The enterprise application software industry has historically been characterized by the quest for new accounts. However, as market penetration increased, opportunities for new accounts lessened. Now many vendors are betting on "the replacement market" to serve as their new account vehicle. But do companies want to replace their existing application software?
Part One of the Achieving Growth: New Accounts versus Up-selling to Existing Accounts series.
Powerhouses application vendors have indicated that they think companies want to keep their current software systems, and improve them through enhancements and integrations. Additionally, Microsoft and IBM have also been telling customers that instead of investing in major new packaged system, many of the integrated, cross-functional applications providing all the functionality customers need, will soon be available. By plugging existing and new Web services and components together, and by using the technology and services from these vendors, companies should supposedly be able to get as much flexibility as they need.
For instance, IBM recently announced a new service that will help companies build capabilities to support business goals and focus on growth, while freeing overstretched IT budgets. Offered through IBM Global Services (IGS), the new service-oriented modeling and architecture (SOMA) is IBM's approach to solving a significant problem—finding a consistent way for businesses to develop more flexible technology that provides the maximum return.
SOMA should help companies implement a service-oriented architecture (SOA), an evolution in distributed computing that is based on industry standards. It is also a framework that should enable enterprises to evolve to on-demand businesses that integrate data and applications with customers, partners, and suppliers (for more information, see Understanding SOA, Web Services, BPM, BPEL, and More). To that end, SOMA aims at mapping a corporation's underlying applications and infrastructure with business processes related to a particular area, such as retail banking in a financial institution.
IBM cites a recent survey of chief executive officers (CEO), which found that growth is now again their number one priority, overtaking cost-cutting as their previous top concern. However, IT departments in most organizations are not aligned to quickly implement new projects that can bring growth. Despite years of major technological advances in processing power, systems utilization, and autonomic software, most enterprises still reportedly allocate more than 80 percent of IT budgets to maintaining existing systems.
To make improvements and grow, businesses need better visibility into their business processes, and need to break the business down into components. Whether a discrete process or a business processes that supports the entire enterprise, this becomes critical to achieving business improvement and growth. For example, IBM's Component Business Modeling (CBM) methodology will map out a companies' business processes and help determine which provide strategic differentiation over competitors; what processes are core; and what business processes may not be considered strategic. IGS has developed a functional decomposition methodology, called CBMs, to help customers zero-in on business process issues and interaction for almost twenty vertical industries and their sub-sectors. However, once this is done, companies still often lack a flexible IT infrastructure to support change that creates growth.
To address this, companies are starting to adopt SOAs to build flexible standards-based infrastructures and to support a rapidly changing business environment. With an SOA, business processes that are not considered core or strategic can often easily be offloaded to a third party vendor to execute at a lower cost. Payroll processing or other functions common to all companies in a given industry, such as check imaging in financial services, can be offloaded. This thereby frees initial IT resources to focus on growth areas.
Many companies are already experiencing the initial benefits of an SOA, but lack a plan to implement the technology in a systematic way across the enterprise. Without a plan, technology investments are underutilized and potential benefits are lowered. In other words, what has not yet been cracked is how to know whether the enterprise is implementing the right parts of the SOA or if it is exposing the right services that bring the biggest bang for its buck. Hence, SOMA should provide an approach to building an SOA framework that aligns to a business's goals and directly ties business processes to underlying applications through services. This should help the business realize benefits more rapidly.
Once the technologies underneath the business processes are identified, then IT divisions and business managers can work together in deciding which systems need to be modified to support upcoming changes in business operations. This is done through identifying and prioritizing the services that a business needs to develop or expose in order to support improved business processes. For example, a bank may decide to focus IT resources on more account-related services for on-line banking, rather than build infrastructure to support more tellers. In addition, the tight link made between technology and processes makes it easier for companies to prioritize the work done by IT departments. A company might no longer need to guess what services need to be added for the greatest value, as SOMA should provide a systematic approach to building the an optimized roadmap to implementing a SOA.
This is Part One of a three-part note.
Part Two will look at how the "big few" cope with change.
Part Three will discuss the choices facing customers and make user recommendations.
Analysis of These Events
The major reason for the recent consolidation frenzies seen by a number of companies is to corral existing install bases and increase market share in a saturated market. Namely, for a number of halcyon years, application vendors have fueled their success through mushrooming new accounts, but things have drastically changed during past few years. Nowadays most application software markets are mature and highly penetrated, with only a few new accounts available in some esoteric industries or regions. To continue to be healthy, any enterprise software vendor either needs a defendable niche or a large market share, and for the latter, acquisitions are often required for companies to grow and prosper. With revenue streams shifting from new accounts to up- and cross-sales, software support and services, a larger customer base, and the economies of scale are key factors to continued health.
Now that the enterprise software market is mature, the "grow-at-all-costs" vendors' strategies of the ebullient 1990s simply do not work any longer. In the stock market of the 1990s, brand new accounts became a key metric when valuing application software companies. "New accounts at all costs" mantra was seen as the right business models by both investors and vendors, and were the primary source of revenue. Times have drastically changed though, and few new account opportunities exist. Moreover, continued economic uncertainty and increased users' astuteness has tightened the purse strings of most prospective user companies. Selling new systems is much more difficult. Therefore, more successful application vendors of late are focusing on their install base as their primary source of revenue while, at the same time, cutting costs to become profitable. Many, as seen in some recent market moves, are even vying for their competitors existing and dissatisfied customers.
