“Business Intelligence- the Missing Link”

Framing the IT Services Industry

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“Business Intelligence- The Missing Link”

July 2000

Customized investment banking for IT services firms Presidents, CEOs and CFOs of IT services firms look to Cherry Tree & Co. as their leading provider of in-depth industry information and customized investment banking services. Cherry Tree & Co.’s Web site at www.cherrytreeco.com puts this timely insight at your fingertips, allowing you to make the most strategic and well-informed business decisions for your company. Cherry Tree exclusively focuses on offering customized service to emerging private IT services firms. Should you wish to discuss growth options or the sale of your business under confidential terms, please call us at 952-893-9012 or e-mail us at [email protected].

Contents

Introduction 1 Definition of Business Intelligence 1 History of Analytical Tools 2 Introduction of Business Intelligence Tools 2 Status of Business Intelligence Tools 3 The Market for Analytical Applications 3 Strategic, Tactical &, Functional Benefits of Business Intelligence 4 Emerging Trends 4 Business Intelligence Software Vendors 6 Opportunities for Privately Held Firms 6 Conclusion 8

Appendices: 1. Ch e r r y Tree & Co. — IT Services Research Universe 10 2. IT Services — Structural Perspective 12 3. Traditional Business Intelligence Software Vendors 14 4. Merger and Acquisition Review 15 Introduction July 2000

"Business Intelligence - The Missing Link"

This Spotlight Report is Cherry Tree & Co.’s fourth research report analytical tools will become particularly critical to the ultimate for 2000 and our first in-depth analysis of Business Intelligence success of these initiatives. Consequently, IT services firms that are (BI) technology. This report is a special addition to our regular capable of delivering advanced analytical services will differentiate quarterly reports that are prepared and published by Cherry Tree & themselves from most of the e-business solutions providers, Co. Please see our Web site at www.cherrytreeco.com for addi- achieve high market valuations, and become attractive partners or tional research regarding Pure-Play e-Business Development, acquisition candidates. Extended Enterprise Applications, Application Service Providers This report will analyze the Business Intelligence market, its histo- (ASPs) and Professional Consulting. ry and evolution, and the emerging industry trends. We conclude We believe that as IT Services companies converge on e-business with potential strategies that private IT services firms may want to and extended enterprise opportunities, the need for Web-enabled consider to build or enhance their service offerings.

Definition of Business Intelligence

Business Intelligence (BI) applications are decision support tools that enable real-time, interactive access, analysis and manipulation of mission-critical corporate information. These applications provide users with valuable insight into key operating information to quickly identi- fy business problems and opportunities. Users are able to access and leverage vast amounts of information to analyze relationships and understand trends that, ultimately, support business decisions. These tools prevent the potential loss of knowledge within the enterprise that results from massive information accumulation that is not readily accessible or in a usable form. The desired outcome of BI projects is the continuous improvement of the organization through timely information that enhances decision- making. These systems enable the organization to become proactive and "information agile" by delivering information used to: • Support internal enterprise users in the assessment, enhancement and optimization of organizational performance & operation. • Deliver critical business information to end-users about value chain constituencies such as customers and supply-chain partners. A key feature of BI tools is the ease with which they access and synthesize strategic and operation information. BI is often times referred to as Online Analytical Processing (OLAP) or multidimensional analysis. Figure 1 provides two examples of the type of analysis that end-users can utilize to "drill-down" and "slice and dice" to gain a better understanding of transactional and operational information stored in legacy systems. As illustrated in the examples, users are able to perform customizable queries for specific issues. For instance, the multidimensional example provides sales information for Product C during January in the North region.

Figure 1. Examples of Business Intelligence Data Analysis Star Schema OLAP or multidimensional analysis Customer Age Category

Contact 1-15 Days Address 16-30 Days Region QUERY 31-45 Days District 46-60 Days Customer Jan. Product Age Category Product Period Period Time Feb. A Description Day of Week B $ Amount Class Week Mar. Product Sales Type Month C $ List Year North East South $ Standard

