State of the Industry Report 2010:v01 - aiim.org of the Industry Report 2010... · Industry Watch...

Industry Watch

State of the Industry:Document Management Service Providers - 2010

AIIM Industry Watch SurveyPrepared by: Peggy Winton, Vice President, AIIM

®

© 2010 AIIM1100 Wayne Avenue, Suite 1100

Silver Spring, MD 20910301.587.8202www.aiim.org

About AIIM – The Enterprise Content ManagementAssociation

AIIM—www.aiim.org

AIIM is the community that provides education, research, and best practices to helporganizations find, control, and optimize their information. For over 60 years, AIIM hasbeen the leading non-profit organization focused on helping users to understand the

challenges associated with managing documents, content, records, and business processes. AIIM wasfounded in 1943 as the National Microfilm Association and later became the Association for Informationand Image Management.

Today, AIIM is international in scope, independent, and implementation-focused. As the industry’s intermediary, AIIM represents the entire industry - including users, suppliers, and the channel. AIIM provides research services, educational events, industry standards and advocacy, professional networking, and training.

Complete information about AIIM is available on the Web at www.aiim.org.

THE AUTHOR

With 25 years of program, product, and business development experience, PeggyWinton is responsible for the strategic direction of all activities aimed at the supplier andchannel communities of AIIM. She joined the Association in January, 2002 directly fromComputer Sciences Corporation (CSC), where she served as Business Developer andstrategist for the Consulting Group. Prior to CSC, Winton was Vice President and ChiefOperating Officer for TTM, Inc., an international firm specializing in web-based andcooperative marketing programs. She earned a Bachelor’s Degree from Randolph-Macon Woman’s College and a Master’s Degree from the University of Maryland.

An accomplished writer and speaker, she has authored numerous marketing-related newsletters and magazine columns, as well as developed key strategic plans for the Association. Winton speaks regularly at AIIM and AIIM partner conferences.

Industry Watch

AIIM Industry WatchState of the Industry: Document Management Service Providers—2010

www.aiim.org — © 2010 AIIMPage 2 of 14

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About the Survey The survey was conducted in October, 2010 using an on-line survey instrument. A total of 92 company executives in the document “channel” participated in the survey. This year’s study continued the effortbegun last year to aggregate more financial and operating information than in the recent past. The surveyis underwritten by EMC.

Survey results are presented each year at the annual AIIM Document Management Service Providers Executive Forum, the leading networking and educational event for executives from document focused service providers. The event is now in its 35th year and is held in the Fall (www.aiim.org/dmspf).

The overall demographics of the participants in terms of company type are reflected in Figure 1. 64% of the survey participants are servicecompanies. This reflects a very similar distributionto the 2009 survey. During the rest of this report,we will refer to the results for the entire sample.

As with the 2009 study, almost two-thirds of the participants were small companies with revenues of lessthan $5 million and less than 100 employees. However, there was a noticeable increase in mean staff sizeover the 2009 result of 38.27, most likely a reflection of the post-recessionary re-hiring activity.

In the Appendix, we have provided a summary of key findings.

Industry Watch



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Figure 1 — Company Type

PrimaryBusiness

Figure 2 — Company Revenues Figure 3 — Number of Employees

StaffingMean staff size 87.7

Median staff size 14.0

Mean rev/employee $113,578

Median rev/employee $85,833

Mean sales staff size 4.6

Median sales staff size 2.0

Business profile of the DMSP Industry The “channel” – a broad term usually used to describe the resellers, distributors, integrators, consultantsand service companies that bridge the gap between end users and suppliers – is critical to thedevelopment, delivery and implementation of document, content, and records management solutions.

Over time, there has been a convergence in the types of companies in the channel and the services they provide. For example, successful service companies now often provide far more than scanning andmicrographic services, often providing additional products and services that traditionally would be moretypically associated with a VAR or a system integrator.

The types of products and servicesdelivered by the channel cover almost all ofthe elements associated with acomprehensive ECM solution. Surveyparticipants were asked to highlight thoseproducts or services that represent 10% ormore of total revenues. These results arefairly consistent with the top products andservices recorded in the 2009 survey. Ofnote is a sizeable increase in professionalservices from the 17% reported last year,reflecting the growing need for companies inthe channel to move “upstream” in theirofferings as the core technology elements inthe industry commoditize.

