In our relatively recent article about the still ongoing consolidation in the market, What Does Vendor Consolidation Mean To The End User? , we mentioned that the market will not stop short at the eventual "Big Five" or so of the largest leading vendors. Namely, we expect the market for application software to further segregate into two tiers.
The first group will be a limited number of very large vendors, while the second group will be a large number of small, highly focused vendors. The latter's business model will be focusing on a relatively small, tightly defined market with specific requirements that cannot be met with more generic products. Usually, these markets will be too small for the Big Five to want to compete, and will also have unique requirements that cannot easily be built into the more generic products offered by the Big Five. These specialists, boutique or niche vendors (whereby neither of these terms is meant in a derogatory manner) will compete by having in-depth product functions and intimate knowledge of their market place or by offering services (content or location wise) not available from the Big Five or large independent service providers. Example of these markets can be industrial (e.g., fresh meats, dentist offices, machine tools manufacturers, etc.) or regional (e.g., Chicago, New Orleans, Columbus, etc.) focus.
While competitive costs (i.e., ever lower and more flexible software license pricing with shorter implementations) and outstanding global service (i.e., proven implementations' payback benefits and subsequent customer loyalty) will remain important requirements for success, particularly in the lower end of the market; vertical focus will still be the key factor for survival.
Vendors that weather the ongoing carnage will have focused their business and product on a few particular, manageable industries (possibly only a single one for the smallest vendors), preferably those with a current low penetration, instead of a more generic, horizontal approach. There is a general consensus in a number of diverse industries that generic solutions require longer implementation timeframes, more customizations (or, possibly even worse, workarounds, and related dreaded backdoor knowledge just to keep the system running), and the complication of add-on solutions. Winning enterprise resource planning (ERP) and other enterprise applications products will thus demonstrate deep industry functionality and tight integration with best-of-bread "bolt-on" products in a particular vertical, which also means adding sector-specific, fine-grained capabilities.
As a matter of fact, verticalization can be seen as part of a larger effort by most enterprise applications vendors to ease the implementation of their products. By now, almost everyone in the IT industry has heard horror stories of enterprise applications implementations that took two or three years and cost tens of millions of dollars, sometimes only to be eventually abandoned (see The 'Joy' Of Enterprise Systems Implementations). That happens, in part, because the larger, generic ERP packages usually arrive needing to be configured for the business and the industry entirely from scratch. At least by configuring parts of the package in advance for a given industry and circumventing functions not required in that industry, these vendors can shorten and ease the implementation process.
In fact, software implementation time reduction is a key element of success in any enterprise-wide technology project. Users have thus increasingly looked for an ERP system designed for a specific business, since software that combines industry-specific functionality with the flexibility to accommodate each company's unique processes goes a long way toward improving the functional fit and the speed of implementation.
Closely related to the above need for vertical focus would be the inherent adequacies that traditional ERP systems have commonly exhibited owing to their genesis (see Enterprise Applications—The Genesis and Future, Revisited), and which have left enterprises struggling with a system that does not mesh with their manufacturing operations. Although, as possible remedies of these shortcomings, the lean, flow and demand-pull manufacturing philosophies have lately been getting an increased interest. Namely, the ERP systems of the 1990s have been burdened with the liability of carrying on some well-known manufacturing resource planning (MRP) problems like unnecessarily complex multilevel bills of material (BOMs), infinite capacity assumption, inefficient workflows and unnecessary (i.e., no value-adding) transactions, activities and data collections, which have not been amenable to mass-customization but rather to traditional push-demand, mass production and inventory building trends. For more details, see Pull versus Push: a Discussion of Lean, JIT, Flow, and Traditional MRP.
Still, while some tout that regardless of the industry, type of manufacturing environment, or product volumes, flow manufacturing principles can be implemented successfully, the concept has not been all things to all people so far. It is still challenging or even unsuitable to deploy in a jobbing shop that does highly configure-to-order (CTO) or unique engineer-to-order (ETO) products having high setup times and long lead times, although it has been occasionally deployed there with almost as much success as within high-volume, more repetitive make-to-demand environments. Namely, lean manufacturing and just-in-time (JIT) concepts, which emphasize continuous improvement of processes that lead to, for example reduced inventory throughout the supply chain, shorter lead times, and faster cycle times, all enabling improved response to customer demands, are indeed universal across the board and cannot be debated.
