IDC MarketScape: Worldwide Manufacturing Configure, Price, Quote Applications 2017 Vendor Assessment

April 2017, IDC #US41156617e IDC MarketScape IDC MarketScape: Worldwide Manufacturing Configure, Price, Quote Applications 2017 Vendor Assessment Heather Ashton THIS IDC MARKETSCAPE EXCERPT FEATURES IBM IDC MARKETSCAPE FIGURE FIGURE 1 IDC MarketScape Worldwide Manufacturing Configure, Price, Quote Applications Vendor Assessment Source: IDC, 2017 ©2017 IDC #US41156617e 2 IN THIS EXCERPT The content for this excerpt was taken directly from IDC MarketScape: Worldwide Manufacturing Configure, Price, Quote Applications 2017 Vendor Assessment (Doc # US41156617). All or parts of the following sections are included in this excerpt: IDC Opinion, IDC MarketScape Vendor Inclusion Criteria, Essential Guidance, Vendor Summary Profile, Appendix and Learn More. Also included is Figure 1. Please see the Appendix for detailed methodology, market definition, and scoring criteria. IDC OPINION This IDC study represents the vendor assessment model called IDC MarketScape. This research is a quantitative and qualitative assessment of the characteristics that explain a vendor's success in the manufacturing configure, price, quote (CPQ) applications marketplace and help assess current and anticipated performance in the marketplace. This study assesses the capabilities and business strategy of 12 key vendors with robust suites of CPQ applications used by manufacturing companies to support the sale of complex products and services. This evaluation is based on a comprehensive framework and a set of parameters expected to be most conducive to success in providing an integrated approach to configuring, pricing, and quoting manufactured equipment and services in both the short term and the long term. The criteria used in the IDC MarketScape for CPQ (and the resulting positions in Figure 1) are across dual dimensions of strategies (future plans and where the vendor is headed) and capabilities (where the vendor is today in terms of applicable capabilities). Each of the elements within strategies and capabilities is then assigned a weighting based on the relative importance of each criterion in the opinion of IDC Manufacturing Insights and feedback from manufacturing users. This IDC MarketScape is a starting point for manufacturers that are considering an integrated approach to configure, price, quote across product lines, geographies, and channels. The vendors included represent a "short list" in an effort to winnow down the long list of application providers, both large and small, that exist in the marketplace. The document does not replace the due diligence that companies must then complete to evaluate which vendor is the best fit for their particular needs and circumstances. Key findings include:  CPQ, as defined in this document, is an enterprise software application that brings together a number of activities needed to help customers (whether consumers or businesses) configure, accurately price, and receive quotes for complex engineer-to-order (ETO), make-to-order (MTO), and assemble-to-order (ATO) products and the associated services that support the products once they are in the customer's environment.  While all 12 vendors included in this IDC MarketScape bring notable capability to the space, their approach varies across the subcategories of capabilities and strategies. The vendors are Apttus, Callidus Software, Cincom, Configit, Experlogix, IBM, Infor, Oracle, PROS, Salesforce, SAP, and Tacton.  The 12 vendors represent a range of approaches to CPQ. IBM, Infor, Oracle, and SAP, for example, provide CPQ capabilities within a much broader set of quote to cash, with a foundation in enterprise resource planning (ERP).  Other vendors view CPQ as part of a broader revenue optimization strategy, or a contract life- cycle management approach, or a configuration life-cycle management approach to product ©2017 IDC #US41156617e 3 management. These nuances are important to note as manufacturers evaluate the various offerings.  Also notable is the role that the cloud is playing in current CPQ deployments. Some of the 12 vendors are cloud natives, others offer several deployment options, while still others are in the process of rearchitecting their applications for the cloud. IDC MARKETSCAPE VENDOR INCLUSION CRITERIA Applications support product configuration, pricing optimization, and quote management abound in the broader enterprise application market. They often are part of more extensive sales enablement, revenue management, or quote-to-cash platforms. As this market continues to develop, there has been a natural affinity toward bundling configure, price, and quote capabilities together for the obvious purpose of streamlining processes and facilitating the flow of information. The intent of this IDC MarketScape is to focus on those applications that contain at least all three capabilities: configure, price, and quote. Many of the applications contain more capabilities than the aforementioned ones, but that was not part of the evaluation process. Therefore, the inclusion criteria for this IDC MarketScape were as follows:  Provide a "configure, price, quote" application that can be sold separate from any other applications, platforms, or solutions your company offers  Have the ability to support complex product configurations in an ATO, MTO, or ETO situation  Have added at least five new manufacturing clients for your Configure, Price, Quote application in the past 12 months  Supports manufacturing companies with revenue of $100 million or greater  Have revenue related to CPQ of at least $5 million ESSENTIAL BUYER GUIDANCE Configure, price, quote applications are increasingly central to manufacturers' efforts