State of the Industry: Document Management Service Providers - 2010 Survey Prepared by: Peggy Winton, Vice President, AIIM 2010 AIIM 1100 Wayne Avenue, Suite 1100 Silver Spring, MD 20910 301.587.8202 www.aiim.org
About AIIM The Enterprise Content Management Association AIIM www.aiim.org AIIM is the community that provides education, research, and best practices to help organizations find, control, and optimize their information. For over 60 years, AIIM has been the leading non-profit organization focused on helping users to understand the challenges associated with managing documents, content, records, and business processes. AIIM was founded in 1943 as the National Microfilm Association and later became the Association for Information and 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, Peggy Winton is responsible for the strategic direction of all activities aimed at the supplier and channel communities of AIIM. She joined the Association in January, 2002 directly from Computer Sciences Corporation (CSC), where she served as Business Developer and strategist for the Consulting Group. Prior to CSC, Winton was Vice President and Chief Operating Officer for TTM, Inc., an international firm specializing in web-based and cooperative 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. Page 2 of 14
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 effort begun last year to aggregate more financial and operating information than in the recent past. The survey is underwritten by EMC. Figure 1 Company Type Primary Business 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 service companies. This reflects a very similar distribution to 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 less than $5 million and less than 100 employees. However, there was a noticeable increase in mean staff size over 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. Figure 2 Company Revenues Figure 3 Number of Employees Staffing Mean 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 Page 3 of 14
Business profile of the DMSP Industry The channel a broad term usually used to describe the resellers, distributors, integrators, consultants and service companies that bridge the gap between end users and suppliers is critical to the development, 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 and micrographic services, often providing additional products and services that traditionally would be more typically associated with a VAR or a system integrator. Figure 4 Services Provided The types of products and services delivered by the channel cover almost all of the elements associated with a comprehensive ECM solution. Survey participants were asked to highlight those products or services that represent 10% or more of total revenues. These results are fairly consistent with the top products and services recorded in the 2009 survey. Of note is a sizeable increase in professional services from the 17% reported last year, reflecting the growing need for companies in the channel to move upstream in their offerings as the core technology elements in the 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. Figure 5 Top Verticals At the top of the list (out of seventeen possible choices) are healthcare and state/local government, likely reflecting the perceived windfall from the Obama administration s healthcare reform efforts and recession stimulus packages respectively. Document services providers should be mindful of the likelihood that state/local governments may be squeezed in the next few years as stimulus money is no longer offered. In addition, AIIM acknowledges a need to further define the healthcare industry for these service providers, given the huge variation in drivers between multi-physician practices versus hospitals versus payors. Page 4 of 14
Another reflection of the recessionary impact is service providers decrease in bullishness about the banking 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 Profitability In this section, we review metrics associated with company size, growth, and profitability with a yearover-year comparison. Figure 6 Year to Year Rev Growth In looking at revenue growth in this year s survey versus last year, companies exhibit a positive outlook. 2009 results clearly reflect last year s economic climate and resulting loss of business for most service companies. Figure 7 Revenues by Business Mix The areas in which most service companies operate were also the ones experiencing growth from 2009 to 2010. Micrographics hardware and software showed the slowest growth this year. Page 5 of 14
Figure 8 Year-over-year net Profit change Nearly 80% of the participating companies (79%) were profitable during the most recently completed business year. The profitability numbers for service companies have improved during each year that we have conducted the survey. For example, the percentage of those reporting profitability of 10% or more has grown from 34% in the first year we conducted the survey to 50% this year. 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% Another way of looking at growth is to look at those areas in which spending increases are planned for 2010. Variable Selling Expenses are those that can be tied back to a sales event, particularly sales commissions and customer goodwill accommodations. Personnel Expenses are those that are incurred in payment of employee compensation, taxes or benefits. With new hiring comes new employee costs. Semi-fixed Expenses are normal overhead expenses that may shrink or grow in relation to the volume of business but are not tied to a specific sales event. Examples would include advertising, telephone, and office supplies. Fixed Expenses are those that must be paid every month, regardless of how many customers are serves. Examples there would include rent, utilities, loan payments, some salaries. Page 6 of 14
Customers and Partners The following questions examine the reasons why users enlist the services of these providers and, new to our survey efforts for this group, what those providers themselves look for when partnering or leveraging 3rd party providers. Figure 10 Capture Outsource Benefits Users value cost benefits of capture outsourcing most, but not as much as suppliers think they do. Service companies underestimate the value users place on smoothing workflow spikes. This aligns with findings of other AIIM research that highlights user skepticism with an ability to reintroduce scanned information back into their processes. Figure 11 Core Qualities in Outsource Partner When service companies themselves outsource to a partner, THE most important characteristic they seek is quality of service. Page 7 of 14
Figure 12 Key Outsourcing Services Sought When service companies themselves outsource to a partner, the most likely processes are film-related and indexing. This reflects the type of work most handled in offshoring. Figure 13 Support from Partnership Top on the wish list of attributes for scanning / capture partners are: a) price; and b) reputation. Page 8 of 14
Figure 14 Top Business Terms of Partnership Top on the wish list of desired support from vendor partners are assistance with generating sales and a willingness to negotiate pricing and payment options. Page 9 of 14
Marketing Effectiveness & Messaging Finally, shifting gears from operational and revenue trends to marketing effectiveness, it is worth examining how marketing and messaging align (or don t) with user drivers and practices revealed in another recent study: Over 50% of users classify themselves as being at the very early stage of capture competency. Their top business drivers for capture are very clear, and reflect a post-recession mentality to reduce costs while improving knowledge worker productivity through streamlined processes. However, only 16% of users actively extract data from images to drive processes. Figure 15 Top User Business Drivers Figure 16 Scanning Adoption The hallmark of a mainstream market is increased business through the channel. This provides enormous business opportunity for service companies in the years ahead. However, it will be essential for these providers to clearly and simply demonstrate where document scanning / conversion services can be applied. And, depending on the type of product to be recommended, Service Companies will need to identify and target different functional types within these user organizations. Figure 17 Who makes the Purchase Decision? Among all of the companies profiled, the top four forms of marketing (in terms of the number of companies doing them, not their effectiveness) are: 1) small local events; 2) marketing to their own email lists; 3) print advertising; and 4) Google advertising. Page 10 of 14
Figure 18 Where Providers are Spending Marketing $$ Figure 19 Where Users Rely on Information Most in the channel seem to have a very high level of dissatisfaction with the effectiveness of their marketing efforts. With the exception of small local events and vendor partner programs, the frustration is clear. Perhaps one source of frustration is that most of the marketing vehicles used by the channel are somewhat disconnected from the ways in which end users and prospective customers actually get their information. The 2010 AIIM Capture Survey asked end users about this. The results indicate that those seeking to sell scanning and capture solutions need to develop a marketing strategy that focuses on visibility on the web, particularly in industry communities like AIIM. An integrated strategy focused on raising the effectiveness of individual company web sites, positioning the web site and case study collateral at local and vertical events, and engaging in conversation with customers and prospects through blogs are the activities most likely to generate successful results. Page 11 of 14
Appendix State of the Industry: Appendix Document Management Service Providers - 2010 Page 12 of 14
Appendix 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 up significantly in 2010 over 2009 4. Healthcare clearly perceived as THE key growth market; S&L government currently the largest existing 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 a partner is service quality 8. When service companies themselves outsource to a partner, the most likely processes are film-related and 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 and scanning solutions; solution providers tend to over-value their own email marketing and large vertical events and under-invest in AIIM Page 13 of 14