Analytics outsourcing has crossed the chasm from being a nice-to-have proposition to a need-to-have practice.
In a globalized economy, information and data are the backbone of a business. However, merely having access to numbers is not of much use. Rather, it is analytics—the interpretation and application of data —that makes businesses thrive.
Analytics has been titled as the smartest weapon in the corporate quiver. This credential can be attributed to the fact that sans analytics it is difficult to sustain competitiveness. Data analytics arm an organization with significant analyses - that highlight upcoming business roadblocks, hidden trends and key insights- on which management can base strategic plans and operational policies.
With ever growing competition and globalization, analytics has become critical for all businesses to support tactical and strategic decision making. Today, companies can choose from a host of platforms and services-based tools that can be deployed to make intelligent use of information enabling business decisions that impact both top line and bottom line.
Analytics is basically the application of computing resources, operational research, and statistics to solve business and industry problems. It covers areas like- marketing analytics, predictive and strategy science, credit risk analysis and fraud analytics.
Viral Thakker, executive director, Performance and Technology services, KPMG stated segments that this service encompasses:
1. Marketing & Customer Analytics: Data mining and management to understand consumer behavior.
Example: Telecom and internet companies generate a large amount of customer data during their interactions. By analyzing these, they understand customer buying patterns that helps identify potential cross-selling opportunities, improve marketing efficiency and ROI from campaign strategies (e.g. direct mail campaigns). Similar analytics is performed for credit card companies, retail, and many other businesses.
2. Risk Management Analytics: Analytics for high risk businesses. In such businesses, profitability depends on the ability to increase profits by retaining low risk customers and at the same time reducing losses.
Example: In the insurance industry predictive models are developed that predict expected claim amount depending on past data. This data analysis also helps in detecting fraud, predicting defaults and bankruptcy.
3. Operations Analytics: It includes IVR analytics, demand forecasting and demand management, performance and productivity, customer satisfaction analysis, collections efficiency, etc.
Example: Analytics is used to analyze IVR data to identify user segments based on usage preference and redesign the IVR strategy accordingly.
4. Finance & Investment Analytics: It includes equity research, investment analysis for PE-VC funds, investment banks, etc. This is perhaps one of the leading segments of analytics usage.
Example: Organizations make use of financial analytics in market-size estimation, competitive analysis and intelligence, apart from identifying investment opportunities, due diligence or during M&A analysis and strategy.
This extremely essential 'game-changer' does not naturally plug into the outsourcing model. The reason being level of data sensitivity is very high. Due to this, some clients set up captive units to deliver analytics, instead of outsourcing. However, the last decade has witnessed third-party providers gain significant expertise in analytics.
The Offshore Analytics Market
US, UK and to some degree, the rest of Europe are major markets served by analytics service provider. Since these mature markets embrace experience in offshoring business processes they are now moving up the value chain and are willing to outsource knowledge services. Some providers are also focusing on Australia and Japan.
Main contenders in terms of delivery destinations are India, China and Eastern Europe. Others include nearshore countries to the US such as Mexico and Costa Rica, and offshore destinations such as Singapore and Sri Lanka. Vendors may be from these or other destinations, but they need to have delivery capabilities in at least one of these destinations.
Genpact's Analytics and Research department has a large concentration in America and a large portion of their current revenue comes from this region. It has footprints in Europe, China, India and Australia. In the coming years, it is expecting to grow significantly in Europe and Asia-Pacific Region.
Most of WNS clients are based in the United States and European Union region. It is also expanding its client base in the Asia-Pacific region. As their practice is a horizontal offering within WNS, most of their clients are spread across several industry verticals, including financial services and insurance, retail, CPG, healthcare, professional services, travel and leisure.
WNS provides analytics services from five offshore delivery locations in India, and one nearshore location in Bucharest, Romania. Amongst the India locations, Gurgaon has the largest employee strength in research & analytics division, with over 800 people, followed by Mumbai, Bangalore, Pune, and Chennai.
Activecubes, a global firm providing Analytics Services with associated Technology Solutions, focuses on US, Australia and India from the geographical perspective. From an Industry angle our focus markets are Pharmaceuticals, Financial services and Retail-CPG industries. As of now, its main offshore location is Bangalore and it plans to expand to more locations in India as well as international locations.
According to HfS Research titled 'Where Offshore Analytics is Heading in 2011’, Fortune 500 companies are the big-league clients for this knowledge service. Enterprise from verticals such as FMCG, BFSI, and telecom are significant buyers for offshore analytics service providers. Service providers are also targeting mid-sized clients to move up the value chain. Some providers are also looking at tapping the rapidly growing domestic and regional markets. Large IT-BPOs and KPOs are trying to cross sell analytics services to their existing clients. KPOs and BPOs need to create specialized capabilities to service parts of analytics projects and eventually take a vertical approach to growth in their chosen area to move up the value chain.
Leveraging specialized skill sets, access to affordable resources and better utilization of resources, achieve scale across geographies and business units, overcome corporate silos, establish and industrialize best practices, standardization of the disparate analytical processes, establish a well-defined delivery model...are some of the key drivers. Thakker pointed out drivers on the demand as well as supply side.
The demand drivers of analytics outsourcing include:
Analytics significantly enhances the client service organization’s ability to generate top-line revenue. However, a significant shortage of highly-skilled knowledge professionals in the developed nations is making recruiting of such professionals very difficult.
To remain competitive, organizations have realized the need to use analytics to reduce time to market for their services and products in areas such as marketing, product development, product launches, strategic decision making, etc.
Thus, offshoring high-end services not only ensure access to professionals at a significantly lower cost, but also ensure a gain in competitive advantage for the customers.
