From chess to ping pong: How Pegasystems is capturing the Fortune 500
Pegasystems is winning business from the world's leading companies as business process management technology enters the mainstream
It took Pegasystems 27 years and four major software rewrites to become an overnight success, says Alan Trefler (pictured), its CEO and founder.
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Since he founded the company in 1983 on the back of a software contract with Citibank, Trefler has seen Pegasystems grow to a $500m a year business.
From specialist to mainstream
Pegasystems specialises in business process management (BPM) software – a niche software application that is rapidly turning mainstream.
The company may not have the high public profile of suppliers such as Microsoft or Oracle, but it numbers some of the world’s biggest companies among its clients.
They include JP Morgan, insurance group ING, Lloyds Banking Group, Cisco, Philips, Everything Everywhere, and Bank of America.
These organisations use Pega’s software for applications as diverse as automating business rules in call centres, managing health insurance claims or, in the case of Heathrow airport, to manage the fuelling, maintenance and restocking of aircraft.
Pegasystems' nearest competitors include IBM, Appian and Software AG.
And in customer relationship management (CRM) it competes with Salesforce.com, Oracle, SAP and Microsoft.
The Rolls-Royce of BPM software
The company’s core PegaRULES Process Commander (PRPC) software is very much seen as a Rolls-Royce solution for BPM – with a Rolls-Royce price tag.
"Pega is super-sophisticated,” says Neil Ward-Dutton, an analyst at MWD Advisors. “And it's brilliant if you need to do those incredibly big, multi-year, complicated transformations.”
Lloyds Banking Group, for example, claims to have reduced customer complaints – to the lowest level in the UK banking sector – after using Pega to automate some of its banking transactions.
And Cisco is using the technology to centralise its business processes in a company-wide rules engine that will help it respond more quickly to opportunities in developing countries.
One of Pega’s selling points is that once the software is up and running, businesses can design new applications and change or update business rules very quickly – a concept Pega calls “build for change”.
Why Pega is not for everyone
But it is not for everyone. Organisations need to have the right skills, scale and maturity to really benefit from Pega’s sophisticated BPM and analytics capabilities.
Implementing Pega should be seen as business change project, rather than a technology change project, says KC Wu, vice-president of information technology at Cisco.
“It really should be driven by the business – technology enables the business strategy, so [if you are] just implementing the technology, you will not get the benefit,” she says.
Users of Pega talk about implementing projects the Pega way, which is all about agile software development, bringing all the relevant people together in one room to capture ideas, and developing prototypes quickly.
Organisations need to have the right skills, scale and maturity to really benefit from Pega’s sophisticated BPM and analytics capabilities
Agility difficult for large companies
But adapting to this way of working is not always easy for large companies, which may be used to a more structured approach to managing big transformational projects.
ING, for example, took three attempts and spent $20m before succeeding with its roll-out of one Pega project. It had been relying on big firms of consultants who were not used to working in the Pega way.
Ward-Dutton says he has heard similar stories from companies which have used some of the big firms of consultants to help with their Pega deployments.
“The big consultants' business model is all about getting lots of bodies on a project for as long as possible. The challenge with BPM is that it does not require quite as many bodies for quite as long a time,” he says.
For his part, Trefler advises business to take the time to understand how Pega works, rather than trusting consultants blindly with the technology. “The customer has to be steering the car,” he says. “The customer needs to say, 'I am willing to have you do the work, but I need to have visibility into how you are going about it'.”
Targeting the Fortune 500 companies
Pega owes much of its success to its relentless targeting of the world’s top 500 companies.
There is a rich seam to mine here, says Derek Meirs, principal analyst at Forrester. Once a multinational has deployed Pega in one application, it opens up multiple opportunities elsewhere throughout the company. “Pega has the luxury of being able to focus on big companies, with reserves of cash, that need everything,” he says.
Targeting these multinational companies made sense, not just from a financial point of view, but from a technology point of view, Trefler argues. “The reason I did not want to start mid-market or downmarket was that I wanted to make sure that whatever we built would be good enough,” he says.
