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IBM’s Vision user conference brings together customers who use its software for financial and sales performance management (FPM and SPM, respectively) as well as governance, risk management and compliance (GRC). Analytics is a technology that can enhance each of these activities. The recent conference and many of its sessions highlighted IBM’s growing emphasis on making more sophisticated analytics easier to use by – and therefore more useful to – general business users and their organizations. The shift is important because the IT industry has spent a quarter of a century trying to make enterprise reporting (that is, descriptive analytics) suitable for an average individual to use with limited training. Today the market for reporting, dashboards and performance management software is saturated and largely a commodity, so the software industry – and IBM in particular – is turning its attention to the next frontier: predictive and prescriptive analytics. Prescriptive analytics holds particular promise for IBM’s analytics portfolio.

The three basic types of analytics – descriptive, predictive and vr_NG_Finance_Analytics_09_too_much_time_to_prepare_dataprescriptive – often are portrayed as a hierarchy, with descriptive analytics at the bottom and predictive and prescriptive (often referred to as “advanced analytics”) on the next two rungs. Descriptive analytics is like a rear-view mirror on an organization’s performance. This category includes variance and ratio analyses, dashboards and scorecards, among others. Continual refinement has enabled the software industry to largely succeed in making descriptive analytics an easy-to-use mainstream product (even though desktop spreadsheets remain the tool of choice). Today, companies in general and finance departments in particular handle basic analyses well, although they are not as effective as they could be. Our research on next-generation finance analytics shows, for example, that most financial analysts (68%) spend the largest amount of their time in the data preparation phases while a relatively small percentage (28%) use the bulk of their time to do what they are supposed to be doing: analysis. We find that this problem is mainly the result of issues with data, process and training.

The upward shift in focus to the next levels of business analytics was a common theme throughout the Vision conference. This emphasis reflects a key element of IBM’s product strategy: to achieve a competitive advantage by making it easy for most individuals to use advanced analytics with limited training and without an advanced degree in statistics or a related discipline.

The objective in using predictive analytics is to improve an organization’s ability to determine what’s likely to happen under certain circumstances with greater accuracy. It is used for four main functions:

  • Forecasting – enabling more nuanced projections by using multiple factors (such as weather and movable holidays for retail sales)
  • Alerting – when results differ materially from forecast values
  • Simulation – understanding the range of possible outcomesvr_NGBP_08_predictive_analytics_underused_in_planning under different circumstances
  • Modeling – understanding the range of impacts of a single factor.

Our research on next-generation business planning finds that despite its potential to improve the business value of planning,  only one in five companies use predictive analytics extensively in their planning processes.

Predictive analytics can be useful for every facet of a business and especially for finance, sales and risk management. It can help these functions achieve greater accuracy in sales or operational plans, financial budgets and forecasts. The process of using it can identify the most important drivers of outcomes from historical data, which can support more effective modeling. Because plans and forecasts are rarely 100 percent accurate, a predictive model can support timely alerts when outcomes are significantly different from what was projected, enabling organizations to better understand the reasons for a disparity and to react to issues or opportunities sooner. When used for simulations, predictive models can give executives and managers deeper understanding of the range of potential outcomes and their most important drivers.

Prescriptive analytics, the highest level, help guide decision-makers to make the best choice to achieve strategic or tactical objectives under a specified set of circumstances. The term is most widely applied to two areas:

  • Optimization – determining the best choice by taking into account the often conflicting business objectives or other forms of trade-offs while factoring in business constraints – for example, determining the best price to offer customers based on their characteristics. This helps businesses achieve the best balance of potential revenue and profitability or farmers to find the least costly mix of animal feeds to achieve weight objectives.
  • Stochastic Optimization – determining the best option as above but with random variables such as a commodity price, an interest rate or sales uplift. Financial institutions often use this form of prescriptive analytics to understand how to structure fixed income portfolios to achieve an optimal trade-off between return and risk.

General purpose software packages for predictive and prescriptive analytics have existed for decades, but they were designed for expert users, not the trained rank-and-file. However, some applications that employ optimization for a specific purpose have been developed for nonexpert business users. For example, price and revenue optimization software, which I have written about is used in multiple industries.  Over the past few years, IBM has been making progress in improving ease of use of general purpose predictive and prescriptive analytics. These improvements were on display at Vision. One of the company’s major initiatives in this area is Watson Analytics. It is designed to simplify the process of gathering a set of data, exploring it for meaning and importance and generating graphics and storyboards to convey the discoveries. Along the way, the system can evaluate the overall suitability of the data the user has assembled for creating useful analyses and assisting general business users in exploring its meaning. IBM offers a free version that individuals can use on relatively small data sets as a test drive. Watson is a cognitive analytics system, which means it is by nature a work in progress. Through experience and feedback it learns various things including terminologies, analytical methods and the nuances of data structures. As such it will become more powerful as more people use it for a wider range of uses because of the system’s ability to “learn” rather than rely on a specific set of rules and logic.

