Living in close proximity to the headquarters of Pegasystems in the Boston metropolitan area, I’ve had numerous contacts and interactions with the vendor in the past, but this summer I attended the vendor’s annual conference for only the second time. Attending PegaWorld 2011 was a great experience, where I learned about this upbeat company and their happy customers.
Prior to attending PegaWorld 2010, I had written an exhaustive five-part series on Pegasystems (a.k.a. Pega) entitled “The Wizardry of Business Process Management.” As background, here are some other market observer’s reports from PegaWorld 2010: Sandy Kemsley’s of Column 2 and Neil Ward-Dutton’s of MWD Advisors.
As PegaWorld 2011 fell in-between the two grand slam tennis tournaments in Paris and Wimbledon, here is my tennis analogy of how, in my view, Pega stacks up against its fierce business process management (BPM) competitors. Namely, if Oracle BPM and IBM BPM were to resemble Nadal and Federer (in whichever order), Pega strikes me as Djokovic: not the longstanding No. 1 yet (and perhaps he will not remain the top player for long), but with an impressive string of consecutive wins and much color and humor to his character (which defies the typical profile of a boring tennis player). Indeed, Pega’s top managers and their approach to developing software are a far cry from being dull.
Interestingly, Pega is nearly a 30-year-old company (founded in 1983 by its current CEO Alan Trefler), but it still feels like a youngish company that is just past the startup phase. This may be because the company has had four major phases in its current lifecycle, with each phase coinciding with a major product rewrite in a new technology. The first three phases lasted for more than two decades, in which the publicly traded company was a “run of the mills” and even flirted with disaster on a couple of occasions. But then in 2005, the company caught its fourth wind and got its current Build for Change (BfC) concept right: rather than continue delivering rigid packaged suites, it began delivering applications that users could change relatively easily.
Pega BPM: The Software for Customer Centricity
Let’s fast forward from that time when Pega was an obscure BPM vendor with about $100 million (USD) in revenues to 2011 when Pega is the third-fastest growing technology company according to Fortune magazine. Due to five consecutive years of about 30 percent growth, Pega is projected to become a $450 million (USD) company in 2011. During his PegaWorld 2011 keynote presentation entitled “Pega BPM: The software for customer centricity,” Trefler pointed out that Pega’s very first two customers from 1983 are still its customers today.
Trefler also reminisced about 2004, when Gartner told (or rather scolded) the vendor that having business processes and rules together was a bad idea. In fact, Gartner is still publishing two different magic quadrant market reports: for BPM suites and Business Rules Management Systems (BRMS). While Pega continues to participate in both magic quadrants, in reality rules and processes are two sides of the BPM coin in the Pega BPM suite (a.k.a. SmartBPM and self-explanatorily dubbed PegaRules Process Commander [PRPC]). Pega has also become a customer relationship management (CRM) and case management player (and is also featured by leading analyst houses in related magic quadrants or wave reports).
Later on in his speech, Trefler lamented about users' engagement with information technology (IT) systems still being suboptimal, despite substantial changes in the underlying technology having taken place during his Pega tenure. Pega has thus developed unified object-based architecture, which holds processes, policies/rules, and user interfaces (UIs) within the same DNA (i.e., the same code; the same integrated development environment). This is in a sharp contrast to "integrated" or "fused" software suites, based on multiple acquisitions on disparate technologies, which Trefler referred to as “frankenstacks.” Lombardi Software, Savvion, and Metastorm (and most recently Global 360), once very similar to Pega in delivering automated, model-driven, round-trip processes, and thus the most fluid user experience, are now all part of IBM, Progress Software, and Open Text’s “frankenstacks,” respectively.
In addition, Pega believes that cloud computing is the way to go. In 2008, the vendor introduced a private cloud−based platform as a service (PaaS) to help organizations set up centers of excellence (CoE) and facilitate incremental adoption (pilot projects, sandboxes, etc.) of BPM initiatives across departments, subsidiaries, lines of business (LoB), outsourced business units, and trading partners.
Its unified architecture enables the vendor to deliver a declarative modeling composition environment that improves the ability of the BPM system (BPMS) to change and adapt to new business needs. With the Chordiant Software acquisition in 2010, the product’s architecture also enables the self-optimization and self-learning of process models by discovering patterns of how work has been handled (which perhaps should become new rules for the future). Chordiant will not be merely integrated but rather "unified" for enabling better decision-making capabilities during customer interactions (e.g., recommending the next best offer).
