BUSINESS INTELLIGENCE MGS 8020
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Framing the IT Services Industry Please Visit our Resource Bank at wwwcherrytreecocom Business Intelligence The Missing Link July 2000 52mm Tree Sr 0 Customized investment bankingfor IT services rms Presidents CEOs and CF Os ofIT services rms look to Cherry Tree amp Co as their leading provider of indepth industry information and customized investment banking services Cherry Tree amp Co s Web site at wwwcherrytreecocom puts this timely insight at your fingertips allowing you to make the most strategic and wellinformed business decisions for your company Cherry Tree exclusively focuses on offering customized service to emerging private IT services firms Should you wish to discuss growth options or the sale of your business under con dential terms please call us at 9528939012 or email us at infocherrytreecocom Contents Introduction 1 De nition of Business Intelligence 1 History of Analytical Tools 2 Introduction of Business Intelligence Tools 2 Shtus of Business Intelligence Tools 3 The Market for Analytical Applications 3 Strategic Tactical amp Functional Benefits of Business Intelligence 4 Emerging Trends 4 Business Intelligence Software Vendors 6 Opportunities for Privately Held Firms 6 Conclusion 3 Appendices 1 Cherry Tree amp Co 7 IT Services Research Universe 1 2 IT SerVIces 7 Structural Perspective 12 3 Traditional Business Intelligence Software Vendors 14 4 Merger and Acquisition Bevrew 15 Introduction July 2000 quotBusiness Intelligence The Missing Linkquot This Spo ight Report is Cherry Tree amp Co s fourth research report analytical tools Will become particularly critical to the ultimate for 2000 and our first indepth analysis of Business Intelligence success of these initiatives Consequently IT services rms that are BI technology This report is a special addition to our regular capable of delivering advanced analytical services Will differentiate quarterly reports that are prepared and published by Cherry Tree amp themselves from most of the ebusiness solutions providers Co Please see our Web site at wwwcherrytreecocom for addi achieve high market valuations and become attractive partners or tional research regarding PurePlay eBusiness Development acquisition candidates Extended Enterprise Applications Application Service Providers ASPs and Professional Consulting This report Will analyze the Business Intelligence market its histo ry and evolution and the emerging industry trends We conclude We believe that as IT Services companies converge on ebusiness with potential strategies that private IT services rms may want to and extended enterprise opportunities the need for Webenabled consider to build or enhance their service offerings De nition of 39 Intelligence Business Intelligence BI applications are decision support tools that enable realtime interactive access analysis and manipulation of mis sioncritical corporate information These applications provide users with valuable insight into key operating information to quickly identi fy business problems and opportunities Users are able to access and leverage vast amounts of information to analyze relationships and understand trends that ultimately support business decisions These tools prevent the potential loss of knowledge Within the enterprise that results from massive information accumulation that is not readily accessible or in a usable form The desired outcome of BI projects is the continuous improvement of the organization through timely information that enhances decision making These systems enable the organization to become proactive and quotinformation agilequot by delivering information used to 39 Support internal enterprise users in the assessment and of performance amp operation 39 Deliver critical business information to endusers about value chain IIIl1 J rr39 quot partners A key feature of BI tools is the ease with which they access and synthesize strategic and operation information BI is often times referred to as Online Analytical Processing OLAP or multidimensional analysis Figure 1 provides two examples of the type of analysis that endusers can utilize to quotdrilldownquot and quotslice and dice to gain a better understanding of transactional and operational information stored in legacy systems As illustrated in the examples users are able to perform customizable queries for specific issues For instance the multidimensional example provides sales information for Product C during January in the North region Figure 1 Examples of Business Intelligence Data Analysis Star Schema OLAP or multidimensional analysis Customer Age Category Contact 1715 Days Address 1630 myS Region 3145 Days District QUERY 46760 Days Customer Jam i Product AgeCategory e i Product Faded Period Time Fm A Description Day ofWeek 7 7 7 7 7 7 B 1 Amount M 1355 59131 at C Product Sales ype on a List Year 4 lt15 3 Standard quot16 Q5 04 Geography Source Cherry Tree amp C0 Research f4 1 cherrytreeco D 11A m 8 CO Business Intelligence The Missing Link History of Analytical Tools Over the last decade organizations have consumed considerable expense and resources building online transaction processing OLTP systems and Enterprise Resource Planning ERP systems The amount of accumulated information stored in data warehouses and data marts has reached staggering levels While these systems have signi cantly advanced the automation and organization of information they have become quotinformation silosquot offering minimal access and analytical capabilities for busi ness users A study conducted by IBM identified that the typical company utilizes only 2 to 4 of this stored data In the past access to information systems required prior prepara tion by database administrators and application developers Unanticipated enduser access was rarely permitted Customized