Vendor Rating Update: Compuware in Transition
23 July 2004
Theresa Lanowitz Debra Curtis Dale Vecchio
Source: Gartner
Note Number: VDR-23-1556
Compuware is evolving into an enterprise software company focused on the complete application life cycle. Such a major transformation will require an effective strategy, precise execution and time.
Promising
Compuware is making strides to evolve from a legacy mainframe-oriented company to a modern application life cycle solutions provider focused on delivering customer satisfaction. Compuware is a large company that has traditionally focused on point products, rather than long-term strategy, and it will take time to "turn the ship around" Customers should watch Compuware's evolution and realize that the changes the company is undertaking are positive.
Compuware is a vendor in transition. To complete its transformation into an enterprise software vendor, it must integrate recent acquisitions and execute with a vision for the future.
| Initiative | Rating | Change |
| Corporate Viability | ||
| Strategy | Caution | Up |
| Financial | Promising | No Change |
| Marketing | Promising | Up |
| Organization | Promising | Up |
| Market Offerings | ||
| Product/Service | Positive | Up |
| Technology/Methodology | Positive | No Change |
| Pricing Structure | Promising | Up |
| Customer Service/Support | ||
| Sales/Distribution | Promising | Up |
| Support/Account Management | Positive | No Change |
Compuware is a more than $1 billion company, with offices in 54 countries and approximately 9,300 employees. Compuware's largest asset is its installed base of more than 23,000 customers, which are primarily mainframe accounts. This large installed base generates considerable ongoing maintenance revenue; however, its mainframe customers have recently been almost forgotten, except for their maintenance revenue contributions. To counter this trend, Compuware announced in 2004 that it plans to provide more products for its mainframe-based customers to exploit emerging technologies, such as Web services and Java 2 Platform, Enterprise Edition (J2EE). At the same time, Compuware has stated that it's looking to increase its new software license revenue from distributed products to bring it even with that of its mainframe business.
Strategy
Compuware has traditionally been a company that provides products that reside on the mainframe, products for distributed systems, products for application development (AD) and products for technicians in IT operations groups. Compuware has recently begun to move beyond a product-centric orientation, embracing the concept of delivering application life cycle solutions throughout these stages:
Although still developing, this strategy is an important step for Compuware. It moves the vendor away from being a product-centric company and begins to focus on the alignment of IT with the business and the satisfaction of the business with IT's services. If Compuware succeeds in delivering on this message in a unified fashion, it will have the added benefit of moving higher into customer accounts and establishing communications with the CIO. The office of the CIO has responsibility for AD and operations, as well as understanding the necessary symbiotic relationship of the two sides of IT.
To solidify its position as a complete application life cycle provider, Compuware signed a definitive agreement on 28 April 2004 to acquire Changepoint, a vendor focused on IT governance. The Changepoint acquisition and its integration into Compuware's product strategy is intended to round out its application life cycle offerings by providing CIOs with visibility into the people, projects and processes in IT organizations.
Compuware has primarily built its product portfolio through acquisition; however, the Changepoint acquisition is different. Compuware typically buys software companies to fill gaps in its technology offerings, then continues to develop the acquired technology as individual point products, which are not necessarily strategically or technologically integrated. Changepoint represents Compuware's first acquisition in which it is taking a strategic approach. It will require a significant investment in process and product integration to be successful, and these have not been proven skills for Compuware.
Compuware has also acquired Covisint, a company that focuses on sharing business processes with suppliers and customers for the automotive industry. Although Covisint operates as a separate subsidiary, Compuware is expected to extract some of the processes used for collaboration among Covisint customers and use those in other Compuware offerings, such as the Compuware Application Reliability Solution (CARS) and QACenter. Although it must protect against being distracted from its core business by this new model, the Covisint acquisition demonstrates that Compuware is capable of thinking "outside the box" and shows that the company can participate in vertical markets in which it's strong.
Compuware's opportunities for the immediate and long-term future are twofold:
Compuware must continue to refine and execute its strategy. The company must align its many point products into the application life cycle categories it has defined as its focus areas and train its sales force to focus on solutions, rather than individual products.