The idea is for case management to evolve into case automation. Customer centricity, in Pega CEO’s view, means the following abilities:
- understanding the customer
- meeting the customers’ exact needs
- having cross-channel interactions
- having cross-silo processes
- enabling immediacy and operational efficiency
To this end, customer-oriented architecture (COA) is required, with the following components:
- The ability to directly capture objectives (DCO), i.e., use the BPMS itself to capture business objectives. Other benefits from DCO are the ability to accelerate deployment, manage projects, automate testing, provide self-tuning optimization, and improve integration directly into customers’ Web-based environments. For more details on DCO, see one of my previous blog posts on the TEC Blog.
- The so-called “situational layer cake” allows Pega to enable federated BPMSs at large corporations, with common processes, rules, and UIs followed at the corporate level, but with every division having the ability to tweak its processes, rules, and UIs based on geography and other idiosyncrasies. These capabilities include an enterprise-wide BPM registry and repository, tools for coordinating local BPM projects across the enterprise, and the ability to export data to a common data warehouse in order to optimize these multi-node systems. For more information on the topic, see another TEC blog post.
- The “Six Rs” of process (work) automation, i.e., “Research, Respond, Resolve, Receive, Route, and Report,” which leverage the best of both declarative and procedural words. For more information, see my previous TEC blog post.
- In that blog post, we can see that Pega’s customers and its BPM expertise are still in the financial services industries (insurance, banking, and investments) and health care. Pega’s impressive growth might not be sustainable unless the company begins to diversify geographically and industry-wise, say in Latin America and in retail, travel & hospitality, oil & gas, pharmaceuticals, consumer goods, etc. Its acquisition of Chordiant has brought additional telecommunications customers to the fold.
What’s New in Pega BPM 6.2?
Kerim Akgonul, Pega’s vice president (VP) of product management, started his keynote presentation afterwards with the assertion that most of the traditional BPMSs stop short of a process execution capability in process modeling. According to Akgonul, “Models do nothing on their own, other than being pretty pictures, like real supermodels celebrities,” but Pega's BPM is all about model-driven automation that entails change management, specialization & reuse, and the aforementioned Six Rs of work automation.
As the process model is visible and executable (with a so-called round-trip behavior and thus the most fluid user experience), it allows processes to be flexible, without sacrificing management control. Microsoft Visio is no longer necessarily required for modeling, given that Pega has delivered its own browser-based modeling tool, which will also work for the Pega Cloud offering. A new browser-based client supports a “business process automation (BPA) for the masses” style of process knowledge capture. Possible solutions can be modeled and immediately executed as prototypes, with auto-generation of Java and hypertext markup language (HTML) scripts, as needed, as well as indication of incomplete steps.
Akgonul also talked about Dynamic UIs (screens) in Pega BPM 6.2, which are similar to KANA Software's concept of an adaptive desktop that changes in a chameleon-like manner based on user input and the necessary next step (see TEC’s recent blog post). In addition to model-driven automation, the major Pega BPM 6.2 goal is to double user productivity and reduce implementation and training time by 50 percent. This ambitious goal is expected to be reached in the following ways:
- eliminating hand-coded UIs (via UI events, grids/trees, UI gallery, etc.)
- eliminating hand-coded structured query language (SQL) scripts for database administration and reporting (via embedded functions, top/bottom reports, subreports, summary grid, etc.)
- eliminating hand-coded activities (which are unavoidable administrative procedural steps, such as data import/export, and which can take even up to 25 percent of the system’s work) in the following ways:
- model-driven automation through purpose-built forms
- data transforms
- Application Programming Interface (API) activities
In addition, the Pega BPM release features built-in case management capabilities, such as the following:
- 360-degree view of a case (case harnesses, unified actions, case contents)
- events processing (calendar, event subscriptions, event feed)
- case manager dashboard (case manager portal, ranked performers, work management)
- case designer (case & process, data propagation, work parties)
- design by doing (ad hoc work, unstructured process, etc.)
- events infrastructure—monitor and respond to events of interest that are not easily represented as procedural steps
Last but not least, application migration has been simplified via migration package formats, an applications packaging wizard, automated database schema changes, data import as a comprehensive wizard, property optimization for reporting, streamlined Pega cloud experience, etc.
