AIIM and OPEX: State of the Document Management Serivce Industry - and roadmap for the future

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AIIM White Paper

State of the Document Management Service Industry - and roadmap for the future Sponsored by

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About the White Paper

We are happy to extend free use of the materials in this report to end-user companies and to independent consultants, but not to suppliers of ECM systems, products and services, other than OPEX and its subsidiaries and partners. Any use of this material must carry the attribution – “© AIIM 2014 www.aiim.org / © OPEX 2014 www.opex.com” Rather than redistribute a copy of this report to your colleagues, we would prefer that you direct them to www.aiim.org/research for a download of their own.

Our ability to deliver such high-quality research is made possible by the financial support of our underwriting sponsor, without whom we would have to return to a paid subscription model. For that, we hope you will join us in thanking our underwriter for this support:

OPEX Corporation 305 Commerce Dr. Moorestown, NJ 08057-4234 USA Tel: US (+1) 856.727.1100, Europe +44 (0)1204.388.838 Web: www.opex.com

Process used and survey demographics

The survey results quoted in this report are taken from a survey carried out between 10 January 2014 and 31 January 2014, with 326 responses from individual members of the AIIM channel and services community surveyed using a Web-based tool. Invitations to take the survey were sent via email to a selection of AIIM’s 10,000+ channel and the broader service providers’ community. 81% are from North America, 8% from Europe, and 11% from elsewhere. 83% consider themselves to be a service business, 9% Systems Integrators and 8% VARs.

About AIIM

AIIM has been an advocate and supporter of information professionals for nearly 70 years. The association mission is to ensure that information professionals understand the current and future challenges of managing information assets in an era of social, mobile, cloud and big data. AIIM builds on a strong heritage of research and member service. Today, AIIM is a global, non-profit organization that provides independent research, education and certification programs to information professionals. AIIM represents the entire information management community: practitioners, technology suppliers, integrators and consultants. AIIM runs a series of training programs, including the Capture and Imaging Certificate course. www.aiim.org/Training/Certificate-Courses/Capture-and-Imaging

About the author

Doug Miles is head of the AIIM Market Intelligence Division. He has over 30 years’ experience of working with users and vendors across a broad spectrum of IT applications. He was an early pioneer of document management systems for business and engineering applications, and has produced many AIIM survey reports on issues and drivers for Capture, ECM, Records Management, SharePoint, Cloud, Big Data, Mobile and Social Business. Doug has also worked closely with other enterprise-level IT systems such as ERP, BI and CRM. He has an MSc in Communications Engineering and is a member of the IET in the UK. © 2014 AIIM 1100 Wayne Avenue, Suite 1100 Silver Spring, MD 20910 (+1) 301 587-8202 www.aiim.org

State of the Document Management Service Industry - and roadmap for the future

As the non-profit association dedicated to nurturing, growing and supporting the user and supplier communities of ECM (Enterprise Content Management) and information management, AIIM is proud to provide this research at no charge. In this way the entire community can leverage the education, thought-leadership and direction provided by our work. Our objective is to present the “wisdom of the crowds” based on our 80,000-strong community.

© 2014 OPEX Corporation 305 Commerce Drive Moorestown, NJ 08057-4234 (+1) 856.727.1100 www.opex.com

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Table of Contents About the White Paper........................................

Process used and survey demographics..............

About AIIM.............................................................

About the author....................................................

Strategic Plans: 1 1 1 1

Introduction: Introduction.......................................................... 3 Key Findings.......................................................... 3

Strategic Plans.................................................... 17 Planned New Services.......................................... 19

Conclusion and Roadmap: Conclusion and Roadmap.................................. 20 Recommendations................................................ 20

Appendix 1: Survey Demographics

2013 Performance and 2014 Outlook................ 4 2014...................................................................... 5 Revenue and Profit Trends.................................... 6

Survey Demographics........................................

Survey Background...............................................

Organizational Size...............................................

Geography.............................................................

Industry Sector......................................................

Threats and Opportunities:

Appendix 2: Open ended comments

2013 Performance and 2014 Outlook:

Threats and Opportunities..................................

Threats..................................................................

Opportunities.........................................................

Top Product Categories.........................................

Competition...........................................................

7 7 7 8 9

Profit Drivers and Drainers: Profit Drivers and Drainers.................................

Drivers...................................................................

Drainers.................................................................

Mergers and Acquisitions......................................

21 21 21 21 22

Open ended comments....................................... 23

Underwritten in part by: OPEX Corporation................................................. 24 AIIM....................................................................... 24

10 10 10 11

Benchmarks: Benchmarks......................................................... 12 Revenue per Employee......................................... 12 Labor Costs........................................................... 13

Reducing Bid Costs: Reducing Bid Costs............................................ 13 Document Preparation.......................................... 14 Increased Automation............................................ 14

New Markets, New Services: New Markets, New Services............................... 15 Applications........................................................... 16

Š AIIM 2014 www.aiim.org / Š OPEX Corporation 2014 www.opex.com

State of the Document Management Service Industry - and roadmap for the future

About the White Paper:

2

Introduction

Recognizing this, many service providers are looking to enhance their product offerings, moving further up the process food chain, and offering more in the way of professional services. This may also include a focus on specific vertical markets such as healthcare, financial services and government. Others are taking steps to improve their bid success rate by lowering labor costs through investment in faster and more technologically advanced equipment. The obvious successor to paper conversion and physical records storage is electronic records management via cloud and SaaS. Those service providers who have already moved in this direction are to some extent waiting for the user base to catch up, and are also facing competition from more general cloud storage providers.

For this report, we have surveyed the current business health of the document services and equipment channel, the prospects for 2014, and the most and least attractive vertical markets. We look at the changes to the nature of services provided, and the choices being made for the future. Based on these findings, we present a number of strategic recommendations.

Key Findings 2013 Business Performance and Outlook for 2014:

n 2013 was generally a better year than anticipated with 39% of responding firms reporting better or

much better (9%) results than expected. Taking account of those who had a bad year, a net 26% improved on their predictions. 47% did much the same as in the previous year.

n Overall, 13% experienced a loss, with 19% of smaller businesses (1-50 emps) losing money compared to 5% of larger businesses (250+ emps). VARs were more likely to have had a bad year (20%) than systems integrators (SIs) or service providers.

n 25% saw profits and revenue dip in 2013 compared to 2012, whereas only 20% saw a dip in 2012 from 2011. However, 50% saw an increase across both years. A quarter reported a greater than 5% increase in both revenue and profit year-on-year.

n Two-thirds are expecting growth in the general economy in 2014. Only 12% expect a decline. n 55% expect their own business to grow, with 43% planning to take on staff or increase hours. 14% are expecting tougher times.

n The top product or service categories in 2013 were back-file conversion services, and physical records storage. Process outsource and electronic records management also featured strongly.