queryreport writers and standard spreadsheets relational databases and graphical applications were utilized for analytic pur poses Data warehouses were also developed to meet these needs However these solutions were designed and reconstructed by the IT department which often times lacked an understanding of the enduser s specific needs Furthermore these solutions rarely allowed for ad hoc analysis and were limited in the ways data could be manipulated viewed and analyzed Finally these solutions lacked user connectivity to different information resources Ultimately these traditional systems failed to provide an integrated and functional analytical tool for endusers particularly for non technical business users Traditional systems failed to satisfy the need for businesslevel analytical capabilities for two primary rea sons see Figure 2 Traditionally endusers utilized these isolated and nonintegrated applications for their analytical needs This left organizations struggling to discriminate between reliable and accurate data sources Figure 2 Common Problems with Traditional Analytical Systems Inaccessible Information Nonintegrated Information I Accessibility amp Integration Void Source Cherry Tree amp C0 Research Introduction of Business Intelligence Tools Data warehouses and BI applications were introduced to play a medi ating role and bridge the Accessibility amp Integration Void created by customized legacy solutions BI tools extend the value of corpo rate information through sophisticated analytical processing and rapid delivery andpresentation of accurate information to executives managers analysts and other knowledge workers These technolo gies revolutionize the concept of the quotinformation agilequot corporation With the development of ebusiness initiatives ebusiness intelli gence solutions are increasingly stressing the accessibility timeli ness and dynamic nature of information for virtually every integral aspect of business The latest introduction of Webenabled BI solu tions incorporates Internet portal technologies as a user interface Newer technologies such as Enterprise Information Portals EIPs further strengthen accessibility and the integration of information BI tools incorporate a wide range of available corporate information resources including data warehouses data marts transaction processing applications and strategic applications such as ERP ecommerce and customer relationship management CRM applica tions Figure 3 represents an example of the ow of information from disparate information sources that users utilize to analyze data Figure 3 Business Intelligence Flow Chart 6933 Operational Data Level Wamh use r 93510 PPS external data 3 E3 1 Q 2 DCherry quotBee 8 Co Level Collect cleanse organize distribute Analytical Endrusers ve query reporting analysis Source Cherry Tree amp C0 cherrytreeco Business Intelligence The Missing Link BI solutions work in conjunction with an enterprise s systems but systems are capable of integrating the complex interrelationships are designed with the objective of disseminating reliable mission that exists between customers suppliers and business partners In critical information to users throughout the organization BI the end BI systems provide the underlying analytical engine by systems are designed to support all forms of business information focusing on the access and delivery of business information to end not just data stored in large data repositories Additionally these users Status of the Business Intelligence Market To date BI tools have been met with moderate success in the mar cal tool ketplace Cherry Tree amp Co believes this is due to three primary reasons 39 Internet Delivery Model BI software vendors have been rapidly rede ning core software solutions to accommodate Web 39Limited IT Budgetary Resources Itis clear that over the past based interfaces ebusiness analytics and next generation EIPs several years organizations were focused on building transactional These product realignments have caused a transitional period that and operational IT infrastructures and complying with Y2Krelated has likely rippled throughout partner relationships issues This squeezed IT budgetary resources for the development As will be discussed later Cherry Tree amp Co believes there are of next generation enterprise information systems several market trends that suggest that Webenabled BI tools will 39 Inability to Communicate BI Value Proposition Part of the become increasingly important in the development of a complete problem is also due to the difficulty of clearly conveying a quanti corporate strategy and IT infrastructure able bene t or ROI associated with an integrated enterprise analyti The Market for Analytical Applications As shown in the Figure 4 the market for analytical applications is estimated to grow signi cantly over the next three to four years The worldwide market for analytical applications is expected to grow at a compounded annual growth rate of nearly 30 from 19 billion in 1999 to 52 billion in 2003 Figure 4 WWAnalytical Application Software Revenue in billions 1998 1999 2000 2001 2002 2003 Source DC The total potential market is signi cantly larger when taking into consideration backbone technologies such as data warehousing and imple mentation services associatedwith BI and data warehousing technologies The US market for packaged BIdata warehousing applications and supporting IT services is projected to grow at a compounded annual growth rate of roughly 40 and reach 222 billion by 2003 see Figure 5 US Market size for Business Intelligence amp Data Warehousing pplication amp IT Services in billions as a 2 a o a 1998 1999 2000 2001 2002 2003 Source Survey com 1999 r 3 cherrytreeco D Cherry hee 8 CO Business Intelligence The Missing Link Strategic Tactical amp Functional Bene ts of Business Intelligence BI tools offer