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Through
2006, the greatest growth opportunities for most IT
vendors will be in carefully targeting vertical markets.
A vertical market strategy can be described in a four-step
process that needs to be continually developed and
managed by IT vendors.
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The
first step: Identify the opportunity. |
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This
requires evaluating overall IT spending forecasts
by industry to not only understand market size
and spending dynamics but, more importantly,
to level-set expectations around market entry.
One
of the most common misconceptions is that the
entire market forecast is a good indicator of
IT vendor opportunity. Rather, the forecast
is but one point to extrapolate in determining
the addressable market. The addressable market
is a function of understanding an industry’s
spending priorities in three different areas:
infrastructure spending, industry application
spending and IT services spending preferences.
The addressable market will be determined by
the specific solutions, but will assuredly have
a unique market forecast and outlook. |
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The
second step: Develop market entry scorecard. |
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Develop criteria
that will help evaluate the relative attractiveness
of vertical markets, given your company’s
technology capabilities and overall business
strategy direction.
The
decision to enter or target a market should
not be based on market size and growth rate
alone. Entering a market requires significant
business development and organizational resources,
and must be justified to both internal and external
stakeholders. It is crucial that an IT vendor
evaluate multiple factors when choosing an appropriate
vertical market to target. The second step then
is to evaluate the unique characteristics of
each industry that could impact the ease or
difficulty with which you can effectively target
a market and capture your targeted percentage
of the addressable market.
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The
third step: Establish key criteria for measuring
success. |
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Understanding
the ability of your company’s operational
and sales capability to operate optimally within
a specific vertical market.
Once
you have completed the “market entry scorecard”,
you have only begun the process. The single
most important task at hand in this process
is weighing the criteria so as to give more
importance to the criteria that will have impact
on your business strategy.
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The
final step: Continuous evaluation of vertical
market practices. |
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IT
vendors must continually evaluate the effectiveness
of their vertical market efforts and even entertain
exiting unprofitable markets.
The
final step in our process for developing and
managing vertical strategy is a continual 360-degree
evaluation of vertical practices. Conceptually,
the goals of the evaluation are to meet internal
and external expectations. We can divide these
into four buckets:
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Financial
expectations — Meeting revenue growth
and service margins expectations. |
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Partner
expectations — Delivering appropriate
service levels, augmenting brand and marketing
efforts and improving sales force performance. |
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Operations
expectations — Meeting internal staff
utilization rates, controlling overhead
expenses and improving R&D capabilities. |
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Customer
expectations — Keeping customers happy
and improving repeat business opportunities. |
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Developing
a vertical market solution alone is not enough - it
is only a beginning point. It is crucial that when
taking a solution to market that IT vendors understand
the opportunities by industry segment. Often, the
differences in buying behaviors and solution priorities
can be quite different. Though marketing and messaging
can be leveraged, often the solution and the technology
partnerships must be uniquely developed to capitalize
on segment opportunities.
Leverage
vertical midmarket opportunities in 2004 at Midsize
Enterprise Summit where we offer technology vendors
the opportunity to do business with the IT decision-makers
who have purchasing power. For more information -
call Gartner Vision Events toll-free 877-619-7956,
x493.
Reference
Vendor General Session, Midsize Enterprise Summit
Growing Vertically: Leveraging Vertical Market
Opportunities in a Slow Economy
Presented: September 11 and 12, 2003
Presented by: Bob Goodwin, Managing Vice President,
Gartner
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