Research as a Service: Ripe and Ready for Prime Time

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Research as a service (RaaS) can be delivered on a full-time equivalent (FTE), managed services or pay-per-use model, depending on a research client's needs for scalability and persistency and the research demands of its business.

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Research as a Service: Ripe and Ready for Prime Time

  1. 1. Research as a Service: Ripe and Ready for Prime Time Research consumed as a service will be the new digital-era application-programming interface that can help companies connect better with their customers. • Cognizant Reports cognizant reports | june 2014
  2. 2. 2 Executive Summary In an increasingly volatile and information- efficient world, it is imperative for companies to analyze and understand events that shape their businesses on a real-time basis. Suffice it to say, companies across industries today consume a range of research inputs — financial, market, industry and economic — to understand issues and support executive decisions. Empirical evidence suggests that the research- service buyers have cleaved the market into a wholesale market of “well-heeled and well- served” buyers that typically comprise large buy- and-sell-side financial services firms and a highly fragmented set of “well-heeled, but underserved” buyers such as boutique private equity (PE) firms, venture capital (VC) firms, hedge funds and various corporate functions within companies. While the demand for research services is ubiquitous, the varying character and composi- tion of research requirements illuminate unevenly distributed patterns of demand and consumption. Further analysis reveals a compelling business case to offer and consume research as a service. By research as a service (RaaS), we mean the ability to: • Deliver research services through a range of models — from traditional full-time-equivalent- (FTE)-based to “pay per use.” • Marry traditional and emerging IT services and standard research capabilities to offer scalable and cost-efficient solutions. The urgency for such services is palpable. Already, a combination of forces — regulations, crimped profitability and technology evolution — is forcing traditional wholesale buyers of research services to look beyond established conventions to minimize and variabilize cost. At the same time, the large body of underserved and highly frag- mented research service buyers offer an opportu- nity for service providers to architect high-quality, relevant and timely research services in variable pricing models. Organizations can use the RaaS primary value propositions — scalability, flexibil- ity and cost-effectiveness — to negate volatility in market conditions and business performance. Forces Affecting Research-Centric Businesses Research-centric businesses such as investment banking and publishing organizations are heading toward less profitable growth1 and tough business conditions (see Figure 1). The confluence of tight regulations, heightened competition and lack of the organizational wherewithal to utilize technology to improve the quality of research is undercutting profitability and return on equity. In our view, the time is ripe for organizations to consider the potential of the RaaS model to improve profitability and time-to-market and to acquire an edge over the competition. Research Demand: Ubiquitous, Diverse and Unevenly Distributed The demand for research services is nearly similar across many industries. What varies is the character and composition of research needs; cognizant reports Shrinking Margins ROE for Investment Banks ROEPercent ROEPercent ROE for Publishing and Information Services Companies 20 15 10 5 0 -5 2010 2011 2012 2013 60 50 40 30 20 10 0 -10 2010 2011 2012 2013 JP Morgan Barclays Morgan Stanley Goldman Sachs Deutsche Bank Citigroup UBS Credit Suisse Bank of America Thomson Reuters Wolters Kluwer Informa Euromoney Instiutional Investor Source: Cognizant Research Center Figure 1
  3. 3. 3cognizant reports both demand and consumption are unevenly dis- tributed. Based on these criteria, the market for traditional research services can be categorized into two broad segments: • The well-heeled and well-served segment comprising large buy-side and sell-side firms, as well as investment banks. • The well-heeled but underserved segment comprising private equity firms, hedge funds, venture capital firms and corporate functions such as marketing, sales, HR and IT of companies across industries. These segments can be understood better by looking at the nature of their research require- ments and how well they are currently served (see Figure 2). The first segment largely deals with capital markets research, which is more complex in nature and requires high-end research capa- bilities. This segment is relatively well-served by research service vendors. Publishing companies and information aggregators — with most of their research requirements being less complex than the needs of capital markets firms — are