The shift from a horizontal-centric strategy to a verticalisation strategy is a key consideration in the survival of services companies in the foreseeable future, argues Simon Rigden, vice president international at Lawson Software.
Within the services sector, verticalisation is the only real option to obtaining valued business partnerships with your customer base. This market-specific approach helps customers to benefit from lowered risk and better total cost of ownership,
Project Implementation is more likely to come in on time and on budget when a project is accurately scoped, consequently the level of risk decreases. It takes vertical experience, of not only products, but of business imperatives, culture and processes to do that well. Lower risk is also achieved because the vendor has worked with in the industry before, will have considered the critical functions of that industry and given those functions appropriate prominence in solutions provided. There is then a lower total cost of ownership because implementation is likely to be faster, smoother, and it will make upgrades and product support easier too.
Gone are the days when buying decisions were technology-led. Customers are now looking for industry-specific experts with market experience and understanding to bring them business value – rapidly.
Over the past decade, the IT Services market place has grown dramatically and key players have taken significant bites of marketshare. In order to maintain position, providers now have to evolve to a vertical-centric business approach to maximise market opportunities and even to maintain their current customer base. Whatever sector you consider the demand is very clearly for industry-specific solutions from vendors that understand the nuances of these market sectors.
The idea of verticalisation comes from focusing on specific industry sectors. Take the ERP space as an example. It has evolved from a product focus to a standard business practices focus, yet a true vertical business focus is still on the horizon. Companies are looking for a solution that is tailored to their specific sector as each market brings with it a very different set of business practices, rules and regulations and issues.
Verticalisation is not a concept or a marketing strategy, it is a more in-depth approach and allows the company to drill deep into the individual markets of its customers, ensuring that all products truly represent the needs of said customers. It looks at the lifecycle of companies within a market sector and analyses the challenges they experience at any given time in order to provide the right solutions for assisting customers in maintaining competitive advantage.
While an effective vertical market approach seems obvious enough, it's in fact not the direction that the big enterprise application vendors are taking. Instead, much of the talk from companies like SAP, PeopleSoft, Siebel and Oracle is about moving down-market to service the needs of mid-sized companies. These companies are defining their customers primarily according to revenue size, giving more complex, international solutions to Global 1000 companies, and stripped-down, one-size-fits-all offerings to mid-sized companies.
But who does the typical grocer have more in common with? A company in another industry with equivalent sales or another grocer? How about a bank? Or a hospital?
There is obviously a place for generic, low-cost office productivity solutions for users across industries. But the more mission-critical a system becomes to a company and the more significant the investment the company has in that system, the greater the benefits of a vertically tailored solution.
This is the power of verticalisation - the ability to deal with a customer in their market terms. To provide maximum return on people resources and intellectual capital, and to optimise business value and increase revenues. Conversely, customers are happier dealing with a vendor that understands their customer base and can offer market-specific advice. With this type of synergistic relationship, longer–term partnerships are developed with proven results.
Verticalisation is not purely symptomatic of the recession but it is an evolutionary trend. With the companies that have been adopting this strategy, the figures speak for themselves. It's not about having the latest product technology, it's about having a specialised solution that radically changes the way an organisation does business in an increasingly sophisticated marketplace. Customers are looking for ways to maximise their competitive advantage and market specific solutions help assure these goals.
Organisational buying patterns are taking more of a modular approach. They are very focused on solutions that can directly benefit the business – so are looking for specific solutions relevant to their market needs instead of a vanilla software solution.
Verticalisation provides an industrial-strength strategy that aggressively competes with large traditional players who have predominantly had a horizontal strategy but it brings the sophistication of the ERP vendors back office experience and solutions to bear on industry specific needs.
However, just implementing a vertical strategy is not something that will be a resounding success – it has to be apparent in the corporate structure and culture of the vendor. It is not about having a vertical sales team or a vertical marketing person or two.
Companies need to consider the alignment of their product development, services and executive teams within a vertical orientation. The survival of the fittest comes from the sheer experience and knowledge garnered over years of experience – so if you're looking for the right IT vendor, always consider one that has an in-depth focus on vertical markets and that has aligned its organisations around serving those markets exclusively.
With tight budgets and the need for justification paramount, there is no room for error. Customer organisations are looking for vendors that have a heritage, stability and industry expertise. Finally, vendors must be able to demonstrate they can deliver a solution that has a proven track-record for developing competitive advantage and business value.