When asked to choose the vertical industries with the greatest potential for new revenue growth,participants once again selected the traditional industries with significant document challenges.

At the top of the list (out of seventeenpossible choices) are healthcare andstate/local government, likely reflecting theperceived windfall from the Obamaadministration’s healthcare reform effortsand recession stimulus packagesrespectively. Document services providersshould be mindful of the likelihood thatstate/local governments may be squeezedin the next few years as stimulus money isno longer offered. In addition, AIIMacknowledges a need to further define thehealthcare industry for these serviceproviders, given the huge variation in driversbetween multi-physician practices versushospitals versus payors.

Industry Watch



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Figure 4 — Services Provided

Figure 5 — Top Verticals

Another reflection of the recessionary impact is service providers’ decrease in bullishness about thebanking industry. However the transportation industry was cited for revenue potential by 10% more of this year’s participants over last year’s. During economic downturns, the truck transportation and warehousing industry often is one of the first to slow down as orders for goods and shipments decline. Nevertheless, trucking accounts for the bulk of freight transportation and warehousing is expected to grow faster than the rest of the industry.

Company Growth and ProfitabilityIn this section, we review metrics associated with company size, growth, and profitability with a year-over-year comparison.

In looking at revenue growth in thisyear’s survey versus last year,companies exhibit a positive outlook. 2009 results clearly reflect lastyear’s economic climate and resultingloss of business for most service companies.

The areas in which most servicecompanies operate were also the onesexperiencing growth from 2009 to 2010. Micrographics hardwareand software showed the slowestgrowth this year.

Industry Watch



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Figure 6 — Year to Year Rev Growth

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Figure 7 — Revenues by Business Mix

Nearly 80% of the participatingcompanies (79%) were profitable duringthe most recently completed businessyear. The profitability numbers forservice companies have improvedduring each year that we haveconducted the survey. For example, thepercentage of those reportingprofitability of 10% or more has grownfrom 34% in the first year we conductedthe survey to 50% this year.

Another way of looking at growth is tolook at those areas in which spendingincreases are planned for 2010.Variable Selling Expenses are thosethat can be tied back to a sales event,particularly sales commissions andcustomer goodwill accommodations.Personnel Expenses are those that areincurred in payment of employeecompensation, taxes or benefits. Withnew hiring comes new employee costs.Semi-fixed Expenses are normaloverhead expenses that may shrink orgrow in relation to the volume ofbusiness but are not tied to a specificsales event. Examples would includeadvertising, telephone, and officesupplies. Fixed Expenses are those thatmust be paid every month, regardlessof how many customers are serves.Examples there would include rent,utilities, loan payments, some salaries.

Industry Watch



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Figure 8 — Year-over-year net Profit change

Figure 9 — Expenses as % of Revenues

Expense as a percentage of total revenues...

Key ratios 2010 2010

Variable Selling expense 10.2% 7.5%

Personnel expense 35.2% 31.8%

Semi-fixed expense 9.8% 8.8%

Fixed expense 13.1% 8.9%

Customers and Partners The following questions examine the reasons why users enlist the services of these providers and, new toour survey efforts for this group, what those providers themselves look for when partnering or leveraging3rd party providers.

Users value cost benefits ofcapture outsourcing most,but not as much assuppliers think they do. Service companies under-estimate the value usersplace on smoothingworkflow spikes. Thisaligns with findings of otherAIIM research thathighlights user skepticismwith an ability to re-introduce scannedinformation back into theirprocesses.

When service companiesthemselves outsource to apartner, THE mostimportant characteristicthey seek is quality ofservice.

Industry Watch



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Figure 10 — Capture Outsource Benefits

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Figure 11 — Core Qualities in Outsource Partner

When service companiesthemselves outsource to apartner, the most likelyprocesses are film-relatedand indexing. This reflectsthe type of work mosthandled in offshoring.

