Just Turned 25, Pegasystems See Big Ride Ahead

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create an Excel spreadsheet that spells out in plain language the policies governing each step. For instance, a credit card company might want gold customers to go straight to the front of the phone queue, or it might want software that automatically settles a dispute in their favor if it’s under $500.

Of course, companies modify these rules from time to time, and offer new features or specials. Instead of calling programmers to update everything, all business users have to do is update their diagrams and spread sheets (or create new ones for a new service)—something Mayer and Trefler say they can learn to do in just a week or two of training—and Pega’s software automatically rewrites the code to enable the new policies. “The key here is not better tools for engineers,” Trefler says. “The goal is to get rid of 80 or 90 percent of the programming by turning it over to the business.”

Pega’s initial products, of course, weren’t as sophisticated as they are today—and the firm didn’t have customers beating down its door for its services. “The first 10 to 12 years, about, we were really a tech boutique,” says Trefler, with sales peaking around $12 million. In the mid 1990s, though, the company went on a growth spurt; Pega went public in 1996 on sales of about $35 million, and it surpassed $80 million in 1999. But the company itself fell off a cliff in 1998, plummeting to an $11.6 million loss after a small profit the year before. “I didn’t know it was possible to lose that much money,” Trefler has said, citing accounting changes with which the company inadvertently failed to comply as a large part of the problem. “We ended up growing so fast that we really lost control of the business.” The stock, which had traded in the high $30s, went on a long, hard tumble and was hovering just over $2 per share in the fall of 2001 before things finally turned around.

A watershed occurred in 2005, when the company reoriented itself around what Trefler calls the fourth generation of Pegasystems software—a “from-scratch rewrite” that offered far greater flexibility and power to its customers. Revenues grew 25 percent in 2006 and surged again last year (Pega now employees some 700 people, 300 of whom are in Massachusetts, along with a few hundred subcontractors).

Trefler touts a Pega customer base that includes Blue Cross Blue Shield, American International Group, JPMorgan Chase, and other leading firms. “All of these businesses share a common problem,” he says—namely that the needs of the business are outpacing their ability (or their computer systems’ abilities) to keep up with such factors as enrolling customers, sharing information between departments, processing claims, and handling myriad other business transactions such as special offers that change regularly. Trefler calls this the “execution gap.” And, he says, “these gaps end up getting filled with manual processes and training,” which of course add costs and increase the likelihood of inefficiency.

But they also increase the potential market for Pega. As much as 80 percent of work in back offices can be automated, according to Trefler—and he says his customers sometimes experiences productivity gains of 40 to 50 percent within just a few months of implementing the company’s tools. Presuming Pega can deliver anything close to that kind of improvement, it’s little wonder that he says, “We see a good growth potential despite the dour economic climate.”

Time will tell whether Trefler and Pega’s latest gains are the beginning of another title-winning streak.

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