volume 8 issue 1 - ey_revista_performance_de_ey_… · volume 8 │ issue 1 providing insight and...

Volume 8 Issue 1

Providing insight and analysis for business professionals

Smart connected businessHow to disrupt industries and delight customers

Internet of thingsThe new global information security needs

Smart transport infrastructureConnecting the cities of the future

Have you considered the digital world from all angles?

The digital world offers enormous potential by creating new markets and new products, offering better understanding of consumers and citizens, and finding different ways of connecting with them. However, there is a flip side. The digital world also offers great potential for exploitation by criminals and others wanting to cause trouble. In fact, 88% of respondents to a recent survey do not believe their information security fully meets their organizations needs.1

Many of our articles in this edition of Performance examine both sides of the digital world, i.e., the opportunities for organizations, consumers and citizens, and how to deal with the threats arising from those looking to exploit them.

For example, Becoming a smart connected business: how to disrupt industries and delight customers explores how to create sustainable success in a digital market. And Supply chain innovation in a digital world explains why traditional companies need to rethink their supply chain strategy to compete against new entrants who are rewriting the rule book. From a policy-makers perspective, we examine answers to some fundamental questions on how smart policy can change a citys transport infrastructure, driving change and generating cost savings.

As cyber attackers find new and better ways to take advantage of the rapid expansion of digitization and the increasing connectivity of businesses, our article presents some of the key insights from EYs Global Information Security Survey 2015. The article introduces the Active Defense approach, outlined in the report, that enables organizations to address digital risk proactively hroughout the value chain.

And Making security the foundation of big data infrastructure explains how companies can take precautions to protect themselves against the risk of hacking or leakage that can happen due to more users having more access to more data.

In other articles, we explain how to drive up revenues with a methodology that originated in the telecommunications sector and is now being deployed across banking, insurance and other industries. We examine Conscious Capitalism, new approach that many leading organizations are considering as they conduct their business. And we explore the value proposition of patient engagement for US health care providers; an exploration that will have relevance for health care providers around the world.

I hope the articles in this edition of Performance provide valuable insight and information to help your business innovate, grow, optimize and protect.

Enjoy reading this issue!

Welcome

Markus HeinenChief Patron, Performance

Volume 8 Issue 1

1. Creating trust in the digital world: EYs Global Information Security Survey 2015, EY, 2015, ey.com/giss.

38

02

01

30

Contents02

Becoming a smart connected business: how to disrupt

industries and delight customers

12Conscious Capitalism:

a new spirit in business

20Making security the foundation

of big data infrastructure

30Patient engagement:

a powerful remedy for health care organizations

38Revenue Assurance & Improvement:

a tactical and transformational methodology for

business improvement

48The internet of things and the new

global information security need

56Connecting the cities of the future:

smart transport infrastructure

66Supply chain innovation

in a digital world

12

20

48

6656

2 Volume 8 Issue 12

Most companies are trying to become a smart connected business by building innovation labs and acquiring start-ups. But they have not been able to create sustainable success in the market. Success requires a fundamental operational shift: adopting a new go-to-market approach, building instrumented products and creating an operating platform for the new business to thrive.

Becoming a smart connected business: how to disrupt industries and delight customers

Volume 8 Issue 12

3

Authors

Mike Kanazawa Principal, Advisory Services Performance Improvement, EY, US

Steve Basili Senior Manager, Advisory Services Performance Improvement, EY, US

Sanjay Khurana Senior Manager, Advisory Services Performance Improvement, EY, US

Girish Nagasandra Senior, Advisory Services Performance Improvement, EY, US

3

4 Volume 8 Issue 1


4

There is a moment in time, right now, in which the destiny of every company is being determined. Technology trends have converged to create a capability to reinvent how we live and work through smarter, more connected, predictive and massively more efficient means. As John Chambers pointed out in his final keynote speech as CEO of Cisco,1 this will be a difficult strategic transformation for companies. A large percentage of companies will be made irrelevant in their own markets by smart connected competitors. The question for every business leader today has to be, How can I disrupt my industry and delight my customers in new ways by becoming a smart connected business?

Companies in all sectors, geographies and stages of growth are shifting toward strategies centered on being a smart connected business. Those who do this well will develop an information advantage about customer needs, make faster and more accurate decisions, and will become innovative disruptors rather than competitive prey. We have all seen the new class of smart connected businesses disrupt entire industries; for example, Uber in transportation and Airbnb in travel. Beyond these examples, we are seeing industrial companies using smart connected business models to understand customers deeply and provide higher-value solutions. Oil and gas, crop science and disaster planning companies are looking to deliver information advantages by analyzing new patterns and building predictive models on environmental data that let them take

faster and more decisive action. Entire metropolitan areas are being reimagined through smart city initiatives that will reduce power consumption, make better use of clean water, and enable people to spend more time on higher value work and enjoyment. In developing countries, smart connected services are even further along, with examples such as pay-per-use electrical power delivered through smart chips on solar panels with mobile payments from a phone.

Most companies are approaching the challenge of becoming a smart connected business by acquiring start-ups, partnering with, or co-investing, in new companies, or creating their own innovation centers to push the disruptive edge. While we believe that these are good starts, innovation leaders know they have to do much more than that. Leading companies are focusing on designing new end-to-end customer experiences and monetizing, marketing and selling in a totally new way. They are reinventing their core products and services through instrumenting the offers themselves to be living, learning and expanding platforms. These shifts require new operating concepts that go deep into the core of business, not bolt-on initiatives or separate labs. In this article, we examine three key areas of transformational change necessary to become a smart connected business.

The go-to-market ecosystem The traditional marketing and sales funnel is becoming obsolete. Customers are not funnels and theyre not going to trickle

1. J. Bort, Retiring Cisco CEO delivers dire prediction: 40% of companies will be dead in 10 years, Business Insider UK, 2015, http://uk.businessinsider.com/chambers-40-of-companies-are-dying-2015-6?r=US&IR=T, accessed October 2015.

2. J. Bort, Retiring Cisco CEO delivers dire prediction: 40% of companies will be dead in 10 years, Business Insider UK, 2015, http://uk.businessinsider.com/chambers-40-of-companies-are-dying-2015-6?r=US&IR=T, accessed October 2015.

Forty percent of businesses in this room, unfortunately, will not exist in a meaningful way in 10 years the number one reason companies wont succeed is because they dont reinvent themselves.

John Chambers Executive Chairman, Cisco Live 2015 keynote speech2

5

through something in a percentage base, says Fred Studer, CMO of NetSuite,3 one of Silicon Valleys cloud companies. Instead, it is personalized marketing that wins. Knowing every customer deeply, through multiple touch points and interactions throughout the customer journey, monitoring usage, and eventually selling additional features and services, is the mantra of the new age. It is, in fact, an upended marketing funnel.

The sales model has to be rethought. The foundation of any smart connected offering is the software-enabled services and analytics that will be delivered through cloud or software as a service (SaaS) platforms. This makes every product and services company become a software company. While most traditional product revenues are realized up front, SaaS revenues tend to trickle in later, after the initial sale is made, through increased user adoption, enhanced feature use and cross-sells or up-sells. Several clients have noted that up to half of revenues may now come after the initial sale, and are dependent on customer success and adoption teams, or achieved through automated in-product marketing and sales. Therefore, the traditional sales mentality of hunting down a big deal, making a big bonus, and returning to the customer only when it is time to renew, will not work. In the new world, the sales team has to incorporate a farming mentality. They need to maintain close engagement with the customer, even more so after the sale is made. They should be in regular touch to understand customer issues, drive usage,

provide recommendations and identify opportunities to add additional business value to the customer.

Sales incentives have to align with the new sales model. Incentives should move from initial purchase price-based commissions to incorporate concepts such as annual recurring revenue (ARR) and customer lifetime value (CLV). Of course, the change in revenue timing means that commissions and bonuses will have to be paid out as annual streams, subject to adoption and churn rates. If CLV is hard to determine for younger companies, sales targets could be established to maintain the level of adoption and churn rates required to meet the target CLV. These targets would have to be carefully and consistently measured and monitored, much like sales pipeline and backlog, in order to be successful.