a strategic tactical and functional framework to address business analysis needs across the entire organization Figure 6 sum marizes a few of the characteristics that in uence the need for advanced analytical capabilities While this is an oversimplification of the numerous benefits and analysis it does provide an illustration of the value recognized throughout the organization One speci c example pointing to the value of increased analytical capabilities is the use of tools to evaluate marketing campaigns Organizations are increasingly utilizing analytical tools in conjunction with CRM applications to improve the effectiveness of marketing campaigns Again these applications have broad implications throughout the organization and among multiple users both within and out side of the marketing function of the enterprise Figure 6 Strategic Tactical amp Functional Bene ts of Bminess Intelligence Solutions m 6 Continuous Improvement of Decisionemaking Capabilities Used to Increase Revenues amp Reduce Costs 0 Assess Evaluate Optimize Business Operations amp Relations 39ps 9 Better Tools for Knowledge Workers 0 Leverage the Amount of Captured Transactional amp Operational Data TICAL Multidimensional Analysis 0 A Hoc Status Reporting amp Whateif Scenarios Q DrilLdoWnquot amp Slice amp Dicequot Analytical Capabilities Intuitive User Interfaces FUNCTIONAL Sales Marketing Finance Operations Q g Customer Market amp e Budgeting amp Operational Workforce Customer behavior customer planning efficiency planning amp clickstream penetration optimization information Sales force usiness production 39 e Marketing performance planning amp HR Integration of campaign quali performance traditional Crossrselling effectiveness Financial comm evaluations bus39 analysis consolidation erbusiness Product amp endm n y service life performance analysis cycle analysis analysis Source Cherry Tree amp C0 Research Emerging Trends There are a number of trends in the marketplace that suggest that BI solutions will generate strong demand and play a larger role in the IT infrastructure and corporate information ecosystem These market trends are shaping the way organizations communicate and interact with employees customers suppliers and business partners Several of these trends that are already underway include the following 1 Increasingly Competitive amp Fastpaced Business Environment Today s business environment is much more competitive and dynam ic than in prior years Organizations have become decentralized productjservice life cycles have shortened and the competitive environ ment is now viewed on a worldwide basis Business enterprises prosper or fail according to the sophistication and speed of their responsiveness to changing market conditions In this environment organizations demand faster information synthesis and more sophisticated analysis Furthermore organizations are utilizing technology to unite operational execution to strategic objectives The need for BI thus applies universally throughout the organization BI solutions play a critical role in proactively responding to competitive market conditions and coalescing operational execution with high level corporate strategy 2 Development of EBusiness amp Extended Enterprise Applications IDC projects the demand for ebusiness services will reach 786 billion in 2003 up from 78 billion in 1998 In addition organizations are developing and extending new business relationships through strategic initiatives such as CRM and Supply Chain Management SCM technologies These technologies have benefited from the reallo cation of the IT budget from ERP and Y2K related expenditures to new business initiatives 4 K 3 Cherry quotHoe 8 CO cherrytreeco Business Intelligence The Missing Link Organizations are developing a congruent architecture that aligns business relationships with the supporting emerging technologies This has added multilayered complexities between companies employees suppliers partners and customers The end result is an enormous challenge managing and evaluating each of these relationships The lack of analytical capabilities prevents decisionmakers from truly exploiting the full potential of these new business structures As a result organizations require decision support tools that can respond with simultaneous queries against terabytes of information BI tools unlock information previously embedded in legacy systems These technologies improve the performance of ebusiness and extend ed enterprise applications by providing reporting and analysis against the rapidly expanding transaction and profile data that is collected each day through normal business processes The focal point thus becomes the strategic use of information and continuous improvement of the process rather than the accumulation of data 3 Closedloop Integration of Back and FrontOf ce Information Systems Closedloop integration provides a unified architecture whereby decisions are capable of being measured and evaluated over time for their effectiveness In the end a closedloop environment provides a singular decision support tool that seamlessly combines navigation analysis and evaluation of operational performance A closedloop system also enables the knowledge worker to analyze information and take appropriate action within the context of a singu lar application This system transforms information into a single interface for querying information and ultimately evaluating decisions The notion of an Enterprise Information Portal EIP discussed below is one suggested interface 4 Emergence of Enterprise Information Portals EIPs Virtually all organizations face a need to provide better tools for the increasing role knowledge workers play in an organization Enterprise Information Portals EIPs are emerging as a leading strategy to help workers organize and manage the vast array of information Some of the