Compuware has made significant strides in articulating and formulating a corporate strategy internally; however, to receive a rating of "promising" or higher, there must be significant evidence of this strategy filtering out to the field and its customers. If Compuware can evolve from being a point-product company and execute on its life cycle strategy, the company is capable of leveraging its mainframe heritage and becoming a vendor of choice for the application life cycle.
Financial
Compuware reported $1.26 billion in gross revenue for its FY04, which ended on 31 March 2004 — approximately 56 percent from products and 44 percent from services. This is a decline of 8 percent from FY03, and is off more than 40 percent from the peak of $2.2 billion for FY00. More than two-thirds of the $49.8 million net income for FY04 came in during the last quarter of the fiscal year, which may signal the beginning of a turnaround for Compuware.
For a software products company, Compuware gains a high percentage of its revenue from services. Most of this is from less-profitable staff augmentation contracts, rather than professional services. Compuware is attempting to move away from the staff augmentation business, but must lay out a plan to do this and structure the company in alignment with the accompanying revenue decline. The fact that service revenue has been steadily coming down from the high of $1 billion (53 percent of total revenue) in FY01 to $560 million (44 percent of total revenue) in FY04 may be bad news from a total revenue perspective, but it indicates that Compuware is moving in the right direction.
FY04 product revenue was flat compared to 2003, finally putting an end to the steady decline that had taken place since the peak in 2000. Revenue from distributed products grew 16 percent over FY03, while mainframe products revenue declined 5 percent. Thus, Compuware has made some progress in reducing its dependence on mainframe software revenue, which now represents 75 percent of product revenue, down from the usual 80 percent.
In FY04, maintenance fees continued to make up a significant 58 percent of software product revenue (which was the same as FY03). The trend through the four quarters of FY04 shows improvement, with the proportion of maintenance fees decreasing from a high of 65 percent in the first quarter to a low of 51 percent in the fourth quarter. Although there is still a considerable way to go to return to the two-third license/one-third maintenance ratio seen in its pre-FY00 results, if Compuware continues this trend, the higher percentage of new software license revenue will mean an increased base for future maintenance fees.
Compuware's current cash and investment assets (which total approximately $767 million) and the absence of long-term debt make its financial position appear more promising. Compuware has used some of its cash reserves to make acquisitions and has greater execution flexibility in the future because it does not have to match its short-term revenue stream to debt commitments.
To receive a higher rating in the financial category, Compuware will need to stem its revenue decline and realize a higher portion of its revenue from distributed, rather than mainframe, software and new software license revenue, rather than maintenance and services.
Marketing
During the past 12 months, Compuware has come to realize that a unified marketing strategy is important and has begun to take steps to create a Compuware image. In 2003, Compuware resumed print advertising. Targeted advertisements in technology publications are intended to establish vendor credibility in four main areas: Java, QA, application performance and the overall company image. These print ads are important both internally and externally. Internally, Compuware is able to communicate to its employees what the company stands for — an important step forward from its point-product history. Externally, the ads make customers aware of what Compuware is today — after having been perceived by the market as exclusively a provider of mainframe software.
Partnerships have become more of a focus for Compuware. Although the partnerships it has formed with Microsoft, Sun Microsystems, SAP and Oracle are not exclusive, they are important. They show Compuware's willingness to work with other companies and demonstrate that the vendor is moving away from its isolationist mentality. Compuware must continue to foster and build relationships with complementary vendors to deliver broad and compelling solutions. A successful example of Compuware's partnering strategy is in Microsoft's recent announcement of Visual Studio 2005 Team System. Compuware demonstrated at Microsoft's Tech Ed Conference how products from the two vendors work together symbiotically. Compuware bested its competitors by making the relationship with Microsoft public and demonstrable.
Compuware is a large company, and change will occur gradually. However, the evolution that occurred in 2003 has changed the vendor's course. If Compuware can continue to develop its marketing strategy, trust its strategic marketing executives and execute, it will not be relegated to the category of "legacy vendor only."
