Talent Management

How Verticalization Cuts Costs, Boosts Customer Value

With verticalization, your organization develops experts, not “jacks of all trades.”
Gary CroweJuly 22, 2016

“One size fits all” works for expandable baseball caps. But when it comes to reaching customers, meeting their needs, and enhancing their business models and operations, it may be the wrong size. Today, businesses are collecting a lot of information about their customers, and they are using it to develop or tailor services to meet specific customer needs. This may not be enough to retain or develop new customer relationships, however.

Gary Crowe, CFO, Ricoh Americas Corporation

Gary Crowe, CFO, Ricoh Americas

By organizing your company across your organization’s verticals, you can provide a more relevant and positive customer experience that makes you more valuable to them and improves your top line. In fact, according to a 2013 Bain & Company study, dedicated sales specialists in health care, technology, and financial services organizations contributed an ROI of more than 1,000%. The same study found that higher-performing companies had differentiated sales resources to better reach specific customer segments. It’s reasonable to expect those differentiators have only grown in the years since.

Some companies have always had an inherent focus, given the nature of their businesses. But for those with a broader reach, here’s some food for thought on a verticalized business approach.Opinion_Bug7

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Every customer – from health care to higher education, legal to government – has specific needs and challenges to address that shape their purchasing decisions. At first blush, offering one product or solution that can serve thousands of related opportunities seems like a great business model.

But in today’s environment, customers don’t just want a good product. They want a business partner who can make them more competitive. They want a game changer. To truly become a partner and engage customers, you have to know their businesses as well as they do. A 2013 Harris Poll study commissioned by Ricoh captured “top driver” attributes that customers want from their partners before entering a more strategic-level relationship. Those attributes included a better understanding of business processes across verticals and business lines, and having specific expertise in their industry.

In verticalizing your organization, you develop experts, not “jacks of all trades.” In that way, you can understand your customers’ businesses and form partnerships designed to help them achieve their goals. In turn, that can help you win new customers, expand business with current customers and realize cost efficiencies.

Verticalizing Your Organization

Verticalizing is an evolution, not a turn-key transition. It requires diligence, customer collaboration, and willingness to embrace change.

Let me share my experiences with verticalization.

Our evolution started by aligning our sales structure with our customer segments and investing in specialized sales teams with specific industry expertise. It also required implementing a “vertical delivery” model, which shifts the structure to support customers’ expertise and vertical requirements away from geographic alignment.

My initial reaction from a CFO vantage point: This would increase costs. But in reality, we haven’t seen that. Rather, our overall sales headcount went down, while sales and delivery productivity increased. Yes, our travel expense increased, but this was more than offset by the productivity gains. Most importantly, customer satisfaction increased.

However, there’s more to verticalization and establishing a business partner than just influencing sales productivity. It means understanding customers’ unique business needs, helping address pain points, and realizing opportunities for improvement that may have otherwise gone overlooked.

The next step is developing offerings that address customer needs. An example: Our verticalized sales teams learned that our health care customers were facing issues with prescription-paper security, HIPPA compliance, and document management. In response, our verticalized design team developed health-care-specific, multi-function printers to help address compliance and privacy requirements, and simplify the workflow for printing prescriptions and patient ID wristbands from electronic medical records.

As a true business partner, it is important to adapt to customers’ unique business requirements. Those requirements are shaped by nuances that are often overlooked in a geographic or basic product-oriented approach.

What can Verticalization Bring to Your Business?

Verticalizing your go-to-market operation around customers’ specific industries and business needs will position you as a mission-critical partner. That , in turn, will create additional “stickiness” to the existing relationship and open up opportunities that didn’t exist before.

It can also add value to your customers’ businesses and drive growth. As a result, you can attract more interest in what you have to offer from other customers within that industry by sharing relevant projects and experiences. If you multiply that out across your verticals, potential top-line growth and bottom-line benefits become apparent.

For example, we’ve experienced real results and maintained an approximate 50% growth in revenue with one of our largest retail customers over a three-year period. That was influenced by vertical-specific expertise, which allowed us to better understand the customer’s challenges and provide appropriate services and solutions to improve their efficiency and bottom line.

Managing Costs During Verticalization

From a CFO’s vantage point, again, you would anticipate cost increases with this approach. But we haven’t seen that! In the past, when we brought a new offering to market, we trained the entire sales force on it. For many companies – especially ones with large sales forces (we have more than 3,000 reps) – that’s a costly process that takes your reps away from selling.

But by verticalizing the process, you can instead tailor training toward unique rep needs. We’ve used vertical-specific summits to implement leadership, selling skills, and portfolio-focused training. This approach helps reps be more productive and effective while everyone else keeps on selling. Like in an assembly line, each employee has her or his role to play, so each step and aspect works together seamlessly.

Besides the lower costs we’ve already realized, we are also exploring verticalization of our back office to realize added savings. Industry trends and best practices are useful for everyone who interacts with customers, not just the people trying to sell. Creating a process specific to each vertical eliminates unnecessary steps built for the “one size fits all” model.

As a CFO, you may think that finding a way to support growth while streamlining your operations seems too good to be true. And while you may be thinking your current approach is more logical, have you given verticalization a fair shot? It may offer you untapped potential for savings and a path to strengthen customer relationships.

Gary Crowe is senior vice president and chief financial officer of Ricoh Americas, a digital business services and printing solutions company.