Threats and Opportunities:

n Finding new customers, price pressure on bids, and increased competition within the industry are

given as the biggest threats. Rising labor costs, technology change and the need for new equipment are a concern. Reduced demand and new competitors moving in do not figure so highly in the responses.

n Most see an opportunity to improve business through new service offerings and building other revenue streams. 26% are also looking to update their technology to stay competitive.

State of the Document Management Service Industry - and roadmap for the future

The document management service industry is in a state of change. The mainstay of scanning services for the past 20 years has been back-file conversion of existing records. Although these projects are still on-going in many vertical markets, new business is becoming much harder to find. As a result, price competition is fierce, and local labor costs can be a more significant factor than technology or expertise. Whilst day-forward and ondemand scanning are still in demand, they are much less likely to be outsourced as a matter of course. The demands on this transactional scanning service are much higher, with delivery times measured in hours not months. There is likely to be considerable document variety within the scan stream, and OCR is considered the norm rather than the exception. Close integration with on-premise enterprise systems is a feature of these paperfree workflows, causing many businesses to move all of their scanning functions in-house.

n Equal numbers rank “other local suppliers” and “national suppliers” as their biggest competitors.

Customer insourcing is seen as a real threat, and to a lesser extent, vertical specialists.

Revenue and Profit Drivers:

n The top profit driver for 2013 was increased business from existing customers, but there was also

healthy new business. Cost reduction, including reduced labor costs through new equipment investment, was the next biggest profit contributor.

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n The biggest drain on profits was reduced pricing due to competitive pressures, leading to loss of

existing customers and failed bids for new business. Increased labor costs also dampened profits for 28% answer…

Benchmarks:

n Median revenue per employee is $100k, with the average at $120k. There was a very wide range: five

respondents reported $500k+ per employee and eleven $20k or less. Half were in the range $50 to $150k.

n Nearly half of responding firms have less than 5% of their employees in Sales, and spend less than

2% of revenue on marketing. The median for labor costs as a proportion of total costs is 48% but the range is considerable. Half are between 25% and 65%

Reducing Bid Costs:

n The most cited way to reduce bid costs is to improve capture and OCR to reduce manual key entry.

Upgrading scanners and reducing prep cost also figure highly.

n The median proportion of labor cost dedicated to document preparation is 24%. There is a wide range: for a quarter, prep costs make up over 40% of total labor costs.

n Re-scans are the biggest drain on productivity, then prepping awkward or damaged pages. Multiple processes and hand-offs are also time consuming.

New Markets, New Services:

n Healthcare is seen as the most attractive market for 2014 on a net basis, but certainly not for all. Our respondents also see continuing potential for growth in financial services, and to a lesser extent, energy.

Government is a mixed bag, but overall is positive.

n HR, AP, legal, and medical document types are all tipped for a big net growth in scanning volumes.

Library and archive projects are flat, with microfilm the only area deemed to be in decline.

n When it comes to revenue growth, cloud/SaaS and process workflows are consistently showing high net growth. Even back-file conversion is showing up strongly, with 19% predicting more than 10% growth.

Strategic Plans:

n Focus on core business and key verticals has been a popular and successful strategy, but offering

new products and services is the more likely go-forward plan for 2014. Having said that, reducing labor costs, either through offshoring or investing in new technology, seems to have been the most reliable strategy.

n The most popular new product or service to offer would seem to be “back-file and archive scanning”!

Of the newer services, cloud/SaaS has the lowest success rate so far, with 50% struggling with it. Focusing on post capture processes has the best record albeit with 28% struggling.

2013 Performance and 2014 Outlook

Despite a degree of gloom in the industry, financial outcomes for 2013 were on the whole quite positive. All but 13% of our responding organizations were profitable, a number which is similar to previous AIIM surveys of the channel. Boom years have tended to show 10% loss-makers, while bust years have come closer to 20%. Over a third (39%) achieved better than expected results – “much better than expected” for 9%. Perhaps inevitably, smaller businesses (1-50 employees) fared less well, with 19% making a loss, compared to just 5% of those with over 250 employees. VARs tend to be smaller businesses than systems integrators or service providers, and they are more likely to have reported a loss. There was no material difference in those reporting across US, Canada and Europe. Other parts of the world would seem to have had a much tougher time, with 36% reporting a loss (although sample sizes are small).

© AIIM 2014 www.aiim.org / © OPEX Corporation 2014 www.opex.com

State of the Document Management Service Industry - and roadmap for the future

n M&A activity: 17% are looking to be bought, 11% are actively looking to buy. 11% withheld their

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Figure 1: Which of these best describes 2013 for your business? (N=322)

Excellent bonuses for Quite good -everyone!, 9% earnings were slightly be er than an cipated, Quite30% good earnings were slightly be er than an cipated, 30%

Pre y bad we experienced loss for the year, 12%

Awful – we’re lucky to s ll be in business, 1%

Pre y bad we experienced loss for the year, 12%

OK - we did about as well as previous years, 47%

OK - we did about as well as previous The strength of the local economy is a key macro indicator for any service business. years, 47%Having said that, as customers pull out of a recession and begin to grow again, they may well look to outsource non-core services to avoid re-employing staff. Answers from those outside of North America are remarkably similar to the whole. Comparing projections for the general economy in 2014, and service providers’ predictions for their own businesses, we can see that they are being fairly realistic. Half of those who see decline in the general I believe Business economy are alsowill expecting their own business to suffer. there Could be It will There will will be be strong a disaster, booming, tank, 1% be some growth, 1% Figure 2: How general economy/your own business will be 8% will be in 2014?It (N=324) 8% do you think thedecline, tougher, 11% 13% I believe Business there will Could be It will There willNo will be be strong a disaster, booming, tank, 1% be some growth, change, 1% It will be 8% decline,19% 8% tougher, 11% 13%Pre y much the Looking No I predict same, brighter, change, some 32% 47% 19% modest growth, Pre y 61% much the Looking I predict brighter, General Economy Respondent’s Own Business same, some 32% 47% modest growth, 61%

2014

General Economy

Respondent’s Own Business

Decrease Overall, 55% are expecting their business to grow in 2014, with 14% looking to tougher times. Of those significantly, Increase reporting a loss in 2013, 47% havesignificantly, a brighter outlook for 2%2014, although 25% are expecting another tough Decrease 7% year, and 27% feel it could be even worse. slightly, 11% The effect we see in customer businesses also applies to a service business: as workload increases, at Decrease what point should we take on staff?Increase The longer this can be put off, the greater the effect on profitability, but of significantly, course, productivity will also needsignificantly, to go up, and as we2% will see later, this may require an investment in more Decrease hours, though with less likelihood in efficient equipment. Overall, 43% plan7% to take on more staff or increase slightly, 11% Increase the largest organizations. slightly, 36% Š AIIM 2014 www.aiim.org / Š OPEX Corporation 2014 www.opex.com

Increase

Hold steady, 44%

State of the Document Management Service Industry - and roadmap for the future

Excellent bonuses for everyone!, 9%

Awful – we’re lucky to s ll be in business, 1%

5

11%

General Economy

Respondent’s Own Business

No change, 19%

13%

Increase slightly, 36% Increase significantly, 7%

Decrease significantly, 2% Hold steady, Decrease 44% slightly, 11%

Revenue and Profit Trends Increase

Comparing results between 2013 and36% 2012 (Figure 4), successful companies saw a consistent improvement. slightly, Overall, 50% reported an increase in revenues of 2% or more for both 2012 and 2013, and 47% an increase in profit of 2% or more. Breaking this down further, in 2013, a quarter of all respondents saw revenue and profit increase by 5% or more. In 2012, for these high fliers, revenue increased slightly more than profits, Hold steady, but by a very small margin. There is little evidence here that profits are being squeezed 44% by bid competition amongst the more successful businesses.