Organization
Compuware is a publicly traded, global company, headquartered in Detroit, Michigan. Founded in 1973, it had its initial public offering in 1992. Peter Karmanos, Jr., a co-founder of Compuware, is the chairman of the board and CEO. Mr. Karmanos is actively involved in the day-to-day operations, as well as the strategic direction of Compuware.
During the past year, Tommi White, Compuware's COO, has exerted her influence and career experience in beginning to make Compuware more visible and attractive to "C-level" executives. Prior to joining Compuware, Ms. White was a C-level executive at one of Compuware's customers. She brings a new "outsider" view to Compuware and is able to leverage her previous experience to effectively communicate with customers. Compuware can make significant strides with C-level customers through the use of executive staff of this caliber. Her personal efforts need to be scaled out for use by the company's field sales force.
Another recent example of Compuware's progress in organizational structure is that Dan Schoenbaum, vice president of strategy, now reports directly to the CEO. The creation of a strategy position at the executive level is the first step in making Compuware more of a market-driven organization. Ideally, Compuware will have a peer reporting structure of chief marketing officer, responsible for marketing strategy; chief technology officer, responsible for product technology; and a senior sales vice president, responsible for execution of the strategy and product penetration to the market.
Software vendors are typically viewed as market-, technology- or sales-driven. Compuware is a sales-driven organization, which is a vestige of its genesis as a professional services company. Sales-driven organizations have the following attributes:
Compuware must attempt to become more market- and technology-driven, while retaining the positive aspects of a sales-driven organization.
Products
Compuware has a history of delivering point products to the market, along with strong customer service. It is in the process of aligning its point products into three application life cycle categories:
Application and Driver Development: Products in this category include OptimalJ, Uniface and the DevPartner family. These development and integration products are intended to help improve application quality and shorten the time needed to deliver applications. The application products work in tandem with Compuware's QA products. An example of the product synergy is that between DevPartner Studio and the QACenter product family. Developers using DevPartner Studio for white-box testing will deliver cleaner and higher-quality code to their QA counterparts. The QA organization may standardize on DevPartner Studio and use it as a basis for coding standards. The testing organization will be able to create better test cases and test scripts, knowing that coding standards are being enforced.
QA Testing: Compuware's QA products, including QARun, QACenter and Application Expert, are designed to automate the steps of application testing, providing comprehensive, repeatable and predictable results. In 2003, Compuware went back to its roots to deliver a comprehensive solution of people, process and products with its CARS product (see "CARS Drives Quality Applications"). CARS is rooted in the QA Testing unit of Compuware's product line; however, it spans IT governance to production. CARS improves application delivery through a disciplined approach by uniting the power of a methodology, technology and certified QA professionals to instill a consistent discipline across development, QA and operations.
With the launch of CARS, Compuware has made high-quality application delivery an issue with which IT organizations must come to terms. IT executives are keenly aware of the issue of poor-quality applications and the costs incurred because of this problem. Compuware addresses these concerns and presents a compelling case for providing people, process and products to a business. It is beginning to proliferate the CARS offering with strategic partners, which is a strong move to make Compuware products more visible in the professional services market. The first of these strategic partnerships is with Sogeti, which gives customers the opportunity to use professional services and the TMap methodology from Sogeti with Compuware's technology. Customers should expect to see more partnerships from Compuware, especially in the area of CARS.
Performance and Fault Management: The Vantage product family is the backbone of Compuware's performance and fault management offering, intended to help identify and troubleshoot performance problems, manage service levels and plan for future growth. Compuware also positions the QACenter and Application Expert QA products in this production operations category. Vantage is the new brand for the distributed management products that were formerly sold under the EcoSystem name. A collection of point products, some of which arrived at Compuware through acquisition, Vantage addresses network, system, database, application and end-user performance management. It includes application profiling and network growth planning and prediction.
Compuware has made progress in marketing and demonstrating the Vantage products as an integrated suite, focusing on front-end visual integration and workflow. More work is needed to achieve a consistent configuration model, including application-to-IT infrastructure dependency mapping and actual back-end data integration and correlation.
