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Monthly Archives
March 31, 2004
Posted by Britton
Business intelligence platforms increasingly will incorporate an array of analytic capabilities and test the ability of companies to leverage them, said Gartner vice president Howard Dresner in a presentation at the Gartner Symposium ITxpo this week. Such platforms will create demand for sophisticated knowledge, skills and talents within companies.
Under the circumstances, Dresner argued IT organizations should establish BI competency centers. "Take those skills in the enterprise that know how to use tools the right way and centralize them," he said. "We consider this to be a best practice."
Few organizations, however, have actually developed one, according to a show of hands. "Trying to pull a competency center together for a large company is a huge undertaking," Ralph Martino, who is data warehouse manager for Chase Credit Card Corp, told TechTarget’s Paul Gillin at the conference. "I'm not sure the benefit is there just yet, but I intend to go back home and advocate for it."
Well, why? There’s reason to believe that centers of BI excellence will only drag companies further away from the real prize, particularly when the prize is a profitable and loyal customer. They need to invest deeply in understanding their markets and their customers. Introspective efforts to build “world-class” BI capabilities don’t necessarily get one any closer to that objective. IT activities of all kinds increasingly are becoming a utility. Maybe the business groups, which are closest to the customer, should be driving the action.
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March 30, 2004
Posted by Britton
Capital One just can’t do enough market tests. Indeed, it conducted 80,000 of them in 2003 – on everything from marketing copy to price points to credit lines. The company, which posted revenue of more than $9.8 billion and net income of more than $1.1 billion last year, relies on this extraordinary diligence to ensure it is effectively gauging customer priorities and preferences. 
The company claims it differentiates its marketing operations on three dimensions: 1) state-of-the-art technology; 2) rigorous testing and analysis of products, segments and consumer behaviors; and 3) flexible operations and services that enable the organization to capitalize on the intelligence it generates and pursue new opportunities.
“As a statistician, I love this because it gives us the rigor of testing appropriately and doing predictive modeling [to ensure success] going forward," said Dave Jeppesen, VP of Capital One's Direct Marketing Center in a recent keynote speech at the National Center for Direct Marketing winter conference in Orlando. "We are going after the holy grail of direct marketing -- to get the right product on the right terms to the right customer at the right time through the right channel. We believe we are pretty far along."
One sophisticated, data-driven campaign enabled the company recently to determine it was sensible to increase customer credit lines and offer an extremely low fixed rate (4.99 percent) on a new card. "We saw $3 billion come onto our books because of one offer in one quarter," says Jeppesen. "It was because of the insight we found through use of our technology."
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Posted by Britton
Modern marketing, particularly with large data-sets, resembles nothing so much as the scientific method. It’s about formulating a certain hypothesis, testing it, and then presenting one’s findings to validate or modify the hypothesis. If one pursues the venture with rigor and diligence, the truth – whatever it may be – will be further illuminated. The truth, in the case of enterprise marketing, can be translated as “money.” Hypotheses tend to concern questions of customer response, retention and cross-selling/up-selling.
Consultant Eric Siegel does a nice job of outlining the process as it applies to customer intelligence. “A central capability of CRM analytics is to predict customer actions, that is, to forecast the individual behavior of each existing or prospective customer under certain conditions,” he writes. “Naturally, such customer predictions are key to allocating marketing and sales resources.”
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March 29, 2004
Posted by Britton
The “Moneyball” hypothesis seems to be bouncing around. Michael Lewis’ best-selling book, in case you are unfamiliar, tells the story of how the Oakland A’s employed rigorous statistical analysis to defy the conventional wisdom of Major League Baseball and out-compete teams that are far better financed. In a recent feature story for 1to1 Magazine, I argued that the story has tremendous implications for the world of business, particularly for companies hoping to capitalize on customer analysis. 
But it also seems to have important implications for other sports. As the most recent issue of the Economist suggests, statistical analysis is now driving performance measurement and innovation in all sorts of sports including football, basketball and even rugby. “Shrewd observers seek understanding not through received wisdom but from the statistics that accrue over weeks and seasons,” according to the publication. “Analyzing those statistics allows one better to determine which players are better than others or what the best strategy might be against a certain team.”
Of course, not everyone is thrilled about the trend. But so what? “While old-fashioned trainers may lament this technification of sport, a new generation of sports theorists, who range from economists publishing in refereed journals to fans of an analytical bent sharing their views via the web, see a beauty in their rigour,” the article states. The trend has even given rise to several scientific journals such as the Journal of Sports Economics and the International Journal of Performance Analysis in Sport.
