Industry analysts: a new world order is already coming

As we embark on our fifth year in operation at HfS, I’ve been reflecting on where the research analyst industry is going.

I’ve always passionately believed research thrives on innovation and disruption of the enterprise status quo, which means you need two factors to be an effective analyst organization:

  • Data. Trends from the buyers of services and solutions that tell us where they are with their current strategies, how they aspire to evolve,  what they need to help them evolve – and what catalysts will drive the evolution.
  • People. Individual analysts who can read into the data points, who surround themselves by the buyers, sellers and expert advisors, to share an informed judgement on where things are heading and what the industry stakeholders needs to do to survive and thrive.

When it comes to research, big just isn’t so beautiful anymore 

What we’ve proven (so far), at HfS, is that you don’t need hundreds of millions in revenue and hundreds of employees to provide that.  When you have a platform to present your research to your market, people will flock there, and many others will quickly find you.  However, what we’ve also learned is that enterprise executives want data and insight from analysts whom they respect and with whom they can interact, not necessary a faceless machine which churns out facts and figures that simply have to be accurate…  as you paid tens of thousands to access it.  Simply put, clients want to pay for the experience, as opposed to merely a productized service.

I spend a lot of time with many academics, think-tanks, investors, consultants, pundits, enterprise practitioners, service provider and tech vendor execs to share ideas, data and viewpoints.  They all tend to work within small groups of smart individuals to figure out where their world is heading.  One factor is common among these beings – most have a real passion for their respective areas of coverage – their careers and livelihoods depend on it, and they care about where all this is heading.

However, when I talk to many analysts working for the big machines, many of them just seem so jaded, and almost disconnected with the world, they’re just going through the motions. Many of these analysts just seem so beaten down by the pressure from paying vendor clients and internal territory wars with other analysts from within their own firms, that they struggle to have anything innovative or profound to say.  As one analyst once told me “we just call the trends, that’s all we need to do to get paid”.  I would argue that some of these legacy analyst firms aren’t really analysts anymore, they’ve become “J.D. Powers” that validate buying decisions of products and services.  Clients aren’t getting an experience from them, they are getting a product.

‘Analyst 2.0′ is about insight, data and community.  It’s about experiences, not products.

The core challenge for the emerging analysts is achieving a revenue model that allows them first to first survive, then to establish the right degree of scale and degree of influence to build enough reputation and credibility to attract clients which want a long term, ongoing relationship.  Smart clients tend to want three things from analysts:

1) Credible Data.  Everyone wants data – on suppliers, on market directions, on business models, on pricing trends; With real validity and statistical significance.

2) On-tap expertise.  Clients want instant knowledge-gratification; When they need help with something, they want it via a quick email, phone call.  No-one likes 1-800 numbers which take two weeks’ to set up to talk with some individual you don’t know, who’s probably going to tell you they don’t have what you need, in any case.

3) Networking and influence.  Research buyers often want to feel they are talking to an analyst connected with the world, who is part of a community that involves them.  I have a secret joke with friends, but the best analysts would make great headhunters if they chose to change careers!

Entire industry models are being disrupted, and some obliterated, at a speed yet not seen – and research is not immune

The exciting – and daunting – aspect of today’s business environment, is the speed with which entire industries can be turned on their heads. Did the likes of Sony, Nokia, or Blackberry see Samsung, LG and Apple in their rear view mirrors?  Didn’t Yahoo, AOL and Microsoft think they had the internet game sewn up before Google obliterated their dominance?  Did Monster have any inkling that LinkedIn would eat its lunch in barely a couple of years (before it was too late to respond)?  Does Walmart have any concept how to deal with Amazon developing the ultimate digital retail sales channel, which is revolutionizing the whole retail ecosystem? Did Blockbuster stand a chance responding to Netflix once the industry model had shifted – or, in fact, did it ever stand a chance even if it had realized what was happening in time?