also well- served by vendors. The second segment consists of boutique firms such as PE organizations, hedge funds and venture capitalists whose research requirements are extremely complex. This segment is relatively underserved by vendors. Corporate functions, which include sales, IT, HR and marketing divisions, have relatively lower complexity of research requirements and are not well-served by vendors. Research Supply: Ready to Address Unevenly Distributed Demand The quantum nature of research consumption is an important factor in identifying a suitable service model (see Figure 3, next page). FTE staffing model: Large capital market firms are scale players with varying volumes of research requirements. They plan research calendars, timetables and well-defined areas to be covered. The traditional FTE model with full-time research analysts suits these organizations, as they have a fixed demand stream of complex and high-volume research needs. Managed service model: Publishing organiza- tions and information aggregators also have a planned timetable for defined products with fixed volumes. A managed-service, volume-based model suits these organizations best. Pay-per-use model: Notwithstanding their planned coverage areas, boutique firms have research needs that are highly specialized and lack scale. Corporate functions are also lacking in scale of research volumes and have unevenly dis- tributed demand patterns that require on-demand research support to fit tight deadlines. Lacking Swelling Complexity in Research Demands Low Medium High Low Medium High Complexity of Research Needs SourcingMaturity Research Services Market Comprises two broad segments: Well-heeled and well-served and well-heeled and underserved. Large Capital Market Firms Investment Banks, Large Buy-Side and Sell-Side Firms. Publishing and Information Aggregators Corporate Functions (Marketing, Sales, IT and HR) Boutique Firms (PE, Hedge Funds, VC) Source: Cognizant Research Center Figure 2
  4. 4. scale and with highly ad hoc research require- ments, a pay-per-use model that charges for each research request suits boutiques and corporate functions. The RaaS Core Value Proposition The gold standard for RaaS is the minimum amount of services delivered through pay-per- use and managed services models. Figure 4 (next page) illustrates how a bouquet of sell-side research services over time can be simplified and standardized and delivered flexibly and cost-effi- ciently through a range of operating models. Research service buyers can optimize their research costs and convert them from a fixed-cost structure to a variable-cost structure based on their most pressing research needs. • Given the fixed volume and periodic updates, the managed services model is ideally suited to basic maintenance work. This include basic tasks such as news tracking and retrieval, database maintenance, valuation updates and ad hoc data gathering and basic analysis such as political economic social technologi- cal analysis (PESTLE), strengths, weaknesses, opportunities and threats (SWOT) analysis, creating company profiles, model updates and updating historical data. • Research buyers can opt for a pay-per- use model for research requirements that are specialized but are ad hoc in nature. Research needs of corporate functions and deliverables with medium complexity (econo- metric modeling, earnings preview notes, earnings review notes, financial projections, new product designs) are well-served using this model. • The FTE-based model suits firms with defined research products that are complex in nature (i.e., company/country reports, report writing/initiating coverage, trading ideas, trader/client calls, etc.) and require sig- nificant value-added and dedicated resources. • Going a step ahead, firms with limited time and resources to invest in new product development can partner with mature research providers who can coinvest with them to conceptualize new product ideas to create innovative products for customers and generate incremental revenue. Technology: The RaaS Differentiator The distinct nature of research services, requiring deep domain knowledge, is predicated on a wide range of IT applications to underwrite the quality and efficiency of analyst output. This intersec- tion between the domain knowledge (human) and technology application (IT) offers material oppor- tunity for RaaS providers to optimize service effec- tiveness and efficiency. When evolved best, RaaS providers can provide an on-demand, transaction- 4cognizant reports Catering to Jagged Demands Low Medium High Pay-Per-Use Managed Services FTE Large Capital Market Firms Investment Banks, Large Buy-Side and Sell-Side Firms. Publishing and Information Aggregators Corporate Functions (Marketing, Sales, IT and HR) Boutique Firms (PE, Hedge Funds, VC) Complexity of Research Needs ResearchOperatingModels Pay per useu Research Supply Side Ready to Cater to Unevenly Distributed Demands. Source: Cognizant Research Center Figure 3
