In-Depth

Business Performance Management puts rubber to the ground

As a strategic and technical framework, business performance management (BPM) is still in an early adopter phase, similar to where data warehousing was in the mid-1990s. Gartner Inc. estimates the percentage of enterprises adopting BPM will increase from 10% in 2002 to 40% in 2005. IDC estimates the market for financial and BPM applications will grow at an annual compound rate of 10% a year from 2002 to 2007, which is faster than most segments of the software industry.

When BPM is implemented properly, organizations are better able to exploit market opportunities as they arise, and catch operational problems before they escalate out of control. Companies become more effective, more competitive and more interesting places in which to work.

“We wanted to provide a competitive advantage by providing access to timely, actionable information,” says Kathy Niesman, director of financial systems at International Truck and Engine, a manufacturer of midrange diesel engines, medium- and heavy-duty trucks and buses, and service parts in Warrenville, Ill.

In 2001, International Truck deployed an enterprise-wide, Web-based “key business indicator” portal to better manage operational performance and accelerate financial reporting. The portal provides executives and business group managers with a personalized view of key business drivers, enabling them to get at the “root causes of problems in hours or days, not weeks or months,” says Niesman.

In many organizations, CFOs are driving BPM initiatives to obtain greater visibility into the business. Many are under increased pressure from investors to accelerate the closing of their financial books at the end of each month and quarter. In addition, recent financial scandals are putting corporations under greater pressure to increase the accuracy and timeliness of their forecasts and financial reports.

For example, the CFO at International Truck kicked off the firm’s BPM solution to shorten the time to close its books from weeks to days. To improve financial reporting, International Truck revamped its entire reporting structure to align financial and operational metrics and to provide more detailed information behind a few key high-level metrics.

BPM delivers high but intangible ROI
In the past two decades, organizations have deployed software to automate back-office operations (such as manufacturing, finance and human resources), followed by front-office activities (such as sales, service and marketing), and finally cross-functional value chains (like customer relationship management and supply-chain management). The last untapped market for software automation is business management. This is the domain of BPM.

One of the biggest challenges with BPM is knowing where to start. Meg Dussault, director of product marketing at Cognos, says organizations initially deploy BPM in one of three ways:

1. Big bang enterprise approach. Here, the executive team implements strategic change throughout the enterprise in a top-down manner enabled by BPM and other software.

2. Cross-functional approach. These projects are driven by enlightened financial and operational executives who want to optimize critical business processes that cut across functional areas, such as CRM initiatives that involve coordinating multiple front-office and back-office processes.

3. Functional approach. Here, a functional leader in human resources, administration or another area implements BPM to enhance management control and improve performance, rather than implement new strategies or initiatives.

“Each of these approaches has very different requirements and objectives. The key is to get in play and make linkages between the initiatives as they evolve,” says Dussault.

Most organizations begin by implementing either a planning or dashboard app. “Budgeting is still the number one pain, but dashboards appeal to executives who want greater value from reporting,” says Craig Schiff, president and CEO at BPM Partners, a BPM professional services firm in Stamford, Conn.

Identifying the right metrics
One of the biggest challenges is selecting the metrics to serve as key performance indicators. “It is a huge undertaking for organizations to determine what KPIs are important, who owns them and how to define threshold settings that trigger whether a [stoplight] metric will display as red, yellow or green,” says Cognos’ Dussault.

Dussault says these skills take time to learn, and the process often involves trial and error. Organizations shouldn’t worry about launching the perfect solution because it will evolve over time. Another key, she says, is to ensure that people closest to the business have input into the process. “Employees can’t feel that BPM is done to them, that it’s another flavor of the month. BPM requires widespread input, feedback and communication to succeed,” she notes.

As interest in BPM increases, so do the number of BPM products offered by vendors. To date, most vendors have issued point products, such as budgeting or scorecard applications. In the past year, however, several vendors have shipped comprehensive BPM solutions that contain most BPM components: budgeting, planning, forecasting, business intelligence and scenario modeling.

However, it is likely that as more BPM products become available, a larger percentage of future BPM customers will purchase BPM applications rather than build them. This will be especially true with planning and budgeting applications, which automate and extend processes that already exist in most organizations. It may be less true with scorecarding applications, which many organizations view as strategic.