Geography

Source: Cherry Tree & Co. Research

1 www.cherrytreeco.com Cherry Tree & Co. Business Intelligence - The Missing Link History of Analytical Tools Over the last decade, organizations have consumed considerable However, these solutions were designed and reconstructed by the expense and resources building online transaction processing IT department, which often times lacked an understanding of the (OLTP) systems and Enterprise Resource Planning (ERP) systems. end-user’s specific needs. Furthermore, these solutions rarely The amount of accumulated information stored in data warehouses allowed for ad hoc analysis and were limited in the ways data could and data marts has reached staggering levels. be manipulated, viewed and analyzed. Finally, these solutions lacked user connectivity to different information resources. While these systems have significantly advanced the automation and organization of information, they have become "information Ultimately, these traditional systems failed to provide an integrated silos" offering minimal access and analytical capabilities for busi- and functional analytical tool for end-users, particularly for non- ness users. A study conducted by IBM identified that the typical technical business users. Traditional systems failed to satisfy the company utilizes only 2% to 4% of this stored data. need for business-level analytical capabilities for two primary reasons (see Figure 2). In the past, access to information systems required prior prepara- tion by database administrators and application developers. Traditionally, end-users utilized these isolated and non-integrated Unanticipated end-user access was rarely permitted. Customized applications for their analytical needs. This left organizations query/report writers, and standard spreadsheets, relational struggling to discriminate between reliable and accurate data databases and graphical applications were utilized for analytic pur- sources. poses. Data warehouses were also developed to meet these needs. Figure 2. Common Problems with Traditional Analytical Systems

Inaccessible Non-integrated Information Information

“Accessibility & Integration Void”

Source: Cherry Tree & Co. Research Introduction of Business Intelligence Tools Data warehouses and BI applications were introduced to play a medi- aspect of business. The latest introduction of Web-enabled BI solu- ating role and bridge the Accessibility & Integration Void created tions incorporates Internet portal technologies as a user interface. by customized, legacy solutions. BI tools extend the value of corpo- Newer technologies such as Enterprise Information Portals (EIPs) rate information through sophisticated analytical processing and further strengthen accessibility and the integration of information. rapid delivery and presentation of accurate information to executives, BI tools incorporate a wide range of available corporate information managers, analysts and other knowledge workers. These technolo- resources including data warehouses, data marts, transaction gies revolutionize the concept of the "information agile" corporation. processing applications and strategic applications such as ERP, With the development of e-business initiatives, e-business intelli- e-commerce and customer relationship management (CRM) applica- gence solutions are increasingly stressing the accessibility, timeli- tions. Figure 3 represents an example of the flow of information ness, and dynamic nature of information for virtually every integral from disparate information sources that users utilize to analyze data. Figure 3. Business Intelligence Flow Chart

Customers Marketing Data Mart Inventory BI Data Credit Warehouse Finance Data Mart

Sales Distribution Data Mart External

Operational Data Level Warehouse Analytical End-users (OLTP, ERP, legacy apps, Level Level external data) (Collect, cleanse, organize, (query, reporting, analysis) distribute) Source: Cherry Tree & Co.

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BI solutions work in conjunction with an enterprise’s systems, but systems are capable of integrating the complex inter-relationships are designed with the objective of disseminating reliable, mission- that exists between customers, suppliers and business partners. In critical information to users throughout the organization. BI the end, BI systems provide the underlying analytical engine by systems are designed to support all forms of business information, focusing on the access and delivery of business information to end not just data stored in large data repositories. Additionally, these users. Status of the Business Intelligence Market

To date, BI tools have been met with moderate success in the mar- cal tool. ketplace. Cherry Tree & Co. believes this is due to three primary • Internet Delivery Model. BI software vendors have been reasons: rapidly redefining core software solutions to accommodate Web- • Limited IT Budgetary Resources. It is clear that, over the past based interfaces, e-business analytics and next generation EIPs. several years, organizations were focused on building transactional These product realignments have caused a transitional period that and operational IT infrastructures and complying with Y2K-related has likely rippled throughout partner relationships. issues. This squeezed IT budgetary resources for the development As will be discussed later, Cherry Tree & Co. believes there are of next generation enterprise information systems. several market trends that suggest that Web-enabled BI tools will • Inability to Communicate BI Value Proposition. Part of the become increasingly important in the development of a complete problem is also due to the difficulty of clearly conveying a quantifi- corporate strategy and IT infrastructure. able benefit or ROI associated with an integrated enterprise analyti- The Market for Analytical Applications As shown in the Figure 4, the market for analytical applications is estimated to grow significantly over the next three to four years. The worldwide market for analytical applications is expected to grow at a compounded annual growth rate of nearly 30%, from $1.9 billion in 1999 to $5.2 billion in 2003.

Figure 4. WW Analytical Application Software Revenue

$6 $5.2

$5 $4.1

$4 $3.2

$3 $2.5 $1.9 $1.5 $2 (in billions)

$0 1998 1999 2000 2001 2002 2003 Source: IDC

The total potential market is significantly larger when taking into consideration backbone technologies such as data warehousing and implementation services associated with BI and data warehousing technologies. The U.S. market for packaged BI/data warehousing applications and supporting IT services is projected to grow at a compounded annual growth rate of roughly 40% and reach $22.2 billion by 2003 (see Figure 5).