The channel and partner strategy has to change as well. In a SaaS model, the initial services, such as system integration and implementation from traditional channel partners, will not be required. Instead, channel partners will become commission partners and help in improving customer adoption and reducing churn. They will be able to analyze product telemetry data, monitor customer usage and take proactive steps to reduce churn by helping customers realize more business value from the smart connected solutions. So, in essence, instead of just closing deals up front, channel partners will be incentivized on adoption, usage and churn metrics, and, in turn, will become ongoing relationship managers.

3. M. A. Khan, Q&A: NetSuite CMO Fred Studer on the state of cloud business software, Mobile Marketer, 2015, http://www.mobilemarketer.com/cms/news/software-technology/19873.html, accessed September 2015.

6 Volume 8 Issue 1


The instrumented product Most companies tend to think of products as a collection of features. Feature and release-focused stage-gate development is slow and disconnected from the customer. Even shifting to agile methods may not go far enough. The leaders today are moving toward almost real-time development that integrates across marketing, product management, development, engineering and support in a closed-loop cycle. This model is made possible by the instrumented product a product with embedded telemetry and intelligence to make it smart. This capability enables the product to monitor customer usage, automatically up-sell, cross-sell, troubleshoot, anticipate needs and make recommendations.

To illustrate this concept, lets look at video game companies. Video game makers have been on the leading edge of product telemetry. Todays video games are highly instrumented. They monitor player behavior in real time, make adjustments to enhance user experience and innovate at a rapid pace. Figure 1 shows an example of a real-time player usage analysis overlaid on a video game playing field.

The various colors represent user traffic and players actions. The purple bubbles at the bottom right indicate that players were dying before making it to the next connected level. Players, unable to get past this point, were quitting the game in frustration to never return again. This is known as rage quitting a game. It is bad enough to lose one customer, but social media spreads stories of rage quitting in a way that impacts current and future customers as well. Realizing this issue, the video game developers analyzed this region and discovered that the players were not picking up necessary ammunition due to visual design flaws, and getting killed in the final attack. The color of the ammunition was similar to the background color and the lighting was too low, making it hard to spot. The developers fixed the flaws in real time, and immediately players were able to move to the next level and retention rates increased. Imagine if Figure 1 was a representation of your companys SaaS offering, and you could monitor customer usage, find trouble spots and help them engage better before they quit. Wouldnt that give your product a booster shot of customer adoption and lower churn rates?

In essence, the product becomes an autonomous marketing, selling and support engine that can efficiently operate on its own.

7

Figure 1. Real-time player usage analysis in a video game

In order to get there, you have to instrument the product. The product has to report on how customers are using it, how they are not using it and where they are having trouble. Through aggregate customer usage data and pattern analysis, the product can also give indications on when a customer is at risk of churn. The product should provide in-context support to users, when and where needed, using help menus, tutorial videos and click to chat as required. The marketing and sales functions have to be incorporated into the product as well, and usage and feature analytics should recommend upgrades at the individual user level. In essence, the product becomes an autonomous marketing, selling and support engine that can efficiently operate on its own.

The engine can help customers optimize the value gained from use of the product, similar to the way LinkedIn does with its recommendations on how to improve your profile for better networking of business connections. In addition, customer insights can be provided to product development, sales, service and channel partners to enable them to work with customers more closely, with better information about their true needs. This level of personal value creation is what generates ongoing and ever-increasing customer delight with a product or service, which is the only way to maintain the loyalty of customers in the fast-paced innovative realm of smart connected business.

Transforming companies into smart connected businesses will be at least as big a change as the industrial revolution and the internet.

Source: http://biterati.com/2013/02/game-analytics-offers-inside-look-into-gamer-habits/.

8 Volume 8 Issue 1


The smart connected operating platformCompanies are buying and launching new innovative capabilities, but need to transform their core operating platform to allow these capabilities to thrive. Problems occur when a company acquires start-ups

and tries to scale them on a platform that was never intended to sustain a smart connected business. They end up killing the innovation they bought. You cannot create sustainable success in this market without fundamentally changing the operating model, culture and cadence of the overall operations.

The key challenge companies face is running conflicting operating platforms together one platform to run the existing flagship business and continue generating profits, and another to grow and fuel a smart connected business line. In the remainder of this article, we explore two options for dealing with this challenge.

Figure 2. Adobes flash cutover strategy

The ability of companies to transform successfully to smart connected platforms will determine who disrupts the market and who will be extinct in the next 10 years.

Adobe switched to the cloud Revenues slowed down But the share price went up!

Adobe let go of its flagship

US$2,600+ product in favor of the

US$600 per year subscription model.

Revenues took a hit and Adobe reported negative revenue growth for five consecutive quarters.*

*Adobe started posting positive revenue growth after five quarters.

Realizing the revenues were of higher quality, the stock market rewarded Adobe for the shift.

9

The first option is to do a flash cutover to the new model so that there are no conflicts. Adobe is a case in point. It acquired Omniture in 2009 to facilitate an entry into SaaS, and made the decision to transition quickly to the SaaS business model from their flagship shrink-wrap business. Though there were challenges in the short term, including customer backlash and compressed revenues, the company was rewarded handsomely. Its stock price went up, the revenues bounced

back and customer acquisition beat street expectations.

An alternative, more conservative option is to maintain both platforms independently. Success in this model requires the vision and commitment to cannibalize your own business, and lead employees through this change. A leading online retailer has proven this strategy in the book retail business, by maintaining both the e-book digital delivery platform and the core e-commerce drop-ship platform. At the time, the

retailer successfully launched the e-reader and e-books, it was known as having the most advanced distribution centers in the world: a strong competitive advantage. Those distribution centers were irrelevant to the e-readers success, which was all about direct digital delivery. However, the company clearly saw the move to digital media and recognized that, if it did not make the change, the meteoric digital rise seen in Figure 3 would likely have belonged to others. So it built an entirely new

10 Volume 8 Issue 1


business and supporting operating model that did not include drop-shipping goods to consumers. The end result has been a rapid shift to the smart connected model of direct digital media services delivered to mobile e-reader devices, establishing a new growth trajectory while also maintaining the core business.

Regardless of approach, both companies made strong commitments to the new business model and created the right platform to supports its launch, growth and scale.

The window of opportunity is nowThe necessity and challenges of transforming to a smart connected business are having an enormous impact on every corporation in every industry today. This transformation of industries will be at least as big a change as the industrial revolution and the internet. There are common challenges and early patterns of how to accelerate the transformation and build the capabilities for success.

EY has developed the smart connected business reference design model to help

companies improve the success rate of acquisitions and accelerate internal innovation. Each day, the reference design model is improving and evolving as more clients push the edge of what it means to be a successful smart connected business. And, so far, success seems to be coming to the bold, those who are willing to explore the full extent of the necessary changes and take on the core business transformation directly. The ability of companies to make this shift will determine who disrupts the market and who will be extinct in the next 10 years.

Figure 3. A leading online retailers dual-platform strategy

Source: Business Insider.

Existing and emerging platforms can also co-exist

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Physical books sold E-books sold

12 Volume 8 Issue 1Volume 8 Issue 112

The world is changing rapidly, making many old business ideas and methods obsolete. With employees and customers looking for more meaning in their lives, leading organizations today are reconsidering how they conduct their business, and many are turning to a new approach called Conscious Capitalism.

Conscious Capitalism: a new spirit in business

1313

Authors

Carlos Bremer Partner, Advisory Services Value Chain, EY, Brazil

Raj Sisodia FW Olin Distinguished Professor of Global Business and Whole Foods Market Research Scholar in Conscious Capitalism, US

14 Volume 8 Issue 1


Describing Conscious Capitalism, Raj Sisodia, FW Olin Distinguished Professor of Global Business and Whole Foods Market Research Scholar in Conscious Capitalism at Babson College, and one of the founders of the movement, says, We see business in a much broader way. It should have a sense of purpose that goes beyond profit.