It is very easy to build a technology that works in a single company department, he says, but it is much harder to scale that technology across multiple countries.
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Pegalite – no thanks, says Trefler
If Pega is to continue to expand at its current rate, industry watchers say it makes sense to broaden its appeal to smaller companies.
But suggest to Trefler that Pega should produce a simpler version of its technology – a Pegalite – and he is not enthusiastic.
Others have produced lighter-weight business process management packages, and they have been lacking, he says: "A lot of these lighter packages are almost just starter kits, just toys. They will let you move work, but not automate it."
Nevertheless, he concedes: "I think, over time, we will find ways to go downmarket."
The Pega cloud
Cloud computing may make Pega’s technology more accessible in future.
The company set up its Pega cloud service some five years ago, using Amazon Web Services (AWS) infrastructure. The service allows businesses to access Pega's software hosted on Amazon's servers without having to install their own IT infrastructure. It is growing in popularity, but banks and finance companies are still wary of trusting their data to a third party.
“There is inevitability that one day there will be a major cloud disaster, and then I am sure a lot of customers will get spooked. That’s why think it's good to run on-premises too," he says.
Pega’s acquisition of CRM specialist Chordiant Software in 2010 has helped to open up new markets in areas such as telecommunications and healthcare – beyond Pega’s traditional financial services customers.
Pega has incorporated Chordiant's predictive analytics technology into its own software allowing businesses to use the technology for a much broader range of applications.
Mobile phone company Everything Everywhere, for example, is using Pegasystems to help it direct the most appropriate offers, or in the language of Pega, the 'next best action,' to the customers it wants to keep when they renew their contract. It is claiming significant improvements in customer retention as a result.
Revenue growth plans
Trefler sees telecommunications as an important growth area. Government is another, as agencies worldwide seek to save money by automating labour-intensive processes.
Overall, he expects the company to top $500m in revenue this year – a respectable figure given the difficult market conditions.
“Growing at all in this economy is difficult, but we did over $460m last year, so one would think that $500m is a reachable target," he says.
Tackling Pega skills shortages
One potential barrier to Pega’s growth is the shortage of skilled IT professionals with experience of its technology.
Pega technology requires people with deep technical skills, and they can often be difficult and expensive to find, particularly in Europe. Senior lead architects are in particularly short supply.
The company is tackling the problem by forming partnerships with the likes of Accenture, Cognizant, TCS and Capgemini. To date, it boasts a network of more than 10,000 trained and certified staff.
“We have put all our education online so that partners can train their staff without having to do expensive classroom training, and we have seen a tremendous uptake on that,” says Trefler.
In effect Pega is slimming down its own consulting operations to concentrate on the software at a time when many software suppliers are trying to maximise their consultancy work to secure higher profit margins.
But the strategy is a good trade-off, says Trefler, even if it means less revenue for Pega. “Once we have all these partners in place, our leverage is several orders of magnitude greater," he says.
Why Pega is not for sale
As Pega continues to expand, there is one thing that Trefler is clear about: he will not let Pega be taken over by IBM, HP, Oracle, or any of what he calls the "big stack vendors".
He famously told a reporter from Reuters that he would rather eat sand than sell Pega to IBM
That sort of takeover has had a hugely damaging effect on the US software industry. It is bad for innovation, and it is definitely bad for Pega’s customers, he says. “With these sorts of purchases, the innovation is just sapped immediately – the thought-leaders leave and go off and do something else.”
As Pega’s majority shareholder, Trefler is in the fortunate position of being able to say a firm "no" to any potential suiters. “BPM, this whole technology that we are in, is way too young to be bought by the bone collectors. It's just too early,” he says.
Trefler or Pega?
For an outsider, it can be difficult to separate Alan Trefler from his company. To many people, Trefler and Pegasystems are synonymous – a perception which may make it harder for Pega to grow to the next level.