Figure 5. U.S. Market Size for Business Intelligence & Data Warehousing Application & IT Services $25 $22.2

$20 $16.9

$15 $12.6 $9.1 $10 $6.4 $4.2 (in billions) $5

$0 1998 1999 2000 2001 2002 2003

Source : Survey.com 1999

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Strategic, Tactical & Functional Benefits of Business Intelligence

BI tools offer a strategic, tactical and functional framework to address business analysis needs across the entire organization. Figure 6 sum- marizes a few of the characteristics that influence the need for advanced analytical capabilities. While this is an oversimplification of the numerous benefits and analysis, it does provide an illustration of the value recognized throughout the organization. One specific example pointing to the value of increased analytical capabilities is the use of tools to evaluate marketing campaigns. Organizations are increasingly utilizing analytical tools in conjunction with CRM applications to improve the effectiveness of marketing campaigns. Again, these applications have broad implications throughout the organization and among multiple users, both within and out- side of the marketing function of the enterprise.

Figure 6. Strategic, Tactical & Functional Benefits of Business Intelligence Solutions

STRATEGIC Continuous Improvement of Decision-making Capabilities Used to Increase Revenues & Reduce Costs Assess, Evaluate & Optimize Business Operations & Relationships Better Tools for Knowledge Workers Leverage the Amount of Captured Transactional & Operational Data

TACTICAL Multidimensional Analysis Ad Hoc, Status Reporting & What-if Scenarios “Drill-down” & “Slice & Dice” Analytical Capabilities Intuitive User Interfaces

FUNCTIONAL

Sales Marketing Finance Operations HR IT

- Customer - Market & - Budgeting & - Operational - Workforce - Customer behavior customer planning efficiency planning & clickstream penetration optimization information - Sales force - Business - Production analysis - Marketing performance planning & - HR - Integration of campaign quality performance traditional - Cross-selling effectiveness - Financial control evaluations business & analysis consolidation e-business - Product & & reporting - Vendor - Compensation service life performance analysis cycle analysis analysis

Source: Cherry Tree & Co. Research Emerging Trends There are a number of trends in the marketplace that suggest that BI solutions will generate strong demand and play a larger role in the IT infrastructure and corporate information ecosystem. These market trends are shaping the way organizations communicate and interact with employees, customers, suppliers and business partners. Several of these trends that are already underway include the following: 1. Increasingly Competitive & Fast-paced Business Environment. Today’s business environment is much more competitive and dynamic than in prior years. Organizations have become decentralized, product/service life cycles have shortened, and the competitive environment is now viewed on a worldwide basis. Business enterprises prosper or fail according to the sophistication and speed of their responsiveness to changing market conditions. In this environment, organizations demand faster information synthesis and more sophisticated analysis. Furthermore, organizations are utilizing technology to unite operational execution to strategic objectives. The need for BI thus applies universally throughout the organization. BI solutions play a critical role in proactively responding to competitive market conditions and coalescing operational execution with high- level corporate strategy. 2. Development of E-Business & Extended Enterprise Applications. IDC projects the demand for e-business services will reach $78.6 billion in 2003, up from $7.8 billion in 1998. In addition, organizations are developing and extending new business relationships through strategic initiatives such as CRM and Supply Chain Management (SCM) technologies. These technologies have benefited from the reallo- cation of the IT budget from ERP and Y2K related expenditures to new business initiatives.

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Organizations are developing a congruent architecture that aligns business relationships with the supporting emerging technologies. This has added multi-layered complexities between companies, employees, suppliers, partners and customers. The end result is an enormous challenge managing and evaluating each of these relationships. The lack of analytical capabilities prevents decision-makers from truly exploiting the full potential of these new business structures. As a result, organizations require decision support tools that can respond with simultaneous queries against terabytes of information. BI tools unlock information previously embedded in legacy systems. These technologies improve the performance of e-business and extended enterprise applications by providing reporting and analysis against the rapidly expanding transaction and profile data that is collected each day through normal business processes. The focal point thus becomes the strategic use of information and continuous improvement of the process, rather than the accumulation of data. 3. Closed-loop Integration of Back- and Front-Office Information Systems. Closed-loop integration provides a unified architecture, whereby decisions are capable of being measured and evaluated over time for their effectiveness. In the end, a closed-loop environment provides a singular decision support tool that seamlessly combines navigation, analysis and evaluation of operational performance. A closed-loop system also enables the knowledge worker to analyze information and take appropriate action within the context of a singular application. This system transforms information into a single interface for querying information and, ultimately, evaluating decisions. The notion of an Enterprise Information Portal (EIP), discussed below, is one suggested interface. 4. Emergence of Enterprise Information Portals (EIPs). Virtually all organizations face a need to provide better tools for the increasing role knowledge workers play in an organization. Enterprise Information Portals (EIPs) are emerging as a leading strategy to help workers organize and manage the vast array of information. Some of the recognizable EIP software leaders include Hummingbird, Plumtree Software and Viador. An EIP is a personalized browser-based interface that functions as a centralized location for accessing existing enterprise information systems and external information sources. These systems represent the convergence of enterprise applications and Web information into portal technology, similar to a personalized myYahoo home page, that is accessible through a desktop. An EIP operates as a visual gateway to structured and unstructured information sources that are most relevant to a user’s specific function within the organization. EIPs are clearly in the embryonic stage of their development cycle but are already receiving considerable attention. They reflect a fundamental change in enterprise information management and have evolved from the fundamental concepts of BI technologies. These systems enable the coordinated integration of knowledge resources instead of isolated tools and tasks. EIPs are heralded for providing three primary benefits: • Single point of access to all relevant information. • Personalized, function-centered workspace for integrating information. • Maintenance of the underlying connection between information sources. In order for an EIP system to recognize these relationships, an effective EIP must meet two performance targets: 1) capable of abstracting transaction data from enterprise and legacy systems into an integrated system and 2) utilization of internal and external data to provide a format for collaboration. 5. Increased Need for Accurate, Consistent & Timely Data. An increasingly larger dilemma for organizations is the need for reliable data quality and access. These concerns become even more important with increasing amounts of information and rapid changes in the business environment. Corporate decision-making will ultimately deteriorate if the fundamental data is defective, inaccessible or untimely. BI solutions are responsive tools providing timely access to various sources of information that allow for effective decision-making. Fundamentally, however, source data still needs to be validated for its reliability.

