The Impact of Microsoft Office PerformancePoint Server 2007 in CPM

The Impact of Microsoft OfficePerformancePoint Server 2007 in CPM
25 October 2007
Neil Chandler
Gartner RAS Core Research Note G00152133
Microsoft Office PerformancePoint Server 2007 provides a compelling, low-cost option to the rapidly growing CPM suites market. Finance and IT staff, as well as vendors and system integrators, must decide how to treat with this new entrant.



Overview
PerformancePoint Server (PPS) will create disruption in the corporate performance management (CPM) suites market now that it is generally available and as Microsoft continues to improve the product's execution capability.During the next five years, Gartner believes Microsoft will be one of the three or four leaders in this market.
Key Findings
Gartner expects that PPS will have an ongoing, significant impact on the CPM suites market and already has had a partial impact. Many smaller vendors have been acquired, and some clients have stalled purchases, awaiting general availability.
Microsoft is likely to take three to five years to become one of the leaders in the CPM suites market. Initially, PPS will gain the most traction with those customers already committed to a Microsoft business intelligence (BI) stack.
The initial release of PPS has broad coverage of the key components of a CPM suite, except profitability modeling. With low pricing and Microsoft BI stack integration, it will appeal to the enterprise and midmarkets.
Microsoft has invested heavily to ensure that a global base of partners and system integrators has committed to PPS. Early adopters should expect to take a pioneering approach in early developments as they discover the true extent and capabilities of the product.
Recommendations
Users with Microsoft-centric BI investments, especially those that are also Microsoft Office SharePoint Server users, should include PPS in their CPM evaluations. They should also consider upgrading to the latest versions of underlying Microsoft technology to fully exploit PPS.
Customers that plan to implement PPS using external consultants must ensure that their chosen system integrators have sufficient implementation and support skills. Check during the selection phase that the partner can demonstrate deep domain expertise, cite successful references and has appropriate product certifications.
PPS is a full CPM suite and will require organizations to follow a formal implementation approach and plan as part of an overall BI strategy. Users of legacy spreadsheet applications should not underestimate the time scales, design complexity and necessary skills required.

What You Need to Know
Microsoft Office PPS will have a significant impact in the CPM suites market during the next five years. Gartner expects the product to grow in revenue and for Microsoft and its extensive partner community to increase execution capability that will rank PPS among the market-leading solutions by 2011. The first release is aimed at enterprise-sized customers, and as a CPM suite, it is competitive from a functionality and price perspective with the established market offerings, although its financial consolidation capabilities are weaker than some competitors, and it lacks out-of-the-box profitability management functionality.
Organizations that are replacing Excel-based custom solutions or those that have a strategic commitment to SQL Server and SharePoint Server should consider PPS for CPM as a core component of their BI and performance management (PM) frameworks. However, users must verify that any service partners chosen to implement PPS can demonstrate adequate implementation and support capabilities.
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Analysis
After a long-running Community Technology Preview (CTP) — a beta program with nearly 10,000 downloads — Microsoft launched PPS on 19 September 2007. PerformancePoint is Microsoft’s latest and broadest entry into the world of CPM, and the first release of the product offers a solid array of CPM functionality (see "Understanding CPM Applications"). PPS comprises:
Scorecarding/Dashboard — New application functionality incorporating Business Scorecard Manager 2005 functionality previously available stand-alone, and ProClarity dashboard server functionality
Analytics — Excel 2007 and ProClarity v.6 functionality
Planning/budgeting/financial reporting/financial consolidation — A new server-based application
Uses a SQL Server 2005 relational database and multiple analysis service models to store data and, optionally, SharePoint Server 2007 for Web-based delivery
Microsoft FRx customers on a current support plan will be offered a new financial report writer, PerformancePoint 2007 Management Reporter, scheduled for release in early 2008. This application can function as an independent financial report writer working against a general ledger application where data integration is available. It will also be available as a component of PPS and will be capable of developing financial and management reports based on a special-purpose financial reporting PPS model. Customers that use Microsoft FRx will have access to a migration utility that will support migrating report “building blocks” to Management Reporter. Microsoft Forecaster-like functionality will be incorporated into future releases of PPS.
