‘Performance management’ is a relatively new category of business solution even though its roots can be traced back almost three decades to the advent of Executive Information Systems (EIS). The concept now, as indeed it was thirty years ago, is to provide access to critical business information in a digestible and actionable state so that financial and operational management can have shared visibility of business performance and the key performance indicators that drive it.
But despite the apparent simplicity of the request and the huge resources (organisational, economic and technical) which have been ‘thrown’ at the problem successive generations of ‘C’ level management have been consistently disappointed with the outcome. Gary Simon, Managing Editor of Financial Systems News (FSN) worked with Anaplan to examine why success has proved so elusive?
CONTENTS
INTRODUCTION
Performance Management isn’t performing
The genesis of Performance Management
THE NEW WAY OF DOING THINGS
Extensibility
Collaboration
Unified metadata
Scalability and speed
Auditability
Self - service
THE CLOUD
Why the Cloud?
On premise vs Cloud
THE NEW ARCHITECTURE FOR PERFORMANCE MANAGEMENT
Unified environment
Development environment
LEVERAGING PERFORMANCE MANAGEMENT FOR COMPETITIVE ADVANTAGE
Competitiveness
Organisational responsiveness
Productivity
Control
SUMMARY
INTRODUCTION
‘Performance management’ is a relatively new category of business solution even though its roots can be traced back almost three decades to the advent of Executive Information Systems (EIS). The concept now, as indeed it was thirty years ago, is to provide access to critical business information in a digestible and actionable state so that financial and operational management can have shared visibility of business performance and the key performance indicators that drive it.
But despite the apparent simplicity of the request and the huge resources (organisational, economic and technical) which have been ‘thrown’ at the problem successive generations of ‘C’ level management have been consistently disappointed with the outcome. So why has success proved so elusive?
Performance Management isn’t performing
In broad terms, early attempts at performance management underestimated the technical complexity and the organizational challenge. Business Intelligence Software, Datamarts and Business Data warehouses simply could not cope with the rampant growth in business volumes and the wide variety of applications and data sources that had to be managed in international organisations. At the same time, many of these IT led-projects, supported by legions of consultants, failed to secure senior management ‘buy-in’ or to engage sufficiently with the intended end-users. As a result many grand ‘business warehouse’ designs floundered at a very early stage.
Against this backdrop a new class of specialist or ‘Best of Breed’ software emerged for applications such as budgeting, planning, reporting, consolidation and group financial reporting. These solutions were geared directly towards the needs of the end-user departments, most notably the finance function, which could configure and maintain the solution themselves rather than rely on the software vendor and traditional consultants. The approach proved leaner and more successful than the one-size –fits-all IT projects and there was rapid uptake of the solutions through the nineties.
The genesis of Performance Management
It soon became apparent that two related industries were developing in parallel. On the one-hand the Business Intelligence industry providing much needed query, analysis and reporting capability, complemented on the other hand by ‘Best of Breed’ applications which concentrated on delivering the ‘financial intelligence’ required by core financial processes.
Eventually it became obvious that there was a compelling need to integrate the products to provide data visualisation and financial competence in one environment and so the Performance Management industry was born. This was the signal for the world’s largest software houses to embark on a ‘feeding frenzy’, buying up ‘Best of Breed’ and Business Intelligence products with the intention of assembling them into a comprehensive ‘Performance Management’ suite.
However, the task of assembling Performance Management suites from the potpourri of applications that had been acquired proved more challenging than many had envisaged. For example;
- Product discontinuity - In assembling the product suites by acquisition the large vendors ended up with overlapping products some of which they did not want or need. As a result some products were ‘retired’ earlier than end users envisaged casting doubt on the value of their investment and creating distrust in future product roadmaps.
- Complex data management - The integration of products from different supplier ‘stables’ sometimes led to convoluted processes just to keep metadata consistent across the portfolio. This was complicated by different customers using different versions of the same product.
- High cost – the Performance Management suites were relatively expensive and it was not always possible to buy into them application-by-application which would have been the case in the ‘Best of Breed’ world.
