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During
the past year many software and IT services vendors
have declared their intention to win over the midmarket,
and with good reason. The opportunity is hard to ignore
as the majority of vendor revenue in many technology
product and service categories is being generated
from midsize businesses (MSBs).
In
an effort to guide software and IT services vendors,
we report here on key findings from a recent Gartner
study, with recommendations to consider in developing
effective go-to-market and sales strategies.
Key
Findings: Software
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Front
office/back office integration
Gartner estimates that less than half of the
MSBs that have implemented CRM applications
in support of customer-facing activities, such
as sales and customer service, have linked them
with their back-office or operational applications
where key customer interaction information is
stored. Through 2005, MSBs increasingly will
require business applications that can support
business processes across enterprise departmental
and functional boundaries.
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Single-function
vs. multifunction vendors
The lines of MSB-focused vendors' competition
between single-function vendors (CRM, ERP and
SCM), and multifunction vendors are beginning
to take shape. This competition is driven in
part by MSB requirements for integrated and
interoperable applications and in part by the
forces that also drive the consolidation of
the MSB enterprise application software (EAS)
markets.
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Industry-specific
functionality driving growth
A positive effect of the maturing MSB software
markets is the growth in the availability and
sales of industry and subindustry-specific software.
This is forecast to increase as a percentage
of the overall MSB-focused software market during
the next five years.
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Recommendations:
Software
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For
business applications software vendors focused
on the midmarket, the next couple of years will
be increasingly challenging as new, better-financed
competition is entering from "above".
Namely, the traditionally large enterprise-focused
EAS and multi-application suite vendors are
increasing their efforts. Current vendors will
need to objectively evaluate if they have what
it takes – competitively differentiated
products, effective sales and support channels,
and the financial strength to remain in these
general markets.
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MSBs
have specific requirements for their business
applications and how they prefer to acquire
and operate them. These requirements and preferences
are quite different in many ways from other
size organizations, making it extremely challenging
to develop a successful market approach. Be
prepared for a steep learning curve if you are
just entering the midmarket.
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Key
Findings: IT Services
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Consulting
contracts
Large enterprise consulting contracts
play a leading indicator for MSB contracts.
Lagging large enterprises by 12 to 24 months
in the adoption of technologies and solutions,
many MSBs end up consuming similar solutions
once prices come down, vertical specialization
takes place, and concepts become more mainstream.
This is currently taking place with CRM, ERP
and e-commerce, and will be seen with wireless
opportunities beginning in 2006.
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Maintenance
and support
As operating systems are upgraded,
new enterprise solutions deployed, and infrastructure
replaced and enhanced, MSBs will continue to
spend a large portion of their IT services budget
on software and hardware maintenance and support.
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Outsourcing
growth
With supply-side efforts by outsourcers
to go "down market" with new mass-customized
utility offerings, the MSB sector will witness
a jump in outsourcing growth between 2003 and
2004.
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Recommendations:
IT Services
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Don't
copy the large-enterprise playbook, simply use
it as a guide. MSBs are not looking for long-term
strategic efforts, they are seeking engagements
that help them become more productive, and efficiently
use the human and capital assets they already
have. Engagements should be designed to be more
tactical in nature with shorter and smaller
projects, demonstration of short-term return-on-investment,
and predefined repeatable solutions that are
already tailored for a given vertical to minimize
on-the-clock tweaks.
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Improve
customer self-service for software and hardware
maintenance and support. Vendors can assist
with this by providing "smart" tools
to help identify responses online to previously
asked client questions, by imposing incentives
to clients who learn to leverage knowledge obtained
from calls the first time, and by providing
tools to enable self-diagnosis before a call
is made. Provide intuiting, self-healing technology
components that have first-line diagnoses built
into the solutions.
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"Good
enough" is not a slogan that plays well
with MSBs. Outsourcers must explore mass-customized
solutions that address specific MSB wants and
needs, while they avoid the "one size fits
all" approach to utility services, and
place an emphasis on vertical industries.
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Finally,
vendors must realize that an economic recovery alone
won't be the solution to sales woes, that buyer behavior
has shifted, and they must develop new strategies
to deal with those facts.
Learn
more firsthand from IT decision-makers and Gartner
experts at Midsize
Enterprise Summit.
Reference
Executive Summary
SMB Services and Software Market U.S. Forecasts,
2003
Publication Date: February 13, 2003
Authors: Mika Krammer, Robert Anderson, Robert Brown,
Tony Adams, Bruce Caldwell, Joanne Correia, Chad Eschinger,
Colleen Graham, Ted Kempf, Eric Rocco, Rebecca Scholl,
Ron Silliman, Tom Topolinski, Allie Young
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