recognizable EIP software leaders include Hummingbird Plumtree Software and Viador An EIP is a personalized browserbased interface that functions as a centralized location for accessing existing enterprise information sys tems and external information sources These systems represent the convergence of enterprise applications and Web information into por tal technology similar to a personalized myYahoo home page that is accessible through a desktop An EIP operates as a visual gateway to structured and unstructured information sources that are most relevant to a user s speci c function within the organization EIPs are clearly in the embryonic stage of their development cycle but are already receiving considerable attention They re ect a funda mental change in enterprise information management and have evolved from the fundamental concepts of BI technologies These systems enable the coordinated integration of knowledge resources instead of isolated tools and tasks EIPs are heralded for providing three primary benefits 39 Single point of access to all relevant information 39 Personalized functioncentered workspace for integrating information 39 Maintenance of the underlying connection between information sources In order for an EIP system to recognize these relationships an effective EIP must meet two performance targets 1 capable of abstracting transaction data from enterprise and legacy systems into an integrated system and 2 utilization of internal and external data to provide a format for collaboration 5 Increased Need for Accurate Consistent amp Timely Data An increasingly larger dilemma for organizations is the need for reliable data quality and access These concerns become even more important with increasing amounts of information and rapid changes in the business environment Corporate decisionmaking will ultimately deteriorate if the fundamental data is defective inaccessible or untimely BI solu tions are responsive tools providing timely access to various sources of information that allow for effective decisionmaking Fundamentally however source data still needs to be validated for its reliability r 5 cherrytreeco D Cherry hee 8 CO Business Intelligence The Missing Link Business Intelligence Software Vendors The market for analytical applications has become cluttered by a variety of different enterprise software solutions It is clear that analytical tools are becoming integral in nearly every enterprise solution Agreements to integrate Hyperion Solutions BI prod ucts with CRM products from Nortel Networks and Interwoven are two specific examples The delineation is becoming even more blurred with the introduction of new technology solutions million dollar acquisition of Ardent Software a data warehousing and BI software provider by Informix is one example Computer Associates acquisition of Sterling Software which had previous ly purchased Information Advantage a BI software provider is another example of consolidating trends in this industry We have identified some of the leading BI software vendors and relevant MampA transactions in Appendix 3 and Appendix 4 respectively Large and small enterprise software vendors alike are embedding advanced analytical tools in their enterprise solutions The multi Opportunities for Privately Held Firms Although the BI market has evolved slowly Cherry Tree amp Co believes this is an area that deserves considerable attention as it represents a unique set of opportunities for privately held IT services rms We believe organizations will increasingly turn their attention to tech nologies that leverage IT investments made in ecommerce based transactional systems as well as traditional clientjserver and legacy sys tems Furthermore emerging industry trends are creating additional needs for advanced analytical solutions IT service rms that are wellpositioned in BI technologies will have a signi cant opportunity to take advantage of these trends Some of the strategies and unique properties in the BI marketplace that we have identified are summarized below 1 Partnering with El Vendors One particular approach that is suitable for all IT service rms is to establish a partnership with the lead ing BI software vendors This strategy has been proven to be an effective mechanism for the rapid development of BI technical competen cies an additional sales and marketing channel and the potential for accelerating practice area development A listing of some of the lead ing BI software vendors is included in Appendix 3 2 Leveraging Existing Consulting amp Practices seeking increased analytical capabilities will likely seek solutions providers with welldefined consulting and 39 39 39 39 d A The decision to invest in a BI solution is driven by business issues and supported by business initiatives and objectives These solutions will also require technical expertise with the design and implementation of solutions that are capable of managing large databases This represents an oppor tunity for an IT services firm with strong consulting and projectbased practice areas One of the unique properties of BI is the continuous improvement of the organization through enhanced decision making Constant changes in the information environment and organization each represent an opportunity for a predictable recurring BI service model Organizations are likely to continuously utilize the expertise of IT services firms to assist in the ongoing evaluation of the technical environment in rela tion to the organization s objectives Therefore it is imperative that an IT services rm be able to communicate the bene ts of BI in terms readily understood by business users 3 Leverage Complementary Practices Services BI solutions have far reaching implications throughout the organization affecting customers suppliers and business partners As a result these technologies touch multiple