As with many industries, most of the leading enterprises only respond to business model changes when they genuinely feel the impact on their revenue streams (an unfortunate bi-product of the Wall St quarterly view of the world).  However, as with the examples above, once the inflection point has been reached, it’s almost impossible to respond, and the only obvious measure is to acquire the disruptor. However, the culture and business model of the acquiring firm often crushes the innovation of the disruptive firm they are buying, even if a takeover is financially viable.

In today’s business environment, the power of digital collaboration, ease of information dissemination, and ubiquitous global access of the cloud is ripping into the 1980 and 1990 business models at a pace that is now frightening. Services are becoming commodities in time-spans we have never seen before – just look at the IT services and BPO industries where the “value” from buying low-cost labor is being completely commodotized by cloud-based business platforms and automation, where clients simply do not need to pay for as many bodies to take support calls, develop lines of code, process payments, claims, paychecks or invoices.  The handful of service providers with ambitions to survive are desperate to develop value-add capabilities that will stop their clients dragging them into a price-war for the lowest common dollar denominator.

The research industry is not immune to disruption – the 800lb gorillas can’t simply keep buying up smaller competitors which dare to threaten the status quo, if the way in which the customers desire to use their services is changing.  Today, thought-leadership and good ideas are free - and clients expect them to be free.  In fact, most of the research clients need to help their decision-making is likely to be freely available if they search hard enough. So that means they will eventually not need to pay for the “basics” that research houses persist in providing today – they will only pay for more personalized expertise, actual data to support specific scenarios and a networking relationship that can really help them be successful in their jobs.  They will pay for an experience, not a product.

The Bottom-line:  The new analysts are coming, but they just might not be what you expect

This means the “analysts” of the future aren’t necessarily going to be the analysts of today – the smart consultants are desperately looking at more “one-to-many” models to service their clients who want more of an ongoing relationship, than simply splurging on expensive projects every time they need some help.  What’s stopping the likes of a Deloitte taking on Gartner, with its global presence and vast resources of experts and networks of clients? And where next for the likes of Reed Elsevier or Thomson Reuters, which are streamlining their executive offerings in a similar model to the analyst houses? And what about smart BPO providers themselves, with their analytics capabilities, global presence, domain knowledge and client communities, where they can pool vast quantities of knowledge, which already have the capability to deliver people services at low cost on long term annuity contracts?

The future of analysts is about providing clients the experiences they need to be smarter and more effective at what they do, not selling them something pre-packaged that everyone else already has…

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19 Comments

  1. Posted December 29, 2013 at 11:52 am | Permalink

    spot on observations

    ‘Analyst 2.0? is about insight, data and community. It’s about experiences, not products.

    The Bottom-line: What’s stopping the likes of a Deloitte taking on Gartner, with its global presence and vast resources of experts and networks of clients

  2. Posted December 29, 2013 at 1:45 pm | Permalink

    Well said, Phil. I do worry though, that in an age of social media many have lost the ability to look at numbers critically, and people who should know better RT pure BS that would have never made it through a review process but easily passes for “data” on twitter and blogs. I find it troubling that people might actually make buying decisions based on some of the rubbish that’s out there.

    Your focus on the “experience” is exactly what I see, too. That’s good for emerging firms, but research/relationship buyers should really look carefully at the processes used by the startups. I believe HfS will hold up well under this type of scrutiny – good luck and continued success in 2014.

  3. Paul Anderson
    Posted December 29, 2013 at 2:16 pm | Permalink

    Phil – brilliant post and one of your best.

    The large analyst firms have long become dull monolithic factories designed to make money by selling “information”. Your comments about customers wanting experiences versus products are so true with where the world is heading.Why pay for content that isn’t telling you anything you couldn’t already find on the Internet? As you rightly point out, unless they start losing money, why change a prehistoric business model that makes their quarterly numbers? Let’s hope you’re right about the disruption and we start to see the analyst industry finally get shaken into life in 2014!

    Paul Anderson

  4. Posted December 29, 2013 at 2:25 pm | Permalink

    Adrian – very good points!

