Enterprise Performance Management: Why It Matters
Enterprise performance management (EPM) is an emerging set of applications and processes that cross-traditional department boundaries control and manage. It combines strategic goal setting and alignment with planning, forecasting, and modeling capabilities. It uses powerful analytics along with tactical reporting to drive smarter operational plans in light of inevitable and ever-present tradeoffs.
The ability to respond to changes or opportunities as they occur, replan business activities, and begin execution quickly gives firms with an EPM framework a competitive advantage over slower-moving, less agile organizations.
EPM encapsulates a number of critical characteristics that enable business managers at all levels of the enterprise to intelligently answer the following questions, while aligning resulting action to organization strategy:
- Am I meeting my strategic goals? Is performance aligning with my measures of success?
- What customers, products, and/or sales channels are really profitable? What changes do I institute with unprofitable business sectors?
- Which key indicators exceed my threshold of acceptability? What should I do to bring them back into line?
- What operational changes must I make to harmonize forecasted revenue with a rational expense plan to achieve strategic targets?
- How successful were my implemented changes in meeting my overall strategic goals?
With EPM the perspective is holistic, strategy and planning all meet execution and measurement.
EPM Defined
EPM mixes the best of the command and controlmanagement philosophy with the nimbleness of sense and respond activities. This vital mix encourages constant readjustment based on causal inputs. The traditional quagmire of formal and informal measurement needs more structuring, more automating, and more of a business context format. The processes and components of EPM are noted in figure 1.
EPM is not a one-time event. It is an iterative, continuous process. Its ultimate goal is to pilot the business in the desired direction. Agility to respond to changes in anticipated outcomes lets management make corrections quickly to align actions with strategic goals and measures.
Although EPM may seem to be an internal organization process, it requires tremendous integration to the outside world by tying customers, suppliers, and employees together in an end-to-end value chain. The more accurate and timely the input, the more dynamic it becomes. Over the past several years, huge sums of money have been spent on enterprise application investments that better manage and capture data about all aspects of your business. They can now be further leveraged to operationally and financially manage the business to a desired state of profitability and operational excellence.
Difference Between Performance Measurement and Management
Every organization already measures performance. Metrics, from simple to complex, have been established to give employees and managers information about how well (or not well) they perform their job. These metrics are assessed on an ongoing basis. Simply put, measurement reflects what has already happened in the business process. It is oriented toward past performance, reflecting what has already occurred. Measurement is inherently passive.
Yet, performance measurement is a critical component of EPM (Figure 2). It is the trigger that alerts business managers, even other systems, to respond with action. When measurement is enmeshed with goal setting, business planning, accountability, and incentives, it becomes performance management. EPM is forward-looking and inherently active.
The Need for Real-Time Data
The term real-time suggests an image that all data is available to all people at all times. Yet, conversations with many business and IT executives lead us to conclude that real-time is in the eye of the beholder (Figure 3). Some data must be immediately accessible, while other information is real-time enough daily, weekly, and even monthly. Industry and company business practices also influence the need for real-time data. For example, high volume sales environments could need visibility into orders immediately for better price management, while low volume sales environments need only weekly updates until end of quarter, when daily data becomes important.
The key to real-time decision-making is in response time. Since so much of the EPM framework relies on taking action as exceptions from plan are uncovered, the faster you can respond and make operational corrections, the more active and valuable a tool EPM becomes.
The State of EPM Today
Senior managers at Global 2000 firms have always had the vision of an all-encompassing business information system that manages day-to-day business processes while providing the analytic insight necessary to make timely and informed business decisions. In the 1990s, many implemented enterprise resource planning (ERP) applications to achieve that goal, but these applications fell short on the decision support capabilities. As the enterprise landscape expanded to accommodate in-depth applications supporting supply chain and customer management, companies had more data than ever before, yet werent effectively using the knowledge locked in the data to better manage company performance. Although there were unmet expectations, the vision remained intact.
The concept of EPM is not new. ERP and analytic vendors have been talking about it for more than three years, but vision was definitely out in front of delivered product. As concept and software both matured, early adopter companies tested and proved the value in available components and frameworks. While EPM is currently in the early stages of adoption, we have concluded that it now has the requisite corporate attention and budget to flourish over the next two to three years.
A Giant Software Category Has Emerged
AMR Researchs preliminary estimates of the EPM market size put it at more than $15 billion in 2002. We expect it to grow, on average, by 13 percent per year over the next five years.
As a superset of existing products and technology, a critical mass of both suite and point solutions vendors offer credible, affordable, and implementable products in the area. Existing categories include:
- Business intelligence (BI) tools
- Scorecard products
- ETL tools
- Data warehousing infrastructure
- Analytic applications
- Financial planning and budgeting applications
- Financial consolidation applications
- Operational planning and performance applications (e.g., supply chain)
- Incentive management applications
- Business process management (BPM) tools
In a challenging economy, end-users are buying business-driven technology products and EPM is one of the most tangible strategic business applications currently available.
Recommendations
Why should you care about EPM? Research indicates that organizations that have implemented part or the entire EPM framework have and will continue to surpass their competition. When charting your companys course, you should consider the following points:
- EPM is equal parts philosophy and technology. In that, you should evaluate whether to engage expert management consultants to help structure a strategic management program. With any enhancement to the way you run your business, you may want to take advice from those with experience helping others through similar changes.
- EPM does not necessarily require a fresh round of software purchases. Take inventory of software to see if you already have implemented component pieces of EPM. These products may be able to be used to support your broader strategic goals.
- Organizations embarking on EPM initiatives should let business conditions drive the discussion of how timely data needs to be and not get caught up in the technical hype of ubiquitous real-time data access.
- Understand the implications for your industry. Although EPM is a horizontal application suite that applies to all industries, how it is applied will vary greatly based on what strategically drives your business.
- Minimize project and implementation slippage by asking vendors in detail about integration issues, best practice templates, and planning and analysis experience in your industry vertical.