  5. 5. cognizant reports 5 al, utility-like service model by marrying research, analytics, IT applications and an enabling infra- structure that are owned by a service provider. This arrangement transfers the risks and costs associated with ownership from the consumer to the provider of research (see Figure 5, next page). Figure 5 illustrates how research service providers can, over time, unbundle IT service components underpinning the core research services and deliver them as a service. However, to provide RaaS, research vendors need to have strong IT, business process capabilities, access to skilled talent and the scale to accommodate fluctuations in demand for research services. Research as a Service: Success Prerequisites Leading RaaS providers will need to exhibit the following attributes: • Willingness to experiment: The RaaS model requires a mature relationship between pro- vider and client that affords each partner the freedom and space to pilot variations on the RaaS theme. The provider and client need to be on a strong footing in terms of their under- standing about how the RaaS model works. It works smoothly only when requirements from each are crystal-clear. Also, both sides must have a strong and established relationship with high levels of confidence, credibility and mutual respect for each other’s capabilities. Efficient Operating Models Addressing the Research Service Needs of a Sell-Side Firm Low Medium High Complexity of Research Needs ResearchOperatingModels Pay pery h se chch Research Supply Side Ready to Cater to Unevenly Distributed Demands FTE  Shadow coverage.  Risk analysis. Level 6 New Product Development  Trading ideas.  Trader/client calls.  Shadow coverage. Level 5 Complex Work Level 4 Significant Value-Add  Company/country reports.  DCF/LBO valuation.  Report writing/ initiating coverage.  Calls with company management.  News tracking & retrieval.  Database maintenance.  Valuation updates.  Ad hoc data gathering. Pay- Per-Use Managed Services  Econometric modeling.  Earnings preview notes.  Earnings review notes.  Financial projections.  Design new products. Level 3 Valuation/Co. Briefs Level 1 Basic Maintenance  Pestle/SWOT analyses.  Company profiles.  First reads.  Model updates.  Update historical data. Level 2 Basic Analysis Ca s co pa yCDesign new products. Source: Cognizant Research Center Figure 4
  6. 6. cognizant reports 6 Source: Cognizant Research Center Figure 5 Offering Research Underpinned by Human and IT Elements as a Service Pay per useu Managed Services “As a Service” Build Buy Rent FTE Fixed Cost Variable Cost IT –> Application + Infrastructure ResearchServiceOperatingModels Pay Per Use • Ability to operate at scale: While core re- search capabilities are a necessary condition for vendors to offer the RaaS model, having sufficient headroom to grow and expand capa- bility is essential. Scale allows service provid- ers to handle volatilities arising out of varying demand patterns from research service buy- ers. Scale permits vendors to optimize invest- ments in technology, talent and infrastructure, not to mention providing a buffer to withstand demand volatility. For consumers of research services, the following is essential: • A virtual mindset: The customer must be comfortable taking a hands-off approach to ownership of people, processes and technology, leaving these elements to a trusted provider. An ideal way to start testing the RaaS model is on a pilot basis in areas where the consumer of research services has sufficient confidence in the capabilities of the provider and trust in its ability to meet business needs today and tomorrow and to meet or exceed expectations. As the risk in this model is borne mostly by the provider, organizations that consume research services should carefully evaluate service provider capabilities to deploy the RaaS model. The Road Ahead The varying research needs and maturity levels of buyers require service providers to target and offer customized services accordingly. The treasure trove of data generated by social media and connected devices is creating a big data challenge for B2B and B2C companies that want to better understand their customers. They do not have the technological wherewithal, skills and talent to do this, thus forcing them to look outside for assistance, a lament increasingly heard by industry insiders. Organizations can procure such services from mature service providers that have developed strong capabilities in utilizing both structured and unstructured data to offer custom research insights to complement more mainstream structured data analysis (see Figure 7 on Page 8). Organizations planning to use the RaaS model need to ensure that their vendors have proven
