Gartner summary
The SearchCRM article, Oracle-Siebel deal shakes up CDI world, recaps a recent Gartner report on the convergence of the Customer Data Integration product suites from Oracle and Siebel. The Gartner report characterizes the combined Oracle-Siebel entity as having "an embarrassment of riches", but cautions customers contemplating a CDI purchase to look for clarification on the future product direction. Obviously, I can't comment on post-merger product plans, but there are serious problems with taking a wait-and-see approach.
First, there is an explicit cost to waiting. If you look at the reasons why financial institutions put in a CDI solution, many of them are related to costs. In November 2004, The CDI Institute did a MarketPulse(TM) survey and identified eight key reasons:
- fraud reduction
- database consolidation after M&A
- reduce costs of manual data management
- customer retention
- compliance and C-level visibility into real-time operations
- customer satisfaction
- competitive advantage
- central management of privacy policies
Of these 8 reasons, the first 4 all have direct costs associated with continuing business-as-usual. Before deciding to defer a CDI decision, these costs need to be measured and understood versus the anticipated cost savings from having accurate, consistent customer data. Of the remaining 4, each has indirect costs that are attributable to bad customer reference data. These are less easy to quantify, manifesting as risk rather than expense. Customers who are less satisfied are more likely to go to a competitor. Managers who do not have accurate data make less optimal decisions. Inadequate privacy management may result in regulatory sanctions if exposed. Your mileage may vary.
Second, what is the risk you are trying to mitigate by deferring the decision? One of the principal goals of CDI is to abstract the customer data away from the source applications and create a centralized management discipline around this strategic asset. Even if the CDI implementation involved an application which suddenly, somehow, became obsolete, the application itself is a small part of the CDI discipline.
The work which must be done to implement CDI involves a significant amount of initial data quality effort, scrubbing and reconciling the data. This work will never be lost or invalidated, and must be performed in any CDI scenario. It involves work around data management, reconciling the metadata and common objects which will serve the data back to the target applications. It involves work in the EAI layer, creating the ETL interfaces, connectors and adaptors to gather and distribute the data. This core engineering work is necessary for CDI, regardless of the application selected.
Perhaps most importantly, the organizational framework around governance and project management for CDI needs to be put into place. This includes documentation of business processes, establishment of data management practices, a "center of excellence" around reference customer data, best practices for management of customer data, and establishment of data quality and data stewardship functions at the enterprise level. This is partly organizational, and partly cultural. In any event, it is 100% transformational and requires a consistent dedicated effort, sponsored by executive management and championed by business unit leaders throughout the company.
None of these changes are small, or easy, and if you are interested in CDI success in 2006 the effort needs to start now.
CDI enjoys a significant advantage over many traditional applications in that (1) it is new and therefore captures and fully utilizes many modern technological enhancements, from an open, componentized architecture, to exposure of functionality through a services framework that helps ensure interoperability, and (2) it is based on integration technologies. Application connectors? Got 'em. TIBCO, SeeBeyond, webSphere? Got 'em. J2EE, .NET, Corba? Got 'em. The need for a modern CDI solution to provide a flexible integration framework connecting multiple source systems and data stores together in a robust and flexible manner inherently means that it is easy to manage as a solution. That means easy to upgrade, swap out, switch components, and truly manage as part of an SOA. The actual risk of a CDI solution somehow being rendered "obsolete" is miniscule.
Third, there is a significant implied cost to waiting, in the form of foregone potential revenue. Just for fun, I took the stock price charts of six banks that I know very well. Three of them have implemented CDI in some form at least one year ago, and three of them are evaluating CDI but have not implemented it yet.
Stocks of the companies who have implemented CDI showed an annual return of +9.71% over the past 33 months without considering dividends or taxes. Stocks without an implemented CDI solution showed an annual -5.57% return over the same period.
I'll be the first to caveat this quick study with a note that it is merely anecdotal, not scientific, but I did not pre-select the banks on the basis of stock price performance. I simply chose banks on the basis of what I know about their customer data practices. I blended the stock prices of each group of 3 banks to mask their individual identities, and reindexed each set of daily prices to an equal starting point to give you some idea of relative performance.
Interestingly, all three of the banks which have implemented CDI are experiencing core deposit growth that exceeds the growth in population in their primary SMSA. The three banks that have not implemented CDI appear to be losing market share. (In all three non-CDI bank cases, there was some growth, but it was not keeping pace with the growth in their markets. One non-CDI bank showed solid core deposit growth, but when I dug into why, it appears to be exclusively from acquisitions.) Analyst upgrades among the CDI banks are also consistently greater than among the non-CDI banks.
This quick performance analysis confirms what I have been hearing from banks for the past year or so. Smart bankers understand that the battle right now is for share of wallet, and the signposts on the road to victory are marked with metrics like "average number of products per customer", "channel utilization" and "customer churn". What you don't measure, you cannot improve. For many financial institutions this last reason - revenue upside - dwarfs the preceding two in terms of importance. Bankers understand that while operating efficiency is key to survival in the world of declining margins, you can't cost-cut your way to success.
These are points that Gartner missed in their analysis. It's easy to see why. Arguments that are valid for academics - i.e. research analysts - have real world consequences for companies struggling with issues like customer retention. An academic can say, "the future is murky, so we need to wait and see what develops before we commit to a recommendation or make a forecast". In the real world, waiting has consequences. Fortunately, the three considerations discussed above all argue against a "wait and see" policy. The battle for your customers is going on right now, and you need the right weapons to fight for those customers. Delaying a CDI decision right now could be one of the costliest mistakes you could make.
