PLM Market Requires Best-of-Breed and ERP Capabilities

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1 Markets, M. Halpern, K. Brant Research Note 20 March 2003 PLM Market Requires Best-of-Breed and ERP Capabilities Best-of-breed and enterprise resource planning vendors share space on the Product Life Cycle Management Magic Quadrant for 1Q03. PLM overlap is increasing, but neither vendor type is capable of fulfilling all users' PLM needs. Core Topic ERP II, Supply Chain & Manufacturing: Engineering and Manufacturing Strategies, Applications and Technologies Key Issue How will plant operations and engineering vendors and markets evolve? Note 1 Product Portfolio Functions Support PLM Product portfolio plays an important role in PLM processes. It involves the continuous cultivation of a product set by systematically analyzing business strategies and subsequently allocating and guiding resources to product life cycle support. Software functionality relevant to PLM includes idea collection and evaluation, analysis of strategic trade-offs, analysis of market demand and expectation, support of competitive analysis, budget allocation, resource staffing, project selection and sequencing, and of program execution. A dynamic and fiercely competitive market for product life cycle (PLM) software is emerging. Vendors historically labeled as collaborative product commerce (CPC) players (see "PLM Eclipses CPC as a Software Market") and enterprise resource planning (ERP) vendors are "leading the charge" into this new space (see "PLM Is a Top Priority for Manufacturers"). In addition, a new, but important class of software provider that addresses project portfolio (PPM) will have a significant influence on the development of the PLM market (see Note 1). For a discussion of the criteria used to evaluate the vendors and an explanation on how to interpret the results, see "Defining the PLM Magic Quadrant by Criteria and Use." Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Figure 1 PLM Magic Quadrant 1Q03 Challengers Leaders Dassault Systemes** EDS PLM Ability to Execute Autodesk Tecnomatix Technologies MSC.Software Niche Players CoCreate Software Sopheon IDe MS2 Agile Software PTC SAP Invensys/Baan Visionaries Completeness of Vision MatrixOne Oracle Formation Systems* Centric Software As of March 2003 * Dedicated to process industries ** Sold and supported exclusively by IBM Source: Gartner Research (March 2003) Note 2 Product Definition Management Functions Product definition functions include all of the traditional capabilities of PDM software, including library functions, ECM, product configuration, BOM, collaboration tools and workflow support. The collaboration tools include view and mark-up via the Web. Note 3 IBM and Dassault: Strategic Partners IBM is the primary marketing, sales and service agent for Dassault's PLM software. This includes the CATIA family of design software, the Enovia family of product life cycle applications, and SmarTeam offerings. The Leaders The PLM leaders emerged from the discrete manufacturing space. They focus primarily on product definition (see Note 2) and have yet to provide support for resource and financial analysis, both of which play a role in PLM. Dassault Systemes has the strongest financial performance in the PLM space, given the global sales, service and marketing commitment of its strategic partner IBM (see Note 3) and its progress at delivering V5 PLM applications. During 2002, IBM and Dassault reorganized, and both committed greater resources to the partnership. This has improved their field execution at selling and supporting PLM software, increasing a market share that is already significant. On completeness of vision, Dassault gets credit for its strategy to build a complete PLM framework on its V5 architecture. However, the V5 PLM initiative, ongoing since the late 1990s, is far from complete. Customers confirm increasing adoption of CATIA V5 design software, since it is becoming increasingly production worthy. However, Enovia V5 and Delmia V5 applications still require further development for 20 March

