No matter how you slice or dice it, the business performance management (BPM) software market is vibrant and expanding. Vendors in this space are competing for customers by offering end-to-end product suites and by acquiring smaller providers to fill gaps in their product lines. The goal: to present themselves as the single source for solutions that meet all of their customers' BPM needs.

"The BPM market experienced just under 13 percent growth [in revenues] in 2005, with the total market valued at $1.6 billion," says Kathleen Wilhide, research director, BPM and compliance, at IDC in Framingham, Mass. Ongoing consolidation in this sector has spread beyond traditional borders to include M&A deals with business intelligence (BI) software providers. "In the last three years, BI/BPM market consolidation has resulted in approximately $120 million of revenue moving from niche vendors into the top 10 BPM vendors."

What's behind the BI/BPM consolidation? "Performance management vendors realized they needed to add BI tools to their product lineups so users could dive down deeper into the details of their company's performance data," says John Hagerty, vice president and research fellow at AMR Research, headquartered in Boston. "BI and BPM have become so synonymous with each other that we call it BI performance management."

A customer survey conducted in 2006 by BPM Partners in Stamford, Conn., showed that today's BPM buyers are looking for a complete solution that includes BI tools. "The BI tools enable the user to extend their BPM solution and customize it beyond what a BPM application alone can handle," says CEO Craig Schiff.

As the BPM market has matured, so has users' familiarity with the tool. "There's more of an understanding that it's not just a technology," says John Van Decker, research vice president of CPM and financial management systems at Gartner Inc. in Stamford, Conn. "In the past, initial implementations were about replacing spreadsheets with analytic applications for budgeting. Or, in many cases, a company would buy the BPM solution and put in on the shelf until they could figure out what they wanted to do with it."

Todd Schreiner, director, strategic finance, at Parson Consulting in Chicago, has seen the same evolution. "The buyer base is more savvy now and has higher expectations about what BPM can do for them," he says. "There's more focus on understanding how they want to use BPM within the context of a broader, longer-term plan, and that BPM is a philosophy, not a technology. Technology is just the enabler for realizing their vision."

Next-Generation BPM

Most BPM initiatives used to be tactical, according to Van Decker. "Now BPM buyers want more integrated solutions and linkages between corporate performance management and operational performance management," he says. "There's greater emphasis on addressing larger BPM issues such as aligning business assumptions with your plans to achieve the kind of performance you require, as well as addressing implementation issues like change management."

BPM is no longer strictly a finance department tool. Now it's venturing out into the operational arena. Schiff calls this trend "BPM 2.0."

"Companies are moving beyond using BPM only for budgeting, planning and forecasting. Now more and more of them are ready for the next stage, which is analyzing the operational parts of their business," reports Schiff. "To meet this growing demand for operational capabilities, smaller vendors are offering domain-specific expertise. Varicent, for example, provides sales performance management. It's a vendor strategy that's working because arguably, that's where the first impact would likely be for BPM 2.0 -- making sales a logical, initial BPM entry point into operations."

Historically, early BPM initiatives have targeted the budget, "but if sales wants to validate a new incentive program, there's no reason why BPM couldn't begin in sales," says Schiff. "Of course, BPM's ultimate objective is to permeate the entire organization, not just begin and end within a small part.

"We also see BPM being used for external benchmarking purposes," adds Schiff. "Some BPM solutions, like the one offered by Cartesis, can show how your company is performing compared to other companies." Among the factors pushing BPM software into the operational mainstream of the organization are Sarbanes-Oxley and the need for greater accountability, according to Scott Mairs, managing director for Robbins-Gioia, a process-improvement consulting firm headquartered in Alexandria, Va. "SOX has required greater transparency of information and more collaboration interdepartmentally, which has helped drive the operational adoption of BPM," Mairs says.

Not all experts believe that vendors are doing all they can to capitalize on the BPM expansion into operations. "Many BPM vendors still perceive their products as something that should be sold to CFOs," says Hagerty. "BPM vendors need to see that they can sell their products to people other than CFOs, such as operational managers, HR managers and manufacturing managers, who are looking for one source of the operational truth."

Greater integration between financial and operational data is a key BPM goal, albeit a lofty one, for more and more companies. "These days, the hype around BPM is that it drives alignment, forcing companies to converge sales plans with inventory plans and with financial plans and measuring how well those plans are tied to strategy in order to better understand how to manage their business," says Scott Brennan, BPM practice leader for North America at Accenture in Charlotte, N.C. "Now buyers and users of BPM are looking at it as a process -- with strategy driving metrics and planning -- getting measurement and feedback, and adjusting plans as necessary. In the past, BPM was considered more of a point solution. There's a greater awareness among forward-looking companies that BPM should be grounded in improving the execution of strategy."