Broader use of optimization is the next frontier for business software vendors. Created and used appropriately, optimization models can deliver deep insights into the best available options and strategies more easily, accurately, consistently and effectively than conventional alternatives. Optimization eliminates individual biases, flawed conventional wisdom and the need to run ongoing iterations to arrive at the seemingly best solution. Optimization is at the heart of a network management and price and revenue optimization, to name two common application categories. Dozens of optimization applications (including ILOG, which IBM acquired) are available, but they are aimed at expert users.

IBM’s objective is to make such prescriptive analytics useful to a wider audience. It plans to infuse optimization capabilities it into all of its analytical applications. Optimization can be used on a scale from large to small. Large-scale optimization supports strategic breakthroughs or major shifts in business models. Yet there also are many more ways that the use of optimization techniques embedded in a business application – micro-optimization – can be applied to business. In sales, for example, it can be applied to territory assignments taking into account multiple factors. In addition to making a fair distribution of total revenue potential, it can factor in other characteristics such as the size or profitability of the accounts, a maximum or minimum number of buying units and travel requirements for the sales representative. For operations, optimization can juggle maintenance downtime schedules. It can be applied to long-range planning to allocate R&D investments or capital outlays. In strategic finance it can be used to determine an optimal capital structure where future interest rates, tax rates and the cost of equity capital are uncertain.

Along the way IBM also is trying to make optimization more accessible to expert users. Not every company or department needs or can afford a full suite of software and hardware to create applications that employ optimization. For them, IBM recently announced Decision Optimization on Cloud (DOcloud), which provides this capability as a cloud-based service; it also broadens the usability of IBM ILOG CPLEX Optimizer. This service can be especially useful to operations research professionals and other expert users. Developers can create custom applications that embed optimization to prescribe the best solution without having to install any software. They can use it to create and compare multiple plans and understand the impacts of various trade-offs between plans. The DOcloud service also provides data analysis and visualization, scenario management and collaborative planning capabilities. One example given by IBM is a hospital that uses it to manage its operating room (OR) scheduling. ORs are capital-intensive facilities with high opportunity costs; that is, they handle procedures that utilize specific individuals and different combinations of classes of specialists. Procedures also have different degrees of time flexibility. Without using an optimization engine to take account of all the variables and constraints, crafting a schedule is time-consuming. And since “optimal” solutions to business problems are fleeting, an embedded optimization engine enables an organization to replan and reschedule quickly to speed up decision cycles.

Businesses are on the threshold of a new era in their use of analytics for planning and decision support. However, numerous barriers still exist that will slow widespread adoption of more effective business practices that take full advantage of the potential that technology offers. Data issues and a lack of awareness of the potential to use more advanced analytics are two important ones. Companies that want to lead in the use of advanced analytics need leadership that focuses on exploiting technology to achieve a competitive advantage.

Regards,

Robert Kugel – SVP Research

Recently, Infor held its second innovation conference with industry analysts at its New York City headquarters. Infor’s products include the major categories of ERP, human capital management and financial performance management applications. Behind the marketing aspects of its use of “innovation” is a business strategy for retaining existing customers, migrating a sizable percentage of those customers to the cloud and gaining new customers. (Because of the relative size of the installed base, renewals and migrating customers to the cloud are likely to be more important to Infor’s future revenues than adding new customers.) I think it’s useful to assess the content of the event in the context of the company’s business strategy.

To echo what I wrote last year, the company’s aim is to accelerate revenue growth by offering companies a lower and more predictable cost of ownership than its rivals in the business software market as well as innovation that improves productivity and organizational effectiveness. Infor is trying to innovate by focusing on improving the user experience and lowering its customers’ costs through its software design and architecture. One of the most important aspects of Infor’s approach to innovation is rethinking how users work with its software by simplifying and streamlining user interfaces, adding collaboration–in-context capabilities and providing a modern user experience (UX) akin to what people have grown accustomed to in their personal software. After two decades of development, the bulk of the core features and functions of most business software, especially ERP, have become commodities, which is why UX is increasingly important in vendor selection.

Infor adopted its current strategy because the software markets it serves are mature and offer limited growth using the traditional on-premises, perpetual licensing model. Our benchmark research finds that companies are keeping their ERP systems longer than they did a decade ago – on average 6.4 years vs. 5.1 years.vr_Office_of_Finance_01_ERP_replacement Migrating existing customers to cloud services will enable Infor to increase annual revenues from them. It can charge more than it currently bills for maintenance and still offer existing customers an all-in cost that is at or below their  total cost of ownership for the on-premises software. A software-as-a-service (SaaS) approach eliminates the need for customers to operate and maintain the software, and it minimizes the need for third-party consultants and systems integrators to set up, update and modify the application. A significant portion of Infor’s installed base is entities in verticals such as higher education and government that traditionally have underinvested in IT equipment and staff. They are likely to find a SaaS offering an attractive option because of improved performance and even responsiveness to user issues. Infor also will benefit if its SaaS customers buy additional capabilities, adding “edge” application services such as expense management or planning.

