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Software: Mining opportunity - Views on News from Equitymaster
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  • Sep 11, 2002

    Software: Mining opportunity

    The economic slowdown has restricted IT spends by most companies globally. In addition to restriction there has been a change in the focus of IT spends across the globe. The current focus of IT spends is to improve the return on investment of already implemented technologies rather than investing in new technologies. This change in focus has led to a larger importance being given to applications that help improve the efficiency of operations of the company. Thus, ERP (enterprise resource planning) and CRM (customers relationship management) packages are very much in demand.

    But some corporates are going a step further. After years of a using enterprise wide information systems and collecting significant amount of data, some are looking to improve efficiency using concepts like Datamining. Datamining is a process by which specific patterns of data are extracted from historical data. These patterns of data enable the company to focus on the most important aspects of their business.

    The user of Datamining software has a better understanding of the organisationís data, which enables him to resolve business problems or capitalise on opportunities. Data mining techniques enable organisations to fully exploit data about customer buying patterns and behaviour, and gain a greater understanding of consumer motivation; in effect, seeing into the minds of customers. Consequently, insights from Datamining can be applied toward target marketing, utility demand forecasting, reducing fraud, anticipating resource demand, increasing acquisition, improving e-commerce and curtailing customer attrition to name a few. Thus, improving the efficiency and therefore, the overall profitability of an organisation.

    For example, Datamining software can help industries such as banking, credit cards and insurance to break the market into meaningful clusters and segments. This helps identify customer groups that not only have a higher likelihood to respond to offers, but also will provide better profits in terms of higher volumes of product usage.

    According to IDC, the business intelligence market, which includes Datamining software, will experience a compound annual growth rate of 23% to reach US$ 3 bn (Rs 147 bn) in 2006. Currently, the market for Datamining software is estimated to be worth US$ 1 bn (Rs 49 bn). Gartner, a leading IT research company lists Datamining as one of the top 10 new technologies in which companies will invest during the next 5 years.

    Thus, a huge opportunity lies in waiting for the Indian software companies. Though, Indian software companies do not provide Datamining solutions they implement packages for service providers like SAS, IBM, NCR and Oracle. Since, Datamining tools are driven by cutting-edge applications in artificial intelligence like neural networks, decision trees, genetic algorithms and fuzzy Logic. The drivers of these tools require a high level of technical expertise; which is not available in India. Consequently, the Indian software companies are limited to implementation.

    The growth opportunity is not only overseas. There are a number of examples in the Indian context where organisations have successfully introduced the Datamining concept to increase operational efficiency. Many telecom companies like Orange and BPL Mobile have deployed these tools to plumb for insights into customer behaviour and extract patterns. Citibank uses these tools to manage its customer relationships. Godrej to understand its distribution chain better, banking behemoth SBI to better manage customer accounts, and NSE to manage its clearing house operations. Other companies that are using this software application are Nicholas Piramal, Air Tel, ICICI, HLL, RBI and Pfizer.

    The imperative for software companies is to move up the value chain and demand for Datamining solutions that require a high level of technical as well as business expertise offers the opportunity. Competency in this area could help domestic software companies standout in the global IT space, which will in turn lead to better realisations in the future. The challenge may be tough but the rewards too are very attractive.



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