SOURCE:-
http://www.technologyevaluation.com/research/articles/achieving-growth-new-accounts-versus-up-selling-to-existing-accounts-17905/
Part One of the Achieving Growth: New Accounts versus Up-selling to Existing Accounts series.
Powerhouses application vendors have indicated that they think companies want to keep their current software systems, and improve them through enhancements and integrations. Additionally, Microsoft and IBM have also been telling customers that instead of investing in major new packaged system, many of the integrated, cross-functional applications providing all the functionality customers need, will soon be available. By plugging existing and new Web services and components together, and by using the technology and services from these vendors, companies should supposedly be able to get as much flexibility as they need.
For instance, IBM recently announced a new service that will help companies build capabilities to support business goals and focus on growth, while freeing overstretched IT budgets. Offered through IBM Global Services (IGS), the new service-oriented modeling and architecture (SOMA) is IBM's approach to solving a significant problem—finding a consistent way for businesses to develop more flexible technology that provides the maximum return.
SOMA should help companies implement a service-oriented architecture (SOA), an evolution in distributed computing that is based on industry standards. It is also a framework that should enable enterprises to evolve to on-demand businesses that integrate data and applications with customers, partners, and suppliers (for more information, see Understanding SOA, Web Services, BPM, BPEL, and More). To that end, SOMA aims at mapping a corporation's underlying applications and infrastructure with business processes related to a particular area, such as retail banking in a financial institution.
IBM cites a recent survey of chief executive officers (CEO), which found that growth is now again their number one priority, overtaking cost-cutting as their previous top concern. However, IT departments in most organizations are not aligned to quickly implement new projects that can bring growth. Despite years of major technological advances in processing power, systems utilization, and autonomic software, most enterprises still reportedly allocate more than 80 percent of IT budgets to maintaining existing systems.
To make improvements and grow, businesses need better visibility into their business processes, and need to break the business down into components. Whether a discrete process or a business processes that supports the entire enterprise, this becomes critical to achieving business improvement and growth. For example, IBM's Component Business Modeling (CBM) methodology will map out a companies' business processes and help determine which provide strategic differentiation over competitors; what processes are core; and what business processes may not be considered strategic. IGS has developed a functional decomposition methodology, called CBMs, to help customers zero-in on business process issues and interaction for almost twenty vertical industries and their sub-sectors. However, once this is done, companies still often lack a flexible IT infrastructure to support change that creates growth.
To address this, companies are starting to adopt SOAs to build flexible standards-based infrastructures and to support a rapidly changing business environment. With an SOA, business processes that are not considered core or strategic can often easily be offloaded to a third party vendor to execute at a lower cost. Payroll processing or other functions common to all companies in a given industry, such as check imaging in financial services, can be offloaded. This thereby frees initial IT resources to focus on growth areas.
Many companies are already experiencing the initial benefits of an SOA, but lack a plan to implement the technology in a systematic way across the enterprise. Without a plan, technology investments are underutilized and potential benefits are lowered. In other words, what has not yet been cracked is how to know whether the enterprise is implementing the right parts of the SOA or if it is exposing the right services that bring the biggest bang for its buck. Hence, SOMA should provide an approach to building an SOA framework that aligns to a business's goals and directly ties business processes to underlying applications through services. This should help the business realize benefits more rapidly.
Once the technologies underneath the business processes are identified, then IT divisions and business managers can work together in deciding which systems need to be modified to support upcoming changes in business operations. This is done through identifying and prioritizing the services that a business needs to develop or expose in order to support improved business processes. For example, a bank may decide to focus IT resources on more account-related services for on-line banking, rather than build infrastructure to support more tellers. In addition, the tight link made between technology and processes makes it easier for companies to prioritize the work done by IT departments. A company might no longer need to guess what services need to be added for the greatest value, as SOMA should provide a systematic approach to building the an optimized roadmap to implementing a SOA.
This is Part One of a three-part note.
Part Two will look at how the "big few" cope with change.
Part Three will discuss the choices facing customers and make user recommendations.
Analysis of These Events
The major reason for the recent consolidation frenzies seen by a number of companies is to corral existing install bases and increase market share in a saturated market. Namely, for a number of halcyon years, application vendors have fueled their success through mushrooming new accounts, but things have drastically changed during past few years. Nowadays most application software markets are mature and highly penetrated, with only a few new accounts available in some esoteric industries or regions. To continue to be healthy, any enterprise software vendor either needs a defendable niche or a large market share, and for the latter, acquisitions are often required for companies to grow and prosper. With revenue streams shifting from new accounts to up- and cross-sales, software support and services, a larger customer base, and the economies of scale are key factors to continued health.
Now that the enterprise software market is mature, the "grow-at-all-costs" vendors' strategies of the ebullient 1990s simply do not work any longer. In the stock market of the 1990s, brand new accounts became a key metric when valuing application software companies. "New accounts at all costs" mantra was seen as the right business models by both investors and vendors, and were the primary source of revenue. Times have drastically changed though, and few new account opportunities exist. Moreover, continued economic uncertainty and increased users' astuteness has tightened the purse strings of most prospective user companies. Selling new systems is much more difficult. Therefore, more successful application vendors of late are focusing on their install base as their primary source of revenue while, at the same time, cutting costs to become profitable. Many, as seen in some recent market moves, are even vying for their competitors existing and dissatisfied customers.
SOURCE:-
http://www.technologyevaluation.com/research/articles/achieving-growth-new-accounts-versus-up-selling-to-existing-accounts-17905/
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