Smaller Players Keep Performance Management Products Interesting

Oracle, IBM, and SAP sit atop the performance management heap, but several best-of-breed players are doing their best to keep things interesting

Thanks largely to its acquisition of the former Hyperion Solutions Corp., but owing also to innovation of its own, Oracle Corp. has become an overnight sensation of sorts in the corporate performance management (CPM) market.

Consider Gartner Inc.'s final CPM market survey of 2007, in which it names the combined Oracle/Hyperion as the number one overall player in a fiercely competitive CPM segment. (The segment also goes by the name business process management, or BPM for short.)

The Gartner report shines a light on a vibrant, teeming, and all-but-consolidated performance management marketplace. In addition to Oracle, Cognos Inc. (now the property of IBM Corp.), Business Objects SA (now part of application giant SAP AG), and SAP itself round out Gartner's Leaders quadrant.

That's the high-end. The "Visionary" and "Niche" player segments of Gartner's CPM Magic Quadrant are far from consolidated. A roster of players, including business intelligence (BI) powerhouse SAS Institute Inc., Clarity Systems Ltd., Exact Software (which acquired the former Longview Solutions last year), and Microsoft Corp., flesh out Gartner's "Visionary" quadrant, for example. CPM visionaries, in Gartner's parlance, score higher on their completeness of vision but typically lower on their ability to execute on that vision.

Gartner's "Niche" player quadrant is also jam-packed with vendor entrants. Board International SA, Tagetik North America LLC, Lawson Software, and CorVu Corp. (which acquired performance management specialist Rocket last year) round out that sector.

The existence of visionary or niche vendors means that the CPM market will continue to condense. The leading suites might be mature, Gartner indicates, but they can always use additional or niche functionality. As a result, some of the smaller vendors will likely become acquisition targets in the near future.

"The market for … CPM suites is maturing rapidly, which means that vendors' offerings are rich in functionality, with many potential benefits. The downside is that rapid market growth means consolidation will continue, leading to uncertainty created by the need of the acquiring vendors to rationalize product portfolios," write Gartner analysts Nigel Rayner, Neil Chandler, and John VanDecker in Magic Quadrant for CPM Suites, 2007.

"This makes it difficult for many organizations to make strategic decisions. Consequently, IT organizations must balance the tactical pressure to buy specialist solutions against more-strategic, but not fully realized, integrated solutions from the larger vendors."

Consider the list of niche or challenger (or even market-leading) vendors that dropped off of Gartner's Magic Quadrant list in 2007: Hyperion (acquired last February by Oracle) as well as household names such as OutlookSoft (acquired last May by SAP) and Applix (acquired in September by Cognos, which was itself acquired two months later by IBM).

Rapid Pace of Consolidation

What's driving the rapid pace of consolidation in the CPM segment?

Profit, for one thing, according to Gartner: the CPM market grew at a blistering 20.2 percent clip in 2006 (reaching more than $1.5 billion, according to Gartner's estimates), which makes it one of the hottest overall software segments.

What's more, Gartner says, CPM market growth is likely to continue, outpacing revenue growth in other software segments through 20011. "Although this high level of growth will dip slightly, Gartner forecasts that the compound annual growth rate from 2006 to 2011 will be 14.4 percent, meaning that the market will be worth around $3 billion in 2011," the analysts indicates.

There are a few reasons why revenue growth in the CPM segment should continue to surge. For one thing, CPM adoption in many potential application areas continues to lag. In fact, many potential customers are still using traditional spreadsheet-based tools (or better-than-spreadsheet spreadsheet offerings, such as those marketed by Actuate Corp. and the former Applix) to address their budgeting and planning requirements. Such users represent a potential goldmine for CPM suite vendors, Gartner suggests.

"[T]here is still a large unaddressed market opportunity as users replace spreadsheet-based applications with more-robust solutions," write Rayner, Chandler, and VanDecker, who cite internal Gartner research showing 50 to 60 percent of large enterprises still use spreadsheets for budgeting and planning. In addition, the trio notes, "many organizations that previously deployed some CPM applications typically have small, isolated implementations of single applications … for example, a legacy financial-consolidation application deployed in the corporate finance function."

Industry watchers have been waiting (in vain, so far) for CPM to go mainstream -- to branch out from its dominant domain areas of accounting and finance and into other IT practices.

That still isn't happening. In fact, Gartner says, most CPM deployments are still earmarked for finance and accounting. There's interest in other domain areas, to be sure, but no substantial traction in that direction.

