Three Out of Five
It all started with several government and banking projects and now, ten years later, Prognoz – a Perm-based corporation – has managed to become a leading business analytics systems developer in Russia. What is more, it is one of the country’s few tech firms to maintain a presence in a number of overseas markets. This company from the Urals now has a foothold in three out of the five BRICS countries.
The headquarters of Prognoz are located in the foothills of the Ural Mountains, in Perm, fifteen hundred kilometers from the Russian capital. And its numerous offices and research centers are now present in nine countries including the United States, China, Belgium, Zambia, and several C.I.S. republics. In late January Prognoz opened another representative office in Vancouver.
These days companies of this kind – that have nothing to do with production or raw materials exports – are few and far between in Russia. From the very outset Prognoz put a great deal of emphasis on developing in-house software, which only made it logical that the company eventually ventured into overseas markets.
Follow the Customer
The story of Prognoz starts in 1991, when a team of scientists from the Perm State University Computational Economics Department and the Russian Academy of Sciences Urals Institute of Economics incorporated a commercial enterprise.
“It happened at the time when information technologies were not that widespread. Back then Prognoz was one of the first companies, not just in Perm but in the entire country, to develop what they now call ‘business analytics’ or Business Intelligence (BI) solutions,” says Shestakov.
This software was designed to analyze large volumes of statistical data, perform simulations, and trace the outcome of managerial decisions, as well as to make forecasts as to how the situation in various economic sectors or markets was likely to evolve.
In 1992 the company came up with the first version of the Prognoz Platform (which at the time was called the Prognoz Analytical Suite) – a platform designed to create turnkey analytical business applications. It went on to become the foundation for most of the templates or customized products and solutions developed by Prognoz.
“It was at this stage that the company came up with its own set of tools, enabling us to go where our interests lay, and monitor, simulate, and forecast economic process,” explains Shestakov.
Soon Prognoz found its first high-profile customer: the Ministry of Economic Development. Projects with the President’s Administration, the Office of the Government, and the Central Bank of Russia, were quick to follow. Company management could hardly be accused of underestimating the importance of the experience gained through these projects.
In the West, Prognoz successfully used traditional marketing approaches such as distribution, direct sales and other similar methods, whereas working with Chinese customers required different tactics and a lot of patience.
“China favors a more personalized sales approach such as seminars, where one can have the luxury of holding lengthy meetings to gradually convince potential clients that they really need the product and that it fits their requirements”
“Gradually we came to realize who our target audience was; we came to understand their interests and requirements,” remembers Sergei Shestakov.
Subsequently, the gradual increase in demand for BI products and solutions in the commercial sector brought other high-profile corporate clients. For instance, in 1999, the company launched its first projects with Gazprom. Just two years later the gas giant adopted the Prognoz Platform as a template solution for developing analytical applications.
In an effort to bridge the geographic divide with its key customers, in 2002 Prognoz opened an office in Moscow. At the same time the company successfully completed several projects commissioned by various ministries and agencies responsible for the economic sector in the Russian Government, regional administrations, and a number of large banks and corporations. In 2005 Prognoz launched joint projects with the Ministry of Finance and the Bank for Development and Foreign Economic Affairs.
By the middle of the last decade Prognoz had reached an entirely new stage in its development: having implemented its solutions in government agencies and corporations, the Perm-based company made a proactive move to take part in the largest industry expos and conferences abroad.
“We had two main objectives in mind. First of all, we wanted to see the level of our competition. Once we benchmarked it against our own, we knew that we were able to compete in the global marketplace. Secondly, we wanted to gauge how much potential appetite other organizations outside of Russia would have for our analytical platform designed to develop BI applications,” Shestakov explains. “It turned out that there was a great deal of interest in our products, solutions, industry expertise, and our track record of providing tailor-made solutions to government agencies, regulators and various businesses.”
A Tailor-Made Approach
At around the same time, Prognoz came up with the idea of ‘going international.’ Shortly after, in spring 2006, the company signed its first contract to develop a forecasting model for commodity flows commissioned by BNSF – one of America’s leading railroad operators. That same year Prognoz opened its first office outside of Russia, in the United States. The second overseas representative office was inaugurated in China almost at the same time.
In 2011, Gartner (an American information technology research and advisory company) for the first time included a solution developed by Prognoz in its Magic Quadrant for Business Intelligence and Analytics Platforms – the most reputable global industry ranking in this sector. In 2012 the company was included in the Quadrant again and even ended up higher in the rankings.
Out of all factors that enabled Prognoz to significantly improve its ranking compared to the previous year (apart from the successful expansion in Africa), analysts from Gartner singled out the following: that the company’s products are highly functional and simple to use, while the quality and availability of its services remain high.
“The ability to build specific analytical applications for customers, based on a platform developed in-house, enabled Prognoz to come up with a unique market penetration strategy and to win over important clients including the IMF and the World Bank,” the analysts said in their report. “Moreover, many applications developed by Prognoz were custom-made for specific clients and augmented with data from third-party sources. Prognoz happens to be ranked number one in this category.”
