Many organisations suffer from information overload. Despite great volumes of data culled from many different systems, they still lack vital management insights into exactly how well the business is doing.
Now, corporate performance management offers them a way to dig into existing information stores and carve out real knowledge.
CPM as a concept has immediate appeal to companies desperate to find ways of pinpointing and monitoring the business factors that make a real difference to their operational success.
But tight budgets and the memories of previous attempts to automate business analysis and decision making have left many potential purchasers wary about this latest IT buzzword.
For CPM to become established, vendors and consultants need to demonstrate exactly how the theory can be turned into practice.
With so much up for discussion in this new market, Conspectus invited four industry experts to give their views on what CPM has to offer, how applications can best be implemented, and just who stands to benefit from the current opportunities.
Our ‘round table’ interviewees are Steve Whitby, head of business intelligence at enterprise software consultancy firm SAP Consulting; John Hagerty, vice president at research consultancy AMR; Tapas Maiti, who is a principal consultant in the enterprise-wide solutions practice at PA Consulting; and Lee Geishecker, research director with analyst firm Gartner.
All agree that CPM has come to prominence over the past year, as organisations increasingly understand that they have reached an information crossroads.
For a number of reasons, including shareholder pressure and regulatory requirements, companies are now being asked to demonstrate much more transparency about their financial performance.
“But disclosure of performance data is not a chore – it is an opportunity to create a competitive advantage,” argues Gartner’s Lee Geishecker. “This opportunity places increased emphasis on measuring performance inside and outside the four walls of the business.”
To do this, organisations are employing a mix of transaction-intensive applications – typically the financial and accounting systems which are the bedrock of their operations – along with business intelligence (BI) solutions which analyse day-to-day performance.
It is the combination of two different types of application which makes CPM special in the eyes of our panel. While both have been implemented in different areas at different times, organisations are now seeking to make the whole greater than the sum of its parts.
“What companies are looking for above all else is an holistic view of their business. To a degree, their current systems look backwards, at what they have done. But what they need is a projected view of the future. And what has started to come onto their radar as never before is the question of risk,” says Steve Whitby of SAP Consulting.
As Whitby points out, many organisations from a variety of industry sectors have experienced a shock in the last year or two when they have looked more closely beneath the covers of the annual report. Sharp profits downturns, sweeping cuts in share prices and big changes in the competitive environment have all made it harder for executives to plan the way ahead.
“In the US in particular there have been a whole series of compliance issues that have come to the forefront in the wake of Enron and other accounting and stockbroking scandals. Getting a better understanding of corporate performance is a priority,” adds AMR’s John Hagerty.
Companies should be well placed to do this, having spent much of the previous decade implementing sophisticated enterprise systems designed to deliver just this kind of data.
“Organisations have a database of information ready to use, compared with the situation of a few years ago when many found even consolidating their accounts difficult. They have ERP solutions in place, so the internal data is sorted, while the internet allows them to handle external data comparisons,” says PA’s Tapas Maiti
Maiti explains that with all this information in one ‘pot’, the next challenge is to use it to guide the business on a more strategic level and to deliver better shareholder value.
This point is picked up by Whitby, who observes that “attempts at CPM will be judged successful or blighted according to how accurate, timely, up-to-date and relevant the data is. There is a significant challenge in bringing all the data together to provide a core set of information.”
And while it may prove difficult to integrate often very disparate data sources, the end result is likely to be worth it. Before, managers have been using only one view of the company’s performance, driven out of one specific application: now they will have access to a much broader picture.
“The key underlying point is that instead of forcing people to manage the business according to what applications they had – such as accounting – now companies have a set of tools which allows them to set a strategic direction and manage from the top down,” Maiti says.
In one sense, Hagerty concedes, this means that CPM is effectively a ‘re-badging’ of an existing technology set which includes planning and budgeting software, BI tools, reporting, alerts and data warehouse facilities.
But like Whitby, Hagerty thinks CPM marks a real change of direction. “Companies are using these technologies in ways that they have not tried before. BI traditionally has acted as a rearview mirror, so that people can assess what has happened. Now they are looking at BI from the perspective of where they want the business to be, and measuring how successful their performance is at meeting their strategic requirements,” Hagerty explains.
This switch from wanting to understand where the company has been in terms of its performance towards seeking to work out where it should be in future is an important element in CPM.
“In effect, the real-time actions of the virtual enterprise will be measured in real time by the performance enterprise,” Geishecker says.
Since CPM covers a wide range of technologies and disciplines, there are a number of vendors who have – or expect to have – a part to play in any implementation. And because the market is potentially very large, there is space for a variety of approaches.
“In the near term, the suppliers most likely to step up to bat are the BI vendors, whose software is already used across a wide range of information. Mid-term, we will see more uptake of what the enterprise vendors can provide, while longer term we’ll see more activity around integration issues and suppliers with that expertise,” Hagerty predicts.
He draws a distinction between the approach used by the BI vendors, for whom all data is just data, and the view taken by the ERP vendors. “One reason the enterprise vendors stand to do well is that they understand the context in which the data is being analysed. Eventually we may see specialist packages in areas like supply chain or CRM which add value through content,” he believes.
Future health
For Whitby, a lot depends on the future health of the IT market as a whole. If budgets come back and potential purchasers start to feel optimistic about the promise of CPM, then this will create an environment where the smaller, niche players are likely to do well.
“But if the overall market continues to be sluggish, then users will concentrate on the essentials of CPM, which are being able to get pertinent information in place and maintain it. The people who will be able to do that most easily are those with an ERP strategy, where the ERP data sustains the data warehouse,” Whitby says.