Looking at the less successful side, 2013 -30% shows up as a harder year,20% with30% 24%40% reporting a decrease -20% -10% 0% 10% 50% 60% 70% in revenue of 2% or more, and 22% reporting a similar decrease in profit. This compares with 20% and 17% respectively in 2012.

2013, thetoproportion reporting a decrease in revenue and profits of 5% or more is Revenue 2012For (compared 2011) also somewhat higher - around 14% in both cases.

Profit 2012 (compared to 2011) Optimism is high for 2014, however, with just 10% expecting a decrease in revenue and/or profits. The number expecting an increase rises to 60%.

Revenue 2013 (compared 2012) Figure 4: What has been to your 2 year revenue trend as compared to previous years, and projected for next year?

(N=211, Profit 2013 (compared to 2012) excl. 30 Don’t Know. Line length reflects “Holding steady”) -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 70% Projected Revenue 20142012 (compared to 2013) Revenue (compared to 2011) Projected profitProfit 20142012 (compared to 2013) (compared to 2011) >5% decrease

2% to 5% decrease

2% to 5% increase

>5% increase

Revenue 2013 (compared to 2012) Profit 2013 (compared to 2012)

State of the Document Management Service Industry - and roadmap for the future

Pre y much the Looking Figure 3:I predict What are your plans for 2014 regarding your number of employees / employee hours? same, brighter, (N=237) some 32% 47% modest Decrease growth, significantly, 61% Increase 2% significantly, General Economy DecreaseRespondent’s Own Business 7% slightly, 11%

Projected Revenue 2014 (compared to 2013) Projected profit 2014 (compared to 2013) >5% decrease

2% to 5% decrease

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2% to 5% increase

>5% increase

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Threats and Opportunities As long-standing conversion contracts come to an end, finding new customers is a key issue for most service providers. Figure 5 indicates that while these contracts are still available, increased competition within the industry is putting considerable price pressure on bids. At the same time, the availability of cheaper, simpler and more effective equipment is on the one hand opening up the market to new entrants, and on the other creating an expectation amongst potential customers that they can bring these projects inhouse.

Figure 5: Which of the following do you see as the three biggest constraints or threats to your business in 2014? (Max THREE) (N=321) 0%

5%

10% 15% 20% 25% 30% 35% 40% 45%

Finding new customers Price pressure on bids Increased compe on within the industry Rate of technology change Increased customer expecta ons Increased costs of labor Need to invest in new equipment Security and compliance regula ons Less demand for document conversion New compe tors moving in Expira on of long-standing contracts Less demand for record storage

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% We can also see in Figure 5 that increased labor costs is part of the problem for 22% of respondents, and 20% feel that they need to upgrade their equipment in order to better compete both with their traditional Winning new customers competitors, and with in-house operations.

Expansion of service offerings: s/w & h/w sales, Opportunities integra on services, cloud storage When it comes to opportunities, we see in Figure 6 the traditional optimism of the salesperson that new Building otherin revenue streams with good effect. However, it may need an expansion of service customers can be brought to the business offerings to achieve this, particularly in the areas of software and hardware sales, integration services, Expansion of service offerings: transac onal and cloud storage.

As we sawmailroom, earlier, a BPO significant percentage (27%) are looking to general growth in the scanning, digital economy to boost business.

Growth in the economy Upgrading your technology Corporate / private sector outsourcing of non-core business

State of the Document Management Service Industry - and roadmap for the future

Threats

Government records management mandates Outsourcing by government agencies Rapid changes in the healthcare industry New regula ons in the financial sector Š AIIM 2014 www.aiim.org / Š OPEX Corporation 2014 www.opex.com

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Less demand for document conversion New compe tors moving in Expira on of long-standing contracts Less demand for record storage Figure 6: What do you see as the three biggest opportunities for your business in 2014? (N=321)

Winning new customers Expansion of service offerings: s/w & h/w sales, integra on services, cloud storage Building other revenue streams Expansion of service offerings: transac onal scanning, digital mailroom, BPO Growth in the economy Upgrading your technology Corporate / private sector outsourcing of non-core business Government records management mandates Outsourcing by government agencies Rapid changes in the healthcare industry New regula ons in the financial sector

0%

10%

20%

30%

40%

Top Product Categories Back-file document conversion services

Despite the much predicted disappearance of long term projects, back-file conversion still represents the single biggest service conversion offering for with our respondents.

However, document conversion into the business process runs a Document business processes close second, much outpacing basic day-forward conversion services. The other dependable stalwart, physical records storage services “electronic records and cloud/SaaS services” is fourth. records storage, isPhysical third, but the more sustainable Systems integration and development services are rated as strong products for 22% of those in our survey, Electronic records/cloud/SaaS services including a significant proportion of service providers (15%). Even for service providers, DM/ECM/RM software sales (9%) integra on exceed scanner by 1%. services Systems & s/wsales development Interestingly, destruction services is a growing area of service business, not simply shredding, but also DM/ECM/RM sales destruction of hard discs, tapes, etc.so ware Privacy concerns and resultant regulations are likely to drive this area.

Day-forward document conversion services Scanner/MFP hardware sales Reprographics services

State of the Document Management Service Industry - and roadmap for the future

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Destruc on services

0%

5% 10% 15% 20% 25% 30% 35% 40% 45%

Other local service suppliers/VARs/SIs © AIIM 2014 www.aiim.org / © OPEX Corporation 2014 www.opex.com Na onal service suppliers/VARs/SIs

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Rapid changes in the healthcare industry Growth in the economy New regula ons in the your financial sector Upgrading technology

Rapid changes in the healthcare industry Document conversion with business processes NewPhysical regula ons in the financial sector records storage services Electronic records/cloud/SaaS services Systems integra on & s/w development services DM/ECM/RM so ware sales

0%

10%

20%

30%

40%

Back-file document conversion services Day-forward document conversion services Document conversion with business processes Scanner/MFP hardware sales Physical records storage services Reprographics services Electronic records/cloud/SaaS services Destruc on services Systems integra on & s/w development services

Competition

DM/ECM/RM so ware sales Despite a number of comments in the open-ended section of the survey about new competition from copy shops and box-storedocument providers,conversion the majority of service local 30% suppliers Day-forward services 0% providers 5% 10% see 15%existing 20% 25% 35% and 40%national 45% suppliers as by far the biggest competitors, and with an equal split. Customer insourcing is the next competitive Other element, particularly forhardware mailroomsales and production applications, but also from distributed MFPs. localScanner/MFP service suppliers/VARs/SIs Many of the respondents in our survey will consider themselves as vertical specialists, and they pose a Reprographics threat to more Na onal general service providers, while at services the same time being more vulnerable to changes in vertical market suppliers/VARs/SIs conditions, as we will see later. Only 12% mentioned offshore suppliers as one of their top two competitors.