Life Is Good at Pega, Yet . . .
In light of Pega’s protracted stellar results, it is difficult to find issues and challenges with its BPM software. Nonetheless, Pega BPM appears too complex a system for small and medium enterprises (SMEs), although the vendor has been implemented at individual departments of large companies. The product also prices higher relative to other competitor products, reflecting the premium brand value that Pega believes it delivers.
Pega does not yet have a culture of being a platform provider for independent software vendors (ISVs) and value-added resellers (VARs), and largely relies on direct sales and strategic consulting partners, which is again not conducive to SMEs. Pegasystems’ DCO concept represents a paradigm shift for most prospects and will require some evangelizing and education for mass acceptance. IT departments might be resentful of the offering for fear of being rendered obsolete. In addition, some Pega competitors feature stronger capabilities and reference customers in the realms of knowledge management (KM)- and project-based BPM deployments. To read about more potential issues with Pega, see the PegaWorld 2011 report by MWD Advisors.
Pega’s Executives Have Their Say
To discuss both the opportunities and potential challenges at PegaWorld 2011, I recently had the chance to have one-on-one interviews with Alan Trefler and Kerim Akgonul. Alan Trefler, founder and CEO of Pegasystems, also serves as chairman of the Pegasystems Board of Directors.
Alan was named The American Business Award's “Software CEO of the Year” for 2009. He has frequently presented at international conferences, written articles for major publications, and has been consulted extensively on the use of advanced technologies and work automation. Alan has been profiled in national print and broadcast media including Fox Business News, Fortune Magazine, Inc. Magazine, Forbes, The Boston Globe, The New York Times, Bloomberg Television, Barron’s, Reuters, and Investor’s Business Daily; he has also been named the inventor of five issued United States (US) patents and several US and international patent applications for Pegasystems' distinctive Inherited Rule-Based Architecture, which provides the framework for Pegasystems' rules-based BPM solutions.
Alan’s interest in computers originates from his collegiate involvement in tournament chess, where he achieved a Master rating and was co-champion of the 1975 World Open Chess Championship. Alan holds a BA degree with distinction in Economics and Computer Science from Dartmouth College.
The Discussion with Pega’s Visionary
My questions and Trefler’s answers are as follows:
PJ: Has your competitive landscape changed of late and how, and why do you win/lose to your competitors?
AT: During my PegaWorld 2011 keynote presentation, I reflected on Metastorm, Lombardi, and Savvion being gobbled up by large technology stack providers over the past 2 years. Our win rate is quite high, particularly when concrete business case scenarios with proven benefits appeal to prospective customers. We might still lose in environments that do not believe in model-driven architecture paradigms but rather believe in Java or Microsoft .NET stacks and enterprise service buses (ESBs).
Our declarative composition environment represents a paradigm shift for most prospects, and will require education for it to be taken advantage to its fullest. Not everyone is ready to have IT staff and business users work hand-in-hand, plus there might be some lingering anxiety (and thus resistance) about how our “no coding” approach might render some IT folks obsolete.
PJ: What is your current geographic coverage and in how many languages are your products?
AT: Pegasystems’ sales to customers based outside of our domestic US market represent about 40 percent of the total revenue, which begs for some improvement. We have wholly-owned subsidiaries based in the United Kingdom (UK), Germany, the Netherlands, Switzerland, Canada, and Australia. These offices market Pega products and render consulting and training services to customers based in North America, Europe, Mexico, Australia, Hong Kong, and Singapore.
Over the past 2 years we have expanded dramatically in the Asia-Pacific region, with presence and major customers in China and Japan. To continue with our coveted growth, we must expand international operations in Latin America. We currently deliver 11 language packs out of the box, but our customers have additionally deployed the product in 10 more languages.
PJ: How are your major system integrator (SI) and other partnerships going (with as much candor as you are willing to provide)?
AT: Over the past several years we have expanded our partner ecosystem. PegaWorld 2011 sponsors include SI luminaries such as Accenture, Capgemini, Cognizant, IBM Global Business Services (GBS), PricewaterhouseCoopers (PwC), Tata, Infosys, and Wipro Technologies, to name a few (see full list of sponsors). These partners have made significant investments in their Pega practices.
