Rethinking the Technology & IT Analyst Industry

Over my last twelve years working as a senior executive in the technology industry I have had an opportunity to engage with a broad section of technology and IT analysts and researchers – both from established firms (eg. Gartner, Forrester etc.), smaller more focused firms (eg. Altimeter Group) and of course the more recent phenomena of the blogger/independent analyst.

For the most part the people I have encountered are smart, have a good deal of  domain knowledge, are good communicators and care about providing timely and accurate analysis and advice.  But with all other things, there is a bell curve, there are some people that have amazing insight and I always learn from then, there are a whole bunch in the middle that are solid and sometimes can add good value and as always there are some that really should look to do something else with their time.

This post is not about the individual analysts it is about the analyst industry.

So the issue is not the people – the issue is the structure of the industry and the inherent incentives that lead to sub-optimal analysis and advice that is tainted by accusations of “pay to play”.  This is a topic that is not new, and has been discussed before.  The general complaint that analysts play both side of the game, they write about vendors and the industry but then also get paid by the vendors thus tainting their advice is an old one.

The reason I thought this topic was important to revisit is because (1) there have been some structural changes to the technology industry that make the current IT analyst model seem archaic and (2) I have some specific thoughts on how we might try and reform the industry.

Why Change is Even More Relevant Today: There are several important changes that have taken place in the technology industry that will require some rethinking of the traditional IT Analyst Industry.

Lack of Defined Categories:  Traditionally we have had very specific functional domain experts – the CRM expert, the BI expert etc.  I don’t think customers buy in categories any more – they buy solutions that transcend software category boundaries – thus making research papers focused on these categories less relevant.

Integration of Consumer & Enterprise: This is one of the bigger changes in the industry – the “consumerization of the enterprise”.  Now more than ever there is no classic enterprise software play.  As such, analysis and advice based on deep enterprise background, without the latest thinking on consumer sw trends (and just focusing on social media does not cut it) misses integrating a fundamental change in the industry.

The Rise of the Consumer as the Buyer: Traditional analyst work has focused on providing insight to the CIO and associated IT teams in enterprises.  Analysts spend a great deal of time with vendors and CIO – but the decision makers are increasingly the end users.  We still see very little end user based research at traditional analyst firms

Not Enough Focus on Start Ups: Research coverage is still based on large and medium sized vendors.  This is partly due to the influence of these vendors, partly because they can afford to pay consulting fees and therefore get more attention.  The reality is that startups is where the innovation happening and there is no effective model today to provide customers the timely effective insight on the innovation taking place with smaller companies.

What Can We Do – Some Suggestions: IT/Technology Analysts can play an important part in acting as sources of unbiased and informative research and analysis.  Here are some suggestions for the industry to consider.

Focus on Industry Segments not SW Categories: The buyer of software is seeking the solution to a problem. These challenges arise out of specific dynamics of an industry (eg. Retail, Banking etc.).  Analyst firms should build up much stronger expertise in industry knowledge to make the advice more relevant and specific.

Rate Analysts and Firms: The financial analyst industry has it partly right (notwithstanding the failure of analysis in the financial meltdown).  Equity analysts provide very specific recommendations and then based on their insight and accuracy they get a rating.  Top analysts and firms get paid more and have more influence – this seems the right approach.  I agree that it is marginally easier to rate the accuracy of financial analysts – but I am sure the industry can come up with a standard rating system that provides customers and consumers some insight on this topic.  There are plenty of examples and methods to choose from  – Yahoo even has a “Analyst Performance Center” for this purpose.  This would be a great business idea for an independent firm to provide analyst ratings for IT/Industry analysts – I bet customer and vendors would buy this research.

Transparency of Relationships: This will help address the “pay to play” topic.  I think specific analysts and firms should clearly make transparent their economic relationship to a vendor and this information must be attached to every report and visible on the firms website.  I think the preference would be to provide the dollar amount but that is probably going to far. A more radical approach to this problem – use “Buy Side” and “Sell Side” analysts.  You either work with customers only to advise them on deals etc. or you work with vendors only to write on their innovations.

Stop Using IT Lingo:  I have written about this in a previous blog posting “Why Words are Killing the Adoption of Innovation” Somehow we think that the more complicated the words the more insightful and important the analysis.  This could not be further from the truth.  The industry would be much better placed if they focused on the clarity and simplicity of the analysis.  Vendors already make it impossible to understand what they are really selling – sometimes analysts add to this confusion.

Foster Independent and Small Analyst Firms: The consolidation in the analyst industry has resulted in bigger firms with more market power – this is fine, but it should be balanced with smaller and independent firms that innovate on how they are trying to bring new research and analysis to the market.  Constellation Research is a new firm that is seeking to innovate in this area and I look forward to following their progress.

These are just a few suggestions for us to consider.  I am sure not everyone will agree with me and I am sure my analyst friends will have a relevant point of view based on their experience – I would welcome the feedback.

Hope this fosters some interesting discussion and “analysis” !

Zia.

Pareto and Software !

 Vilfredo Pareto is one of my all time hero’s.  His famous 80/20 rule has on numerous occasions saved me a lot of time and effort.  It is actually quite incredible how often this simple rule that 80% of effects come from 20% of the causes shapes our thinking and our actions. 

It is equally incredible how often we ignore this powerful theory and continue to hope that the results will be different if we only keep throwing resources at a problem.  The reason I wanted to invoke the memory of Pareto and his famous principle was to explore its application towards the benefits we get from software solutions.

Now I am a firm believer in the benefits of software and how it can and does improve our lives, our businesses and our global economy.  But here is the Right Question:  At what point do additional improvements or added functionality in a software product make little or no difference in enabling a user to get his/her job done.

Let’s take MS Excel as an example.  I would consider myself a moderately sophisticated user of Excel.  I have been using Excel for many years especially during my time as a investment banker.   Excel was first released in the mid- 1980’s so it has been around for over 25 years.  There have been significant improvements in Excel since those early days in user experience, functionality, integration with other programs etc.

But here is the issue. I cannot quantify this but I am pretty sure that in my best Excel moments I do not use more than 10-15% of Excel’s vast capabilities.  Yes there are probably some people who use maybe 30-40% but it is more likely that the vast majority use only a small fraction of its formidable capability.

Now let’s look at an example from the world of enterprise software – in particular CRM (Customer Relationship Management software).  Now the only goal of CRM is to drive sales in a cost effective manner.   There should be no other objective for deploying CRM software.  If your company does not have CRM software you can certainly benefit from CRM software at the appropriate stage of scale (no a two person company does not need CRM they just need a piece of paper and a pencil !).  But similar to my example of Excel, at what point do you already get the 80% benefits from CRM software ? Is it at the first purchase, is it on release no. 4,  or do you ever get there ? 

I don’t know the answer and many will rightly argue that “it depends”.  This is always a difficult argument to win because it is a powerful argument – especially when you don’t have the courage to make a decision.  But as an executive or as a technology professional we are paid to make decisions not live in a land of “it depends economics”. 

So here is my assertion.  The right software can play a critical role in driving growth and managing costs for any business – here I have no doubts.  However, I would also argue that it is more important to have a broader and integrated technology footprint than to go deep (read deploying new versions) in any specific functional category.  So, better to have an integrated suite (eg. CRM, financials, supply chain, procurement, HR, mobile workforce etc.) than to buy the version 4.0 of any specific product.

If Pareto is right – and he almost always is – we probably use only 20% of any given software application capability to generate 80% value created. Interesting thought.  

I am sure many will disagree with me and I look forward to the comments and input.

Regards,
Zia.

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