R "Ray" Wang
R "Ray" WangMonday's Musings: Industry Vertical Pivot Points Still Matter Most
Pivot points represent a market segmentation approach used by many companies to determine market demand, define new products, assign sales territories, service customers, and put boundaries around customer sets. Since September 2009, over 500 enterprise software decision makers were asked which one pivot point would they prefer their software vendor focus on. The four key pivot points include market segment, geography, industry, and role. To elaborate:
- Market segment - standard definitions of size whether it be by revenue (e.g. $0-249M, $250-499M, $500-999M, $1,000-4,999M, $5,000-9,999M, $10,000-19,999M, >$20,000M) or by employee count (e.g. 0-49, 50-99, 100-249, 250-499, 500-999, 1000-2499, 2500-4999, 5000-9999, 10,000-19,999, 20,000-49,999, >50,000).
- Geography - physical and cultural location of where primarily business is conducted (e.g. North America, South America, Latin America, Western Europe, Eastern Europe, CIS, Middle East, North Africa, Africa, India, Greater China, APAC, Oceania, ANZA, etc.)
- Industry - industry expertise or vertically related business functions often generated by SIC code or broad categories (e.g. Discrete Manufacturing, Process Manufacturing, Retail/Wholesale Distribution, Services, Public Sector, Healthcare/Life Sciences)
- Role - classification by job functions and titles (e.g. CEO, COO, CFO, CMO, VP of HR, VP of Security, Architect, Chief Legal Officer, etc.)
Respondents were forced to choose the one pivot point they felt would be most relevant to their needs. The results are as follows:
(Survey of 527 enterprise and sme/smb software decision makers from phone, tweets, email, and in-person interactions from September 2008 to June 2009
The bottom line - end users should demand vertical expertise
The message resonates loud and clear - users seek more vertical expertise from vendors. Making minor extensions to support an industry may not be enough in today's market. As industry requirements increase and require software solutions to provide support, end users must demand greater levels of innovation and investment into vertical specific requirements. Given how much money has been spent on maintenance and support, end users should take an active role in building the right level of dialogue with vendors:
- Request to join customer advisory boards. Often customer advisory board members have insight into the product direction and future functionality decisions. Some vendors such as SAP, Oracle, Lawson, and Microsoft hold regular advisory board meetings with end users, senior management, product teams, and analysts to define, prioritize, and test requirements. These meetings often result in a status report on priortiziation and progress in delivering the requested functionality.
- Influence existing user groups. User groups may already provide industry specific forums where the vendor and the end users have existing channels of dialogue. Determine how quickly it has taken a vendor to deliver on promised functionality. If it's been more than 12 months and its a common request among 80% of the users, then it's time to rally the end users for some change/
- Rally around industry trade groups. Take the time to see what standards have been set by industry trade groups. As vendors modernize their software architectures to support web services and SOA, trade groups could provide a key opportunity and forum to define common business process, architecture, and meta data standards.
The bottom line - vendors should keep focusing on verticals and micro-verticals
By a 3 to 1 margin, software decision makers resonate most with verticals. This continues a trend where customers seek deeper functionality by verticals and micro-verticals in their solutions. Vendors should take the following 5 actions to improve vertical relevance:
- Focus on a select number of verticals based on vendor size. Most software vendors under $500M have the bandwidth to focus on 3 to 5 verticals while those between $500M and $1B can handle 7 to 9 verticals. Agree on what you will not be focused on and treat other sales as opportunistic.
- Build a road map of capabilities that should be part of the vertical solution. Identify the complete functionality of business processes that should be supported. Include both internally built and externally provided solutions.
- Identify solution centric ecosystem ownership. Given the myriad of combinations and customer requirements to deliver the last-mile solutions, not one single software vendor can deliver all aspects of a solution. Determine what part of the value chain will be delivered, externally sourced, or provided by a partner. Keep in mind some customers may choose to extend on your platform as well.
- Enable easy access and extension of the core platform. Design the solution with partnership and extension in mind. Ecosystems provide the fastest way to build adoption of your software. As users and partners add IP and innovation to the core product, vendors gain natural barriers of entry and exit in a specific vertical and micro-vertical. Customers may also seek to band together to build solutions or have a partner extend and industry solution for them.
- Tie the pivot points together. One final point - don't make the mistake of just focusing on a vertical or one pivot point. Take the time to cross segment by the other pivot points. Vendors often find that these verticals may not fit as neatly across the board and that's okay. Some solutions such as risk and compliance may have inherent appeal across a role such as a CFO and span verticals. Keep in mind pivot points provide a guide but use common sense when building natural segments.
Related research of interest
May 7th, 2007 "Solutions-Centric Ecosystems Disrupt The Enterprise Software World Order"
August 22, 2007 "Avoiding Failure In Technology Partnerships"
September 3, 2008 "How To Select A Software Partner Solution Offering"
Your POV.
Got a similar view on pivot points? Disagree on this assessment? As an end user which pivot point matters most to you and has your vendor delivered? As a vendor, have you started to focus more on industry verticals? Identify yourself as a vendor, end user, media professional, etc. To learn more about how to build your solution centric ecosystem, design a partner program, or extend your industry vertical strategy, feel free to reach out. Post here or send me a private email to rwang0 at gmail dot com.
Copyright © 2009 R Wang. All rights reserved.