Markets, D. Hope-Ross, J. Woods Research Note 14 March 2003 Strategic Sourcing Magic Quadrant Criteria: An Explanation A new Gartner Magic Quadrant for strategic sourcing applications is being introduced. Several evaluation criteria are used to determine vendor placement in the Magic Quadrant. Core Topic ERP II, Supply Chain & Manufacturing: ERP II Strategies, Applications and Technologies Key Issues How will SCP and SCE technology and architectures evolve? How will ERP II vendors and markets evolve? We are introducing a new Magic Quadrant for strategic sourcing applications vendors (see "Strategic Sourcing Applications Magic Quadrant Emerges"). Users and vendors frequently request detail on the criteria we use to map Completeness of Vision and Ability to Execute, so we provide this here. Evaluation Criteria Gartner evaluates vendors on an array of quantitative and qualitative criteria, rolled up into two combined scores based on Ability to Execute and Completeness of Vision, which are then plotted on the Magic Quadrant. Because the market is changing and maturing, evaluation criteria will evolve over time in step with our view of changing market requirements. The attributes are scored individually, and a relative weight is assigned to each area. The information that underlies this scoring is gathered through vendor interviews, vendor questionnaires, ongoing client inquiries, reference checks and feedback on market requirements. The Ability to Execute score includes ratings on the strength of corporate management; the vendor's offering in terms of execution, including service and support and partnerships (see Table 1) functionality (see Table 2), technology (see Table 3); the vendor's overall stability and viability. The offerings are rated on product breadth and maturity, as well as customer satisfaction. Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.
Criteria Revenue Profitability Balance Sheet Professional Services Vertical and Category Support Geographical Support Sales and Marketing Table 1 Execution Description Revenue growth should be equivalent or better than market expansion (or contraction) rate. Strategic sourcing license revenue should exceed $5 million or total revenue should exceed $5 million. Vendors should demonstrate positive cash flow or stable/diminishing losses. Vendor should demonstrate serviceable debt and adequate cash reserves. Vendor should support an ecosystem of service providers to provide distribution/sales channel, technical and process implementation services via large and niche external service providers. Vendor can provide clear delineation of service responsibilities and strategy for eliminating channel partnerships. Vendor has moved beyond opportunistic expansion and strategically selected specific item/service categories based on targeted industry sector. Vendor maintains sales, service and support, and partnership ecosystem in selected geographies. Vendor has dedicated development resources necessary to create local versions or global capabilities necessary for multigeography sourcing. Vendor sustains a sales force and marketing campaigns capable of articulating compelling value propositions and differentiation. Source: Gartner Research (March 2003) 14 March 2003 2
Functional Criteria Strategy Development Spend and Supplier Analysis Supply and Market Discovery Table 2 Functionality Description Vendor is able to support multiple phases of strategy development, including cost modeling, analytic support, and interchange and output. Vendor is able to support purchase transaction line-item data extraction, data cleansing and normalization, and manipulation. Vendor is able to support connection to multiple sources for discovery of communities of supply or specific items. Requirement Specification & Interaction Management Basic Tendering Vendor is able to support tendering process, structured negotiation, including auction and conduct analysis of award. Contract Generation and Administration Internal Workflow and Permissions Operations Process Integration Program and Category Management Administration and Operations Oversight Other Functionality Vendor is able to support post-"commercial negotiation" processes and create "hand offs" to transaction execution systems. Vendor is able to support propagation of material sourcing business events among relevant stakeholders and applications. Vendor is able to support integration of sourcing processes into multiple, relevant business processes, such as collaborative planning or design engineering change orders. Vendor can provide functionality to support "cradle to grave" sourcing cycles for given categories. Vendor provides reporting and administrative capabilities necessary to understand performance of professionals, workload analysis. Sourcing is a diverse field, and can benefit from a wide variety of capabilities that may not be reflected in other categories. Source: Gartner Research (March 2003) 14 March 2003 3
Functional Criteria Architecture Supplier-Side Functionality Structured Product Data Table 3 Technology Description Product demonstrates ability to interoperate with other systems. Product has demonstrated scalability in complex environments. Product provides supplier-facing functionality necessary to meet the objectives of the buying organization. These should range from the highly collaborative for complex project environments to coercive for multiple reverse auction formats. Product provides support for the organization of categories of goods and services in prepackaged, standard or customer-created product schema for the analysis or discovery of suppliers, goods and services. Source: Gartner Research (March 2003) The Completeness of Vision score is based on an offering's value proposition, its product and technology vision, its growth plans and its fit into enterprise sourcing operations. We rate not only an offering's likely development in functionality, service and support, but also how the vendor plans to keep the offering viable in a challenging marketplace (see Table 4). 14 March 2003 4
Cost Functional Expansion Integration Service and Support Extraenterprise Sourcing Functionality Technology Viability Table 4 Vision Vendor demonstrates understanding of competitive environment and enterprise willingness to pay. Vendor proactively addresses desire for enterprises to manage initial and ongoing costs. Vendor can demonstrate commitment to select vertical industries or associated categories, along with a clear strategy for functional expansion. Vendor has domain expertise required for expansion of application logic. Vendor demonstrates understanding of the role of sourcing among multiple applications, including transaction processing procurement applications, design and engineering applications, and analytics. Vendor has viable long-term plan to address varied service and support requirements, including those related to ongoing technical service and support, implementation and ad hoc services related to sourcing specific categories. Vendor's plans for service delivery minimize channel conflict. Vendor recognizes the need to compensate for the technical limitations of suppliers. Vendor has clear and viable plan to enable buying organizations to meet their objectives in this environment. Vendor must be able to demonstrate the ability to meet current and future architectural needs of users. Vendors must demonstrate that the architectural components and interface technologies will be efficient choices for the future direction of end-user enterprises. The vendor must demonstrate that it will remain financially viable for the next three years. Vendor must demonstrate that the product will remain strategically important and relevant to the vendor for the next five years. Source: Gartner Research (March 2003) 14 March 2003 5
