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Getting a Grip on Performance

As performance-management software continues its climb, widespread acceptance may be at hand.
Connie Winkler, CFO IT
November 15, 2004

See the guide to business-performance-management software companies

Several recent developments in the world of business-performance management (BPM) software may inject new life into a concept that dates back to at least 2000. New competitors are helping to drive down prices, the need to cope with new regulatory pressures is prompting companies to look for help from technology, and the software itself is being extended into areas well beyond the budgeting and forecasting functions, although those areas remain its focus.

While software currently labeled BPM (or CPM, for corporate-performance management, with a few other variations used by some vendors) has been marketed to finance departments for several years, John Schoenherr, vice president of analytic solutions at Oracle Corp., points out that "if you strip away the name and look at the promise of the software, it's been around for 25 years." In the 1980s, "executive information" and "decision support" systems tried to do what BPM now promises: link a range of key strategic and financial information together with operational data and present it in a summarized way that aids decision-making.

A sound concept and a laudable goal, but the integration needed to pluck data from various software programs and databases was difficult to pull off, and the data was often suspect, with the numbers in one system (sales for the Northeast region, for example) disagreeing with what were ostensibly the same numbers residing in a different system.

Now the execution may have caught up to the concept. "We're at a new level because the need is greater than ever," says Schoenherr, "and the technology is starting to deliver."

At BPM's core are consolidation, planning and budgeting applications, a common database, and, often, the ability to display the data via a scorecard or dashboard interface. Vendors tout the closed-loop nature of BPM: the same data flows through applications used for budgeting, planning, forecasting, and operations, so as business results change, budgets and forecasts can change in response. In a sense, BPM is to performance data what ERP is to transactional data: a broad embrace of all relevant information, fully integrated and thus providing a single view tailored, in this case, to the needs of finance and operations executives.

Flexible Applications
BPM currently ranks among the fastest-growing enterprise software markets, with sales increasing about 15 percent in 2003 to about $1.1 billion, says John Van Decker, senior vice president at Meta Group. He and other analysts expect that rate of growth to continue for several years, especially as organizations continue to look to BPM to meet compliance/governance requirements, currently one of the biggest drivers.

It was a low entry price, however, that attracted Smart & Final Inc. to TM1 from Applix. The grocery chain initially signed on several years ago for fairly routine financial consolidation and management reporting functionality. But late last year, a grocery workers strike in Southern California brought the company an additional $90 million in new business, as customers reluctant to cross picket lines flocked to its nonunionized stores. That's when, according to controller Wayne Geffen, the BPM capabilities of Applix's TM1 product came in handy. "It was critical to understand how we could have some flexibility to schedule people during the strike period," says Geffen. "We had to be more flexible to change — you didn't know what was happening or if the strike was going to be over tomorrow." Using Excel spreadsheets and templates, the finance group was able to gather the now-needed data and feed it into the TM1 database to produce staffing options. Those options were then made available over the Web to store managers.

Compliance and Consistency
Workforce management is not what usually comes to mind when talk turns to BPM, but it has emerged as one of many new areas the software can address. Another is Sarbanes-Oxley. "Compliance demands are prompting organizations to look at the financial-consolidation applications as the financial-reporting system of record," says Kathleen Wilhide, director of corporate-governance solutions, compliance applications, and BPM software at research firm IDC. In the quest for a "single view of the truth," companies are replacing or augmenting stand-alone software products and spreadsheets with integrated BPM implementations.

Viasys Healthcare stumbled onto the value of BPM as part of its effort to make the company's data more consistent. "We didn't realize how important for compliance it would be, but we wanted a closed loop between our underlying general ledger, our ERP systems, and our financial-management system," says John Imperato, corporate vice president of finance at Viasys.


When Viasys was formed three years ago from a dozen international entities that had been part of Thermo Electron, reporting was totally inadequate on two main fronts: it did not support Security and Exchange Commission (and later Sarbanes-Oxley) reporting requirements, and it would not have supported integrated management reporting, which was considered to be important to the growing company. Each entity had its own financial and operations system producing only highly summarized information for the old holding company. To unify operations and get better control over financial data, Viasys turned to BPM software from Cartesis.

The flexibility of BPM has emerged as a major selling point. When the terrorist attacks of 9/11 reduced leisure travel and related entertainment spending, Universal Studios Hollywood was forced to cobble together data from spreadsheets and operations systems to assess future business, but it couldn't do scenario modeling. Dan Aptor, director of financial systems, says the company's theme-park business declined markedly even as the company was acquired. "The company had these great transactional-processing and sales systems," he says, "but the finance organization never had its own tools. We were spinning our wheels all the time."

