Gartner Magic Quadrant: CPM software split between 'integrators' and 'innovators'

Find out why Gartner says that innovation in corporate performance management (CPM) – a market dominated by mega-vendors -- is being led by best-of-breed vendors.

Though still relatively small in comparison to other enterprise applications markets, the corporate performance management (CPM) software market has enjoyed significant growth in recent years, according to the recent Gartner Magic Quadrant report.

Leading the field of CPM vendors are the big three mega-vendors -- Oracle, SAP and IBM -- but no fewer than five new vendors were included in this year's rankings, underscoring the CPM software market's growth potential.

"There is still a large [number] of organizations that use spreadsheets and homegrown solutions for performance management," said Neil Chandler, an analyst with the Stamford, Conn.-based research firm, who authored the report. But, he said, "We have seen a significant increase of adoption over the last several years."

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Chandler credits the increased adoption -- the market grew an estimated 28% in 2008 to reach nearly $2 billion, according to the report -- to the growing realization that CPM software can provide benefits during difficult economic times.

"CPM suites can bring greater rigor, accuracy and transparency to many management processes, such as budgeting, planning and forecasting, financials, and regulatory reporting (and associated compliance challenges), and they can deliver a better understanding of the drivers of corporate profitability," Chandler wrote in the report.

Still, only about 50% of large enterprises and 25% of midsized companies have adopted CPM software, according to Chandler. And of those, most use CPM software only for financial budgeting, planning and forecasting, neglecting its other, more strategic capabilities.

"There are two other areas incorporated in CPM that are less well adopted," he said.

The first is profitability modeling and optimization. This includes activity-based costing applications that enable users to model the impact on profitability of different cost and resource allocation strategies.

"This approach can help model optimal product and service offerings in packaging, bundling and pricing, as well as optimize channel strategies," the report states.

The second underutilized CPM capability is strategy management. Such applications, including balanced scorecards, help organizations tie key strategic metrics to workers' daily activities to ensure that business goals are being met, Chandler explained.

CPM software integrators versus innovators

The report said that although Oracle, SAP and IBM were the only CPM vendors to land in the leaders' quadrant, "they have become over the last three or four years more integrators than innovators."

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 They have put together solid, comprehensive CPM software suites and platforms mainly by acquiring and integrating smaller, best-of-breed CPM vendors' more inventive applications, he said, with little innovation of their own.

In recent years, all three mega-vendors have acquired CPM vendors, or business intelligence (BI) vendors with significant CPM products. SAP acquired Business Objects, Oracle bought Hyperion, and IBM picked up Cognos.

The vendors doing most of the innovation in recent years are those Gartner placed in its visionaries' and niche players' quadrants, Chandler said. These include Clarity Systems, Exact-Longview, Tagetik and Host Analytics.

Gartner's Magic Quadrant methodology places vendors that meet its inclusion criteria into one of four quadrants – leaders, challengers, visionaries and niche players -- based on "completeness of vision" and "ability to execute."

Among the recent innovations are delivering outputs in multiple formats, including in XBRL, the language in which the federal government is gradually requiring organizations to report their financial results. Clarity Systems, Infor and Tagetik have all added XBRL capabilities in recent years, according to the report.

In-memory analysis capabilities, the alignment of risk indicators with performance indicators, and integrating the three levels of planning -- strategic, financial and operational – are other recent CPM innovations cited by Chandler.

Several affordable CPM software options have also entered the market recently, putting it in reach of small and medium-sized businesses (SMBs). The mega-vendors have introduced lower-priced platforms aimed at the mid-market, Chandler said, and SaaS CPM software vendors like Host Analytics are an affordable alternative as well.

CPM software buying and project management advice

Companies considering investments in CPM software must weigh the pros and cons of the vendors but, more importantly, should get their internal performance management practices in order, Chandler said.

Finance departments and CFOs are the most likely candidates to sponsor CPM projects, but IT departments must also get involved, he said. Those CFOs that don't include IT in the evaluation, implementation and management of CPM software risk not using the software to its full potential.

"If a finance department is left to its own devices, [it] may not understand how the software fits into the overall IT infrastructure," he said, and it may not understand how to leverage its multiple functional capabilities.

The sponsor must also stay involved in the process beyond simply allocating funds for the software because CPM requirements change as business objectives evolve. As organizations look to tap CPM software's more strategic capabilities, higher-level executives, even CEOs, should perhaps get involved, Chandler said.

Underlying support organizations, like a BI competency center, can also help manage and keep CPM projects on track.

As for evaluating vendors, Chandler advises organizations to look for those whose CPM software best matches their business objectives right out of the box in order to make implementations less complex. In terms of deciding between the mega-vendors and smaller, best-of-breed CPM software vendors, Chandler said that "your appetite for how monolithic you want your architecture to be is going to drive it."

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