Executive Briefings

2009 EPM Outlook: Five Predictions That Will Shape It's Future

Enterprise performance management (EPM), a combination of business intelligence (BI), performance management (PM), and governance, risk management, and compliance (GRC) sectors, has been on a rocket ship for many years, soaring to ever-greater heights. But the souring economic outlook has forced companies to question whether that level of investment in products and services can or should be maintained into 2009.

While 2008 was largely a year where 2007's vendor consolidation dominated the conversation, there were subtle shifts underway that signaled a change in EPM thinking. More importantly, they pointed to more mature approaches to EPM deployments. These changes, coupled with demands for judicious spending in lean times, lead us to five predictions for EPM in 2009.

A look back at 2008:
In 2008, the BI and PM markets were still largely swept up in the market consolidation frenzy. We chronicled these changes over the last 18-plus months, as three of the BI/PM market leaders--Business Objects, Cognos, and Hyperion Solutions--became critically important assets of much larger companies with broad business application and/or technology agendas. Much of the year involved rolling out integrated product road maps, delivering new releases of product, and reiterating product strategy and direction to an often confused customer base looking for simple answers to complex questions.

For BI/PM, there were certainly some smaller acquisitions later in the year, most notably Microsoft expanding its data warehouse appliance footprint with its acquisition of DATAllegro. Oracle also forged a relationship with Hewlett-Packard (HP) for Exadata Storage Server in order to include a data warehouse appliance in its portfolio of database products.

For much of the year, spending accelerated unabated (in fact, we predicted companies would spend over $57B on BI/PM in 2008) as both business and IT organizations seemed like they couldn't move fast enough to meet demand for better operational, process, and financial insight within and outside the four walls of their firms.

Meanwhile, the GRC sector was also undergoing change. Companies' emphases expanded from slavish adherence to compliance mandates to embrace risk management in many forms. While specific compliance pain points--security and access, environmental, code of conduct, and financial--largely drove purchases, organizations were taking a step back to analyze the bigger. By the second half of 2008, most GRC buyer discussions started with a wide-ranging risk conversation first, followed by a concrete business or IT issue second. We anticipated buyers would spend over $32B on a host of GRC programs during the year, with every indication being they did exactly that. Vendor consolidation also occurred in this space too, with GRC vendors Movaris and Paisley acquired by Trintech and Thomson Reuters, respectively.

While there's no question economic woes dampened demand in 4Q08, EPM spending did not fall off the proverbial cliff. In fact, customer inquiry remained high. For many in the midst of an investment/project cycle that was already funded, it was business as usual. For others, any possible investments closely evaluated ROI to isolate hard savings first and foremost. Regardless, companies widely reported EPM programs provided exceptionally high value to the enterprise and should be pursued as aggressively as possible.

Business strategies reshape the EPM agenda for the long term: Over the past few years, AMR Research has written about each EPM category independently. PM research often took a strong financial cast, as buyers fixated on CFO concerns. BI topics were frequently couched in IT infrastructure investments because products were often purchased as tooling components for technology and business teams to custom build analysis and reporting systems. GRC has been deeply rooted in compliance--initially financial governance, but eventually in a host of other areas.

Since 2005, we've predicted convergence across these sectors. It's finally gelling:
Packaged PM systems are now infused with identified risks and associated assessments.
BI applications for operational concerns--sales and customer management, supply chain, and workforce, for example--have become parts of enterprise PM agendas.

Workforce performance, long left out of the PM equation, is surging as companies tie performance objectives to individual incentives. BI has expanded to include the underlying data infrastructure and alternative deployment models. Data quality and transformation are foundational pieces for virtually all BI, PM, and GRC programs.

We're not saying these three areas are now one big market--they're not. Each has discrete buyers today. In fact, we've noted repeatedly that GRC in itself is a highly fragmented sector, with several sub-markets. But these separate disciplines are increasingly looked at as part of a grand performance strategy, not solely purpose-built widgets. Vendors with a full range of these assets should be able to capitalize on ongoing convergence.

Market forces trigger tactical programs in 2009: Although strategic convergence is well underway, those pesky day-to-day things still find a way to intrude. These pressure-points are no longer uncommon.