It’s also unclear how many organizations will purchase end-to-end BPM suites, especially if they have one or more BPM applications up and running. The suites offer compelling value in terms of tightly integrating various BPM processes and data, but installing suites within existing environments can create architectural and integration challenges.

Danger in information silos
The danger with BPM systems, especially packaged solutions that come with pre-defined data models, is that they can become silos of information, fracturing a consolidated view of corporate performance.

However, some teams are tempted to cut corners on the BPM architecture when they are under pressure to deliver tangible results quickly. “There is a tendency to hand-feed data into scorecards initially if the data warehouse doesn’t have all the data,” says Tom Phelps, president of ThinkFast Consulting in Chicago. “This is a challenge -- it is difficult to balance short-term deliverables with the proper data architecture to support long-term growth and provide meaningful information.”

Some hand-feed data into a dashboard
Most organizations deploy BPM solutions on OLAP databases linked to a relational data warehouse. International Truck, for example, runs its BPM solution on an OLAP platform that extracts data directly from its Informix data warehouse. The data warehouse pulls data from 32 source systems.

Like many IT-supported initiatives, BPM requires high-level executive sponsorship. But since BPM automates the execution of strategy, executives need to be more than just sponsors or drivers; they need to be active participants.

“Getting sponsorship and buy-in at the senior levels of the organization is the key. They take the numbers and say, ‘What’s going on?’ Their involvement activates the chain and gets people to use the metrics,” says Ripley Maddock, manager of performance reporting at Direct Energy Essential Home Services, an Ontario-based energy company that sells and services furnaces, air conditioners and other home energy equipment.

Senior executives are also the only ones who can change a corporate culture that has rewarded information hoarding rather than information sharing. “The BPM puts data in the open, and this is not easy for many people,” says Farrah Foroushani, project lead at New United Motor Manufacturing in Fremont, Calif. “Senior executives need to play an active role to change the way people think.”

Delivering KPIs in a form that users can easily consume is also important. Most users respond positively to graphical dashboards or scorecards embedded in corporate portals, and require little if any training in how to use them. But not all users can access the Web, and some prefer other formats.

For example, field technicians at Direct Energy receive their scorecards in a paper format when they meet with managers every week. Officers at Toyota Motor Sales also prefer to receive scorecards in a paper format. “Some officers have been around for 20 or 30 years, and that’s what they’re comfortable with. Some divisional officers are more apt to go online to receive their reports,” says Mike Elsesser, national technology manager at Toyota Motor Sales.

Another key to driving usage is to ensure that BPM solutions support existing business processes and facilitate communication among users. Planning applications need to give users the opportunity to revise forecasts in response to market activity and reallocate resources to meet objectives. Scorecarding solutions need to give users the opportunity to comment on KPI values.

Occasionally, organizations find it necessary to get rid of old reports and information sources before users are willing to adopt the BPM solution. “Most of our KPIs are widely adopted, but some are competing with existing reports,” says New United Motor Manufacturing’s Foroushani.

BPM puts rubber to ground
Given the current economic climate, increased financial pressures and the evolution of information technology, it’s no surprise that BPM is gaining traction. It provides organizations with a competitive edge, helping them cement their newfound efficiencies with greater organizational effectiveness.

BPM will succeed because it automates strategy execution and enables good management. Without strong management, organizations ultimately fail. BPM raises the bar for good management by applying information technology to the execution of business strategy. This will serve to separate leaders and laggards in every industry at an accelerated pace. The advent of new regulations, such as the Sarbanes-Oxley Act, will also hasten the implementation of BPM.

The most compelling element of BPM is that it provides executives at all levels with a mechanism to communicate strategy, allocate resources, and proactively monitor their groups’ progress toward meeting the goals and objectives they’ve set forth. BPM puts the corporate strategy in front of every worker on a daily basis in the form of performance metrics geared to the tasks, processes, projects and resources for which they’re responsible. Because the metrics are tied to operational data, workers and executives can take action to catch problems before they escalate out of control. BPM finally puts teeth into strategy.

Like any new information technology, challenges abound with BPM. But organizations that have tackled other information-based initiatives have already learned many of the lessons needed to succeed with BPM. The key is to gain top-level commitment and ensure that the business drives the initiative from start to finish. Without the business in control, the BPM initiative won’t deliver the organizational and cultural changes needed for success.

Please see the following related story: “SarbOx puts BPM into reverse gear” by Wayne Eckerson

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