Life in the crystal ball
Life in the crystal ball
November/December Edition, 2007: The word analyst is often uttered to back up wild claims about where a market is heading and in response to being challenged on said fact. Should you be ensconced in corporate small talk and be called out in just such a way, there always seems to be a scurrying attempt to back it up with the words ‘Analyst’ and ‘Report’. Nathan Statz takes a tour around the top analysts impacting enterprise IT and how they’ve influenced the market.
So why does the mention of an analyst make a fact all that more authoritative to the point that companies are keen to loosen up the purse strings and pour money at there expert recommendations? The answer lies in a long history of getting it right, and watching those that have invested and relied upon analyst projections reap in the rewards.
Unfortunately however, this isn’t always the case. Due to the nature of the market there is always going to be unpredictable elements that even the shiniest crystal ball is going to miss and analysts are no exception. Sourcing vast amounts of information for there report can help to minimise this risk, however predicting the future is always going to be a dangerous business.
Businesses of all shapes and sizes rely on analyst reports, whether it is a large enterprise commissioning there own multi-million dollar product specific research or a small business delving into a general market report on a certain industry. Just because it’s common place for everyone to use it, doesn’t necessarily mean that using it is a good thing. So this begets the question as to whether analysts have a beneficial impact on the industry, are we better off not having them at all?
To answer this you really have to quantify what impact analysts have on the IT industry in the first place. Enterprises for instance have a heavy reliance on research because of a desire to “cut through some of the marketing fluff that the vendors put out” says Ian Bertram, managing vice-president at Gartner.
Betram is in a unique position to comment on the marketing fluff because by his own admission, he used to help create it. Analyst research is there to be the knife that slashes through that fluff and helps you choose between the devil and the angel on each shoulder because as Bertram explains, how else are you going to decide who to listen too.
“The research companies and houses provide enterprises with the research that they couldn’t normally provide themselves. Because we are not a media outlet, you can’t necessary find the advice we give on Google. If you can find something on Google then it’s not worth publishing for us,” says Betram.
Analyst predictions can become a self- fulfilling prophecy according to Betram, which has caused a great deal of caution in the Gartner ranks. “We’re going through an exercise with our predictions, which is looking at what we’ve predicted in the past and what went wrong.”
Added to this is the risk of contributing to existing hype, which is something usually held for the realm of the vendors and the media. Getting caught up in what Betram calls the hype cycle is a very real possibility and can be extremely dangerous, particularly if an organisation rushes into a decision without careful consideration.
“Gartner is quoted in the press almost on a daily basis, we are a source of information for enterprises and we are also a source of information for the media, that’s why we say to the vendors out there if you're going to announce a new product, speak to us under a non-disclosure agreement prior to announcement,” says Betram.
Despite the risks, eventually a decision will have to be made whether or not to go ahead with new investment, acquiring a new piece of technology or a host of other areas that professional analysts can give advice on. Even if the outcome is to avoid investing in something, the choice to steer clear is still a decision.
“They're obviously going to invest based on some information; you wouldn’t invest based on pure speculation. You're going to have to find and base your decision on something,” says Bertram.
Forecasting can never be correct?
Graham Penn, associate vice-president at IDC has a slightly different perspective as he sees the problem stemming from forecasting not having the opportunity to be entirely correct, no matter what the circumstances are. “Every time you do a forecast it is wrong, the more experienced you get the more insightful you become, but forecasting is always fraught with difficulties primarily because there are many things which influence the market, of which the pure technology strategy is only one part of many,” he says.
This kind shouldn’t be news to anyone –t he fact that a piece of paper telling you what is likely to happen in the marketplace in the next 12 months is never going to get it completely right down to the last letter. What is alarming though, is that some organisations do take it as gospel and are confident in there choice to base investment on analyst reports.
“The analysts are the scorekeepers, and we are also silly enough to do forecasts and these have been dramatically wrong before. Projections don’t always work out as expected, we've seen some significant failures and spectacular successes,” says Penn.
While it’s one thing to be cautious of the risks in using analyst reports to base your decisions on, it’s also dangerous not too. Penn explains that the biggest risk for an organisation is to invest a considerable amount into a technology that’s a dead end, forcing the organisation to bail out and lose massive opportunity costs such as people time which can never be recouped.
“Analysts aren’t the only people you should go to for advice; vendor or conferences are a good first step. You should become an informed buyer and seeking out an analyst forms a part of that, as does the media,” says Penn.
Another successful element, particularly for IT managers is talking to your peers. As Penn believes, even talking across industries and competitors is a good way to seek out and compare advice.
“At a technology level there is a lot of discussion between peers, even if its frowned on officially. In terms of the networking that goes on, execs move on but retain their contacts,” he says.