Consider the following:

1. Continuing economic deterioration has put the spotlight yet again on expense control. BI and PM products play a big role to give pin-point visibility to organizational- and enterprise-level profit pictures. Real-time visibility contributes to better expense management.
2. What drives profit? Profitability analysis digs deep to uncover the impact of business processes on product and services margins. What's uncovered likely will have substantive impact on how business practices are reshaped, with an eye toward profit maximization.
3. Increasing regulatory and market pressure, especially in light of high-profile business failures, will likely require a new round of governance and risk activities. This has now been embedded in the psyche of the enterprise. Ratings agencies are already advising clients that defendable risk management practices should result in a lower cost of capital.
4. Integrated business planning--that is, combining operational and financial plans into one cohesive model--is accelerating as organizations try to nimbly respond to threats and opportunities as they arise, not on a timed basis. Planning in silos is no longer considered best practice.

For the near term, act tactically when necessary. Logically, this situation should benefit software and service providers that deliver products managing specific business scenarios. But there needs to be a longer term strategy in place as well--no one wants disposable software and service.

Here's AMR Research EPM predictions for 2009:

No. 1--Spending will increase, albeit slightly: After back-to-back banner years of double-digit growth, spending across all EPM categories will continue to rise in 2009, but at a more modest level. We estimate total spending (software, hardware, service, maintenance, and internal head count) will rise approximately 2% to 3% this year.

Nearly 40% of all BI, PM, and GRC spending is for external services. When budgets get lean, service and consulting contracts are sometimes on the chopping block, but we don't see EPM services subject to significant cuts. Buyers repeatedly indicate BI, PM, and GRC have made the investment cut, especially in response to tactical initiatives that aren't just nice-to-haves, but got-to-haves. While each EPM segment may have different growth prospects, other IT spending is sinking like a rock. Takeaway: EPM still is a relatively high priority for virtually all clients with which we interact. IT spending will gravitate to EPM programs.

No. 2--In-context intelligence accelerates...again: 2008 saw a rearming of the EPM IT arsenal. Companies heavily invested in components rather than applications, with the plan to develop bespoke analysis systems in the future. In 2009, buyers will hone in on products that specifically answer thorny business questions, not just provide a host of capabilities. To be honest, AMR Research predicted this for 2008 as well, but it didn't work out that way. We're even more convinced this year, especially since business value and ROI are the strong evaluation criteria now.

Expect software-as-a-service (SaaS) applications to pick up more steam as they complement a broader EPM agenda. Embedded analysis within business process applications is also an attractive buyer option. Regardless, software vendors and service providers will need to present their products in the context of business user issues. Takeaway: Selling just BI components to IT won't be received well this year.

No. 3--GRC will see active market consolidation: Picking up where 2008 left off, 2009 will be the year GRC vendors become targets of buyers looking to shore up their risk and compliance credentials. The diverse GRC landscape is populated with small vendors, many of which are looking for fresh capital not easily available to them. It's inevitable some of these vendors align with larger partners within and outside the software realm to form a platform of services to address the many faces of GRC. Our crystal ball can foresee these actions, but we can't clearly see the names and faces of the players just yet. Takeaway: Expect larger vendors/service providers to take advantage of valuations to extend their GRC portfolios.

No. 4--Appliances move into the mainstream: It's abundantly clear buyers are much more willing to deploy a plethora of technologies to deliver the right response to the right user at the right time. Whether it's a data warehouse appliance, an in-memory data store, an operational component for real-time analysis, or a dedicated processor to inspect and analyze business transactions for compliance, IT architects are less likely to force-fit a technology standard when a specialized product works better. Takeaway: A new class of business-specific content appliances will emerge in 2009.

No. 5--Risk management will be part of every EPM discussion: By the end of 2009, risk management will no longer be a sidebar, but part of the main EPM story. Why? Recognizing many risks are interconnected, these interrelationships need to be brought forward and assessed in aggregate, not isolation. Mitigation actions for one set of risks can have a deleterious effect on other more important ones. Takeaway: Your company must recognize everything--performance and risks, in particular--is interconnected. As always, I look forward to your ideas and feedback--jhagerty@amrresearch.com.
AMR Research

Enterprise performance management (EPM), a combination of business intelligence (BI), performance management (PM), and governance, risk management, and compliance (GRC) sectors, has been on a rocket ship for many years, soaring to ever-greater heights. But the souring economic outlook has forced companies to question whether that level of investment in products and services can or should be maintained into 2009.

