BEST PRACTICES RESEARCH

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1 2013 Frost & Sullivan 1 We Accelerate Growth

2 2013 EMEA Contact Center Systems Company of the Year Award Frost & Sullivan s Global Research Platform Frost & Sullivan has over fifty years of experience as a global research organization. Today, its 1,800 analysts and consultants monitor more than 300 industries and 250,000 companies. The company s research philosophy originates with the CEO s 360-Degree Perspective, which serves as the foundation of its TEAM Research methodology. This unique approach enables us to determine how best-in-class companies worldwide manage growth, innovation, and leadership. Based on the findings of this Best Practices research, Frost & Sullivan is proud to present the 2013 EMEA Company of the Year Award in Contact Center Systems to Interactive Intelligence. Significance of the Company of the Year Award Key Industry Challenges ICR systems accounts for the largest segment in the contact center systems market, being more than four times the size of any other segment; the fastest-growing segment is Analytics. As with the other two systems segments in the contact center market, IVR and outbound dialers (which often require large capital equipment outlays), the ICR systems market has been subject to stagnant or declining budgets for several years. Despite the challenges in EMEA, hosted solutions have gained traction. Some time ago, hosted contact center solutions were developed for basic contact center applications, such as IVR call direction, business continuity, directory assistance, and for ACDs on carriers hosted Centrex PBX services. Now, however, hosted solutions include ICR, IVR, Outbound, and agent performance optimization (APO) applications. All of these hosted solutions allow a company to receive the latest applications without high capital expenditures. But hosted service providers also market their ability to provide the latest applications and technology to customers much faster than their on-premise counterparts. And vendors also are benefitting from another trend in the Contact Center Systems market, organizations interest in driving increased customer satisfaction by providing multiple customer contact channels (beyond voice). Indeed, with companies growing more accustomed to leveraging the web to research and acquire goods and services; social media to talk about companies and products; mobile devices to access the web and social networking sites; and text, chat, or to contact a company, pressures are increasing to provide new avenues of contact through ICR systems. This has led to a balancing act of sorts for vendors as they continue to enhance their existing products, integrate between disparate systems from acquisitions, and add new functionality without pricing themselves out of the market Frost & Sullivan 2 We Accelerate Growth

3 Furthermore, additional challenges have come in the form of the changing role for the typical systems provider. Whereas the typical vendor always paid lip-service to being the trusted advisor to clients, the changing landscape of the consumer (digitally connected, social media-savvy, more demanding of personalized customer service) means vendors must get closer to their customers businesses. Vendors today are expected to engage with multiple stakeholders within organizations in order to assess the possibilities for new interaction channels, and to ensure that organizations have sound plans for adding onto their application environments, rather than just jumping on the latest trend. This consultative approach has been necessary to ensure that vendors installed customer base remains loyal as new customer-centric features and channels evolve. Moreover, vendors that help clients develop sound plans and budget for legacy system upgrades tend to be rewarded with loyal customers. Due to the industry-wide movement toward indirect sales channels, this consultative approach has extended to channel partners as well. In turn, Contact Center Systems vendors have had to strengthen the focus they have on channel partner programs, and the compensation strategies, education, and training integral to those relationships. Key Benchmarking Criteria for the Company of the Year Award For the Company of the Year Award, the following criteria were used to benchmark Interactive Intelligence s performance against key competitors: Growth Strategy Excellence Growth Implementation Excellence Degree of Innovation with Products and Technologies Leadership in Customer Value Leadership in Market Penetration Decision Support Matrix and Measurement Criteria To support its evaluation of best practices across multiple business performance categories, Frost & Sullivan employs a customized Decision Support Matrix (DSM). The DSM is an analytical tool that compares companies performance relative to each other with an integration of quantitative and qualitative metrics. The DSM features criteria unique to each Award category and ranks importance by assigning weights to each criterion. The relative weighting reflects current market conditions and illustrates the associated importance of each criterion according to Frost & Sullivan. Fundamentally, each DSM is distinct for each market and Award category. The DSM allows our research and consulting teams to objectively analyze each company's performance on each criterion relative to its top competitors and assign performance ratings on that basis. The DSM follows a 10-point scale that allows for nuances in performance evaluation; ratings guidelines are shown in Chart Frost & Sullivan 3 We Accelerate Growth

4 Growth Strategy Excellence Growth Implementation Excellence Degree of Innovation with Products and Technologies Leadership in Customer Value Leadership in Market Penetration Weighted Rating BEST PRACTICES RESEARCH Chart 1: Performance-Based Ratings for Decision Support Matrix This exercise encompasses all criteria, leading to a weighted average ranking of each company. Researchers can then easily identify the company with the highest ranking. As a final step, the research team confirms the veracity of the model by ensuring that small changes to the ratings for a specific criterion do not lead to a significant change in the Best Practice Award Analysis for Interactive Intelligence The Decision Support Matrix, shown in Chart 2, illustrates the relative importance of each criterion for the Company of the Year Award and the ratings for each company under evaluation. To remain unbiased while also protecting the interests of the other organizations reviewed, we have chosen to refer to the other key players as Competitor 1 and Competitor 2. Chart 4: Decision Support Matrix for Company of the Year Award Measurement of 1 10 (1 = lowest; 10 = highest) Award Criteria Relative Weight (%) 20% 20% 20% 20% 20% 100% Interactive Intelligence Competitor Competitor Frost & Sullivan 4 We Accelerate Growth

