The changing business landscape

May 1, 2000 12:00 PM, James G. Spencer

Marketing to the Fortune 1000 is not for every security dealer. Most dealers would be well-advised to focus on the broader market of smaller customers. However, those wishing to be successful in the Fortune 1000 segment should be aware that while the rewards may be great, the challenges will be even greater and are increasing.

As we have said, the technology landscape is changing and a dealer can, and must, select and become omnipotent in the suppliers' technologies they represent to this segment. In this article, we will focus on how the business, channel and value landscapes have also changed. While technology is the starting point, how a dealer meets the changes in these other landscapes will determine its success.

The business landscape We must face the fact that most security dealers are not particularly good businesses.

Security dealers operate relatively small businesses and are very entrepreneurial. They tend to react to all opportunities instead of proactively pursuing targeted opportunities. They tend to sell whatever systems are preferred by their sales or installation people instead of what managers tell them to sell. They are highly dependent on one or two critical people. They frequently confuse lead techs as project managers. Their costing, project, purchasing and billing systems are inadequate. Their labor supply is in constant transition with few if any pre-planned employee retention programs. Technical training is either on-the-job or supplier-provided, and professional development programs are non-existent. If there is more than one office, there is little managed consistency. Support of existing customers has too often been neglected in favor of getting and installing new customers.

The above description is a recurring nightmare for Fortune 1000 security managers. Unfortunately, it applies to far too many national and regional security dealers. Examples are:

* The national that lost control of billing systems resulting in huge accounts receivable and the inability to produce consolidated statements.

* The national that took three years to discover that many of its offices were selling jobs at a loss.

* The regional who sold maintenance agreements but did not perform the required preventative maintenance.

* The regional that did not know who their customers were.

* The national and regionals who have been thrown off accounts because they did not have qualified people on the job.

* The nationals and regionals who have overstated the capabilities of the systems they sell.

* The number of customers who have followed a favorite technician to another dealer.

As we mentioned in a previous issue, focusing on a limited number of software systems providers will help solve those business problems related to product expertise and can help in providing consistency. It will also reduce the variables to manage in costing and billing systems.

Most of the process of becoming a better business goes beyond product. Fortune 1000 customers will increasingly be looking at serious business management issues in deciding who to buy from.

Entrepreneurs must either become, hire, develop or outsource business managers who focus on more than just gross sales or margins. They must focus on development and management of consistent standards, human resources, employee development and retention. They must provide efficient infrastructure products and systems. Administration must no longer be the stepchild in the battle for planned management attention.

If a dealer wants to compete and take the risks associated with marketing to the Fortune 1000, then it must have the structure to support that business.

As part of becoming a better business, it must focus on maximizing the core competencies that Fortune 1000 customers value the most. It also means spinning off or outsourcing non-core competencies to others who can focus on and perform them better as their own core competency.

Payroll processing is an easy example of what should be outsourced. But why not all back-office functions? Why not installation, pre-assembly and testing? Why not all wire pulling and non-systems installation activity? Why not financial and comptroller functions? Why not purchasing of commodities? Why not human relations, benefits and training?

Decide what is your business and what merely supports your business. Focus your attention on the business!

The channel landscape Nowhere is change more evident than in the composition of the security delivery channel.

Dealers tend to focus on the parts of the channel they see and compete with. What they see is more business and increasingly fewer players in this segment. The incompetent and inefficient have either gone out of business, stopped competing for the Fortune 1000 or been acquired.

While regionals fear the nationals, they applaud every failure of the nationals to provide consistency. Nationals applaud each time a regional fails to make a successful alliance to service a remote location. All of this is business as usual and the end of the good news.

Now for the bad news. Those remaining in the visible channel are getting better. The surviving regionals have become worthy competitors. They are making better alliances with other regionals to support remote locations. Nationals are beginning to function as nationals versus a collection of inconsistent offices.

Despite these improvements, the Fortune 1000 are looking for far more competent, professional partners than they currently see.

And what about the hidden channel most dealers do not see? What about Johnson Controls, Siemens, Honeywell, Simplex and even ADT (Tyco)? Most of their business never even enters the visible channel. Any dealer who thinks that these giants will be content to stay out of their visible market have not followed their massive acquisitions. Take Honeywell for example. With the acquisition of Pittway, it now owns at least four access control manufacturers as well as other system manufacturers. It is the largest manufacturer of commodity products and components to the visible dealer channel, it has a massive direct delivery capability to the Fortune 1000 and it already has significant presence with their building systems.

It is a five-ton centipede who still has to learn to control its thousand legs to move in the same direction. But it will, and it is hungry and guess who it regards as its food supply?

Does it spell the end for the security dealer? The answer could be yes for those who do not adapt and reinvent themselves into professional switch-and-value providing businesses.

Do not assume that because a company can mass-manufacture hardware more efficiently that it can also deliver open knowledge-based converged software or perform professional services better than a more professional security solutions dealer.

It becomes a perception equation regarding who the Fortune 1000 perceives as providing the most value. There is no reason that the dealer cannot only survive in the visible channel but also enter the hidden channel successfully. Dealers must reinvent themselves to provide more customer value than any of their current or future competitors.