However, analysts from Gartner also believe there may be a number of reasons to be concerned. For instance, only 20% of those polled by the agency for the purposes of the ranking referred to the Prognoz platform as their technological BI standard. Several respondents pointed out that even though the products offered by the company could be used to perform specific tasks, such as econometric analyses, they were not particularly well suited for broader business applications.
Furthermore, according to Gartner, the company’s existing customers complain that the Prognoz platform is too complicated to create applications. According to analysts, this is the main challenge that eats into the company’s competitive edge on the market for BI platforms.
Finally, Gartner analysts identified one more weakness. Despite the strong performance in Russia, Asia and now in Africa, Prognoz products are still underrepresented on the U.S. market and in Western Europe, which means that it could take the Russian company some time to replicate its home successes in other markets.
In the space of several years the company implemented a host of projects for various agencies and international organizations. Another major breakthrough came in 2008 when it won a bid to develop data collection and processing software for the International Monetary Fund (IMF), to be used for the World Economic Outlook – one of the Fund’s key publications. Other orders from the World Bank and the World Health Organization were quick to follow.
Shestakov admits, however, that while the company’s expansion into the United States and Europe went relatively smoothly, similar efforts in the East brought about some rather unusual challenges. “Objectively speaking, China proved to be a very peculiar and complicated market. There we faced significant linguistic and cultural problems. We had no idea how we were supposed to operate there.”
For instance, in the West, Prognoz successfully used traditional marketing approaches such as distribution, direct sales and other similar methods, whereas working with Chinese customers required different tactics and a lot of patience.
“China favors a more personalized sales approach such as seminars, where one can have the luxury of holding lengthy meetings to gradually convince potential clients that they really need the product and that it fits their requirements,” explains Shestakov.
According to him, the Chinese tend to be much more conservative, and take their time deciding whether to start cooperation or not. One can only succeed with local consumers if they believe that your company is ‘one of their own.’ In that sense the fact that Prognoz was originally from Russia offered no tangible advantage, even though the Chinese tend to respond well to Russians.
“Being a Russian company in China does play a certain positive role. Overall, the older generation is friendly toward Russia and Russian businesses. However, they would still prioritize Chinese companies over ours,” says Shestakov.
To overcome this hurdle, one year later Prognoz incorporated a subsidiary in China. “Parenthetically, the American and European markets have a different attitude when it comes to the company’s image and origin: what counts there is that you are a modern company in sync with market requirements,” he adds.
From that moment, Prognoz gained a great deal of traction in its international expansion efforts. Responding to requests from potential clients or replicating expertise and know-how, the company kept on opening new offices – in Brussels, Kiev, Astana, and Minsk.
“It has been the easiest for us to operate here in the C.I.S. – there are no language barriers, we are dealing with a familiar mind set, and there is geographic proximity,” Shestakov admits.
Africa Across the Board
Incidentally, it was the customer-oriented approach that paved the way for Prognoz to reach out to Africa. Its first encounter with the local market took place in 2009 during a conference hosted by the International Statistical Institute (ISI). One year later, during the StatCom II conference held in the Ethiopian capital Addis Ababa, the company met with representatives of the African Development Bank (ADB).
“ADB representatives showed a great deal of interest in our company’s statistical data collection and analytical solutions,” recalls Shestakov.
We had two main objectives in mind: firstly, we wanted to see the level of our competition. Secondly, we wanted to gauge how much potential appetite other organisations outside of Russia would have for our analytical platform designed to develop BI applications, how much interest there would be in our products, solutions, and industry expertise
In spring 2011 Prognoz completed its first project commissioned by ADB – a web portal (shown above) to be used by the bank’s Statistical Department, capable of displaying and processing large volumes of socio-economic development data for all African countries. This resource was made available to the broader public on the bank’s website.
The first successful experience with ADB turned out to be an excellent ‘reference’ for Prognoz, and opened many doors to other countries on the continent.
“Today we continue our cooperation with the African bank and are concurrently launching projects in many African countries,” Shestakov says. In 2012 the company won an ADB bid to develop portals for national statistical organizations in Africa. Today such portals have gone live in 10 African countries, and in one international organization – the African Union. Prognoz plans to deploy its solutions in every African country and in 16 other international institutions.
Systems developed by Prognoz are now used by more than 350 organizations in 35 countries worldwide. However, the company’s global expansion is far from over. It certainly appears that Prognoz has found a key to success, without making a secret of it.
“What matters most to our foreign customers is the quality of the products they commission. In developing our solutions we use an in-depth methodological approach, which enables us to win many bids in Europe, America, Asia and Africa,” explains Shestakov.
His advice for those who would like to see these successes replicated elsewhere is to focus primarily on product quality, bearing in mind localization requirements. If you achieve that, there is no reason to worry about risks.