Business people have always enjoyed sports analogies and metaphors. The question is: why stop there? The lead investment strategist for Credit Suisse/First Boston devoted an entire research report to the book. Venture capitalists have cited it in their speeches. Lewis himself suggests in an interesting interview that Hollywood probably has a lot to learn from the A’s. “The book is creating a dialogue...between the larger culture and the subculture [of baseball]," says Lewis.
One thing that is particularly interesting about the world of sports is the centrality of performance. As we are seeing, analytically driven, “performance management” also is the central issue now facing companies of all kinds. Maybe execs increasingly will look to the sports world not only for analogies but hints of the next wave of innovation.
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March 26, 2004
Posted by Britton
One of the key requirements that companies must face as they develop the fabled “360 degree view” of their customers is data integration. Let’s get one thing straight: this isn’t fun. It can be extraordinarily difficult and perplexing. However, it isn’t impossible either. 
ING, the global insurance and financial services powerhouse, has managed to integrate customer data on behalf of its 27 lines of business. As one would imagine, there are lots of different applications. "With customer information, agreements, and product types, you may have one use for them in the call center app, another use in profitability analysis, and another use for marketing," says the company's CTO, Raymond Karrenbauer in Line 56.
Karrenbauer is in charge of a group that uses data integration software and other tools to make customer data and underlying data models accessible to all business units (and geographies) – and thus avoid “reinventing the wheel.” He relies on software from Informatica. However, there are numerous innovative ways of addressing this problem, as Anil Gupta points out in a recent Intelligent Enterprise cover story. Such efforts are vital if companies are to gain the panoramic perspectives necessary to address customers as the individuals they are.
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Posted by Britton
One leading indicator of the intellisphere's continuing expansion is the success of Cary, North Carolina-based SAS. Touting itself as “the largest privately held software company in the world,” SAS recently reported overall revenue of $1.34 billion for 2003 -- a 13.5% increase in revenue growth.
"At a time when other large software vendors have experienced reduced revenue and slashed both headcount and R&D spending, SAS has continued to grow in both market presence and revenue," says SAS CEO Jim Goodnight. "Our ability to tailor our software to industry-specific needs and help companies create data-driven approaches to managing cost pressures, regulatory requirements and the profitability of their customer relationships, were key factors behind another successful year." SAS's customer intelligence solutions fared particularly well with new sales for marketing automation applications increasing by 70%.
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March 25, 2004
Posted by Britton
The future of the economy doesn’t necessarily revolve around the Fortune 500. It’s the Fortune 500,000 that deserves more attention. As I see it, there are a vast number of dynamic and emerging firms that are actively growing, hiring, and taking on the roles that are now getting outsourced by the aforementioned F500.
My neighbors across the street -– a husband and wife team –- moved to town a few years ago to take ownership of an AlphaGraphics franchise. From first-hand experience, I can tell you that they perform far faster, better and more passionately than the insourced, corporate printing and copy departments whose passing some now lament.
Not me. These driven, entrepreneurial and underappreciated firms and franchises are the beating heart of the next economy. Just imagine what will happen when they gain the ability to analyze their customers more deeply and invest their resources to greatest effect. That’s what we can expect as customer-focused, analytic technologies become more widely accessible and applicable – a trend duly noted in CIO Today. Fortune Magazine won’t give these folks the time of day. But this is where tomorrow’s fortunes may truly lie.
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March 24, 2004
Posted by Britton
Information privacy is a source of tremendous ambivalence in the general public. Consumers tend to value the benefits that can be derived from giving up information about themselves, but – when surveyed and forced to put their opinions on record – they tend to state that they don’t want anyone to know anything. It’s kind of like screaming for more services from the government while, at the same time, voting for politicians who promise tax cuts. 
A new Accenture study actually finds that 69% of participants – all business executives, not consumers interrupted during the dinner hour – would be willing to surrender personal information in exchange for discounts or monetary rewards. Information-hungry corporations, however, “should not confuse that willingness with indifference,” writes CIO Magazine’s Alison Bass. “American consumers care intensely about privacy, and once a company abuses their trust, regaining it won’t be easy.”
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Posted by Britton
Yet another powerful force in customer intelligence in the coming years will be the pharmaceutical industry. Companies in the sector are expected to invest more than $2 billion in business intelligence solutions overall by 2006, according to a new report by Gantry Group.
While analysis of the industry tends to focus on the drug development pipeline, success in the coming years may increasingly revolve around integrating sales and marketing information with customer-focused insight to rapidly adjust priorities and investments. BI portals, for instance, are enabling companies to generate “real-time views of investments and paybacks, across brands, therapies and customer segments,” according to Gantry.