A growth in consciousnessOver recent decades, the world has undergone many dramatic changes. In the last 25 years alone:

The web has brought us a huge increase in information access, transparency and connectivity. This has created a world with more conscious and connected employees and consumers, who are more aware than ever before of the behavior of businesses.

The increase in the mean age of adults to well above 40 in many western countries has resulted in a shift in values, because people tend to become more driven by meaning and purpose once they enter middle age.

More emphasis has begun to be placed on values traditionally thought of as feminine nurturing, caring and collaboration.

The rate of change is only likely to increase in the coming years. The Millennial generation (comprising those born between the early 1990s and the early 2000s) is highly aware of the problems facing the

world. Millennials want their work to be part of a solution to these problems and are not just motivated by the thought of maximizing their own salaries.

Together, these big trends mean that people are increasingly conscious of the cultures and working practices of different organizations. They are less likely to want to work for, or purchase the products of, businesses whose values are in conflict with their own.

What is Conscious Capitalism?The traditional way of thinking about businesses is that they exist in order to make money and maximize profit, and that everything else they do must only be a means to that end.

Of course, companies must be profitable in order to survive and grow. But Conscious Capitalism asks whether business can be done with a much broader set of values and with a sense of purpose that goes far beyond making a profit.

Conscious Capitalisms concept of what a business should be centers on four main tenets:

Higher purpose This is the idea that every business should have an overarching purpose that guides its activities. For example, EYs purpose is Building a better working world.

Stakeholder orientation Conscious Capitalism posits that businesses should create value for all their stakeholders, not just for shareholders.

15

Jacto: a Brazilian company on a conscious journeyJacto was founded by Shunji Nishimura, a Japanese immigrant, in the Brazilian state of So Paulo more than 60 years ago. He started the business with the proposition We fix everything. In the 1950s and 1960s, during an agricultural boom in the region, the company started building fertilizer equipment and planting machines.

Today, Jacto has five business units and annual revenues of over US$400m. Mr. Nishimura died in 2010, but the company remains in the hands of his family, and is now a third-generation family business. Jactos success was recognized in 2013 when it was named the best company in the agribusiness sector by Exame, a Brazilian business magazine.

Unique valuesSince the beginning, Jacto and its leadership have had very strong values, which still guide the whole organization. For example, the company refuses to hire people who are already employed. The idea is that, just as we should not covet someone elses spouse, Jacto should not pursue other organizations employees. This rule has helped to make Jacto strongly committed to the development of its own people.

The companys strategic planning processes provide another example of

how Jactos values shape its actions. Rather than being the responsibility of the leadership team alone, these processes involve more than 600 people, including employees, suppliers, community members and shareholders.

A broader contributionThe companys commitment to agriculture goes beyond its own business. Jacto has sought to boost the quality of education in the agricultural sector by adopting and investing in two state-controlled technical schools Fatec and SENAI. But because the schools remain, in part, publicly funded, Jacto has also invited its main competitors to participate in guiding the schools. Jacto places students at the schools under no obligation to join the company after the conclusion of their studies.

Lending a hand in a crisisSome years ago, a strike among employees in the Brazilian customs service stopped the importation of a crucial raw material. Jacto happened to have excess inventory of the material, but its main competitor did not.

On learning that its competitor was going to have to stop production because of this shortage, Jactos leadership decided to lend the competitor the excess inventory

at no extra cost. The reasons were simple:

Its competitor was not to blame for the problem.

It would be wrong to win market share merely as the result of another companys misfortune.

If the opposite had happened, that is how Jacto would have liked to have been treated by its competitors.

This action also showed those customers the two companies shared that Jacto was willing to work to ensure that all products were delivered with no disruption. This helped create a trusting and caring culture along the value chain.

No one grows aloneJacto can give many other examples of its efforts to do the right thing. Given the companys great success, these show that there need not be a trade-off between doing what is right and achieving exceptional results.

A phrase of Mr. Nishimuras sums up Jactos core values: Ningum cresce sozinho no one grows alone. This clarity about the interdependence of all stakeholders plays a huge role in differentiating the company from its competitors, and it guides Jacto in its efforts always to act sustainably and responsibly.

Conscious Capitalism asks whether business can be done with a much broader set of values and with a sense of purpose that goes far beyond making a profit.

16 Volume 8 Issue 1


Conscious leadership Conscious leaders care about the purpose of the enterprise and about the well-being of all the people touched by the organization. Rather than being driven by power, the bottom line and personal gain, they are motivated by serving others.

Conscious culture Many companies have high-stress environments, which tend to be a source of anxiety for their employees. At conscious companies, the aim is to build a more caring culture, based on trust, authenticity and transparency.

Conscious Capitalism holds that, by adhering to these core tenets, businesses can not only have a more positive impact on their customers, employees and communities, they can also be more successful as businesses, increasing the sustainability of their activities and harnessing the creativity, commitment and passion of their workforce.

Running a conscious businessEvery business is unique, and each conscious business understands and applies the tenets in its own way. So it is worth considering just what it is that conscious businesses share and what makes them different from traditional businesses.

Putting purpose at the heart of the businessConscious companies have a purpose that has been articulated and that is frequently communicated to customers, employees and other stakeholders. A companys purpose establishes its whole reason for being, answering key questions, such as:

Why do we exist?

Why would we be missed if we disappeared tomorrow?

What is our unique contribution?A companys purpose cannot just

be a slogan created by an advertising agency. A purpose is something that truly energizes, motivates and attracts people to be part of an enterprise, whether as employees or as customers, suppliers or investors, says Professor Sisodia.

Conscious companies try to think of all stakeholders more holistically, recognizing first and foremost that stakeholders are people who just happen to be playing particular roles.

17

Once established, the purpose should inform all aspects of the business, from strategic decision-making and long-term planning to innovation and R&D.

Creating value for all the stakeholders Traditional businesses tend to treat each stakeholder group (customers, shareholders and members of the local community) very differently. In contrast, conscious companies try to think of all stakeholders more holistically, recognizing first and foremost that stakeholders are people who just happen to be playing particular roles.

Conscious companies also aim to build more cooperative relationships with the businesses that they work with. By aligning their interests with stakeholders, conscious companies seek to avoid making trade-offs between competing interests. They instead look to make decisions that simultaneously benefit the company and all its stakeholder groups.

This requires the careful selection of stakeholders, such as suppliers, to ensure that all parties share values and can create shared value. If you look at the suppliers of a conscious company, theyre almost treated like theyre within the organization, says Professor Sisodia.

A different kind of leadership Conscious leaders are servant leaders they are there to serve, not to use other people as objects to further their own success. In contrast with the traditional, aggressive image of executives, conscious leaders are notable for their emotional intelligence and their strong systems intelligence the capacity to understand and think about the businesss whole ecosystem.

Youre not just pulling one lever and looking for one effect, says Professor Sisodia, speaking about the importance of systems intelligence for business leaders. Youre recognizing that every decision actually impacts the whole system and asking, How can we make decisions that add to the flourishing of the whole?

Putting employees firstFor a conscious company, perhaps the most important stakeholder group is its employees. Employees are the stakeholders with the most invested in the organization, and they are the group upon which the success of the organization most depends.

Conscious companies work hard to ensure that employees have a sense of meaning and purpose in their work. Employees have to be truly empowered and given a great deal of autonomy, respect and freedom. And conscious companies tend to offer generous pay and benefits to employees outside the leadership.

Taking a lead on strategic thinkingFor conscious companies, it is possible for the strategic direction of the business to become the responsibility of more than just the leaders at the top. It can be opened up to people at different levels within the organization, as well as to other stakeholders.

Every five years, US organic supermarket chain Whole Foods Market holds an event called Future Search. Over a few days, the company brings together employee representatives, customers, suppliers, committee members, investors, the leadership and the board. Together, they consider what new initiatives the company should embark upon for the next stage of its evolution.