- Reliance on IT and Consulting – the scale of the suites together with their varied origins made it difficult for any particular individual to acquire the expertise to manage the applications overall. Companies found themselves reliant on “experts” or consultants in individual applications and processes. Not only was this expensive but the lack of knowledge-transfer meant that end users were rendered incapable of configuring or operating the applications for themselves, which was a major drawback in a rapidly changing business, trading and regulatory environment.
- Spreadsheet-bound – in view of the reliance on external consulting and IT resources users continued to develop reports and work-arounds in poorly managed spreadsheets, compounding issues of control and auditability that performance management suites were supposed to resolve.
The summary table below illustrates that neither the ‘Best of Breed’ approach nor the monolithic Performance Management suites have entirely lived up to end user expectations.
|
Issue |
Best of Breed |
Performance Management Suite |
|
Functionality |
Discrete pockets of functionality that do not serve the wider performance management needs of the organisation. |
Large suites of functionality that have been ‘shoe-horned’ together to provide a comprehensive suite. Inconsistencies in user interface and process remain between different applications. |
|
Integration |
Difficult to achieve integration in a multi-vendor environment. |
The different origins of each application make integration more problematic and the management of metadata across the suite a constant challenge. |
|
Cost |
Low cost entry for a limited solution. |
High upfront costs; implementation costs and on-going change management costs. |
|
IT Dependency |
Usually less onerous than a suite but integration issues require high IT involvement. |
Complexity of solution requires consultants and application (configuration) specialists at every step of the way. |
THE NEW WAY OF DOING THINGS
Despite this unsatisfactory history the need for a new way of managing performance has never been greater. A combination of geo-political upheaval and unprecedented economic events has conspired to heighten the need for companies to keep their finger on the pulse. A testing economy and intense global competition has piled pressure on profit margins whilst high levels of volatility and uncertainty has created the most challenging trading conditions for more than half a century. Fortunately, a new breed of Cloud-based performance management applications is emerging which seeks to address the historic limitations of performance management by addressing the new demands of global 2,000 organisations.
So what are the cornerstones of a modern performance management offering that will overcome the shortcomings of the past?
Extensibility
The notion that performance management is completely grounded in financial systems and processes is misguided. Modern enterprises need to take management excellence to the fringes of the organisation to build a culture in which all personnel, regardless of function, are familiar with corporate objectives and understand how their actions or inactivity are intertwined with others. In practice this means that performance management is becoming more operational in focus and that, for example, financial planning and analysis is being driven out into the ‘front lines’ of business.
Collaboration:
Most organisations are structured into departments which reflect the core skills of the people in them. For example, Sales Department (salesman), Production (engineers), Finance (accountants) and so on. But these skills oriented functions do not reflect the way that organisations carry out their work in practice.
Core financial management processes such as forecasting are cross-functional, i.e. require collaboration between functions to improve the richness of forecasts. So called “integrated business planning”, seeks to establish consistency by encouraging the active participation of all relevant functions. For example, a sales forecast may need to be validated with production plans to ensure that goods are available; with human resources to ensure that there is sufficient headcount; and with finance to ensure that working capital requirements are not breached. So a modern system has to support the processes that enable cross-functional working.
Unified metadata
Collaborative processes also need to be supported by consistent metadata, i.e. structural data (cost centres, names of accounts, product groups, divisions etc) to ensure that all personnel engaged in performance management are using a common language and business model; for example, that “revenue” means exactly the same thing whether it is discussed as part of a forecast, a plan or YTD Actuals. Consistent metadata provides confidence in the robustness of data and ensures that personnel can focus on the business issues of the day rather than debating whose numbers are right.
Scalability and speed
Higher levels of participation encouraged by collaboration inevitably drive up data volumes and the number of concurrent users. In the new paradigm for performance management a centralised model has to be scalable to accommodate a large number of users
Auditability
The ability to support performance management processes through a single scalable model, rather than the distributed models of the past, or the loosely coupled applications in some performance management suites, provides a sounder basis for audit.
Self -service
One of the shortcomings of the historic approaches to performance management has been the high levels of IT intervention required to configure and test business models. A more desirable approach is that the business model can be designed and built by the end users themselves, liberating the IT function from responsibility and empowering the end users to create models that more easily meet their needs.
THE CLOUD
The advent of Cloud Computing has provided the perfect opportunity for a new class of software vendor to deliver a step-change in capability around performance management solutions. A Cloud based platform is game-changing in its own right but the Cloud has also provided a springboard for the performance management industry to re-think its approach.