  5. Alex Chalmers
    Posted December 30, 2013 at 6:12 pm | Permalink

    Spot on – you’ve nailed exactly what’s wrong with the stagnant research practices of the old guard firms, Phil. Many enterprises are stuck investing in analyst services that add little relevance or value to what they really need in today’s market. This is definitely starting to change, the questions is how fast we’ll see the shift.

  6. Eric
    Posted December 30, 2013 at 7:12 pm | Permalink

    Phil,

    While a little self-serving you’ve laid down the new rules of the game in a fascinating way. We’re clearly on the cusp of a new way of accessing insight and data. Step up the new players!

    Eric

  7. G
    Posted December 30, 2013 at 9:31 pm | Permalink

    Excellent article. I’m amazed it’s taking this long for the old world model to disintegrate. Good observations regarding the consultants sneaking in on the game – has to happen for them to develop annuity models to supplant the stuttering consulting model. One thing’s for sure – the next couple of years will prove fascinating to watch.

  8. Doug
    Posted December 31, 2013 at 7:26 am | Permalink

    Phil,

    Excellent examples of business model disruption.

    Doug

  9. Phil Fersht
    Posted December 31, 2013 at 7:38 am | Permalink

    @Adrian – you can’t stop people “abusing” social media to publish low quality analysis – and there is a lot of it out there. At the same time, established research firms have got away with publishing rubbish for years. How many times have we seen rehashing of vendor press releases being recycled as research notes / blogs etc?

    In this brave new digital world, the user operates at his/her own risk as they furrow their way through the plethora of insight being hurled at them from every corner of the web. This is why the experience, the credibility of the relationship is so important – it’s almost more about trusting your data source than ever. Social media hasn’t really improved the quality of the broad mass of research out there (and in many cases it has created a platform for low quality rubbish to get some airtime), but is has created the access, the collaboration capability and provided many new tools for people to do a lot more of their own research…

    PF

  10. Posted December 31, 2013 at 7:58 am | Permalink

    Great Insights. The explosion of social media means that there will be analysts and there will be analysts. The numbers will explode and the quality will decline. There will be several just ‘retweeting’.

  11. Posted December 31, 2013 at 10:01 am | Permalink

    Excellent post Phil!

    Today, thought-leadership and good ideas are free – and clients expect them to be free…they will only pay for more personalized expertise, actual data to support specific scenarios and a networking relationship that can really help them be successful in their jobs. They will pay for an experience, not a product.

    Analysts need to understand a client’s business and how change will impact their business. Having a true relationship with the client is paramount. It appears the trusted advisor model is about to loom large.

  12. Posted December 31, 2013 at 10:25 am | Permalink

    Phil – thanks for kicking off this thread, it’s an important topic. The rise of the “social analyst” mirrors what we have seen in TV news over the last decade or so. Detailed coverage of trivial events are used to fill up air time, much as fluff is used to source tweets and then tweets are used to source reports and in a bizarre twist, TV news shows now “feature” tweets, too! The net result is much ado about nothing. In an attempt to get mind share, analysts tweet updates from events (“news”) without added value and thus become reporters, while trying to distinguish themselves. It is a vicious cycle.

    In that context, your comments about trust and building a relationship really ring true – I’ve never been too concerned about whether I am viewed by the outside world as an analyst, consultant, academic, advisor, etc, because at different times I act in all those roles, sometimes with the same client. I am positioning my new firm as an analytics business rather than an analyst firm, but in my personal interaction with clients I will still wear many hats because that’s what the relationship demands.

    People will definitely do more of their own research in the future, which makes their limited interaction with analysts/advisors even more important. In the past, the analyst from a big firm was seen as a guru, handing down wisdom from on high. In the future, I see the analyst as a Sherpa who will help the client reach his/her potential with context-appropriate, on-demand guidance.

  13. H
    Posted January 1, 2014 at 1:33 pm | Permalink

    Phil,

    Where you and a small handful of leading analysts differ from the rest of the pack is not around an understanding of the data, nor even pointing out the trends (even a mediocre analyst can do that) – but being great at pointing out to a client what it would take for an initiative to be successful. The best analysts all have deep industry experience and actually worked in companies getting stuff done. I find that with most analysts, they lack this experience and thus they will always make grandiose recommendations which sound great, but will never get anywhere as they are not grounded in the physical realities of doing business.