  7. 7. Web Scraping, Big Data Tools, Content Acquisition, Database Management Architecture Design and Systems Integrations, Feedback Integration Analytics Layer Research Lifecycle Technology Layer Creative Services/User Interface Primary Research, Survey, Social Media, Product Analytics Differentiated Research – Value Add with Statistical Analysis, Social Media Targeted Distribution Client Analytics, Campaign Analytics, Client Servicing Strategies, Web Analytics, Pricing Analytics Research Idea Generation & Data Management Research Report Generation Publishing & Distribution Research Marketing Automation Tools, Authoring Platform Publishing Platform Client Portal/User Interface CRM Database Search GUIs, Content Acquisition Filters Content Visualization, Interactive Reports/Models Enhanced User Interface, HTML5, Enhanced Mobility, Mail Management Audio/Video Summary, 1-Pager Flyers 7cognizant reports Research operations of service providers continu- ously matured by embracing increasingly sophis- ticated technology and their own homegrown ability to marry technology with research. Many are deploying homegrown, proprietary processes that employ technologies to automate, reduce errors and increase efficiency and quality of research operations. They are utilizing tools such as Web crawlers, workflow management systems, mobile apps and knowledge management platforms to increase their operational efficiency (see Figure 6). How Research Service Providers Use Technology How Technology Can Improve the Effectiveness and Efficiency of the Research Value Chain Source: Cognizant Research Center Figure 6
  8. 8. cognizant reports 8 capabilities in understanding and integrat- ing business and technology, offer high-quality research services and have superior market cred- ibility relative to service delivery. This is critical to ensure the requisite operational efficiencies as well as to amplify key business benefits. The growing sophistication of service providers to offer both technology and research solutions is creating a unique sweet spot that reimagines traditional research service models and serves ever-expanding market needs. Bill’s Activities Insights Generated Outcome/Ideas Delivered Tweets on new technology advancements in shale oil industry. Tracks news on Putin: Russia has right to use force in Ukraine – oil prices slip as Ukraine crises cause jitters. Reads a research paper on latest shale oil extraction. Follows latest news related to oil stocks in the portfolio and their earning releases schedules. Searches for and buys books, watches videos/documentaries to understand new develop- ments in the shale oil industry.  Stock prices for BP and Marathon Oil are expected to fall exposing William to a higher risk.  From his trading patterns and portfolio composition, he is long on BP and Marathon Oil and he needs to diversify into shale oil related stocks.  Weekly updates on the Ukraine crisis and related analytics on oil price fluctuations.  Trader goes short on BP and Marathon Oil.  Diversify portfolio and invest in shale oil companies like Tesoro and Holly Frontier. Source: Cognizant Research Center Figure 7 Providing Rich Insights Using Structured and Unstructured Data to Help Professionals Make Smart Decisions CODE HALO Consider the case of Bill Thomson, a 32-year-old professional working as a trader at a large financial institution and tracking the oil and gas sector. Bill’s activities – such as his Tweets, the news he follows, topics of his interest, the books he buys, videos and documentaries he watches related to the oil and gas sector – are tracked. Customized and timely insights, utilizing the structured and unstructured data gathered from the tracked sources, can then be generated and delivered – which he can use to make smart decisions. Footnote 1 Average trading volume on Wall Street is declining, and touched the lowest point in the last five years with less than 3 billion shares traded in August 2013. RoE for investment banks has declined by roughly 50% in the last two years in both Europe and the U.S. Similarly, the publishing and printing industry recorded a below average RoE of 4.39% in the past year.
  9. 9. About Cognizant Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out- sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 75 development and delivery centers worldwide and approximately 178,600 employees as of March 31, 2014, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant. World Headquarters 500 Frank W. Burr Blvd. Teaneck, NJ 07666 USA Phone: +1 201 801 0233 Fax: +1 201 801 0243 Toll Free: +1 888 937 3277 Email: inquiry@cognizant.com European Headquarters 1 Kingdom Street Paddington Central London W2 6BD Phone: +44 (0) 20 7297 7600 Fax: +44 (0) 20 7121 0102 Email: infouk@cognizant.com India Operations Headquarters #5/535, Old Mahabalipuram Road Okkiyam Pettai, Thoraipakkam Chennai, 600 096 India Phone: +91 (0) 44 4209 6000 Fax: +91 (0) 44 4209 6060 Email: inquiryindia@cognizant.com ­­© Copyright 2014, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein is subject to change without notice. All other trademarks mentioned herein are the property of their respective owners. Credits Author Anand Chandramouli, Director, Cognizant Research Center, Cognizant Technology Solutions Analyst Aala Santhosh Reddy, Analyst, Cognizant Research Center SME Feroz Kudrolli, Head of Research Operations, Business Process Services Design Diana Fitter

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