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It’s All About the Performance Management (Tools)

If new research from Gartner Inc. is any indication, 2006 was a heady year for most performance management (PM) players.

If new research from Gartner Inc. is any indication, 2006 was a heady year for most performance management (PM) players.

Gartner’s last market sizing (in 2003) pegged the overall PM market at $520 million—and growing. And while Gartner’s latest research doesn’t update that figure, it does present a clearer picture of just who the major PM players are. It also shows just how much the overall PM market has matured over the last three years. More importantly, it depicts a surging PM marketplace in which major players are thriving.

"[A]necdotal evidence shows the CPM suite market continues to exhibit healthy growth. Most of the vendors have been growing revenue from CPM applications in 2006 significantly, and many report growth rates of more than 30 percent," writes Gartner analyst Nigel Rayner.

There are a host of different reasons for this, Rayner indicates—although probably the most important is that traditional PM tools (especially Excel) are increasingly being supplanted by dedicated tools or PM suites.

"This is because many CPM applications are replacing Excel-based solutions or [dedicated] legacy applications," he comments, noting, however, that "between 50 percent and 60 percent of large enterprises still use Excel as their primary budgeting solution, while many also rely on Excel for financial consolidation." This isn’t by any means a bad thing, however: if anything, it translates into a huge opportunity for PM suite vendors, Rayner indicates.

The PM suite, for the record, now offers a core combination of financial consolidation; budgeting, planning and forecasting; and statutory or financial reporting capabilities. This amounts to a double-edged sword of sorts for many buyers, Rayner suggests. "This has increased the complexity of evaluations for end users, as most still focus on a specific business pain, such as budgeting," he comments. "However, the scope of functionality in most vendor offerings is more sophisticated than most buyers' business requirements."

At this point, some customers are also misusing PM—in large part because they aren’t yet thinking beyond specific use cases. Take, for example, an organization that taps a PM suite to replace an Excel-based budgeting system. "This underutilizes the capabilities of the CPM suite and misses the opportunity to extend CPM beyond finance and link to operational planning and performance management systems," Rayner argues.

This will change, the report suggests, especially as PM continues to amass executive mindshare. A more disruptive change will be precipitated by Microsoft Corp., which officially entered the PM business last November (with its Business Scorecard Manager, or BSM, product) and became a bona-fide best-of-breed PM player earlier this year, with the acquisition of the former ProClarity Corp. This May, Microsoft pre-announced a new PM offering, PerformancePoint Server, that draws from both ProClarity and existing Microsoft assets.

That helped make Microsoft an overnight sensation in the PM space, Rayner argues. "Excel remains the most widely used CPM application, [and PerformancePoint] represents a significant move and can have a major impact on the market. It may also create challenges for vendors that have developed their CPM suites using Microsoft technology, because they will need to increase their differentiation from Microsoft's own products," he comments. "However, Microsoft faces execution challenges before it can deliver on the promise of PerformancePoint Server. Consequently, organizations should not defer CPM suite evaluations pending the availability of PerformancePoint Server. There are already plenty of viable CPM suites available."

Overnight sensation or no, Microsoft hasn’t yet arrived, at least as a PM power player. It doesn’t yet merit a place in Gartner’s CPM Magic Quadrant, of course—not even as a "niche" vendor. In fact, Gartner recognizes only two players—Cognos Inc. and Hyperion Solutions Corp., both of which have been plying the PM trade for years—as CPM market leaders.

These companies face pressure from a trio of growing challengers (Oracle Corp., SAP AG, and Infor Global Solutions), as well as a scrappy group of what Gartner calls "visionaries": players that have strong visions for delivering CPM, expose open and flexible application architectures, and offer depth in the feature areas which they address, but which also have gaps relative to broader functionality requirements. These vendors include Applix Inc., Business Objects SA (which arguably didn’t start focusing on PM until July of last year, when it made its first PM-specific acquisition), SAS Institute Inc., OutlookSoft Corp., and Cartesis.

In spite of its small size, relative, at least, to larger players such as Oracle, SAP, SAS, Cognos, Hyperion, and Business Objects, Applix fields a formidable PM solution that centers, not surprisingly, on its TM1 OLAP engine. At a time when niche players are increasingly being elbowed out of contention by bigger competitors, Rayner is sanguine about Applix’s prospects.

"The majority of new business sales include Applix's Planning Server [which includes both TM1 Planning Manager and TM1 Financial Reporting], and this has comprehensive planning, budgeting and forecasting functionality that is the foundation for many CPM implementations," he points out, noting that Applix recently picked up a visualization player (Temtec) to help flesh out its dashboarding and scorecarding capabilities. "Applix had been more frequently deployed as a departmental solution, which makes it an interesting option for midmarket companies; however, its support for the Windows 64-bit platform and focus on improving scalability and system management in 2006 means it can compete across the entire CPM suite market."