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Business Intelligence Software Vendors

The market for analytical applications has become cluttered by a million dollar acquisition of Ardent Software, a data warehousing variety of different enterprise software solutions. It is clear that and BI software provider, by Informix is one example. Computer analytical tools are becoming integral in nearly every enterprise Associates’ acquisition of Sterling Software, which had previous- solution. Agreements to integrate Hyperion Solutions’ BI prod- ly purchased Information Advantage, a BI software provider, is ucts with CRM products from Nortel Networks and Interwoven another example of consolidating trends in this industry. We have are two specific examples. The delineation is becoming even more identified some of the leading BI software vendors and relevant blurred with the introduction of new technology solutions. M&A transactions in Appendix 3 and Appendix 4, respectively. Large and small enterprise software vendors alike are embedding advanced analytical tools in their enterprise solutions. The multi-

Opportunities for Privately Held Firms

Although the BI market has evolved slowly, Cherry Tree & Co. believes this is an area that deserves considerable attention, as it represents a unique set of opportunities for privately held IT services firms. We believe organizations will increasingly turn their attention to technologies that leverage IT investments made in e-commerce based transactional systems as well as traditional client/server and legacy systems. Furthermore, emerging industry trends are creating additional needs for advanced analytical solutions. IT service firms that are well-positioned in BI technologies will have a significant opportunity to take advantage of these trends. Some of the strategies and unique properties in the BI marketplace that we have identified are summarized below: 1. Partnering with BI Vendors. One particular approach that is suitable for all IT service firms is to establish a partnership with the leading BI software vendors. This strategy has been proven to be an effective mechanism for the rapid development of BI technical competen- cies, an additional sales and marketing channel, and the potential for accelerating practice area development. A listing of some of the leading BI software vendors is included in Appendix 3. 2. Leveraging Existing Consulting & Implementation/Integration Practices. Organizations seeking increased analytical capabilities will likely seek solutions providers with well-defined consulting and implementation/integration methodologies and expertise. The decision to invest in a BI solution is driven by business issues and supported by business initiatives and objectives. These solutions will also require technical expertise with the design and implementation of solutions that are capable of managing large databases. This represents an opportunity for an IT services firm with strong consulting and project-based practice areas. One of the unique properties of BI is the continuous improvement of the organization through enhanced decision making. Constant changes in the information environment and organization each represent an opportunity for a predictable, recurring BI service model. Organizations are likely to continuously utilize the expertise of IT services firms to assist in the ongoing evaluation of the technical environment in rela- tion to the organization’s objectives. Therefore, it is imperative that an IT services firm be able to communicate the benefits of BI in terms readily understood by business users. 3. Leverage Complementary Practices / Services. BI solutions have far reaching implications throughout the organization affecting customers, suppliers and business partners. As a result, these technologies touch multiple enterprise technologies and systems. An IT services firm providing solutions based on multiple enterprise applications and strong data warehousing expertise can leverage these skill sets by offering enhanced analytical capabilities. Due to exposure in multiple technologies, this can also lead to new business opportunities for other practice areas. Additionally, BI technologies can serve as a cornerstone to the development of high-growth and emerging technologies such as EIPs. EIPs require a high degree of analytical content. These systems also require the collection of information from different and incompatible systems and various data types to a single point destination. This requires a unified view of the organization, its processes and its technical resources. 4. Leveraging Vertical Industry and Business Process Expertise. Another method of strategic advantage is the development of BI practice areas within defined business processes and vertical industry expertise. Organizations typically require a degree of customization that meets their unique circumstances. This becomes particularly acute, as BI tools evolve towards a closed-loop and/or EIP environment. By focusing on specific vertical industries, IT services firms can leverage the expertise and level of customization typically required to comply with industry best practices.