    H.

  14. Posted January 1, 2014 at 6:19 pm | Permalink

    Great blog post, Phil. And some great comments too, Adrian.

    Let me first state that I agree with your observation that the future of research and advisory is about “providing clients with the experiences they need to be smarter and more effective at what they do (i.e. their job)”.

    What I’d like to add, it may seem like a simplification but I believe it’s really quite essential, is this short statement: “The experience IS the insight.”

    In our industry, there’s this widely accepted notion that analysts create or produce insight which is then sold and delivered to clients, in that order. This is an outright fallacy. What analysts really do is acquire insight, through the practice of acquiring, processing, connecting and analysing data, and they then use several formats (report writing, phone inquiry, consulting engagements, blogs and other social media outings) in an attempt to transfer their insight onto their client. Whether this transfer is successful, in that the client has gained actionable insight, remains to be seen. It’s actually quite ridiculous to think that pre-fab insight has been delivered when a client has read a research note or talked to an analyst. In fact, I’ve seen clients be more confused and less insightful after their interaction with research or an analyst than they were before. A profound realisation is that “the mind is really the only domain in which insight can exist”. This can be either the mind of the analyst and/or the mind of the client. Insight does NOT reside in the words written down in reports or spoken in conversation. The latter is merely “information and opinion which is conveyed in a way and with the intent for insight to come to existence in the mind of the receiver”, but without guarantee that it will.

    Before I continue to argue my point about the experience being the insight, I want to come back to Phil’s observation that what our clientele needs are experiences to become smarter and more effective at doing their jobs. What does that really mean? It means that our clientele more or less lack certain insight and understanding (of their business environment) to reach total available decision making potential. And it means they are willing to pay for positive impact on decision quality, as high decision quality creates (loads of) value for their company. Our distinguished clientele don’t necessarily need to be told exactly what they should do, it would be arrogant even to think that, but they do need certain bits of information that allow them to educate their own internal insight about what they can do to be smarter and more effective. That process, where actionable insight comes to existence in their mind, that’s the experience our clients are after, that’s what they are willing to pay for.

    My recommendation to the analyst industry is therefore: If you seek to provide the experiences Phil writes about, the experience clients need to be smarter and more effective at what they do, the experience they will continue to pay top-dollar for, then…
    • you will need to redefine what insight really means
    • you need to realise that your research notes or the words you speak in presentations and in conversation is NOT (yet) insight
    • you need to make the process happen of insight coming to existence in the mind of your client
    • “contextualised explanation” might be the holy grail of research and advisory service delivery

    The latter two bullet points form the real challenge and it’s all really quite subjective too. The minds of our clients sometimes work in mysterious ways. There are huge differences in what our clients already know, what they think they know, where they are currently acting on false assumptions, how their mind works, how fast their mind works, what they are trying to achieve, what powers and dynamics they have to take into account in their decision making, how the decision making process is designed, etc. All these factors impact our ability to deliver information and opinion in a way that leads to the emergence of actionable insight in the mind of our client. It requires quite a degree of customer intimacy to increase our chances of delivering such experiences and it requires a heterogenous approach, in recognition of the fact that not all clients, their minds and their environments are created equal.

    Closing comment: This blog comment is NOT insight. It’s merely information and mostly my humble opinion. For some readers it might lead to insight straight away (probably fast thinkers who know the industry inside-out), others might want to have a conversation and require further explanation in the context of their own research business and yet another group might just not get it, simply because their process of the mind that leads to insight doesn’t happen. Perhaps just the fact that this is merely a comment on Phil’s article and not an article in itself just doesn’t trigger their ‘insight process’.

  15. Phil Fersht
    Posted January 3, 2014 at 12:49 pm | Permalink

    @Peter -thanks for your excellent – and insightful – thoughts. In short, (good) analysts are pretty much what their clients want them to be:

    1) Some vendors want analysts them to listen to them and understand the value their products and services so they can communicate their “value” to their respective audiences. These vendors see analysts as marketing vehicles that need to be “educated”. They have little interest in the analysts own thought processes.