3 broad acceptance. Some leading customers are in early stages of deploying Enovia V5. CATIA V5 and SmarTeam, validated by customers, are good bets to deliver value. Enovia V5 has strong potential, but it needs to be piloted carefully before making commitments. EDS PLM is executing on its PLM strategy, which has included the acquisition and absorption of SDRC and UGS applications into a coherent PLM framework. The evolutionary development approach should continuously increase the functionality of EDS's applications, but users should not expect the transition to be complete before YE04 (0.7 probability). According to EDS sources, revenue declined after the merger from $1 billion in 2001 to an estimate of $880 million in Fortunately, a large installed base of customers that remains committed to EDS PLM is helping to buffer the transition period. EDS has a broad PLM vision, spanning all phases of the product life cycle, from product requirements to service and maintenance. EDS also gets credit for its strongly proactive effort to support heterogeneous data interoperability. The experience in data interoperability derives, to some degree, from efforts to absorb SDRC and UGS, but it also extends to data from competitors. Users should consider EDS a PLM partner, but pay attention to financial performance. MatrixOne is improving its financial performance after a difficult period. Comparing the first six months of MatrixOne's FY03 to the same time period of its FY02, the vendor has increased its software revenue by 22 percent, and software makes up a larger percentage of the vendor's total revenue mix. Also, the mix of software sold includes an increasing percentage of its new Value Chain Portfolio offerings. Customers have validated the benefits of these solutions and rapid time for deployment on an enterprise scale (typically less than six months). However, MatrixOne has sustained six consecutive quarterly net losses, reflecting problems in its cost structure that the vendor has recently addressed. It's too early to tell if cost cutting has negatively affected customer services, support or the company's ability to expand revenue. For the meantime, MatrixOne's overall viability remains positive, given its strong software applications, its substantial customer base and sufficient cash to ride out economic and market weaknesses. Users should view MatrixOne as a viable option, but validate quality of support with established MatrixOne customers. PTC (formerly Parametric Technology Corp.) has delivered a PLM software suite built on its software foundation called Windchill. This vendor has focused its development efforts on design, collaboration supporting heterogeneous data, product data (PDM) and applications to support the 20 March

4 business processes of project, design-to-order (DTO) and product development across the supply chain. Early adopter customers have validated the benefits and time-to-value that the new generation of applications deliver. However, PTC's financial performance has been on a continuous downward trend since 1999, from more than $1 billion in FY99 to $753 million in FY02. Given its large installed base, the company is still a major player, and its future rests squarely on its ability to sell its Pro/Engineer/Wildfire and other Windchill-based offerings inside and outside its customer base. Users should insist on demonstrations of Wildfire and Windchill-based solutions and schedule pilots to assess capabilities and performance. Established customers should also evaluate training and technical logistics to migrate from the current version of Pro/Engineer. The Challengers Autodesk (ADSK) has the largest number of computer-aided design (CAD) desktops of any vendor, with more than 2.5 million. The company has expressed its intentions to address PLM; however, the vendor's core competency is the development and delivery of desktop applications for personal productivity, rather than process-sensitive applications such as PLM. MSC.Software should reach revenue of more than $300 million for FY02. Gartner includes MSC.Software in the PLM Magic Quadrant because of its large presence in the design validation market, its partnerships with PLM vendors and its sales of thirdparty PLM software, as well as hardware for high-performance computing that runs on Linux. Discrete manufacturers looking for a vendor in the PLM market with particular strengths in design validation should investigate MSC.Software. The Visionaries Agile Software still has its stronghold in the high-technology market, although the company has made progress winning customers in the healthcare industries and automotive. Agile has also added a broader suite of solutions, through some development and several partnerships, to build out a broader suite of applications that address design, sourcing, of product life cycle costs and program. Although the company reports ongoing quarterly losses, its revenue is improving, and it still has plenty of cash. In addition, Agile reported that the new applications accounted for 30 percent of all new license revenue in the last quarter, which is an encouraging trend. Although its financial performance has not been strong since 2001, any discrete manufacturer that depends heavily on its supply chains for product development and introduction 20 March