enterprise technologies and systems An IT ser vices firm providing solutions based on multiple enterprise applications and strong data warehousing expertise can leverage these skill sets by offering enhanced analytical capabilities Due to exposure in multiple technologies this can also lead to new business opportunities for other practice areas Additionally BI technologies can serve as a cornerstone to the development of highgrowth and emerging technologies such as ElPs EIPs require a high degree of analytical content These systems also require the collection of information from different and incompatible sys tems and various data types to a single point destination This requires a unified view of the organization its processes and its technical resources 4 Leveraging Vertical Industry and Business Process Expertise Another method of strategic advantage is the development of BI practice areas within defined business processes and vertical industry expertise Organizations typically require a degree of customization that meets their unique circumstances This becomes particularly acute as BI tools evolve towards a closedloop andor EIP environment By focusing on specific vertical industries IT services rms can leverage the expertise and level of customization typically required to comply with industry best practices 6 3 Cherry quotRec 8 CO cherrytreeco Business Intelligence The Missing Link 5 FunctionallyFocused BI Models Cherry Tree amp Co believes an IT services firm does not have to implement an enterprise BI system all at once Deploying a BI system that can ultimately support an entire organization requires a longterm vision and total commitment as well as a significant amount of time and capital One method of gradual deployment might be focused upon functional areas ie financeaccounting sales marketing etc The key con sideration is complying with standard methodologies to deploy the project in gradual stages The objective with this deliberate strategy is to minimize the upfront risk with a full and comprehensive BI implementation 6 Aggressively Promote the BI Value Proposition A key element to the successful introduction andor transition to BI solutions is the need to communicate and demonstrate the return on investment provided by these solutions One of the drawbacks with analytical solutions com pared to other technical solutions is the lack of understanding of the benefits and payback associated with an implementation Due to the hype ebusinessecommerce initiatives are receiving IT service firms will need to develop marketing campaigns and materials that clearly demonstrate the value proposition and interrelation between BI and other technologies such as ebusiness and extended enterprise applica tions 7 Defensible Position Against Application Hosting Cherry Tree amp Co believes that BI provides a defensible position in the near term against the threat presented by the hosted application delivery model of Application Service Providers ASPs We believe that these tech nologies will be one of the slower to be accepted as a hosted solution This is due to four primary reasons 39 Preservation of MissionCritical Information BI applications potentially jeopardize the most sensitive information pos sessed by an organization such as customer information business performance and productjservice information A strong ele ment of trust will need to be established and proven before organizations will consider a hosted solution for analytical applications 39 Required Stability of Analytical Systems Due to the missioncritical nature of information and extension into ebusiness intelligence it becomes imperative that BI systems suffer little if any downtime Many of the ASP models are designed to guarantee a high level of service However virtually all of these business models are untested in providing a high level of connectivity across multiple clients and applications and during times of application upgrades 39 Customized Analytical Solutions BI solutions require a high level of industry knowledge and expertise One of the value propositions proclaimed by the most successful BI solutions providers is their vertical industry expertise and resulting capacity to understand the client s business In many cases a BI solution requires not only an understanding of the client s business but also customization around the solution This con icts with the standardized processes and offtheshelf solutions promoted by ASPs 39 Focus on Large Complex Organizations Large organizations with multiple productsservices geographic locations and extensive data repositories have typically been the early adopters of packaged analytical applications Conversely the appetite for hosted applications has been largely targeted towards smalltomedium size enterprises SMEs However hosted BI solutions could become a viable alternative once ASPs develop proven business models and resolve security issues In fact the value proposition of application hosting could become the missing ingredient that BI technologies have historically been lacking r 7 cherrytreeco D Cherry lree 8 CO Business Intelligence The Missing Link Conclusion Cherry Tree amp Co believes Bl will become an integral component to an enterprise s information management systems A BI solution lever ages IT investments already made and valuable data stored in legacy and transactional systems Bl tools provide the quotmissing linkquot that bridges the necessary access and integration to information and aligns operational execution with strategic objectives in today s ebusiness world As a result these tools transform large data repositories from the static state into a dynamic strategic resource These implica tions are relevant throughout the organization and bene t the entire value chain However achieving success with Bl solutions is not a simple task A complete enterprise