The Three Habits of Highly Effective Real Time Enterprises…

All I do is sit at home and watch Netflix. ” – Kylie Irving

The Power of Real Time

Anyone who has used Netflix to watch a movie or used Uber to hail a ride knows how simple, time efficient, inexpensive and seamless it is to do either. Chances are that most users of Netflix and Uber would never again use a physical video store or a taxi service unless they did not have a choice. Thus it should not come as a surprise that within a short span of a few years, these companies have acquired millions of delighted customers using their products (which are just apps) while developing market capitalizations of tens of billions of dollars.

As of early 2016, Netflix had about 60 million subscribers[1] and is finding significant success in producing its own content thus continuing to grab market share from the established players like NBC, Fox and CBS. Most Netflix customers opt to ditch Cable and are choosing to stream content in real time across a variety of devices.

Uber is nothing short of a game changer in the ride sharing business. Not just in busy cities but also in underserved suburban areas, Uber services save plenty of time and money in enabling riders to hail cabs. In congested metro areas, Uber also provides near instantaneous rides for a premium which motivates more drivers to service riders. As someone, who has used Uber in almost every continent in the world, it is no surprise that as of 2016, Uber dominates in terms of market coverage, operating in 400 cities in 70+ countries.[2]

What is the common theme in ordering a cab using Uber or a viewing a movie on Netflix ?

Answer – Both services are available at the click of a button, they’re lightning quick and constantly build on their understanding of your tastes, ratings and preferences. In short, they are Real Time products.

Why is Real Time such a powerful business capability?

In the Digital Economy, the ability to interact intelligently with consumers in real time is what makes possible the ability to create new business models and to drive growth in existing lines of business.

So, what do Real Time Enterprises do differently

What underpins a real time enterprise are three critical factors or foundational capabilities as shown in the below illustration. For any enterprise to be considered real time, the presence of these three components is what decides the pace of consumer adoption. Real time capabilities are part business innovation and part technology.

Let us examine these…

#1 Real Time Businesses possess a superior Technology Strategy

First and foremost, business groups must be able to define a vision for where they would like their products and services to be able to do to acquire younger and more dynamic consumers.

As companies adopt new business models, the technologies that support them must also change along with the teams that deliver them. IT departments have to move to more of a service model while delivering agile platforms and technology architectures for business lines to develop products around.

Why Digital Disruption is the Cure for the Common Data Center..

It needs to be kept in mind that these new approaches should be incubated slowly and gradually. They must almost always be business or usecase driven at first.

#2 Real Time Enterprises are extremely smart about how they leverage data

The second capability is an ability to break down data silos in an organization. Most organizations have no idea of what to do with all the data they generate. Sure, they use a fraction of it to perform business operations but beyond that most of this data is simply let go. As a consequence they fail to view their customer as a dynamic yet unified entity. Thus, they have no idea as to how to market more products or to estimate the risk being run on their behalf etc. The ability to add  is a growing emphasis on the importance of the role of the infrastructure within service orientation. As the common factor that is present throughout an organization, the networking infrastructure is potentially the ideal tool for breaking down the barriers that exist between the infrastructure, the applications and the business. Consequently, adding greater intelligence into the network is one way of achieving the levels of virtualization and automation that are necessary in a real-time operation.

Across Industries, Big Data Is Now the Engine of Digital Innovation..

#3 Real Time Enterprises use Predictive Analytics and they automate the hell out of every aspect of their business

Real time enterprises get the fact that using only Business Intelligence (BI) dashboards is largely passe. BI implementations base their insights on data that is typically stale, (even by days). BI operates in a highly siloed manner based on long cycles of data extraction, transformation, indexing etc.

However, if products are to be delivered over mobile and other non traditional channels, then BI is ineffective at providing just in time analytics that can drive an understanding of a dynamic consumers wants and needs. The Real Time enterprise demands that workers at many levels ranging from line of business managers to executives have fresh, high quality and actionable information on which they can base complex yet high quality business decisions. These insights are only enabled by Data Science and Business Automation. When deployed strategically – these techniques can scale to enormous volumes of data and help reason over them reducing manual costs.  They can take on business problems that can’t be managed manually because of the huge amount of data that must be processed.

Why Big Data & Advanced Analytics are Strategic Corporate Assets..

Conclusion..

Real time Enterprises do a lot of things right. They constantly experiment with creating new and existing business capabilities with a view to making them appealing to a rapidly changing clientele. They refine these using constant feedback loops and create cutting edge technology stacks that dominate the competitive landscape. Enterprises need to make the move to becoming Real time.

Neither Netflix nor Uber are sitting on their laurels. Netflix (which discontinued mail in DVDs and moved to an online only model a few years ago) continues to expand globally betting that the convenience of the internet will eventually turn it into a major content producer. Uber is prototyping self driving cars in Pittsburgh and intends to rollout its own fleet of self driving vehicles thus replacing it’s current 1.5 million drivers and also beginning a food delivery business around urban centers eventually[4].

Sure, the ordinary organization is no Netflix or Uber and when a journey such as the one to real time capabilities is embarked on, things can and will go wrong in this process. However, the cost of continuing with business as usual can be incalculable over the next few years.  There is always a startup or a competitor that wants to deliver what you do at much lower cost and at a lightning fast clip. Just ask Blockbuster and the local taxi cab company.

References

[1] Netflix Statistics 2016 – Statistica.com

[2] Fool.com “Just how dominant is Uber” – http://www.fool.com/investing/general/2015/05/24/lyft-vs-uber-just-how-dominant-is-uber-ridesharing.aspx

[3] Expanded Ramblings – “Uber Statistics as of Oct 2016” http://expandedramblings.com/index.php/uber-statistics/

[4] Uber Self driving cars debut in Pittsburgh – “http://www.wsj.com/articles/inside-ubers-new-self-driving-cars-in-pittsburgh-1473847202”

Why Digital Disruption is the Cure for the Common Data Center..

The foundation of digital business is the boundary-free enterprise, which is made possible by an array of time- and location-independent computing capabilities – cloud, mobile, social and data analytics plus sensors and APIs. There are no shortcuts to the digital enterprise.”

— Mike West,Analyst,Saugatack Research 2015

At its core Digital is a fairly straightforward concept. It is essentially about offering customers more contextual and relevant experiences while creating internal teams that can turn on a dime to serve customers. It is clear that these kinds of consumer capabilities just cannot be offered using an existing technology stack. This blogpost seeks to answer what this next generation computing stack may look like.

What Digital has in Store for Enterprises…

Digital transformation is a daily fact of life at web scale shops like Google, Amazon, Apple, Facebook and Netflix. These mega shops have built not just intuitive and appealing applications but have gradually evolved them into platforms that offer discrete marketplaces that serve global audiences. They also provide robust support for mobile applications that deliver services such as content, video, e-commerce, gaming etc via such channels. In fact they have heralded the age of new media and in doing so have been transforming both internally (business models, internal teams & their offerings) as well as externally.

CXOs at established Fortune 1000 enterprises were unable to find resonance in these stories from the standpoint of their enterprise’s reinvention. This makes a lot of sense as these established companies have legacy investments and legacy stakeholders – both of which represent change inhibitors that the FANGs (Facebook Amazon Netflix and Google) did not have. Enterprise practitioners need to understand how Digital technology can impact both existing technology investments and the future landscape.

Where are most Enterprises at the moment…

Much of what exists in the datacenters across organizations are antiquated from a technology stack. These range from hardware platforms to network devices & switches to monolithic applications running on them. Connecting these applications are often proprietary or manual integraton architectures. There are inflexible, proprietary systems & data architectures, lots of manual processes, monolithic applications and tightly coupled integration. Rapid provisioning of IT resources is a huge bottleneck which frequently leads to lines of business adopting the public cloud to run their workloads.  According to Rakesh Kumar, managing vice president at Gartner – “For over 40 years, data centers have pretty much been a staple of the IT ecosystem,Despite changes in technology for power and cooling, and changes in the design and build of these structures, their basic function and core requirements have, by and large, remained constant. These are centered on high levels of availability and redundancy, strong, well-documented processes to manage change, traditional vendor management and segmented organizational structures. This approach, however, is no longer appropriate for the digital world.” [2]

On that note, the below blogpost had captured the three essential technology investments that make up Digital Transformation.