The value landscape The value equation is the battleground of the 21st century.

Many can install a traditional process-control-based security system. But it is no longer what the Fortune 1000 customers are looking for.

Some will also select suppliers who develop true open systems and also provide the focused "omnipotent" systems and professional support to provide converged solutions. This is more of what the Fortune 1000 customers expect, but it is not enough.

Few will develop the infrastructures to become really good businesses that can provide and support consistent professionalism in meeting the worldwide locations of the Fortune 1000. Some will be nationals, including those from the hidden channel, that get their act together and others will be regionals who take total responsibility and professionally manage the process as a business. This is getting pretty close to what the Fortune 1000 wants today but more will be needed tomorrow.

The real winners will be creative in providing even more value through new, non-traditional, added-value services and programs. In all probability, dealers will become or will align themselves with an application service provider (ASP) that will include Internet delivery systems. They will involve convergence with other non-security systems such as inventory management, credit and customer data mining. It is really all about the value and use of knowledge.

But to get there, dealers must narrow their focus on technology to become "omnipotent." Second, they must become better businesses by focusing on their core competency and outsource the rest. Finally, they must use creativity and business skills to meet both today's and tomorrow's value needs of the Fortune 1000.

It is a new century and a new economy driven by technology and services. Doing what you did yesterday even better today is necessary, but it will not be good enough. Forget about competition and focus on new values that you can provide.

Despite the best efforts of the Federal Reserve, the economy continues to boom at an even greater rate than last year.

Record low employment remains a concern, but downsizing and outsizing of manufacturing companies continue to supply the labor for the rapidly expanding service sector. Once again, there are no signs of emerging inflation except in the energy sector, which has become more of a political and emotional issue than an economic one.

Federal Reserve chairman Alan Greenspan will continue to increase interest rates at least by a half point over the next six months. But growing productivity and an increase in exports to recovering international markets should continue to fuel profits to overcome the increased cost of capital.

For the security industry, the short-term outlook is even better. Most security companies report that January was slow as customers emerged from the bunker mentality of Y2K. Most have reported that February was a good month and March even better as momentum builds to exceed even the heady pace of 1999.

Y2K was a blessing as well as a curse for the security industry. It generated tremendous sales and profits as customers replaced vast numbers of systems perceived to be noncompliant. It established a tremendous base of new systems that will expand rapidly through add-ons in 2000 and beyond and do so at record margins as there are virtually no sales costs in securing these add-ons.

The focus on Y2K also gave security more corporate attention in 1999 that will build in 2000. Even while crime rates have been dropping, the need for increased security has been rising. Researcher Joe Freeman reported at ISC/Las Vegas that a major reason given by customers for buying more security systems was to control, not necessarily reduce, costs.

Dealers are reporting an unprecedented surge in the number of huge, Blue Whale, new projects coming to the surface in the next few months.

The bad news is that all this prosperity has led many security professionals to keep their bad habits. Manufacturers continue to produce proprietary systems and thus have resisted customer demands for open systems. That resistance will cost them dearly in the future. Customers, now that Y2K is behind them, will increasingly, with the guidance of their IT partners, be asking new and tougher questions of their suppliers. "Why replace my existing proprietary system with another proprietary system?"

The often contentious relationship between dealers and manufacturers has not really changed, nor has the way they deliver products. It will begin to come to a head this year as business grows and systems-level talent becomes even more scarce. Together, manufacturers and dealers must work with customers to provide increased levels of professional services with fewer people and at lower cost.The Y2K prosperity wave also delayed the move to prov ide security services instead of product. The services trend will regain momentum during the second half of the year and become the market force of the decade. It is how customers can best absorb the benefits of rapidly emerging technology and control costs. It also enables suppliers of security services to provide higher levels of professional services at less cost and greater margins.

Yes, 2000 will be another great year for most of the security industry. Slowness in the first quarter was due to customer hibernation in January. Sales and margins will build rapidly in the second and third quarters into a strong backlog of business come 2001. The real winners will be those manufacturers who actually deliver open systems, and those dealers work with others to provide customers increased professional services. Beginning to fade will be those who stick with the past proprietary mentality and contentious manner in providing professional services. They will proudly claim double digit growth in 2000, but observers will need to use increasing magnification to see that second digit.

This year will see the increasing emergence of Application System Providers (ASP) as an alternative to the model of customers buying and fully operating their security systems.

This year will not be a technology year except in perhaps open systems software and the real use of integratable data bases and Application Program Interfaces (API). Digital is coming on strong but will not explode until next year. Advances in band-width and mass storage will cause the explosion of ASPs into a dominant market factor. Many of them may not be today's dealers.

This year will be a business year when people who want to be leaders will alter their business relationships and deliver greater value and service to their customers. They will provide greater security at a manageable cost over time.

Mergers and acquisitions will continue to change the landscape and relationships. For example, will Tyco continue to have the "new" Honeywell as their biggest supplier and a major competitor?

The real change in market relationships will be improved alliances to give customers greater choice and value at a manageable cost. These alliances include not only developers but also dealers in their relationships with suppliers and others.

It will be a great decade for businesses that take advantage of this year to build forward.

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© 2012 Penton Media Inc.

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