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Should partners specialise or diversify vertical markets?

Rendtech Associates and Thomas Peer Solutions weigh up strategy pros and cons
Thomas Peer Solutions CEO, Udara Dharmadasa

Thomas Peer Solutions CEO, Udara Dharmadasa

As IT buying increasingly moves beyond the back-end to now involve line of business heads alongside the CIO, new breeds of end users are born, leaving partners well-placed to capitalise across all industry verticals.

Certainly, this means opportunities abound for the channel to sell solutions and services that transcend multiple markets. Particularly in a period where every industry sector has embarked on some kind of digital transformation journey in response to changing demands and expectations among end users, according to Gartner.

Yet, there remains two sides to the strategy coin. Is there more value to be had by taking a vertical-centric approach or adopting a solution-centric strategy?

According to Gartner, successful vertical differentiation is a business and operating model choice, not a marketing choice.

“Not all technology providers will benefit from greater verticalisation, but the approach adopted needs to be a considered decision,” the firm said.

For Melbourne-based managed services company, Thomas Peer Solutions, the strategy is simple: the actual technology is more important than the industry.

“These days, the major disruptors in an industry are solutions like mobility, cloud and security,” CEO, Udara Dharmadasa, explained.

“If you think about companies like Uber and Airbnb, these technologies are very big disruptors in industries and they took the market share right out of their competitors. So if you look at competition from an industry point of view, these companies were not ready for the disruptors.”

Since starting out as a consultancy firm in 2012, Thomas Peer turned over $2.56 million in revenue in 2016 and Dharmadasa attributes the business success to its transition into a solution-centric company, integrating products for security, virtualisation and infrastructure-as-a-service.

“Everybody wants to mobilise their salesforce. Everybody wants to look at their security. Everybody wants to deploy faster and more efficiently because they want to be agile. No matter what industry you are in, these are the priorities. So, security, agility and mobility - these are the priorities for business from an IT view,” he said.

However, in recognising that there is not one strategy that fits all, Dharmadasa explained that the approach largely depends on the companies a partner is targeting.

“If you are focusing on a very traditional business that has been in the market for 25 years, then [a vertical-centric] strategy is correct. But if you are targeting modern companies who are looking for new technologies, then you can disrupt them and prove to their shareholders that they are progressive.”

Dharmadasa added that because of both current and unknown “disruptors” and “the new way of thinking”, many companies want to utilise what other industries experience to grow in a particular technology or field like security, mobility or cloud. And these disruptors transcend many industries.

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For mobility in particular - one of Thomas Peer’s key technology offerings - Dharmadasa said he has deployed solutions in schools, manufacturing, healthcare and airlines.

“If you think about it collectively, there is one common thing that those industries have and that is to mobilise their usage and provide agility to their customers. The common denominator is the actual technology, rather than the industry. They all have the same need which is getting their customers the application that is necessary for them to consume their products.”

Highly aware of the unprecedented pace of the technology sector, Dharmadasa admitted that keeping up with a relevant set of disruptive solutions is certainly a challenge.

“If you don’t keep up with it all, then your market-share will diminish tomorrow if you don’t think about it today. What my advice is to CIOs and IT managers, is that if you don’t keep with the latest trends and technologies, you will lose your business. The business that will survive, is the one that is deploying the disruptor,” he said.

To keep on top of the game, Dharmadasa said he attends many trade shows and industry forums happening every few months across Asia Pacific for opportunities to discover trends across the region.

“If things are happening in Asia Pacific, normally it trickles down to Australia three months later. And if we’re not the ones taking this new technology and disruption to Australia, then somebody else will.”

In classifying his business as “progressive” and drawing comparisons to infamous disruptive stories by the likes of Uber and Airbnb, Dharmadasa’s strategy certainly aims to epitomise the archetype of the modern tech company. That is, one that is on top of the industry game with presence across multiple verticals.

However, on the flip side of the strategy sits managed service provider, Rendtech Associates, a company proving that there is a different type of value to be had from championing just one industry.

“When we specialise in an industry it’s a bit like doing your PhD,” explained founder and CEO, Rob Khamas. “It’s not so much about the money, it’s more about how well you think you can go and how much change we can make.

“When you specialise in an industry, you’re an influencer. If you provide services that cross so many industries, you are a solution-provider, but how much influence can you really hold across industry? That is a choice you make. There is no right or wrong way about it, it just comes down to what you want to achieve at the end,” he said.

Whilst intrinsic value can be drawn from specialisation, additionally for Khamas, digging deep into the healthcare sector certainly offers a wealth of opportunity.

The industry is set to retain its crown as the fastest-growing industry sector, according to Gartner, with five-year CAGR of 5.7 per cent over 2015-2020, while banking, media, and professional services are expected to, as a group, experience a CAGR of around 4.9 per cent for the period, to more than $US475 billion in 2020.

Contrasting to the solution-centric approach, Khamas explained over the last five years to the next 15 years that healthcare’s technology is “the hottest industry” to go into it because it is protected from disruption.

“We get in here and basically our futures are sort of set. Our future as a company and our specialised skill-set is protected,” he explained.

“But, I don’t know many companies that specialise to be honest. Most of the time, they will run their strategy the other way where they work across all industries. However, I think that most of the time, they end up specialising in one anyway. For example, they might find they make much more money with government and then it becomes a strategic decision to narrow down verticals.”

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For Khamas, industry specialisation additionally creates an extensive scope for innovation.

“Four years ago, cloud computing in healthcare was a big no no. Now, 85 per cent of our revenue is cloud computing. You see young doctors, old doctors, big and small organisations - they all want the latest technology.”

“At the moment, 80 per cent of the calls that we get is about how our customers can work from home securely or how they can do a telehealth consultation for their patients that can’t drive to see them anymore. So, there are all these questions and we need to find solutions for them. The disruption comes from that,” he said.

Khamas added that the healthcare industry exhibits a strong appetite for new, disruptive solutions.

“The big entities are always asking how they can do better and essentially how they can steal customers from the other big healthcare enterprises," he said. Whether it is apps, telehealth, solutions to pay on the spot or after the operation, the reality of it all is that the technology appetite comes from being the better entity that delivers that service.”

“I think the hottest thing right now is population health, which is understanding your demographics and your data. Australia has a massive mental health problem, so imagine knowing the trends of people that have the challenges and you can pick up on it early and save them.”

According to Khamas, whilst the industry may be protected from disruption, the market is big enough is have competitors in it.

“But what sets us apart is quality. Our industry is small enough to see that if you do a bad job, everyone will know. Doctors are all friends and it is an incredibly tight community. When you do something good, no one talks about it. But if you do something bad, everyone will hear about it,” he said.

According to its ‘Vertical Strategy Framework’, Gartner recommends five postures that partners can choose between to help gain traction in a chosen industry sector: industry aware; industry entrant; industry associate; industry peer; and industry influencer.

“Adopting a vertical-market approach forces providers to consider their offerings in a business context, and provides an opportunity to help their clients drive competitive differentiation and achieve industry-specific business goals,” the Gartner report said.

In a nutshell, partners stand to capitalise in verticals - whether specialised or diversified - given their strong understanding of the business decisions that drive particular technology investments in the enterprise, coupled with a clever strategy implementation to fulfil business solutions.