Sales ICM Magic Quadrant 1H03

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1 Markets, J. Galvin Research Note 10 February 2003 Sales ICM Magic Quadrant 1H03 The sales incentive compensation management Magic Quadrant positions functionally superior, best-of-breed vendors against the financial strength and integration benefits of improved enterprise vendor applications. Core Topic Customer Relationship Management: Business Strategies, Technologies and Applications for Sales Key Issue How will the sales organization exceed revenue and profitability targets through leveraging technology in its operations? The sales incentive compensation management (ICM) Magic Quadrant (see Figure 1) is a vendor evaluation framework for enterprises seeking to replace homegrown or spreadsheet-based commission tracking and reporting systems for transactionally rewarded sales professionals. The Magic Quadrant measures each vendor based on the evaluation criteria defined in "Sales ICM System Magic Quadrant Criteria for 2003." The criteria position vendors based on functional capabilities, production client base, financial viability, technical architecture and strategic vision for product enhancement. Figure 1 Sales ICM Magic Quadrant 1H03 Challengers Leaders Ability to Execute Oracle SAP PeopleSoft Siebel Systems Motiva Callidus Software Synygy Centive As of January 2003 Niche Players Visionaries Completeness of Vision Source: Gartner Research 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 ICM Market Dynamics The ICM market was one of few technology sectors to grow in Established best-of-breed (BOB) vendors experienced revenue growth and introduced upgraded applications. In 2002, BOB vendors were the system of choice for users focused on solving the complexities of sales ICM. Vertical markets, such as insurance, banking and telecommunications, were targeted because of their high degrees of plan complexity and transaction volumes, combined with large and diverse sales organizations. Enterprise application vendors, Siebel Systems, PeopleSoft and SAP all released significantly upgraded applications in 2002 as part of their customer relationship management (CRM) suites. Enterprise vendors now are better able to compete for their established customers on the basis of integration and functionality, but they are rarely selected unless bundled as part of a CRM suite decision. When compensation plans are complex and transactional volumes are high, ICM BOB vendors are the dominant choice. Best-of-Breed ICM Vendors BOB vendors focus exclusively on solving ICM complexities through the design and implementation of ICM software. They are usually small in size, with ICM software license revenue of less than $25 million. Except for Synygy, which is supported by its strong outsourced compensation business, BOB vendors have yet to achieve profitability, creating potential viability concerns represents an inflection point for BOB ICM vendors. They must demonstrate the ability to become profitable, while continuing the application development that is necessary to maintain their functional superiority vs. enterprise application vendors. Venture capital funding, now fully invested, are anxious for results. Profitability must achieved. BOB vendors offer superior application functionality, such as prior period adjustments and plan creation. They have excellent integration capabilities, with an absolute focus on solving ICM's challenges. They also maintain high levels of domain expertise in compensation design, management and execution, compared with enterprise suite vendors. Consider BOB vendors when accurate and timely reporting and payment of incentive compensation is the main priority. Callidus Software ( is an ICM leader and consistently appears on competitive shortlists because of its functionality, flexibility and ease of use. Callidus has an installed client base of more than 60 production customers across multiple verticals, with strength in telecom, insurance, high technology 10 February

3 and banking. It also has a growing global presence. The TrueComp 3.0 product suite, released in September 2002, features three new modules and ease-of-use enhancements, such as support for multidimensional rate tables. The replacement of the Blaze rules engine with a proprietary engine improves performance and scalability attributes. In December 2002, Callidus secured $8 million in venture funding, bringing its total venture funding to $84.5 million. Profitability should be achieved mid-2003, assuming a return of business investment in technology. The Callidus 4.0 product, planned for release in 3Q03, is expected to show continued refinement of the user interface, business analytics, and the expansion of quota and territory management capabilities. Centive ( formerly know as Incentive Systems, is an ICM leader. In July 2002, Centive launched a completely redesigned, Internet-native Java 2 Platform, Enterprise Edition (J2EE) application, Centive/EIM 4.0. Several large insurance companies, with transaction volumes exceeding 4 million per month, selected Centive, removing prior scalability/performance concerns. Functionally rich, Centive/EIM 4.0 can handle complex commissions challenges, such as security for multitiered, overlaid crediting hierarchies, and advance collaboration workflow for approvals and dispute resolution. However, like all next-generation applications, Centive/EIM 4.0 faced challenges. Centive tools were unavailable at launch, the rules library was incomplete, and only the Oracle database was supported. Centive/EIM 4.1, released in January 2003, begins to address these gaps, including support for the SQL server. Centive clients will need to evaluate upgrading prior to application maturity. Centive acquired Ockham Technologies' advanced quota management functionality, which will be fully integrated by 3Q03. We expect that the company, with $76 million in total venture funding, will achieve profitability in Synygy ( is the dominant provider of outsourced ICM and has moved into the Visionaries quadrant. It is the only profitable ICM vendor based on its commissions management services. With the release of the Synygy EIM version 10.0 application suite, built on a J2EE platform, Synygy now can compete as a software provider. Leveraging its 12 years of experience in commissions management, the version 10.0 application shows an improved user interface and manages workflow through its factory metaphor. Synygy offers sophisticated functionality for complex commissions requirements and scalability for high transactions volumes. However, it lacks an established base of referenceable production software clients. It is gaining experience with enterprise software development and the associated deployment 10 February

