FSN: Does ‘verticalistion’ of Business Intelligence make sense?

Does ‘verticalistion' of Business Intelligence make sense?

30th April 2007
With so much regulatory focus on both financial and non-financial reporting it is not surprising that there is a heightened interest in Key performance Indicators, (KPIs). Deciding what KPIs to report is a challenging process and it is usually a fair bet that most organisations, whether private or public sector have too many of them. No two organisations are exactly the same, even within the same sector, but clearly a sector based focus is a helpful start. Now software houses specialising in analytical applications are beginning to realise that they may have a valuable role to play. Gary Simon, FSN's managing editor reports.

The idea of vertical market software is definitely not new. Since the advent of the software package certain suppliers have developed vertical market functionality to address a specific sector. At the level of transaction systems this approach seems to have worked very well with the abundant availability of packages suited to a wide range of industries and sub-sectors. Seemingly there are software solutions for everything from abattoir management to zoo administration.

In most sectors the background to the development of the packages is the same. A software house happened to have one customer for whom they did some bespoke development which was offered by agreement to other companies in the same sector. With each new customer the package became more refined, functionally rich and specialised.

The other model that has also gained traction is the re-seller or dealer arrangement where certain third parties have developed ‘bolt-on' functionality to an accounting or ERP package with a particular vertical market in mind.

But how well does this established vertical market capability translate from transaction systems to information systems? After all transaction processing is much more predictable and codified than management reporting. Furthermore, the increasing emphasis on non-financial indicators of performance is taking companies into relatively uncharted waters.

Despite these reservations some software houses are seeing significant demand for more specialised industry support. Guy Weismantel, of Business Objects says, “We see verticalisation within the performance management space as a significant trend--and not just having industry "templates" that show terms and acronyms that would seems to demonstrate an understanding of the industry--but real intellectual property that maps to the industry processes used in various financial and operational projects. Can the product map to how business is done in that vertical? That seems to be the question we're getting asked most frequently these days.”

Infor's Chris Harman agrees although the vendor, which has substantial ERP assets is coming at the problem from a different direction to Business Objects. He told FSN, “ Infor's vertical performance management trend is to some extent driven by the pre built integration with the ERP solutions that we offer. Typically these solutions have some element of vertical focus and as such the resulting trend has to be that of increased vertical focus for the delivery of our performance management solutions.”

For some market observers the idea that a software house could provide this deep business expertise is questionable. Weismantel concedes that not all software houses will be able to rise to the challenge.

He told FSN, “Most software houses do not have this expertise, and rely on their partners to provide this for them--Microsoft is a great example of this. Now partners can be great here--particularly in smaller or specialty verticals that the vendor would likely never get into. But unless your partner is Accenture, most enterprise companies are not going to rely on a small re-seller's solution to run their business; so when vendors have this expertise, that's worth a lot to the customer--they are more confident in choosing the solution, get a faster speed to market and lower implementation costs.”

Infor's Harman agrees, “ As software organisations merge or amalgamate in tandem with the growing maturity of the performance management market, it does make it more likely that vertical specialisation can take place. Currently it is clear that there is in most software organisations not the bandwidth to deliver end to end vertical solutions. What we can say is that organisations with global bandwidth and deep routed knowledge of source systems are undoubtedly the most likely to be able to deliver these types of solutions across a substantial number of verticals.”

For some of the consulting industry, the idea that KPIs can be plucked out of thin air based on industry experience alone is a bit far fetched. Most practitioners agree that KPIs should be derived from a properly developed strategy. So aren't packaged KPIs too simplistic?

“Packaged KPI's are not simplistic, but they do depend on what the customer is trying to do, and probably don't get them all the benefits they're looking for from a project. Most companies are measuring something, so just giving them a basic set of financial KPI's isn't really going to get them farther than they probably already are. Packaged KPI's can be great for the mid-market, and may just do the trick. But if the packaged KPI's are verticalized, for instance, then you really do accelerate the benefits, which is by no means simplistic,” adds Weismantel.

Harman is not convinced that pre-packaged KPIs are the way to go. Commenting to FSN he said, “The idea of packaged KPI's is in theory a great idea to deliver a rapid implementation combined with a very low cost of ownership solution. However that is not what the current performance management market demands. This market is largely made up of organisations greater $100m turnover and what each individual company requires is a series of KPI's reports and outputs that will provide them with the best possible insight into their current performance and activity. Each organisation will see these KPI's as a means of gaining some level of competitive advantage and as such any standardisation would be an anomaly.”

"Where standardization is most likely to take place is in the mid market where organisations simply do not have the requisite budgets to allow for significant configuration,” he added.

However Mark Wilkinson, of Hyperion, points out that defining the KPIs is only the start. He told FSN, “The harder part is usually customising the starter set of KPIs for users based on business need, sourcing clean data from a variety of sources and maintaining the process on an ongoing basis. In the concept of Business Performance Management, reporting on a key set of metrics is only one step – the real value comes in analysing the reasons for performance gaps and taking action to close them. Having a pre-defined set of KPI's for a particular industry is a viable way to provide value to customers and reduce their implementation costs. In addition to this, customers can benefit from pre-defined data models, reports, views and calculations that pertain to their industry or function.”

Nevertheless Hyperion's Wilkinson believes that software houses can play an important part in the process. He added, “Provided they invest in establishing industry specific expertise, which can come from several sources: hiring industry experts into consulting, development and other key functions; acquiring companies which specialise in vertical software and services; and working closely with customers to define and develop new capabilities then software houses really do have the domain expertise to sustain a vertical market approach.”

For many companies, software houses may not be the first port of call for consulting help but with the current skills shortage, pre-packaged KPIs aimed at a particular vertical market could be just the help that some organisations need to get started.

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