Maiti agrees that ERP suppliers are likely to do well in this market, because they have an existing client base as well as the resources to support their products aggressively. Many BI vendors are also widening the scope of their products so they can compete.
Thus far, take-up of CPM technology has been limited, largely because the whole idea is new and the market is so fragmented. Gartner suggests that by the end of 2002 fewer than 10% of global 2000 companies had implemented CPM solutions, but predicts that this will increase to 40% by 2005.
“CPM is an important concept and vendors are rushing to deliver CPM suites. However, despite a great deal of vendor activity, the market opportunity remains uncertain,” Geishecker warns.
This lack of clarity about exactly what constitutes a CPM solution may deter some organisations from making any investment in this area. But, as Maiti points out, taking an incremental approach to CPM can pay dividends in the longer term.
“CPM operates above the existing system landscape, and therefore does not involve a large-scale system implementation. There are positive advantages to implementing incrementally because the organisation can make use of each set of benefits to adjust its horizons,” Maiti says.
In his view, CPM should always start with building the data warehouses, then using the results to drive activities such as consolidating data and current financial analysis in order to ensure consistency.
With budgets under pressure and any investment subject to the closest scrutiny, Whitby is predicting that 2003 will be the year of the pilot as far as CPM is concerned.
“Most companies will tend to be pragmatic and start building the concepts on a departmental or divisional level so that they can see how it all works. It is going to take a lot of effort and change management to get it right,” he maintains.
Whitby recommends organisations focus on three issues. First, they need to identify their real priority areas for CPM and run pilots to establish and understand those requirements.
Second, companies have to work out which of these areas are the most easily automated, which means looking at the availability and the readiness of the data and the tools to handle it.
Thirdly, companies need to look at the ability of various parts of the organisation to respond to and use the information which a CPM implementation will give them.
“There is simply no point in being able to monitor the business using CPM if the information which comes out can’t be acted upon,” Whitby warns.
He believes many earlier attempts at BI have tended to be what he terms ‘isolationist’ – in that companies have concentrated exclusively on the requirements of a particular department or set of managers.
To avoid repeating this mistake, any companies looking to implement CPM should have a clear strategy so that immediate benefits build up to produce a long-term gain.
Changed view
Organisations also have to recognise that implementing CPM will alter the way they view other traditional activities. Hagerty says that as companies go further into the core of their business and start to connect the dots of all the different silos of data, they begin to develop a different idea of cause and effect.
“That can have a big impact in areas like planning and budgeting, which are often seen as one-off exercises that take a long time to do and which people never look at again until the next year. Now with CPM people can move to continuous planning, which changes internal processes significantly,” Hagerty says.
Ultimately, this can produce a leaner and fitter organisation, where departmental budgets are no longer seen as an entitlement but rather as a guideline for authorised spending each month, which will be adapted as circumstances change.
The view that CPM implementations should be incremental, but measured against an overall strategy, is broadly shared by Geishecker. She advocates that companies identify their business ‘pain points’, link them to the existing BI framework and then blend in other CPM technologies and methodologies.
Such an approach avoids the danger of spending so long trying to define every element of the proposed CPM strategy that the whole project fails because the plans are too ambitious to contemplate, too overwhelming to invest in, or simply incomprehensible.
It also ensures that there is a ‘roadmap’ for the future CPM path within the organisation, so that any components which are purchased along the way will fit in to the final vision. However, Geishecker admits that some of this is likely to prove easier said than done.
“The scope of CPM (methodologies, processes, metrics and applications) means that any initiative to implement a CPM solution is fraught with danger. It also requires business users to agree on intangible issues – such as the process changes to be implemented or the performance management methodologies to be used – in addition to making application selections,” she points out.
Given this scenario, it is hardly surprising that all of our panel see a large and active role for consultants in the emerging CPM market.
Much of this effort is likely to be directed at identifying the correct strategy and, most importantly, the areas where a CPM application can really add value.
“Companies are not so much looking for help in terms of handling any implementation, because that is not particularly difficult, but in working out what they are going to do with CPM on a strategic level,” maintains Maiti.
He sees an important role for consultants as coaches, explaining the benefits of shareholder value techniques, dynamic modelling and the other analytic tools that are enabled by CPM products.
“Consultants will also need to act as value advisors and strategic information advisors to identify information weaknesses at their client which can be solved through the use of CPM products. For example, are they having difficulty consolidating financial accounts, or are pricing strategies modelled against competitors?” Maiti explains.
Best practice
Spotting the areas where CPM can deliver genuine, realisable value is only the first part of the consultant’s brief. External advisors will also be called in to look at the impact any such implementation will have on individuals and processes.
“Consultants can help companies fit the technology to their culture or environment. Selling the whole idea and the changes in process internally can be a big part of that,” Whitby agrees.
Hagerty believes many companies will be looking for ‘best practice’ advice which will help them build an understanding of the inter-relationships and different processes within the business. What they are less likely to ask for is teams of implementation experts.
“The days when clients simply handed consultants the keys to the car and let them drive it are over. Now companies want consultants to give high-level information which they can use themselves to run the projects,” Hagerty maintains.
Certainly, consultants will have an influential role – Geishecker reports that discussions with user organisations show that most understand the benefits of CPM but do not know where to start.
For them, and for the market as a whole, this year will be crucial.
Many organisations have acquired vast repositories of information that they want to use actively, rather than simply collect. The requirements undoubtedly exist and the technology is there to help. It remains to be seen if companies have the will – and the cash – to invest.