Criteria for Including a Vendor in the Strategic Sourcing Magic Quadrant To be included in Gartner's Magic Quadrant analysis, a vendor's product must have a credible vision for strategic sourcing in large enterprise sourcing environments, and must meet at least one of these criteria: Significant Enterprise Software Presence Total revenue must exceed $5 million. Note that this is substantially smaller than other Gartner Magic Quadrant requirements, reflecting the early state of the market. Significant Sourcing Application Market Presence Strategic sourcing revenue (license and services associated with packaged implementations) must exceed $5 million. This amount will likely be raised in future Magic Quadrant updates as the market expands Unique Vision, Visibility or Capabilities A vendor's unique vision, visibility or capabilities in the marketplace can warrant inclusion if Gartner believes that the vendor's position should be highlighted in the market. Examples might include unique optimization capabilities, service delivery or data quality capabilities. Customer Interest A large number of Gartner client inquiries regarding a vendor or its products. Magic Quadrant Positioning: Ability to Execute represents our view of how well a vendor performs today. (Please note that current performance is based on the broader set of criteria established here, not on the maturity of an application or commercial success in this market.) Completeness of Vision is our view of how well a vendor will do in the future, based on its performance at preparing for where a market is headed. Magic Quadrants are meant to provide an understanding of vendor positioning and to set performance expectations for providers. We describe the four quadrants as: Leaders: Execute well today and are positioned well for tomorrow. Visionaries: Understand where the market is going or have a vision of changing market rules, but do not yet execute well. Challengers: Execute well today and may dominate large segments in the future, but are not "in synch" with the market's direction. 14 March 2003 6
Note 1 Achievement Milestones Market evolution will require vendors to undertake specific measures to achieve mileposts necessary to secure their future in this market. As yet, no vendors have completed key steps such as: Securing a large and committed installed base to slow customer churn and create strategic commitment Developing and proving incremental functionality needed to provide broader functionality in spend analysis, decision support, workflow, knowledge management, project management, program management, supplier scorecarding, category management and cost management/forecasting. Creating support for and interoperation with other supply-facing applications, such as product definition, contract management, requisition management, purchasing, accounts payable, and materials requirement planning/supply chain planning Changing application architectures that support behind-the-firewall implementations. This requires the creation of software supported by morecomplex forms of integration (including the use of message-oriented architectures), customization/configuration, system administration and maintenance, and end-user documentation The addition of industry- or itemspecificity and departure from highly generic solutions Sustaining an ecosystem of partners capable of providing indirect sales and service channels or complementary functionality. "Best of breed" vendors face the challenge of fending off incursions from enterprise resource planning (ERP) II giants marketing their corporate stability and lower "total cost of ownership" ERP II vendors face the challenge of getting early adopters live on solutions in the short term and delivering integrated solutions in the long term Demonstrating global deployments Vendors achieving these milestones may become candidates for movement into the Leaders or Challengers quadrants. Niche Players: Focus on a segment of the market and do it well, or are unfocused and do not outinnovate or outperform others. To date, no vendors have achieved the milestones necessary to be "Leaders" or sufficient market momentum to declare them "Challengers," At the present time, no vendor has the required combination of corporate stability, maturity of solutions or customer implementations necessary to propel them into Leader or Challenger status (see Note 1). Niche Players are characterized by one or more of these criteria: A customer base with short-term commitment and delivery that requires services, including hosting Narrow functional presence or limited commercial success of current products Fewer financial and human resources available for research and development, sales and marketing efforts due to smaller size or limited corporate focus on sourcing Visionaries are characterized by: A customer base with long-term commitments, including perpetual licenses and large sunk costs Functionality that goes beyond structured negotiation, as well as flexibility of delivery mechanisms, including platform independence and "behind the firewall" implementations Larger financial, human and technical resources, coupled with salable products Rapidly accelerating sales based on delivery to customer requirements The Strategic Sourcing Applications Magic Quadrant does not represent all offerings in the market. Some vendors are not included in the Magic Quadrant because they do not meet the criteria we have listed, have limited market presence, were not able to furnish required information or some combination thereof. Inclusion in or exclusion from the Magic Quadrant does not signify the presence or absence of an endorsement by Gartner, as we do not endorse vendors. The ratings are based on Gartner's research on providers if a vendor meets the relevant criteria, it is included in the Magic Quadrant. There are vendors that have been excluded from the Magic Quadrant, but may still support enterprise strategic sourcing environments. Vendors with strategic sourcing capabilities not included in this Magic Quadrant include Agile Software, Austin-Tetra, Diligent Software Systems, D&B, Commerce One, Fogbreak Software, 14 March 2003 7
Manugistics, Matrix One, MRO Software, Perfect Commerce, Softface, Tigris and Zeborg. Bottom Line: Vendors have developed strategic sourcing applications in response to market demand for tools to assist enterprises in procurement across a wide range of categories of goods and services. Selecting the appropriate solution is an important part of the transformation process. Our Strategic Sourcing Magic Quadrant can assist enterprises with their selections. This selection will be most effective for enterprises that study and understand the evaluation criteria. 14 March 2003 8