At the same time, the proliferation of pharmaceutical informatics – from Pharmacy Benefits Managers, pharmacies, health care payers and data providers – is enabling pharmas to gain a better understanding of sales, prescription, usage and payment trends to drive smarter corporate decisions. “Sophisticated pharmas have figured out that they need a broader population-based view of the context within which their drugs are used,” says Daniel W. Paterson, VP of marketing and corporate development at PharMetrics, Inc., an informatics firm. “To be truly effective the view must translate over to the sales side…”
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March 23, 2004
Posted by Britton
One of the most pernicious fallacies in the world of health care is the belief that there is a clear trade-off between the cost and the quality of care. In truth, health care insurers can leverage health care data to simultaneously reduce costs and enhance patient care. That’s the visionary case now being made by Louisville-based Humana as it focuses on ways to strengthen its relationships with members.
"The purpose of the industry in the past was generally unlinked to the end user," says Dr. Jack Lord, a physician and Humana's chief innovation officer, in a recent issue of ComputerWorld. "It tended to focus on itself, and on employers acting in sort of a benefactor role to employees. The result was a consumer and public push-back."
Humana’s deep analysis of health care data, however, has enabled it to roll out an array of personalized options and benefit plans. This lets individual policy holders, for instance, choose higher deductibles and larger co-pays in exchange for lower monthly payments. Meanwhile, web-based tools support member decisions in an accessible and dynamic way, while eliminating needless paper, printing and postal charges. The result: lower costs and higher customer satisfaction. Eventually, the $13 billion company intends to offer fully customized health coverage for every individual – much as Dell offers custom-order computers.
Humana relies on a full array of analytic tools to assess terabytes of data, provide personalized options and price them optimally. It uses patented algorithms developed by scientists, engineers, mathematicians, economists and many others. Central to the company’s effectiveness is the ability to model and predict the likelihood a given health plan will be chosen, and what it will cost. It can even identify at-risk individuals at an early stage and intervene to avoid catastrophic illness.
The new models – which draw on complexity theory, genetic programming and an array of sophisticated pattern recognition techniques – are designed to be predictive, not just retrospective. In fact, the company’s innovation center has developed a number of models it calls “insight engines,” which assess claims, identify new markets, enhance products and predict costs. One engine – dubbed SimHealth – is designed to run scenarios that simulate various possible consumer choices and model the implications.
Visionary leadership of this sort has enabled Humana to deepen its relationships with all stakeholders and differentiate itself in a difficult market. Given such compelling examples, we can hope the health care industry – one of our most wasteful and unproductive – might one day heal itself.
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March 22, 2004
Posted by Britton
The financial services sector continues to be a leading investor in customer-focused technology. In a recent report, “IT Spending on Customer Knowledge Technologies,” TowerGroup contends that companies are spending $5 billion worldwide on such technologies – a figure that will rise to $7.1 billion by 2008.
“The enduring strength of the CRM concept will continue to produce value for financial institutions around the globe in 2004,” said Kathleen Khirallah, senior analyst in the Retail Banking practice at TowerGroup and author of the research. “The race to acquire, retain, cross-sell and maximize the value of a customer base may have diminished in media visibility, but not in importance to financial institutions.” 
She claims that over the past few years spending has shifted away from “customer knowledge” investments toward “customer interaction” technologies (including all bank delivery channels). TowerGroup divides customer knowledge technologies into five subcategories: data repositories, data manipulation and business intelligence, decision support, sales support systems, and specialized marketing.
Data repositories, the largest subcategory, is expected to grow from $1.737 billion in 2003 to $2.335 billion in 2008, at a 6.1 percent CAGR. Business intelligence applications, including data mining query and reporting tools and online analytical processing tools, are forecast to grow at a 5.1 percent CAGR from $867 million in 2003 to $1.113 billion in 2008. Decision support applications, including multiple applications for customer profitability, predictive modeling, decision engines, real-time decision engines, and optimization, is expected to grow at a 7.5 percent CAGR from $1.095 billion in 2003 to $1.570 billion in 2008.
Within commercial banks, the three major IT spending categories include customer knowledge technologies, customer interaction technologies and core processing systems. Customer knowledge technologies represent 6% of total IT spending, while customer interaction represents approximately 40% and core systems 50%.