Ditto for Business Objects, which made several PM-related acquisitions in both 2005 and 2006. The company released its first branded PM solution—Business Objects Enterprise Performance Management—in September, and seems primed for further expansion in 2007. "This release … includes some new functionality, such as an ABC solution targeted specifically at the healthcare industry, and also has improved scalability through multiserver load-balancing capabilities. This gives Business Objects a broader CPM suite with which it can compete against the established players, as well as some focused vertical offerings," Rayner comments. He’s particularly high on Business Objects’ acquisition of PM player ALG Software, which he says "shows good vision for the direction of the CPM suites market and gives Business Objects a potentially richer product set than vendors such as Cognos and Cartesis, which rely on partners for profitability-modeling functionality."

Not everything is coming up roses for Business Objects, however: unlike competitors Cognos and Hyperion, for example, it’s a late-comer to the PM arena. This is an undeniable handicap, according to Raymer: "Business Objects' execution challenges include the need to develop the positioning and road map for a rationalized product portfolio, while also creating a strong sales channel and partner relationships for the complete offering."

Speaking of Cognos and Hyperion, Rayner says both companies will continue to set the pace in the PM leaders quadrant. Take Cognos, for example, which fell off its stride this year because of disappointing sales and marketing execution. That vendor subsequently announced a realignment of its sales and marketing efforts, focusing more on comprehensive (what Cognos officials have called "holistic") performance management. The fruits of that realignment aren’t yet being felt, Rayner concedes—but could ultimately pay dividends.

Rayner writes that Cognos seems to feel that this realignment "will help it win more strategic business in large enterprises against Hyperion and SAP. Although this makes sense, it has resulted in patchy execution in the CPM suites space during the past year," he notes. "[O]nce Cognos rolls this model out globally it will be well-positioned to leverage the growing focus among larger enterprises on a broader approach to performance management."

Elsewhere, Rayner notes, Cognos has become a more fully vested midmarket player, too. "At a tactical level, Cognos is now widely recognized as a leading CPM suites vendor and continues to do well in planning-led deals. It is also appearing in more midmarket opportunities, where the combination of CPM functionality and underlying BI platform is appealing to CIOs," he indicates. "Overall, Cognos remains a leader in the CPM space and is well-placed to capitalize on the blurring of the BI and CPM market boundaries."

As for Hyperion, Rayner notes. "Hyperion has maintained its high brand recognition among CFOs and finance professionals, which means that it is present in virtually every CPM suite evaluation," he points out.

Like Cognos, Hyperion has long fielded a complete PM stack—although (also like Cognos) it isn’t resting on its laurels. Hyperion recently introduced new capital asset-planning capabilities, for example, and also touted the launch of BPM Architect, a new tool that lets users to create custom PM applications and process flows, Rayner notes.

Hyperion’s outlook isn’t altogether free from strife, of course. "Hyperion continues to show strong overall vision and market presence, although it upset its users by charging an upgrade fee for release 9.0. This created disquiet, but despite this, and the fact that Hyperion generally is the highest-cost option in most evaluations, it continues to maintain a leadership position," he says.

As for Oracle, OutlookSoft, SAP, SAS, and other PM comers, Rayner sees lots to like in their vision and execution. Take scrappy startup OutlookSoft, for example, which continues to win PM suite deals, according to Rayner. "It has proven success with its financial consolidation products and is now appearing in more broad CPM suite deals in the Americas and [Europe]," he notes. "There are still signs that OutlookSoft faces challenges with its growth in the market … [but] it understands the CPM suite market well, is growing in awareness and, provided it can execute consistently, it will continue to challenge the market leaders."

Thanks to the near-ubiquity of its ERP software, SAP has become a PM force to be reckoned with. "SAP is making progress in many of its accounts due to the strategic investments many companies have made in SAP applications and technology. Many large customers are in the final stages of large ERP rollouts and are increasingly deploying BW," Rayner indicates.

On top of this, SAP has focused its BI and analytic development efforts around PM. That bodes well for its future, he argues: "[T]here has been a significant shift in SAP's vision. It has recognized that CPM is of strategic importance and has recommitted resources to this area. SAP has built a new team focusing on this area and has ambitious plans to move the products forward. If it can achieve this, it will be able to mount a serious challenge to the current leaders."

SAS, too, continues to enhance its own PM portfolio. "Its Strategic Performance Management … and Activity-Based Management … modules are particularly strong, and SAS has completed the integration between these modules, which enables users to link strategic measures directly to activities in the ABM model. This gives SAS some unique strengths in the area of strategy planning and management, although most CPM suite buyers are not yet looking for this level of sophistication," Rayner comments. "[SAS’] biggest challenge remains its ability to sell to non-SAS users. Most SAS CPM buyers already use the SAS BI platform or are looking at an integrated purchase."

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