BI solution can require months or years to nal ize the implementation and require multimillion dollar investments Bl solutions typically require a considerable up front consultative com ponent to understand business processes and unique characteristics Bl solutions also require a strong commitment of IT resources to vali date data sources For these reasons it becomes important for IT service firms to possess both strong consulting and technical skills and to consider the merits of functionallyfocused Bl solutions Cherry Tree amp Co believes IT services firms with dedicated analytical practice areas will benefit from market trends in newer technologies such as ebusiness and ElPs The bottomline is an increased demand for IT services and consequently a higher enterprise value for the IT services firm This Spotlight Report on Business Intelligence was written by Brian Klemenhagen Associate Cherry Tree amp Co 8 3 Cherry quotRec 8 CO cherrytreeco Business Intelligence The Missing Link 9 K cherrytreeco 9 Cherry T166 8 Co Cherry Tree amp Co IT Services Research Universe IT Consulting Com an CACI International Superior Consultant Holdings American Management Systems First Consulting Group Outsourcing Com an 1 Application Outsourcing Rglobal yntel Critical Path FutureLink Interliant USinternetworking The TriZetto Groupquot Ticker CACI 2 Utilities Business Process Outsourcing utomatic Data Processing BISYS Group Ceridian Equifax First Data Fiserv Sungard Data Systems 3 Platform IT Outsourcing Computer Sciences Electronic Data Systems Perot Systems Sykes Enterprises CGI Group Internet Infrastructure Providers Navisite Applied Theory AUD BSYS CEN EFX FDC FISV SDS CSC EDS PER SYKE GIB Ticker DIGX PSIX EXDS GBIX VRIO NAVI ATHY ProiectBasecl Service Providers Com an 1 App amp Systems Development Complete Business Solutions Af liated Computer Services iGate Tier Technologies Concero Cambridge Technology Partners Cognizant Tech Solutions Corp Intelligroup Tenfold 2 Implementationlntegration AnswerThink Bri tStar Computer Task Group Renaissance Worldwide Technology Solutions 3 Web Development iXL Enterprises Viant Modem MediaPoppe Tyson Braun Consultin Cbridge Internet Solutionsquot Cysive Tanning Technology Agencycom Luminant Worldwide Appendix I ANSR BTSR REGI TSCC Indicates companies tracked by Cherry Tree amp Co but not yet included in stock indices due to insuf cient trading history 10 DChen39y quotRec 8 Co cherrytreeco Appendix I Staff Augmentation Company 1 Pure T Staffing Analysts International Cotelligent Hall Kinion Technisource PRT Group Alternative Resources Metro Information Services 2Transitioning Firms Computer Horizons Modis Professional Services 3 General Staffing kforcecom Sta Mark CDI Corp Comforce Personnel Group America Volt nfonnation Sciences RCM Technologies Interim Services Value Added Resellers Company Acxicom Corp Alphanet Solutions Viasoft Inc Compucom Systems Aztec Technology Partners Black Box Corp Merisel Inc Education ampTraining SmartForce Wave Technology International Computer Learning Centers Learning Tree International Ticker ACXM Ticker ARSC SMTF WAVT LTRE Indicates companies tracked by Cherry Tree amp Co but not yet included in stock indices due to insufficient trading history cherrytreeco 1 1 DCherry hee 8 Co Appendix 2 IT Services Structural Perspective While it is extremely difficult to place IT Services companies in speci c subsectors Cherry Tree amp Co has developed the following set of working de nitions and categorizations for the purpose of analyzing key trends and developments in the industry We recognize that read ers often have their own mental categorizations that may be slightly different than what we are suggesting Although pureplay examples are hard to nd we have found the following structural perspective to be very useful in depicting critical developments within the IT Services industry 9 Professional Consulting Firms that focus on corporate level business and strategic engagements further divided into three subsectors IT Consulting Firms that predominantly focus on high level consulting projects that are directed at strategic information technology engagements Project scope often entails companywide evaluation of client business needs and essential processes existing plat forms available technologies and solutions design The effort to structure an IT initiative as an integral component of a strategic or business process design oriented endeavor is what separates these companies from their ProjectBased service provider counterparts Strategic Management Consulting Firms that provide advice centean upon a client s overall corporate objectives and competitive position Strategy should be thought of as the creation of a unique and valuable position for an enterprise that affords it a sustainable competitive advantage Project scope involves such topics as market trend analysis business and customer mix marketing efforts and capital structure Business Process Consulting Firms that provide consulting expertise relative to the maximization of the operational effectiveness at either the functional or business unit level Operational effectiveness includes practices and processes that allow a company to better utilize its resources to generate the highest level of output at a minimized cost 9 ProjectBased Service Providers Client projects within this sector have comparatively well de ned tangible deliverables and scope Contract designs range from a billable hours approach to xedprice engagements for components and even entire projects Companies typically focus around some type of vertical industry expertise either in speci c technologies or industry applications Application and Systems Development Companies that specialize in custom software development aimed at serving the speci c needs of their clients typically in proprietary systems settings