Unfortunately, the report doesn’t attempt to measure the relative payoffs associated with spending in each category. There is presently a fair amount of debate revolving around whether one should invest limited IT resources in analytical or operational systems. What’s clear is that money will continue to be spent. “As long as banks expect that growth in their institution will occur organically, customer knowledge technologies for CRM will continue to garner IT investment,” Khirallah added.
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March 19, 2004
Posted by Britton
This site is, in many ways, a tribute to the Italian economist Vilfredo Pareto.
In the late 1800s, Pareto discovered that 80% of the land in his home country was owned by 20% of the population. Pareto was also an avid gardener, and observed that 20% of the peapods in his garden yielded 80% of the peas that were harvested. Such observations gave rise to a powerful theory: the Pareto Principle or the 80/20 Rule. 
The Pareto Principle is perhaps most famous for its suggestion that successful people tend to achieve 80% of their results from only 20% of their efforts. The pattern is remarkably consistent in all walks of life and fields of endeavor. However, this rule is particularly critical to us because it also applies to customer relationships. Indeed, research consistently suggests that 20% of one’s customers will generate 80% of one’s sales, and the same holds true for profits.
Customer analysis and segmentation are so important because they enable us to identify the 20% (or 10% or 30% -- it’s the imbalance that is relevant) that is having a disproportionate impact on results. We can then focus our resources on these “vital few,” as management theorist Joseph Juran would call them, to obtain maximum returns.
“The reason that the 80/20 Principle is so valuable is that it is counterintuitive,” writes Richard Koch in his book dedicated to the subject. “We tend to expect that all causes will have roughly the same significance. That all customers are equally valuable.”
Koch goes on to point out that modern financiers are quite skilled at analyzing anomalies – say, between exchange rates – and shifting economic resources to areas that promise a higher yield. However, organizations and individuals tend to be very poor at this sort of arbitrage.
Why not focus on the 20% of customers that represent the overwhelming percentage of opportunities? As Koch puts it, “Companies rarely ask these questions, perhaps because to answer them would mean very radical action: to stop doing four-fifths of what you are doing is not a trivial change.”
In other words, Vilfredo can lead us to his garden, but he can’t make us eat.
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March 18, 2004
Posted by Britton
The venture capitalists have honed in on “business analytics” as an area of prospective opportunity. This may be an indicator of attention and capital shifting to the enterprise’s increasingly coveted intellisphere. 
Menlo Park, Calif.-based US Venture Partners has invested 80% of its software-focused capital in these types of deals. "Traditional analytics vendors put out a report, and getting a report is great, but you have to know what you're looking for," say Tim Connors, general partner at USVP. "What we're funding is different. This is not just a report to give executives to make decisions; it delivers the decisions just by dropping in the software."
One of USVP's portfolio company CEOs compares it to the evolution of the map. "You had street addresses and then maps and now you have systems in the car that tell you how to get places and avoid problems," says Daphne Carmeli, CEO of Metreo Inc.. "The next level may be giving recommendations based on where you've been and what you like. Real analytics isn't about data; it's about predicting behavior."
All we have to do now is marry all this extraordinary inventiveness in analytical technology with real-world insight into the challenges that today’s companies face as they focus on customer relationships. The more closely we look, the more mysterious and unmapped we find the geography that lies between companies and their customers.
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Posted by Britton
The market for business analytics is expected to grow to $9 billion this year, according to AMR Research. Unfortunately, 85 percent of customer analytics projects do not deliver a meaningful return on investment, says AMR analyst Laura Preslan.
Why? It’s the absence of predictive indicators, she says. Customers should invest in customer analytics tools that perform predictive modeling for the future in order to improve marketing effectiveness and identify service issues before they affect the bottom line. The critical issue, she says, is to leverage customer data to make forward-looking decisions, “rather than manipulating reports to validate decisions that have already been made.”
Preslan also encourages companies to focus on identifying and appropriately addressing their high-value customers. “Until companies understand their customer base and value, profits will continue to be wasted on over-servicing low-value customers while high-value customers wait,” she said.
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March 17, 2004
Posted by Britton
Forget the Volcano. Forget the Pirate Ship. Forget the Roller Coaster through Manhattan. Forget Celine Dion. Forget Cirque Du Soleil. If you are looking for profits in Vegas, think Gary Loveman, CEO of Harrah's.
Ok, so he's an unlikely Wall Street crowd pleaser. Until recently, he occupied a small office at the Harvard Business School and taught case studies for a living. But now he is being featured in Fortune Magazine as the new king of gaming. And in the new cover story for 1to1 Magazine, I called Harrah's one of the "low-key powerhouses" that now offer us "a glimpse of where business is headed."
