Horizontal vs. Vertical Accounting Software Solutions – Which Do You Need?

Updated: December 01, 2010

Businesses of any size most likely have an automated accounting software system of some type. Smaller organizations may likely use Quickbooks or Peachtree, which largely are designed around a "one-size fits all" approach. Larger organizations may have custom-designed applications written for the complex and unique needs of their particular operations, such as airport management or international distribution. The general terms for these applications are "horizontal" for the one-size fits all application, and "vertical" for the industry specific solution.

As organizations grow and become more complex, their perceived need for more specific functionality, able to efficiently handle their "unique" needs, drive their move toward a more vertical accounting software solution. Developers who have written an application for a client in a particular industry may package that program as a vertical solution for other prospects in that industry. Colleagues in that industry may recommend a package they use which is more industry specific.

But vertical applications also come at an increased cost. Typically industry-specific accounting applications are in the mid-range market, or higher. They often are packaged by modules, with the user selecting which modules they wish to purchase (further "customizing" the solution for the user).

The trend toward vertical accounting software solutions is increasing based on several factors. First, savvy users are not satisfied with the efficiencies gained simply by automating transaction and account level reporting. They want greater functionality related to their industry, such as depreciation and amortization calculations in real-estate firms, inventory for manufacturing, and job costing for construction. Recognizing this, entry level, previously-horizontal software packages are now offering "industry specific" versions of their software. So there is now Quickbooks for Retail, Quickbooks for Manufacturing, etc. Also, mature horizontal products with broad customer bases have continued to enhance their product development to the point where they now include many functions previously only available in the vertical solutions. Incorporating functions such as payroll, inventory, human resource management, and others make the previously horizontal application better able to handle a user's specific needs.

Another trend making these horizontal applications more flexible is the growth of cloud computing. Users may now share both the application cost and the infrastructure cost that used to prevent smaller organizations from fully capturing and sharing information across the organization. Through the use of software as a service or hosted applications, the smaller organization may now demand, and be able to afford, greater functionality than ever before.

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