PJ: What were the major highlights in 2010, and what do you expect in 2011, regarding demand for your solutions across different territories and product lines/modules?
AT: In addition to 30 percent growth, 2010 was marked by embedding predictive analytics in our product to improve customer-facing interactions. As far as new industries go, we’ve made some notable forays in oil & gas and life sciences, and acquired our first customers in Russia and Italy. 2011 and 2012 should be more of the same.
PJ: What issues/challenges are still keeping you awake at night?
AT: First of all, I sleep very well at night. Still, ensuring high quality of our product and partner relations is constantly on my mind. We will continue on the concurrent COA and service-oriented architecture (SOA) paths. To recap my PegaWorld 2011 keynote, COA entails the following three concepts:
- DCO, whereby IT staff and business users collaborate on capturing business objectives to deliver an executable application (without writing code). Our architecture enables us to deliver a declarative modeling composition environment that improves the ability of the system to change and adapt to new business needs. The addition of Chordiant enables the self-optimization of models by discovering patterns of how work has been handled, which should perhaps become new rules.
- The situational layer cake, which helps global corporations reuse the standard practices to create departmental and divisional flavors to accommodate local statutory requirements.
- Six Rs of work automation—Receive, Route, Report, Research, Respond, and Resolve.
Most of our competitors are complicating their products (rather than simplifying them) by creating gargantuan stacks around their ESBs. Over the past 10 years, we’ve seen the novel paradigm of building applications separately from a database layer, and that should be the case with BPM as well, where ESB plays a database role. It is not easy to deliver customer-centric application in such a monolith stack.
PJ: If you oversimplify your product, will you cannibalize your professional services and strain your SI partnerships? If not, why would it still take months to implement Pega BPM?
AT: Not really. There is so much pent-up demand to use technology better and in a more customer-centric way. Our estimate is that a 50 percent reduction in implementation cycles will result in a 300 percent increase in demand because there are so many business processes that need to be improved in the corporate world and pricing elasticity is high in the enterprise software space.
Our partners will have the chance to increase the volume of their BPM projects, which should compensate for the lower scope of these projects. In addition, Pega BPM will still have to be implemented in long cycles because of the abundance of processes that need streamlining.
The Nitty-Gritty Discussion with Pega’s R&D Leader
Kerim Akgonul, VP of product management, is responsible for Pega BPM products, technical documentation, training curriculum development, and the Pega Developer Community (PDN). Kerim has been with Pegasystems for more than 17 years, spending the first 10 years in the engineering department developing solutions for customers. With his extensive knowledge of Pega technology, he moved into product management, where he successfully drove efforts to commercialize Pega BPM.
Kerim holds a BSc in Mathematics and Computer Science from Indiana University of Pennsylvania. My questions and Akgonul’s answers are as follows:
PJ: Of all your modules, capabilities, industry frameworks, etc., what has been selling best of late and which of these do you expect to perform well (best) in the future?
KA: Financials, health care, insurance, and telecoms have been our traditional industries of focus, as well as facilitating back-office processes (e.g., invoice processing, exception handling, approvals, auditing, HR processes, etc.). Oil & gas, life sciences, travel, retail, etc. should be new growing vertical sectors for us in the future. On the functional side, front-office applications (and processes), such as case management (loan origination, claims management, etc.), quoting and order capturing, and predictive decision-making (next best offer to a customer), are expected to do well. Last but not least, Pega Cloud should do well in the future.
PJ: What are the particular capabilities (that solve what pain points) that your products still do and no one else does?
KA: Off the top of my head, the following distinct Pega BPM traits come to mind:
- a unified BPM (and CRM if you will) platform across business processes, rules, UI, and integrated development environment (IDE)
- the aforementioned predictive decision making, whereby rules and processes will be further bolstered by strategic decisions, to enable the next-best customer dialog
- case management capabilities, which accommodate dependencies or subcases within cases that, e.g., propagate deadlines and service level agreements (SLAs) bottom up
PJ: What would be the sweet spot customers for your product lines?
KA: There would still be large global corporations that want to improve their processes, operations, and top and bottom line. Such large disparate organizations can scale and federate their BPM implementations owing to our “situational layer cake” capability. We are focused on large, multinational (Fortune 500) organizations, as we have been working with these types of organizations to address their most challenging business processes and transformation initiatives. We believe that there is still a tremendous opportunity for our solutions within global enterprises. As mentioned earlier, financial services, insurance, health care, and telecommunications and media have traditionally made up the majority of our clients, but we have seen growth and opportunity in the areas of life sciences, travel and hospitality, oil & gas, retail, manufacturing/warranty management, and other industries in recent years.
