Better Performance Management
Numerous market forces have pushed the need for better performance management.
The Sarbanes-Oxley Act and revised international accounting standards raised
requirements for transparency and timeliness of financial reporting. The economic
downturn and increased global competition forced companies to operate more efficiently.
Technology advances such as enterprise systems and the Internet sparked an explosion
in the amount of data flowing through an enterprise.
However, as a recent survey by CFO Research Services showed, many organizations are coping with inadequate systems and processes that fail to provide the capabilities needed to meet todays challenges (Figure 1). Generally, less than half of these companies are satisfied with their current processes. Less than one-third are satisfied with their visibility into current results and understanding of future performance trends.
Figure 1: Common Gaps in Performance Management
Its not that executives havent attempted to address these gaps. Indeed, the fundamentals of performance management arent new. However, few companies have been able to put all the pieces together. Technology limitations and a lack of integrated software products largely contributed to this problem, resulting in performance management environments that have historically consisted of independent point solutions implemented over time. Consequently, the resulting patchwork of processes and tools typically added to the very problems they were striving to solve, namely data integration and consistency.
The shortcomings have resulted in:
- Users overwhelmed with data, but with limited access to the information needed to guide decisions and understand trends;
- Users spending most of their time reconciling reports and combining and reformatting information, rather than analyzing results and developing action plans;
- Information technology and finance departments straining to meet minimal service demands while investing an inordinate amount of time in the ongoing support and maintenance of redundant tools and capabilities; and
- Executives struggling to get basic business performance information in a reliable, consistent, and timely manner.
Its little wonder that an increasing number of leading companies are demanding a more robust and integrated suite of capabilities to plan and manage business performance. While development of these solutions should be driven first and foremost by business needs, picking the right software technologies is also vital. The sheer range of capabilities and complexity of data cannot be managed without technological assistance.
Just before the turn of the millennium, the performance management market was fragmented, yet stable, with three primary vendor classes in separate market spaces:
- Business intelligence vendors. These vendors led the market in delivering reporting, query, and analysis capabilities (e.g., Cognos, Business Objects, Brio);
- Performance management application vendors. These vendors delivered best-of-breed packaged applications such as budgeting, activity-based costing, and consolidations (e.g., Hyperion, ABC Technologies, Armstrong Laing); and
- Enterprise vendors. These vendors, still reaping the windfalls of the Y2K event, comfortably owned the transaction systems environment and provided basic reporting capabilities (e.g., SAP, Oracle, PeopleSoft).
Any attempts to deliver multiple performance management capabilities required selecting at least one vendor from each of these categories and brought with it the daunting challenge of integrating processes and data across these separate tools.
Today, integration technologies have advanced to where it is now feasible to create a common platform for delivering integrated performance management solutions. Computing power has increased while data storage capacity and costs have fallen dramatically, and end-user information access has seen a pervasive change through the rapid adoption of Web-based reporting and analysis solutions.
As a result, the software market is converging as vendors from each of the three classes are rushing to capitalize on these technology advances. The trend is toward integrated product offerings, commonly referred to as business performance management (BPM) suites, which respond to the growing demand for more integrated and robust performance management tools.
The BPM Solution
As illustrated in Figure 2, BPM is a framework of capabilities designed to deliver tightly integrated strategic, financial, operational, and external information to allow decision-makers to understand and act on financial results, underlying business drivers, and projections of future performance. The components include a standardized set of reporting and analysis tools; the range of applications needed to meet the objectives; and a common data infrastructure. The principal objective of BPM is to put the right pieces together to achieve strategic objectives by:
- Linking strategies with actionable goals all the way down to the line worker, with measurement processes in place to monitor performance;
- Making it easy for all decision-makers to get to the information they need, including mechanisms to detect performance issues and alert the appropriate users in time to act;
- Delivering reliable data that represents the single version of the truth that the users believe in and trust; and
- Providing management the business insight needed to guide the business and the agility to change course when needed.
Figure 2: A tightly integrated BPM framework offers strategic benefits.
The reporting and analysis layer of the framework is designed as the single point of entry for users to access a continuum of decision support information. This includes standard reporting, query, and analysis, and the increasingly popular dashboards and scoreboards, all accessible through a customizable, Web-based portal or browser.