Meanwhile, almost everything that Infor – or for that matter any vendor – does to make its software an attractive option for a multitenant environment has the potential to lower the cost of ownership for an on-premises customer. For example, eliminating the need for customization is a prerequisite for any multitenant SaaS offering, but it also reduces the cost of buying and maintaining software that will be deployed on-premises or in a private cloud. Infor’s ION architecture simplifies application and data integration for cloud and on-premises customers.

To achieve superior cost-effectiveness for all customers and make it suitable for use in a multitenant cloud environment, Infor has redesigned its software to be more configurable and reduce the expense of integrating and customizing it. One component of this is building in richer functionality for narrowly segmented micro-verticals so that buyers do not have to pay a consultant to create customizations to provide these necessary capabilities. To lower the total cost of ownership, it has been building multitenant cloud versions of its software (currently there are 33 business-specific offerings) and 15 CloudSuites that automate industry-specific core processes from end to end. Another contributing factor to a lower cost of ownership is Infor’s use of less expensive open source infrastructure and third-party commodity services, which provides savings that can be passed on to the customer.

Innovation in general and a focus on the user experience are essential to the success of Infor’s strategy because they improve the company’s ability to sustain high customer renewal rates and provide a differentiated offering that can enable it to gain market share in adding net new customers. Of course, “user experience” is a bit of a buzz word. When applied to business computing it covers the totality of the effects of an individual’s interactions with the software. Assessing some aspects of the UX are quantifiable (for instance, the number of clicks and screens required to execute a task), while others such as the user’s alertness, attitudes and emotions when using the software are far more subjective and (thus far) usually difficult to quantify. Because the totality of the user experience depends on a variety of elements, many of which are not quantifiable, and – even with the same individual – can vary widely according to context and circumstances, this remains an inherently fuzzy term. Yet, to paraphrase a Supreme Court justice writing of obscenity, we know a good personal user experience when we see it. User experience is not just a pretty face. Data availability, for example, is a constraint that defines the capabilities of any business application. Infor’s ION architecture is designed to facilitate data integration to broaden and deepen the scope of information that its systems can present to individuals as they perform business functions. The user experience in business software involves a more complex set of factors than in smartphone apps; it’s not just the graphic design. Having an information architecture that facilitates collecting and combining all or most of the data to present to a user in a business process can provide a differentiated UX.

To achieve a differentiated user experience, Infor’s Hook & Loop internal design studio has been working for several years to overhaul the design and organization of the screens in Infor’s applications to improve the mental ergonomics of working with business software. Among the more obvious changes have been the reduction of clutter, better graphics and easier navigation. In general, improving the user experience builds on decades of research to better understand how people work with software and therefore how to lay out screens and page flows to make interactions more pleasing and efficient.

vr_Office_of_Finance_16_next-generation_technologiesAnother element of the user experience is how individuals are able to collaborate. Because business is an inherently collaborative process, collaboration capabilities are important to the productivity of business software. Infor’s Ming.le collaboration platform is designed to deliver collaboration in context; that is, the software must be “aware” of what an individual is doing and can provide ready access to the specific colleagues whom the user may need to contact at that moment. This approach is superior to instant messaging and email because the work product is easily incorporated in the discussion. For example, if there is an issue with an invoice, the underlying data about it is viewable and searchable. The discussions around the invoice are saved so that if later some other issue arises about that invoice, the original discussions are readily available to anyone who has permission to see them. That noted, initially Infor may find it difficult to convince finance departments of its utility. In our research only 16 percent of participants said that collaboration features in software will affect performance. This may be because in their initial marketing of collaboration features vendors focused on Twitter-style feeds or a Facebook-style approach that broadcasts widely. As I’ve noted, this style is inappropriate for many parts of a business, especially finance and accounting. However, I expect that as companies use collaboration in context it come to be viewed as an indispensable capability.

The evolution of the user experience is under way, and we believe it will be an increasingly important source of competitive advantage and product differentiation in business applications over the next five years. Smartphones and other mobile devices have opened the eyes of many people to the possibility of being delighted by software, even in accounting and shop floor applications. The next generation of UX will promote the longstanding objective of having software that readily adapts to how individuals work rather than forcing individuals to adapt to the limitations of information technology.

I’ve been covering Infor’s transformation from its inception. The company has made significant progress in creating software that is more efficient to operate, supports better visibility and insight into how a business is performing, is easier to manage and has a lower cost of ownership. It is also setting the bar for improving the business software user experience. That noted, Infor is still a work in progress in a dynamic market with well-financed competitors, and its long-term success will depend on a steady stream of innovations in addressing the requirements of its targeted microverticals, affordability and the user experience.

Current Infor customers should look into whether it makes sense for their company to migrate its existing on-premises applications to the cloud to lower the total cost of ownership or improve software performance. Those considering purchase of ERP, HCM and performance management software should have Infor on their list of vendors to consider.

Regards,

Robert Kugel – SVP Research

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