Into the Loop
As mentioned, CPM is less a technology in its own right than a reconception of technologies that have existed for years. "CPM is the umbrella system, with various sets of technology underneath it," explains Sanjay Poonen, vice president of worldwide marketing at Redwood City, California-based business-intelligence vendor Informatica Corp. Other BI vendors — including Hyperion, SAS Institute, Cognos, Comshare, MicroStrategy, Business Objects, and many more — either tout performance-management suites outright or market their products with a decided CPM slant.
Poonen says CPM begins with the formulation of a business strategy. "First you develop a strategy, then a plan, then you execute the plan, measure the success of the executions, analyze these metrics, bring it all back to strategy, and start all over again," he comments. "Each enterprise, given its particular market, customer base, vendor relationships, and so on, requires different types of data and metrics. But it all boils down to the same thing — turning data into information for decision-making purposes."
Decision-support technologies are decades old, of course. What makes CPM different, says Comshare Inc. senior vice president Brian Hartlen, is the "closed-loop" nature of its design, in which data doesn't just flow toward a decision maker but through a company, allowing decisions at all levels to be driven by strategy and, when needed, to alter that strategy. Tom Manley, CFO of Ottawa-based Cognos Inc., says, "There is this mountain of data coming from ERP systems, CRM systems, supply-chain systems, and all these other applications, but few companies use it to improve performance."
But even those selling CPM software caution that it is not a panacea. "A customer has to create methodologies to monitor and manage hundreds of metrics on a proactive basis to drive actual performance," says Poonen. "You [have to] get underneath the data to improve performance or reset expectations."
Cashing In
CPM sounds like the answer to any number of corporate headaches, yet to date few companies have deployed it. According to technology research firm Gartner, fewer than 10 percent of Global 2,000 companies have implemented CPM, although the firm believes this will skyrocket to 40 percent by 2005. That's in sync with the expanding market for BI tools, applications, and data warehouses, which research firm IDC expects to grow from $3.8 billion in 2002 to $6 billion by 2006.
Software makers hope that early success stories will galvanize the market. Kids Headquarters is one CPM convert. During the past five years, the New York-based children's-apparel company experienced tremendous growth, from a small, family-owned garment business into a midsize national competitor with $500 million in annual sales. Its sudden spurt came with a price — Kids Headquarters could not determine if its employees were executing corporate strategy or if its resources were being allocated to the right business units. "We didn't know if we were pushing the right projects," says chief information officer Ron Cuevas. "We lacked data sets in different parts of the organization to determine if an employee or particular functional area was performing well. For example, since we couldn't measure how quickly a garment design reached procurement, we were unable to grade how well a designer was performing his or her job."
Kids Headquarters had an ERP system, but it was static, Cuevas complains. "There was no central platform where we could plug in all this data, consolidate it, and present it cohesively to different employees so they could drill through it and drive better plans and performance," he says.
Having installed CPM software (from Cognos), Kids Headquarters can now monitor a dozen key indicators, according to Kevin Downs, the company's chief technology officer. To make sure employees take the new system seriously, he says, "we will link bonus compensation to these metrics." The company also plans to extend the system to vendors in Asia, where 80 percent of its merchandise is sourced, to measure how they perform. "We used to rely on informal information that so-and-so failed miserably on its last delivery," says Downs. "Now we know exactly who is failing in what categories, so we can manage our supply chain much more efficiently."
John Kurtzweil, senior vice president, CFO, and treasurer at ON Semiconductor, a Phoenix-based microchip maker, says that visibility into near-term sales and profits are also challenges. "It's real tough to get anybody to commit to longer lead times on orders, which means we have to rely more on our modeling capabilities for the industry and for particular customers than we have in the past," he says. Jonathan Chadwick, vice president of corporate finance and planning at Cisco Systems Inc., says that "visibility has gotten markedly worse over the past 24 months. The economic situation has given rise to nobody being willing to commit [to placing orders] far out in advance."
Not Clinging to the Static
Erickson was drawn to CPM because of a need to stay firmly on budget and on schedule: each facility it builds costs $300 million and spans more than 2 million square feet. "While we have an ERP system," says CFO Hirl, "it does not give us the ability to consolidate and analyze information across the company. It also hasn't proven user-friendly enough for everyone to get what they need from it. Consequently, we lacked strong budgeting and forecasting."
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