Destruc on services In many verticals, offshore- is not an option, but competition from low labor-cost areas is bound to affect bid Customer insourcing produc on/mailroom pricing across the board.

Ver cal specialists

Figure 8: Where do you see your biggest competition coming from? (max TWO)? (N=298) Customer insourcing – distributed/MFPs Vendor/distributor direct sales 0%

5% 10% 15% 20% 25% 30% 35% 40% 45%

Other local Offshore service suppliers/VARs/SIs service suppliers Na onal service Copy shopssuppliers/VARs/SIs and repro houses Customer insourcing produc on/mailroom Box-store providers- moving to your space Ver cal specialists Customer insourcing – distributed/MFPs Vendor/distributor direct sales Offshore service suppliers

State of the Document Management Service Industry - and roadmap for the future

Corporate / private sector outsourcing of non-core business Figure 7: What were your top two product / service categories by 2013 sales? (N=299) Government records management mandates 0% 10% 20% 30% 40% Outsourcing by government agencies Back-file document conversion services

Copy shops and repro houses Box-store providers moving to your space

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Profit Drivers and Drainers In text book manner, our respondents are selling more to existing customers, but also bringing in healthy business from new customers. Maintaining focus on reducing labor costs is also of vital importance in such labor-intensive businesses as these. This shows up as a key profit driver in terms of streamlining operations, but also investing in new technology and equipment. Expanding service offerings in VAR sales, integration services and cloud storage seems to have been a more profitable tack than transactional scanning, digital mailrooms, and BPO.

Figure 9: What have been the top two profit drivers over the past year? (N=238)

0%

10%

20%

30%

40%

50%

60%

Increased business from exis ng customers Won new first- me customers Reduced labor costs by streamlining opera ons Expanded other service offerings (VAR sales, integra on services, cloud storage) Expanded day-forward service offerings (transac onal, digital mailroom, BPO) Reduced labor costs by inves ng in new technology/equipment Shi ed resources toward higher margin services

Drainers Given that the biggest competition is amongst the existing players, and bids are increasingly going to 0% 5% 10% 15% 20% 25% 30% 35% 40% the lowest price, there is the potential for a race-to-the bottom in the business. Reduced pricing due to competitive pressure is of course how a free market is supposed to work. In these situations, suppliers need Reduced pricing duetoto compe ve pressure to either add more value their offering, or reduce their own costs in order to match pricing, or both. Figure 10 shows all of these things happening, with the continued fight to offset increasing labor and overhead costs exis ng customers with capital investment inLoss newofequipment.

This is always a balance, but is aided right now by historically low borrowing rates. Figure 10 also highlights the need to stay close to customers in order to head-off the effects of cut-backs, reorganization and re-tendering.

Increased labor costs

Failed bids for new business Investment in new services, staff or R&D Increase in overhead expenses (excludes labor)

State of the Document Management Service Industry - and roadmap for the future

Drivers

Cost of new or replacement equipment Reorganiza on / service or branch closures

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10

Expanded other service offerings (VAR sales, Shi ed resources toward higher margin services integra on services, cloud storage) Expanded day-forward service offerings (transac onal, digital mailroom, BPO)

Loss of exis ng customers Increased labor costs 0% Failed bids for new business

5%

10% 15% 20% 25% 30% 35% 40%

Reduced pricing due to compe ve pressure Investment in new services, staff or R&D Loss of exis ng customers Increase in overhead expenses (excludes labor) Increased labor costs Cost of new or replacement equipment Failed bids for new business Reorganiza on / service or branch closures Investment in new services, staff or R&D Increase in overhead (excludes labor) Mergers and expenses Acquisitions Also straight out of the management text book is the effect of changing market conditions on M & A activity.

Cost of new or replacement equipment As markets mature, consolidation of operations and increased sales footprints can draw in business from further afield, and add vertical-specific expertise, while also reducing operational overheads. Document Reorganiza on / service or branch closures process outsourcing has already seen several rounds of consolidation over the past twenty years. However, it is an imprecise process that needs to be driven by strong strategic vision.

Build critical mass; broaden We're taking None of your ac vetosteps to services; consolidate locally; concentrate onbusiness!, verticals;11% stay with paper; move all-electronic; resell more findhoping a buyer, products; focus on services. All these are options for those buying. Those to 2% sell need to hold on to the customer base, retain skills, sweat existing assets, and manage debts.

We would like to We are ac vely be an acquisi on for and acquisition activity, which of these would Figure 11: Looking atlooking merger you target, 15% suitablemost align with? (N=258) acquisi on targets, 11% We're taking None of your ac ve steps to business!, 11% find a buyer, 2%

We are ac vely looking for We always keep suitable our eyes open for acquisi on possible targets, 11% acquisi ons, 27%

We always keep our eyes open for possible acquisi ons, 27%

We would like to beWe're an acquisi on happy going target, 15% along as we are, 33%

We're happy going along as we are, 33%

State of the Document Management Service Industry - and roadmap for the future

Reduced costs by inves ng new Figurelabor 10: What have been in the top two profit drainers over the past year? (N=229) technology/equipment 0% 5% 10% 15% 20% 25% 30% 35% 40% Shi ed resources toward higher margin services Reduced pricing due to compe ve pressure

$600,000 Depending on the interpretation of the “None of your business answer”, 17% are looking to be bought and $500,000 11% are actively looking to buy, plus a further 27% who could make a move if the right opportunity came up.

$400,000 $300,000 © AIIM 2014 www.aiim.org / © OPEX Corporation 2014 www.opex.com $600,000

$200,000

11

target, 15%

suitable acquisi on targets, 11%

Benchmarks

Figure 12: What is your approximate annual revenue per employee? (in US Dollars) (N=128 excl. >$1m and <$10k, N/A and Europe)

$600,000 $500,000 $400,000 $300,000 $200,000 $100,000

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101 106 111 116 121 126

$0

Sales and Marketing Getting the balance right between sales resources, marketing spend, and operational staff is a huge issue for any business. However, if service providers and VARs are going to move outside of their comfort zone and offer new products and services to new customers, possibly in new geographical areas, then spend on either sales, or marketing, or more likely both will have to increase.

