BI Market Consolidation Compared to ERP Market Consolidation

Trend Summary

The frantic first week of June that marked an outright internecine war in the ERP space, seems to have been somewhat repeated in the second half of July, but this time in the business intelligence (BI) market. While one could find some elements of similarity (e.g., market share bolstering and cross-selling opportunities) with the ongoing raging consolidation in the overall enterprise applications market (particularly in the mature ERP segment), the onset of consolidations in the BI market still has much more to it than meets the eye.

One group of reasons would lie in different current evolutionary states between ERP and BI markets (i.e., the mature and highly penetrated first vs. the still fragmented and far from being saturated latter), while the others would come from peculiar factors, such as Microsoft's intended foray into the reporting sector of the broader BI market with its recent unveiling of SQL Server Reporting Services, slated for a foreseeable future and forcing those directly affected (particularly its still quite involved partner Crystal Decisions) to make defensive moves. Hence, Crystal, with already interesting genesis (see Seagate Software 'Crystallizes' Its New Name: Crystal Decisions) and particularly successful recent past, had recently announced its IPO intentions for ~$172 million, and it was also logical to expect acquisition suitors to start knocking on the door.

In any case, while ERP and analytics have been inseparable ever since the idea of business automation via the IT a way back in the 1960s, they have had different user experiences, evolutionary paths, and so on. Namely, although ERP systems have positively transformed many enterprises' business processes, many users have still been left feeling as oversold to, due to the overwhelming notion that these systems inhibit access to the vital information jailed' in them. Often indeed, in most traditional ERP systems a number of financial activities are grouped together to form artificially created processes, which bear not much resemblance to the actual business activities, i.e., ERP systems' focus had often appeared to only be getting the correct figures into the general ledger and create a transactional glut.

Contrary to it, the BI applications have not experienced the "boom-and-bust" cycle of the adjacent application areas, and their need has been neither over- nor under-hyped. Business intelligence provides an environment in which business users receive information that is reliable, consistent, understandable and easily manipulated (i.e., flexible). Therefore, C-level executives and middle management have always had a need to understand their business' performance regardless of good or bad economic times while the output from BI might change, the need is always there. Particularly the recent massive demise of dot-com's, the depressed economic times, and the stringent Sarbanes-Oxley reporting regulatory requirements following up the high-profile corporate fraud scandals (e.g., Enron and WorldCom) have additionally increased executives' focus on understanding and managing corporate performance. Given that the BI tools have neither been terribly complex nor expensive to deploy, but have still been helpful in facilitating decision-making process, they have lately become considered necessary rather than only a luxury. Also, decisions are nowadays increasingly made at ever lower levels in organizations.

Evolution of the BI Market

To that end, various enterprise business intelligence (BI) solutions enable organizations to track, understand, and manage enterprise performance, and they leverage the information that is stored in an array of corporate databases/data-warehouses, legacy systems, ERP, supply chain management (SCM) or customer relationship management (CRM) applications. Hence, given the market segment's still rosy outlook and many incumbent BI vendors' bullish recent performance, the consolidation just for the sake of market share would not be the main reason for mergers. A more compelling reason would be the fragmented and evolutionary nature of the BI market.

Namely, the market has gone through a number of evolutionary steps on a journey that began with the pesky "green bar" reports printed off from mainframe computers in the 1960s and 1970s, which were infamously poor at pinpointing critical information, and because they often arrived on managers' desks a week or so after month-end, they were already a cry far after the fact. Driven by technological progress in the decades since, the evolution has embraced everything from queries & reports, Executive Information Systems (EIS), on-line analytical processing (OLAP) technology, data mining, digital cockpits to portals, all with a common aim to provide more timely information, filtered for importance and in a context that supports better decision-making.

Nowadays, popular uses of BI include management dashboards and scorecards, collaborative applications, workflow, analytics, enterprise reporting, financial reporting, and both customer and partner extranets, to name some. These solutions enable companies to, e.g., gain visibility into their business, acquire and retain profitable customers, reduce costs, detect patterns, optimize the supply chain, analyze project/product portfolio, increase productivity and improve financial performance. For more information on these tools' use in the marketing automation segment of CRM, albeit with a possible universal applicability in many other enterprise application areas, see Analyze This).