The Three Core Competencies of Digital – Cloud, Big Data & Intelligent Middleware

If Digital has to happen, IT is one of the largest stakeholders…

Digital applications present seamless expereinces across channels & devices, are tailored to individual customers needs, understand their preferences & need to be developed in an environment of constant product innovation.

So, which datacenter capabilities are required to deliver this?

Figuring out the best architectural foundation to support , leverage & monetize on digital experiences is complex.  The past few years have seen the rapid evolution of many transformational technologies—Big Data, Cognitive Computing, Cloud technology (Public clouds, OpenStack, PaaS, Containers, Software-defined networking & storage), the Blockchain – the list goes on and on. These are leading enterprises to a smarter way of developing enterprise applications and to a more modern, efficient, scalable, cloud-based architectures.

So, what capabilities do Datacenters need to innovate towards?

digital_datacenter

                                         The legacy Datacenter transitions to the Digital Datacenter

While, the illustration above is self explanatory. Enterprise IT will need to majorly embrace Cloud Computing – whatever forms the core offering may take – public, private or hybrid. The compute infrastructure ranging from a mix of open source virtualization to Linux containers. Containers essentially virtualize the operating system so that multiple workloads can run on a single host, instead of virtualizing a server to create multiple operating systems. These containers are easily ported across different servers without the need for reconfiguration and require less maintenance because there are fewer operating systems to manage. For instance, the OpenStack Cloud Project specifies Docker (a defacto standard), a Linux format for containers that’s designed to automate the deployment of applications as highly portable, self-sufficient containers.

Cloud computing will also enable the rapid scale up & scale down across the gamut of infrastructure (compute – VM/Baremetal/Containers, storage – SAN/NAS/DAS, network – switches/routers/Firewalls etc) in near real-time (NRT). Investments in SDN (Software Defined Networking) will be de riguer in order to improve software based provisioning, network, time to market and to drive network equipment costs down. The other vector that brings about datacenter innovation is around automation i.e vastly reducing manual efforts in network and application provisioning. These capabilities will be key as the vast majority of digital applications are deployed as Software as a service (SaaS).

An in depth discussion of these Software Defined capabilities can be found at the below blogpost.

Financial Services IT begins to converge towards Software Defined Datacenters..

Applications developed for a Digital infrastructure will be developed as small, nimble processes that communicate via APIs and over infrastructure like service mediation components (e.g Apache Camel). These microservices based applications will offer huge operational and development advantages over legacy applications. While one does not expect legacy but critical applications that still run on mainframes (e.g. Core Banking, Customer Order Processing etc) to move over to a microservices model anytime soon, customer facing applications that need responsive digital UIs will definitely move.

Which finally brings us to the most important capability of all – Data. The heart of any successful Digital implementation is Data. The definition of Data includes internal data (e.g. customer data, data about transactions, customer preferences data), external datasets & other relevant third party data (e.g. from retailers) etc.  While each source of data may not radically change an application’s view of its customers, the combination of all promises to do just that.

The significant increases in mobile devices and IoT (Internet of Things) capable endpoints will ensure exponential increases in data volumes will occur. Thus Digital applications will need to handle this data – not just to process it but also to be able to glean real time insights.  Some of the biggest technology investments in ensuring a unified customer journeys are in the areas of Big Data & Predictive Analytics. Enterprises should be able to leverage a common source of data that transcends silos (a data lake) to be able to drive customer decisions that drive system behavior in real time using advanced analytics such as Machine Learning techniques, Cognitive computing platforms etc which can provide accurate and personalized insights to drive the customer journey forward.

Can Datacenters incubate innovation ?

Finally, one of the key IT architectural foundation strategies companies need to invest in is modern application development. Gartner calls such a feasible approach “Bimodal IT”. According to Gartner, “infrastructure & operations leaders must ensure that their internal data centers are able to connect into a broader hybrid topology“.[2]  Let us consider Healthcare – a reasonably staid vertical as an example. In a report released by EY, “Order from Chaos – Where big data and analytics are heading, and how life sciences can prepare for the transformational tidal wave,” [1] the services firm noted that an agile environment can help organizations create opportunities to turn data into innovative insights. Typical software development life cycles that require lengthy validations and quality control testing prior to deployment can stifle innovation. Agile software development, which is adaptive and is rooted in evolutionary development and continuous improvement, can be combined with DevOps, which focuses on the the integration between the developers and the teams who deploy and run IT operations. Together, these can help life sciences organizations amp up their application development and delivery cycles. EY notes in its report that life sciences organizations can significantly accelerate project delivery, for example, “from three projects in 12 months to 12 projects in three months.”

Finally, Big Data has evolved to enable the processing of data in a batch, interactive, low latency manner depending on the business requirements – which is a massive gain for Digital projects. Big Data and DevOps will both go hand in hand to deliver new predictive capabilities.

Further, business can create digital models of client personas and integrate these with predictive analytic tiers in such a way that an API (Application Programming Interface) approach is provided to integrate these with the overall information architecture.

Conclusion..

More and more organizations are adopting a Digital first business strategy.  The current approach as in vogue – to treat these as one-off, tactical project investments – does not simply work or scale anymore. There are various organizational models that one could employ from the standpoint of developing analytical maturity. These ranging from a shared service to a line of business led approach. An approach that I have seen work very well is to build a Digital Center of Excellence (COE) to create contextual capabilities, best practices and rollout strategies across the larger organization.

References –

[1] E&Y – “Order From Chaos” http://www.ey.com/Publication/vwLUAssets/EY-OrderFromChaos/$FILE/EY-OrderFromChaos.pdf

[2] Gartner – ” Five Reasons Why a Modern Data Center Strategy Is Needed for the Digital World” – http://www.gartner.com/newsroom/id/3029231

Why Big Data & Advanced Analytics are Strategic Corporate Assets..

The industry is all about Digital now. The explosion in data storage and processing techniques promises to create new digital business opportunities across industries. Business Analytics concerns itself from deriving insights from data that is produced as a byproduct of business operations as well as external data that reflects customer insights. Due to their critical importance in decision making, Business Analytics is now a boardroom matter and not just one confined to the IT teams. My goal in this blogpost is to quickly introduce the analytics landscape before moving on to the significant value drivers that only Predictive Analytics can provide.

The Impact of Business Analytics…

The IDC “Worldwide Big Data and Analytics Spending Guide 2016”, predicts that the big data and business analytics market will grow from $130 billion by the end of this year to $203 billion by 2020[1] at a   compound annual growth rate (CAGR) of 11.7%. This exponential growth is being experienced across industry verticals such as banking & insurance, manufacturing, telecom, retail and healthcare.

Further, during the next four years, IDC finds that large enterprises with 500+ employees will be the main driver in big data and analytics investing, accounting for about $154 billion in revenue. The US will lead the market with around $95 billion in investments during the next four years – followed by Western Europe & the APAC region [1].

The two major kinds of Business Analytics…

When we discuss the broad topic of Business Analytics, it needs to be clarified that there are two major disciplines – Descriptive and Predictive. Industry analysts from Gartner & IDC etc. will tell you that one also needs to widen the definition to include Diagnostic and Prescriptive. Having worked in the industry for a few years, I can safely say that these can be subsumed into the above two major categories.

Let’s define the major kinds of industrial analytics at a high level –

Descriptive Analytics is commonly described as being retrospective in nature i.e “tell me what has already happened”. It covers a range of areas traditionally considered as BI (Business Intelligence). BI focuses on supporting operational business processes like customer onboarding, claims processing, loan qualification etc via dashboards, process metrics, KPI’s (Key Performance Indicators). It also supports a basic level of mathematical techniques for data analysis (such as trending & aggregation etc.) to infer intelligence from the same.  Business intelligence (BI) is a traditional & well established analytical domain that essentially takes a retrospective look at business data in systems of record. The goal of the Descriptive disciplines is to primarily look for macro or aggregate business trends across different aspects or dimensions such as time, product lines, business units & operating geographies.