    2) Other vendors want to “educate” analysts, but also want to be challenged, as they see value in the insight the analyst can bring to the table, especially from briefing with their competitors and clients. Some vendors will opt for (2) if they see specific value in the analyst they are talking to. In cases where they do not respect that analyst’s opinion, they will stick firmly to (1).

    3) Some users / buyers see analysts as “on-tap” experts / consultants, who can help them with a specific problem quickly, without the need to call up Deloitte or McKinsey

    4) Other users / buyers see analysts as an extension of their team, who can validate their strategies, bounce ideas, share some data points etc

    5) Some vendors and users / buyers just set up an analyst call and expect the analyst to talk on a topic in a “vacuum” to take down notes. They often to do want to share why they need this information or the general context – just perceive the analyst as a vessel of information from which they need to extract useful datapoints.

    I, personally, have to play the analyst role across each of these five scenarios, depending on the client. I prefer (2) and (4), but often have to endure the (1), (3) and (5)!

    PF

  16. Posted January 3, 2014 at 8:33 pm | Permalink

    Thanks Phil, for your kind response. Your 5 scenario’s of client expectations should certainly sound very familiar to pretty much every insider in our industry. I feel compelled to comment once more. :)

    Firstly, when you say “we are pretty much what our clients want us to be”, although I very well understand what you mean, I can’t deny that I feel slightly uncomfortable with the exact wording. It’s almost like saying that a woman is pretty much what a man wants her to be. Well, not my woman. I have to reconcile with much less, I’m afraid. Or to be honest: What I get is much more, since my woman knows best what I need in a woman. I trust her in that. But I was born in a city (Amsterdam) that’s famous for a certain industry of woman that are willing to comply with our (almost) every desire. I’ve never actually contracted any provider in that particular industry.

    Moving on to your 5 scenario’s:

    Scenario [1] doesn’t actually describe a client-relationship where the analyst delivers a paid service. Or so I hope. Because, if a client is allowed to pay for an analyst to just listen to them and understand their value proposition in order to ‘spread the word’ among technology buyer-clients, that’s called PAY4PLAY. So I’m assuming your scenario [1] refers to unpaid analyst briefings which are not service delivery efforts but, in fact, primary research efforts. I would therefore like to omit this scenario from my analysis on delivering insight experiences to paying clients.

    Scenario [2] is a great example of a vendor-analyst relationship based on reciprocity. When vendors are paying clients, this scenario pretty much describes what the relationship should look like. The insight these vendors want or need to gain, in your example, is around customers and competition. Extending that line of thought, what these vendors probably want to achieve most is to create highly prized customers (Peter Drucker: definition of a company). So what they really need to find out, in order to achieve this, is who exactly these customers are who are potentially willing to pull out their massively sized wallets, what exactly these customers are willing to pay these big amounts for, what value propositions trigger these customers to beg the vendor to sell it’s services for those big amounts and how to make sure no enemies grab away these highly prized customers, etc. So these are the area’s in which the analyst can deliver information and opinion that educate the vendor-clients internal insight. The delivered information could be something like: “several players in this market are doing ABC”. The insight that comes to existence in the mind of the vendor client could then be something like this: “ok, so if we do XYZ, we outsmart our enemies, because they do ABC”. Analysts who excel at triggering such insight in the minds of their clients are the analysts who succeed at delivering the ‘insight experience’. Their vendor-clients will beg them to be retained as a paying client, as opposed to opting out of a client-relationship and going back to just briefing analysts.

    Scenario [3] and [4] only differ from each other in that the first relates to a relationship on a tactical level, where the latter is about strategic engagement. Of course, strategic engagement is always more interesting and enjoyable for an analyst. I would certainly settle for both, though. If I provide advice on a tactical level, I would strive to upgrade the relationship to the strategic plateau, while if I’m already there, I’d need to strive to retain the client of leverage the client to grow my business through his/her referrals. I believe that both can be achieved, most effectively, by doing what clients expect most from analysts: trigger their internal insight process so their minds generate really clever thoughts that lead to really smart decisions. Of course, all credit for the clever thoughts and smart decisions should go to the client, as long as the money, the relationship upgrades and the referrals come to the analyst. It’s business, after all.

