Targeting KM solutions to vertical industries

By Brian McDonough and Gregory Dyer

In the battle to differentiate themselves from the competition, integrators and software firms are embarking on a path to provide vertical knowledge management solutions to clients. By focusing on particular verticals, vendors can leverage their experience, tailor their offerings and message, efficiently manage their marketing dollars and offer a higher value-added solution to their clients. In addition, this focus allows them to define and target more specific business problems that can be effectively measured for clients. While the solutions may be informal offerings or more formal ones promoted as such, the common characteristic is that the vendors are leveraging expertise to gain a competitive advantage. Going forward, vendors can leverage their vertical experience into a broader menu of vertical solutions.

Examples

In focusing on the needs of the customer, vendors are beginning to promote targeted solutions around specific industries. Solving specific business problems makes for a more concrete value proposition. Vertical strategies are exemplified by the selected vendors below:

• Primus Primus (primus.com) announced the availability of its Primus Suite for Financial Services, a line of products designed to bring measurable efficiencies to the complexities and costs associated with traditional and online customer relationship management, including customer care, product support, self service and sales. Primus’ announcement exemplifies an emphasis on a broader industry trend of implementing KM functionality to enhance CRM processes and an increased focus on specific verticals.;

• IBM Global Services established a life sciences consulting practice to help biotechnology and pharmaceutical organizations use IT in research and development. The life sciences consulting business covers knowledge management, data management and integration, as well as clinical trial electronic enablement for companies doing drug development. ;

• Medicalis USA(www.medicalis.com, under construction), a developer of knowledge management software for physicians and related medical professionals, recently completed a prototype for a medical knowledge management system. ;

• Sopheon, a KM service and software firm, developed its Accolade solution for enhancing new product development in the manufacturing sector. It intends to enhance that capability through its acquisition of Orbital Software.;

• Serviceware combines knowledge management functionality with customer service and support capabilities. It had focused on enhancing technical support processes before recently broadening its strategy to other applicable customer service processes.;

Vertical breakdown

Are vendors currently targeting vertical industries in the right industries for long-term success and are their targeted solutions addressing the most important needs of those verticals? From an industry perspective, KM programs can be developed for any type of business characterized by a need to successfully leverage data and information to enhance business processes.

The findings in a recent IDC (idc.com) survey categorize verticals by general activity in KM, overall spending, specific spending activity and other information regarding reasons for adoption, planned business uses, targeted departments, perceived benefits and implementation challenges. It is important to note that the respondents were not a random sample but a targeted KM audience that is familiar with KM. In addition, while the n-values for some of the answers are small, IDC believes the results provide valuable insight into potential vertical opportunities.

Verticals by KM interest Table 1 shows the results from a survey question that asked the respondents what industry sector their companies represent. The top industries are as follows:

• business services,;

• communications,;

• government,;

• education and;

• financial services. ;

Manufacturing was close behind; however, the “other” category garnered the overall highest vote at 27%. Since respondents had the option to insert an industry, IDC was able to determine that a large percentage of the “other” category was technology. As a result, technology was added as a category in Tables 2, 3 and 4. In addition, to streamline the verticals and include some of the “other” categories in Tables 2, 3 and 4, some verticals were combined including banking/financial services, utilities/energy/chemicals, and healthcare services/pharmaceuticals.

Verticals by overall spending

While it’s nice to know that certain verticals are more interested in KM than others, the amount of money that they are planning to spend will play a significant role in determining if a vendor should develop an industry solution. Table 2 displays the budgets allocated by verticals in 2000, 2001 and 2002. IDC draws the following conclusions from the data:

• The top five verticals by 2002 budget are utilities/energy/chemicals, banking depository/financial services, process manufacturing, discrete manufacturing, and government.;

• The banking/finance vertical shows interest in KM and is supporting their interest by being one of the top three budgeters in all three years.;

• Government is also a promising sector as a top five interest holder and being one of the top five budgeters in 2001 and 2002.;

• While education is very interested in KM, its budgets are lower than other verticals and may create a challenge for larger vendors that require larger contracts and/or a higher volume of business.;