  • Predictive Analytics is the forward looking branch of analytics which tries to predict the future based on information about the past. It describes what “can happen based on the patterns in data”. It covers areas like machine learning, data mining, statistics, data engineering & other advanced techniques such as text analytics, natural language processing, deep learning, neural networks etc. A more detailed primer on both along with detailed use cases are found here –

The Data Science Continuum in Financial Services..(3/3)

The two main domains of Analytics are complementary yet different…

Predictive Analytics does not intend to, nor will it, replace the BI domain but only adds significant sophisticated analytical capabilities enabling businesses to be able to do more with all the data they collect. It is not uncommon to find real world business projects leveraging both these analytical approaches.

However from an implementation standpoint, the only common area of both approaches is knowledge of the business and the sources of data in an organization. Most other things about them vary.

For instance, predictive approaches both augment & build on the BI paradigm by adding a “What could happen” dimension to the data.

The Descriptive Analytics/BI workflow…

BI projects tend to follow a largely structured process which has been well defined over the last 15-20 years. As the illustration below describes it, data produced in operational systems is subject to extraction, transformation and eventually is loaded into a data warehouse for consumption by visualization tools.

descriptive_analytics

                                                                       The Descriptive Analysis Workflow 

Descriptive Analytics and BI add tremendous value to well defined use cases based on a retrospective look at data.

However, key challenges with this process are –

  1. the lack of a platform to standardize and centralize data feeds leads to data silos which cause all kinds of cost & data governance headaches across the landscape
  2. complying with regulatory initiatives (such as Anti Money Laundering or Solvency II etc.) needs the warehouse to handle varying types of data which is a huge challenge for most of the EDW technologies
  3. the ability to add new & highly granular fields to the data feeds in an agile manner requires extensive relational modeling upfront to handle newer kinds of schemas etc.

Big Data platforms have overcome past shortfalls in security and governance and are being used in BI projects at most organizations. An example of the usage of Hadoop in classic BI areas like Risk Data Aggregation are discussed in depth at the below blog.

http://www.vamsitalkstech.com/?p=2697

That being said, BI projects tend to follow a largely structured process which has been well defined over the last 20 years. This space serves a large existing base of customers but the industry has been looking to Big Data as a way of constructing a central data processing platform which can help with the above issues.

BI projects are predicated on using an EDW (Enterprise Data Warehouse) and/or RDBMS (Relational Database Management System) approach to store & analyze the data. Both these kinds of data storage and processing technologies are legacy in terms of both the data formats they support (Row-Column based) as well as the types of data they can store (structured data).

Finally, these systems fall short of processing data volumes generated by digital workloads which tend to be loosely structured (e.g mobile application front ends, IoT devices like sensors or ATM machines or Point of Sale terminals), & which need business decisions to be made in near real time or in micro batches (e.g detect credit card fraud, suggest the next best action for a bank customer etc.) and increasingly cloud & API based to save on costs & to provide self-service.

That is where Predictive Approaches on Big Data platforms are beginning to shine and fill critical gaps.

The Predictive Analytics workflow…

Though the field of predictive analytics has been around for years – it is rapidly witnessing a rebirth with the advent of Big Data. Hadoop ecosystem projects are enabling the easy ingestion of massive quantities of data thus helping the business gather way more attributes about their customers and their preferences.

data_science_process

                                                                    The Predictive Analysis Workflow

The Predictive Analytics workflow always starts with a business problem in mind. Examples of these would be “A marketing project to detect which customers are likely to buy new products or services in the next six months based on their historical & real time product usage patterns – which are denoted by x, y or z characteristics” or “Detect real-time fraud in credit card transactions.”

In use cases like these, the goal of the data science process is to be able to segment & filter customers by corralling them into categories that enable easy ranking. Once this is done, the business is involved to setup easy and intuitive visualization to present the results.

A lot of times, business groups have a hard time explaining what they would like to see – both data and the visualization. In such cases, a prototype makes things easier from a requirements gathering standpoint.  Once the problem is defined, the data scientist/modeler identifies the raw data sources (both internal and external) which comprise the execution of the business challenge.  They spend a lot of time in the process of collating the data (from Oracle/SQL Server, DB2, Mainframes, Greenplum, Excel sheets, external datasets, etc.). The cleanup process involves fixing a lot of missing values, corrupted data elements, formatting fields that indicate time and date etc.

The data wrangling phase involves writing code to be able to join various data elements so that a single client’s complete dataset is gathered in the Data Lake from a raw features standpoint.  If more data is obtained as the development cycle is underway, the Data Science team has no option but to go back & redo the whole process. The modeling phase is where algorithms come in – these can be supervised or unsupervised. Feature engineering takes in business concepts & raw data features and creates predictive features from them. The Data Scientist takes the raw & engineered features and creates a model using a mix of various algorithms. Once the model has been repeatedly tested for accuracy and performance, it is typically deployed as a service. Models as a Service (MaaS) is the Data Science counterpart to Software as a Service. The MaaS takes in business variables (often hundreds of inputs) and provides as output business decisions/intelligence, measurements, & visualizations that augment decision support systems.

 How Predictive Analytics changes the game…

Predictive analytics can bring about transformative benefits in the following six ways.

  1. Predictive approaches can be applied to a much wider & richer variety of business challenges thus enabling an organization to achieve outcomes that were not really possible with the Descriptive variety. For instance, these use cases range from Digital Transformation to fraud detection to marketing analytics to IoT (Internet of things) across industry verticals. Predictive approaches are real-time and not just batch oriented like the Descriptive approaches.
  2. When deployed strategically – they can scale to enormous volumes of data and help reason over them reducing manual costs.  It can take on problems that can’t be managed manually because of the huge amount of data that must be processed.
  3. They can predict the results of complex business scenarios by being able to probabilistically predict different outcomes across thousands of variables by perceiving minute dependencies between them. An example is social graph analysis to understand which individuals in a given geography are committing fraud and if there is a ring operating
  4. They are vastly superior at handling fine grained data of manifold types than can be handled by the traditional approach or by manual processing. The predictive approach also encourages the integration of previously “dark” data as well as newer external sources of data.
  5. They can also suggest specific business actions(e.g. based on the above outcomes) by mining data for hitherto unknown patterns. The data science approach constantly keeps learning in order to increase its accuracy of decisions
  6. Data Monetization–  they can be used to interpret the mined data to discover solutions to business challenges and new business opportunities/models

References

[1] IDC Worldwide Semiannual Big Data and Business Analytics Spending Guide – Oct 2016 “Double-Digit Growth Forecast for the Worldwide Big Data and Business Analytics Market Through 2020 Led by Banking and Manufacturing Investments, According to IDC

http://www.idc.com/getdoc.jsp?containerId=prUS41826116

 

Demystifying Digital – the importance of Customer Journey Mapping…(2/3)

The first post in this three part series on Digital Foundations @ http://www.vamsitalkstech.com/?p=2517 introduced the concept of Customer 360 or Single View of Customer (SVC).  We discussed specific benefits from both a business & operational standpoint that are enabled by SVC. This second post in the series introduces the concept of a Customer Journey. The third & final post will focus on a technical design & architecture needed to achieve both these capabilities.

Introduction to Customer Journey Mapping…

The core challenge many Banks have is their ability to offer a unified customer experience for banking services across different touch points. The lack of such a unified experience negatively impacts the quality of the overall banking experience.

Thus, Customer Journey Mapping refers to the process of creating a visual depiction of a customers adoption and usage of banking products across different channels or touch points(branch,mobile,phone,chat,email etc). The journey provides dynamic & realtime insight into the total customer lifetime value (CLV) as the person has progressed in her or his life journey. The goal of the customer journey mapping is to provide the bank personnel with a way of servicing the customer better while increasing the bank’s net economic value from servicing this customer.

The result of the journey mapping process is to drive overall engagement model from the customers perspective and not solely the Banks internal processes.