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5. Functionally-Focused BI Models. Cherry Tree & Co. believes an IT services firm does not have to implement an enterprise BI system all at once. Deploying a BI system that can ultimately support an entire organization requires a long-term vision and total commitment, as well as a significant amount of time and capital. One method of gradual deployment might be focused upon functional areas (i.e., finance/accounting, sales, marketing, etc.). The key consideration is complying with standard methodologies to deploy the project in gradual stages. The objective with this deliberate strategy is to minimize the up-front risk with a full and comprehensive BI implementation. 6. Aggressively Promote the BI Value Proposition. A key element to the successful introduction and/or transition to BI solutions is the need to communicate and demonstrate the return on investment provided by these solutions. One of the drawbacks with analytical solutions com- pared to other technical solutions is the lack of understanding of the benefits and payback associated with an implementation. Due to the hype e-business/e-commerce initiatives are receiving, IT service firms will need to develop marketing campaigns and materials that clearly demonstrate the value proposition and interrelation between BI and other technologies such as e-business and extended enterprise applications. 7. Defensible Position Against Application Hosting. Cherry Tree & Co. believes that BI provides a defensible position, in the near term, against the threat presented by the hosted application delivery model of Application Service Providers (ASPs). We believe that these technologies will be one of the slower to be accepted as a hosted solution. This is due to four primary reasons: • Preservation of Mission-Critical Information. BI applications potentially jeopardize the most sensitive information pos- sessed by an organization, such as customer information, business performance and product/service information. A strong element of trust will need to be established and proven before organizations will consider a hosted solution for analytical applications. • Required Stability of Analytical Systems. Due to the mission-critical nature of information and extension into e-business intelligence, it becomes imperative that BI systems suffer little, if any, downtime. Many of the ASP models are designed to guarantee a high level of service. However, virtually all of these business models are untested in providing a high level of connectivity across multiple clients and applications and during times of application upgrades. • Customized Analytical Solutions. BI solutions require a high level of industry knowledge and expertise. One of the value propositions proclaimed by the most successful BI solutions providers is their vertical industry expertise and resulting capacity to understand the client’s business. In many cases, a BI solution requires not only an understanding of the client’s business, but also customization around the solution. This conflicts with the standardized processes and off-the-shelf solutions promoted by ASPs. • Focus on Large, Complex Organizations. Large organizations with multiple products/services, geographic locations and extensive data repositories have typically been the early adopters of packaged analytical applications. Conversely, the appetite for hosted applications has been largely targeted towards small-to-medium size enterprises (SMEs). However, hosted BI solutions could become a viable alternative once ASPs develop proven business models and resolve security issues. In fact, the value proposition of application hosting could become the missing ingredient that BI technologies have historically been lacking.

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Conclusion

Cherry Tree & Co. believes BI will become an integral component to an enterprise’s information management systems. A BI solution lever- ages IT investments already made and valuable data stored in legacy and transactional systems. BI tools provide the "missing link" that bridges the necessary access and integration to information and aligns operational execution with strategic objectives in today’s e-business world. As a result, these tools transform large data repositories from the static state into a dynamic, strategic resource. These implications are relevant throughout the organization and benefit the entire value chain. However, achieving success with BI solutions is not a simple task. A complete enterprise BI solution can require months or years to final- ize the implementation and require multi-million dollar investments. BI solutions typically require a considerable up front consultative component to understand business processes and unique characteristics. BI solutions also require a strong commitment of IT resources to vali- date data sources. For these reasons, it becomes important for IT service firms to possess both strong consulting and technical skills and to consider the merits of functionally-focused BI solutions. Cherry Tree & Co. believes IT services firms with dedicated analytical practice areas will benefit from market trends in newer technologies such as e-business and EIPs. The bottom-line is an increased demand for IT services and, consequently, a higher enterprise value for the IT services firm.

* This Spotlight Report on Business Intelligence was written by Brian Klemenhagen, Associate, Cherry Tree & Co.