Figure 13: What % of your employees are in the Sales Dept.? / What is your marketing spend as a percentage of revenue? (N=249)

25% to 35% in sales, 6%

15% to 25% spend, 3%

Greater than 35% in sales, 8%

15% to 25% in sales, 8%

Greater than 25% spend, 4%

10% to 15% spend, 3% Less than 5% in sales, 44%

8% to 10% spend, 8%

6% to 8% spend, 9%

11% to 15% in sales, 7%

Less than 2% spend, 27%

4% to 6% spend, 14%

6% to 10% in sales, 27%

We don't spend much at all on marke ng, 15%

State of the Document Management Service Industry - and roadmap for the future

We're happy going We always keep along as we are, Revenue per Employee our eyes open for 33% possible Given the alignments shown elsewhere in the survey, this question produced a very wide variation in acquisi ons, answers. Obviously, this metric for27% a product reseller achieving 25% margin on scanners is going to be very different from an SI selling out expensive consultant types, but the core of the demographic is service operators in a fairly labor intensive business. The median is very “dead centre” at $100k per employee, but some high worth employees skew the average up to $120.7k – either reflecting the hands-on, entrepreneurial nature of some of the smaller businesses, or some very high productivity rates. Areas outside of North America and Europe have been excluded from this result.

2% to 4% spend, 17%

Employees in Sales © AIIM 2014 www.aiim.org / © OPEX Corporation 2014 www.opex.com

Marketing Spend 12

all on marke ng, When 2% of revenue and only one-in-ten spend 15% to it comes to marketing spend overall, 42% spend less than 8% to 10% 15% more the less Lessmore than â&#x20AC;&#x201C; with 34% inspend, 25% inthan 10%. VARs and SIs spend a little 8% than 2% bracket, and 14% spending in sales, sales, 8% Compared to businesses at large,5% 10%+. these are quite low numbers. Entrepreneurial businesses are prone to under-spending on marketing, largely as 44% the returns are less immediately visible than, say, investment in

a new piece of equipment. However, when up against national and international brands for services such as

6% to 8% 11% to Less than physical records management and cloud services, visibility is important, even if it is solely targeted at a wider spend, 9% 15% in 2% spend, sales, 7% of personnel within existing customers. range 27% 4% 43% to 6%of those reporting a loss in 2013 There is a correlation between marketing spend and profitability, with spend, 6% to 10%more than 2%, compared with 57% of those who were strongly spending in sales, 27% 14% profitable.

2% to 4% Labor Costs spend, 17%

This is always a tricky question, and will depend very much on how direct labor hours are loaded with the Employees Sales Marketing Spend fixed overheads.

What weincan take from Figure 14 is that just under half of respondents have 50% or more of their total costs in labor, with some going up to 75%+. It is easy to see how this reflects directly into bid prices: if you are competing against competitors in areas with lower local wages, you need to make your existing staff more productive.

Figure 14: What percentage of your total costs is in labor? (N=237) Greater than 85% costs, 5%

Less than 20% costs, 4%

75% to 85% costs, 9%

20% to 35% costs, 20%

65% to 75% costs, 12%

50% to 65% costs, 21%

Reducing Bid Costs

35% to 50% costs, 29%

So how are our respondents going about reducing their costs? Reducing manual key entry by wider use of OCR is the most popular option. In content,40% or metadata was often 0%the past, 10%keying-in 20%forms30% 50% for classification 60% more reliable than most OCR. The technology has now improved so much that this trade-off point has moved down. Skilled staff should only be used for quality-checking and correcting bad results, which of course Reducing manual key entry makes the OCR performance of the recognition server a key element in the proportion that need re-work.

Hence the interest in upgrading capture software and OCR servers. Next on the shopping list come higher Upgrading capture andscanners, OCR servers volume production particularly those that reduce preparation costs by having flat-belt feeds rather than sheet feeds. Only 16% are using off-shore sub-contractors to reduce labor costs directly.

Upgrading produc on scanners to higher volume

State of the Document Management Service Industry - and roadmap for the future

Again, we see a wide range of responses here. Overall, only 29% of businesses are allocating more than 10% of staff to sales, and 1 salesperson per twenty employees (5%) seems more the norm. This may be reflective of low numbers of high value project sales, but as we mentioned above, on-going account Greater management should not be neglected. As might be expected, SIs and VARs more sales oriented, with 15%are to 25% than 25% Greater peaks25% at 6-10% (42%) and 15-25% (20%), but eliminating these from the mix only changes the higher spend, 3% to spend, 4% than percentage 35% Wekey don't numbers points.

Given the size of many of these businesses, it is likely that the 35% by in one orintwo spend sales, 8% 10% to 15% sales, and 6% owners play a strong role in sales. founders much at spend, 3%

Reducing prep costs using be er scanner technology Increasing scanner capacity to cut down on shi s Š AIIM 2014 www.aiim.org / Š OPEX Corporation 2014 www.opex.com

Consolida ng opera ons / facili es

13

costs, 21%

35% to 50% costs, 29%

50% to 65%

Figure 15: Which threecosts, of the 21%following are you doing to reduce your bid costs for scanning projects? (N=175, excl. 41 N/A)35% to 50% 10%

20%

costs, 29% 30% 40%

50%

60%

Reducing manual key entry Upgrading capture and OCR servers 0% 10% Upgrading produc on scanners to higher volume

20%

30%

40%

50%

60%

Reducingprep manual entry Reducing costskey using be er scanner technology Upgrading capture and OCR servers Increasing scanner capacity to cut down on shi s Upgrading produc on scanners to higher volume Consolida ng opera ons / facili es Reducing prep costs using be er scanner technology Off-shoring Increasing scanner capacity to cut down on shi s None of these Consolida ng opera ons / facili es

Document Preparation Off-shoring Prep costs are obviously going to vary considerably depending on material. Library archives and medical None than of these notes are going to be trickier printed forms and regular documents. In our survey, the median answer was 24%, but there is a big variation, with a quarter having prep costs of over 40%. Anything that can reduce Greater 60% path is going to produce a considerable this by smoothing and simplifying the material handling and than the scan prep costs, 5% reduction in overall costs.

Less than 10% to document 59% prep conversion services labor is prep costs, 26% Figure 16: What proportion of50% your dedicated to costs, 10% document preparation?

(N=185 excl. 40 Don’t Know or N/A) Greater than 60% 40% to 49% prepprep costs, 5% costs, 10% 50% to 59% prep costs, 10%

Less than 10% prep costs, 26%

30% to 39% prep 40% to 49% prepcosts, 12% costs, 10%

30% to 39% prep costs, 12%

10% to 19% prep costs, 15% 20% to 29% prep costs, 22% 10% to 19% prep costs, 15% 20% to 29% prep costs, 22%

State of the Document Management Service Industry - and roadmap for the future

0%

Increased Automation As we suggested above, the specific manual task that produces the biggest drain on productivity is the need to re-scan documents. It interrupts the input stream, and produces out-of-sequence issues in the output trays.