While it does sound like an alien concept to some and begs the question of are you risking the leakage of a hot tip to a competitor who might try to beat you to the punch, there is always going to be some elements of that thrown into the mix. However people themselves, particularly those in executive positions, have become so adept at networking with their peers on the validity of certain research that not giving too much away is a well practiced art. Analyst research will also be well known to most organisations the moment it hits print, such is the nature of competition.
The word from Ovum
Dr Steve Hodgkinson, research director of Ovum’s public sector believes there are other reasons organisations seek out analyst advice, such as the level of convenience it offers. “Some organisations quite like analyst research as it saves them the effort of researching things themselves, as long as the clients are mature enough to see the value of it,” he says.
“There are other organisations who don’t value the research as well, as they aren’t making those kind of decisions and usually haven’t had that relationship with analysts in the past and therefore don’t trust them,” continues Hodgkinson. “There is this idea that they can jump on Google and find the answer there.”
According to Hodgkinson, the relationship between organisations and analysts is really about confidence and trust, which doesn’t just come from data, it comes from the fact that they’ve built a relationship with each other.
Ovum shares Gartner and IDC’s caution with regards to forecasting. “Forward crystal ball gazing is very difficult. It's just a question of trying to make the best guess you can, so the analyst firms are just one of many perspectives,” says Hodgkinson. “Because one analyst firm said so isn’t really good enough reason to invest, it’s just one source of the data, much like a relationship with your share broker; you come to trust their judgment on the basis of previous success.”
So while some level of analyst influence in the decision making process can potentially be a good thing, Hodgkinson believes businesses should really use triangulation from several different firms and look at a variety of different sources before making decisions.
“Analysts are the lubricants for the flow of information, in the same way that stock brokers are. In a sense they attempt to minimise information arbitration by speeding up the rate at which clients or buyers can understand what’s occurring in the marketplace. Getting advice early reduces the risk of a bad decision to some degree.”
Bigger isn’t necessarily better
While firms like Gartner, Ovum and IDC are the ones who are usually approached for the massive, multi-million dollar industry-wide research, for smaller, localised research there are other analyst houses who also have there own unique impact on the IT market. One of these firms is IBRS, who operate a virtual business, which means they all get the luxury of working from home.
“With the skills shortage and lack of resources and time, a large number of organisations rely on the smaller analyst houses and research firms to validate certain market understandings,” says Nick Bowman, managing director, IBRS.
Bowman explains that while the bigger research houses give a 5-10 year outlook on where a technology is going, the smaller ones give organisations an idea on what can be done with it and which vendors are leading the local industry.
As with most external services, no matter which type you choose the need to have multiple sources of information is extremely high, a message that is echoed by the analysts themselves.
Interestingly enough, when asked about the Australian Federal election and whether that has an impact on a particular market forecast the general reaction was that it didn’t. While it may be something that can affect an industry which would face Government regulation with a ministerial change, it generally happens at such a slow pace as to not be a major forecast concern.
So what is the verdict on analysts?
Analysts fill a role that common sense dictates the need for it to exist, there will always be a need for specialist advice and it’s going to be cost efficient to go to that specialist then to create your own. The same concept can be applied to every day life, for instance when you have a heart problem you’re directed to a cardiologist rather then enrolling in a medical degree and attempting to figure it out on your own.
This isn’t to say that in-house opinions and specialisation isn’t useful, as a reference point it’s a wealth of information but one which has to be considered as bias. If you’re consulting your IT department on an emerging technology and whether it’s worth getting involved with, that department will often view it optimistically and want to get there hands on it. Analyst advice on the other hand is often removed enough from the business process to offer a counter-opinion or play devils advocate and point out possible flaws or potential areas to exploit from there neutral vantage point.
So are we better off with an Analyst presence in the IT market? While the argument has often been put forward that we would be better off without them, particularly those who’ve been burnt by acting on analyst forecasts in the past, they’re still filling a specialist void that would exist if they weren’t there.
Being the source for the media, vendors and end users that they are, analysts are an important information provider that should be utilised in addition to existing information channels. While it would be beneficial to have a privately developed, in-house analyst who maintained complete neutrality towards the business this isn’t cost effective nor feasible in most circumstances.
The most successful decision makers are quite often the most sensible, and the sensible approach being advocated by the analysts is to use there advice and research, but also contrast and compare that to the information you get from other sources. Not only that but organisations should consider approaching more then one analyst firm to get a second opinion, much like you would for a doctors opinion you were unsure about, and lets face it, for IT decision makers the health of the business is just as important to them, particularly when it comes to investment decisions.