The Emergence of CPM

The latest evolutionary step introduces the concept of corporate performance management (CPM) (often interchangeably referred to as enterprise performance management (EPM) and/or business performance management (BPM), too), which is an emerging portfolio of applications and methodology with business intelligence (BI) architectures and technologies at its core. Historically, BI applications have focused on measuring sales, profit, quality, costs and many other indicators within an enterprise, but CPM goes well beyond these by introducing the concepts of management and feedback, i.e., by embracing processes such as planning and forecasting as core tenets of a business strategy.

CPM also crosses traditional department boundaries (i.e., silos) to manage the full lifecycle of business decision-making, combining business strategy alignment with business planning, forecasting, and modeling capabilities. In other words, it would entail mapping a structured set of data against predefined reports, alerts, dashboards, analysis tools, KPIs, etc., to monitor and improve business processes based on the upfront established corporate strategic objectives. Further, CPM creates a closed-loop process, starting with developing high-level corporate goals and subsequent predefined KPIs, through measuring actual results against the KPIs and representing this comparison in a scorecard or so, with the results reported to management through intuitive reporting tools, and ultimately feeding these results back into the business modeling process for corrections in the next planning cycle.

CPM leverages the above-mentioned performance methodologies such as the balanced scorecard or activity-based costing (ABC), and although these approaches help determine how and what to measure, they lack a mechanism for dynamically changing values to keep abreast of the business reality. Ensuring the closed-loop management is CPM's enhancement of BI applications, which traditionally focus on measurement, which is basically worthless without the ability to act on it. Consequently, a perplexing variety of existing tools and techniques can lay claim to being part of the CPM trend — ranging from business intelligence tools and analytics (e.g., packaged data-marts, data mining tools, extract, transform & load (ETL) tools, dashboards/EIS, etc.) to business process management (BPM) applications and scorecard products.

Thus, CPM is the evolutionary combination of technology and philosophy, building on the foundation of technology and applications that many enterprises will have likely already implemented. The demand for these applications lies in the fact that they incrementally add value to already installed business applications, even the legacy ones, to a degree that the enterprises may finally see some long belated benefits and feel somewhat better about implementing cumbersome ERP systems. Indeed, many enterprises have already deployed some BI products too, such as querying and reporting tools, planning and budgeting applications, analytic applications, incentive management systems, portals, and scorecards, along with data warehouse technology, data models, and integration software, and what not. Anyone attempting to conduct the technology inventory stocktaking will likely find some CPM components already in use.

For the above reasons, the vendor landscape remains diverse, with every vendor touting some (or total) CPM capabilities. Thus, the arms race to marshal the most complete CPM platform has lately intensified, especially following up on the recent Cognos' acquisition of Adaytum for its planning and budgeting functionality.

Why BI Consolidation Now

The BI market is ripe for consolidation, but not necessarily for the reason of capturing the scarce remaining market share like in the ERP case, but more likely for the reasons of garnering the most complete CPM portfolio. Still, these M&A moves should help user companies by reducing the number of niche vendors that they have to deal with, and by possibly bringing all their needs under a single vendor (or only a manageable few).

Eventually, more organizations will turn away from best-of-breed point solutions to pursue integrated CPM suites, possibly with the idea of having a corporate-wide BI/CPM standard, as they seek to source components from a single vendor rather than integrate disparate product sets themselves. Still, the point solutions might be safe for some time to come, due to the fickle nature of BI users' brand loyalty. Analytic technology has a good staying power within the satisfied users (i.e., CIOs and CEOs), and thus some specialists like omnipresent Timeline or FRx (part of Microsoft Business Solutions) financial, budgeting and forecasting reporting products will not be that easily displaced.

Consequently, the BI acquisitions have a few common traits such as 1) the bigger vendor availing itself of complementary products, 2) the bigger vendor with a more complex product acquiring a smaller competitor with simpler/cheaper products, and 3) both acquisitions have reshuffled the BI/analytics market ranking pushing once leading Cognos beneath, at least revenue wise. Also, the sales and marketing programs of the merged companies largely complement each other Crystal and Brio have been more successful at selling to the CIOs as opposed to reaching the finance department or boardroom, whereas Hyperion and Business Objects, conversely, have sold mainly to the CFOs and CEOs. Increasingly, their imminently more rounded CPM suites will become a joint sale to finance and to other business areas like sales and marketing, product development, operations (inventory management, quality control, production planning), customer service, and to the IT organization as well.