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9 www.cherrytreeco.com Cherry Tree & Co. Appendix 1

Cherry Tree & Co. — IT Services Research Universe

IT Consulting Project-Based Service Providers

Company Ticker Company Ticker CACI International CACI (1) App. & Systems Development Diamond Tech. Partners DTPI Complete Business Solutions CBSI META Group METG Affiliated Computer Services ACS Superior Consultant Holdings SUPC iGate IGTE American Management Systems AMSY Tier Technologies TIER First Consulting Group FCGI Concero CERO Cambridge Technology Partners CATP Outsourcing Cognizant Tech. Solutions Corp. CTSH Intelligroup ITIG Company Ticker Tenfold TENF (1) Application Outsourcing IMRglobal IMRS Keane KEA Syntel SYNT CIBER CBR Critical Path CPTH FutureLink FTRL (2) Implementation/Integration Interliant INIT AnswerThink ANSR USinternetworking USIX BrightStar BTSR The TriZetto Group* TZIX Computer Task Group TSK Renaissance Worldwide REGI (2) Utilities / Business Process Outsourcing Technology Solutions TSCC Automatic Data Processing AUD BISYS Group BSYS (3) Web Development Ceridian CEN Sapient SAPE Equifax EFX MarchFirst MRCH First Data FDC Proxicom PXCM Fiserv FISV Razorfish RAZF Sungard Data Systems SDS AppNet APNT (3) Platform IT Outsourcing Scient SCNT Computer Sciences CSC iXL Enterprises IIXL Electronic Data Systems EDS Viant VIAN Perot Systems PER Modem Media.Poppe Tyson MMPT Sykes Enterprises SYKE Braun Consulting * BRNC CGI Group GIB C-bridge Internet Solutions* CBIS Cysive * CYSV Internet Infrastructure Providers Tanning Technology * TANN Agency.com * ACOM Company Ticker Luminant Worldwide * LUMT Digex DIGX US Interactive * USIT PSINet PSIX Xpedior * XPDR Exodus Communications EXDS Organic* OGNC Globix GBIX Lante* LNTE Verio VRIO Inforte* INFT Navisite * NAVI Applied Theory ATHY

* Indicates companies tracked by Cherry Tree & Co. but not yet included in stock indices due to insufficient trading history.

10 Cherry Tree & Co. www.cherrytreeco.com Appendix 1

Staff Augmentation Value Added Resellers

Company Ticker Company Ticker (1) Pure IT Staffing Acxicom Corp ACXM Analysts International ANLY Alphanet Solutions ALPH Cotelligent CGZ Viasoft Inc. VIAS Hall Kinion HAKI Compucom Systems CMPC Technisource TSRC Aztec Technology Partners AZTC PRT Group PRTG Black Box Corp. BBOX Alternative Resources ALRC Merisel Inc. MSEL Metro Information Services MISI

(2) Transitioning Firms Education & Training Computer Horizons CHRZ Modis Professional Services MPS Company Ticker ARIS ARSC SmartForce SMTF (3) General Staffing Wave Technology International WAVT kforce.com KFRC Computer Learning Centers CLCX StaffMark STAF Learning Tree International LTRE CDI Corp. CDI Comforce CFS Personnel Group America PGA Volt Information Sciences VOL RCM Technologies RCMT Interim Services IS

* Indicates companies tracked by Cherry Tree & Co. but not yet included in stock indices due to insufficient trading history.

11 www.cherrytreeco.com Cherry Tree & Co. Appendix 2

IT Services –— Structural Perspective

While it is extremely difficult to place IT Services companies in specific subsectors, Cherry Tree & Co. has developed the following set of working definitions and categorizations for the purpose of analyzing key trends and developments in the industry. We recognize that read- ers often have their own mental categorizations that may be slightly different than what we are suggesting. Although pure-play examples are hard to find, we have found the following structural perspective to be very useful in depicting critical developments within the IT Services industry:

Professional Consulting: Firms that focus on corporate level business and strategic engagements; further divided into three subsectors:

• IT Consulting. Firms that predominantly focus on high level consulting projects that are directed at strategic information technology engagements. Project scope often entails company-wide evaluation of client business needs and essential processes, existing plat forms, available technologies, and solutions design. The effort to structure an IT initiative as an integral component of a strategic or business process design oriented endeavor is what separates these companies from their Project-Based service provider counterparts.

• Strategic Management Consulting. Firms that provide advice centering upon a client’s overall corporate objectives and competitive position. Strategy should be thought of as the creation of a unique and valuable position for an enterprise that affords it a sustainable competitive advantage. Project scope involves such topics as market trend analysis, business and customer mix, marketing efforts, and capital structure.

• Business Process Consulting. Firms that provide consulting expertise relative to the maximization of the operational effectiveness at either the functional or business unit level. Operational effectiveness includes practices and processes that allow a company to better utilize its resources to generate the highest level of output at a minimized cost.

Project-Based Service Providers: Client projects within this sector have comparatively well defined tangible deliverables and scope. Contract designs range from a billable hours approach to fixed-price engagements for components and even entire projects. Companies typically focus around some type of vertical industry expertise, either in specific technologies or industry applications.

