Panagiotis Leontios

The New BPM: Enterprise Performance Management

In Business on 19/06/2009 at 10:35 am

In 2005, BPM Magazine published an article called Standard Setters: Driving Improvements in Business Performance. The article introduced a framework for gathering and integrating performance data; the BPM Framework was developed by a group of consultants, analysts, and representatives of software vendors. Today’s software landscape is very different from that of 2005, but business intelligence (BI) and business performance management (BPM) remain hot topics — and disciplines that are rarely done right.

A November 2007 survey by the Economist Intelligence Unit (EIU), “Business Intelligence: Putting Enterprise Data To Work,” found that BI continues to be a major concern for corporate executives. Nearly 80 percent of respondents said that the right BI strategy would significantly improve their ability to react quickly to market changes and would improve customer service, but only 15 percent feel their company has applied best practices in business intelligence. Have the performance management and BI software markets made any progress since March 2005 in terms of providing solutions with demonstrable business value?

From Oracle’s perspective, they have. We now see the BPM Framework’s best-practice model on the market in real products. Individual components that were available for many years are now part of larger systems. The best of today’s offerings comprise fully integrated applications, sitting on a common BI platform and complete with prepackaged hooks into leading transactional systems. They also offer interfaces that extend performance management activities to users outside the realm of the financial analysts.

The BPM Framework’s vision of BI integration has come to life amid a landscape of rapid consolidation. A couple of years ago, the three leading BPM and BI vendors began acquiring niche technology providers to round out their performance management offerings; then, over the last six months, each was acquired by an even bigger, transactional system vendor. The driving force behind the acquisitions is that customers began to see connections between BPM solutions and transactional systems such as ERP, customer relationship management (CRM), supply chain management (SCM), and human capital management (HCM) software. Where the transactional systems run the business, the BPM systems enable executives to manage the business by providing information transparency across finance and operations.

BPM customers saw that integrating performance management systems with ERP and CRM could give a vice president of sales, for example, better visibility into her realm, from demand generation to revenue recognition. She could analyze performance trends across regions, products, and time periods against both stated goals and potential, with what-if modeling to project the performance of ongoing sales and marketing tactics. Similarly, integrating BPM with SCM and HCM could allow a COO to monitor employee productivity trends throughout the supply chain, which he could use in activities such as aligning compensation plans to production output and sales performance. As customers began to ask about these sorts of applications of their BPM systems, vendors of transactional systems realized the value of integrating their products with performance management software. The same customers who were buying from the BPM vendors had already invested heavily in transactional systems to improve their operational effectiveness. Customers that went to the trouble of tightly integrating their BPM and transactional systems were seeing benefits, and they wanted to know why they couldn’t get a complete solution from one vendor.

As Oracle approached this problem, its executives knew that the fastest way they could deliver a full-featured BPM offering would be to acquire a market leader, so they took the initiative to acquire Hyperion. Subsequently, SAP bought Business Objects and IBM bought Cognos. These acquisitions have dramatically altered the face of the BI and performance management vendor markets. In Oracle’s opinion, in fact, they have changed the market so radically that the term “BPM,” which tends to focus on the finance department’s approach to performance management, should evolve. The companies that have achieved the most success with performance management acknowledge that no one department can completely drive it; they have included the entire enterprise in the project. Thus, we see BPM evolving to EPM, enterprise performance management.

Although the products and vendor landscape have changed dramatically since March 2005, one thing has not: The humble spreadsheet is still the most commonly used product for analyzing business data. In the recent EIU study, 78 percent of executives use spreadsheets to receive business intelligence. Only 40 percent, by comparison, use BI tools such as scorecards and dashboards, and performance management tools were the least favored of respondents’ seven choices — 17 percent use them. The reason, not surprisingly, is that spreadsheet interfaces do not intimidate the casual user or busy executive. Yet the same executives who continue to rely on spreadsheets to view performance data believe that their current data analysis environment is not good enough.

There is good news for the executives in the EIU survey: The leading providers of BI tools recognize that they need to be as easy to use as a spreadsheet. A VP of sales should be able to click on a desktop icon to see current sales performance relative to goals, or even have a ticker on her desktop running through the performance data she needs, and these macro-level views should drill down to performance details. This type of capability is starting to reach the market today. New products are integrating financial and operational performance management, across disparate transactional systems, and analytical tools are available to both power and casual users.

Why, then, hasn’t the adoption of EPM been greater? One explanation is that many problems for which EPM is a solution first must be resolved at the people or process level, rather than the technology level — which increases the complexity of implementing performance management software. To get performance management right, a company must make technology the final topic of discussion rather than the first.

At the same time, any enterprisewide performance management improvement initiative must include managers and employees from across the organization. All functions have to operate in unison. For many years, BI tools have been seen as the technological answer to delivering performance information to the business user. However, the BI report is not what an executive cares about; it’s what’s in the report that matters. If the company doesn’t integrate financial and nonfinancial data, there is only so much that a BI or BPM tool can do to help decision-makers understand the results. An EPM project requires data integration across many functions to be effective — and this integration ratchets up the complexity of the project a few more notches.

The limited adoption of EPM technology is, in part, due to the challenge many organizations face in determining where to improve their processes and where to improve their systems. It’s hard enough to manage and report on data across multiple disconnected systems, but it’s harder still in an organization that does not make clear the role each person plays in managing critical business information.

Success Factors in Moving to EPM

For companies that are, indeed, ready to take on this challenge, what is the best approach to adoption of a new EPM strategy? Five best practices have shown up consistently among the Oracle customers that have successfully moved up AMR Research’s Business Intelligence/Performance Management Maturity Model (see exhibit 1).

First, the integration of processes across functions must be supported at all levels of the organization. No one department can deliver EPM; all must collaborate, from the executive level down, for success.

Second, EPM works only if it can access the data on which the business runs. Users must be able to analyze data in real time, rather than using snapshot sample reports that do not provide the whole picture.

Third, companies implementing EPM shouldn’t attempt to fix everything at once. Know how the processes work across multiple functions, and prioritize based on relative impact to the business.

Fourth, strategy has to be institutional, not personal. If everything hinges on the passion of a single champion, the project will probably fail if that person moves on. Cultural adoption of data standards, integrated business planning, standardized management reporting, and personal accountability are precursors to ongoing success. Everyone in the organization has to be accountable for following the right processes and maintaining the data he or she uses in his or her corporate role. User education must support the implementation of new processes and products throughout the entire enterprise.

Finally, companies implementing EPM must be sure they work with partners — software vendors, user groups, industry organizations, and/or consulting firms — that have experience dealing with similar problems at similar companies. They should take advantage of partners’ industry knowledge, but also ensure that vendors are focused on understanding their business before trying to sell them a particular solution.

What Happens Now?

The decision by the leading transactional system vendors to acquire, rather than build, EPM systems is a clear indication of the customer demand for these solutions. Ultimately, the customer is king, and companies shopping for EPM solutions want the insight these systems can provide into how and where they should focus their investments.

For one company, the business driver behind an EPM software purchase may be a struggle to stay ahead in a global market. For another, it could be a need for management process reengineering to reduce costs and improve efficiency. For a third, it might be virtualization and the improvement of intercompany collaboration within a supply chain. Whatever the reason, information drives performance, and the advances in the performance management software market since March 2005 make it possible for these systems to fully deliver on their promise.

[Andrew Pritchard]

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