to more closely align product availability and production capacity with sales efforts, especially for products that are engineer to order, make to order, and assemble to order. The complexities of correctly forecasting delivery of customer orders in these situations require visibility across sales and production, two functional areas within a company that are often separate. In an effort to increase customer centricity and deliver increasingly customized and tailored products to customers, manufacturers are investing in sales enablement tools that facilitate the ordering of everything from laptops to fire trucks and can extend to support a variety of sales models, from direct to channel based and from online to in person. Many manufacturers interviewed as part of this research stressed the importance of having a "single source of truth" for product configurations and customer orders, and often this was a major driver in selecting a CPQ application. For manufacturers that are evaluating CPQ applications to support their sales enablement efforts and deliver a tighter visibility between sales and production, we offer the following guidance:  Look at customer engagement, sales enablement, and production capacity holistically. Understand how tools like CPQ can be used to enhance the customer experience (CX) and set realistic expectations for product availability based on production capacity. ©2017 IDC #US41156617e 4  Align CPQ functionality with your sales model. If you are predominantly selling through channels, understand how a given CPQ application will support your channel and how easily it can be adopted by channel partners and what type of visibility it can provide you to better optimize sales forecasting and production capacity. If you are primarily selling direct, perhaps a CPQ tool that has more functionality in the revenue and price optimization arenas is desired as a way to improve your overall margins.  Create a cross-functional team that represents business and technical leaders. Look to users of the ultimate application to help define requirements, including sales representatives, production managers, and engineers, depending on how you intend to use the CPQ tool. IT is an important resource here because there is a critical need to integrate CPQ applications with CRM, PLM, ERP, and other enterprise systems of record to maintain the single source of truth.  Consider how CPQ applications fit into your enterprise cloud strategy. The vendors included in this evaluation have a range of cloud capabilities, and it is important to understand how that fits with your wider efforts and the ongoing maintenance and management of the CPQ application.  Understand what kind of customization is possible and how difficult it will be to manage. CPQ applications have historically been very expensive applications to maintain because of the intricate rules tables and constraint settings that power the configuration and pricing engines. Naturally, the more the customizations, the more the expense. Therefore, if you must take the path of customizing an application, be sure you have the internal capabilities to support it and understand the ongoing costs. VENDOR SUMMARY PROFILES This section briefly explains IDC's key observations resulting in a vendor's position in the IDC MarketScape. While every vendor is evaluated against each of the criteria outlined in the Appendix, the description here provides a summary of each vendor's strengths and challenges. IBM According to IDC Manufacturing Insights, IBM is positioned as a Leader in IDC MarketScape for worldwide manufacturing configure, price, quote applications in 2017. IBM (NYSE: IBM) is a globally integrated technology and consulting company headquartered in Armonk, New York. IBM has operations in more than 170 countries and 377,757 employees worldwide. Through a combination of internally developed and acquired technologies, IBM has created a portfolio of offerings and services for the customer life cycle, which it calls IBM Watson Commerce. IBM has made investments of over $3 billion in acquisitions to create this portfolio. IBM sells Watson Commerce and its other enterprise software and services through a combination of channels, with approximately 60–70% of direct sales. IBM provides product implementation and support services for approximately 30% of projects. The remainder is supported by a global network of systems integrators. IBM CPQ provides configure, price, and quote capabilities for global enterprises with sales teams requiring complex product configurations. It is part of IBM Watson Commerce to support omni-channel search, configuration, price, and quote both in self-service and sales-supported engagements. With IBM CPQ designed to enable centralized governance for configuration, pricing, and quotes, it supports local autonomy to reflect the uniqueness of particular geographies and divisions within a wider enterprise. IBM CPQ is tightly integrated with IBM Order Management and as such offers visibility into fulfillment, supporting a variety of common processes that drive quotes and order operations, including ©2017 IDC #US41156617e 5 real-time inventory availability, available-to-promise (ATP) configurations, complex sourcing rules, and scheduling constraints. The configuration engine generates a BOM that can be handed off to manufacturing. IBM CPQ is multidevice, enabled through responsive designs to support mobile field sales representatives as a standalone offering or through integration with any CRM application. IBM CPQ pricing engine is dynamic. Pricing can be controlled at various levels, including region, channel, customer, contract and business units. IBM CPQ is a three-tier web application made up of