• Application and Systems Development. Companies that specialize in custom software development aimed at serving the specific needs of their clients, typically in proprietary systems settings. Deliverables can include targeted modules or components, upgrades to existing systems, as well as original application development.

• Implementation/Integration. Firms that specialize in the deployment of complex enterprise-wide (ERP) software packages. As part of this implementation, these companies integrate the new software by ensuring that diverse hardware, network, and software components work together. Companies may also specialize primarily in integration technologies, interface development, database management, and other enabling technologies that allow disparate systems to share information.

• Web Development. Segment of the Project-Based sector exclusively focused on Internet-based services and technologies. Projects may entail front-end interactive marketing, e-business application development and implementation, e-commerce transaction system development, strategic consulting, and/or back-end Web-to-legacy integration.

Outsourcing: Companies providing process automation services and facilities management and operations for clients desiring a variety of technical outsourcing solutions; divided into three subsectors:

• Platform IT Outsourcing. Firms offering a range of data center services, including hardware facilities management, onsite and offsite support services, server-vaults and data security, and disaster recovery capabilities. These relationships typically involve the transfer of IT facilities, staff, or hardware.

• Utilities or Business Process Outsourcing. Firms focus on economic and efficient outsourcing solutions for complex but repetitive daily business processes. These processes could be as sophisticated as finance and accounting or be more repetitive processes, such as disbursements and payroll. The provider assumes all responsibilities associated with the entire business process or function.

12 Cherry Tree & Co. www.cherrytreeco.com Appendix 2

• Application Outsourcing. Firms manage and maintain software applications, with the provider assuming the responsibilities associated with the application. There are two sub divisions of the AO sector: Application Maintenance Outsourcing providers manage a proprietary or package application from either the client’s or the provider’s site. The Application Service Provider remotely hosts and delivers a packaged application to the client from an off-site location.

Staff Augmentation: Companies that specialize in providing qualified IT professional staff on a temporary or long-term contract basis to clients in need of specific skill sets and project support for internal systems development projects.

• Pure IT Staff Augmentation. Firms that derive the vast majority of their revenues from their core IT staffing business. Company strategies are often defined by geographic concentrations, vertical expertise, or technology focus.

• Transitioning Firms. Companies that have traditionally been viewed as being in the IT staffing business but have recently attempted to redirect their growth towards higher value added and higher margin project-based services. For a staffing firm to be classified as Transitioning, revenues from project-based services are generally growing at a significantly higher rate than staffing revenues and/or comprise over 60% of revenues. Various combinations of merger and acquisition, divestiture, and internal growth facilitate this migration.

• General Staffing with IT. Firms that provide professionals with a wide array of skills including finance, accounting, etc., which alshave an IT staffing division with significant revenues. Several companies in this category are rapidly building IT services divisions, through both internal growth and by acquisition, which may eventually reposition their business mix.

Education and Training: Companies that provide training and help desk consulting for firms that have adopted custom designed or pack aged software products. Engagements can include onsite or training center programs following new installations or for skills development and certain technical applications.

Internet Infrastructure Providers: Firms with a background in providing data center hosting services and corporate Internet access that also offer higher value-added services including Web and application hosting and other data solutions.

Value Added Resellers: Solutions-oriented vendors providing integrated hardware and software systems, often including consulting, design, and implementation services. These companies have historically operated under specialty hardware and software distributor arrangements, though trends are towards broader vendor representation and increased consulting services.

13 www.cherrytreeco.com Cherry Tree & Co. Appendix 3: Traditional Business Intelligence Software Vendors eb dress W Ad P/E v P/Re gin Net Mar gin EBIT Mar (in mill.) Net Income Group AverageGroup Median 9.8% 7.8% 6.6% 6.5% 7.4x 649.6x 8.1x 103.8x EBIT (in mill.) Trailing 12-months Trailing ue ven (in mill.) Re (in mill.) Market Cap. s.Out. (in mill.) Shr (5-31-00) Market Price ker Tic y Name Compan ActuateBrio TechnologyBusiness Objects BRIO$653.9 $57.3 11.4xCognos $3.7 6.4% 7.3% $23.19 ACTU 28.2 $4.2 BOBJ 156.4xComshare $14.13 www.actuate.com Gentia Software $80.00 27.5Hyperion Solutions COGN 39.4$172.679.5($62.8) $388.4 CSRE GNTIInformatica HYSL$19.06 $3,152.0 $35.94 $1,515.5 NM ($70.2) MSTR Microstrategy $132.0 NM NMwww.microstrategy.com $3.88 $5.38 $264.7 $31.38 87.4 ($10.3) 8.8x INFA $3,141.0 10.7 $41.8 9.7 32.5 ($10.9) $385.6 $40.25 $57.5 $1,019 $27.6 $37.4 NM $74.8 $24.8 15.8% $460.2 34.2 $1,376.6 $59.6 ($2.0) NM 10.4% ($5.9) $58.8 $35.9 $77.3 $0.4 2.9x 19.4% ($6.0) 11.9x ($0.3) $26.4 114.2x NM 15.2% NM NM 7.8% www.businessobjects.com www.brio.com $0.4 0.7% NM 8.1x 5.7% NM 53.4x93.5x 0.6x 0.5% 2.2x 2.3x www.cognos.com www.comshare.com 3441.4x 38.6x 7.8x NM www.informatica.com www.hyperion.com www.gentia.com