5 Criterion 1: Excellence in Growth Strategy While revenue in 2012 increased 12% in EMEA to $47.7 million, it s important to note that the company was able to grow its premise-based market share while also offering Communication-as-a-Service (CaaS), a cloud/hosted solution, as an alternative for customers. Direct sales in EMEA increased dramatically from $5 million in 2011 to $20 million in At the same time, indirect sales from the company s partner network also registered robust growth. Interactive Intelligence sells directly and through its partner network of more than 300 value-added resellers worldwide. Its key partners include: Arvato (a division of Bertelsmann), Atea, Computer Sciences Corp., Dimension Data, Hitachi, IBM, Iwatsu, MTS Allstream, Newtel Essence B.V. (a KPN Company), Ronco Communications & Electronics, and TietoEnator. Interactive Intelligence and its partners also focus on insurance firms, accounts receivable management/collection firms, contact center outsourcers, banks, and credit unions. Currently, there are a total of 83 partners in EMEA for Interactive Intelligence s on-premise offering and three partners for its cloud-based offering. Out of the 83 on-premise partners, 63 are Elite partners, 15 are Referral partners and five are Premier partners. Interactive Intelligence is not overly dependent for its sales on any of its partners, as most of them contribute less than 10% of total sales. Indeed, while the company saw success in all six market segments, it grew in the three segments within which the majority of top tier competitors struggled: inbound, outbound, and IVR. Interactive Intelligence aims to achieve a deployment mix where the cloud offering makes up 50% or more of total product orders. In 2012, the company also has been growing in EMEA through both acquisitions and aggressive recruitment, namely Agori (a distribution company based in Germany), ATIO (a distribution company based in South Africa), and Brightware (a Value Added Reseller business based in the Netherlands). Criterion 2: Excellence in Growth Implementation Key players in EMEA were busy snatching each other s business as the Contact Center Systems market had an overall decline in EMEA in But it appears that Interactive Intelligence made inroads in EMEA (particularly in the UK) by offering a combination of on-premise and cloud-based offerings at competitive price points. The company s push into the cloud has been successful in EMEA largely due to the fact that companies in the region need to overhaul their complex, multi-site Contact Center Systems environments. Criterion 3: Product and Technology Innovation Interactive Intelligence s application model was purpose-built from the ground up, and it is an all-in-one, integrated model that has allowed the company to steadily add functionality through regular service updates and major releases. CIC Release 4.0, introduced in 2010, 2013 Frost & Sullivan 5 We Accelerate Growth

6 with general availability in late 2011, was a major release for the company, addressing core ease-of-deployment and scalability issues. Interactive Intelligence also has created one of the most competitively featured platforms in the market. In addition to internally developing all six contact center segments, for both premise-based and hosted deployments, CIC also includes SIP-based switching, unified communications capabilities, response, knowledge-based management, and business process automation capabilities. All this has enabled customers to derive value across the enterprise through the integration of contact center and broader enterprise applications. As a core function of ICR routing is undergoing a rapid change and Interactive Intelligence understands the importance of being at the cutting edge. Routing policies specify the assignment of jobs to agents (voice calls, s, chats, social media interactions, and faxes). These policies are important because they have the potential to increase the efficiency of resource usage. Job routing policies usually consist of two parts: agent selection and job selection. Agent selection denotes the way that arriving jobs are assigned to the agents. This usually happens immediately after an arrival. Job selection denotes the selection of a job being assigned to an agent, either directed by the system or chosen by the agent. This often occurs immediately after an agent completes a job (assuming that there is a job present in queue). In general, routing enables contact centers to reduce resolution times, the sum of waiting time and service time. This is because specialists often work faster than cross-trained agents. Maximizing the number of jobs handled by specialists decreases the average service time of a customer. Meantime, s, chats, social media interactions, and faxes are complicating the determination of staffing levels in contact centers because the workload of these nonvoice channels (e.g. fax, ) need to be taken into account. Pre-empting is relatively simple because the staffing levels associated with voice calls can be calculated independent of non-voice interactions, and the expected idle times can be allocated to non-voice channels. Criterion 4: Leadership in Customer Value One way that Interactive Intelligence has provided leadership in customer value has been through the addition of CaaS; indeed, this is one of the very few companies that can offer hosted and premise-based deployments while allowing customers to move back and forth between the two. A customer has the choice to use overflow from their premise CIC system and move to CaaS, or they can start on CaaS and use CIC. CaaS also is configurable to a range of different deployment models. For example, the company s hybrid Local Control model keeps all voice traffic, recordings, and sensitive 2013 Frost & Sullivan 6 We Accelerate Growth