The CPM market is fairly mature but rapidly growing (see "Market Share: CPM Suites Software, Worldwide, 2006, Composite View") and is focused around some fundamental business challenges, such as linking strategy to execution, understanding financial performance and enterprise planning. Most of the effort to implement a CPM solution is primarily in services, and, in this respect, PPS is on a par with the complexity and implementation time scales of other CPM suite market offerings. As with other CPM solutions, PerformancePoint contains workflow functionality to manage the key business processes related to CPM, but it has no out-of-the-box capability to integrate into a wider end-to-end business process platform.
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Technology Issues
PPS will have a higher impact for Microsoft-centric organizations, for example, the analysis and scorecarding functionality in PPS can use pre-existing SQL Server 2005 Analysis Services cubes and can incorporate pre-built Reporting Services Reports into PPS dashboards and scorecards, although to deploy PPS for planning will require users to build new models — incorporating existing data — rather than using pre-existing cubes. PPS enables those organizations to standardize more of the necessary BI/PM infrastructure on a single supplier capable of fully leveraging the power of its Microsoft BI platform.
The same can be said of Microsoft's' primary competitors, such as Cognos/Applix, SAP/OutlookSoft (which also announced its intention to acquire Business Objects/Cartesis) and Oracle/Hyperion. All these vendors combine BI and CPM in their portfolios, yet these solutions continue to be focused on different buyer groups (for example, IT vs. finance) and in unrelated activities (for example, reporting vs. planning).
Additionally, Microsoft already has a large share of the traditional/legacy PM customers that have implemented their solutions in Excel. The extensive use of Excel in PPS makes it an attractive solution for those customers that want to replace spreadsheet-based systems. However, PPS is not alone in leveraging Excel in its CPM offering, and there are many alternatives, such as Clarity Systems, SAP/OutlookSoft/Business Objects and SAS, that all have Excel-centric budgeting solutions. Furthermore, PPS has tight integration into SharePoint Server, along with the other capabilities from the rest of the Microsoft BI platform, further justifying the portal role for SharePoint Server. This makes PPS attractive to those organizations with a commitment to SharePoint Server. However, the reverse is also true. Those clients not wishing to use the latest versions of a Microsoft infrastructure may derive fewer benefits, although Microsoft states that PPS will work with commonly available Microsoft versions, including SQL Server 2005, Excel 2003 and the free version of SharePoint that ships with Windows Server 2003.
Furthermore, PPS is a version 1 product, and although well-proven via its CTP program and with a series of successful references, be prepared to expect "teething" issues. Early adopters should expect to discover and push the product capabilities. Gartner recently spoke to several PPS CTP program references and found that they have successfully deployed planning and financial consolidation solutions involving, for example, hundreds of budgeting users, complex intercompany-based consolidations and multiple generally accepted accounting principles reporting.
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Commercial Issues
PPS will have a significant impact for some customers because of its relatively low retail price point of $20,000 per server, $195 per client access license (referred to as CAL) and $30,000 per external connector (for companies that enable CPM beyond the immediate enterprise). The CAL provides user access to the entire CPM suite, including scorecard, analytics, planning, budgeting, forecasting, (management) consolidation and financial reporting. This is consistent with other CPM suites from a functional perspective.
Given this lower CAL price, as compared with other products (typically in the $1,000 to more than $1,500 range), Microsoft will encourage organizations to buy more seats and increase enterprise deployments of CPM, as well as other types of PM (for example, operational planning and customer analytics). However, customers should ensure that they recognize a total cost for the solution that may involve additional licenses of other Microsoft products, including Office, SharePoint Server or SQL Server 2005, and because of limited referencability, it is not yet fully clear exactly how many servers are required to support a production PPS implementation. Bear in mind that the other CPM solutions that Microsoft competes with may also require you to purchase additional licenses of portal, database and desktop software.
PPS will come into consideration for many organizations looking for a low-cost replacement for established CPM solutions. Microsoft is increasing the overall awareness of the capabilities of PM applications such as CPM. This generates new opportunities for Microsoft and its competitors. Microsoft has a strong presence in the IT departments of small to midsize enterprises, and during the last five years has steadily increased its penetration of the large enterprise market. However, PPS is marketed as an enterprise-class solution, and CPM is a solution targeted at the office of finance, where traditionally Microsoft’s presence has been weaker, although some of its partners are well-established providers in the office of finance. It is also the domain of some strong competition, such as SAP/OutlookSoft/Business Objects and Oracle/Hyperion.