The applications component represents the range of applications needed to support an organizations performance management needs and typically includes planning and budgeting, consolidation, and dimensional profitability as the core offerings. However, BPM is not a one-size-fits-all proposition. Each organization must find its own path including deciding which applications to include and the timing of when these should be rolled out. Therefore, the solution framework should be flexible and extensible to allow other applications to be integrated, such as a sales system or CRM application.
A fully robust framework will be driven by a single, common data model supported by standard data definitions. Information from all source systems will be mapped to this model and stored in the information hub, which is typically a data warehouse. The hub will interact with each of the BPM applications and will serve the data to the users through the reporting and analysis layer.
Workflow and collaboration play pivotal roles in embedding BPM into the fabric of a companys daily operations. Workflow not only promotes efficiencies through process automation, but more importantly promotes best practices through structured, repeatable processes. Collaboration tools encourage users to interact throughout the continuous BPM cycle. Examples of this include online discussions and documentation of operating results and variances, and online discussion forums promoting knowledge sharing and best practices.
A complete BPM solution should also provide administration and development tools to ease the maintenance burden and ensure data security. With Web-based technologies, this has become increasingly important as data flows more freely within the framework and, in most cases, across the companys firewall.
The BPM Vendors
To compete in the BPM space, each vendor class shown in Figure 2 is looking to leverage its respective strengths to expand its footprint and market share. The business intelligence vendors see BPM as an extension to their reporting and analysis market space. They are striving to leverage the strength of their generic reporting infrastructure tools and name recognition and are adding packaged applications and data integration capabilities. These vendors will be strong contenders where enterprises have multiple, disparate source systems, particularly when they are already established as a standard business intelligence tool within the organization. One of the key challenges for these vendors will be to develop a fully integrated solution based on a single, common reference data repository.
The leading application vendors are generally regarded as bests of breed in their respective application domains. A few are marketing BPM suites, but most of these vendors will continue to focus on their niche area. For these, the go-to-market strategy is by way of partnerships and alliances with the other vendor classes. These vendors also represent attractive acquisition targets for the other vendor groups that are looking to expand their BPM coverage by purchasing best-of-breed capabilities rather than developing them in-house.
Some recent examples of this include:
- Business Objects, a leading reporting and analysis vendor, acquired Acta Technologies to add data integration capabilities to its product offerings;
- SAS, long known for its advanced analytical applications, added activity-based costing to its product suite by acquiring ABC Technologies; and
- Cognos, another well-established reporting and analysis vendor, recently rounded out its suite of applications by acquiring Adaytum, a leading planning, budgeting, and forecasting vendor.
The enterprise vendors, represented by the ERP group in the source systems box of Figure 2, view BPM as another opportunity to harvest from their established transaction system user base. These vendors are working to develop BPM frameworks that are tightly connected to their core transaction systems, which is a major plus toward achieving data integration across the suite. If they succeed in developing BPM applications and reporting capabilities on par with the other vendor classes, they will have a significant advantage in companies that have standardized on their enterprise platforms. One of their biggest challenges will be to provide easy access to data sources outside their own system.
Another small class of vendors commonly referred to as business intelligence workbenches may also prove to be players in the BPM market. These vendors dont offer prepackaged functionality, but rather workbenches offering the tools necessary to build reporting and analysis capabilities as well as applications. Some have good wizard-driven development environments that allow the majority of the solution build to be done by non-IT resources. These vendors will cater to companies that prefer a custom approach to developing their BPM capabilities but want to avoid a full-blown development initiative requiring extensive technical programming. One of the vendors doing well recently in this space is arcplan.
BPM Market Forecast
BPM adoption is expected to steadily increase over the next two to three years as the pressure for organizations to become more efficient and agile continues to move up on the corporate agenda. Research firm Gartner estimates that fewer than 10 percent of enterprises had implemented corporate performance management (CPM) by the end of 2002; however, 40 percent will adopt it by 2005. The survey by CFO Research Services found that 61 percent of the companies surveyed were planning changes to their performance management systems within the next 18 months. Within 3 years, 89 percent plan to migrate toward an integrated CPM solution, with half using a single solution across the company and 39 percent using an integrated set of best-of-breed tools.
Forward-thinking organizations will see the clear benefits to be gained from this type of integrated performance management solution. But BPM requires what many organizations lack today: a cohesive performance management infrastructure. Fortunately, leading software providers are utilizing recent technology advances to bring these integrated solutions to market.
Conclusion
How well a company capitalizes on these new capabilities will have a measurable impact on its profitability and market position.