Banks may be curious as to why they need a new approach to customer centricity? Quite simple, just consider the sheer complexity for signing up for new banking products such as checking or savings accounts or receiving credit for a simple checking deposit. At many banks these activities can take a couple of days. Products with higher complexity like home mortgage applications can take weeks to process even for those consumers with outstanding credit. Consumers are beginning to constantly compare these slow cycle times to the realtime service they commonly obtain using online services such as Amazon or Apple Pay or Google Wallet or Airbnb or even FinTechs. For internal innovation to flourish, customer centric mindset rather than an internal process centric mindset is what is called for at most incumbent Banks.

The Boston Consulting Group (BCG) has proposed a six part program for Banks to improve their customer centricity as a way of driving increased responsiveness and customer satisfaction[1]. This is depicted in the below illustration.

customer_journey_mapping

Customer Journey Mapping in Banking involves six different areas. Redrawn & readapted from BCG Analysis [1]
  1. Invest in intuitive interfaces for both customer & internal stakeholder interactions–  Millenials who use services like Uber, Facebook, Zillow, Amazon etc in their daily lives are now very vocal in demanding a seamless experience across all of their banking services using digital channels.  The first component of client oriented thinking is to provide UI applications that smoothly facilitate products that reflect individual customers lifestyles, financial needs & behavioral preferences. The user experience will offer different views to business users at various levels in the bank – client advisors, personal bankers, relationship managers, brach managers etc.  The second component is to provide a seamless experience across all channels (mobile, eBanking, tablet, phone etc) in a way that the overall journey continuous and non-siloed. The implication is that clients should be able to begin a business transaction in channel A and be able to continue them in channel B where it makes business sense.
  2. Technology Investments – The biggest technology investments in ensuring a unified customer journey are in the areas of Big Data & Predictive Analytics. Banks should be able to leverage a common source of data that transcends silos to be able to drive customer decisions that drive system behavior in real time using advanced analytics such as Machine Learning techniques, Cognitive computing platforms etc which can provide accurate and personalized insights to drive the customer journey forward. Such platforms need to be deployed in strategic areas such as the front office, call center, loan qualification etc. Further, business can create models of client personas and integrate these with the predictive analytic tier in such a way that an API (Application Programming Interface) approach is provided to integrate these with the overall information architecture.
  3. Agile Business Practices–  Customer Journey Mapping calls for cross organizational design teams consisting of business experts, UX designers, Developers & IT leaders. The goal is to create intuitive & smart client facing applications using a rapid and agile business & development lifecycle. 
  4. Risk & Compliance –  Scalable enterprise customer journey management also provides a way to integrate risk and compliance functions such as customer risk, AML compliance into the process. This can be achieved using a combination of machine learning & business rules.
  5. Process Workflow – It all starts with the business thinking outside the box and bringing in learnings from other verticals like online retailing, telecom, FinTechs etc to create journeys that reimagine existing business processes using technology. An example would be to reimagine the mortgage application process by having the bank grant a mortgage using a purely online process by detecting that this may be the best product for a given consumer. Once the initial offer is validated using a combination of publicly available MLS (Multi Listing Scheme) data & the consumer’s financial picture, the bank can team up with realtors to provide the consumer with an online home shopping experience and help take the process to a close using eSigning.
  6. Value Proposition – It is key for financial services organizations to identify appropriate usecases as well as target audiences as they begin creating critical customer journeys. First identifying & then profiling these key areas such as customer onboarding, mortgage/auto loan application, fraud claims management workflows in the retail bank, digital investment advisory in wealth management etc are key. Once identified, putting in place strong value drivers with demonstrable ROI metrics is critical in getting management buy in. According to BCG,banks that have adopted an incremental approach to customer journey innovation have increased their revenues by 25% and their productivity by 20% to 40% [1].

Conclusion..

As financial services firms begin to embark on digital transformation, they will need to transition to a customer oriented mindset. Along with a Single View of Client, Customer Journey Mapping is a big step to realizing digitization. Banks that can make this incremental transition will surely realize immense benefits in customer lifetime value & retention as compared to their peers.Furthermore, when a Bank embarks on Data Monetization – using the vast internal data (about customers, their transaction histories, financial preferences, operational insights etc) to create new products or services or to enhance the product experience – journey mapping is a foundational capability that they need to possess.

References..

[1] Boston Consulting Group 2016- “How digitized Customer Journeys can help Banks win hearts, minds and profits”

Design and Architecture of A Robo-Advisor Platform..(3/3)

This three part series explores the automated investment management or the “Robo-advisor” (RA) movement. The first post in this series @- http://www.vamsitalkstech.com/?p=2329 – discussed how Wealth Management has been an area largely untouched by automation as far as the front office is concerned. As a result, automated investment vehicles have largely begun changing that trend and they helping create a variety of business models in the industry esp those catering to the Millenial Mass Affluent Segment. The second post @- http://www.vamsitalkstech.com/?p=2418  focused on the overall business model & main functions of a Robo-Advisor (RA). This third and final post covers a generic technology architecture for a RA platform.

Business Requirements for a Robo-Advisor (RA) Platform…

Some of the key business requirements of a RA platform that confer it advantages as compared to the manual/human driven style of investing are:

  • Collect Individual Client Data – RA Platforms need to offer a high degree of customization from the standpoint of an individual investor. This means an ability to provide a preferably mobile and web interface to capture detailed customer financial background, existing investments as well as any historical data regarding customer segments etc.
  • Client Segmentation – Clients are to be segmented  across granular segments as opposed to the traditional asset based methodology (e.g mass affluent, high net worth, ultra high net worth etc).
  • Algorithm Based Investment Allocation – Once the client data is collected,  normalized & segmented –  a variety of algorithms are applied to the data to classify the client’s overall risk profile and an investment portfolio is allocated based on those requirements. Appropriate securities are purchased as we will discuss in the below sections.
  • Portfolio Rebalancing  – The client’s portfolio is rebalanced appropriately depending on life event changes and market movements.
  • Tax Loss Harvesting – Tax-loss harvesting is the mechanism of selling securities that have a loss associated with them. By doing so or by taking  a loss, the idea is that that client can offset taxes on both gains and income. The sold securities are replaced by similar securities by the RA platform thus maintaining the optimal investment mix.
  • A Single View of a Client’s Financial History- From the WM firm’s standpoint, it would be very useful to have a single view capability for a RA client that shows all of their accounts, interactions & preferences in one view.

User Interface Requirements for a Robo-Advisor (RA) Platform…

Once a customer logs in using any of the digital channels supported (e.g. Mobile, eBanking, Phone etc)  – they are presented with a single view of all their accounts. This view has a few critical areas – Summary View (showing an aggregated view of their financial picture), the Transfer View (allowing one to transfer funds across accounts with other providers).

The Summary View lists the below

  • Demographic info: Customer name, address, age
  • Relationships: customer rating influence, connections, associations across client groups
  • Current activity: financial products, account interactions, any burning customer issues, payments missed etc
  • Customer Journey Graph: which products or services they are associated with since the time they became a customer first etc,

Depending on the clients risk tolerance and investment horizon, the weighted allocation of investments across these categories will vary. To illustrate this, a Model Portfolio and an example are shown below.

Algorithms for a Robo-Advisor (RA) Platform…

There are a variety of algorithmic approaches that could be taken to building out an RA platform. However the common feature of all of these is to –

  • Leverage data science & statistical modeling to automatically allocate client wealth across different asset classes (such as domestic/foreign stocks, bonds & real estate related securities) to automatically rebalance portfolio positions based on changing market conditions or client preferences. These investment decisions are also made based on detailed behavioral understanding of a client’s financial journey metrics – Age, Risk Appetite & other related information. 
  • A mixture of different algorithms can be used such as Modern Portfolio Theory (MPT), Capital Asset Pricing Model (CAPM), the Black Litterman Model, the Fama-French etc. These are used to allocate assets as well as to adjust positions based on market movements and conditions.
  • RA platforms also provide 24×7 tracking of market movements to use that to track rebalancing decisions from not just a portfolio standpoint but also from a taxation standpoint.

