FSN: Will Microsoft PerformancePoint shake up business performance management (BPM) in the ERP mid-market?

Will Microsoft PerformancePoint shake up business performance management (BPM) in the ERP mid-market?

15th January 2007
The news that Microsoft is to enter the business performance management (BPM) market with the release of PerformancePoint Server has been broadly welcomed by other performance management vendors and mid-market ERP players. According to Microsoft, PerformancePoint Server planned for general availability in mid-2007, is a fully fledged performance management application which includes, planning, budgeting, forecasting, analytics and scorecarding. It will be targeted at both l arge and mid-market companies. But do mid-market companies need sophisticated BPM capability and do they have the skills and financial resources to make Microsoft's venture a success?

At the top end of the market, PerformancePoint could see Microsoft competing with established vendors such as Hyperion, Cognos and Cartesis, but the mid-market is virtually untouched by performance management solutions and so potentially Microsoft could be tapping into a rich seam of opportunity. The question is; does the mid-market need sophisticated performance management applications?

According to Alistair O'Reilly, managing director of the Access Technology Group and a veteran of mid-market accounting and ERP systems, they do. He told FSN, “Every business that wants to maintain its current position in the market, let alone grow, needs business intelligence (BI).”

“When Microsoft talks about mid size companies it is referring to organisations with more than 250 computer users,” he said. “It is hard to conceive these companies can still exist if they don't have a high level of BI available to them. When Access talks of mid-size companies it is referring to organisations with between £1m and £50m turnover and we know for sure that many companies as small as £1m turnover really struggle to be competitive until they have the benefit of BI,” he added.

“The real difference between these two scales of organisation is their ability to configure a solution for themselves and the number of staff available to collate and interpret whatever information is available.. The smallest companies use Excel which requires a very small capital investment and lots of the business owner's own time to design templates that take even longer to fill in. It is all that they perceive they can afford. Larger ‘medium sized' companies make a modest capital expenditure in a packaged accounting system and extract information into Excel for further analysis. This is very successful especially for those who enhance their accounts packages with low cost packaged BI applications that reduce the necessity to use Excel and where necessary deliver information to Excel in an even more structured format. There is relatively little external or internal consultancy required in this scenario.”

“Larger companies make a large capital investment in well established BI applications and have specialist staff who can interpret the sophisticated analysis these can make available. Again, there is relatively little external or internal consultancy required in this scenario.”

But, O'Reilly cautions that the Microsoft PerformancePoint route could work out more expensive than companies had bargained for. He told FSN, “PerformancePoint appears to promise larger companies the opportunity to reduce their capital outlay for the application in favour of a collection of tools. However, it is quite possible that the total cost of ownership once configuration and consultancy is accounted for will be somewhat higher.”

However, Dr Nigel Geary, founder and CEO of PrecisionPoint Software, a specialist provider of Business Intelligence targeting Microsoft Dynamics users, told FSN that he considers that mid-market companies need to understand what they are measuring, before they can embark on performance management. Speaking to FSN he said, “There is definitely a need for performance management in the mid-market but the priority is to distinguish “measurement” from “management”. The first task for the mid-market is to get a grip on where they are – i.e. measure what they already have. Once they have daily control of knowing where they are they can then start ‘managing' performance by using better planning tools such as budgeting and forecasting applications to optimise inventory, manage resources and cash flow.”

Geary agrees with O'Reilly's analysis of the mid-market. “Most of them are currently using spreadsheets which work fine for the smaller companies - especially when they publish budgets through their ERP. But spreadsheets become more and more unsuitable for companies above £25M. At that size they start to look for something more robust. The reason the mid-market has not adopted CPM in the past is that the products were designed for the Enterprise market customer with an IT department and were much too expensive and complex for mid-sized companies to implement.”