Deliverables can include targeted modules or components upgrades to existing systems as well as original application development ImplementationIntegration Firms that specialize in the deployment of complex enterprisewide ERP software packages As part of this implementation these companies integrate the new software by ensuring that diverse hardware network and software components work together Companies may also specialize primarily in integration technologies interface development database management and other enabling technologies that allow disparate systems to share information Web Development Segment of the ProjectBased sector exclusively focused on Intemetbased services and technologies Projects may entail frontend interactive marketing ebusiness application development and implementation ecommerce transaction system development strategic consulting andor backend Webtolegacy integration 9 Outsourcing Companies providing process automation services and facilities management and operations for clients desiring a variety of technical outsourcing solutions divided into three subsectors Platform IT Outsourcing Firms offering a range of data center services including hardware facilities management onsite and offsite support services servervaults and data security and disaster recovery capabilities These relationships typically involve the transfer of IT facilities staff or hardware Utilities or Business Process Firms f quot 39 A 1 39 outsourcing solutions for complex but repetitive daily business processes These processes could be as sophisticated as nance and accounting or be more repetitive processes such as disbursements and payroll The provider assumes all responsibilities associated with the entire business process or function 12 3 Cherry quotRec 8 CO cherrytreeco Appendix 2 Application Outsourcing Firms manage and maintain software applications with the provider assuming the responsibilities associated with the application There are two sub divisions of the A0 sector Application Maintenance Outsourcing providers manage a proprietary or package application from either the client s or the provider s site The Application Service Provider remotely hosts and delivers a packaged application to the client from an offsite location 9 Sta Augmentation Companies that specialize in providing quali ed IT professional staff on a temporary or longtenn contract basis to clients in need of speci c skill sets and project support for internal systems development projects Pure IT Sta Augmentation Firms that derive the vast majority of their revenues from their core IT staf ng business Company strategies are often de ned by geographic concentrations vertical expertise or technology focus Transitioning Firms Companies that have traditionally been viewed as being in the IT staf ng business but have recently attempted to redirect their growth towards higher value added and higher margin projectbased services For a staffing rm to be classi ed as Transitioning revenues from projectbased services are generally growing at a signi cantly higher rate than staf ng revenues andor comprise over 60 of revenues Various combinations of merger and acquisition divestiture and internal growth facilitate this migration General Sta ing with I II Firms that provide professionals with a wide array of skills including finance accounting etc which alshave an IT staf ng division with signi cant revenues Several companies in this category are rapidly building IT services divisions through both internal growth and by acquisition which may eventually reposition their business mix 9 Education and Training Companies that provide training and help desk consulting for rms that have adopted custom designed or pack aged software products Engagements can include onsite or training center programs following new installations or for skills development and certain technical applications 9 Internet In astructure Providers Firms with a background in providing data center hosting services and corporate Internet access that also offer higher valueadded services including Web and application hosting and other data solutions 9 Value Added Resellers Solutionsoriented vendors providing integrated hardware and software systems often including consulting design and implementation services These companies have historically operated under specialty hardware and software distributor arrangements though trends are towards broader vendor representation and increased consulting services r 1 3 cherrytreeco D Cherry hee 8 CO 1 4 K 9 Cherry quotBee 8 Co cherrytreeco Company Name Actuate Brio Technology Business Objects Cognos Comshare Gentia Software Hyperion Solutions lnformatica Microstrategy BOB COGN CSRE GNI39I HYSL lNFA MSTR 531 001 2319 1413 8000 3594 388 538 3138 4025 1906 Market Price 5hrs0ut Market Cap 6539 3884 31520 31410 374 575 1019 13755 15155 Trailing 12months Revenue 573 1320 2647 3856 596 248 4602 773 1726 EBIT 103 418 748 20 59 359 03 702 Net Income 109 275 588 04 50 254 04 628 158 194 104 152 07 57 05 PlRev 114x 29x 119x 81x 06x 23x 22x 8x 88x 1564x 1142x 534x 935x NM 386x 34414x NM Group Average Group Median 98 78 66 65 4x 00 1x 6496x 1038x Web Add ress WWW actuate com WWWbrio com WWWbusinessobjects com wwwcognoscom WWWcomsharecom WWW gentiaco m WWWhyperioncom WWWinformaticacom WWW micro strategycom Appendix 3 Traditional Business Intelligence Software Vendors Appendix 4 Merger amp Acquisition Review 2nd Quarter 2000 Business Objects acquired OLAPWork a privately held software company in Ottawa Canada OLAPWork develops and markets highend online analytical processing OLAP reporting tools The cash transaction was valued at approximately 15 million Modis Professional Services Inc acquiredIntegral Results a leading provider of Bl solutions Terms of the deal were not disclosed Computer Associates International Inc acquired Sterling