Model Portfolios…

  1. Equity  

             A) US Domestic Stock – Large Cap, Medium Cap , Small Cap, Dividend Stocks 

             B) Foreign Stock – Emerging Markets, Developed Markets

       2. Fixed Income

             A) Developed Market Bonds 

             B) US Bonds

             C) International Bonds

             D) Emerging Markets Bonds

      3. Other 

             A) Real Estate  

             B) Currencies

             C) Gold and Precious Metals

             D) Commodities

       4. Cash

Sample Portfolios – for an aggressive investor…

  1. Equity  – 85%

             A) US Domestic Stock (50%) – Large Cap – 30%, Medium Cap – 10% , Small Cap – 10%, Dividend Stocks – 0%

             B) Foreign Stock – (35%) –  Emerging Markets – 18%, Developed Markets – 17% 

       2. Fixed Income – 5%

             A) Developed Market Bonds  – 2%

             B) US Bonds – 1%

             C) International Bonds – 1%

             D) Emerging Markets Bonds – 1%

      3. Other – 5%

             A) Real Estate  – 3%

             B) Currencies – 0%

             C) Gold and Precious Metals – 0%

             D) Commodities – 2%

       4. Cash – 5%

Technology Requirements for a Robo-Advisor (RA) Platform…

An intelligent RA platform has a few core technology requirements (based on the above business requirements).

  1. A Single Data Repository – A shared data repository called a Data Lake is created, that can capture every bit of client data (explained in more detail below) as well as external data. The RA datalake provides more visibility into all data to a variety of different stakeholders. Wealth Advisors access processed data to view client accounts etc. Clients can access their own detailed positions,account balances etc. The Risk group accesses this shared data lake to processes more position, execution and balance data.  Data Scientists (or Quants) who develop models for the RA platform also access this data to perform analysis on fresh data (from the current workday) or on historical data. All historical data is available for at least five years—much longer than before. Moreover, the Hadoop platform enables ingest of data across a range of systems despite their having disparate data definitions and infrastructures. All the data that pertains to trade decisions and lifecycle needs to be made resident in a general enterprise storage pool that is run on the HDFS (Hadoop Distributed Filesystem) or similar Cloud based filesystem. This repository is augmented by incremental feeds with intra-day trading activity data that will be streamed in using technologies like Sqoop, Kafka and Storm.
  2. Customer Data Collection – Existing Financial Data across the below categories is collected & aggregated into the data lake. This data ranges from Customer Data, Reference Data, Market Data & other Client communications. All of this data, can be ingested using a API or pulled into the lake from a relational system using connectors supplied in the RA Data Platform. Examples of data collected include – Customer’s existing Brokerage accounts, Customer’s Savings Accounts, Behavioral Finance Suveys and Questionnaires etc etc. The RA Data Lake stores all internal & external data.
  3. Algorithms – The core of the RA Platform are data science algos. Whatever algorithms are used – a few critical workflows are common to them. The first is Asset Allocation is to take the customers input in the “ADVICE” tab for each type of account and to tailor the portfolio based on the input. The others include Portfolio Rebalancing and Tax Loss Harvesting.
  4. The RA platform should be able to store market data across years both from a macro and from an individual portfolio standpoint so that several key risk measures such as volatility (e.g. position risk, any residual risk and market risk), Beta, and R-Squared – can be calculated at multiple levels.  This for individual securities, a specified index, and for the client portfolio as a whole.

roboadvisor_design_arch

                      Illustration: Architecture of a Robo-Advisor (RA) Platform 

The overall logical flow of data in the system –

  • Information sources are depicted at the left. These encompass a variety of institutional, system and human actors potentially sending thousands of real time messages per hour or by sending over batch feeds.
  • A highly scalable messaging system to help bring these feeds into the RA Platform architecture as well as normalize them and send them in for further processing. Apache Kafka is a good choice for this tier. Realtime data is published by a range of systems over Kafka queues. Each of the transactions could potentially include 100s of attributes that can be analyzed in real time to detect business patterns.  We leverage Kafka integration with Apache Storm to read one value at a time and perform some kind of storage like persist the data into a HBase cluster.In a modern data architecture built on Apache Hadoop, Kafka ( a fast, scalable and durable message broker) works in combination with Storm, HBase (and Spark) for real-time analysis and rendering of streaming data. 
  • Trade data is thus streamed into the platform (on a T+1 basis), which thus ingests, collects, transforms and analyzes core information in real time. The analysis can be both simple and complex event processing & based on pre-existing rules that can be defined in a rules engine, which is invoked with Apache Storm. A Complex Event Processing (CEP) tier can process these feeds at scale to understand relationships among them; where the relationships among these events are defined by business owners in a non technical or by developers in a technical language. Apache Storm integrates with Kafka to process incoming data. 
  • For Real time or Batch Analytics, Apache HBase provides near real-time, random read and write access to tables (or ‘maps’) storing billions of rows and millions of columns. In this case once we store this rapidly and continuously growing dataset from the information producers, we are able  to do perform super fast lookup for analytics irrespective of the data size.
  • Data that has analytic relevance and needs to be kept for offline or batch processing can be stored using the Hadoop Distributed Filesystem (HDFS) or an equivalent filesystem such as Amazon S3 or EMC Isilon or Red Hat Gluster. The idea to deploy Hadoop oriented workloads (MapReduce, or, Machine Learning) directly on the data layer. This is done to perform analytics on small, medium or massive data volumes over a period of time. Historical data can be fed into Machine Learning models created above and commingled with streaming data as discussed in step 1.
  • Horizontal scale-out (read Cloud based IaaS) is preferred as a deployment approach as this helps the architecture scale linearly as the loads placed on the system increase over time. This approach enables the Market Surveillance engine to distribute the load dynamically across a cluster of cloud based servers based on trade data volumes.
  • It is recommended to take an incremental approach to building the RA platform, once all data resides in a general enterprise storage pool and makes the data accessible to many analytical workloads including Trade Surveillance, Risk, Compliance, etc. A shared data repository across multiple lines of business provides more visibility into all intra-day trading activities. Data can be also fed into downstream systems in a seamless manner using technologies like SQOOP, Kafka and Storm. The results of the processing and queries can be exported in various data formats, a simple CSV/txt format or more optimized binary formats, json formats, or you can plug in custom SERDE for custom formats. Additionally, with HIVE or HBASE, data within HDFS can be queried via standard SQL using JDBC or ODBC. The results will be in the form of standard relational DB data types (e.g. String, Date, Numeric, Boolean). Finally, REST APIs in HDP natively support both JSON and XML output by default.
  • Operational data across a bunch of asset classes, risk types and geographies is thus available to investment analysts during the entire trading window when markets are still open, enabling them to reduce risk of that day’s trading activities. The specific advantages to this approach are two-fold: Existing architectures typically are only able to hold a limited set of asset classes within a given system. This means that the data is only assembled for risk processing at the end of the day. In addition, historical data is often not available in sufficient detail. Hadoop accelerates a firm’s speed-to-analytics and also extends its data retention timeline
  • Apache Atlas is used to provide Data Governance capabilities in the platform that use both prescriptive and forensic models, which are enriched by a given businesses data taxonomy and metadata.  This allows for tagging of trade data  between the different businesses data views, which is a key requirement for good data governance and reporting. Atlas also provides audit trail management as data is processed in a pipeline in the lake
  • Another important capability that Big Data/Hadoop can provide is the establishment and adoption of a Lightweight Entity ID service – which aids dramatically in the holistic viewing & audit tracking of trades. The service will consist of entity assignment for both institutional and individual traders. The goal here is to get each target institution to propagate the Entity ID back into their trade booking and execution systems, then transaction data will flow into the lake with this ID attached providing a way to do Client 360.
  • Output data elements can be written out to HDFS, and managed by HBase. From here, reports and visualizations can easily be constructed. One can optionally layer in search and/or workflow engines to present the right data to the right business user at the right time.  

Conclusion…

As one can see clearly, though automated investing methods are still in early stages of maturity – they hold out a tremendous amount of promise. As they are unmistakably the next big trend in the WM industry industry players should begin developing such capabilities.