Scorecard Players
Aptor says that 9/11 not only "forced us into cost containment — 'What can we automate; how do we become more efficient and effective?' — but also prompted a move to a balanced-scorecard approach, in which operators can see how they're performing versus finance saying, 'Here are your numbers, why aren't you hitting them?' " These needs sent Universal Studios to a suite of software, including BPM software from Geac.

For PMI Mortgage Insurance, the push for BPM came with the recent surge in home-mortgage refinancing caused by record-low interest rates. The $900 million Walnut Creek, California-based insurer didn't know its risk exposure. "There was a tremendous churning of our portfolio — lots of policies coming on and off our books," explains Stan Pachura, vice president of corporate systems infrastructure and operations. "That's new risk that we need to understand." Topping it off, PMI was experiencing a shift in how it communicates with its large lender customers: in 2000 less than 20 percent of business was electronic; today about 90 percent of it is.

"We had many different sources of information...from our major processing systems, but also [individual] spreadsheets and local databases," says Pachura. "We wanted a single source of the truth, but also one that was easily accessible by those within the organization who required the information."

Turning to BPM software from Cognos, PMI began to implement the metrics-driven balanced scorecard and strategy map methodology developed by professors Robert S. Kaplan and David P. Norton. PMI now tracks such metrics as customer and product profitability, process efficiencies, key employee data (turnovers, hires), and revenues for insurance products, plus causal relationships drawn from the strategy maps.

"The ability to use the scorecard and strategy map to really put our strategy into operational terms that everyone can understand and articulate was one very big benefit," says Pachura. For PMI, the combination of BPM and the balanced-scorecard approach represents a substantial change that goes far beyond IT or finance alone.

"Everyone who goes down this path needs to realize that this is not an IT project," says Pachura, pointing to PMI's reliance on the organizational-development department. "It's a cultural change, with sophisticated technology playing a supporting role."

The various uses of BPM evidenced by these companies qualify as leading edge. But for most, "the future of BPMÂÂÂÂÂÂÂ…is toward integrating operational analytics and financial analytics and bringing all this back to the enterprise plan," says Meta Group's Van Decker. The next steps will be to tie human-resources planning and sales forecasting (from CRM systems) into this financial analytics/planning. That is, the nonfinance use of BPM represents the next wave, and most firms have yet to sign on for the first wave.

Most companies are "still drowning in data," says Jonathan Hornby, director of performance management at SAS in Cary, North Carolina. It's only when they begin to try to bring some order to it by linking operations to financials that they have an "oh, my God" moment and begin to investigate BPM as a possible cure for inefficiency, misalignment, and waste.

But progress comes slowly. A recent Meta Group report found that BPM "continues to be implemented as a tactical point solution, because many firms do not yet want to invest in a large-scale, expensive suite project (reminiscent of 1990s ERP implementation) in an era of reduced IT budgets."

Most BPM software companies are quick to say that customers can indeed start small and build. The degree to which they move past a point solution to a fuller embrace of the expanding capabilities of BPM will determine whether those forecasts are accurate or need to be revised.


Connie Winkler writes about technology management from Seattle.


Reaching a New Low

Another factor propelling BPM comes courtesy of a new tier of software companies that now offer products for $50,000 to $150,000 versus the $250,000-plus range that was typical until recently.

"The new generation of BPM is based on a better argument," says Steven Banker, services director at ARC Advisory Group in Dedham, Massachusetts. "You can buy these solutions more cheaply, implement them more quickly, upgrade them faster, and gain quicker time to value and a better total cost of ownership."

Offered by companies including Applix, ALG, CorVu, Host Analytics, Kalido, Longview, OutlookSoft, Pilot, and SRC, these newer products tend to be Web-based, integrated suites of (at minimum) budgeting, planning, and consolidation components, and often include visualization capabilities such as dashboards. Many take advantage of new analytics capabilities in the Microsoft operating system they rely on.

These newer players must battle with the giants of BPM — including Hyperion, Cognos, Geac, SAS Institute, Cartesis, and, depending on how you define the market, a few other vendors — and ERP players such as SAP and Oracle, which have made strong commitments to adding BPM functionality. The price tags for BPM software from the more established companies are typically $250,000 to $350,000, plus implementation costs that may double that initial expense. But the products are generally regarded as more sophisticated and proven.

But customer interest in lower-cost ways to analyze data isn't lost on the big boys. Oracle is planning to add a built-in ROI meter in its next enterprise standard budgeting product. SAP emphasizes that most of its ERP modules now come with an analytics component. "We're entering a world where every user is not just transaction-focused, but they have to understand how their department's performance is contributing to the overall value of the organization," says Philip Say, solution marketing manager in SAP's Strategic Enterprise Management group in Palo Alto, California. Meanwhile, the lower-cost upstarts vow to push price/performance to new lows.

See the guide to business-performance-management software companies




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