In the Final Analysis - SAS Executive Vice President Mikael Hagstrom on the challenges facing global leaders today

I had the opportunity to speak at the Predictive Analytics World Conference in late October. The panel topic was “Predictive Analytics and Consumer Privacy.” The consumer privacy topic is one that comes up frequently for us and for our customers – especially in Washington, D.C. Some of our most important initiatives are in use by the federal government. They are used to combat terrorism or detect fraud rings or increase safety at our borders and for the citizens in general.

I see that the top challenge on a citizen or consumer level is abuse. Abuse causes fear and uncertainty about how personal data will be used. The fear of abuse needs to be managed so it does not become a roadblock to improving the quality of life. Just think about it from your own standpoint. How do you feel about your own data being used? But if I would share with you that I could extend your life expectancy – or help develop a new drug your child needed because of access to your data – then you would be more likely to give me your consent. More so than if I wanted to use your data to drive a new marketing campaign to sell leftover cars in a parking lot.
 
So using analytics as an example. After 9/11 we were asked to help identify terrorist networks. A lot of personal data was screened globally to track down money transfers that were used to fund terrorist rings. This same technology and use of personal data was used to successfully track epidemics, such as the dengue fever in Singapore. And when the next generation of anti-fraud systems was deployed in the financial sector, the public cheered. Why? Because in this case, their data was used to keep their money safe. The public supports the use of their personal data when the technology is used in examples like these.

Let me suggest two ways to make sure that public support continues. First, let consumers have a clear view into how data is used and for what purpose; and second, protect consumer data. Make sure that businesses that collect data have robust data security measures in place so that consumer confidence is not shaken. The legislative and regulatory discussion should refocus on this issue.
 
And that leads in to a second challenge. When the quality of life can be improved, it is essential that we avoid legal roadblocks in the kinds of scenarios I just mentioned. You can’t regulate away the uses of personal data without reducing the quality of life and putting people at risk. Instead, how personal data can be used should be clearly defined in each industry sector; that is, how the FDA uses personal data will be different from the needs of commercial enterprises.

My final recommendation on this point is that the key for legislation is to resolve the ownership of personal data. Today it is vaguely owned by companies. A balance could be achieved if the public can own what’s for the better good of the people. The rest should be owned by the individual. There should be no grey zone in between. Hence, corporate use for commercial purposes should be based on the approval of the individual. It is up to businesses to demonstrate the added value associated with such consent, such as more relevant offers, etc. Unless it’s for the better good, a leader of a fraud ring should not be allowed to “opt out.”
 
In the State of North Carolina – where our global headquarters is located – there was a criminal case that brought this topic to the forefront last year. It was the case of Eve Carson, a University of North Carolina student leader who was murdered. It turns out that the men who allegedly robbed her and shot her to death were on probation with outstanding parole violations. They never should have been out of prison. It is believed that her death could have been prevented if data had been shared between the state courts and other agencies.

As I said, consent by the individual is preferred – unless it’s for the better good. With clear communication of how data is used, and for what end result (so that the question of abuse is taken away), public support is all but ensured.

In the final analysis, the issue of data privacy can be made simple: 1. Tell people clearly how their data is being used, and to what benefit for them; 2. Define the rules on who owns data and how it can be used, before the rules are imposed on us; and 3. Opt out versus consent must be an option – let no mean no.

What do you think? I encourage you to share your ideas in the comments section below.

We’re hearing a lot about the new economy and that today’s changed and challenged world is the “new normal.” I like that term because it isn’t just a buzzword, but a description of what many CEOs are facing. Companies around the globe are re-examining everything from their people and processes to their organizations’ core raison d'etre. One of the components of the new normal is letting go of the old normal. For example, in the media and communication industry, leaders are looking at new ways to measure performance. The new Coalition for Innovative Media Measurement “includes 14 companies … making a multi-year commitment to establish a new data research system.”

Companies are also seeking to find new profits by re-packaging existing products. In the financial services sector, an interesting example of this is with the so-called “securitized death bonds,” which will force insurers to adapt their products, or increase their risk levels above Solvency II thresholds. The idea has been around for a few years, but it’s starting to get some traction on Wall Street.

