Summary
IBM unexpectedly announced its intent to acquire Varicent and add its sales performance management applications to the IBM Business Analytics group. SPM applications help sales management, operations and sales personnel improve the efficiency and effectiveness of sales. The importance of dedicated applications to support sales is growing. Our recent benchmark research found that 93 percent of organizations use spreadsheets to manage sales performance, and almost half (49%) said that reliance on them makes sales performance management difficult. Since IBM had no dedicated applications for sales, the Varicent purchase is a strategic one. It also means that Varicent’s peer competitors now are potential acquisition targets by large companies that want to compete with IBM in this market segment; this includes Oracle, salesforce.com, SAP and even Microsoft. While tracking acquisition activity involving dedicated SPM providers, companies whose sales organizations manage performance with spreadsheets should investigate more robust sales performance applications such as Varicent’s.
Assessment
We assessed Varicent and its peers in our 2012 Value Index for Sales Performance Management, where it ranked in the top range of Hot vendors. Its core set of applications are in variable sales compensation and incentives, channel management, quota planning and territory management. Its 7.1 release was improved in the areas of workflow, mobility support, scalability and global expansion. Customers can choose to rent the software as a service or purchase and install it on-premises. Varicent customers are typically larger sales organizations.
Going forward, it will be important for IBM to understand the nuances of marketing, selling, servicing and developing applications for sales as Varicent has been doing for many years. If IBM wants to become more strategic in this category, it should use its analytics platform and technology to expand the applications. The first step should be to enhance sales forecasting and pipeline management, which currently is the application requested most often by sales organizations, according to our research on sales applications and technology. Next would be to expand and provide a dedicated application for sales analytics, since this was the second-most important request that our research uncovered. This expansion would include analytics and content covering customer performance, process and risk metrics for all sales processes. Analytics is the top technology trend for 77 percent of sales organizations, and almost two-thirds (64%) are planning to improve their sales analytics.
Another dimension is Finance’s increased involvement with the adoption of SPM, which our research found in more than one-quarter of organizations, the purpose being to acquire more insight into revenue and compensation. Since finance is a key area of offerings from IBM, this acquisition will complement its existing efforts.
Market Impact
Varicent’s acquisition by IBM means that other established SPM providers including CallidusCloud, Synygy and Xactly could become targets for companies seeking strategic entry into this market. All three companies were ranked as Hot vendors in our Value Index for their breadth and depth of support for sales management and operations. This contrasts with lower Warm Value Index ratings for the three largest players in this segment. Oracle has started expanding its application portfolio with Oracle Fusion CRM, but it is less progressive in SPM than it could be. SAP has yet to explore the full potential of SPM but recently expanded into cloud-based human capital management by acquiring SuccessFactors. Salesforce.com has resisted expanding its sales portfolio and has struggled to evolve sales forecasting applications and sales analytics. Any of these three companies could be the next to buy a dedicated SPM provider. Microsoft has not progressed in expanding sales applications and was partnering with Varicent, which IBM likely will continue to support and layer on top of Microsoft Dynamics CRM.
Recommendation
The Varicent purchase is part of IBM’s move to offer a comprehensive range of business applications in the enterprise software market. Its expansion into line-of-business areas such as sales is part of the company’s plan to build deeper customer relationships in the applications market. Varicent customers should not be concerned about the acquisition, and they may wish to investigate IBM’s other business analysis tools. At the same time, IBM customers who want to improve sales operations should examine what Varicent has to offer.