ERP, BI, and CPM

As usual, the enterprise vendors will bet on leveraging existing customers who will have deeply invested in them, and have even reorganized operations around their ERP systems. However, the BI vendors' daily grind has always been working with information from heterogeneous sources, an order du jour' within many large organizations, which often have more than one ERP system and/or various legacy systems. This is analogous to the EAI market, since in larger corporations, customers still may prefer integration vendors with renowned product strength, vertical expertise, financial viability and savvy in XML-based B2B integration, multi-platform integration and workflow management.

The current CPM leaders also offer the advantage of superior analytics and planning capability, but, like in the case of the SCM and CRM markets, these advantages will diminish as the ERP vendors continue to improve their analytic capabilities and accessibility and add universal interfaces, including the new Web Service standards to facilitate access and integration of data outside their own environment. Thus, the BI vendors need to establish as strong a hold on the market as possible before the enterprise and platform vendors, some of which have begun to embed BI within their relational databases, catch up, despite BI's proven staying power within IT departments. Further, the BI vendors have earned the reputation of selling big BI infrastructure deals but leaving it to IT departments within user enterprises to figure out and define the scope of the entire project.

Also, BI vendors often seem content to leave fragmented data models of the applications they will even try to enhance in the future, as their pet project is often mainly tackling the layer of decision, and leaving master data management (e.g., rationalization of supplier or item master data), bidirectional integration, or business process management (e.g., forecasting or sales planning) to enterprise vendors and/or their system integrators. Unfortunately, users want functional performance management systems, and not a bunch of data-marts. They also want scorecards in which target values can be entered and tracked, and most BI product do not yet cater for feasible forms management and data entry to easily track this. Given a big emphasis on data integration products within Business Objects' Enterprise 6 product suite and given Ascential's acquisition of Mercator and Actuate's acquisition of Nimble Technology, it appears that the BI vendors have been getting the hints.

User Recommendations

In general, existing customers of involved merging vendors should be alert, but they should still look at theses events as positive. In the short to medium term, users should demand that the vendors articulate a technology integration road map and demand contractual independence for each brand. Users should ask the following questions when evaluating the new combined offerings:

• Are there any price advantages offered to existing clients who elect to purchase/migrate to the future integrated products?
  
• What technology will be used to integrate the applications?
  
• Will (and when) the applications share a common server platform and user interface?

On a more general note, the CPM evaluations should involve the IT organization, finance and operations, and most firms should create a joint committee or task force to evaluate how automation can improve enterprise-wide performance management. Although CPM starts with strong financial management, it will eventually extend beyond financial planning to almost all areas of corporate activity. Therefore, organizations choosing BI suites should consider both their financial management tools and future integration with key business-area solutions (e.g., PLM, CRM, SCM, etc.).

The most important point for prospective buyers of CPM technology -- do a very thorough analysis of your existing systems, where your corporation's business needs will be in the next few years, and how you intend to integrate the systems (do not forget that mapping data from one place to another is the most arduous, expensive, and time consuming part of the whole process, and one of the major reasons for BI projects failure) before you even talk to any vendor. Be both open-eyed and open-minded, since it is tempting to create specialized data models and tactical data marts to support quick deployment of CPM portfolio, but this can lead to the long-term inflexibility.

The best start for CPM initiative towards building the entire Corporate Information Factory (CIF) would be to identify the most painful points and to try solving them by leveraging existing BI/analytics initiatives, while bewaring of being inflexible and of automatically settling for an incumbent vendor if its products and plans don not match up well to your strategic requirements. Also, one should not fall in the trap of "low-hanging fruit" and easily obtainable short-term return on investment benefits (ROI) at the expense of long-term strategic benefits that are either of a soft' nature or are of lower value in the short-term.

While the needs of employees, customers and business partners will vary, successful integration tools will need to provide access to such applications as inventory control, ERP, CRM, data stores, packaged applications, legacy systems and a myriad of other applications. The effort will be grueling, but the returns from an integrated information portal can be significant. As with any such purchase, users choosing point planning or BI products should consider the integration infrastructure and effort needed to combine these products versus the cost and functionality issues of choosing an integrated CPM product suite (if still possible to find). Mission-critical issues like scalability, reliability, manageability and ease-of-use go without saying. For smaller enterprises that are more inclined to rely on their ERP vendor on extended functionality such as BI and portals, the route to the complete CPM might be more straightforward. Thus, while the ongoing consolidation may reduce users' choices, it may also simplify their standardization endeavors some time in the future.