While 2008 was largely a year where 2007's vendor consolidation dominated the conversation, there were subtle shifts underway that signaled a change in EPM thinking. More importantly, they pointed to more mature approaches to EPM deployments. These changes, coupled with demands for judicious spending in lean times, lead us to five predictions for EPM in 2009.

A look back at 2008:
In 2008, the BI and PM markets were still largely swept up in the market consolidation frenzy. We chronicled these changes over the last 18-plus months, as three of the BI/PM market leaders--Business Objects, Cognos, and Hyperion Solutions--became critically important assets of much larger companies with broad business application and/or technology agendas. Much of the year involved rolling out integrated product road maps, delivering new releases of product, and reiterating product strategy and direction to an often confused customer base looking for simple answers to complex questions.

For BI/PM, there were certainly some smaller acquisitions later in the year, most notably Microsoft expanding its data warehouse appliance footprint with its acquisition of DATAllegro. Oracle also forged a relationship with Hewlett-Packard (HP) for Exadata Storage Server in order to include a data warehouse appliance in its portfolio of database products.

For much of the year, spending accelerated unabated (in fact, we predicted companies would spend over $57B on BI/PM in 2008) as both business and IT organizations seemed like they couldn't move fast enough to meet demand for better operational, process, and financial insight within and outside the four walls of their firms.

Meanwhile, the GRC sector was also undergoing change. Companies' emphases expanded from slavish adherence to compliance mandates to embrace risk management in many forms. While specific compliance pain points--security and access, environmental, code of conduct, and financial--largely drove purchases, organizations were taking a step back to analyze the bigger. By the second half of 2008, most GRC buyer discussions started with a wide-ranging risk conversation first, followed by a concrete business or IT issue second. We anticipated buyers would spend over $32B on a host of GRC programs during the year, with every indication being they did exactly that. Vendor consolidation also occurred in this space too, with GRC vendors Movaris and Paisley acquired by Trintech and Thomson Reuters, respectively.

While there's no question economic woes dampened demand in 4Q08, EPM spending did not fall off the proverbial cliff. In fact, customer inquiry remained high. For many in the midst of an investment/project cycle that was already funded, it was business as usual. For others, any possible investments closely evaluated ROI to isolate hard savings first and foremost. Regardless, companies widely reported EPM programs provided exceptionally high value to the enterprise and should be pursued as aggressively as possible.

Business strategies reshape the EPM agenda for the long term: Over the past few years, AMR Research has written about each EPM category independently. PM research often took a strong financial cast, as buyers fixated on CFO concerns. BI topics were frequently couched in IT infrastructure investments because products were often purchased as tooling components for technology and business teams to custom build analysis and reporting systems. GRC has been deeply rooted in compliance--initially financial governance, but eventually in a host of other areas.

Since 2005, we've predicted convergence across these sectors. It's finally gelling:
Packaged PM systems are now infused with identified risks and associated assessments.
BI applications for operational concerns--sales and customer management, supply chain, and workforce, for example--have become parts of enterprise PM agendas.

Workforce performance, long left out of the PM equation, is surging as companies tie performance objectives to individual incentives. BI has expanded to include the underlying data infrastructure and alternative deployment models. Data quality and transformation are foundational pieces for virtually all BI, PM, and GRC programs.

We're not saying these three areas are now one big market--they're not. Each has discrete buyers today. In fact, we've noted repeatedly that GRC in itself is a highly fragmented sector, with several sub-markets. But these separate disciplines are increasingly looked at as part of a grand performance strategy, not solely purpose-built widgets. Vendors with a full range of these assets should be able to capitalize on ongoing convergence.

Market forces trigger tactical programs in 2009: Although strategic convergence is well underway, those pesky day-to-day things still find a way to intrude. These pressure-points are no longer uncommon.