5 should consider Agile. A large customer installed base and a strong cash position makes this company stable. Formation Systems is the only vendor in the Magic Quadrant dedicated to PLM for the process industries. It emphasizes product development through its support for managing product specification, including formulas, testing, sourcing and quality during manufacturing. To expand its visibility, Formation recently partnered with MatrixOne to gain broader visibility for its capabilities, which complement MatrixOne, addressing consumer products and life sciences enterprises. Users in process industries, including consumer packaged goods (CPG), should consider Formation. MatrixOne customers with formulation-intensive R&D programs should request demonstrations and pilots of the company's Optiva product. Formation customers should evaluate MatrixOne offerings and the user interface between Formation and MatrixOne applications. Oracle is promoting a PLM strategy supported by offerings that are compatible with its Oracle Manufacturing solution, its financial software, and its supply chain (SCM) and customer relationship (CRM) offerings. Oracle s vision encompasses all three dimensions of PLM product, resource and financial tracking. Oracle continues to improve its abilities in bill-of-materials (BOM) and engineering change (ECM). These capabilities are integrated into Oracle's project environment, enabling users to transparently flip between views of product structure and project definitions. During 2002, customers also began to adopt Oracle's CADView 3D, which provides highperformance visualization, walk-through and mark-up of complex 3D assemblies. Oracle is also working on a PPM solution that should be ready to pilot in 2004 (0.7 probability). This software is still in the early stages, and it has not yet built momentum for adoption among Oracle customers. Established Oracle customers should consider Oracle's PLM offering and should use their status as early adopters to negotiate favorable license fees. SAP has the infrastructure to address the resource and financial analysis dimensions of PLM, as well as product definition. Its broad approach and vision for PLM align well with Gartner's broader PLM vision for this market. IS departments generally encourage engineering to adopt SAP PLM; however, engineers at many corporations still prefer the best-of-breed tools to manage product definition. SAP's integrated Product Process Engineering (IPPe), C-Folders, and CAD Desktop (for CAD integration) will make SAP PLM more attractive to engineers, but the suitability of SAP PLM depends on product complexity. Product development teams that design automobiles, aircraft, 20 March

6 heavy machinery, tightly packaged consumer electronics and so forth will continue to need best-of-breed software. SAP PLM works best for enterprises that design less-sophisticated products. Invensys/Baan positions its PLM offering for a broad market, The Israel-based product development team is knowledgeable and competent at developing software to manage product definition data. However, the financial challenges of Invensys, the parent company, pose concerns for end users. Also, the Invensys/Baan PLM offering is not as well-known as those of its competitors. Users should explore the offerings, but, for now, it best suits established Baan customers with complex manufacturing environments. Centric Software has made its greatest success at supporting small groups of designers and engineers on critical, yet challenging, projects that other larger vendors are unwilling or unable to support. The vendor is attempting to expand its presence at customers with design innovation and PPM platforms for broader communities. Users should consider these broader options, but ensure that support needs will be satisfied. The Niche Players CoCreate Software offers design, collaboration and PDM tools for workgroups. Its OneSpace CAD designer is one of the few tools that will enable interactive editing of imported design geometry. CoCreate has a loyal customer base and has achieved profitability despite revenue setbacks. Although CoCreate offers interesting applications, other vendors do a better job at marketing and sales execution. CoCreate is large enough to remain viable, and users interested in design collaboration tools should consider this vendor. Integrated Development Enterprise (IDe), MS2 and Sopheon specialize in PPM. Each vendor offers capabilities to assess risk vs. opportunity for products and product development projects. Customers should validate these vendors' software to assess how they manage multi-project environments in which they support product portfolio selection, track the status of products under development, anticipate resource bottlenecks and reallocate resources. Those users who want such software to provide visibility to the actual product definition will need to investigate the level of integration each vendor provides. SAP and Oracle customers may want to wait for SAP and Oracle to deliver their PPM applications; however, SAP and Oracle will not have capabilities comparable to the best-of-breed applications before 3Q04 (0.8 probability). 20 March

7 Acronym Key BOM Bill of materials CAD Computer-aided design CPC Collaborative product commerce CPG Consumer packaged goods CRM Customer relationship DTO Design-to-order ECM Engineering change ERP Enterprise resource planning PDM Product data PLM Product life cycle PPM Project portfolio SCM Supply chain Tecnomatix Technologies, with approximately $80 million in annual revenue, addresses manufacturing process planning. Its partnership with EDS and its focus on the link between design and manufacturing operations to fulfill product design and portfolio objectives make it unique in the PLM market. Its manufacturing process planning offers users an opportunity to improve design for manufacturability and production efficiency. Tecnomatix also supports manufacturing quality control and factory floor planning. Tecnomatix's offerings are best suited to large, discrete manufacturers. Bottom Line: Best-of-breed vendors and enterprise resource planning (ERP) vendors have entered the product life cycle (PLM) market. Discrete manufacturers and process manufacturers have choices among best-of-breed vendors to strategize, create and manage product definitions. They are moving toward broader enterprise support of process and resource. ERP vendors are attempting to improve support for managing product definitions, but they have not gained broad acceptance among product development groups. Most companies still need to adopt software from multiple vendors to fulfill PLM needs. 20 March