Marks & Spencer’s recent return to financial well being has been heavily attributed to its successful marketing campaign based around the idea of the M&S brand. “This is not just salmon, these are M&S Scottish smoked salmon steaks,” insist the dusky tones in the TV adverts. It is a tack that the enterprise applications industry has been trying to promote for years. This is not just CRM, this is CRM for the financial services sector. This is not just ERP, this is ERP for the pharmaceutical industry. While the applications market consolidates around three or four major players – all boasting horizontal applications – verticalisation and support for niche sectors has become a major selling point.
Apart from developing bespoke applications, the needs of the various vertical markets have traditionally been met in two main ways: through smaller, third-party independent software vendors and through the market giants attempting to ‘verticalise’ their horizontal products.
Both of these approaches have their benefits and their shortcomings. Going to a smaller firm will probably mean access to a product specifically developed to target a market niche but you run the risk that your supplier might not survive in an increasingly turbulent marketplace. Go to an enterprise giant and there is more likelihood of long term survival – although as Siebel and PeopleSoft prove there is no guarantee of that. But it is questionable how tightly customised to a niche market’s specific needs the application will be? How far does Siebel CRM for financial services differ from Siebel CRM for pharmaceutical, for example?
It is an important question, believes Sanjeet Gupta, CIO of Westminster Primary Care Trust. “Are the needs of the healthcare sector really that different from the needs of the finance sector?” he wonders. “I’m not sure it is. I think it is just a different understanding of who the customer is and how the information is displayed. But the back-end is fundamentally the same. There are specialist vendors in the field who just deal with healthcare and there are ones who are just beginning to address CRM but honestly if you got a basic Salesforce.com automation specialist in, they could easily do a GP system or a hospital system because it’s no different. It’s the same thing. You are capturing information like appointments and contacts. It’s not rocket science.”
This does not stop vendors from charging into new niche markets with claims to have optimised their product set to their particular needs. Failure rates are particularly high in the public sector, where there are still bitter memories of debacles such as the Poll Tax applications market which left many large software firms with egg on their faces.
“It’s partially the case that the vendor goes into it eyes shut,” says Gupta. “They seem to think that they know what the market wants because that’s what the private sector wants. It won’t work. You see people come storming in. The UK healthcare market is unlike any other. The drivers and problems behind some of the issues in it are the things that the vendors face. It’s partly our fault as customers that we don’t give the big vendors a chance. But I do think that the big vendors have also left the healthcare space because they don’t want to deal with the problems as they see it.”
Nonetheless the marketing push for vertical versions of enterprise applications continues, even as consolidation at the top end of the market continues. However, this consolidation offers new opportunities for smaller vendors to break in with specialised offerings to users. “It was the small start-up vendors that supported much of the innovation,” argues AMR Research’s Jim Shepherd. “Radical consolidation, several years of recession and a major change in corporate buying preferences have combined to stunt the growth of most of the hundreds of smaller software firms that once drove much of the industry’s vibrancy and innovation.”
But while the consolidation at the high-end has sparked fears among CIOs about the viability of smaller speciality vendors, it has also created the conditions for a new generation of third-party specialist applications. “As the market for enterprise applications matures, the buyers are expecting complete systems for their specific industry, geography and size,” explains Shepherd.
“In many cases, their concept of what this means includes highly specialised functionality that is not practical for the suite vendors to build because of the expertise required and the limited potential return. The suite vendors need partners to work with them to develop these systems and they are beginning to understand that it is very important that the third-party software vendor be healthy.”
An independent view
Inevitably some of the established vendors are better at managing these third-party ecosystems than others, but all recognise the importance of the independent software vendor community. Microsoft, for example, has a vast third-party partner community that addresses a number of vertical niches that the vendor cannot or chooses not to address itself. Products such as MS CRM are sold via this network of partners and often heavily customised to meet specific customer needs.
For example, Notts Sport, a manufacturer of artificial sports and play surfacing, is deploying MS CRM through Microsoft partner Aspective to replace an existing sales and marketing application. Such is the Notts Sports business model, the firm knew that it needed to be able to customise the vanilla Microsoft application extensively to meet its specific requirements.
“We knew from the start we would want to customise heavily,” explains Steve Foxon, head of technical services, Notts Sport. “We had been using our existing Telemagic systems for a long time and it frankly looked ancient. We also couldn’t get licences to use it remotely. The company wanted something that would reflect the way that we work. We could probably have found something that would fit 80 per cent of what was needed but the way that we work is very different to the way other firms do. We don’t sell products to the end customer. We are a middle man. Notts Sport has unique designs for artificial sports surfaces but we don’t do the installations or the quotes. People don’t place orders with us directly. We’re almost a marketing company. We push the products and have a series of authorised installers who then order the materials from us.”
On the move
One of Notts Sport’s key requirements was that the new system could be used as a mobile solution that sales staff could access to manage account information, add and organise business contacts, schedule important meetings and track existing sales opportunities while visiting customer sites. “CRM systems tend to be geared towards orders and quotes,” says Foxon. “They tend to be project and opportunity led. We have redesigned it to fit in with the way that we work. MS CRM was easy to customise, although it took time. We didn’t have to do a lot to it. One of the main things was really to anglicise it.”
