Business performance management in focus

Seven out of 10 organisations fail to execute on their strategy, according to business intelligence guru David Norton, inventor of the balanced scorecard approach to business monitoring. The reason? They lack adequate management tools.

Business performance management, or BPM, aims to address these shortcomings. But it is not a product as such – rather an amalgam of technologies and methodologies designed to integrate and enhance organisations’ decision-making processes. This includes planning, forecasting and budgeting, business monitoring and scorecarding, and query, analysis and reporting.

The importance of better business monitoring has been highlighted by recent changes to companies’ business reporting obligations in the wake of numerous financial scandals in the US. The Sarbanes-Oxley Act, for example, requires organisations to disclose aspects of business performance in greater detail than ever before.

But there are other enticements, as analyst group Gartner pointed out in a recent report. “Enterprises that effectively deploy BPM solutions will outperform their industry peers.” For most, this will be incentive enough to justify an investment in BPM.

Performance players

Aberdeen Group estimates that total BPM-related spending will approach around $5 billion by 2005. However, since the BPM market encompasses a number of overlapping software segments, it is difficult to identify one dominant supplier. The four key areas of BPM are:

Financial analytics

Hyperion Solutions, boasts by far the broadest line up of tools in this area, including modelling and optimisation, planning budgeting and forecasting, scorecarding, consolidation and reporting. Comshare offers a similar but narrower line up, while close competitor Applix provides financial planning and consolidation, and customer- and service-oriented analytical applications.

Business intelligence

Most of the major business intelligence (BI) software vendors have embraced the BPM concept. Cognos, for example, has extended its portfolio to planning, budgeting and forecasting, consolidation and financial reporting, financial analytics, and scorecarding software. Its main rival, Business Objects, mirrors much of that coverage, with a weaker hand in financial planning and budgeting but greater strength in data integration. Other BI software companies have added BPM capabilities to their portfolio, including Information Builders, Crystal Decisions, Microsoft, Brio, Informatica, MicroStrategy, Computer Associates, Actuate and Hummingbird.

Business applications

Two of the major business applications companies have identified BPM as a key area. Oracle and SAP both differentiate themselves from the specialist BI vendors by tying their BPM offerings directly into their underlying business applications.

Data infrastructure

One of the fundamentals of managing business performance is having ease of access to relevant and clean data. The key players in building that integrated data backbone are Informatica, DataMirror, and iWay Software.

Business drivers

There are two major factors driving adoption of BPM tools, according to Pamela Eichorst, European director of business performance management for BPM software company Hyperion.

1. External: New accounting and reporting obligations, such as the Sarbanes-Oxley Act, have put pressure on organisations to improve levels of corporate governance and the visibility of financial and performance-related data. Many businesses are, therefore, now looking at systems that can provide a more holistic view of corporate performance data than individual analysis tools.

2. Internal: Many organisations suffer from a disconnect in corporate strategy and how it is implemented at an operational level. Through the use of performance dashboards or alerts, BPM software can help companies see how different departments or disciplines contribute towards their overall business goals.

Best practice

In his book, Quest for Balance, performance management expert Andre de Waal found that organisations that had some form of performance management system in place could increase total shareholder return by almost 8% compared to those without.

But as with any system, success depends on its implementation. According to a recent survey by IDC in conjunction with business intelligence software company Business Objects, the companies that see the greatest improvement in performance from using BPM tools have the following characteristics:

  • They measure at least 15 key metrics

  • They measure across at least three departments

  • Their metrics encompass financial, sales, marketing and employee information

  • They have had a performance management methodology in place for at least two years

  • They regularly share metrics with other departments

    Adoption curve

    At present, an overwhelming majority of organisations rely on Microsoft Excel for data analysis, but there are a number of trailblazers that are using the BPM concept to great effect. General Electric and Procter &Gamble, for example, use digital ‘dashboards’ that draw daily information from different business units to track overall performance. Wireless company Verizon, meanwhile, streams charts to employees, identifying relevant areas of operational status. Finally, by centralising reporting applications from 40 different locations, cosmetic company Coty has saved $2 million over a three-year period.


    Key performance indicators: assets, Balanced scorecard assets, Business activity management assets, Digital dashboard assets, Unified view assets, Business velocity management assets, Corporate governance assets, Real-time analytics

    Horror stories

    When companies make bad business decisions, inaccurate or fragmented data is frequently to blame. Below are a few examples of the potential consequences of not investing in integrated corporate performance management.

  • Surprise profit warnings: On average, more than 5% of organisations issue profit warnings each quarter due to poor demand visibility or bad decisions, according to a recent report by Ernst & Young.

  • Quarterly losses: Poor reporting systems at UK food retailer Iceland failed to show its move into organic food in 2001 had forced sales into decline until it was too late.

  • Accounting errors: The CEO and CFO of the world’s third largest retailer, Ahold, both resigned in February 2003 after a $500 million reporting irregularity. This was the latest in a series of reporting scandals at companies such as Enron, Tyco and WorldCom.

    Source: Infoconomy/Forrester Research

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    Ben Rossi

    Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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