18 Volume 8 Issue 1


A more caring cultureGenerally, conscious companies have cultures with high levels of integrity, transparency and employee empowerment. They also tend to have a very creative, caring and high-energy environment, which leads to greater employee engagement and far lower levels of employee turnover.

In a conscious company, youll find the level of engagement is way higher, says Professor Sisodia. You can even describe it as going beyond just engagement. People in these organizations have a passionate commitment to the company, to each other and to their work.

Learning to listenMost traditional businesses already recognize the importance of communication skills for the leadership. But conscious companies often go to far greater lengths to ensure they have good two-way conversations with all their stakeholders.

US manufacturing company Barry-Wehmiller offers its own course on communication skills starting with a focus on authentic and deep listening which is mandatory for all aspirants to leadership roles.1

For those seeking to implement a conscious approach, having a clear vision and being able to communicate it are vital to securing some of the required patience within an organization and among the shareholders.

1. http://www.barrywehmiller.com/our-culture/barry-wehmiller-university, accessed January 2016.

19

Making the transition To start the transition to a more conscious approach, the first step for any company should be a period of deep introspection within the leadership team. The leaders must consider whether they genuinely believe in and are committed to the change they are proposing.

If the leadership only views Conscious Capitalism as a strategy or tactic, then it will be unlikely that significant changes take root. As Professor Sisodia says, You cannot have a conscious business without conscious leaders.

Once the leadership has committed itself to a conscious approach, the next step is generally to start thinking about purpose. With that established, the company can begin to address tasks such as:

Creating greater value for each stakeholder

Building a more conscious culture

Working out how to assess the core values

Overcoming the challengesThe board of directors can be one of the biggest obstacles to a company becoming conscious. For a conscious transformation to succeed, the board must recognize that such a fundamental change is not something that can happen overnight, or within a quarter or even a year.

For larger companies, making a significant transformation requires at least a two- or three-year journey. The directors must have patience and understand that, although there might be some short-term costs, there will also be many long-term benefits.

For those seeking to implement a conscious approach, having a clear vision and being able to communicate it are vital to securing some of the required patience within an organization and among the shareholders.

Making the changeWhen they discover that they have a conscious competitor, traditional companies are likely to find that their ability to attract customers, employees, investors and suppliers will diminish greatly. Although many traditional companies appear to be big and strong, Conscious Capitalism argues that any business that is out of harmony with the big changes taking place in the world will have serious vulnerabilities.

There are a lot of wounded corporations walking around. Its as though theyre getting hollowed out from inside, like a termite-infested building, says Prof. Sisodia. But theres always an opportunity for renewal, and its never too late to change.

Conscious companies have cultures with high levels of integrity, transparency and employee empowerment. They also tend to have a very creative, caring and high-energy environment, which leads to greater employee engagement and far lower levels of employee turnover.

20 Volume 8 Issue 1Volume 8 Issue 120

Big data is driving invaluable new insights for organizations in all sectors. The sheer volume of data available demands new methods of analysis, drawing in many more collaborators. It also demands new, large-capacity storage. That combination presents risks, however: giving more users access to more data within a relatively new storage platform potentially makes that data vulnerable to hacking or leakage. Organizations should therefore take precautions to protect themselves.

Making security the foundation of big data infrastructure

2121

Authors

Abhay Raman Partner, Cyber Risk Leader, EY, Canada

James Ki Senior Manager, Enterprise Architecture, EY, Canada

Shezan Chagani Manager, Cyber Risk Services, EY, Canada

22 Volume 8 Issue 1


Big data describes data sets that are too large for conventional relational databases to process and manage. In the past few years, technology has developed that enables the analysis of large and disparate data sets to generate new insights and drive value within different functions of an organization.

Big data analytics can be leveraged as a strategic business asset, and this means organizations are moving away from purely governing and protecting their data to unlocking the value of the data collected within different parts of their organization.

Considerations for secure big data storageData security needs to be a key focus arguably more than ever. The fast-

growing amount of data being generated, and the drive to reduce the cost of storing it, necessitates the adoption of big data infrastructure. Security needs within this infrastructure should immediately be prioritized as cyber attacks and data breaches impact more organizations worldwide.

A secured big data infrastructure should address some fundamental questions:

Are people accessing data they shouldnt be? How do we know?

How do we prevent leakage of sensitive data?

How are we preventing accidental or deliberate unauthorized access?

In a multi-tenant environment, how do we ensure groups only have the access theyre authorized to have?

23

Securing a big data infrastructure based on HadoopHadoop is one mainstream big data platform. It is an open-source software framework comprised of various components that interact with each other and this structure can be vulnerable if not adequately secured.

With our clients, we have noticed there is a tendency to focus primarily on perimeter security at the expense of neglecting internalized security. Sometimes, inconsistent authorization methods are implemented across the different Hadoop components, leading to oversights and missed configurations. It is also essential to consider critical security settings over and above Hadoops default configurations.

There are four important areas to focus on when implementing Hadoop securely:

Authentication

Authorization

Auditing

Data encryption

Big data

analytics

Rapid innovation

Growing diversity of information sources and data types

Focus on maximizing the competitive advantage of data

Unprecedented amounts of personalized data due to the Internet of Things

Large variety of data forms compared with conventional data

Reduced marginal cost of infrastructure growth

New business models enabled by predictive analytics

Several disconnected data warehouses and databases

often maintained by businesses

Difference in average cost to add one terabyte of capacity to a data

warehouse (US$15,000) versus big data (

24 Volume 8 Issue 1


Figure 2: Framework to secure Hadoop infrastructure

Authentication Initially, Hadoop was built within an open and trusted network, but its widespread adoption raised awareness that enhanced authentication was needed.

For example:

A multistep process to access a file means multiple points of security must be controlled.

Jobs are not run in real time, therefore security must be enforced to ensure components can run jobs on behalf of the requestor while maintaining traceability and accountability.

Multi-tenancy within a single ecosystem introduces additional risks, as authentication needs to ensure users are properly segregated.

There are two recommended measures to strengthen authentication in the Hadoop ecosystem:

Implement Kerberos as the authentication mechanism This provides greater security than using the Hadoop default simple authentication protocol. Kerberos is an authentication mechanism that allows communication through a ticketing system, and

requires both services (components) and users to be authenticated before gaining access to the cluster.

Integrate authentication with an Enterprise Directory This enables centralized management and administration of user access, as well as single sign-on (SSO). Hadoop provides native integration with Enterprise Directory services, including Lightweight Directory Access Protocol (LDAP) and Active Directory (AD).

Authentication Kerberos Enterprise directory integration

Authorization File system level Service level Secure job submissions Centralizing authorization

Auditing Logging with HDFS and MapReduce Centralizing auditing via security information and event management software

Authentication Authorization

Auditing Encryption

25

Giving more users access to more data within a relatively new storage platform potentially makes that data vulnerable to hacking or leakage. Organizations should therefore take precautions to protect themselves.

26 Volume 8 Issue 1


Client experience at a leading Canadian bankThe bank required assistance to design its security architecture for a fresh implementation of Hadoop 2.2, to support their credit risk projections. One of the many drivers was the ability to architect a system that supports multi-tenancy across groups that would be onboarded into the cluster. As part of their architecture, The bank aimed to have the maximum authorization configurations possible within Hadoop to support the demands of the business.

Key configurations included Linux Container Executor to separate job executions, strict group file system permissions, admin versus end-user group management permissions, strict service-level and user-level policies, and a fully secured, centralized access control list console to allow administrators to manage the cluster easily.

Big data analytics can be leveraged as a strategic business asset, and this means organizations are moving away from purely governing and protecting their data to unlocking the value of the data collected within different parts of their organization.

28 Volume 8 Issue 1


Authorization Authorization is one of the most critical parts of securing a Hadoop infrastructure and specifies the actions that authenticated users can perform.