“Pega is still very much Alan’s baby, and he treats it as such. He needs to step back,” one former employee told Computer Weekly.
But Trefler argues that he has a strong team around him, many of whom have been with Pega for almost as long as he has and have a huge amount of experience.
What keeps him awake, however, is something else entirely – whether Pega will make the most of the opportunities ahead: “My biggest fear is I will be lying on my death bed, hopefully 30 years from now, and someone will be whispering out in the corridor, and I will overhear them saying, 'Oh, they had so much potential'.”
The end of programming?
Trefler built his fortune and his business on writing software, but his goal is to eliminate the need for his customers to write computer code at all.
The latest version of Pega’s software, PRPC version 7, allows businesses to design applications without the grind of traditional programming.
Instead, business specialists and IT professionals team up to build business applications using neat flowchart tools and a smart graphical user interface.
Some organisations have more programmers than Microsoft. Why does it make sense for a bank to have more programmers than Microsoft? How is that a good use of shareholder resources?
Alan Trefler, Pegasystems
The platform encourages people to work in an agile way. They can brainstorm rough applications on Pega, and refine and develop them until they meet the needs of the business.
The complex part – writing the HTML code that underpins the application – is handled by the software itself.
Companies can take this code and, for example, use it to drive menus that guide employees through business processes, or embed it in their customer-facing websites.
Writing code this way, Trefler argues, is more effective and less error prone than traditional manual coding techniques. He clearly sees automated coding as the future, so much so that he is incredulous that companies still employ armies of programmers.
It’s a good sales pitch – and he may also have a point: “Some organisations – and some of them are customers of ours – tell me they have more programmers than Microsoft. Why does it make sense for a bank to have more programmers than Microsoft? How is that a good use of shareholder resources?”
Alan Trefler: from Chess to Ping Pong
Alan Trefler hosted awards ceremonies at five formal dinners in one evening at Pegasystems' annual customer conference.
He must have had to skip his own meal as he hurried from one venue to the next, but such attention to detail is typical of Pegasystems' 57-year-old founder and chief executive, say his colleagues.
“He reads his briefs and prepares thoroughly. He doesn’t fly by the seat of his pants,” says one co-worker.
Trefler’s first taste of business came when he helped his father, an immigrant to the US from Europe after the war, in the family antique-restoration business.
He hit the limelight as a 19-year-old college student when, from nowhere, he became co-champion in the 1975 World Open chess tournament.
He reached the level of a chess master, but he moved into IT, after concluding that chess didn’t pay very well, was too geeky, and, he once confided, too male dominated.
Trefler initially used his skills to teach computers how to play chess - no mean feat at a time when computer processing power and memory were extremely limited.
Later he used the same programming techniques to teach computers how to process business rules and Pegasystems was born.
His first client was Citibank, which bought the first version of Pega’s software written in the now-arcane assembler programming language.
Pega's software has since gone through four rewrites, and Trefler won a US patent for the rules-based architecture behind it in 1998.
After 30 years, the business Trefler founded has grown to a $460m a year company employing more than 2,300 people.
Outside of work, Trefler relaxes by playing ping pong. He has taken up the sport with characteristic dedication, going as far as employing his own personal trainer.
Under his influence, the ping pong craze has spread throughout Pegasystems. Most offices now have their own tables.
“Staff often challenge Alan to game, but he is rarely beaten,” says a colleague.
Trefler’s second passion is education. He set up The Trefler Foundation in 1999, with his wife Pamela, to help improve educational prospects for young people in Boston.
People who know Trefler describe him as intelligent and technically highly capable. “He is very at home talking to really technical people about the minutiae of how [Pega] is designed and all of the incredible computer engineering techniques they have used to build it,” says analyst Neil Ward-Dutton.
He works six-and-a-half days a week, and his attention to detail extends to meeting every new recruit in person, say company insiders.
But despite his tough work schedule, Trefler has no plans to step down or take early retirement: “I think I am in pretty good health and I have a lot of energy about this product and this application.”