"The number of CPM evaluations definitely is increasing, and the size of many evaluations [i.e., in number of users] is growing. However, most CPM evaluations remained focused on budgeting, planning and forecasting, financial consolidation and management, and statutory reporting," the Gartner researchers write. "The more advanced aspects of CPM, such as strategy management and profitability modeling, still appear in few evaluations."

CPM Market Haves and Have-Nots

Oracle, not surprisingly, is the CPM market champ. Although it paid what some believe was a hefty price to secure CPM market bragging rights, its investment seems to have panned out. Oracle's move was well-received by customers and prospects alike, the Gartner analysts say, and Hyperion remains the industry's most recognizable CPM brand, particularly in the office of finance. What does brand recognition of this kind translate into? For Oracle and Hyperion, Gartner says, it means that they're included in the vast majority of customer evaluations.

There's a sense in which Oracle's stewardship appears also to have benefited Hyperion's customers. "Oracle has simplified pricing for Hyperion applications and has removed some of the licensing constructs that made the solution relatively expensive, as compared with those of it competitors," write Rayner, Chandler, and VanDecker, who cite Hyperion's practice of charging application fees and test/development server charges. "Oracle also has shown itself more willing to negotiate in commercial situations."

On the other hand, they concede, Oracle's revised licensing model can still be expensive, especially for deployments of several hundred or more users (and particularly for Financial Management). Then there's Oracle's post-acquisition product strategy, which probably needs to be rationalized a bit more. "Oracle has communicated a clear road map, [but] some areas of product rationalization are needed. … Oracle has multiple profitability modeling and optimization solutions. In 2008, Oracle plans to release a new profitability management solution based on the Hyperion product stack that will be the strategic product going forward [although existing products will continue to be supported," they point out, citing additional areas of overlap with respect to reporting tools.

Oracle's rivals are also busy. Business Objects -- which in October became a subsidiary of SAP -- is fleshing out a comprehensive CPM portfolio of its own, mostly by means of its aggressive acquisition strategy. (Business Objects' strategy is partially a result of its tardiness: while competitors Hyperion and Cognos spent the first few years of the new millennium touting a combination of BI and performance management, Business Objects focused mostly on bread-and-butter BI.) Its acquisition by SAP should add impetus to sales and marketing of the CPM suite.

On the other hand, SAP must first reconcile more than a few redundancies thanks both to its own and Business Objects' prolific acquisition efforts. "SAP has its own suite of CPM applications and cannot yet explain how it will rationalize these with the Business Objects portfolio until the acquisition completes," Gartner points out. "Business Objects is ranked as a leader based on its current capabilities and future potential as a CPM suite vendor, but users and prospects should realize that there will be some short-term disruption and uncertainty while the acquisition completes."

Cognos, like Hyperion, was an early entrant in the CPM-stakes. While its acquisition by IBM will obviously change things, Gartner flags a number of positives that the former Canadian BI giant has going for it.

"Cognos has remained a leader owing to its core strengths in [budgeting, planning, and forecasting,] … which still drives most CPM deals," Rayner, Chandler, and VanDecker note. "Its Controller product for financial consolidation continues to gain ground, and Cognos is continuing to integrate these solutions with its underlying BI platform. This gives Cognos greater opportunity to cross-sell Controller to Cognos Planning customers."

Elsewhere, Gartner highlights Cognos' plans to deliver a financial reporting tool and its acquisition of Applix; the latter strengthens its general reporting and analytics capabilities and provides good integration with Excel.

Then there's the acquisition by IBM, which, unlike Business Objects' acquisition by SAP, isn't overshadowed (or significantly threatened) by product or technology overlap.

"The proposed acquisition of Cognos by IBM may introduce uncertainty in the short term, but this is likely to be minimal because there is virtually no product overlap and IBM has not been a player in the CPM suites market," the Gartner trio indicates. "[I]n the midterm and long term, the commitment of IBM to Cognos' CPM suite may be less clear. IBM does not have a track record with applications, and its consulting arm, IBM Global Services (IGS), will continue to deliver services based on competitor products."

While the big suite vendors slug it out amongst themselves, CPM challenger and niche vendors should have an opportunity to feed from the bottom, so to speak.

Finally, there's Microsoft's not-to-be-discounted PerformancePoint product, which could do for PM what SQL Server Analysis Services and Reporting Services did for OLAP and enterprise reporting, respectively: take it mainstream.

"The reduction in CPM specialist vendors is giving vendors like Clarity Systems and Exact Longview greater market exposure and has helped open up the market to other smaller specialists, such as Tagetik and KCI Computing," the Gartner braintrust concludes. "Microsoft's PerformancePoint Server … will increase overall competitive market pressures. We anticipate further consolidation and turbulence as the CPM suites market continues to mature and converge with BI platforms and enterprise applications."

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