To many industry commentators, the term 'Business Performance Management' (BPM) is something of a misnomer because few people can claim to have implemented a performance management process that truly embraces every functional area of the business. More typically, performance management outside of the finance function is represented by the limited application of Business Intelligence (BI) tools to produce, specialised instances of scorecards, dashboards and reports. But what is preventing BPM from spreading its roots? Gary Simon, FSN's managing editor looks at the issues, the inhibitors and catalysts for change.
According to Actuate, the US provider of Business Intelligence tools, only a small percent, typically 15%, of employees, in an organisation use business intelligence tools. However, despite the low uptake to date, Nigel Montgomery, a director of AMR Research, says BPM has started to take root outside of the finance function, driven in the main, by competitive pressures. He told FSN, "Companies are much more demand driven than in the past. For example, they need better visibility of customer demand throughout the whole manufacturing process and through to the supply chain so that they can more effectively match production to sales demand."
On the other hand Martin Richmond-Coggan of Applix, the provider of the popular TM1 performance management and budgeting software considers that BPM has always had a presence outside of the finance function, popularised by methodologies such as the Balanced Scorecard. Commenting to FSN, he said, "The Balanced Scorecard concept has been around for a very long time but only a quarter of it is devoted to financial measures. The rest deals with operational measures such as customer satisfaction, employee metrics and other operational performance indicators."
Whilst Richmond-Coggan and Montgomery may disagree on the extent to which BPM has percolated through the typical organisation they are united in the view that applications are rarely linked. Montgomery told FSN, "In the past, sales and marketing would produce a sales plan but this would be disconnected from the production plan. Effectively production would carry on producing goods irrespective of demand. But competitive pressures mean that companies cannot afford to do this any longer and need better business intelligence tools and planning tools to more easily synchronise supply and demand."
Richmond-Coggan agrees. He told FSN, "The trouble is that almost every functional area of a business has its own planning applications, so for example, the sales function has its forecasts and so does the HR function. ERP systems were supposed to provide the glue but in reality, they are focussed almost exclusively on reporting off transactions and provide very little in the way of forward looking planning, forecasting and analysis"
But Montgomery believes the ERP players are catching up, "Historically, the ERP vendors were not skilled at developing analytical applications so customers were forced to use software tools from, say, Cognos to give a business intelligence view on top of the ERP system. Now most ERP vendors have their own solution or strong alliances with other providers to deliver business intelligence so that delivering operational business intelligence is less of an issue than it was," he says.
Nevertheless, Richmond-Coggan, says there are still formidable technical challenges in delivering, what he refers to as, 'operational business intelligence' applications because of the high volumes of data that need to be processed as well as the speed with which results must be analysed. Applix has successfully carved a niche in this area, often seeing off competition from the big ERP vendors and leading BPM vendors. Its success, says Richmond-Coggan is largely down to its ability to prototype applications very quickly, recalculate very rapidly in memory and handle huge data volumes. "The main ERP vendors hold vast amounts of transaction data in relational databases or in data warehouses. But either way, the solutions are too slow," he says.
Richmond-Coggan talks 'telephone numbers' when it comes to data volumes. "Once you are dealing with customer data, the problems of data handling and response times become several orders of magnitude greater than dealing with financial applications," he says. For example, An Idonesian mobile operator uses Applix to analyse 28 million customer records. "All of the data is held in one dimension and changes daily," he adds. "Another utility company matches energy supply and demand in half hour slots over a two year period using more than 200 variables. That's 78,000 time periods recalculated in a matter of minutes," he adds. It's one reason why Applix says it finds itself competing with the likes of SAP, Oracle and Manugistics in the operational BI space but with products such as Hyperion and Cognos in the financial space.
Frank Buytendijk, Hyperion's European strategist also acknowledges the growing significance of operational business intelligence. He told FSN, "It is becoming increasingly important, because of time-pressures and compliance, i.e the trend towards the real-time enterprise and the need to ensure effective control."
However, Buytendijk cautions that despite the trend to the 'real-time organisation', not all information needs to be available in real-time. "Organisations need to be selective. I don't believe all management information needs to be in real-time. First of all, because changing data inhibits triangulation in analysis, there is no stable base. Secondly, because 'what-if' modelling of scenarios requires data to be 'different' from reality. Lastly, because in many cases real-time indicators are complete and utter nonsense, such as real-time customer satisfaction or profitability. A good rule of thumb is that the closer the indicator is to the operational process (such as number of postbags not sorted for a post office, which is a DRIVER for customer satisfaction) the more it could and should be tracked in real-time. The more it is aggregated and combined (such as customer satisfaction) the more it should be tracked off-line and periodic, to be meaningful."
But for the moment, Buytendijk concedes that BPM is indeed finance oriented. "This is how the market seems to see it. But the role of the CFO is changing from finance expert to the 'quantitative conscience' of the complete organisation, not only on financial numbers but overall performance management as well. Some people already speak of the 'Chief Performance Officer' instead of the CFO. In that sense, the changing role of the CFO will drive BPM outside of the finance office. Other areas, such as statutory reporting and financial consolidation should remain CFO focused. However, at Hyperion, we believe that budgeting and planning should become more business oriented and based on business drivers and resources, instead of financial outputs," he told FSN.
So it seems that after a hesitant start, performance management is slowly gaining traction within operational areas of the business outside of the finance function. But technology and poor methods of deployment are acting as a brake on progress. ERP systems have yet to establish their credentials in planning and forecasting and existing technical platforms struggle with the very high data volumes.
"If performance management is to be effective in operational areas outside of the finance function then organisations need to do two things," says Richmond-Coggan. "There has to more planning and forecasting and the plans have to be related to each other, as well as to finance. This way, the organisation can respond to the full implications of the plans, rather than planning for its own sake," he adds. "Too many organisations stick their heads in the sand and do not share the output from individual plans. In Applix we say 'follow the data' i.e. we constantly challenge functional management to see who else could use the data. It's the only way to get joined up thinking," he concludes.
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