The Three Core Competencies of Digital – Cloud, Big Data & Intelligent Middleware

Ultimately, the cloud is the latest example of Schumpeterian creative destruction: creating wealth for those who exploit it; and leading to the demise of those that don’t.” – Joe Weiman author of Cloudonomics: The Business Value of Cloud Computing

trifacta_digital

The  Cloud As a Venue for Digital Workloads…

As 2016 draws to a close, it can safely be said that no industry leader questions the existence of the new Digital Economy and the fact that every firm out there needs to create a digital strategy. Myriad organizations are taking serious business steps to making their platforms highly customer-centric via a renewed operational metrics focus. They are also working on creating new business models using their Analytics investments. Examples of these verticals include Banking, Insurance, Telecom, Healthcare, Energy etc.

As a general trend, the Digital Economy brings immense opportunities while exposing firms to risks as well. Customers now demanding highly contextual products, services and experiences – all accessible via an easy API (Application Programming Interfaces).

Big Data Analytics (BDA) software revenues will grow from nearly $122B in 2015 to more than $187B in 2019 – according to Forbes [1].  At the same time, it is clear that exploding data generation across the global economy has become a clear & present business phenomenon. Data volumes are rapidly expanding across industries. However, while the production of data itself that has increased but it is also driving the need for organizations to derive business value from it. As IT leaders know well, digital capabilities need low cost yet massively scalable & agile information delivery platforms – which only Cloud Computing can provide.

For a more detailed technical overview- please visit below link.

http://www.vamsitalkstech.com/?p=1833

Big Data & Big Data Analytics drive consumer interactions.. 

The onset of Digital Architectures in enterprise businesses implies the ability to drive continuous online interactions with global consumers/customers/clients or patients. The goal is not just provide engaging visualization but also to personalize services clients care about across multiple channels of interaction. The only way to attain digital success is to understand your customers at a micro level while constantly making strategic decisions on your offerings to the market. Big Data has become the catalyst in this massive disruption as it can help business in any vertical solve their need to understand their customers better & perceive trends before the competition does. Big Data thus provides the foundational  platform for successful business platforms.

The three key areas where Big Data & Cloud Computing intersect are – 

  • Data Science and Exploration
  • ETL, Data Backups and Data Preparation
  • Analytics and Reporting

Big Data drives business usecases in Digital in myriad ways – key examples include  –  

  1. Obtaining a realtime Single View of an entity (typically a customer across multiple channels, product silos & geographies)
  2. Customer Segmentation by helping businesses understand their customers down to the individual micro level as well as at a segment level
  3. Customer sentiment analysis by combining internal organizational data, clickstream data, sentiment analysis with structured sales history to provide a clear view into consumer behavior.
  4. Product Recommendation engines which provide compelling personal product recommendations by mining realtime consumer sentiment, product affinity information with historical data.
  5. Market Basket Analysis, observing consumer purchase history and enriching this data with social media, web activity, and community sentiment regarding past purchase and future buying trends.

Further, Digital implies the need for sophisticated, multifactor business analytics that need to be performed in near real time on gigantic data volumes. The only deployment paradigm capable of handling such needs is Cloud Computing – whether public or private. Cloud was initially touted as a platform to rapidly provision compute resources. Now with the advent of Digital technologies, the Cloud & Big Data will combine to process & store all this information.  According to the IDC , by 2020 spending on Cloud based Big Data Analytics will outpace on-premise by a factor of 4.5. [2]

Intelligent Middleware provides Digital Agility.. 

Digital Applications are applications modular, flexible and responsive to a variety of access methods – mobile & non mobile. These applications are also highly process driven and support the highest degree of automation. The need of the hour is to provide enterprise architecture capabilities around designing flexible digital platforms that are built around efficient use of data, speed, agility and a service oriented architecture. The choice of open source is key as it allows for a modular and flexible architecture that can be modified and adopted in a phased manner – as you will shortly see.

The intention in adopting a SOA (or even a microservices) architecture for Digital capabilities is to allow lines of business an ability to incrementally plug in lightweight business services like customer on-boarding, electronic patient records, performance measurement, trade surveillance, risk analytics, claims management etc.

Intelligent Middleware adds significant value in six specific areas –

  1. Supports a high degree of Process Automation & Orchestration thus enabling the rapid conversion of paper based business processes to a true digital form in a manner that lends itself to continuous improvement & optimization
  2. Business Rules help by adding a high degree of business flexibility & responsiveness
  3. Native Mobile Applications  enables platforms to support a range of devices & consumer behavior across those front ends
  4. Platforms As a Service engines which enable rapid application & business capability development across a range of runtimes and container paradigms
  5. Business Process Integration engines which enable rapid application & business capability development
  6. Middleware brings the notion of DevOps into the equation. Digital projects bring several technology & culture challenges which can be solved by a greater degree of collaboration, continuous development cycles & new toolchains without giving up proven integration with existing (or legacy)systems.

Intelligent Middleware not only enables Automation & Orchestration but also provides an assembly environment to string different (micro)services together. Finally, it also enables less technical analysts to drive application lifecycle as much as possible.

Further, Digital business projects call out for mobile native applications – which a forward looking middleware stack will support.Middleware is a key component for driving innovation and improving operational efficiency.

Five Key Business Drivers for combining Big Data, Intelligent Middleware & the Cloud…

The key benefits of combining the above paradigms to create new Digital Applications are –

  • Enable Elastic Scalability Across the Digital Stack
    Cloud computing can handle the storage and processing of any amount of data & any kind of data.This calls for the collection & curation of data from dynamic and highly distributed sources such as consumer transactions, B2B interactions, machines such as ATM’s & geo location devices, click streams, social media feeds, server & application log files and multimedia content such as videos etc. It needs to be noted that data volumes here consist of multi-varied formats, differing schemas, transport protocols and velocities. Cloud computing provides the underlying elastic foundation to analyze these datasets.
  • Support Polyglot Development, Data Science & Visualization
    Cloud technologies are polyglot in nature. Developers can choose from a range of programming languages (Java, Python, R, Scala and C# etc) and development frameworks (such as Spark and Storm). Cloud offerings also enable data visualization using a range of tools from Excel to BI Platforms.
  • Reduce Time to Market for Digital Business Capabilities
    Enterprises can avoid time consuming installation, setup & other upfront procedures. consuming  can deploy Hadoop in the cloud without buying new hardware or incurring other up-front costs. On the same vein, even big data analytics should be able to support self service across the lifecycle – from data acquisition, preparation, analysis & visualization.
  • Support a multitude of Deployment Options – Private/Public/Hybrid Cloud 
    A range of scenarios for product development, testing, deployment, backup or cloudbursting are efficiently supported in pursuit of cost & flexibility goals.
  • Fill the Talent Gap
    Open Source technology is the common thread across Cloud, Big Data and Middleware. The hope is that the ubiquity of open source will serve as a critical level in enabling the filling up of the IT-Business skills scarcity gap.

As opposed to building standalone or one-off business applications, a ‘Digital Platform Mindset’ is a more holistic approach capable of producing higher rates of adoption & thus revenues. Platforms abound in the web-scale world at shops like Apple, Facebook & Google etc. Digital Applications are constructed like lego blocks  and they reuse customer & interaction data to drive cross sell and up sell among different product lines. The key components here are to ensure that one starts off with products with high customer attachment & retention. While increasing brand value, it is key to ensure that customers & partners can also collaborate in the improvements in the various applications hosted on top of the platform.

References

[1] Forbes Roundup of Big Data Analytics (BDA) Report

http://www.forbes.com/sites/louiscolumbus/2016/08/20/roundup-of-analytics-big-data-bi-forecasts-and-market-estimates-2016/#b49033b49c5f

[2] IDC FutureScape: Worldwide Big Data and Analytics 2016 Predictions

Five Areas Where Big Data Drives Innovation in the Bill Pay Industry..

As the Bill Pay Industry Motors On…

The traditional model of service providers relying on call centers and face-to-face interactions with their customers to gauge their satisfaction are long past. With the advent of PSD2, the regulatory authorities themselves may be more open to new business models in the Bill Pay space.