Another trend driving BPM software usage and direction is deeper analyses of customer and product profitability. "What's needed to conduct more meaningful profitability analyses is more data and more supporting tools. That's why in 2006, Business Objects bought ALG in order to provide an ABC [activity-based costing] capability to customers that lends itself to a deeper understanding of a company's profit picture," says Schiff. "ABC has come back in vogue due to this increasing emphasis on profitability analyses. SAS is another vendor with ABC capabilities, as is Acorn Systems."

A related trend has been the demand for BPM products that offer predictive analytics that provide more precision in forecasting for better decision-making. OutlookSoft Corp., Business Objects and ISIS Solutions Inc. are among the vendors gaining momentum in this area, according to Schiff.

Jockeying for Position

Three groups of BPM vendors are vying for dominance in the BPM space. Best-of-breed (BOB) players, the current market leaders, are eager to grow on as many fronts as possible, shoring up whatever parts of their business they perceive as weak. But the software companies that sell enterprise resource planning (ERP) systems continue to threaten specialized vendors' top position, and platform providers have been steadily moving into this area.

Among the best-of-breed vendors, Hyperion Solutions, Cognos Inc. and SAS Institute Inc. are ranked the top three in terms of revenue size, according to Wilhide. "Hyperion made a move in connecting their applications by buying a master data management solution in 2005 [Razza Solutions] and a financial data quality solution in 2006 [Upstream Software], enabling their product components to work in a more integrated way," she says. "One BOB that experienced significant growth in 2006 was Business Objects, not only due to their acquisition of SRC [for sales-force management capabilities] in 2005 and ALG [for ABC] in 2006, but also because they were able to increase their own dashboarding and scorecarding capabilities. … In the past, Business Objects had been known primarily as a BI vendor." Smaller players that survive in this market will target a particular niche or a specific aspect of BPM, such as scorecarding (which CorVu emphasizes), "because the market rewards specialists," says Wilhide.

ERP systems may have the potential to dominate the sector, but they've been slow to get off the ground. "The BPM market appears to be of two minds when it comes to ERPs offering BPM capabilities," Kugel points out. "On one hand, our research shows that people are willing to believe that ERPs could help them with their performance management duties. But when it comes to actually using ERPs for those duties, the results indicate that so far not many people have been willing to do so. The conclusion is that while ERPs are a potential threat to BOBs, BOBs have been successful in providing a better BPM solution."

One ERP contender is Oracle, according to Rob Kugel, senior vice president at Ventana Research in San Mateo, Calif. "Oracle acquired a lot of good software and people when they bought Siebel in 2005 and integrated that firm's analytic products into their BPM lineup," he says.

Hagerty adds that Siebel was originally known for its customer relationship management software. Then the company purchased a BI tool, which it subsequently turned into a BI/BPM combination. "After acquiring Siebel, Oracle refined the product, which it now calls Oracle BI Enterprise, and it's been touting the fact that it now has a more complete line-up of BPM tools," Hagerty says. "SAP, on the other hand, has spent a lot of time and effort on building their own analytic capabilities directly into their solution, as opposed to having the analytics component separate from its other offerings."

On the platform-provider side, Microsoft has introduced a performance management solution that will compete directly with the BPM applications that Hyperion Solutions Corp. and Cognos Inc. offer for budgeting, planning and forecasting, according to Hagerty.

Van Decker believes that major ERP vendors such as Oracle and SAP, along with platform providers such as Microsoft and IBM, will eventually win the BPM battle for customers. "The ERPs and platform providers will dominate down the line as there's more consolidation in this space," he says. "We'll also see more of the BI vendors being absorbed by the leading ERP players. As companies realize they're ready for BPM, they'll opt to take advantage of the service-oriented architecture that the leading ERP applications can give them."

Increasingly, BPM vendors of all types that want to secure a niche in this market are offering industry-specific products. The ability to talk the language of a potential client gives a vendor a leg up on the competition, according to Schiff. "These kinds of vendors can also offer lower-cost, more prebuilt products and a shorter learning curve for users of the solution, all of which facilitates the further adoption of BPM throughout the company," he says.

Another BPM product enhancement that might propel vendors ahead of their competitors is mastery of the change-management aspects of a BPM implementation, which requires more transparency and accountability than some companies have been used to. Resistance to this level of clarity has often compromised the value of an organization's implementation. BPM software providers might work to achieve that goal by partnering with major consultancies that specialize in BPM, Van Decker believes. "Vendors who don't develop this change-management type of alliance with a third party will have a tough time as more and more companies realize the need for help in making the solution stick once it moves into the mainstream of the organization," he says.