Software Terms of the deal were not disclosed iGATE Capital Corporation acquired Terminus Systems Designs Inc TSD a web application development company focused on objectrelational database management system TSD is a provider of highvalue Bl solutions Terms of the deal have not been disclosed 1st Quarter 2000 Epiphany Inc acquired RightPoint a provider of realtime personalization solutions Siebel Systems Inc acquired Paragren Technologies Inc a leading provider of highperformance marketing automation software The transaction was valued at approximately 18 million Broadbase Software Inc acquired Rubric Inc a leading provider of in eMarketing Automation eMA applications The transaction was valued at 3718 million Net Perceptions Inc acquired Knowledge Discovery One a leader in advanced data analysis solutions for multichannel and dotcom retailers The transaction was valued at 1178 mi 39on 4th Quarter 1999 In ormix acquired Ardent Software a leading provider of data integration infrastructure software for data warehouse BI and ebusiness applications The deal was valued at approximately 880 million Business Objects acquired Next Action Technology Ltd a UKbased developer of setbased analysis technology for customer selection and segmentation applications The transaction was valued at 8 million 2nd Quarter 1999 Hyperion Solutions acquired Sapling Corporation a leading provider of analytic applications for enterprise performance management The transaction was valued at approximately 155 million Oracle acquired Thinking Machines Corp a leading provider of advanced data mining software for predicting customer behavior Terms 0 the deal were not disclosed 1st Quarter 1999 y ase nc acquired Data Warehouse Network DWN an Irelandbased privately held provider of packaged industryspeci c business intelligence applications The deal was valued at roughly 8 million Brio Technology Inc a leading provider of Bl software acquired SQRIBE Technologies a provider of B1 and EIP software The transaction was valued at 310 million 74 times last year s revenue Cognos acquired LEX2000 Inc a developer of nancial data mart and reporting software The purchase price was 104 million in a combination of cash and stock r 1 5 cherrytreeco D Cherry hee 8 CO 1998 2nd Quarter 1998 Analytical tools vendor Arbor Software merged with Hyperion Software a provider of packaged analytical applications The 760 million deal was valued at 28 times revenues Ardent Software a data management company acquired Dove Tail Software a provider of data management technology Terms of the deal were not disclose Information Advantage a highend OLAP software vendor acquired with IQ Software a provider of entrylevel query OLAP and enterprise reporting software The deal was valued at 62 million or 24 times revenues 4th Quarter 1999 Informix acquired Red Brick a provider of data warehousing solutions The deal was valued at 35 million Ardent Software acquired Prism Solutions a data warehousing vendor The purchase price was 42 million Cognos a leading Bl software vendor acquired Relational Matters The purchase price was 10 million in a mixture of cash and stock 16 K 3 Cherry quot ee 8 CO cherrytreeco About Cherry Tree amp Co Customized investment banking for IT services firms Cherry Tree amp Co specializes in mergers amp acquisitions private placements and advisory services with an exclusive industry focus on Information Technology IT services Cherry Tree s commitment to research and emphasis on working with emerging private companies prove optimal for IT services business owners interested in selling or acquiring a business or raising capital As a result of our customized approach and dedication to the IT services industry our clients receive the most comprehensive and personalized investment banking service available Our robust foundation and experience in the IT services industry ignite our clients ability to make effective strategic and financial decisions With over 60 years of experience in investing as principals and developing IT businesses Cherry Tree has the essential resources and networks to execute timely and successful transactions Our continuous efforts to exceed client expectations and provide the highest level of personal service in the industry have paid off with tremendous bottomline results for our clients If we had to choose investment bankers all over again we would definitely choose Cherry Tree amp Co David Teckman President Disc Systems For further information please contact us directly Dave A Henderson Managing Partner 9528323346 Kevin R Green Managing Partner 9528323358 Gordon F Stofer ManagingPartner 9528323350 David M Dehne Managing Director of Value Enhancement Services 9528323349 Scott B Tudor PrincipalResearch Chairman 9528323344 Peter J Erickson Principal 9528323355 Brian M Klemenhagen Associate 9528323359 Robert J Rogers ResearchAnalyst 9528323356 James M Radtke Analyst 9528323345 Marisa A SullivanMarketingAssociate 9528323352 Caroline J Lilienthal Database Analyst 9528323347 Cherry Tree amp Co Voice 9528939012 Fax 952893 9036 e mail infocherrytreecocom Web wwwcherrytreecocom Please Visit our Resource Bank at vwvwcherrytreecocom to View 0 IT Services Industry Spotlight Reports PurePlay eBusiness Development 1999 Year in Review Extended Enterprise Applications Application Service Providers ASP Professional Consulting ProjectBased IT Services Firms IT Staff Augmentation IT Services Beyond 2000 o Mergers amp Acquisition Analyses tor the IT Services Industry 0 Case Studies of Business Owners who Have Recently Sold their IT Services Firms 0 Industry News amp Events If D CherryTree if 10 Customized investment bankingfor 1T services firms Centennial Lakes Office Park 7601 France Avenue South Suite 150 Edina Minnesota 55435 Voice 9528939012 FaX19528939036 iniocherrytreecocon1 e3939393939 233 ie e 2000 Cherry Tree amp Co