Some of the drivers of analytics outsourcing from the supply side are:
Global as well as Indian vendors have demonstrated their capabilities to execute high end knowledge work efficiently. Vendors are moving up the value chain and are using high-end analytics as a differentiating factor for their service offering.
Due to the high availability of skilled labor especially in countries such as India, vendors are able to provide the clients with contextual domain expertise which is an important driver for analytics outsourcing. Moreover, due to the relatively standardized nature of analytics and a growing awareness of the increasing quality of education systems in favored offshore locations, this segment has seen a spurt in terms of supply.
The technology and telecommunication developments have also helped the Analytics Outsourcing/ offshoring industry to grow, by making real-time data available and rapid data processing and analysis.
Are concerns over security justified?
Management of intellectual property (IP) and conflict-of interest issues are more demanding in analytics outsourcing and KPO than in BPO, where data protection and privacy concerns dominate.
Pankaj Kulshreshtha, senior vice president - Analytics & Research articulated, “I've been doing this for 13 years now and I have seen companies evolve to a level where they do not worry much about security. We work with 12 out of 15 pharma companies so obviously we have a very legitimate way of addressing their concerns around data security and intellectual property protection. This is the case across financial services and majorly other areas too.”
From infrastructure prospects, Kulshreshtha added, “We make sure that we create a completely secure environment that is as secure as our customers would like. We have situations where a part of dedicated team is placed in an enclosure, that even I as a business leader require written permission to enter. People inside that enclosure do not have access to any other mail apart from customers mail. They work directly on customers systems and have the same data security systems applied as would be applied to any analyst sitting in the customers own facility.”
Some significant issues that could emerge are:
As ownership rights between service providers and receivers become blurred, debate over intellectual property ownership and management of statistical analysis models are likely to increase.
When the same regulatory restrictions vary by country, conflict-of-interest management issues concerning violations of insider trading rules may increase.
Vendors would need to have stringent internal measures to prevent any IP data infringement. Formal qualification assessments, certifications (such as ISO 27001 certification in data security) and periodic competency reviews would become essential.
In this space there are many captives, people who still want it to be an in-house activity as they consider it to be their core capability or core differentiator. But then, there are significant sizable integrated players that are now developing in the market. Kulshreshtha spoke about where this whole discipline is going, “I think there will be a little bit of convergence of the whole software and business intelligence side; whereby you do things like setting up data warehouses and then setting up analytical process on top of them. IT companies always did data warehousing type of work they did not do so much of analytics type of work on top of that, Where else, we worked the other way, we used to do more of analytics services kind of work and we have not done much of data warehousing side. All these areas will emerge.”
Second thing, he pointed, that is already happening is people are going to drive their solutions to the market with tag such as the one IBM uses. Genpact also use that tag, which was launched as smart enterprise processes. Genpact is addressing this business along with some other parts of their business as smart decision services. Other folks are going to use words such as analytics, intelligence. Increasingly lot of third party players will go to the market with solutions that are woven around smart intelligent type of theme.
Third thing, from Kulshreshtha's viewpoint, is that social media explosion that is going on will transform the base of how analytics is done. Right now a lot of analytics is done that analyzes the data companies produce around buying behavior. However, there is very little that is done in this space in terms of understanding what people are saying about certain brands, what people are saying about experience with certain products and services. As text mining and knowledge discovery type of technologies evolve to next level what will happen is we will find completely different ways of solving the problems that we currently solve using the hard data that is currently used.
Some of the emerging areas highlighted by Thakker
* Customer analytics for the energy and utilities sector (smart metering)
* Fraud analytics in retail banking
* Cyber-analytics to detect cyber crime and acts of terrorism, cyber risk management, foreign espionage, intellectual capital theft, etc.
* Learning analytics to assess students’ academic and extra-curricular progress, predict future performance, and identify potential issues
* Cloud based BI tools could see proliferation
* Social network data mining for customer analytics
* 'Big data analytics’ – Big data refers to the tools, processes and procedures allowing an organization to create, manipulate, and manage very large data sets and storage facilities
Arun Kharbanda, business unit head- Research & Analytics, WNS Global Services opined, “The next decade will be very different from the last one, with structural shifts in demographics that will reflect more prominently in the international trade and economics, where outsourcing will no longer be a choice. The KPO industry in India has gone through a “concept selling” phase in the last few years for a majority of clients who have so far utilized BPO services. At the same time, some clients have been able to create a competitive advantage for themselves through establishing Analytics Centers of Excellence programs that have resulted in improved decision making across multiple business groups, markets and geographies.”
“Some of the new opportunities we see are from industry verticals that were hitherto not very active in AO, such as Shipping & Logistics, Manufacturing and Supply Chain. From an offering standpoint, web and web related services are very much in demand from the market, as are packaged solutions that combine consulting services with delivery”, added Kharbanda.
Analytics Outsourcing started with financial and marketing functions. Some of the first companies to take advantage of this were the MNC’s when they set up captives in India. Initially the heavy lifting in terms of data analysis was being outsourced. Then came the higher end statistical modeling. Ramachandran K, Executive Director & Head – Healthcare, Activecubes articulated, “Nowadays, high end business consulting (based on the data) is also being outsourced. Next will come a time when companies in India will start services where they will own data and provide consulting / analytics based on the owned data as well as customer data.”
Key service providers
BPOs- Genpact, Evalueserve, WNS, EXL Services
IT companies- Wipro, Infosys, TCS, HCL, HP
Specialized MR firms- Ugam, Marketics, eClerx, Annik Systems
High-end analytics- Aranca, Copal Partners
Traditional MR companies- AC Nielsen, CRISIL
Boutique R&A firms- ValueNotes, SG Analytics, Netscribes
Financial services- JP Morgan