14 Cherry Tree & Co. www.cherrytreeco.com Appendix 4

Merger & Acquisition Review

2nd Quarter, 2000 Business Objects acquired OLAP@Work, a privately held software company in Ottawa, Canada. OLAP@Work develops and markets high-end online analytical processing (OLAP) reporting tools. The cash transaction was valued at approximately $15 million.

Modis Professional Services, Inc. acquired Integral Results, a leading provider of BI solutions. Terms of the deal were not disclosed.

Computer Associates International, Inc. acquired Sterling Software. Terms of the deal were not disclosed. iGATE Capital Corporation acquired Terminus Systems Designs, Inc. (TSD), a web application development company focused on object-relational database management system. TSD is a provider of high-value BI solutions. Terms of the deal have not been disclosed.

1st Quarter, 2000 E.piphany, Inc. acquired RightPoint, a provider of real-time personalization solutions.

Siebel Systems, Inc. acquired Paragren Technologies, Inc., a leading provider of high-performance marketing automation software. The transaction was valued at approximately $18 million.

Broadbase Software, Inc. acquired Rubric, Inc., a leading provider of in eMarketing Automation (eMA) applications. The transaction was valued at $371.8 million.

Net Perceptions, Inc. acquired Knowledge Discovery One, a leader in advanced data analysis solutions for multi-channel and dot.com retailers. The transaction was valued at $117.8 million.

4th Quarter, 1999 Informix acquired Ardent Software, a leading provider of data integration infrastructure software for data warehouse, BI and e-business applications. The deal was valued at approximately $880 million.

Business Objects acquired Next Action Technology, Ltd., a UK-based developer of set-based analysis technology for customer selection and segmentation applications. The transaction was valued at $8 million.

2nd Quarter, 1999 Hyperion Solutions acquired Sapling Corporation, a leading provider of analytic applications for enterprise performance management. The transaction was valued at approximately $15.5 million.

Oracle acquired Thinking Machines Corp., a leading provider of advanced data mining software for predicting customer behavior. Terms of the deal were not disclosed.

1st Quarter, 1999 Sybase, Inc. acquired Data Warehouse Network (DWN), an Ireland-based, privately held provider of packaged, industry-specific business intelligence applications. The deal was valued at roughly $8 million.

Brio Technology Inc., a leading provider of BI software, acquired SQRIBE Technologies, a provider of BI and EIP software. The transaction was valued at $310 million, 7.4 times last year’s revenue.

Cognos acquired LEX2000, Inc., a developer of financial data mart and reporting software. The purchase price was $10.4 million, in a combination of cash and stock.

15 www.cherrytreeco.com Cherry Tree & Co. 1998 2nd Quarter, 1998 Analytical tools vendor Arbor Software merged with Hyperion Software, a provider of packaged analytical applications. The $760 million deal was valued at 2.8 times revenues.

Ardent Software, a data management company, acquired Dove Tail Software, a provider of data management technology. Terms of the deal were not disclosed.

Information Advantage, a high-end OLAP software vendor, acquired with IQ Software, a provider of entry-level query, OLAP and enterprise reporting software. The deal was valued at $62 million or 2.4 times revenues.

4th Quarter, 1999 Informix acquired Red Brick, a provider of data warehousing solutions. The deal was valued at $35 million.

Ardent Software acquired Prism Solutions, a data warehousing vendor. The purchase price was $42 million.

Cognos, a leading BI software vendor, acquired Relational Matters. The purchase price was $10 million, in a mixture of cash and stock.

16 Cherry Tree & Co. www.cherrytreeco.com About Cherry Tree & Co.

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• IT Services Industry Spotlight Reports: – Pure-Play e-Business Development – 1999 Year in Review – Extended Enterprise Applications – Application Service Providers (ASP) – Professional Consulting – Project-Based IT Services Firms – IT Staff Augmentation – IT Services – Beyond 2000 • Mergers & Acquisition Analyses for the IT Services Industry • Case Studies of Business Owners who Have Recently Sold their IT Services Firms • Industry News & Events

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