Why the Cloud?
At its simplest, Cloud computing, or more specifically, the Software as a Service (SaaS) model of computing provides applications that are hosted on the software vendor’s server in the Cloud. Usually, but not exclusively the applications are purchased on a subscription basis, rather than the perpetual software licence which is customary in the traditional ‘on-premises’ world.
On premise vs Cloud
Many organisations consider the ability to selectively hive off applications to a Cloud vendor to be liberating. The host assumes all of the obligations of overseeing, managing, operating and supporting the computing environment as well as responsibility for securing the confidentiality and availability of the user’s data.
In marked contrast to traditional on-premise solutions the user organisation does not need to retain any dedicated IT infrastructure (server capacity, networks or the like) or the in-house IT resources that usually accompany it. By extension, the IT function is freed of the responsibility for supporting a new application or establishing a user help desk. The user organisation also ‘escapes’ responsibility for software upgrades, implementing software patches, introducing regulatory changes, or providing more server and network capacity. In smaller organisations where the breadth of skills and depth of capability of in-house IT resources is more limited the benefits assume even greater importance.
The Cloud subscription model also removes a layer of cost uncertainty. The IT function is no longer saddled with the unexpected costs of hardware upgrades or support costs and furthermore the subscription model makes it particularly easy to identify the cost of adding users as the application grows. The ability to ‘pay only for what you need’ allows organisations to avoid the high upfront costs of on-premise solutions (which are fixed) and to align computing costs more sympathetically with growth.
There are also significant advantages from an operational view point. Applications hosted in the Cloud are usually available and supported 24/7 which is a major advantage for distributed organisations working in different time zones. Furthermore access to the applications requires no more than a browser on a PC, or more likely, a mobile device such as a laptop, iPad or mobile phone. Such flexibility not only suits a mobile workforce but also empowers employees to work on a self-service basis as and when they like.
THE NEW ARCHITECTURE FOR PERFORMANCE MANAGEMENT
Building on the compelling advantages of Cloud computing innovative software vendors are taking the opportunity to develop performance management applications that maximise the opportunities for collaboration and extend its reach throughout the organisation. Using powerful web-based platforms they can provide a completely unified, scalable and auditable computing environment that can be built and maintained by end-user departments.
Unified environment
One Conversation
A single environment, as the name implies, provides a consistent UI (user interface) whether the user is entering budget numbers or actuals. But even more important is that a single data model (data dictionary) underpinning a single business model of the organisation ensures that everyone is working off the same definition of metadata (structural data) and regardless of the number of applications sharing it, the data need only be held once.
Always in sync
The unified environment also lends itself to collaboration in a way that modular performance management suites find difficult to emulate. With a single business model it is feasible to allow all of those involved in a process to share access (subject to security permissions) to the same data and to assign them to the same workflow, as appropriate. In this way the unified model overcomes undesirable functional boundaries that are reinforced by traditional performance management design. In the unified environment, Integrated Business Planning - which is so often talked about but rarely delivered –becomes a practical proposition.
Totally Connected
With a single business model catering for all phases of the performance management cycle it is straightforward to construct reports and views of the business, (scorecards and dashboards) that draw on information from across the business. In this way, users can find information at their fingertips for decision making and resolve anomalies by being able to drill down unimpeded by modular design.
Since there is just one consistent definition of business data and business rules new application areas can be added to the business model without undermining the integrity of the system. The inherent scalability of a unified business model, assisted by best-in-class techniques such as ‘in-memory’ calculations and efficient physical design, allows for growth in data volumes and concurrent users without impairing performance.
When it comes to auditability and traceability of transactions the single data model has clear practical advantages over the traditional modular design which relies on an audit log written from multiple sources with the suite. It is also easier to lock-down or secure areas of a single model that are complex to construct in a modular design.
Development environment
Self-service
With the passage of time, model building techniques have become easier and the Cloud sets new expectations for ‘ease of use’ and platform integration that are simply not feasible in the ‘on-premise’ world. Users demand spreadsheet simplicity and the new way of building business models gives them just that – syntax that follows ‘natural language’ and mathematical expressions with which any spreadsheet author can feel instantly familiar.