Compuware's new approach of aligning products to a category of application life cycle solutions makes it easier for potential customers to see the breadth and depth of its offerings. Compuware has become more visible in the distributed market and must continue to develop its strategy and execute and advance its updated image. As Compuware absorbs the Changepoint acquisition, its product strategy will be bound by the concept of IT governance, which delivers insight and visibility to the CIO level. Successful integration and execution of the Changepoint acquisition will be a key focus area during the next eight to 12 months, and this should increase Compuware's visibility at the C-level of customer organizations.
Technology
Technology has seldom been an issue on the mainframe side of the business. Compuware customers have been using its mainframe tools for more than 15 years and are satisfied with the rate of enhancement and the depth and breadth of its offerings. Compuware has stated that it will be providing more new technology for its mainframe customers.
During the past 12 months, Compuware has consistently been considered for QA projects and tool decisions. Compuware's QA technology on the distributed platform delivers solid results. Upcoming releases of the QA technology will deliver addition innovation in the areas of test automation and risk-based testing. The evolution of the QACenter product line positions Compuware as a thought leader in QA.
Compuware’s Technology Organization’s Testing and Implementation Center has achieved Capability Maturity Model (CMM) Level 3 certification. This high level of CMM certification in the Testing and Implementation Center translates directly to benefits for customers of CARS.
Pricing
Compuware began providing its revamped price book to its customers in January 2003. This has been well-received by customers and adds credibility to its negotiations, especially for mainframe customers. However, it will take time to restore Compuware's contract negotiation reputation after years of pricing secrecy.
On distributed platforms, Compuware’s prices are often half of the market-leading competitor's prices. The tactic of lower pricing has been one of the subtle ways in which Compuware has become a strong competitor in the distributed market.
Sales/Distribution
Compuware's reorganization of its sales force has broadened the scope of individual account managers, reduced product specialization and improved customer/account focus. However, Compuware continues to have challenges in its distribution channels. Its previous direct sales model worked well for mainframe accounts, but doesn't provide assistance in expanding its distributed product market share. Although Compuware is now included in the portfolio of a number of value-added resellers (VARs), distributors and systems integrators (SIs), its products are generally not the lead offerings. This limits Compuware's ability to execute outside of mainframe accounts.
Despite Ms. White's individual efforts, Compuware's lack of visibility at its customers' C-level continues to be a problem, especially when competing with IBM or Mercury, both of which have succeeded in gaining access to senior executives. Most strategic decision makers will accept small product deficiencies for the more-significant benefit of dealing with a single vendor that can articulate an overall product strategy that conforms to customers' long-term directions. Compuware has not demonstrated an ability to compete in this realm and often offers point products, rather than a strategic, integrated life cycle suite.
The success of the Changepoint acquisition will directly affect Compuware's ability to build relationships with C-level executives. The notion of IT governance is a critical pain point for C-level executives who need to articulate what's happening with their IT assets. If Compuware's sales force can incorporate the IT governance message and use it to reach CIOs with tightly integrated, platform-independent, technology-rich offerings across AD, QA and production operations, it will help move Compuware from "promising" to "positive" in this category.
Support
Customers consistently rate Compuware's technical product support services highly. These products work well, and customers have experienced few severe technical difficulties. The mainframe mindset of customer service is evidenced in Compuware's customer support.
Compuware has been able to leverage the excellence of its Testing and Integration Center (TIC) throughout the organization. The TIC's processes are used to build products, as well as support customers. This is an example of a company using its own technology and processes internally to understand its customers' needs.
Company Information
Compuware Corp.
Headquarters: Detroit, MI
www.compuware.com
Acronym Key
| AD | application development |
| CARS | Compuware Application Reliability Solution |
| CMM | Capability Maturity Model |
| J2EE | Java 2 Platform, Enterprise Edition |
| QA | quality assurance |
| SI | systems integrator |
| TIC | Testing and Integration Center |
| VAR | value-added reseller |
Ratings Definitions
| Strong Positive | Solid provider of strategic products, services or solutions.
|
| Positive | Demonstrates strength in specific areas, but is largely opportunistic.
|
| Promising | Shows potential in specific areas; however, initiative or vendor has not fully evolved or matured.
|
| Caution | Faces challenges in one or more areas.
|
| Strong Negative | Difficulty responding to problems in multiple areas.
|