Consider the following:

1. Continuing economic deterioration has put the spotlight yet again on expense control. BI and PM products play a big role to give pin-point visibility to organizational- and enterprise-level profit pictures. Real-time visibility contributes to better expense management.
2. What drives profit? Profitability analysis digs deep to uncover the impact of business processes on product and services margins. What's uncovered likely will have substantive impact on how business practices are reshaped, with an eye toward profit maximization.
3. Increasing regulatory and market pressure, especially in light of high-profile business failures, will likely require a new round of governance and risk activities. This has now been embedded in the psyche of the enterprise. Ratings agencies are already advising clients that defendable risk management practices should result in a lower cost of capital.
4. Integrated business planning--that is, combining operational and financial plans into one cohesive model--is accelerating as organizations try to nimbly respond to threats and opportunities as they arise, not on a timed basis. Planning in silos is no longer considered best practice.

For the near term, act tactically when necessary. Logically, this situation should benefit software and service providers that deliver products managing specific business scenarios. But there needs to be a longer term strategy in place as well--no one wants disposable software and service.

Here's AMR Research EPM predictions for 2009:

No. 1--Spending will increase, albeit slightly: After back-to-back banner years of double-digit growth, spending across all EPM categories will continue to rise in 2009, but at a more modest level. We estimate total spending (software, hardware, service, maintenance, and internal head count) will rise approximately 2% to 3% this year.

Nearly 40% of all BI, PM, and GRC spending is for external services. When budgets get lean, service and consulting contracts are sometimes on the chopping block, but we don't see EPM services subject to significant cuts. Buyers repeatedly indicate BI, PM, and GRC have made the investment cut, especially in response to tactical initiatives that aren't just nice-to-haves, but got-to-haves. While each EPM segment may have different growth prospects, other IT spending is sinking like a rock. Takeaway: EPM still is a relatively high priority for virtually all clients with which we interact. IT spending will gravitate to EPM programs.

No. 2--In-context intelligence accelerates...again: 2008 saw a rearming of the EPM IT arsenal. Companies heavily invested in components rather than applications, with the plan to develop bespoke analysis systems in the future. In 2009, buyers will hone in on products that specifically answer thorny business questions, not just provide a host of capabilities. To be honest, AMR Research predicted this for 2008 as well, but it didn't work out that way. We're even more convinced this year, especially since business value and ROI are the strong evaluation criteria now.

Expect software-as-a-service (SaaS) applications to pick up more steam as they complement a broader EPM agenda. Embedded analysis within business process applications is also an attractive buyer option. Regardless, software vendors and service providers will need to present their products in the context of business user issues. Takeaway: Selling just BI components to IT won't be received well this year.

No. 3--GRC will see active market consolidation: Picking up where 2008 left off, 2009 will be the year GRC vendors become targets of buyers looking to shore up their risk and compliance credentials. The diverse GRC landscape is populated with small vendors, many of which are looking for fresh capital not easily available to them. It's inevitable some of these vendors align with larger partners within and outside the software realm to form a platform of services to address the many faces of GRC. Our crystal ball can foresee these actions, but we can't clearly see the names and faces of the players just yet. Takeaway: Expect larger vendors/service providers to take advantage of valuations to extend their GRC portfolios.

No. 4--Appliances move into the mainstream: It's abundantly clear buyers are much more willing to deploy a plethora of technologies to deliver the right response to the right user at the right time. Whether it's a data warehouse appliance, an in-memory data store, an operational component for real-time analysis, or a dedicated processor to inspect and analyze business transactions for compliance, IT architects are less likely to force-fit a technology standard when a specialized product works better. Takeaway: A new class of business-specific content appliances will emerge in 2009.

No. 5--Risk management will be part of every EPM discussion: By the end of 2009, risk management will no longer be a sidebar, but part of the main EPM story. Why? Recognizing many risks are interconnected, these interrelationships need to be brought forward and assessed in aggregate, not isolation. Mitigation actions for one set of risks can have a deleterious effect on other more important ones. Takeaway: Your company must recognize everything--performance and risks, in particular--is interconnected. As always, I look forward to your ideas and feedback--jhagerty@amrresearch.com.
AMR Research