“In coming from the Enterprise space to the mid-market 5 years ago I was amazed at how difficult it is to get the information that the users need for decision making out of mid-market ERP systems,” adds Geary

This is why Geary's business is focussed on getting mid-market customers doing business performance measurement right away. For example, PrecisionPoint Business Warehouse is designed to automatically leverage the metadata (structures) of the Microsoft Dynamics range of mid-market ERP solutions, shielding companies with little in the way of IT skills from some of the complexity of set up so that they can do business performance measurement right away. “It has virtually no set up time or learning curve to speak of,” he told FSN.

Geary adds, “The real meat for me in PerformancePoint Server is the Business Modeller and the Planning Server – these tools will take performance management away from brittle, linked spreadsheet systems into the next plane,” he added. “Whether Microsoft will price PerformancePoint Server for the mid-market is a much bigger question, since to me they seem to be more focused on going head to head with OutlookSoft, Hyperion and Cognos Planning.”

But competing with the higher end BPM vendors could be challenging for Microsoft. Existing companies in the BPM space have had years of customer feedback on features, work flow, data integration and implementation expertise – Microsoft has to close that gap quickly.

Like Access Accounting's O'Reilly, Geary is also concerned that PerformancePoint is more of a toolset than an application. “Since PerformancePoint is a set of development tools that can really do just about anything with the caveat of “given enough time and consulting resources”, the product could be oversold as a packaged application. This will be a major issue, especially in the mid market. Microsoft is a platform and tools company – they address developers needs very well, but they haven't done very well historically when it comes to talking to users about what their day to day process entails,” he added.

Geary adds, “There are only a limited number of BI specialists in the world with business analysis skills who can turn the tools into real solutions. So if Microsoft promotes PerformancePoint to IT, without understanding the application needs of the business user, then success could be limited, especially in the mid-market. If all the BPM consultants on the planet jump ship and get behind PerformancePoint – there will still be a huge skill shortage when it comes to satisfying the mid-market.”

But Frank Buytendijk, Hyperion's European strategist appeared unfazed by the developments. “Healthy markets, including this one, are in constant change. It is unusual that a single trend or development completely changes a market's direction - it is an interplay of many different trends. Microsoft entering the BPM market certainly has an impact, but so far, in our market, Microsoft has had a net positive effect. For example, in the business intelligence market Microsoft has taken its market share, but overall the market has grown which has benefited all competitive players. There is no reason to believe why it would be any different for BPM,” he told FSN.

But can Microsoft compete effectively in so many areas, for example, accounting, BPM, databases and operating systems? According to Buytendijk, they can.

“Sure Microsoft can compete effectively. There is a market for One Stop Shop and there is a market for Best of Breed solutions and vendors. Microsoft provides an ecosystem for many partners and it plays a role itself as well. The net effect will be coopetition – a mix of competition and co-operation. There is no clear borderline. Microsoft will help opening up the mid-market for BI and BPM,” he adds.

So the prospects for business performance management in the mid-market look good especially as Microsoft's competition in the middle of the mid-market looks thin on the ground. Bizarrely, Microsoft's biggest competition appears to be Microsoft Excel! Furthermore, the timing looks about right. Business functionality in the mid-market ERP is converging so one of the ways businesses can squeeze more competitive edge out of existing applications is to make more use of the data through performance management applications.

However, the big question remains; will mid-market companies be able to use it? That depends on whether product is easy to use without a high level of IT intervention. Critics say that PerformancePoint will be a toolset rather than an application and so it will be more difficult and costly to use than people imagine. On the other hand there is evidence that Microsoft knows exactly what it is doing. For example, PerformancePoint Server 2007 will be based on the 2007 Microsoft Office system interface, the application that is already familiar to a wide range of employees within a business. It's the same thinking that is shaking up the design of Microsoft's mid-market ERP solutions, i.e. giving people a familiar interface to help them navigate new applications. The argument that Microsoft is just a tools vendor no longer appears sustainable or justified. Microsoft is slowly changing perceptions around ERP systems and it is just possible that they will do the same for the BPM market as well.

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