Some key challenges include:

Configuring the authorization to prevent access between departments

Multilevel authorizations and queue management

Managing the different configurations that are unique to each component, due to the different services that the component provides

Here are some recommended approaches for setting up and managing authorization within a Hadoop ecosystem:

Set permissions down to the file level. Different groups within a shared Hadoop infrastructure can share the

same file system. Enabling Hadoop Distributed File System (HDFS) permissions at file level ensures unauthorized users cannot access the data at rest and segregates data in a multi-tenant environment.

Configure service-level authorizations. The service-level authorizations dictate the users and groups that are able to run jobs or services, so it is important to secure components that provide access to the data in addition to securing data at rest.

Limit access to job data solely to the user that requested it. Secure jobs executed within the Hadoop ecosystem so that only the originator of the request has access to the output of their data. This is important as, by default, all Hadoop jobs are launched with the same system ID yarn if compromised, this means anyone in the cluster can read all the data within it.

Implement a comprehensive queue modeling system. While securing access to individual queues, set priorities to segregate access for different departments or user groups in a multi-tenant environment.

Centralize the management of authorization configurations. Use an authorization manager, such as Apache Ranger, to reduce risk of inconsistent or out-of-date configurations across the Hadoop cluster.

Auditing Auditing measures can actively help prevent security breaches so they should be treated as more than a means of satisfying regulatory and security compliance. Auditing completes a security model by providing records of what has happened. For example:

Active auditing can be used in conjunction with an alerting mechanism.

Passive auditing refers to auditing that does not generate an alert.

The various components within a Hadoop ecosystem create disparate log files that become difficult to monitor and manage. Two steps to take in creating an audit baseline within a Hadoop ecosystem are:

Ensure HDFS1 and MapReduce2 audit logs are adequately set to track both service and job activities at the file system level and at the compute layer.

Ensure aggregate logs generated by different components within the Hadoop ecosystem are passed into a Security Information and Event Management (SIEM) application, such as IBM QRadar or Apache Ranger. This helps manage the vast volume of logs that are generated by the various Hadoop components and allow for correlation of events across components.

Initially, Hadoop was built within an open and trusted network, but its widespread adoption raised awareness that more enhanced authentication was needed.

1. Hadoop Distributed FileSystem (HDFS): Java-based file system that provides scalable and reliable data storage, and was designed to span large clusters of commodity servers.

2. MapReduce: a programming model for processing and generating large data sets with a parallel, distributed algorithm on a cluster.

29

The extent of the security configurations should always be tailored to each organizations needs and requirements, as the trade-off between performance and security will differ in each scenario.

Data encryption No control is complete without applying data-level controls. There are two categories of data within Hadoop to focus on protecting:

Sensitive data that has been loaded into Hadoop (business data or customer data) for analysis

Insights i.e., data that has already been analyzed. Such information, if exposed, can lead to great losses, as correlation has already been established

This data can flow within a Hadoop ecosystem as data at rest (in HDFS) or in motion (through the components). In either case, data can be secured by:

Setting encryption zones across a file system and leaving other areas unencrypted, in order to achieve balance between performance and

security in a multi-tenant environment. A Hadoop cluster can easily contain Petabytes of data; therefore, securing this data is critical due to the wealth of information that is stored.

Securing access across end point connections, as the connections can provide an entry point for attacks to penetrate the Hadoop ecosystem. For example:

At the client level, secure the clients communicating to HDFS through remote procedure calls and data transfer protocol.

In user mechanisms, secure the browser level and command line interfaces via HTTPS and JDBC3 measures.

To secure the shuffle, apply HTTPS during data exchange in the core components of analytics.

Conclusion Big data analytics presents both big opportunities and challenges for businesses. Securing a big data infrastructure introduces further challenges that are not applicable to traditional relational database technologies and, as such, a structured approach should be taken.

It is important to note that the extent of the security configurations should always be tailored to each organizations needs and requirements, as the trade-off between performance and security will differ in each scenario. Although there are many more configurations that can be applied, this article highlights just some of the key areas that should be prioritized when securing a big data infrastructure.

3. Java DataBase Connectivity (JDBC): an application program interface (API) for the Java programming language that provides methods for querying and updating data in a database.

This article explores the value proposition of patient engagement for US health care providers, but it also gives insight that is relevant for many other health care providers around the world. Active patient engagement is rapidly becoming a leading indicator of a health care organizations long-term viability. This is, in large part, due to the transition to value-based payment models as well as changing consumer health expectations. Providers stand to gain sustained financial value by promoting and enabling patient activation.

Patient engagement: a powerful remedy for health care organizations

30 Volume 8 Issue 1

Authors

Jan K. Oldenburg Senior Manager, Global Health Advisory, EY, US

Jordan V. Caines Consultant, Global Customer Advisory, EY, US

Lavanya Iyer Senior Consultant, Global Health Advisory, EY, US

Ebony A. Wiresinger Senior Consultant, Global Health Advisory, EY, US

31

32 Volume 8 Issue 1


Most health care providers and payers have made significant investments in people, process and technology to comply with regulations and to decrease overall costs. But have they realized that investing in patient engagement activities can bring them three-fold benefits? Patient engagement is bringing patients to the center of their care, engaging them in the care process and empowering them to take accountability for their overall health and wellness. Engaging patients has tremendous potential for helping health care organizations reduce costs, earn bonuses and, most importantly, benefit from patient loyalty and retention. It is a key component of the movement from volume to value-based care.

Why patient engagement now?The driving forces for this focus on patient engagement are the Affordable Care Act and changing customer expectations. The Affordable Care Act implements guidelines for greater technology enablement, changing reimbursement structures and stricter quality control. The providers who thrive in the current environment are those who understand that succeeding in value-based care means recognizing the importance of engaging individuals in their health. As early as 2011, Press Ganeys Pulse Report identified the top 25% of hospitals in the US as those at the forefront of patient engagement.1 That momentum has continued to grow. Indeed, there is evidence to show that successful hospitals are incorporating patient experience and call center professionals into their population health strategies. The message is clear: patients appreciate a seamless approach.2 As health care institutions are experiencing a technological boom, their patients are also becoming savvier with the use of fitness trackers, smartphone apps, social media support and easy web access to health care knowledge and tools. Patients expect convenient, high-quality and digital services from health care on par with other industries.

Both in and out of the health care setting, patients are consumers of care and want to be partners in health decisions.3 This article focuses on the value proposition of patient engagement for providers4 and highlights the implications of patient engagement to enhancing provider revenue as well as customer retention levels.

Engaging patients has tremendous potential for helping health care organizations reduce costs, earn bonuses and, most importantly, benefit from patient loyalty and retention.

1. 2011 Pulse Report: Perspectives on American Health Care (Hospitals), Press Ganey, 2011, http://helpandtraining.pressganey.com/Documents_secure/Pulse%20Reports/2011_Press_Ganey_Pulse_Report.pdf, accessed December 2015.

2. F. Horner and S. Marks, A single, complete touch: population health, the health contact center, and the patient experience, Patient Experience Journal, Vol. 2, Issue 2, Article 20, 2015, http://pxjournal.org/journal/vol2/iss2/20/, accessed December 2015.

3. W. Lynch, K. Perosino and M. Slover, Altarum Institute Survey of Consumer Health Care Opinions, 2014, http://altarum.org/sites/default/files/uploaded-related-files/Altarum%20Fall%202013%20Survey%20of%20Consumer%20Opinions.pdf, accessed December 2015.

4. Health care providers regularly refer to health care clinicians, dentists, psychiatrists, etc. Within health care, providers and their regular settings (clinics, hospitals systems, office practices, etc.) are used interchangeably to refer to the stakeholder group.

33

Three benefits of patient engagement1. Enhanced reimbursements

A providers ability to increase patient engagement data enables it to benefit from a healthier patient population, and also enables increased revenue from the Centers for Medicare and Medicaid Services (CMS)5 and, potentially, other third-party payers.

