VentanaMonitor™
Summary
Cognos met with industry analysts in April to update them on its performance management product and market strategy. Performance management has been central to Cognos' attempt to reach beyond IT departments, and it was the primary driver behind the acquisitions of Adaytum (which produced planning and budgeting software) and Frango (financial consolidation). Performance management is increasingly important to this company's top line, and it continues to apply significant development and marketing resources to secure its position in growing markets. Ventana Research thinks Cognos is pursuing the right strategy with the right messages and evolving its software into a package easily integrated with other enterprise software.
However, the company will be challenged to differentiate its software in a crowded market, particularly with organizations that have immature approaches to performance management. Moreover, Cognos' operations-related offerings are more about the intersection of the finance organization with functional or line-of-business units (for example, sales planning is as much about sales communicating with finance as it is about sales management). To achieve a persistent presence outside finance will require that it undertake an ongoing evolution of capabilities to make its software a critical element in operations management, sales, supply chain, customer interaction and workforce/HR.
Assessment
The financial applications market is fragmented and crowded. Vendors of enterprise resource planning (ERP) systems dominate the transactions portion of the market, but not areas such as planning, consolidation, treasury management and analytics. In the past, buyers looked at this kind of software mainly as a way of automating finance processes. Increasingly, though, companies are using these applications as part of a performance management approach to their whole business. To be more effective, for example, they are looking at planning as part of performance management cycles, setting targets aligned with key metrics, evaluating progress toward achieving these targets and periodically assessing and resetting the targets as conditions change. Similarly, consolidation is not just about the period-ending amalgamation of accounts; it is usually the first step in financial and managerial reporting. To make the process more effective, most companies must accelerate the closing process and get accurate, actionable information to executives and managers.
In seeking to take advantage of this trend linking financial applications to performance management, Cognos is stressing effectiveness to differentiate its software from vendors that point to improved efficiency. In marketing, Cognos has dropped the "corporate" prefix and simply calls it "performance management." The company decided it can communicate more effectively by using this two-word overarching term and supplementing it with more targeted descriptions of "financial," "workforce," "customer" and "operational" performance management. These specific areas are where Cognos will need to gain more depth and competency to expand their position with performance management. Ventana Research believes these areas also are markets likely to grow rapidly over the next several years. Besides, "corporate" (like "enterprise") has come to connote "expensive" and "difficult to deploy." Cognos also is emphasizing the connection between its applications and business intelligence products. Reporting is integral to performance management, providing information and feedback for it.
The "effectiveness" positioning is most developed in Cognos Planning, in which the company has been offering "blueprints." These planning templates enable companies to facilitate the transition from simple budgeting (in which the main objective is to get a presentation to the board of directors just before the start of the fiscal year) to planning and budgeting (in which the key objectives are to set performance benchmarks and optimize resource allocation). Cognos Planning Blueprints cover a range of organizational and functional planning areas such as human resources, sales and distribution. The workflow features of Cognos Planning also make it far easier to encourage high levels of participation in the process, which we have found increases accuracy and employee buy-in.
Consolidation software has been around for two decades, and most larger companies have deployed it. Yet many of them have not kept the software and related processes up to date. As a result, organizations use stand-alone spreadsheets and manual steps as work-arounds for parts of the periodic closing process. In so doing, they extend the closing cycle. Our research has found a majority of companies want to accelerate their close. To do that, Ventana Research recommends companies rethink their process and review the ability of their software to support a fast, clean close. In addition to reducing the resources required, it can get a more comprehensive set of management accounting data to decision-makers faster. Cognos is stressing these benefits in positioning its consolidation application.
Market Impact
Attempting to extend its enterprise footprint, Cognos began to target the office of the CFO, and over the past three years it has been able to establish itself as a serious contender in the planning and budgeting software market. The vendor has increased its presence on the short lists of Global 2000 companies evaluating this type of software and appears on its way to extending a solid presence in the European consolidation market into North America. Hyperion maintains its dominance in the consolidation market and a leading position in planning and budgeting, but to avoid losing market share, we think it will need to increase marketing and accelerate efforts to offer a more easily integrated suite of financial applications. All budgeting software companies will have to stress effectiveness if, as widely rumored, Microsoft enters this market with a relatively inexpensive, dedicated budgeting application and addresses with a server-based version many of the shortcomings of Excel as a budgeting tool. The challenge all players that stress an effectiveness message will face is to convince companies of the need to mature their process so they will see value in planning and improving their close.
Recommendation
Ventana Research recommends senior finance executives examine their core planning, budgeting and closing processes to determine improvements they may be able to achieve from changing them. Instead of just budgeting, companies can use planning as a key element of a performance management strategy to promote efficiency, optimize resources and respond faster to changing conditions. Rethinking the closing process to facilitate delivery of management information can cut costs and give executives better and more timely information. Ventana Research has found that rethinking processes is the first and most critical step. Usually, companies find they need software to support these revamped approaches. We recommend they look at Cognos' offerings to address needs in this area.
About Ventana Research
Ventana Research is the leading Performance Management research and advisory services firm. By providing expert insight and detailed guidance, Ventana Research helps clients operate their companies more efficiently and effectively. These business improvements are delivered through a top-down approach that connects people, process, information and technology. What makes Ventana Research different from other analyst firms is a focus on Performance Management for finance, operations and IT. This focus, plus research as a foundation and reach into a community of over two million corporate executives through extensive media partnerships, allows Ventana Research to deliver a high-value, low-risk method for achieving optimal business performance. To learn how Ventana Research Performance Management workshops, assessments and advisory services can impact your bottom line, visit www.ventanaresearch.com.
2006 Ventana Research