First, there is an explicit cost to waiting. If you look at the reasons why financial institutions put in a CDI solution, many of them are related to costs. In November 2004, The CDI Institute did a MarketPulse(TM) survey and identified eight key reasons:
- fraud reduction
- database consolidation after M&A
- reduce costs of manual data management
- customer retention
- compliance and C-level visibility into real-time operations
- customer satisfaction
- competitive advantage
- central management of privacy policies
Of these 8 reasons, the first 4 all have direct costs associated with continuing business-as-usual. Before deciding to defer a CDI decision, these costs need to be measured and understood versus the anticipated cost savings from having accurate, consistent customer data. Of the remaining 4, each has indirect costs that are attributable to bad customer reference data. These are less easy to quantify, manifesting as risk rather than expense. Customers who are less satisfied are more likely to go to a competitor. Managers who do not have accurate data make less optimal decisions. Inadequate privacy management may result in regulatory sanctions if exposed. Your mileage may vary.
Second, what is the risk you are trying to mitigate by deferring the decision? One of the principal goals of CDI is to abstract the customer data away from the source applications and create a centralized management discipline around this strategic asset. Even if the CDI implementation involved an application which suddenly, somehow, became obsolete, the application itself is a small part of the CDI discipline.
The work which must be done to implement CDI involves a significant amount of initial data quality effort, scrubbing and reconciling the data. This work will never be lost or invalidated, and must be performed in any CDI scenario. It involves work around data management, reconciling the metadata and common objects which will serve the data back to the target applications. It involves work in the EAI layer, creating the ETL interfaces, connectors and adaptors to gather and distribute the data. This core engineering work is necessary for CDI, regardless of the application selected.
Perhaps most importantly, the organizational framework around governance and project management for CDI needs to be put into place. This includes documentation of business processes, establishment of data management practices, a "center of excellence" around reference customer data, best practices for management of customer data, and establishment of data quality and data stewardship functions at the enterprise level. This is partly organizational, and partly cultural. In any event, it is 100% transformational and requires a consistent dedicated effort, sponsored by executive management and championed by business unit leaders throughout the company.
None of these changes are small, or easy, and if you are interested in CDI success in 2006 the effort needs to start now.
CDI enjoys a significant advantage over many traditional applications in that (1) it is new and therefore captures and fully utilizes many modern technological enhancements, from an open, componentized architecture, to exposure of functionality through a services framework that helps ensure interoperability, and (2) it is based on integration technologies. Application connectors? Got 'em. TIBCO, SeeBeyond, webSphere? Got 'em. J2EE, .NET, Corba? Got 'em. The need for a modern CDI solution to provide a flexible integration framework connecting multiple source systems and data stores together in a robust and flexible manner inherently means that it is easy to manage as a solution. That means easy to upgrade, swap out, switch components, and truly manage as part of an SOA. The actual risk of a CDI solution somehow being rendered "obsolete" is miniscule.
Third, there is a significant implied cost to waiting, in the form of foregone potential revenue. Just for fun, I took the stock price charts of six banks that I know very well. Three of them have implemented CDI in some form at least one year ago, and three of them are evaluating CDI but have not implemented it yet.
Stocks of the companies who have implemented CDI showed an annual return of +9.71% over the past 33 months without considering dividends or taxes. Stocks without an implemented CDI solution showed an annual -5.57% return over the same period.
I'll be the first to caveat this quick study with a note that it is merely anecdotal, not scientific, but I did not pre-select the banks on the basis of stock price performance. I simply chose banks on the basis of what I know about their customer data practices. I blended the stock prices of each group of 3 banks to mask their individual identities, and reindexed each set of daily prices to an equal starting point to give you some idea of relative performance.
Interestingly, all three of the banks which have implemented CDI are experiencing core deposit growth that exceeds the growth in population in their primary SMSA. The three banks that have not implemented CDI appear to be losing market share. (In all three non-CDI bank cases, there was some growth, but it was not keeping pace with the growth in their markets. One non-CDI bank showed solid core deposit growth, but when I dug into why, it appears to be exclusively from acquisitions.) Analyst upgrades among the CDI banks are also consistently greater than among the non-CDI banks.
This quick performance analysis confirms what I have been hearing from banks for the past year or so. Smart bankers understand that the battle right now is for share of wallet, and the signposts on the road to victory are marked with metrics like "average number of products per customer", "channel utilization" and "customer churn". What you don't measure, you cannot improve. For many financial institutions this last reason - revenue upside - dwarfs the preceding two in terms of importance. Bankers understand that while operating efficiency is key to survival in the world of declining margins, you can't cost-cut your way to success.
These are points that Gartner missed in their analysis. It's easy to see why. Arguments that are valid for academics - i.e. research analysts - have real world consequences for companies struggling with issues like customer retention. An academic can say, "the future is murky, so we need to wait and see what develops before we commit to a recommendation or make a forecast". In the real world, waiting has consequences. Fortunately, the three considerations discussed above all argue against a "wait and see" policy. The battle for your customers is going on right now, and you need the right weapons to fight for those customers. Delaying a CDI decision right now could be one of the costliest mistakes you could make.
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