Top on the wish list ofattributes for scanning /capture partners are: a)price; and b) reputation.

Industry Watch



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Figure 12 — Key Outsourcing Services Sought

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Figure 13 — Support from Partnership

Top on the wish list ofdesired support fromvendor partners areassistance with generatingsales and a willingness tonegotiate pricing andpayment options.

Industry Watch



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Figure 14 — Top Business Terms of Partnership

Marketing Effectiveness & Messaging Finally, shifting gears from operational and revenue trends to marketing effectiveness, it is worthexamining how marketing and messaging align (or don’t) with user drivers and practices revealed inanother recent study:

Over 50% of users classify themselves as being at the very early stage of capture competency. Their topbusiness drivers for capture are very clear, and reflect a post-recession mentality to reduce costs whileimproving knowledge worker productivity through streamlined processes. However, only 16% of usersactively extract data from images to drive processes.

The hallmark of a mainstream market is increased business through the channel. This providesenormous business opportunity for service companies in the years ahead. However, it will be essential forthese providers to clearly and simply demonstrate where document scanning / conversion services canbe applied. And, depending on the type of product to be recommended, Service Companies will need toidentify and target different functional types within these user organizations.

Among all of the companies profiled, the top fourforms of marketing (in terms of the number ofcompanies doing them, not their effectiveness)are: 1) small local events; 2) marketing to theirown email lists; 3) print advertising; and 4) Googleadvertising.

Industry Watch



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Figure 16 — Scanning Adoption

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Figure 17 — Who makes the Purchase Decision?

Figure 15 — Top User Business Drivers

Most in the channel seemto have a very high level ofdissatisfaction with theeffectiveness of theirmarketing efforts. With theexception of small localevents and vendor partnerprograms, the frustration isclear. Perhaps one sourceof frustration is that most ofthe marketing vehiclesused by the channel aresomewhat disconnectedfrom the ways in whichend users and prospectivecustomers actually gettheir information.

The 2010 AIIM CaptureSurvey asked end usersabout this. The resultsindicate that those seekingto sell scanning andcapture solutions need todevelop a marketingstrategy that focuses onvisibility on the web,particularly in industrycommunities like AIIM. Anintegrated strategyfocused on raising theeffectiveness of individualcompany web sites,positioning the web siteand case study collateralat local and vertical events,and engaging inconversation withcustomers and prospectsthrough blogs are theactivities most likely togenerate successfulresults.

Industry Watch



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Figure 18 — Where Providers are Spending Marketing $$

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Industry Watch Appendix



State of the Industry: AppendixDocument Management Service Providers - 2010

Key Findings

1. Aggregate revenues up 9.7% vs. 2009

2. 79% of companies surveyed profitable

3. % experiencing revenue growth for professional services, scanning services, and software sales upsignificantly in 2010 over 2009

4. Healthcare clearly perceived as THE key growth market; S&L government currently the largestexisting market, but likely subject to pressures in next few years

5. Users value cost benefits of capture outsourcing most; but not as much as suppliers think they do

6. Service companies under-estimate the value users place on smoothing workflow spikes

7. When service companies themselves outsource to a partner, THE most important characteristic in apartner is service quality

8. When service companies themselves outsource to a partner, the most likely processes are film-relatedand indexing

9. Top on the wish list of desired support for vendor partners are: a) joint sales calls; and b) pricing

10. Top on the wish list of attributes for scanning/capture partners are: a) price; and b) reputation

11. Over 50% of AIIM users surveyed at early stage of capture competency

12. Only 16% actively extracting data from images to drive processes

13. Decision makers vary significantly based on focus of implementation

14. End users look to AIIM and local events as most favored sources of information on capture andscanning solutions; solution providers tend to over-value their own email marketing and large verticalevents and under-invest in AIIM

Industry Watch Appendix



SURVEY SPONSOR

About EMC

EMC Corporation (NYSE: EMC) is the world’s leading developer and provider of information infrastructuretechnology and solutions that enable organizations of all sizes to transform the way they compete andcreate value from their information.

Information about EMC’s products and services can be found at www.EMC.com.

Industry Watch



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