The ability for end-users to take charge of their destiny rather than rely on consultants and IT specialists is a major boon to productivity. It eliminates delays between the IT function and end-users and it also avoids the challenge of requirements ‘lost in translation’ between functions. End users are thus encouraged to develop extensions to applications or new applications to meet needs that were previously under-served.
McAfee finance users develop their own application to replace spreadsheets in remuneration planning and realize an ROI of at least 400 percent
McAfee, a wholly owned subsidiary of Intel Corporation, is the world’s largest dedicated security technology company. Bryan Bayless, VP GTM Finance is responsible for financial oversight of the Enterprise Business division which accounts for about half of McAfee’s revenues. Motivating and appropriately remunerating its 1,500+ strong sales force in a fiercely competitive and fast moving trading environment is a highly developed and intricate process that needs to be carefully controlled and managed.
The uniquely complex character of the sales quota and remuneration process meant that sales capacity and remuneration planning has always been managed by finance and operations teams outside of conventional payroll and human resources systems. The finance and operations functions relied on a plethora of disconnected Microsoft® Excel® spreadsheets and up to 40 different Microsoft® Access® databases with only in-business technical support and resources.
So McAfee contacted Anaplan to hear about its remuneration and compensation process.
“It wasn’t what I was expecting” said Bayless. “We were looking for a pre-packaged compensation package – a point solution - so I didn’t understand how a generic analytical performance management application could help.”
But Bayless, a self-confessed “Spreadsheet Junkie” was impressed with Anaplan from the very outset. “I was intrigued because here was a product that anyone with moderate spreadsheet skills could understand. The logic wasn’t dissimilar from spreadsheets yet it was obvious one could build models with almost limitless scalability and integrity.”
The notion that McAfee could build a single data model to be shared by the entire global finance team was very appealing. “Every time we changed some metadata such as the country hierarchy or any one of the several compensation elements in one spreadsheet we had to ensure everyone updated their own spreadsheet as everyone was working in their files live, - but invariably something got left out..”
So when Anaplan demonstrated that its models are genuinely self-contained with no need to export to Excel to manipulate and analyze data, the finance team was genuinely impressed.
The build itself was collaborative but Bayless reports the emergence of a ‘hive mentality’ after the model was deployed. “Everybody on the Cloud-based platform is working on the same data so that different countries can work together and the model is instantly updated. Now everybody willingly works together and somebody in Sydney can help a colleague in Slough because they share the same model.”
The finance team expects to see a significant improvement in productivity as a result of introducing Anaplan. “There won’t be a consolidation process anymore. Data is entered directly into the model and updated in real-time. We don’t have to wait 24 to 48 hours to see the results either.” Bayless also remarked about the tangible financial benefits of introducing Anaplan “We will cut days out of the process for the entire finance team and be able to use existing resources without the need to hire additional personnel to keep up with the workload.”
“The ROI is a no brainer. I’m used to project paybacks of 2+years, but this project was 2 months on a cash basis. If you take account of the resources no longer required and the IT costs we have taken out, then the ROI is at least 400 percent.”
The extended summary table below shows how the new way of managing performance in the cloud provides a new benchmark for functionality, integration, cost and self-service.