At this point, Harrah's (with $4.3 billion in annual sales) is second only to Caesars (with annual revenue of $4.45 billion), yet it generates six times Caesars' $46 million in profit.
In an article last year in Harvard Business Review, Loveman stated that the company has strengthened customer loyalty and profitability in two key ways: "First, we use database marketing and decision science-based analytical tools to widen the gap between us and casino operators who base their customer incentives more on intuition than evidence. Second, we deliver the great service that consumers demand. In short, we've come out on top in the casino wars by mining our customer data deeply, running market experiments and using the results to develop and implement finely tuned marketing and services strategies that keep our customers coming back."
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March 16, 2004
Posted by Britton
Looking for inspiration and insights with regard to leveraging customer intelligence? Look no further than the current presidential campaigns. Really. One thing that makes a political campaign so intense and revealing is the definitive impact of the final vote. Come November, you either win or you lose. You get four (more) years or you get nothing. Rarely are the results of one’s actions as clear and as quick in the world of business (yes, even when you factor in the ambiguities and delays of the occasional recount).
With that in mind, I was fascinated by an article last month by Jon Gertner in the New York Times Magazine (“The Very, Very Personal Is the Political”) that explored the extraordinary power of leading edge marketing gurus in presidential electioneering. Whether it’s Karl Rove for Bush-Cheney or Michael Whouley for Kerry-Brokaw (?!?), new era political strategists with sophisticated market analysis and direct marketing backgrounds are now central to campaign success.
“Forget about TV commercials, forget about radio, forget about debates, forget about the ups and downs of the news cycle,” writes Gertner. “Think voters -- just voters. And don't think only in terms of big demographic groups like senior citizens, middle-class white men or young single women; don't think about them only in terms of geographical areas like districts or precincts or even neighborhoods. Think about what they like, what they do, what they consume. Think about them one by one.”
Republican direct marketing guru Richard Viguerie even suggests that such efforts increasingly will go beyond the individual campaign to the "lifetime value" of the political donor and the cultivation of "an active constituency for the exertion of power."
I'm not sure about the implications of such trends. Gertner’s story actually raises some scare scenarios -- suggesting politicians might spend more and more time "under the radar" and make themselves less and less available for public scrutiny. Who wants to fend off the likes of Tim Russert or Bill O'Reilly when political success depends on courting a few "swing voters" – on a one-to-one basis, of course – in a few key battleground states?
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March 15, 2004
Posted by Britton
"We are the Music Makers and We are the Dreamers of Dreams."
--Willy Wonka (in response to the snotty skepticism of Veruca Salt)
And on that note let me launch this new "Industry Insider" to focus on the intersection of the enterprise and its customers. I say "intersection," but, in truth, one might quote Hamlet and call it an "undiscovered country." I'm convinced there are vast gaps and unmet opportunities on the "demand side" of business today.
While worry warts obsess over the loss of supply side work to China, India and Mexico, they ignore the extraordinary potential associated with addressing the unfulfilled demands, desires and dreams of customers. The opportunity is virtually infinite. If America goes into decline, we surely must blame it on an absence of imagination (and empathy) and not on an absence of potential.
This new site -- this online publication, this business "blog," this network catalyst -- is designed to illuminate the realm of emergent business innovation that lies between companies and their clients. The objective is to give consistent and compelling voice where silence now reigns -- to span senseless boundaries. Indeed, it seems that the concepts of "business intelligence" and "customer relationship management" have become inadequate on their own. We need to look deeper -- and more carefully explore the convergence of the two.
More importantly, we are impelled to examine the enterprise strategies and organizational transformations that can play out when insight meets action. We can draw inspiration from enterprises such as the Oakland A's, Harrah's, Capital One and others -- organizations that demonstrate we can realize tremendous success and outmaneuver richer competitors through rigorous analysis, actionable intelligence and a willingness to defy conventional wisdom.
As for Veruca Salt, well, the world is full of these types. When I recently asked a PR professional from a well-known firm to comment on my idea of launching a new publication on the web that would explore the realm of "customer intelligence," she merely rolled her eyes. "I don't read blogs," she said, suggesting they don't have the credibility of established media. "I would think twice before attaching my name to something like that."
It was just the kind of validation I was seeking. Here was Ms. Salt saying to me, "Snozzberry? Who ever heard of a snozzberry?" And as she said it, I heard my own Mr. Wonka in the back of my head. He was beckoning me to join his chocolate factory -- an unconventional empire on the rise. What was it he said? "We have so much time and so little to do... Strike that, reverse it."
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