7 customer data within the customer s network. Only the CIC software sits on Interactive Intelligence s servers. This particular model is being embraced by large, mission critical contact centers and those that have stringent security, regulatory, and compliance requirements. Moreover, in 2012, Interactive Intelligence has provided leadership in customer value to reduce the total cost of ownership of its systems. In addition, the company has continued to add innovative features onto its core systems, and in emerging areas within the contact center, such as the addition of social media integration and Proactive Customer Contact (PCC). Interactive Intelligence has led the way in this realm by working closely with customers to understand what best practices should be integrated into traditional contact centers with newer capabilities. Fueled by this knowledge, Interactive Intelligence has helped customers position the contact center as a vital part of the customer s overall enterprise, rather than a mere cost center, oftentimes more effectively than much of the competition. Frost & Sullivan believes that the relation between staffing levels and the total productivity of a contact center fluctuates in practice and is becoming a big headache for increasingly multi-channel contact centers. Often there is a deviation between the number of agents available according to the system and the number of scheduled agents. The reason is that agents are not fully productive during the whole day. Agents usually have several interruptions in the form of breaks and meetings. The impact of these shrinkage factors can be significant. Taking account of interruptions like breaks and meetings will go a long way toward helping Interactive Intelligence s customers meet their service-level agreements. Criterion 5: Leadership in Market Penetration Interactive Intelligence has made positive inroads in growing market share in all contact center systems and hosted ACD and APO segments. In a tough market, Interactive Intelligence gained market share overall, and grew share in ICR, one of the hardest hit of the contact center systems segments. Conclusion Over these past few years, there has been a distinct trend in the direction of virtual contact centers. Rapid developments in telecommunications (e.g., fast Internet connections and protocols) and in computer technology (e.g., powerful automatic call distributors) have made it possible to bring employees from different locations together virtually. The movement toward virtual contact center environments will continue as more agents log on to a system from home. Meanwhile, while the telephone remains the primary mode of communication at call centers, other channels such as , chat, social media, and fax are becoming more popular Frost & Sullivan 7 We Accelerate Growth

8 It s within this context that developing innovative, attention-grabbing customer engagement solutions has become the hallmark of Interactive Intelligence since its founding in The firm has set an innovative course that its competitors have followed, and in so doing the company has achieved considerable success in the marketplace. As it continues to develop its CIC platform, delivered in the cloud as well as through premise licenses, Frost & Sullivan looks forward to watching its continued progress. For these reasons Frost & Sullivan recognizes Interactive Intelligence with the 2013 EMEA Contact Center Systems Company of the Year Award. The CEO 360-Degree Perspective TM - Visionary Platform for Growth Strategies The CEO 360-Degree Perspective model provides a clear illustration of the complex business universe in which CEOs and their management teams live today. It represents the foundation of Frost & Sullivan's global research organization and provides the basis on which companies can gain a visionary and strategic understanding of the market. The CEO 360-Degree Perspective is also a must-have requirement for the identification and analysis of best-practice performance by industry leaders. The CEO 360-Degree Perspective model enables our clients to gain a comprehensive, action-oriented understanding of market evolution and its implications for their companies growth strategies. As illustrated in Chart 3 below, the following six-step process outlines how our researchers and consultants embed the CEO 360-Degree Perspective into their analyses and recommendations. Chart 3: How the CEO's 360-Degree Perspective Model Directs Our Research 2013 Frost & Sullivan 8 We Accelerate Growth

9 Critical Importance of TEAM Research Frost & Sullivan s TEAM Research methodology represents the analytical rigor of our research process. It offers a 360-degree view of industry challenges, trends, and issues by integrating all seven of Frost & Sullivan's research methodologies. Our experience has shown over the years that companies too often make important growth decisions based on a narrow understanding of their environment, leading to errors of both omission and commission. Frost & Sullivan contends that successful growth strategies are founded on a thorough understanding of market, technical, economic, financial, customer, best practices, and demographic analyses. In that vein, the letters T, E, A and M reflect our core technical, economic, applied (financial and best practices) and market analyses. The integration of these research disciplines into the TEAM Research methodology provides an evaluation platform for benchmarking industry players and for creating high-potential growth strategies for our clients. Chart 4: Benchmarking Performance with TEAM Research About Frost & Sullivan Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth and achieve best-in-class positions in growth, innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined research and best-practice models to drive the generation, evaluation and implementation of powerful growth strategies. Frost & Sullivan leverages 50 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 40 offices on six continents. To join our Growth Partnership, please visit Frost & Sullivan 9 We Accelerate Growth

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