With the explosion of data being collected from mobile applications, location based devices & social media, Bill Pay providers can monetize on their years of historical data by opportunistically combining the above and providing Analytics in the below five strategic areas

  1. Ensuring the best possible & timely Customer Payment Experience –Younger customers are typically very happy in leveraging online channels like mobile phones, web applications to make their payment instead of using paper based mailing. Using online channels to process payments also results in higher degrees of both end customer and service provider satisfaction, as it is quicker in terms of funds transfer, availability and is also less error prone. Leveraging Big Data to understand which of your customers prefer mobile channels (based on lifestyle & behavioral preferences) and helping them download service provider mobile applications can accelerate mobile payment adoption modes. Another key use case is to understand which customers typically pay just before or after the deadline thus incurring late fees – another source of customer dissatisfaction. Again, understanding customer payment modes & trends can help increase customer satisfaction here. The ability to reach out to a customer at the best possible mode that they prefer (via mobile app, or, a text message, or, a phone call) can also help address customer dissatisfaction with services.
  2. Provding a Unified View of Customer Across Multiple Service Accounts – Creating a single customer profile or view across multiple household services & interactions, payment history across those can provide an ability for Service Providers to understand the total Customer Lifetime Value (CLV) of a single customer. Creating this profile can also help drive the business value in the following areas.
  • What mode of contact do they prefer? And at what time? Can Customers be better targeted at these channels at those preferred times?
  • What is the overall Customer Lifetime Value (CLV) or how much profit we are able to generate from this customer over their total lifetime?
  • By understanding CLV across populations, can Service Providers leverage that to increase spend on marketing & sales for products that are resulting in higher customer value?
  • Which of my customers are targets for promoting Green Services and Products?
  • What Features are customers currently missing?
  • How can Service Providers we increase cross sell and up-sell of products & services?
  • Does this customer fall into a certain natural segment and if so, how can we acquire most customers like them?

 

monetize_billpay

           Five Ways for Bill Pay Providers to Monetize their Data Assets

  1. Improving Customer Satisfaction – Creating a single customer profile or view across multiple household services & interactions can provide an ability for Service Providers to understand the total Customer Lifetime Value (CLV) of a single customer. Creating this profile can also help drive the business value in the following areas – Customer Satisfaction, Customer NPS (Net Promoter Score), Customer Mood & Willingness to adopt new services, Customer Retention etc.
  1. Analytics As A Service to interested 3rd Parties

The ability of consumers to make their household services payments can serve as a reliable indicator of household economic health as well as a sign of their willingness to adopt new products and services. This data can be anonymized at an individual consumer level, analyzed using machine learning and be provided as a service to various stakeholders – Other businesses like Retailers, the Government & the Regulatory Authorities.

Concrete examples include –

  • Combining Social data, demographic data with bill pay data & other credit data can help the Government gauge the direction of the economy. Obviously the more data that can be merged into this model (e.g. mortgage payment data etc) can help with its overall accuracy
  • Allowing Retailers to analyze consumer mobile usage data, bill pay data, credit records as well as use external data (social media etc) to predict what products they may like etc and to target promotions & card offers etc

A final note on the overall scope of Predictive Analytics in this usecase-

  • Obtaining a real-time Single View of the Customer (typically a customer across multiple channels, product silos & geographies) across years of account history
  • Customer Segmentation by helping businesses understand customer segments down to the individual level as well as at a segment level
  • Performing Customer sentiment analysis by combining internal organizational data, clickstream data, sentiment analysis with structured sales history to provide a clear view into consumer behavior.
  • Product Recommendation engines which provide compelling personal product recommendations by mining realtime consumer sentiment, product affinity information with historical data etc.
  • Market Basket Analysis, observing consumer purchase history and enriching this data with social media, web activity, and community sentiment regarding past purchase and future buying trends.

5.Service Provider Analytics

Service Providers can themselves access this data to help with the various areas of their operations –

  • Improve new Consumer Acquisition by creating client profiles and helping develop targeted leads across a population of individuals
  • Instrument and understand Risk at multiple levels (customer churn, client risk etc) in real time
  • Financial risk modeling across multiple dimensions (?)
  • For Providers with multiple products & services (e.g Cable, Voice and Internet), Basket Analysis based on criteria like behavioral preferences, asset allocation etc – i.e “what products & services are typically purchased in tandem”
  • Run in place analytics on customer lifetime value (CLV) and yield per customer
  • Suggest Next Best Action for a given client and across a pool of customers
  • Provide multiple levels of dashboards ranging from the Descriptive (Business Intelligence) to the Prescriptive (business simulation as well as optimization)
  • Help with Compliance and other reporting functions

CONCLUSION…

Bill Pay is a specialized area of the payments industry. However, the massive amounts of historical customer & service data that players possess can be advantageously leveraged to provide value added services and ultimately drive new business models.

Can Your CIO Do Digital?

Business model innovation is the new contribution of IT”  — Werner Boeing, CIO, Roche Diagnostics

Digital Is Changing the Role of the Industry CIO…

A Motley crew of some what interrelated technologies – Cloud Computing, Big Data Platforms, Predictive Analytics & Mobile Applications are changing the enterprise IT landscape. The common paradigm that captures all of them is Digital. The immense business value of Digital technology no longer in question both from a customer as well as an enterprise standpoint. However, the Digital space calls for strong and visionary leadership both from a business & IT standpoint.

Business Boards and CXOs are now concerned about their organization’s overall level and maturity of digital investments. And the tangible business value in existing business operations– (e.g increasing sales & customer satisfaction, detecting fraud, driving down business & IT costs etc)-but also in helping finetune or create new business models by leveraging Digital paradigms. It is thus an increasingly accurate argument that smart applications & ecosystems built around Digitization will dictate enterprise success.

The onset of Digital Architectures in enterprise businesses implies the ability to drive continuous micro level interactions with global consumers/customers/clients/stockholders or patients depending on the vertical you operate in. Initially enterprises viewed Digital as a bolt-on or a fresh color of paint on an existing IT operation.

How did that change over the last five years?

Mobile applications first begun forcing the need for enterprise to begin supporting multiple channels of interaction with their consumers. We have seen how how exploding data generation across the global economy has become a clear & present business & IT phenomenon. Data volumes are rapidly expanding across industries. However, while the production of data by Mobile Applications that has increased but it is also driving the need for organizations to derive business value from it, using advanced techniques such as Data Science and Machine Learning. As a first step, this calls for the collection & curation of data from dynamic,  and highly distributed sources such as consumer transactions, B2B interactions, machines such as ATM’s & geo location devices, click streams, social media feeds, server & application log files and multimedia content such as videos etc – using Big Data. Often these workloads are run on servers hosted on an agile infrastructure such as a Public or Private Cloud.

As one can understand from the above paragraph, the Digital Age calls for a diverse set of fresh skills – both from IT leadership and the rank & file. The role of the Chief Information Officer (CIO) is thus metamorphosing from being an infrastructure service provider to being the overall organizational thought leader in the Digital Age.

The question is – Can Industry CIOs adapt?

The Classic CIO is a provider of IT Infrastructure services.. 

what_cios_think                                                Illustration: The Concerns of a CIO..

So what do CIOs typically think about nowadays?

  1. Keep the core stable and running so IT delivers minimal services to the business and disarm external competition
  2. Are parts of my business really startups and should they be treated as such and should they be kept away from the shackles of inflexible legacy IT? Do I need a digital strategy?
  3. What does the emergence of the 3rd platform (Cloud, Mobility,Social and Big Data) imply?
  4. Where can I show the value of expertise and IT to the money making lines of business?
  5. How can one do all the above while keeping track of Corporate and IT security?

 CIO’s who do not adapt are on the road to Irrelevance…

Where CIOs are being perceived as managing complex legacy systems, the new role of Chief Digital Officer (CDO) has gained currency. The idea that a parallel & more agile IT organization can be created and run to create an ecosystem of innovation & that the office of the CDO is the right place to drive these innovative applications.

Why is that?