Next comes the need to tape odd sized documents onto standard sized sheets, and photocopying fragile or difficult originals prior to scanning. In terms of overall process inefficiencies, multiple hand-offs to different personnel for prepping, scanning, checking and distributing can cause inefficiencies. © AIIM 2014 www.aiim.org / © OPEX Corporation 2014 www.opex.com

14

Figure 17: What manual processes would you most want to automate or eliminate in your document conversion operation? (N=200)

Re-scans Taping odd sized docs to standard sized sheets Photocopying originals or fragile pages Mul ple handoffs of the documents Inser ng and reusing patch sheets 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Repairing torn or damaged documents Re-scans Separate QC process Taping odd sized docs to standard sized sheets A aching barcode labels Photocopying originals or fragile pages Ironing creased and folded documents flat Mul ple handoffs of the documents Inser ng and reusing patch sheets Repairing torn or damaged documents

New Markets, New Services -30%

-20% -10% 0% 10% 20% 30% 40% 50% Separate QC process Much like the stock market, it would seem that for each vertical market, some of our respondents see Healthcare potential growth, while others are finding it less attractive. This is particularly true of national government, A aching barcode labels where an equal number see potential asservices see a falling off. Healthcare heads the list on a net basis, but even Financial so, 21% are seeing it as less attractive, compared to 43% who see potential for growth. For this reason, we Gov. public documents services - local/state Ironing creased and&folded flat feel it is useful to present the results in both absolute terms, and as a net.

Legal and professional services Figure 18: Which of the followingInsurance vertical industries do you see having the greatest potential for revenue growth/becoming much less attractive for your business in 2014? (Max THREE) (N=207) Energy, oil & gas Gov. & public services – na onal/federal -30% -20% Educa on / libraries Healthcare Manufacturing, aerospace Financial services Engineering & construc on Gov. & public services - local/state Life science, pharmaceu cal Legal and professional services Telecoms, Water, U li es Insurance Transport Energy, oil & gas

-10%

0%

10%

20%

30%

40%

50%

Gov. & public services – na onal/federal Educa on / libraries Manufacturing, aerospace Engineering & construc on

-25% -20% -15% -10% -5%

0%

5%

10% 15% 20% 25%

State of the Document Management Service Industry - and roadmap for the future

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Life science, pharmaceu cal Healthcare Telecoms, Water, U li es Financial services Transport Energy, oil & gas Insurance Gov. & public services - local/state Engineering & construc on Legal and professional services

© AIIM 2014 www.aiim.org / © OPEX Corporation 2014-15% www.opex.com -25% -20% -10% -5%

Gov. & public services – na onal/federal

0%

5%

10% 15% 20% 25%

15

Life science, pharmaceu cal Financial services Telecoms, Water, U li es Gov. & public services - local/state Transport Legal and professional services

Manufacturing, aerospace Healthcare Engineering & construc on Financial services Life science, pharmaceu cal Energy, oil & gas Telecoms, Water, U li es Insurance Transport Gov. & public services - local/state Engineering & construc on Legal and professional services Gov. & public services – na onal/federal Manufacturing, aerospace

-25% -20% -15% -10% -5% Telecoms, Water, U li es Educa on Healthcare / libraries

0%

5%

10% 15% 20% 25%

services Life science, Financial pharmaceu cal Energy, oil & gas Transport Insurance Gov. &ofpublic Within each theseservices verticals- local/state there will be factors at play which may be government initiatives, new compliance regulations, response, etc., which may provide a short-term boost or be more Engineeringincident & construc on sustainable. Perhaps with the exception of oil and gas, those in the top half of Figure 19 have been wed to Legal and professional services their paper process for longer than, say, manufacturing, life science, or utilities, which gives us a pointer to the 0% 10% 20% 30% 40% 50% Gov. & public services – na onal/federal future demand for conversion services.-30% -20% -10% Manufacturing, aerospace HR documents and staff records Applications Telecoms, Water, U li es Invoices/Accounts From a slightly different point ofPayable view, we asked how our respondents thought the volume of document / librariesapplication areas. Again, despite a degree of gloom in the industry scanning would go inEduca on 2014 for different Legal records Life science, the net predication acrosspharmaceu cal all areas except microfilm is growth, mostly estimated at a 2-10% increase, but with significant 10% growth in some areas. Even for microfilm, 10% of our respondents indicated growth Medical records Transport (compared to 21% suggesting decline).

Delivery documents/Accounts Receivable

Figure 20: Compared to 2013, indicate the level of anticipated change in document scanning/ School records storage volume for 2014 in the following areas: (N=225. “Same” not shown. Line length indicates Drawings and technical “same” and “we don’t do this”) Insurance forms -30% -20% -10% 0% 10% 20% 30% 40% 50% Library/history archives HR documents and staff records Microfilm Invoices/Accounts Payable More than 10% decrease 2% to 10% increase More than 10% increase Legal records2% to 10% decrease Medical records Delivery documents/Accounts Receivable School records

State of the Document Management Service Industry - and roadmap for the future

Insurance Figure 19: Which of the following vertical industries do you see having the greatest potential for Energy, oil & gas revenue growth/becoming much less attractive for your business in 2014? (NET) (N=207) Gov. & public services – na onal/federal -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% Educa on / libraries

Drawings and technical Insurance forms Library/history archives Microfilm More than 10% decrease

2% to 10% decrease

2% to 10% increase

© AIIM 2014 www.aiim.org / © OPEX Corporation 2014 www.opex.com

More than 10% increase

16

Figure 21: Compared to 2013, indicate the anticipated percentage of revenue generated from the following services: (N=218. “Same” not shown. Line length indicates “same” and “we don’t do this”)

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Cloud/SaaS services Process workflow Consul ng services Transac onal/day-forward scanning Electronic archiving Data capture Back-file conversion Enterprise integra on Digital mailroom Hardware/so ware installa on Physical records storage More than 10% decrease

2% to 10% decrease

2% to 10% increase

More than 10% increase

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Strategic Plans

Offer new services

The key to strategic planning is to focus efforts where they can have the best effect. At first glance (Figure 22) it would seem that our respondents have many different strategies in mind for 2014. However, to be fair, many Focushave moresome on our key ver cals / core business already of these strategies in place and are likely to be moving on to new ones.

“Focus on key verticals and core business” is the most popular current strategy, but comes a close second A ack new ver cals overall to “Offer new services” when we combine current and future strategies. “Offer new products” is also strong. We will take a look at which services and products in the next section. Attacking new verticals makes Labor-saving technologies (so ware / hardware) a strong play as a more recently adopted option, and as a new plan for 2014. Overall, 75% can see the wisdom of investing in labor-saving technologies, and 46% have recently made moves in this direction or plan Offer new products to in 2014.

Sub-contract - local Sub-contract – offshore In place and successful

0%

In place but struggling

10% 20% 30% 40%

Recently adopted

State of the Document Management Service Industry - and roadmap for the future

In a similar vein, we asked our respondents which service they thought would generate increased revenues in 2013. Again, all services were predicted to grow overall, with many anticipating 10% or more growth. Even back-file conversion showed a strong net growth, although along with hardware/software installation and physical records storage, 11% indicated a decrease.