    Scenario [5], what can I say? Very ‘kind’ of the client to pay for one-on-one analyst advice, while a research note is really all he needs. He wouldn’t even need to read it. For what purpose? To take notes? Perhaps the same notes that are neatly summarised in the reports’ executive summary? But although it might seem kind of the client to pay for something he doesn’t need, I admit that it can put the analysts in an awkward position. It’s almost like reading out a podcast in a live conversation. An analyst job is no walk in the park, the things we have to do to make a living…

  17. Phil Fersht
    Posted January 4, 2014 at 11:41 am | Permalink

    @Peter – you certainly wax lyrical on the role of the effective analyst – I enjoyed reading your views here. However, I hate to be the messenger of bad news, but scenario #1 is, am afraid, very common in the analyst business. Many vendors do not care much (or at all) what analysts think (often because of the loss of relevance / inexperience, or simply arrogance). The simply see analysts as a necessary evil to brainwash, and pay for analyst services to get airtime to present to them.

    Analyst firms sell subscription services to vendors, so it’s a free market if vendors choose to pay for them – and do what they please with the time allocated. For example, our firm was invited to a technology conference recently and we were asked to brief with tech vendors while we were there. The conference planner went as far as stipulating how much time the vendor presented (40 minutes), with 10 minutes for analyst questions and 10 minutes for the analysts to “talk” about their observations. Simply put, many vendors feel the more time they “talk” to the analyst, the more “value” they get in influencing their opinions.

    Sadly, some analysts are so awful, all they seem capable doing is regurgitating press releases and vendor marketing puff. One boutique analyst firm, which only sells to vendors, actually rehashes vendor press releases as “blogs” then requests its analysts to tweet them.

    This is why so much of the analyst industry isn’t really an “analyst” industry anymore. Those analysts which only sell services to vendors are already too far gone in the pay-for-play model to climb back into the world of insight and relevance.

    PF

  18. Posted January 5, 2014 at 1:43 am | Permalink

    Phil – in my experience, the Type 1 relationship you mention usually occurs when the vendor believes that the analyst firm influences their target market, but the specific analyst involved isn’t well regarded. It’s a relationship between a vendor and firm, with the specific analyst as a footnote. In Type 2 the relationship exists between the vendor and the analyst, and would likely follow the analyst to a new firm. Those are golden.

    Peter – I’m not sure about your use of “pay4play” – Phil was describing a typical vendor/analyst contract where the vendor uses their time to try to influence the analyst. If an analyst firm requires a contract in order to be briefed, that would certainly be pay to play, but that is pretty rare (although some sales reps promote “access” as a feature).

    What happens more often is that analysts write reports on market segments knowing full well that the vendors who get good reviews are more likely to buy reprints, and those who get poor reviews are more likely to buy services in an attempt to influence the next report, and that knowledge influences the way the reports are written. If an analyst is compensated for reprints, or consulting work, the potential for conflict is unavoidable. Is it pay for play, even though the payment comes after the report is released? I would argue that it is in situations where a report is used to sell other services and the analyst’s performance or compensation is tied to those later sales. A commissioned whitepaper that lauds a product or vendor is certainly pay to play, but in my view one that provides context or thought leadership about a practice or technology is not. In either case, if the relationship is disclosed, I think the reader can pass judgement on any bias. With the reprint model, the commercial relationships get very muddy. A lot of vendors will tell you privately that they buy services from analysts who claim to eschew pay to play in order to influence the NEXT report. That’s the dirty secret few will discuss publicly.

  19. Posted January 6, 2014 at 7:09 pm | Permalink

    Phil,

    I’ve posted something, also making a parallel with another content industry, back in 2011 > http://wp.me/p9yEt-Q6

    Guess credits are in order…

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