|
Issue |
Best of Breed |
Performance Management Suite |
Modern Cloud-based Performance Management |
|
Functionality |
Discrete pockets of functionality that do not serve the wider performance management needs of the organisation. |
Large suites of functionality that have been ‘shoe-horned’ together to provide a comprehensive suite. Inconsistencies in user interface and process remain between different applications. |
Developed from the ground up for the Cloud these modern suites have taken functionality to a new level, supported by ‘in-memory’ calculations, simplified business logic (natural language syntax) and unprecedented scalability |
|
Integration |
Difficult to achieve integration in a multi-vendor environment. |
The different origins of each application make integration more problematic and the management of metadata across the suite a constant challenge. |
The new way of doing things - a single unified solution, ensures that all applications, processes, data and metadata are physically and logically held in one environment. There is no need for integration in the conventional sense of the term – except with external data sources. |
|
Cost |
Low cost entry for a limited solution. |
High upfront costs; implementation costs. and on-going change management costs. |
The subscription model allows users organisations to manage their costs in line with growth. |
|
IT Dependency |
Usually less onerous than a suite but integration issues require high IT involvement. |
Complexity of solution requires consultants and application (configuration) specialists at every step of the way. |
Collaborative and simplified model building and maintenance allow end-users to be masters of their own destiny without engaging external experts. |
LEVERAGING PERFORMANCE MANAGEMENT FOR COMPETITIVE ADVANTAGE
A modern, scalable performance management system in a single unified environment holds many practical advantages over the monolithic performance management suits and Best of Breed solutions of the past. But when it is aligned with suitable management processes and the people to manage them, it can also have a profound effect on competitiveness, organisational responsiveness, productivity and control. Here are some examples;
Competitiveness
A single unified business model allows all of the key performance management processes, namely; strategy development, setting of performance measures, long range planning, budgeting, forecasting, scorecarding, consolidation of actuals, reporting and analysis to share the same body of information. Multidimensionality and careful decisions around the granularity of data can amplify views of the business, yielding deeper business insights that enhance competitiveness.
Organisational responsiveness
By taking advantage of collaborative capabilities to involve more participants in say budgeting, planning and forecasting an organisation can simultaneously drive up forecast accuracy and reduce the time taken to negotiate each budget and forecast round. And of course the ability to turn a forecast around in perhaps half the time it previously took and to quickly assess market conditions can make the difference between organisational success or failure in volatile markets.
Equally important is that the extensibility of a modern solution ensures that all parts of the organisation, not just finance, are attuned to performance objectives
Productivity
The productivity gains arising from a more collaborative approach can not only generate a rapid return on investment (ROI), as in the McAfee case study above, but it can also liberate much more time for business analysis and decision making as well as allowing highly qualified resources to be deployed elsewhere. Alternatively productivity gains can provide headroom for growth without necessarily taking on more personnel.
Control
The single platform lends itself more readily to audit since all movements are recorded and traceable in a single environment. But workflow too allows formally error prone processes to be codified and better managed.
SUMMARY
There has never been a more pressing need for excellence in performance management yet traditional ‘Best of Breed’ solutions are only a partial answer and monolithic performance management suites built by acquisition are complex to configure, difficult to understand and expensive to buy and maintain. Neither approach is ‘fit for purpose’ in a volatile economy in which management needs to have constant visibility of data which is trustworthy and capable of being shared across the enterprise.
Cloud computing has spawned a new generation of applications which represent a step-change in capability whilst taking advantage of the inherent benefits of the Cloud. The new paradigm for performance management is founded on a single extensible business model and common data structures so that all users, regardless of business function can collaborate using shared processes safe in the knowledge that they are working off the ‘same page’.
Furthermore, newer, simplified ways of building performance applications empowers users to manage their own destiny and to add to applications as the need arises rather than being reliant on IT professionals and consultants for even the most trivial changes.
New platform capabilities in the Cloud are overtaking the traditional view of performance management, allowing financial planning and analysis to extend well beyond the finance function and to become deeply embedded in mainstream operations. This shared view of the business helps to ensure that conversations are productive, business analysis is insightful and the organisation is responsive to rapidly changing economic conditions. Armed with better and consistent information together with a scalable and affordable solution the new paradigm of performance management provides a clear way forward, unencumbered by complex legacy systems, IT infrastructure and unfulfilled road maps.
For more information about Anaplan, please visit www.anaplan.com
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About FSN |
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FSN Publishing Limited is an independent research, news and publishing organization catering for the needs of the finance function. This white paper is written by Gary Simon, Group Publisher of FSN and Managing Editor of FSN Newswire. He is a graduate of London University, a Fellow of the Institute of Chartered Accountants in England and Wales and a Fellow of the British Computer Society with more than 27 years experience of implementing management and financial reporting systems. Formerly a partner in Deloitte for more than 16 years, he has led some of the most complex information management assignments for global enterprises in the private and public sector. Whilst every attempt has been made to ensure that the information in this document is accurate and complete some typographical errors or technical inaccuracies may exist. This report is of a general nature and not intended to be specific to a particular set of circumstances. FSN Publishing Limited and the author do not accept responsibility for any kind of loss resulting from the use of information contained in this document. |