Implemen ng in 2014

0% 20% 40% 60% 80% 100%

Sub-contract – offshore A ack new ver cals © AIIM 2014 www.aiim.org / © OPEX Corporation 2014 www.opex.com

17

Hardware/so ware installa on Electronic archiving Physical records storage Data capture Back-file conversion More than 10% decrease 2% to 10% decrease 2% to 10% increase More than 10% increase Enterprise integra on Figure 22: What business strategies do you have in place or plan to implement in 2014?

Digital mailroom (N=226 Line length indicates “Not considering” or N/A) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Physical records storage Offer new services More than 10% decrease 2% to 10% decrease Focus more on our key ver cals / core business

2% to 10% increase

More than 10% increase

A ack new ver cals 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Labor-saving technologies (so ware / hardware) Offer Offernew newservices products Focus more on our key ver cals / core business Sub-contract - local A ack new ver cals Sub-contract – offshore Labor-saving technologies (so ware / hardware) In place and successful In place but struggling

Recently adopted

Implemen ng in 2014

Offer new products When it comes to the likely outcome of these new strategies, we can see some somewhat disheartening implications in the “In place but struggling” category highlighted in red in Figure 22 – and we have to admire Sub-contract - local23a we show which are the most popular forward strategies for the honesty of these respondents.

In figure 2014. In Figure 23b, we have plotted the total respondents who have already adopted this strategy against Sub-contract offshore those who feel they are struggling it. Offering new services and attacking new 0%verticals 20% will 40%involve 60% either 80% 100% 0% 10%–with 20% 30% 40% new customers or new products or possibly both, and this is inevitably going to prove more difficult than focusing onInaplace smaller of customers or services.

In fact, according toadopted these results, those strategies andgroup successful In place but struggling Recently Implemen ng in 2014 Sub-contract – offshore new ver cals have aA ack 50% chance of struggling to be successful. Two of the most successful strategies involve reducing labor costs – albeit that offshoring may not be appropriate for many.

Focus more on our key Offer new services ver cals core businessin 2014? - % chance Figure 23: What business strategies do you plan to /implement of success (N=226)

Offer new products

0%

10% 20% 30% 40%

Labor-saving technologies 0% (so ware / hardware)

Labor-saving technologies A ack new/ver cals (so ware hardware)

Offer new products Sub-contract – offshore

Focus more on our key Offer new services ver cals / core business

Focus more on our key Sub-contract - local ver cals / core business

Sub-contract - local Offer new products

Labor-saving technologies Offer new services (so ware / hardware)

Labor-saving technologies Sub-contract – offshore (so ware / hardware)

A ack ver cals Offer newnew products

Focus more on our key ver cals / core business

Sub-contract - local

Implementing in 2014

Sub-contract - local

Offer new services

Sub-contract – offshore

A ack new ver cals

0%

10%

20%

Implementing in 2014

Back-file / archive scanning

30%

20% 40% 60% 80% 100%

Per-cent Chance of Success

40%

50%

60%

70%

State of the Document Management Service Industry - and roadmap for the future

Hardware/so ware installa on

80%

Per-cent Chance of Success

Day forward / transac onal / digital mailroom © AIIM 2014 / © OPEX/ Corporation So ware (Ent.www.aiim.org Capture / Workflow BPM / ECM)2014 www.opex.com

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Sub-contract - local

Offer new services

Sub-contract – offshore

A ack new ver cals

Planned New Services

Figure 24: Which of the following are you offering as new service and/or product offerings?

(N=217, line length indicates “N/A”) 0% 10% 20% 30% 40% 50% 60% 70% 80%

Back-file / archive scanning Day forward / transac onal / digital mailroom So ware (Ent. Capture / Workflow / BPM / ECM) Physical records storage Hardware (scanners / MFPs) Post capture processes Systems integra on Cloud storage/SaaS In place and successful

In place but struggling

Recently adopted

Implemen ng in 2014

Once again we can specifically plot the most popular new offering planned for 2014, and also the success indicators from those who have already adopted these products and services. With the exception of hardware scanners, the graphs are pretty much inverted. The “safer” options of physical records and back-file conversion are not likely to be a new service for 2014 for many – although some brave souls (6%) have plans to enter the fray. As we saw earlier, great score has been set for the future on cloud storage and SaaS, and yet this has been a struggle for those early entrants. This is primarily a reflection of the whole of IT, where moving to the cloud seems to be inevitable, but 85% of users have yet to embrace it with enthusiasm. Timing is all in this respect.

Figure 25: Which of the following are you offering as new service and/or product offerings? (N=217)

0%

5%

10% 15% 20%

0% 20% 40% 60% 80%100%

Cloud storage/SaaS

Physical records storage

So ware (Ent. Capture/ Workflow/BPM/ECM)

Back-file/archive scanning

Systems integra on

Post capture processes

Day forward/transac onal/ mailroom

Day forward transac onal/ mailroom

Post capture processes

Systems integra on So ware (Ent. Capture/ Workflow/BPM/ECM) Hardware (scanners / MFPs)

Hardware (scanners/MFPs) Back-file/archive scanning Physical records storage

State of the Document Management Service Industry - and roadmap for the future

In Figure 24 we asked respondents which new services or products they were focusing on. As far as “In place Implementing in 2014 Per-cent Chance of Success and successful”, it is no surprise to see that back-file conversion/archive scanning is the most popular, followed by day forward/transactional or digital mailroom scanning. Overall, however, taking future plans into account, software product sales of ECM, BPM and enterprise capture is the most popular offering.

Cloud storage/SaaS

Implementing in 2014 © AIIM 2014 www.aiim.org / © OPEX Corporation 2014 www.opex.com

% chance of success 19

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Conclusion and Roadmap

Scanning and conversion is a labor-intensive operation, and steps do need to be taken to stem rising costs, and to compete with competition from geographies that have much lower labor rates. We have identified some key areas that sap labor productivity. Eliminating keying by using the latest OCR technologies, cutting down on re-scans with improved scanner capabilities, and reducing document preparation time by adopting more forgiving feed-paths would all have a strong impact on labor costs.

Going forward, there is no doubt that back-file conversion, the bedrock product for many service providers, is beginning to diminish as some major projects in the classic regulated industries come to an end, albeit that most providers are still seeing plenty of 2014 potential in healthcare, finance, and energy. Day-forward transactional scanning and digital mailroom offer more sustainable long term business, although users are more likely to bring these activities in-house where they feel they have better control and can more easily integrate with enterprise systems.

In looking for new revenue streams and a sustainable customer base, many providers are planning to offer new services and software products, particularly all-electronic content/records management using cloud storage and SaaS software. Based on feedback from those who have already set off down this path, these may be less successful strategies than hoped, certainly in the short term. User resistance can be high, and there will be many new competitors offering cloud services. We have seen that a formal strategy of reducing labor costs by investing in new and more capable equipment could be a better way to win bids and sustain current business until such time as these forward strategies kick in.

