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The Value of Enterprise Performance Management

Published
  • May 01 2005, 1:00am EDT
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Speak privately with C-level executives in public companies and common themes invariably surface, regardless of company size or industry-specific conditions: a tightened regulatory climate, investors' intolerance for unpleasant surprises and relentless pressure for improved earnings. In the finance organization, common sub-themes similarly emerge: the challenges of delivering ever more timely and transparent reporting data, the task of uncovering increasingly fine-grained pockets of potential value and efficiencies - with the "low hanging fruit" already picked clean - and the pressure to keep pace with ever-shortening finance IT life cycles.

The best C-level executives understand that meeting these challenges is a matter of organizational mindset and commitment, but they also know that it is a matter of enabling technology. It is little wonder that an increasing number of companies are demanding more robust and better integrated capabilities to plan and manage business performance, and that enterprise performance management (EPM) software [also known as corporate performance management (CPM) and business performance management (BPM)] constitutes one of the faster-growing segments within the information technology sector.

Legacy Challenges

Until the late 1990s, the EPM market was segmented into discrete vendor classes, which only rarely overlapped. The first category consisted of business intelligence (BI) vendors, such as Cognos, Business Objects and Brio, which delivered reporting, query and analysis solutions. The second category comprised performance management application vendors such as Hyperion, ABC Technologies and Armstrong Laing, which provided best-of-breed packages in functional specialties such as budgeting, activity-based costing and consolidations. The third category included companies such as SAP, Oracle and PeopleSoft, which offered enterprise resource planning (ERP) transaction systems and provided basic reporting capabilities.

Building a comprehensive performance management capability required selecting at least one vendor from each of these categories, and then integrating processes and data across separate platforms.

However, this typically resulted in a patchwork of processes and tools that undercut the very goals (of integration and consistency) they were intended to address. At the operating level, the symptoms were fairly clear: users were overwhelmed with data, but with only limited access to the information needed to guide decisions and understand trends; users were spending disproportionate amounts of time reconciling reports and combining and reformatting information; and IT and finance departments were  straining to meet minimal service demands while investing an inordinate amount of time in the ongoing support and maintenance of redundant tools and capabilities.

Basic Definitions and Best Principles

Today, integration technologies have advanced to where it is now feasible to create a common platform for delivering integrated performance management solutions. Computing power has increased while data storage capacity and costs have fallen dramatically, and end-user information access has seen a pervasive change through the rapid adoption of Web-based reporting and analysis solutions. As a result, the software market is converging as vendors from each of the three classes are rushing to capitalize on these technology advances. The trend is toward integrated product offerings, commonly referred to as enterprise performance management suites, which respond to the growing demand for more integrated and robust performance management tools. Despite some shadings of opinion, there does seem to be basic consensus about what should be considered the basic constituent parts of an EPM system - reporting and analysis, reference data, source systems, and applications, all linked via an information hub or data warehouse (see Figure 1). Our marketplace discussions suggest an equally important consensus building around certain "state-of-the-discipline" principles, which will inform the best designed and implemented EPM systems. These principles include:


  • Reporting and analysis: The reporting and analysis layer of the framework is designed as the single point of entry for users to access a continuum of decision support information. This includes standard reporting, query and analysis as well as increasingly popular dashboards and scorecards, all accessible through a customized, Web-based portal or browser.
  • Applications: EPM is not a one-size-fits-all proposition. Solution frameworks should be flexible and extensible to allow each organization to find its own path, including decisions about which applications to include (e.g., sales system or CRM tools) and when to roll them out.
  • Information hub: In complete EPM systems, information from all source systems are mapped to and stored at a central location, typically a data warehouse. The hub interacts with each of the EPM applications and serves the data to users through the reporting and analysis layer.
  •  Reference data: A fully robust framework will be driven by a single, common data model supported by standard data definitions.
  • Source systems: This layer of the framework represents all of the data sources containing information fed into the EPM information hub. For many large enterprises, this will include financial and nonfinancial data, from both ERP and legacy systems. Complete solutions will also access key external information, such as industry trends and competitor intelligence, to provide deeper context and insight into company performance.
  • Workflow tools: Workflow tools - including those for process automation and collaboration - will play pivotal roles in embedding EPM into the fabric of a company's daily operations. Examples of this include online discussions of operating results and variances and online discussion forums promoting knowledge-sharing and best practices.
  • Security and development tools: As data flows more freely within the organization's EPM framework and across its firewall, thorough EPM solutions should also provide administration and development tools to ease the maintenance burden and ensure data security.

Figure 1

EPM Market Trends

Our field experience suggests a number of trends in the EPM marketplace that will exert influence on EPM decision making. First, the overall size of the EPM market will continue to grow as EPM becomes understood as simply "good business." Formal EPM adoption is expected to steadily increase over the next two to three years. Research firm Gartner estimates that by 2008, more than 80 percent of publicly traded companies will have a formalized CPM (corporate performance management) strategy and road map as key elements in their compliance and governance framework.

Second, the EPM solutions marketplace is consolidating, driven by a buyer's market that demands standardization and scalability, by technology advances that have increased data harvesting and storage capacity (at reduced costs), and by changes in common practice such as rapid adoption of Web-based reporting and analysis solutions.

The business intelligence vendors see EPM as an extension of their reporting and analysis market. They are striving to leverage the strength of their generic reporting infrastructure tools and name recognition, and are adding packaged applications and data integration capabilities. These vendors will be strong contenders where enterprises have multiple, disparate source systems, particularly when they are already established as a standard business intelligence tool within the organization. One of the key challenges for these vendors will be to develop a fully integrated solution based on a single, common reference data repository.

The leading application vendors are generally regarded as best of  breed in their respective application domains. A few are marketing EPM suites, but most of these vendors will continue to focus on their respective niche areas. For these providers, go-to-market strategies will come by way of partnerships and alliances with the other vendor classes. These companies also represent attractive acquisition targets for vendors in other categories who may look to expand their EPM portfolio without the costs, learning curves and risks of in-house development.

The enterprise vendors view EPM as another opportunity to harvest from their established transaction system user bases. These vendors are working to develop EPM frameworks that are tightly connected to their core transaction systems, which is a major plus toward achieving data integration across the suite. If they succeed in developing EPM applications and reporting capabilities at par with the other vendor classes, they will have a significant advantage in companies that have adopted their platforms as the enterprise standard. One of their biggest challenges will be to provide easy access to data sources outside their own system.

Next Generation Challenges

As the EPM marketplace matures, certain factors will remain constant. Line input and sustained C-level sponsorship will remain important drivers of ultimate EPM success. The C-level finance function will continue to need assistance in designing and implementing the EPM solution that best meets their organization's specific needs.

To date, developers have kept pace with advances in particular EPM components. However, successful EPM requires what many organizations lack today: a cohesive performance management infrastructure. Forward-thinking organizations are gravitating to an enterprise-wide performance management perspective, driven by a clear view of the benefits. We see it as a good sign that leading software providers are responding to this shift, using recent technology advances to bring correspondingly integrated EPM solutions to market.

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