If Microsoft can target the enterprise space and at the same time make PPS compact and digestible enough for the small to midsize markets, then it will gain a significant market share. Although PPS is targeted at Tier 1 enterprises, its pricing model will also make it attractive to mid-market companies, and it includes the budgeting and planning functionality these companies want and need. Competition is fierce, and Microsoft will initially be hindered by a limited supply of qualified direct and indirect sales, support and implementation specialists. Furthermore, PPS provides data-level integration to Microsoft's own mid-market financial application — Microsoft Dynamics AX (formerly Axapta) — with built-in capability to easily incorporate Dynamics AX metadata and actuals data into the core PPS models.
Gartner believes that the price of PPS undercuts the market-leading products and will be difficult to ignore. Many customers, especially those using Excel for the CPM solutions, will evaluate PPS as a replacement. Assuming Microsoft is able to establish a sufficient base of skilled resources during the next three to five years, expect PPS to establish a top five share in the CPM suites market.
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Vendor Landscape
Microsoft is a late entrant into an already consolidating market that has seen a number of pure-play CPM suite providers acquired by larger and stronger BI and enterprise applications vendors such as SAS, Infor (GEAC and MIS AG), SAP (Business Objects, OutlookSoft and Pilot Software), Oracle (Siebel, PeopleSoft and Hyperion) and Cognos (Adaytum, Frango and Applix). Hence, Microsoft will compete with other financially strong vendors that also have strong global execution capability. Those remaining pure-play providers are adding deep functionality (for example, profitability management, financial governance and strategy management) not available or strong in the current release of PPS or are extending their solutions with industry-specific domain expertise (for example, Cognos performance blueprints).
PPS contains broad functionality that competes well with most CPM suite offerings, particularly in the areas of financial reporting; planning, budgeting and forecasting; and scorecarding. However, although PPS provides management and statutory consolidation capability, its initial version would be unlikely to challenge Hyperion, Business Objects and others in complex, consolidation-led CPM deals. PPS does not package profitability modeling and activity-based management in this release, although, with the modeling, rule engine and Excel integrations, it should be possible to build this capability.
Some of those vendors have developed their solutions based on a Microsoft BI stack, such as SAP/OutlookSoft/Business Objects and Infor/MPC, and are now coming into direct competition with PPS. Recent history has shown that Microsoft's entry into other BI-related areas/products (for example, reporting services and analysis servers, such as ProClarity) has had the biggest impact on those vendors that built their product lines exclusively on Microsoft's platform. Other CPM vendors will need to demonstrate that they are different and worth the premium that they will continue to charge.
Many vendors will improve functional offerings (such as analytic applications to support other areas of PM, such as sales PM) and will need to "verticalize" their products. Those CPM vendors that have built products on top of a Microsoft platform will have further reason for concern and will need to ramp up efforts to increase differentiation over PerformancePoint. Vendors need to decide whether to continue to embrace a Microsoft-centric stack and compete against PPS or to change their architecture and strategy. Vendors may also find that their supporting partners are vulnerable to switching their allegiance to Microsoft. Additionally, Microsoft may well find favor with new software vendors looking to OEM a BI/PM as part of their solution, particularly in the emerging PM space.
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Service Issues
Microsoft recognized the need to offer some direct capability to win business with PPS. During the past year, the company has steadily recruited a core team of R&D and execution specialists to help it win business in large enterprises. Outside of this direct capability, Microsoft is relying on system integrators (SIs) and value-added resellers. Microsoft has worked hard to grow an internal core capable of driving the product strategy and targeting key large enterprise accounts.
Microsoft has invested heavily to engage many SIs and partners to provide services, and it looks promising that these partners are taking the opportunity provided by PPS seriously, including Accenture, Atos Origin, Avanade, BearingPoint, Business & Decision, Capgemini, Fujitsu, Getronics, Hitachi Consulting, HP, Infosys, INS, LogicaCMG, Satyam Computer Services, Siemens, Solver, Tata Consultancy Services, Thorogood, Unisys and Wipro. These partners enhance Microsoft’s geographic presence, numbers of skilled resources and additionally provide domain or industry expertise.
Because services are a large component of a CPM implementation — typically approaching two to five times the license fee — the cost of ownership will now appear to be severely weighted toward services, given the lower pricing for PerformancePoint. We do not see the amount of services effort required to implement the Microsoft solution as radically different from the average. As a result, most services will appear to be extremely expensive, and there will be downward pressure on professional services and SIs to reduce prices and total billing. However, it is key that these partners not only take on the sales and marketing messages, but continue to train and nurture a critical mass of skilled implementation and support staff in PPS.
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