Value-based reimbursements: the U.S. Department of Health and Human Services (HHS) publicly set a goal in 2015 that 50% of Medicare6 reimbursements be tied to value-based

care by 2018. The Value Based Program assessment contains eight patient experience measures that account for 30% of the score. Under this program, approximately 1,716 hospitals have had their Medicare payments boosted; up from 500 hospitals last year.7 A good example is Summa Health System in Akron, Ohio. Summa Health System implemented pre-visit multimedia patient engagement and post-visit centralized follow-up as a means to promote the active engagement of patients in managing their care. This initiative helped decrease readmissions, improved patient

satisfaction scores significantly using a nationally recognized measure and achieved 100% of its 2012 Pay for Performance initiatives.8

5. The Center for Medicare and Medicaid Services (CMS) is a US federal agency within the Department of Health and Human Services (HHS) that administers the Medicare program

6. Medicare is a US Government-administered national social insurance program that provides health insurance.

7. J. Rau, 1,700 Hospitals Win Quality Bonuses From Medicare, But Most Will Never Collect, Kaiser Health News, January 2015, http://khn.org/news/1700-hospitals-win-quality-bonuses-from-medicare-but-most-will-never-collect/, accessed December 2015.

8. Summa Health Network, LLC Improves Screening Rates For Diabetic Retinopathy with Emmi Solutions Technology, Emmi Solutions, July 2013, , accessed December 2015. http://www.emmisolutions.com/emmi-newsroom/summa-health-network-llc-improves-screening-rates-for-diabetic-retinopathy-with-emmi-solutions-technology

34 Volume 8 Issue 1


Improved health outcomes: engaging patients can help improve patient health literacy and enable them to manage their health and chronic conditions better. The Healthcare Effectiveness Data and Information Set (HEDIS) is a widely used set of performance measures developed and maintained by the US National Committee for Quality Assurance (NCQA). The rating system is used by the majority of the health plans to define the reimbursement rate for health care providers based on performance. Patients health outcomes have a direct bearing on HEDIS scores and thereby influence contract negotiations with payers. Key HEDIS measures that are directly influenced by a patient activation levels include: immunizations, annual well visits and routine exams for patients with chronic conditions, such as diabetes and hypertension, and cancer screenings and medication management.

Fairview Hospital in Minnesota conducted a study of patient activation, between 2010 and 2012, using the Patient Activation Measure (PAM) developed by Judith Hibbard PhD.9 The study scored patient activation between one and four, with one being least activated and four being more activated. The study showed that patients with activation scores of three to four were more likely to complete yearly physicals, immunizations and timely screenings the very same activities measured by HEDIS.10

2. Financial managementLower readmissions: an in-patient provider organizations 30-day readmission rate is an important indicator of value and readiness for value-based care. CMS, in accordance with the Affordable Care Act, enacted the Hospital Readmissions Reduction Program, which requires CMS to reduce payments to inpatient prospective payment systems (IPPS) hospitals with excess readmissions. Failure to reduce readmissions in compliance with this program can result in the loss of millions of dollars for hospitals that receive payments from CMS.11 According to the Fairview study results mentioned previously, the likelihood of a patient being readmitted drops from 28% to 13% as their PAM score increases.12

Leading practices aimed at lowering readmissions rates include early and proactive discharge planning and a post-discharge follow-up requiring providers to promote patient engagement. At discharge, many clinicians and patients use a teach-back method that increases patient literacy and shows a positive

9. http://www.cfah.org/about/judith-hibbard, accessed December 2015.

10. J. Hibbard, J. Greene and V. Overton, Patients with Lower Activation Associated with Higher Cost; Delivery Systems Should Know Their Patients Scores, Health Affairs, Vol. 32, no.2, 2013.

11. A. Whitehead, The key to reducing readmission rates? Patient engagement, Beckers Hospital Review, 2015, http://www.beckershospitalreview.com/quality/the-key-to-reducing-readmission-rates-patient-engagement.html, accessed December 2015.


An organization that is able to engage its patients successfully, by providing a positive experience at all interaction points, will be able to capture new customers and retain those it already serves.

35

correlation to medication adherence. Additionally, some clinicians are calling the patients within one to two weeks post-discharge. These calls are designed to answer questions the patient and their caregivers might have, determine patient adherence to medication and, ultimately, address issues proactively before readmissions occur.16 Some

hospitals are using advanced data analytics to monitor the progress of their patient populations, while others are using less advanced data solutions.

3. Customer retention The Affordable Care Act has provided the health care market with a growing population of insured patients. This creates an opportunity for health care

13. PharmaAdva website: the cost of non-compliance, http://www.pharmadva.com/compliance, accessed December 2015.

14. J. Hibbard, Increasing Patient Activation to Improve Health and Reduce Costs, University of Oregon, 2008, http://iom.nationalacademies.org/~/media/Files/Activity%20Files/Quality/VSRT/IC%20Meeting%20Docs/VILC%20Patients%2010-04-11/Judith%20Hibbard2.pdf, accessed December 2015.

15. Chronic Care: A Call to Action for Health Reform, Chapter 3, Patients and Caregivers Report Problems With Care, AARP Public Policy Institute, http://assets.aarp.org/rgcenter/health/beyond_50_hcr_problems.pdf, accessed December 2015.

16. Health at a Glance 2013, Organization for Economic and Cooperation and Development (OECD), 2013, http://www.oecd.org/els/health-systems/Health-at-a-Glance-2013.pdf, accessed December 2015.

Additional benefits from patient engagementIn addition to the three benefits we have highlighted in this article, increasing patient activation and engagement reduces costs on varying levels for hospitals in a value-based care system. These represent good population health outcomes; they also financially benefit providers in value-based reimbursement systems.

Other opportunities for savingsMedication adherence: patients who do not take medications as prescribed account for more than 10% of all hospital admissions and cost over US$290 billion annually. Non adherence is estimated to cause approximately 30% to 50% of treatment failures (as of 2010).13 According to Dr. Hibbard, as the activation level of a patient rises from level one to four, the adherence to prescription medication goes up. For example, for diabetic patients, as activation levels increase from levels one to four, the adherence to medication rises from 57% to 86%.14

Decrease in medical errors: another opportunity to create savings is by decreasing medical errors. The total yearly cost of measurable medical errors, in 2008, was US$17 billion. The median cost per error for a hospital ranges from US$892 to over US$12,000. According to a report by the American Association of Retired Physicians (AARP), the likelihood of a patient experiencing a medical error decreases from 36% to 19% as the activation level of a patient rises.15

36 Volume 8 Issue 1


organizations to position themselves as trusted partners in a new patients health by making patient experience a priority. Patients expect to be engaged and treated as partners in their health, particularly as the average patient is paying more for care than ever before. An organization that is able to successfully engage its patients, thus providing a positive experience at all interaction points, will be able to capture new customers and retain those it already serves. Most recently, Geisinger Health System has taken a strong position on the importance of a patients experience by announcing a refund program for patients that are not satisfied with their interactions with the organization. Geisingers President and CEO stated that they are dedicated to refocusing health care, providing comparisons with companies such as Starbucks that redefined an industry and quickly outperformed the competition by focusing intently on the experiences of customers.17

Consumers are attracted to organizations that meet and exceed their expectations. Some organizations have been able to demonstrate that the human connection factor has the ability to help patients heal faster and boost immune systems. Patients rely on their own experiences and those they read and hear about first-hand. Focusing on patient engagement provides an organization with the opportunity to have its loyal customers share positive experiences on its behalf, thereby promoting brand awareness and attracting patients as new customers. A Stanford Health Care study suggests a strong degree of correlation between a patients likelihood to recommend and their overall satisfaction and loyalty.18

Payers can empower patients by helping them choose the right physician, by providing health education materials and by assisting with chronic condition management.

17. http://www.geisinger.org/pages/newsroom/articles/ProvenExperience.html, accessed December 2015.

18. https://stanfordhealthcare.org/about-us/quality/data/patient-satisfaction.html, accessed December 2015.