Recommendations n Ramp up your sales efforts to stay close to your customers, keeping abreast of changes to their business

and offering them a high-value partnership. Spend marketing dollars to enhance your visibility widely within existing customers as well as to attract new ones.

n Measure and monitor your direct labor costs to sharpen your bid prices. Introduce new technology and new practices to improve productivity, and be sure to monitor the effect.

n Look to where investment in new equipment can have the biggest effect. This may be sheer throughput

rate, but can also be scan quality on difficult material, OCR capability to reduce keying, and perhaps above all, reduced document prep time and improved handling logistics.

n As an extension of day-forward scanning, taking over as much as possible of the end user’s business processes will add a more sustainable value proposition and cement a partnership.

n If you are considering entering new vertical markets decide how you will learn the industry-specific issues, and how you will establish reference sites. Be very careful if you plan to undercut incumbent suppliers to establish a bridge-head: it could all go horribly wrong.

n Offering outsourced management of electronic documents and records as a SaaS service would create

a more sustainable revenue stream, but you need to offer plenty of value-add, perhaps by linking up with their existing paper records storage.

n Simply providing cloud storage for records may not be competitive against generic cloud suppliers. You

need to provide true “cloud content services,” perhaps providing a managed collaboration capability outside of the local firewalls, or servicing dispersed multi-disciplinary projects. Many organizations would be attracted to an email archive service that is compliant, independent, discoverable and with set retention periods.

© AIIM 2014 www.aiim.org / © OPEX Corporation 2014 www.opex.com

State of the Document Management Service Industry - and roadmap for the future

We have found that the immediate outlook for the document management services industry is healthy.

Despite increased competition within the industry, especially around the per-image price of back-file conversion and basic day-forward scanning, most businesses were profitable in 2013, and are looking forward to a stronger 2014 in terms of volume throughput, revenue and profitability.

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Appendix 1: Survey Demographics The survey was taken by 326 individual members of the AIIM community between 10 January 2014 and 31 January 2014, using a web-based tool. Invitations to take the survey were sent via email to a selection of the 10,000+ AIIM channel and service providers community.

Organizational Size A third of respondents are from larger organizations (over 250 employees), with mid-sized organizations (50 to 250 employees) at 19%. Small organizations (1 to 50 employees) are 48%.

More than 250 emps, 32% More than 250 emps, 32%

1-5 emps, 12% 1-5 emps, 12% 6-10 emps, 9% 6-10 emps, 9% 11-25 emps, 16% 11-25 emps, 16%

101-250 emps, 10% 101-250 51-100 emps, emps, 10% 9% 51-100 emps, 9%

Geography

26-50 emps, 11% 26-50 emps, 11%

US and Canada make up 81%Middle of respondents, with East, Asia,8% Far from East, Europe.

Africa, S. Africa, 2% Australia, New 3% Mexico, Middle East, Asia, Far East, Zealand, 1% Central/S. Africa, S. Africa, 2% America, Australia, New 3% Mexico, Caribbean, 5% Zealand, 1% Central/S. America, Other Europe, Caribbean, 5% Russia, 4%

Other Europe, Russia,4% 4% UK & Ireland, UK & Ireland, 4% Canada, 11% Canada, 11%

US, 70%

State of the Document Management Service Industry - and roadmap for the future

Survey Background

US, 70%

VAR, 8% Systems Integrator, Š AIIM 2014 www.aiim.org / Š OPEX Corporation 2014VAR, www.opex.com 8% 9% Systems

21

Canada, 11% US, 70%

Industry Sector

Systems Integrator, 9%

VAR, 8%

Service Provider, 83%

Š AIIM 2014 www.aiim.org / Š OPEX Corporation 2014 www.opex.com

State of the Document Management Service Industry - and roadmap for the future

The majority (83%) consider themselves best described as service providers. A further 9% are systems integrators (pulling together multiple products and services) and 8% are value-added resellers (representing and integrating a specific selection of vendor products).

22

Appendix 2: Open ended comments (selective):

n Physical box storage is not leading the conversations with prospects and existing customers. Shredding and scanning/imaging are the services which are front and center with what the client is interested in.

n Companies are finally starting to reduce paper and moving at a growing pace to digital imaging. This will

put intense pressure on records storage companies and result in lower pricing levels of storage. Records companies will see steep declines over the next 3 to 5 years if they have not implemented other revenue sources successfully.

n Like many businesses, we are looking for niches to achieve good margins for performance. n We are very bullish on our future and the marketplace. n So much is dependent on the state of the economy !! n Prices seem to be dropping quickly. n The biggest problems are the slow economy and tight budgets of customers. We hope 2014 will be better than 2013

n Back-file conversion is definitely on the decline and viable back-file projects are becoming harder to

find. Digital conversion projects are one and done. The value of the information that remains on paper decreases with each passing year.

n Everybody and their brother has gotten into the scanning and back-file conversion business to upsell the value of their offerings. Copier/multi-function print vendors, box storage companies and numerous other organizations.

n I’m not sure how many of the newer or less efficient entrants to this market will survive in the long term. n The growth of outsourced procurement agencies is a parasitic, destructive force on previously good, working customer relationships

© AIIM 2014 www.aiim.org / © OPEX Corporation 2014 www.opex.com

State of the Document Management Service Industry - and roadmap for the future

“Do you have any general comments to make about your business prospects?”

23

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UNDERWRITTEN BY

OPEX Corporation is a recognized global technology leader in high-speed mailroom automation, document imaging, and material handling. Since 1973, OPEX systems have provided performance enhancing workflow solutions and cost-effective results to thousands of organizations around the world.

From its humble beginnings in a leased warehouse in southern New Jersey, OPEX’s global workforce now numbers hundreds of employees. OPEX’s Moorestown, New Jersey World Headquarters features more than 250,000 square feet of engineering, manufacturing, warehouse, product assembly and office space. OPEX offices are also located in the U.K., France and Germany.

By controlling all aspects of product design, OPEX is able to deliver high-quality innovative workflow solutions to customers in a wide variety of industries including financial services, insurance, healthcare, government, retail, non-profits, utilities, telecommunication, service bureaus, educational institutions, and fulfillment operations.

OPEX’s commitment to meeting the needs of its customers does not stop with a product sale. The OPEX Service Organization boasts unrivaled technical support on a worldwide basis utilizing its vast network of locally based, factory-trained, direct-employee field technicians.

www.opex.com

AIIM (www.aiim.org) is the global community of information professionals. We provide the education, research and certification that information professionals need to manage and share information assets in an era of mobile, social, cloud and big data Founded in 1943, AIIM builds on a strong heritage of research and member service. Today, AIIM is a global, non-profit organization that provides independent research, education and certification programs to information professionals. AIIM represents the entire information management community, with programs and content for practitioners, technology suppliers, integrators and consultants.

State of the Document Management Service Industry - and roadmap for the future

OPEX

© 2014 AIIM 1100 Wayne Avenue, Suite 1100 Silver Spring, MD 20910 301.587.8202 www.aiim.org

AIIM Europe The IT Centre, Lowesmoor Wharf Worcester, WR1 2RR, UK +44 (0)1905 727600 www.aiim.eu

© AIIM 2014 www.aiim.org / © OPEX Corporation 2014 www.opex.com

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