4 challenges. We expect Synygy will continue to improve the application through With the release of a product line for sales performance management, Synygy is on the next wave of advanced functionality for sales, including integrated quota management and territory alignment capabilities. It is financially stable and has a solid Web-based application. Motiva ( was the first vendor to release a pure, J2EE platform for ICM in 1Q02. With the 8.3 version, Motiva has closed functionality gaps and improved usability, while increasing performance. Motiva's EIM portal increases real-time data access and visibility. Motiva gained momentum in late 2002 with several new client wins and an increased presence on decision lists. The 8.2 application has solid functionality for commissions management, although it lacks full modeling capabilities or quota management functionality. In November 2002, Motiva secured an additional $6.5 million in its fourth round of funding, which addressed viability concerns. Although a niche player, Motiva's 8.3 application and improved distribution positions it ahead of enterprise application providers; however, it trails other established BOB vendors. Enterprise Suite Vendors Enterprise suite vendors offer ICM functionality as a module within their CRM sales product suites. These vendors have tremendous resources and expertise in software development; however, they lack commissions management domain expertise. They offer tight integration to their application backbones, leveraging territory management functionality and advanced integration into the opportunity management or configuration modules of their application suites. The ICM module often is bundled with their CRM sales offerings. They provide "good enough" ICM functionality. However, they can't compete, feature for feature, with BOB vendors regarding depth and breath of functionality. They also don't have the referenceable installed base or experience in the ICM marketplace. Consider enterprise suite vendors when the enterprise already uses a vendor's enterprise applications or has acquired the ICM module as part of a larger CRM decision, and the functionality provided is good enough to meet user requirements. Siebel Systems, the leader for CRM suite functionality, made a significant investment in its ICM module. In September 2002, it improved its application with the release of version 7.5. Increased capabilities in plan management, such as a plan acknowledgement and improvements in managing adjustments, increase its appeal within the Siebel client base. Siebel capitalizes on integration with its leading direct-sales application, 10 February

5 leveraging strengths in territory and quota management. Compensation estimation is a benefit when integrated with the Siebel opportunity management system. However, the application is weak in modeling, and ad hoc reporting is a "dump" to Excel. Siebel has 20 production accounts; however, none are on version 7.5. In 2003, Siebel's milestones include deployment of its ICM module into its sales force and another large hightechnology client, which will test performance and scalability. Siebel clients that have moderate degrees of complexity should consider this module before evaluating BOB alternatives. PeopleSoft entered the ICM market with the release of the first version of its Sales Incentive Management (SIM) module in December 2002, as part of the PeopleSoft 8.8 release. For a first-generation application, SIM is complete, addressing base requirements for all components of functionality. It lacks depth in more-complex functional areas, such as adjustments. It is an unproven application, with no production references, as expected for a new application. PeopleSoft is targeting its high-technology and manufacturing clients to build momentum. A mid-2003 release is expected to include templates for banking and brokerage services, with additional templates in development. Current PeopleSoft clients should evaluate SIM. After continued development and several production clients, SIM will be ready for broader acceptance. SAP has enhanced its ICM application with the 3.1 release of the mysap CRM suite. Initially designed to support financial clients, SAP is beginning to broaden functional components, such as improving the user interface to appeal to its large and established client base. SAP offers basic ICM functionality; however, it lacks the depth and breadth necessary to handle complex commission calculations. Adjustments functionality and workflow are immature. SAP has nine clients in production, eight of which are in Europe; none are with the new application. In 2003, SAP clients should evaluate their ICM requirements against SAP functional capabilities before engaging with BOB vendors. Oracle has offered an ICM module since Its release offers complete ICM functionality, supporting the more than 30 Oracle clients in production. Although the release was not dramatic in scope, Oracle is enhancing its user interface and workflow. Integrated as part of the sales online application, Oracle's commission estimation, quota management and territory alignment functionality are solid. Oracle offers a unique compensation plan and quota acceptance capability to facilitate administration. When bundled as part of a larger Oracle application decision, compensation teams should investigate Oracle's ability to handle their most-complex requirements. When selecting an ICM application, Oracle users should compare 10 February

6 Oracle's capabilities and integration benefits in lieu of a BOB alternative. Vendors Not on the Magic Quadrant Compute Sciences Corporation (CSC) has been removed from the ICM Magic Quadrant because its application is designed exclusively for the insurance market, restricting its ability to compete in the broader market. CSC's mainframe-based Performance Plus builds on its Distributed Support Services (DSS) product client base. For similar reasons, Trilogy also has been removed from the Magic Quadrant; it has moved to a pure industry application focus. Once a leader for ICM, it did not secure any new clients in It is experiencing an erosion of its client base. Westport Software falls just short of inclusion because of the revenue criteria. However, it offers a low-cost, highly functional alternative to traditional BOB vendors. U.K.-based Practique Associates is an emerging BOB vendor for Europe, the Middle East and Asia that also falls short on the revenue criteria. We believe that Salesnet will emerge during the next 12 months as a viable ICM option in the BOB category. Acronym Key BOB CRM CSC DSS ICM J2EE SIM Best of breed Customer relationship management Computer Sciences Corp. Distributed Support Services (CSC product) Incentive compensation management Java 2 Platform, Enterprise Edition Sales Incentive Management (PeopleSoft product) Bottom Line: The sales incentive compensation management market is positioned for rapid growth through Significant investments by enterprise application vendors have improved their functionality, while best-of-breed vendors re-architected their applications to address the performance and scalability demands of large users. Best-of-breed vendors are functionality superior and the application of choice for those enterprises seeking to address incentive compensation management challenges. However, profitability is elusive for best-of-breed vendors, increasing viability concerns for potential users. We expect modules offered by enterprise application providers to improve, increasing levels of functionality and tightening integration. 10 February