37

Positive experiences are the foundation to patient loyalty. According to an Advisory Board report, improving the experience for only 5% of patients can help providers earn over US$2.5 million in just one year.19 Studies show that, when an organization engages its patients, there is a high degree of customer retention. Retention can reduce traditional marketing and advertising costs and improve overall brand perception. According to The Fairview study of PAMs, engaged patients are more likely to return and are more satisfied.20 For example, digital methods of engaging patients through portals and other applications create conveniences that offer reliability and foster loyalty or stickiness. According to the CEO of Health Perspectives

Group, online tools and other programs established by a personal connection with patients are essential to building brand loyalty.21 This is a critical component to retaining patients as customers.

Patient engagement is key to patient-centric health careWhile this article has focused on benefits of patient engagement from a provider perspective, patient engagement has similar value for payers as well. Payers can empower patients by helping them choose the right physician, by providing health education materials and by assisting with chronic condition management.

Many efforts are underway to achieve the Institute for Healthcare Improvements

(IHI) triple aim: improve overall health of populations, decrease costs and improve the care experience. Patient engagement has the power to impact all dimensions of IHIs triple aim positively. As Nick Dawson, Executive Director of the nnovation at Johns Hopkins Sibley Memorial Hospital, once noted, Margins are not what they used to be, physician reimbursement is not what it used to be and the entire payment structure is changing. What weve learned from other industries is that companies that fail to pivot during times of great change risk getting left behind.22 It has become clear to policy-makers, payers and providers alike that the status quo must change. Central to this change is a progressive view of involving patients in their own care.

It has become clear to policy-makers, payers and providers alike that the status quo must change. Central to this change is a progressive view of involving patients in their own care.

19. Patient experience: An investment worth making, The Advisory Board Company, February, 2014, https://www.advisory.com/technology/iround-for-patient-experience/infographics/patient-experience-an-investment-worth-making, accessed December 2015.


21. R. Robinson, Digital Patients: Disrupting the Status Quo, Pharma Voice, 2014, https://aws-mdsol-corporate-website-prod.s3.amazonaws.com/PTC_Digital-Patients_20140901_PharmaVOICE_Article.pdf, accessed December 2015.

22. S. Barnett, Hospital innovation centers think outside the box to solve healthcares biggest problems, Beckers Hospital Review, 2015.

38 Volume 8 Issue 1

Revenue Assurance & Improvement: a tactical and transformational methodology for business improvementRevenue Assurance & Improvement (RA&I) is a methodology that stands apart from techniques for reducing costs and expenses, and instead focuses on driving up revenues from specific, often overlooked, areas. Originating in the telecommunications sector, it is now being deployed to great success in areas including banking and insurance.

Volume 8 Issue 138

39

Authors

Paulo Pantigoso Country Managing Partner, EY, Peru

Jos Carlos Bellina Partner, Advisory, EY, Peru

39

40 Volume 8 Issue 1

Revenue Assurance & Improvement: a tactical and transformational methodology for business improvement

Historically, many business initiatives have focused on the profit and loss statement and, in particular, the costs and expenses. However, there has arguably not been a specific new methodology that focuses on the top line: revenue.

RA&I is one such methodology. It was developed in the mid1990s for telecommunications companies with the simple maxim of charge the client correctly across a huge number of transactions, a lot of revenue leakage was

41


identified between what the commercial areas defined and what the billing systems were actually charging. This became known as Revenue Assurance (RA) and is now a standard approach within telecommunications companies globally. This methodology also has enormous potential for other sectors and is, today, generating great results in industries such as banking and insurance.

In many engagements with clients in these sectors, we have found that the business is uncertain about whether, for example, they are charging customers all

they can legally charge, or whether billing systems for both new and old products are working together. This may be seen as a tacit acceptance that a percentage of their revenues are potentially being lost. RA&I corrects this by enabling income optimization, thereby delivering greater efficiency within a competitive market.

EY Peru has leveraged its banking subject-matter resource and RA experience to develop the Revenue Assurance & Improvement (RA&I) methodology. It has already been deployed in more than 65 projects in America, achieving revenue increases (or recouping lost revenues) of between 1% and 10%. RA&I is a tactical and a transformational product that can have revolutionary effects on a company.

The essence of RA&IRA&I methodology focuses on maximizing revenue and incorporates a number of approaches, including both tactical and transformational recommendations. The group of tactical options brings together very quick actions based simply on ensuring organizations are charging all they can. EY Peru has developed a tactical framework of more than 1,300 highly technical revenue increase measures within RA&I.

This methodology can be applied in many sectors, particularly ones featuring large transactions, diversified products and services, and complex processes however, RA&I can only be successfully applied in businesses that handle millions of transactions.

RA&I is a tactical and transformational product that can change the life of a company.

42 Volume 8 Issue 1


How does it work?EY RA&I focuses on three main pillars for increasing revenue:

1. Growing the customer base: attracting, retaining and winning back customers

2. Increasing share of wallet: driving up revenue within customers current products and by cross-selling new products to them

3. Helping to ensure the company charges customers fully for all the services and products they take

For example, in banking, these pillars apply to 18 interdependent components that impact heavily on income through the improvement or assurance of prices (P) and the quantities (Q) offered to customers, shown in Figure 1.

All these components are supported by 15 tools that are used to analyze, generate diagnostics, measure outcomes and develop recommendations.

Generating value through tactical actionsThe equation shown in Figure 2 is the foundation of EYs RA&I approach in banking. It states that a banks pected revenue (ER) is equal to the sum of applying a given formula (f) on a discounted (Beta) price (P) on specific events (E).

In this equation, the letter P represents the list price. P is multiplied by Beta, representing the percentage discount that a customer is given to win their business. This outcome is then multiplied by E the number of events where the discount is applied.

The RA&I methods for banking have been developed over several years in the Peruvian finance market, where:

Four of the top 12 banks in Latin America are Peruvian (based on the CAMEL rating methodology).1

For seven consecutive years, the country has been the rated the best business environment for microfinance in Latin America and the Caribbean.2

The financial institutions regulator SBS is globally acclaimed for applying international standards and best practices.

1. http://rankings.americaeconomia.com/mejores-bancos-2014/ranking-250-mayores-bancos-de-america-latina/, accessed December 2015.

2. Global Microscope 2014: the enabling environment for financial inclusion, The Economist Intelligence Unit, 2014, http://www.citi.com/latinamerica/en/community/data/2014_Global_Microscope-EN.pdf, accessed December 2015.

43


Grow

custom

er base

Inc

rease

target

cust

omer

reactiv

ationIncrease revenueper product

Increase target

customer retention

Att

ract

new

cust

omer

s

Pricing

assurance

Incre

ase

shar

e of

wal

let

Revenue assurance

Improve customer experience Improve customer loyalty Improve customer retention

Improve customer experience Improve customer loyalty Improve customer retention

Customer assurance () Recovery

Formula optimization () Frequency application (E) Increase volume per customer Increase overall price level (P) Pricing modeling

Increase cross- and up-selling Foster bundling concepts with external partners Develop personalized product offerings

Customerassuranceprod

ucts p

er cu

stom

er

Increas

e n

umbe

r of

Product pricing assurance () Discount management ()

Revenue Assurance & Improvement

Tactical components

Tools

Customer and market segmentation

Data architecture

Trade investment calculator

Data quality

Value proposal development

Promotional ROI effectiveness

Product and customer finance

Claim management

Increase buying power

Customer journey effectiveness

Cannibalization analysis

Fraud investigation

Channel strategy

Price power and ladder tool

Analytics Basket mix

Figure 1: Revenue Assurance and improvement framework

44 Volume 8 Issue 1


The correct way to apply the discounted price to the events is determined by the formula, represented by the letter f. The formula will vary depending on whether, for example, it applies to valuing commission for cash withdrawal or the interest on a transaction.

Tactical components in RA&I for banking1. Formula optimization ()

The formula design rests on improving revenues taking into account existing market and regulatory constraints. For example, optimizing amortizations using permitted interest-only repayment methods could increase revenue by 3.8%.