For the private sector, the key to survival is in creating – and sustaining – profitability. Twitter is facing this challenge right now; they have customers (51 million visitors in July 2009, up 16 percent from June), but their model is not profitable enough for its investors. So they are looking for ways to show value in their offerings and then create a successful mechanism for converting that perceived value into bottom-line cash.

There are many other examples of how the new normal is affecting organizations around the world. If you are aware of some new and innovative approaches, please join the discussion. Together, we are in unprecedented and exciting times – let’s welcome the new, look forward and embrace the journey.

Ten years ago, organizations were focusing their attention – and resources – on one important thing: Y2K. Workers around the world pored over legacy systems that were written decades before by programmers who were long retired or deceased. Leaders didn’t really know what would happen when the date changed at the stroke of midnight on December 31, 1999 – but they knew that the world would either be exactly the same or entirely different.

And now, a decade later, organizations are facing the exact opposite dilemma: the entire world has changed, and they must focus their attention – and resources – on transforming their organizations so that they can continue to generate value, be relevant to customers (or constituents) and meet the strategic goals of their stakeholders. As with Y2K, the path to success is found within their own IT systems and data.

For example, the Philippines Bureau of Internal Revenue was able to analyze their own data to uncover about PHP 70 billion (US$1.4 billion) in under-declarations and to collect PHP 6 billion (US$114 million) in the first year alone. Not only did they realize a 400 percent return on investment, their CIO and Deputy Commissioner stated that they “revolutionized [the Philippines] tax system.” And in Sweden, public administrators of its universal healthcare are using analytics to transform the way they work with a number of stakeholders, including providers, politicians and officials, healthcare and social service payers, and – most importantly – patients.

I’ve seen many, many success stories like these, around the globe and across industry sectors. Organizations are moving from a time of standardization and automation (and the systems to support that) – to a time of innovation and optimization (and the systems that support that). As we move toward 2010 – or Y2.01K – I believe that we will continue to see this trend.

In the final analysis, the leaders in 1999 and 2009 have one important thing in common: to succeed, organizations must continuously transform themselves to deliver value, maintain relevance, and meet/exceed shareholder expectations.

Being the world leader in predictive analytics, we often get asked to predict the future. And as experts start to run out of letters trying to describe the path of the economic recovery, whether it is an L, a U or W (or even in the shape of a square root, according to what the Times Online calls one "imaginative economist"), I was pleased to see the letter "V" in a report in last week’s Economist, which shows that the GDP of several Asia-Pacific countries has rebounded sharply from Q4 2008. From Q1 to Q2 of 2009, the Economist reports, South Korea’s GDP grew by almost 10%, Singapore’s soared by 20%, and, while quarterly data isn’t available for China, "economists think its GDP jumped by an annualised 15-17%."

I’m especially glad to share this exciting news with you today, as I am in Singapore for The Premier Business Leadership Series conference, which starts tomorrow. I’ll be hosting a panel discussion called "Transformation of the Global Economy," where three influential Asia-Pacific economists will share advice on who and what they see as innovative future growth drivers, where opportunities for optimization exist, and how current and next-phase transformation of the global economic system will affect us all. The three panelists are Fan Gang, PhD, Director of the National Economic Research Institute (China); Tim Harcourt, Chief Economist, Australian Trade Commission; and Suman K. Bery, Director-General, National Council for Applied Economic Research (India). The conference is already booked solid and has a growing waiting list.

In the final analysis, no one knows if this V curve will continue to rise, or if it will level off (square root symbol) – or take an entirely different path. One thing is certain, though – the old economy is gone, and the new economy is here to stay.

Last week, the Financial Times reported the results of a June survey of purchasing managers in the manufacturing industry, which has been particularly hard hit by the global economic downturn. Managers in China reported their “third consecutive monthly rise in output and the largest increase for a year,” while European managers reported “the most positive signs from industry in the past 10 months.” This was echoed by the Wall Street Journal, which reported a positive movement in the United Kingdom’s “purchasing managers’ index” which had risen from 45.4 in May to 47 in June. “The move lifted the indicator to a 13-month high and closer to 50 – the level that indicates business activity has ceased contracting. Readings above 50 indicate economic expansion.” And for the US, Bloomberg reported that there were “signs the economy began to stabilize in the second quarter.”

