A survey carried out in association with Burlington Associates was designed to understand the specific needs of mid-market organizations so that Microsoft could better tailor its solutions and target this growth sector.
Rather than treating the mid-market as an amorphous whole, Microsoft breaks it down into three distinct sectors of upper, core and lower and has also delved into vertical market needs, identifying diverse trends within each segment in a bid to develop and combine technologies closely matched to their needs.
As far as Microsoft is concerned the mid-market spans 25 to 1,000 employee companies, with 25 to 1,000 employee companies tagged as lower mid market, 25 to 250 employees as core mid market, and 250 to 1000 employers as the upper mid market.
The survey underpinned the value of the mid market as a whole, indicating that mid sized companies are responsible for 37% of the UK’s total annual turnover. Medium sized companies make a disproportionate contribution to the UK economy for their size, said Simon Hughes who heads up mid sized business operations at Microsoft UK.
Breaking down the mid market, the upper mid market companies contribute 47% of the overall mid market turnover with 15% coming from the lower mid market and around 30% from the core mid market.
The three sectors comprising the mid market have different needs however. Many lower mid market players tend to be maturing entrepreneurial startups said Hughes, who are at a stage where their ongoing growth means they need to formalize their operations and implement controls such as cash control. As they stabilize and expand they need to start formalizing their business processes, restructuring sales and other processes from an ad hoc basis and replacing Excel with business applications.
Core mid market players have a different challenge in that while they are still growing organically they need to focus on driving their competitive advantage against their lower and upper mid market counterparts so they have a greater requirement for technology that will support customer relationship activities.
The upper mid market is characterized by maturing companies whose organic growth levels are below those of the lower and core mid market companies so they need to achieve growth by acquisition, through cost control and by developing their operations outside the UK market, however, lacking the scale advantages of large enterprises they need to balance automation against human services said Hughes.
The survey also looked at vertical market activity and found that two thirds of the total mid market turnover came from three verticals: financial services, manufacturing and retail, with distinct trends driving IT spending and priorities in each sector.
The business of banks and building societies for example is driven by trends such as high levels of personal debt, flat interest rates easing customer spending and government moves to phase out cash benefit payments. These suggest that they need to focus on cross selling so will invest further in CRM.
In addition regulatory and legislative compliance such as Basel II will also drive IT spending on ERP for banks and building societies. The survey estimates compliance will cost a medium sized bank ÂGBP200m.
In pensions and insurance depolarization in terms of independent versus tied financial advisers will impact where IT spend goes as smaller players consolidate to survive. Similarly increased life expectancy is impacting where life insurance and private health providers invest.
In general Microsoft sees these and similar trends driving increased spending in CRM and ERP systems.
One-off challenges are also impacting IT spend with the move to chip and pin for example, being a key issue in retail. As of January 01 2005 retailers became responsible for losses caused by fraudulent card use if a chip and pin card was not used but at the time only half of UK retailers were ready.
With so much to do organizations need to prioritize their spending said Hughes and Microsoft believes that in general mid market companies tend to invest in waves. The first requirement is to get basic networking and infrastructure in place, followed by other infrastructure level applications such as email to enable internal and external collaboration, moving onto management via portals.
After this, the focus shifts to automating business processes using centralized business software such as ERP or CRM and the final stage is automating sales and transactions so that the organization can improve business productive by trading online with both its supply chain and its customer chain.