• Business services and communications also present good opportunities even though they dip below the top five budgeters in two out of three years. Those verticals are very large and will generate many contracts at a promising price point.;

• Although it carried the sixth position in Table 1, other contract manufacturing poses a good opportunity based on the size of contract in all three represented years. ;

• While it may be restricted in terms of general interest and number of contracts, the utilities/energy/chemicals vertical is worth taking a look at due to the high budget allocations in all three years. Most of the major oil firms are heavily invested in KM with particular emphasis on driving down exploration cost.;

Verticals by spending activity

When considering budgets, it’s important to understand how companies are spending their budgets in order to tailor products and services. For KM services, IDC breaks down spending by five activities. They include consulting/planning, implementation, operations/outsourcing, maintenance, training, and other. As shown in Table 3, most companies are spending the majority of their budgets on consulting/planning and implementation activities.

When considering the top five verticals in Table 1, banking/financial services is in the planning stage with education and government while business services and communications is slanted more toward implementation, although the numbers are very close and represent a transition period. For vendors, it is important to realize that since planning is the dominant activity, they will need to have assessment services to aid technology selection, business process analysis, opportunity assessment and change management services in order to meet the needs of the customer.

Other vertical-specific information

Through the previous tables, we have shown the verticals most interested in KM, their budgets and how they plan on spending their money. In order to help vendors further tailor their vertical offerings, IDC has broken down by vertical industry the following criteria listed below and detailed in Table 4.

• reasons to adopt KM,;

• business uses of KM,;

• targeted departments for KM initiative,;

• planned benefits from KM,;

• focus of effort (internal/external/both) and ;

• challenges implementing KM.;

When users were asked about those criteria and how they related to their KM efforts, their answers were generally consistent across verticals. That is encouraging because vendors have the opportunity to focus on one vertical and then leverage their marketing, promotion and assessment resources to move into an additional vertical market. The most common response to each of the above listed categories is as follows:

• reasons to adopt KM: retain expertise;;

• business uses of KM: capture best practices;;

• targeted departments for KM initiative: customer support;;

• planned benefits from KM: better decision making;;

• focus of effort (internal/external/both): internal and external (B2E and B2B); and;

• challenges implementing KM: employees have no time for KM (not a technology issue).;

Key findings

A KM software or services vendor can focus its efforts on the verticals most interested in adopting KM and then further break those down by expected budget in 2002. In that scenario, the most attractive verticals include:

• banking depository/financial services,;

• government, and ;

• business services.;

Because of the size, interest and strong budgets of those verticals, they are going to be targeted by most vendors. Smaller and midsize vendors will need to offer a unique product to compete and differentiate themselves from their larger competitors. Smaller vendors may have better success in the industries with lower interest in adopting KM solutions. Within those verticals, some sectors are comprised of companies that have high budgets for KM when they do choose to pursue a KM initiative. In that scenario, the most attractive verticals are

• manufacturing (both categories),;

• utilities/energy/chemicals and;

• technology.;

With that strategy, the budgets are equal or greater than the top five verticals most interested in adopting KM listed in Table 1, but fewer contracts may be available. No matter what strategy a vendor chooses to take, the key to success for any vertical solution is being able to deliver an effective solution that solves a defined business problem and can demonstrate direct, positive financial results.

By focusing on particular verticals, vendors can leverage their experience, tailor their offerings and message, efficiently manage their marketing dollars and offer a higher value-added solution to their clients. Selling into a vertical industry requires a vendor to offer relevant solutions and prove a positive ROI based on past successes.

KM customers want to establish best practices to retain expertise, particularly related to customer support. They want their employees to make better decisions and intend to use their KM solutions internally and externally with partners, suppliers and clients. Focusing on internal applications of KM technology and services, especially in the context of customer relationship management processes, will lead to vendor success in its targeted vertical industry through the next few years.

Brian McDonough is research manager of Knowledge Management Software for IDC (idc.com), e-mail bmcdonough@idc.com.