. Credit Risk Managers were not blown off their feet by Facebook’s ability to provide risk intelligence. While collection agencies are using Facebook to locate delinquent customers, it is a far cry from replacing Credit bureaus as a primary source of customer data. I think we have to wait and see how this evolves in the coming months.

Current social media strategy has hurt companies in other ways too. Many companies that bet on Facebook and have invested heavily are already seeing negative returns. Poor revenue streams from these strategic decisions will show up in the balance sheets of many software companies as early as 1Q of 2012. It will be interesting to see how the markets respond to the poor results.

I am not prognosticating a complete failure of social media strategy. Rather, it is a time for introspection and realignment for future course of action, given what we are learning. As always, I believe failure is a great educator and leads to innovation; innovation is the key distinguisher in a competitive business environment. I believe when the dust settles, it will lead companies to engender a more compatible and sustainable social media strategy.  Definitely, the current social media strategy a.k.a “Facebook Strategy” of many companies does not seem to be working.  Stay tuned folks.

Mobile Banking hits Critical Mass

This week industry observers saw Mobile banking reach key milestones. According to Javelin Strategies, consumer adoption of mobile banking jumped 60% in 2011. This is because a large number of banks and financial institutions launched their mobile apps for their customers.  Bulk of these apps has been in retail banking – helping customers manage their checking and savings banking. The chart below shows customer used their mobile devices for checking and savings transactions – like viewing their balances, bill pay and simple fund transfer.

The second important milestone is that in 2011, 50% of US cell phone users will switch to Smartphones. This is a very key development because it offers unprecedented opportunities for banks, credit card companies and other players in financial services to reconfigure their service offerings to their customers.

Expansion in Mobile banking is also happening globally.  According to TNS MobileLife, global use of mobile finance surged in the past year as the spread of new technology and mobile banking infrastructure drove a huge increase in take-up rates around the world. In the UK the proportion of people using mobile banking increased from 9.7% in 2010 to 20.4% in 2011, while in the USA the rates from 11.4% to 21.9%. In Sweden it was greater still: 8.1% to 20%.

What is the takeaway for Banks, Financial Services and other key players in the sector?  What are the implications for technology companies that offer mobile technology and sell solutions to their financial services clients?

My personal view is that the data that we have seen above is only the tip of the iceberg. We are witnessing a paradigm shift in Banking and Financial services offerings.  Mobile banking offers a big opportunity for small and mid-tier banks to leapfrog into big league by offering better customer experience. Banks that do not provide mobile services or are late to hit the market will be left behind.  

For technology companies, this represents a golden opportunity.  Companies like MicroStrategy who have invested in mobile solutions - both financially and built key vertical expertise to scale - are in the sweet spot to exploit the huge surge in service opportunities. 

As the saying goes, success happens when preparation meets opportunity.