The reason why this approach is effective in producing additional revenue is, primarily, due to the following:

Banks require many interrelated systems in order to support the revenue cycle. Each of

these systems has its own logic for processing a transaction and determining how much to charge the client.

Regulations in each country are different, presenting various opportunities for assessing how to charge customers, and on which products.

The approach must bear in mind what is accepted in the particular market.

2. Frequency of application (E)The annual percentage rate (APR) can be used to generate more interest revenues by optimizing the payment frequency.

This component includes techniques to maximize the repayment period on loans even an extra day means more revenue.

We help to establish the best way to calculate the banks rates, if this is an option in the particular

country. Choosing between applying interest on 360 or 365 days could mean a difference of up to 1.34% in additional annual revenue.

We aim not to give away days where interest can be applied.

We work on ways to increase the life of the credit balance in order to generate more revenues.

3. Increase overall price (P)Fine-tuning prices for products can be a complex process, involving price structure and value

Be aware that different prices can be set, depending on the state of each product for example, the interest rate of a debt that is overdue differs from the regular interest rate

Identify how sensitive or elastic customers are to changes in each component of the products price structure

Consider the visibility that each component of the products price structure has when recruiting customers for example, a credit card interest rate does not have the same level of visibility as a penalty does when a customer is evaluating a credit card product

Be aware of the opportunity to benchmark a specific price in a given market if it cant be easily compared, customers may find it hard to know what it costs compared with competitors products

AR ER = f ( P x x E )

F formulaE frequencyP price discountAR actual revenueER expected revenue

Figure 2: RA&I equation for banking

45


The more complex the organizations processes, the more likely it is that revenue is being lost due to inadequate implementation of the conditions agreed with customers.

Examine customer behavior to understand which customer group will care more about price.

Consider the banks competitive position within each specific product market.

4. Discount management () This is one of the most important drivers of profit in retail and SME banking. This discipline is key for organizations in which discount management practices are not very advanced.

For example, many banks waive revenues by offering discretionary discounts to win or retain customers. Their discount policies and procedures are usually not managed and defined centrally, but handled instead by multiple bank sales clerks, each one with different, often ad hoc, criteria for granting the discounts.

Taking a credit card product as an example, the discount management opportunity lies in customer moments of truth; i.e., events within a customer relationship when it is important to respond to them correctly.

After one year of holding a credit card, a customer may have to pay an annual fee; but this fee may not have been obvious to the customer previously,

and they ask for it to be waived. In this instance, a bank could specify a policy that permits staff to waive the annual fee if, for example, the customer agrees to spend US$1,000 on the card in the coming year.

Identifying small adjustments to processes such as this could significantly increase revenue.

46 Volume 8 Issue 1


5. Product Pricing Assurance () Across the board, banks do not always charge customers all that they are allowed to charge.

There are three main reasons for this:

Human errors in both calculating and applying charges or in loading rates into the information systems

Lack of process controls that results in old, temporary or promotional rates being granted to customers that should no longer qualify for them

Failures in information systems configuration settings that do not accurately reflect the business rules

Opportunities for wider industriesThe implementation of RA&I projects is achieving great results in banking, following the methodologys migration from the telecommunications industry. There is also

huge potential for many more sectors in which products and services are diverse and complex, and transactions are large and very numerous in fact, the bigger the number and the greater the complexity, the greater the potential impact of performing even one tactical adjustment.

It is also the case that the wider the variety of products and services, the greater the customization. And the more complex the organizations processes, the more likely it is that revenue is being lost due to inadequate implementation of the conditions agreed with customers.

Already, sectors such as mining, consumer products, retail, insurance and energy have enjoyed compelling benefits. RA&I has the potential to become indispensable to every organization.

AR ER = f ( P x x E )

F formulaE frequencyP price discountAR actual revenueER expected revenue

RA&I equation for banking

This methodology can achieve revenue increases of up to 10% very quickly.

47


In addition to banking and insurance, already, sectors such as mining, consumer products, retail, insurance and energy have enjoyed compelling benefits.

48 Volume 8 Issue 1

EYs Global Information Security Survey (GISS) 2015 reveals that cyber attackers are finding new and better ways to take advantage of the rapid expansion of digitization and the increasing connectivity of businesses. Among the 1,755 survey respondents, an emerging theme is a need for greater awareness of how our daily lives are increasingly interwoven with internet-connected devices, and what this means for an organizations cybersecurity approach.

The internet of things and the new global information security need

Author

Tim Best Director, Advisory Services, EY, Europe, Middle East, India and Africa

49

50 Volume 8 Issue 1

The Internet of Things and the new global information security need

of respondents do not believe their information security fully meets the organizations needs.

EYs GISS survey Creating trust in the digital world1 is the product of 1,755 interviews with CIOs, CISOs, security leaders and other C-suite members. Perhaps the key finding is that, as the breadth and complexity of cyber technology increases, so the nature of the cyber threats has evolved: cyber attackers are continually changing tactics, increasing in their persistence and expanding their capabilities.

Every new development of connected technology, and every new device that becomes connected to the internet, opens up a potential opportunity for a cyber attacker. In this bewildering scenario, its no surprise that over a third of our survey respondents still think it unlikely they would be able to identify a sophisticated cyber attack. And from our experience of testing many organizations, the true figure would actually be much higher. Organizations are often not as well prepared as they think they are.

1. Creating trust in the digital world: EYs Global Information Security Survey 2015, EY, 2015, ey.com/giss, accessed December 2015.

2. M. Berman, All That Is Solid Melts Into Air: The Experience of Modernity, (Verso, 1982).

3. Cybersecurity and the internet of things: insights on governance, risk and compliance, EY, 2015, http://www.ey.com/Publication/vwLUAssets/EY-cybersecurity-and-the-internet-of-things/$FILE/EY-cybersecurity-and-the-internet-of-things.pdf, accessed December 2015.

88%

51

85% 99% US$626b 36% 81%

Dimensions of the enterprise

Artificial intelligence

3D printing

Analytics

Mobile Internet of Things Cyber

Social

Cloud

Sensors

Acc

eler

atin

g c

atal

ysts

of business relationships managed without interacting

with a human by 2020. Source: Gartner Group 2011

of all devices that may some day join the network are

still unconnected. Source: Cisco, Rob Soderbury 2013

in consumer spending via mobile

by 2018 (US$) Source: Goldman Sachs 2014

of organizations are unlikely to detect a

sophisticated cyber attack.

Source: EY Global Info Sec Survey 2015

Manage risk as business

transforms

Understand broader risks

of new technologies

Keep pace with increasing privacy

risks and cyber attacks

Provide digital trust and privacy

Risk and cybersecurity

Automate processes

and controls

Digitize invoices and documents

Evaluate digital tax operating model

effectiveness

Address legal and regulatory

requirements

Finance, legal and tax

Create a diverse culture of innovation

and ideation

Transform knowledge across the organization

Redesign the organization to

fit the digital age

Integrate digital technologies to

empower people

People and organization

Enhance customer experiences leveraging technology

Deepen customer relationships and

insights

Leverage technology to

better integrate among functions

Collect intelligence across touch points and media channels

Customer experience

Establish a more agile digital

supply network

Manage in-house and third-party providers

Leverage new technologies to

enhance operations

Respond quickly to market changes

Supply chain and operations

Streamline the digital ecosystem

Fully enable digital systems

Balance digital innovation with IT maintenance

Integrate front-office apps

with back-end systems

Technology

Align the operating model

for the digital world

Engage the landscape without

boundaries

Understand threats and

opportunities

Drive agility and innovation

Strategy, innovation and growth

Ente

rpri

se c

halle

nges

of senior executives agree that data should be at the

heart of all decision-making. Source: EY Becoming an analytics-driven

organization to create value 2015

Figure 1: Harnessing cybersecurity for digital opportunity and sustainability

An exponentially expanding attack surfaceThe potential of the internet of things (IoT) calls to mind Marshall Bermans observation, To be modern is to find ourselves in an environment that

promises us adventure, power, joy, grow