But to balance out those reports, there are others that point to a more gloomy outlook. Although the monthly number of jobs lost declined in the US (from about 670,000 jobs each month from November to March to about 430,000 jobs each month from April to June), the overall jobless rate rose to 9.5%. The number gets higher. The New York Times reported that when “the so-called underemployment rate – which captures not only the jobless but also those working part time because their hours have been cut or they cannot find a full-time job – increased to 16.5 percent.”

While economists and other experts have provided a wide range of analyses – from the prediction of a global depression to a robust and rapid recovery – no one really knows what will actually happen. If anyone claims this, ask them why they didn’t buy Cisco in 1990 and sell it in 2000 (where a $1000 investment would have returned $330,000) or Microsoft in 1984, Stryker in 1988, etc.

To today’s executive, however, external indicators are essential to successful leadership. For example, we’re working with one of the world’s largest pension/insurance groups which – until recently – focused on data that they aggregated and owned. But to compete in 2009, they have found that external data is becoming more and more critical.

In the final analysis, today’s executives must derive insight from both internal and external data sources. By doing this, the leader will be able to minimize risk, maximize value, and optimize performance.

The Organisation for Economic Co-operation and Development (OECD) recently released the latest leading indicators of the global economy. Although it’s "too early to assess whether it is a temporary or a more durable turning point," the slight upturn of the curve still offers a glimmer of hope that the rebound has begun. That thought was echoed last week by Dominique Strauss-Kahn, the head of the International Monetary Fund, who said, "The worst of the global economic crisis is not yet over but there are signs that the world has started to crawl out of recession."

We’re also seeing some positive signs in our own business, especially in the Asia-Pacific region, which has been particularly hard hit by the economic downturn. While economists differ on where the recovery will emerge from, some reports indicate that "the bright spots were in Asia. For instance, China, India and Indonesia registered relatively strong [Gross Domestic Product] growth, albeit at a slower pace, at 6.1%, 5.8% and 4.4%, respectively. These countries have large domestic markets, which, helped by their governments’ stimulus measures, had effectively cushioned the effects of declining exports."

In the coming months, the OECD’s "Global Economy" report will be closely watched – hopefully, it will continue on the upward path to recovery and then prosperity.

I recently had the opportunity to spend a full day with one of our European retail customers. We met with more than 50 of its managers to talk about some of the challenges facing its industry – and some of the approaches (processes, technology, etc.) that leaders are using to solve those problems.

Today’s business climate is brutal – even to companies with strong brand equity, well-established processes and strong leadership. We saw that earlier this year in the US, when the country’s second largest electronics retailer, Circuit City, closed its doors after 60 years of being in business. The company cited decreased consumer demand and the 2008-09 economic downturn as the cause of its demise.

In the May 18 Wall Street Journal there was a front-page article titled Clarity Is Missing Link in Supply Chain, on some of the challenges facing the electronics retail industry. According to the article, when demand sharply declined last fall, the merchandising executive of one large retailer reacted by deeply cutting orders to manufacturers, which, in turn, caused suppliers to reduce their manufacturing output. "Demand was shrinking so rapidly, [the executive] wasn’t even sure how deeply to cut." According to the executive, "You actually had to pick a number with no knowledge whatsoever, because nobody knows anything."

With low inventory, the retailer was unable to capitalize on the demand when it increased. The executive said that the company "could have sold more electronics equipment in the three months ended Feb. 28, but its suppliers’ deep cuts made it tough to keep shelves stocked."

This is a good example of how something that worked for decades is no longer effective. In this case, from-the-gut decision making resulted in lost opportunity and profitability. Today’s retailers need to forecast to demand – not to guesswork or supply. Fortunately, the science of advanced analytical forecasting can help. We’re helping one global food company with everything from anticipating demand (“Demand-Driven Forecasting”) to better management of the products that are already in their supply chain (“Inventory Optimization”).

In the final analysis, with these capabilities, the two problems mentioned in the Wall Street Journal article would have been addressed. The retailer would have known how deeply to cut orders last fall, and he would have been able to anticipate the higher demand in the three months that followed.

Today’s global business arena is a brutal place. And for many companies, analytics is the only way to survive.