  1. CIOs that cannot or that seem dis-engaged with creating innovation through IT are headed the way of the dodo. At the enterprise officer – CIO/CTO level, it becomes very obvious that more than ever “IT is not just a complementary function or a supplementary service but IT is the Business”. If that was merely something that we all paid lip-service to in the past, it is hard reality now. So it is not a case of which company can make the best widgets or has the fastest trading platforms or efficient electronic health records. It is whose enterprise IT can provide the best possible results within a given cost that will win. Its up to the CIOs to deliver and deliver in such a way that large established organizations can compete with upstarts who do not have the same kind of enterprise constraints & shackles.
  2. Innovation & information now follow an “outside in” model. As opposed to data and value being generated by internal functions (sales,engineering, customer fulfillment, core business processes etc) . Enterprise customers are beginning to now operate in what I like to think of as the new normal: entropy.  It’s these conditions that make it imperative for IT Leadership to reconsider their core business applications at the enterprise level. Does internal IT infrastructure need to look more like those of the internet giants?
  3. As a result of the above trends, CIOs are clearly now business level stakeholders more than ever. This means that they need to engage & understand their business at a deep level from an ecosystem and competitive standpoint. Those that cannot do it are neither very effective nor in those positions for long.
  4. Also,it is not merely enough to be a passive stakeholder, CIOs have to deliver on two very broad fronts. The first is to deliver core services (aka standardized functions) on time and at a reasonable cost. These are things like core banking systems, email, data backups etc. Ensuring smooth operation running transactional systems like ERP/business processing systems in manufacturing, decision support systems, classic IT infrastructure, claims management systems in Insurance and Billing systems in Healthcare. The systems that need to run to keep the business operations.The focus here is to deliver on these on time and within SLAs to increasingly demanding internal customers. Like running the NYC subway – no one praises you for keeping things humming day in and out but all hell breaks loose when the trains are nonoperational for any reason. A thankless task but one essentially needed to win the credibility with lines of business.
  5. The advent of public cloud means that internal IT no longer has a monopoly and a captive internal customer base even with core services. If one cannot compete with the likes of Amazon AWS or any of the SaaS based clouds that are mushrooming on a quarterly basis, you will find that soon enough you have to co-exist with Not-So-Shadow IT. The industry has seen enough back-office CIOs who are not perceived by their organizations as having a largely irrelevant role in the evolution of the larger enterprise.
  6. Despite the continued focus on running a strong core as the price of CIO admission to the internal strategic dances, transformation is starting to emerge as a key business driver and is making its way into the larger industry. It is no longer the province of Wall St trading shops or a Google or a Facebook. Innovation as in “adopt this strategy and reinvent your IT and change the business”. The operative word here is incremental rather than disruptive innovation. More on this key point later.
  7. Most rank and file IT personnel in general cannot really keep up with all the nomenclature of technology. For instance, a majority do not really understand umbrella concepts like Cloud, Mobility and Big Data. They know what these mean at a high level but the complex technology underpinnings, various projects & the finer nuances are largely lost on enterprise customers. There are two stark choices from a time perspective that face overworked IT personnel – a) Do you want to increase your value to your corporation by learning to speak the lingua franca of your business and by investing in those skills away from a traditional IT employee mindset? b) do you want to increase your IT depth in your area of expertise.The first makes one a valued collaborator and paves your way up within the chain, the second may definitely increase your marketability in the industry but it is not that easy to keep up. We find that an increasing number of employees choose the first path which creates interesting openings and arbitrage opportunities for other groups in the organization. The CIO needs to step up and be the internal change agent.

CONCLUSION…

Enterprise wide business innovation will continue to be designed around the four key technologies  (Big Data, Cloud Computing, Technology & Platforms). Business Platforms created leveraging these technologies will create immense operational efficiency, better business models, increased relevance to customers and ultimately drive revenues. Such platforms will separate the visionaries, leaders from the laggards in the years to come. As often noticed, the keyword accompanying transformation is often digital. This means a renewed focus on making IT services appealing to millennial or the self service generation – be they customers or employees or partners. This really touches all areas of enterprise IT while leaving behind a significant impact on organizational culture.

This is the age of IT with no boundaries – the question is whether the role of the CIO will largely remain unscathed in the years to come.

How Robo-Advisors work..(2/3)

Millennials want “finance at their fingertips”..they want to be able to email and text the financial advisors and talk to them on a real-time basis,” – Greg Fleming, Ex-Morgan Stanley
The first post in this series on Robo-advisors touched on the fact that Wealth Management has been an area largely untouched by automation as far as the front office is concerned. Automated investment vehicles have largely begun changing that trend and they helping create a variety of business models in the industry. This three part series explored the automated “Robo-advisor” movement in the first post.This second post will focus on the overall business model & main functions of a Robo-advisor.
Introduction
FinTechs led by Wealthfront and Betterment have pioneered the somewhat revolutionary concept of Robo-advisors. To define the term – a Robo-advisor is an algorithm based automated investment advisor that can provide a range of Wealth Management services tailored to a variety of life situations.
Robo-advisors offer completely automated financial planning services. We have seen how the engine of the Wealth Management business is new customer acquisition. The industry is focused on acquiring the millennial or post millennial HNWI (High Net Worth Investor) generation. The technology friendliness of this group ensures that are the primary target market for automated investment advice. Not just the millenials, anyone who is comfortable with using technology and wants lower cost services can benefit from automated investment planning. However,  leaders in the space such as – Wealthfront & Betterment – have disclosed that their average investor age is around 35 years. [1]
Robo-advisors provide algorithm-based portfolio management methods around investment creation, provide automatic portfolio rebalancing and value added services like tax-loss harvesting as we will see. The chief investment vehicle of choice seems to be low-cost, passive exchange-traded funds (ETFs).

What are the main WM business models

Currently there are a few different business models that are being adopted by WM firms.

  1. Full service online Robo-advisor that is a 100% automated without any human element
  2. Hybrid Robo-advisor model being pioneered by firms like Vanguard & Charles Schwab
  3. Pure online advisor that is primarily human in nature

What do Robo-advisors typically do?

The Robo-advisor can be optionally augmented & supervised by a human adviser. At the moment, owing to the popularity of Robo-advisors among the younger high networth investors (HNWI), a range of established players like Vanguard, Charles Schwab as well as a number of FinTech start-ups have developed these automated online investment tools or have acquired FinTech’s in this space.e.g Blackrock. The Robo-advisor is typically offered as  a free service (below a certain minumum) and typically invests in low cost ETFs.  built using digital techniques – such as data science & Big Data.

Robo_Process

                                  Illustration: Essential functions of a Robo-advisor

The major business areas & client offerings in the Wealth & Asset Management space have been covered in the first post in this series at http://www.vamsitalkstech.com/?p=2329

Automated advisors only cover a subset of all of the above at the moment. The major usecases are as below –

  1. Determine individual Client profiles & preferences—e.g. For a given client profile- determine financial goals, expectations of investment return, diversification etc
  2. Identify appropriate financial products that can be offered either as pre-packaged portfolios or custom investments based on the client profile identified in the first step
  3. Establish correct Investment Mix for the client’s profile – these can included but are not ,limited to equities, bonds, ETFs & other securities in the firm’s portfolios . For instance, placing  tax-inefficient assets in retirement accounts like IRA’s as well as  tax efficient municipal bonds in taxable accounts etc.
  4. Using a algorithmic approach, choose the appropriate securities for each client account
  5. Continuously monitor the portfolio & transactions within it to tune performance , lower transaction costs, tax impacts etc based on how the markets are doing. Also ensure that a client’s preferences are being incorporated so that appropriate diversification and risk mitigation is being performed
  6. Provide value added services like Tax loss harvesting to ensure that the client is taking tax benefits into account as they rebalance portfolios or accrue dividends.
  7. Finally ,ensure the best user experience by handling a whole range of financial services – trading, account administration, loans,bill pay, cash transfers, tax reporting, statements in one intuitive user interface.

000-graph

                             Illustration: Betterment user interface. Source – Joe Jansen

To illustrate these concepts in action, leaders like Wealthfront & Betterment are increasingly adding features where  highly relevant, data-driven advice is being provided based on existing data as well as aggregated data from other providers. Wealthfront now provides recommendations on diversification, taxes and fees that are personalized not only to the specific investments in client’s account, but also tailored to their specific financial profile and risk tolerance. For instance, is enough cash being set aside in the emergency fund ? Is a customer holding too much stock in your employer? [1]

The final post will look at a technology & architectural approach to building out a Robo-advisor. We will also discuss best practices from a WM & industry standpoint in the context of Robo-advisors.

References:

  1. Wealthfront Blog – “Introducing the new Dashboard”