The development of an ecosystem of third-party ISVs is a trick that the emerging generation of software as a service (SaaS) vendors are determined not to miss. Market makers such as NetSuite, RightNow and Salesforce.com have all kicked off their own initiatives to encourage developers to produce niche applications built on the vanilla SaaS offering.
One such company is healthcare financing provider Resource Partners. Founded in 1999, Resource Partners was set up to sit between providers to the healthcare and the industry itself. Specifically it was set up to help organisations release the cash sums that otherwise might take months to arrive with funding provided by interests associated with Lord Rothschild, the Credit Suisse Group, Barclay’s Group and Bank of Scotland.
“A feature of government is that it has strict payment cycles for everything and these can be very quick or very slow,” says Sam Halligan, CRM manager at Resource Partners. “If you’re a one man care provider and you get paid every four or five weeks by the government but your staff need paying every week then that can be an issue. So we pay the care provider and then we get paid by the government. It operates like a credit scheme. Traditional lending organisations like banks didn’t provide these sort of funding requirements. Banks didn’t really understand care organisations and providers but we saw that we could partners with them closely.”
With a new business model and a very specific market opportunity, it was clear that a large degree of customisation would be needed to meet Resource Partners needs. "You can’t just buy a solution ‘off the shelf’ and have it meet your every need. You need something very specific. We run Salesforce.com throughout the whole organisation. We use it to run campaigns and for lead generation as well as to understand high propensity leads. All of the underwriting procedures are done through Salesforce.com, while all our company procedures are built into system.”
Ease of use
The deployment of a SaaS approach to applications has also enabled a different approach to customisation for Resource Partners. “We had a US-sourced product before which was on premises and run by the IT department. Customisation had to be added by the IT people,” says Halligan. “I’m from a marketing background and I’ve done all the customisation myself with Salesforce.com. It’s all very intuitive. Marketing is now the owner of the system, so IT can concentrate on other things.”
None of this is to say that the needs of specific niches cannot be addressed by the larger providers, but in those cases it does require both sides to work closely together. For example, magazines and newspapers distributor, Smiths News, has worked closely with enterprise applications market leader SAP to create what is effectively ‘SAP for Smiths’. ‹ Smiths News was created when it demerged from the WHSmith Group on 1 September 2006. Previously WHSmith News, the name reflects its historic legacy as the UK’s first news distributor. It is a multi-million pound business delivering more than 53 million media products each week from 500 publishers to more than 22,000 retail customers. However, it is not that long ago that the business had a pretty poor reputation.
“We were consistently seen as worst in class among the retailers,” recalls Chris Gibbons, Smith News’ business systems manager. “We didn’t perform against publishers expectations. Retailers saw us as arrogant and not listening to what they wanted. The whole industry has never lent itself to customer service. It’s always been us telling the retailer what to stock and how many he’s going to get. We were really in a bad place. “The board took a decision to do something and invested the best part of a year’s profits into SAP. We went through a 12 month period of business process review, then put SAP on top of it. We needed to consolidate a number of business processes. It made a lot more sense to have centralised functions.
“SAP was about the best fit that we could find. We started roll out in 1998 and had rolled out to all the business by 2001. We used Axoo to do the original roll out but we are now pretty much self-sufficient with our own competency centre. We replaced 97 legacy systems with one instance of SAP. One or two were old packaged systems but it was very difficult to find ‘off the shelf’ systems as our industry is unique. We had to develop most of our own internal systems.”
Dealing with variants
The kind of distribution business that Smith News runs is different to those of other sectors. “With magazines each issue might have different characteristics such as different promotions,” says Gibbons. “Then you have regional differences. So BBC Good Food magazine follows different TV regions. Then you have customer specific differences. So if you buy BBC Good Food magazine in Tesco, you wouldn’t see a Sainsbury advert in it or the other way around. There are 39 different variants of BBC Good Food and every single one has the same barcode and the same cover. So it’s a nightmare to manage and it changes every month. There’s also the fact the entire industry works on a sale or return model. Depending on the title, there’s a 35-40 per cent product return. You need to be able to track that all the way through the supply chain. Our supply chain is probably the fastest in the world. We’re certainly providing the most perishable products – a newspaper is out of date by midday. We’re one of the few distributors that delivers direct to retailers.”
While SAP was the best fit on offer, it still needed work done on it by Smiths News to make it fit its specific vertical needs. “We did develop certain functional areas from scratch but the majority of customisation we did was to make it more user friendly,” says Gibbons. “At the end of the day, SAP is used on the shop floor. We don’t necessarily have sophisticated users so whatever tools we use have to be intuitive and easy to use.
“It’s all core SAP transactions underneath. This was seven or eight years ago. With today’s tool sets and technologies, like portals, we wouldn’t have to go through all that. We had to try to create all sorts of interfaces to drag information together from all sorts of areas of the business.”
The customisation that was done over the years has benefited and been fed back into SAP’s own product development. “We know that SAP has learned from what we have gone through and certain press distribution functions have been made through our lessons.” So perhaps that is the answer, the third option. Go to a smaller specialist vendor; take a vanilla vertical application from an enterprise player; or work with your chosen enterprise provider to reshape the vanilla application to meet your very specific needs and make sure that this information is passed back into the vendor’s product development work. That way, everyone wins.