PJ: Your CEO talks about your “unified” solutions vs. competitors’ “integrated” solutions? Can you please explain the difference between the two?
KA: We believe that a truly unified offering provides greater consistency and capabilities across organizational silos. That way, processes, rules, and decisions will be part of the same unified product for the benefit of making next-best offers and conducting next-best customer discussions. Solutions that are “just” integrated have the ability to work together, but they often need to be pieced together and the functionality is never as fluid as it is in a unified offering.
PJ: What percentage of your customers is on demand (in the cloud)? Has that become the order qualifier and/or winner in your market?
KA: The Pega Cloud is still a fairly new offering, but in the past year, a third of Pega’s customers have built, tested, and deployed more than 450 BPM, case management, and CRM applications on the Pega Cloud with 100 percent SLA at five times the speed of traditional methods and at one fifth the cost. Our private cloud (managed services) PaaS offering helps organizations set up COEs and ease the adoption of BPM initiatives across their departments, subsidiaries, LOBs, and even trading partners. The Pega Cloud also makes the “cloud lock-in” problem go away, with 100% portability between clouds—internal or external.
PJ: What is your strategy toward social and E2.0 tools, and their deployment for your target customers?
KA: We are already able to harvest Twitter and Facebook feeds so that, e.g., a new case can be initiated from an important (pertinent) social network comment. Within our BPM suite, we already have a tool that enables collaborative feed streams among the users as well as the tagging capability (e.g., to tag a particular case to be followed by specific users). At PegaWorld 2010, we showcased new intuitive visualization and social networking capabilities to enhance ease of use by participants, aid learning, support cross roles, and even customer collaboration, and focus attention on changes in real time (e.g., a “pushpin” metaphor, a “what’s happening” view, and an interactive process “sticky note”). Please stay tuned for more to come.
PJ: What is your mobility strategy (technology and platforms supported)? Has mobility become a factor in your market segments?
PJ: Can you elaborate on your play to become an “Enterprise transformation platform”?
KA: For a long time our “sliver” approach (i.e., improving one process at the time and then expanding the BPM scope within the enterprise) has worked well, and we will continue to apply it where appropriate. Lately, however, some of our customers have begun to design their front-office applications in a different manner by engaging IT and business (non-programming) staff to work together in this regard. To that end, the idea is to wrap their front-office applications into Pega BPM tools for the same look-and-feel and user experience enterprise-wide.
As Alan said in his keynote presentation, new Pega BPM applications are now written in Pega BPM tools (given that applications development is a process in itself). Also, Pega employees use Pega BPM for their CRM tasks, expense management, etc.
PJ: How do you respond to the perception that Pega is still mainly about case management and rules? In other words, what do you offer to companies where case management and rules are not the major pain points (e.g., those that want strong enterprise content management [ECM], enterprise architecture [EA], KM, etc., offerings)
KA: First of all, who in the market is already that complete a solution? Perhaps IBM, Oracle, Open Text/Metastorm/Global 360, etc., but only on paper and in theory (having garnered a bunch of disparate IT assets). But in any case, Pegasystems is not all things to all people and we are cognizant of that fact. We are not in the EA play, while for full-fledged CMS capabilities, we subscribe to the content management interoperability services (CMIS) standard so that customers can integrate to ECM systems with superior capabilities (than our document management features).
PJ: How do you respond to the prospects that say “Why do we need Pega when we already have, say, SharePoint, Visio, Lotus Notes, and/or WebSphere?”
KA: We talk about our rich business rules management system (BRMS) and dynamic case management capabilities, for example. Our research shows that over 40 percent of the time, prospective users are well informed about the complexity of managing claims or originating loans, where SharePoint’s basic workflow is not going to help them. I think that there is a misconception that BPM is just about workflow and pushing things from one work basket into another.
We at Pega believe that BPM is more focused on business process automation, and actually having the systems perform work in order to create greater efficiencies within organizations. We feel that this distinction has been lost in translation, as more players have tried to label themselves as BPM, but as you can see, we take things to the next step by automating work functions rather than just routing items.