The first group will be a limited number of very large vendors, while the second group will be a large number of small, highly focused vendors. The latter's business model will be focusing on a relatively small, tightly defined market with specific requirements that cannot be met with more generic products. Usually, these markets will be too small for the Big Five to want to compete, and will also have unique requirements that cannot easily be built into the more generic products offered by the Big Five. These specialists, boutique or niche vendors (whereby neither of these terms is meant in a derogatory manner) will compete by having in-depth product functions and intimate knowledge of their market place or by offering services (content or location wise) not available from the Big Five or large independent service providers. Example of these markets can be industrial (e.g., fresh meats, dentist offices, machine tools manufacturers, etc.) or regional (e.g., Chicago, New Orleans, Columbus, etc.) focus.
While competitive costs (i.e., ever lower and more flexible software license pricing with shorter implementations) and outstanding global service (i.e., proven implementations' payback benefits and subsequent customer loyalty) will remain important requirements for success, particularly in the lower end of the market; vertical focus will still be the key factor for survival.
Vendors that weather the ongoing carnage will have focused their business and product on a few particular, manageable industries (possibly only a single one for the smallest vendors), preferably those with a current low penetration, instead of a more generic, horizontal approach. There is a general consensus in a number of diverse industries that generic solutions require longer implementation timeframes, more customizations (or, possibly even worse, workarounds, and related dreaded backdoor knowledge just to keep the system running), and the complication of add-on solutions. Winning enterprise resource planning (ERP) and other enterprise applications products will thus demonstrate deep industry functionality and tight integration with best-of-bread "bolt-on" products in a particular vertical, which also means adding sector-specific, fine-grained capabilities.
As a matter of fact, verticalization can be seen as part of a larger effort by most enterprise applications vendors to ease the implementation of their products. By now, almost everyone in the IT industry has heard horror stories of enterprise applications implementations that took two or three years and cost tens of millions of dollars, sometimes only to be eventually abandoned (see The 'Joy' Of Enterprise Systems Implementations). That happens, in part, because the larger, generic ERP packages usually arrive needing to be configured for the business and the industry entirely from scratch. At least by configuring parts of the package in advance for a given industry and circumventing functions not required in that industry, these vendors can shorten and ease the implementation process.
In fact, software implementation time reduction is a key element of success in any enterprise-wide technology project. Users have thus increasingly looked for an ERP system designed for a specific business, since software that combines industry-specific functionality with the flexibility to accommodate each company's unique processes goes a long way toward improving the functional fit and the speed of implementation.
Closely related to the above need for vertical focus would be the inherent adequacies that traditional ERP systems have commonly exhibited owing to their genesis (see Enterprise Applications—The Genesis and Future, Revisited), and which have left enterprises struggling with a system that does not mesh with their manufacturing operations. Although, as possible remedies of these shortcomings, the lean, flow and demand-pull manufacturing philosophies have lately been getting an increased interest. Namely, the ERP systems of the 1990s have been burdened with the liability of carrying on some well-known manufacturing resource planning (MRP) problems like unnecessarily complex multilevel bills of material (BOMs), infinite capacity assumption, inefficient workflows and unnecessary (i.e., no value-adding) transactions, activities and data collections, which have not been amenable to mass-customization but rather to traditional push-demand, mass production and inventory building trends. For more details, see Pull versus Push: a Discussion of Lean, JIT, Flow, and Traditional MRP.
Still, while some tout that regardless of the industry, type of manufacturing environment, or product volumes, flow manufacturing principles can be implemented successfully, the concept has not been all things to all people so far. It is still challenging or even unsuitable to deploy in a jobbing shop that does highly configure-to-order (CTO) or unique engineer-to-order (ETO) products having high setup times and long lead times, although it has been occasionally deployed there with almost as much success as within high-volume, more repetitive make-to-demand environments. Namely, lean manufacturing and just-in-time (JIT) concepts, which emphasize continuous improvement of processes that lead to, for example reduced inventory throughout the supply chain, shorter lead times, and faster cycle times, all enabling improved response to customer demands, are indeed universal across the board and cannot be debated.
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