Database, App Server + Agent Server, and User Interface layers. IBM CPQ offers a variety of implementation models, including on-premise perpetual license (60% of customers), on-premise subscription (10%), and cloud based (30%). Strengths  The ability for IBM CPQ to enable centralized governance for global guidelines and rules, but allow downstream entities, such as a newly acquired company or a specific geography, to have custom governance enforcement as required; this is particularly advantageous for global manufacturers with a variety of sales channels  The integration of IBM CPQ with IBM Watson technology to support a variety of innovative use cases (such as cognitive guided selling and decision support) across the selling process  The global delivery and support network that IBM provides supports implementation for multinational companies Challenges  As part of the broader IBM Watson Commerce offering, CPQ receives less visibility than competitors that only offer CPQ applications. IBM would benefit from expanding the market presence of IBM CPQ, providing direct comparison to standalone offerings to win new market opportunities.  To overcome perception that the IBM CPQ offering is expensive and more complicated to implement, IBM should consider offering tools that facilitate adoption and rapid implementation. APPENDIX Reading an IDC MarketScape Graph For the purposes of this analysis, IDC divided potential key measures for success into two primary categories: capabilities and strategies. Positioning on the y-axis reflects the vendor's current capabilities and menu of services and how well aligned the vendor is to customer needs. The capabilities category focuses on the capabilities of the company and product today, here and now. Under this category, IDC analysts will look at how well a vendor is building/delivering capabilities that enable it to execute its chosen strategy in the market. Positioning on the x-axis, or strategies axis, indicates how well the vendor's future strategy aligns with what customers will require in three to five years. The strategies category focuses on high-level decisions and underlying assumptions about offerings, customer segments, and business and go-to- market plans for the next three to five years. The size of the individual vendor markers in the IDC MarketScape represents the market share of each individual vendor within the specific market segment being assessed. ©2017 IDC #US41156617e 6 IDC MarketScape Methodology IDC MarketScape criteria selection, weightings, and vendor scores represent well-researched IDC judgment about the market and specific vendors. IDC analysts tailor the range of standard characteristics by which vendors are measured through structured discussions, surveys, and interviews with market leaders, participants, and end users. Market weightings are based on user interviews, buyer surveys, and the input of a review board of IDC experts in each market. IDC analysts base individual vendor scores, and ultimately vendor positions on the IDC MarketScape, on detailed surveys and interviews with the vendors, publicly available information, and end-user experiences in an effort to provide an accurate and consistent assessment of each vendor's characteristics, behavior, and capability. Market Definition According to IDC's Worldwide Software Taxonomy, 2016 (IDC #US41572216, July 2016), CPQ falls under the sales automation applications subcategory of CRM applications. CRM applications automate the customer-facing business processes within an organization (i.e., sales, marketing, customer service, and contact center). Collectively, these applications serve to manage the entire life cycle of a customer (including the process of brand building, conversion of a prospect to a customer, and the servicing of a customer) and help an organization build and maintain successful relationships. Interactions in support of this process can occur through multiple channels of communication. Synopsis This IDC study presents a vendor assessment, through the IDC MarketScape assessment model, of vendors offering configure, price, quote (CPQ) application suites to the manufacturing industry. The IDC MarketScape model reviews both quantitative and qualitative characteristics that describe current market demands and expected buyer needs for professional services. The evaluation is based on a comprehensive and rigorous framework that assesses the offerings and capabilities that vendors are delivering to the market, what they have to offer relative to the other vendors in the assessment, and the key success factors expected to be the most significant over the short term and the long term. "Manufacturers are looking at configure, price, quote applications to enhance the customer experience, optimize the sales process, and create better alignment between engineering, sales, and production. While CPQ applications have existed for more than 20 years, the rise of the 3rd Platform has disrupted this market and created an opportunity for manufacturers to more closely align the configure-to-quote process with greater customer engagement leveraging innovation accelerators like cognitive learning, IoT, and augmented reality. We expect to see this market continue to expand in the coming years," according to Heather Ashton, research manager, Service Innovation and Connected Products Strategies, IDC Manufacturing Insights. About IDC International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make fact- based decisions on technology purchases and business strategy. More than 1,100 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries worldwide. For 50 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. 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