Business analytics sharpen vertical edge

Corporate performance management — sometimes called “business analytics” — is a segment of the business intelligence (BI) market that is undergoing rapid consolidation.

Corporate performance management — sometimes called “business analytics” — is a segment of the business intelligence (BI) market that is undergoing rapid consolidation.

Since spring, there has been a steady stream of CPM mergers and acquisitions: Oracle bought Hyperion, then Business Objects purchased Cartesis, SAP landed Outlooksoft, and Cognos nabbed Applix. One could argue that this trend actually started a year ago, when Microsoft acquired ProClarity, a deal that bore first fruits last month when the software powerhouse released Office PerformancePoint Server 2007, its first comprehensive CPM offering.

Driving CPM industry consolidation has been BI software vendors’ desire to field ever more comprehensive analytics application suites for chief financial officer (CFO) organizations. Though the CPM industry provides specialized solutions for a dizzying range of horizontal business requirements and vertical industries, most major BI/CPM vendors covet the lucrative CFO market, due both to its considerable size and to its potential for trickle-down cross-marketing of CPM tools to other functional groups within enterprise accounts.

In some ways, financial analytics is the most viral of all CPM applications, inasmuch as these tools have the potential to touch every part of an enterprise. Each of the major acquiring vendors has been hard at work assembling comprehensive, BI-integrated CPM suites of tools for financial planning, modeling, forecasting, budgeting, consolidation, reconciliation, monitoring, costing, reporting and analysis.

As noted above, Microsoft has just launched one such solution. Business Objects wasted little time in integrating Cartesis and some earlier financial CPM vendor acquisitions — SRC and ALG — into a new suite, EPM XI, that was also rolled out last month. And it’s highly likely that we’ll see similar rebranded, CFO-focused all-in-one suites in the coming year from Oracle/Hyperion, SAP/Outlooksoft and Cognos/Applix.

However, there’s one little problem that all of these BI vendors face as they push forward with their CFO-focused business analytics strategies. All of them are chasing the same horizontal CPM niche — i.e., addressing the needs of CFOs in enterprises of all sizes — hence are increasingly crafting all-in-one solutions that are comprehensive in their financial analytics functionality but increasingly indistinguishable from one another.

In other words, the financial analytics segment is well on its way to commoditization — hence overcrowding, aggressive pricing and puny profit margins.

So there’s either a grand irony or tragedy in the works, depending on your viewpoint or vested interest in the business analytics wars. One of the unstated motives of BI vendors in sharpening their CPM portfolios was to escape commoditization in the core BI arena, which has become a very mature, overcrowded segment of the SOA universe. At the coarsest level of analysis, most BI vendors’ solution families have converged on look-alike assemblages of browser-oriented query, reporting, dashboarding, and online analytical processing functionality. Fueling the commoditization trend has been the steady invasion of open source, on-demand services, appliance-oriented packaging and service-oriented architecture (SOA) approaches throughout the BI world.

As any economist can tell you, when commoditization hits any market it sets in motion a steady decline in prices and profitability. Though most BI vendors are doing quite well right now on the financial front, they recognize that continued sales, revenue and profitability growth depends greatly on their ability to evolve core offerings into foundations for diversified CPM application suites.

Ongoing differentiation in the BI/CPM space — hence happy shareholders — depends on vendors’ ability to tailor analytics to the specific requirements of myriad horizontal business functions and vertical industries. Vendors’ continued profitability also hinges on their ability to provide the professional services necessary to create, customize and support business analytics for each customer’s unique requirements.

Without a doubt, verticalization is the key to ongoing success in the enterprise CPM arena, providing a necessary hedge against the inevitable creep of commoditization into horizontal analytics segments such as financial, human resources (HR), sales and marketing, and supply chain management. However, today’s leading BI/CPM vendors differ widely in their readiness to face this challenging new phase in their industry’s evolution.

Some CPM vendors already offer highly verticalized analytics suites, as well as a full set of horizontal offerings, that are integrated into their best-of-breed BI, data-warehousing and data-integration offerings. Most noteworthy is SAS Institute, a 30-plus-year-old North Carolina-based software provider that remains the acknowledged CPM market leader. SAS’ longtime success story is due in large part to a corporate culture under which it continues to infuse its product organization with deep domain expertise in myriad vertical and horizontal analytics domains. The vendor uses regular activities, such as a recent vertical-oriented CPM conference, to engage customers, channel partners and system integrators in the ongoing process of broadening and deepening its business-analytics solution set. Just as important, SAS typically recruits CPM product managers with backgrounds in their respective verticals.

Other BI/CPM vendors who are strong in verticalization include Oracle and SAP, both of which also provide a full suite of line-of-business transactional applications for the same spectrum of industries. In addition, Oracle and SAP also are leveraging their analytics application portfolios — both vertical and horizontal — into aggressive forays into the emerging governance, risk and compliance (GRC) market, in which CPM features such as score-carding and exception-based stakeholder notification are critical features for ensuring compliance with regulatory and other mandates.

As with SAS, these vendors’ global professional-services ecosystems are critical competitive resources in CPM, GRC, master data management and other segments that depend on deep verticalization.

To the extent that BI/CPM vendors refuse to verticalize their offerings, or support extensive customization in customer engagements, they will fail to secure a lasting foothold in this market. Vendors such as Business Objects, Cognos and Microsoft will need to move quickly to acquire pure-play vertical CPM solution providers, engage vertical-savvy CPM consulting partners and retool their CPM data models to facilitate greater verticalization. Just as critical, all of these software companies will need to make a decisive leap into the consulting arena, transforming their global professional-services organizations into the true drivers of their vertical-focused CPM product organizations.

It will not be an easy transition for some CPM vendors, and many may not make it successfully. Some vendors — such as Microsoft — hope to make a sizeable chunk of money providing one-size-fits-all financial analytics software to small-to-midsized businesses. It remains to be seen whether, when and how Microsoft will make good on its general intention to diversify Office PerformancePoint Server into more horizontal and vertical analytics markets. If it seriously wishes to follow that path, Microsoft’s PerformancePoint team will need to engage the vertical domain expertise that resides in the company’s Dynamics line-of-business application product group.

To their credit, Business Objects and Cognos appear to be a bit further down the verticalization trail. Both provide the flexible modeling, metadata and integration tools needed to absorb future acquisition of vertical CPM application vendors, which they, and their rivals, will almost certainly need to keep on doing.

So, over the next several years, CPM industry consolidation will continue apace. Verticalization will not only drive CPM vendors to acquire complementary analytics tool providers but will further blur the distinction between software companies and business analytics consultants.

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Copyright © 2007 IDG Communications, Inc.

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