Within the past week two very different performance management vendors have received millions of dollars of outside investment. I say very different because one is generating excitement due to its application of the latest technology,  and the other is getting attention because of its new approach to solving a long standing business challenge. The companies are Tidemark and XLerant. You can read what we have recently written about each of them here and here. They are both good companies with a solid vision and very experienced teams. Venture capital guys tend to like to get in on the next big thing. Performance management is an established big thing so why the investments now? For one, they must expect continued growth. In addition, each of these companies does have a 'next big thing' element. Tidemark is wedding the proven principles of performance management to the next generation of technology. They are still relatively early stage, but the potential is huge. In the case of XLerant they are approaching the  crowded, but still in high demand, budgeting solutions area from a new angle. There certainly is  room for both of these companies to succeed. These investments also bode well for the established performance management vendors as it is just one more validation that performance management is an important and growing area. In particular Adaptive Planning and Host Analytics, pioneers in bringing the latest technology to performance management, should see interest in their solutions increase as the investment and related coverage of Tidemark may help more companies recognize the value of this approach.

 

XLerant received 3 million, and Tidemark 24 million.

According to a recent study by Merrill Research, performance management usage may grow as much as 77% over the next two years. In a related note, they found that about 39% of respondents had a system in place today, and 31% of them were already looking at replacements. All of  this indicates a significant opportunity for the performance management vendors. It is also an opportunity for buyers to make bad decisions based on misleading information. When an area is perceived as hot, everyone jumps on the bandwagon. Just look at all the consultants, analysts and vendors from the business intelligence world who have recently added performance management or one of its' acronyms (BPM, CPM, or EPM) to their marketing messages. Unfortunately, most of them have a very limited (and I believe inaccurate) view of what performance management truly is. Buyers need to educate themselves before proceeding with this mission-critical purchasing decision. A good starting point is the BPM Industry Framework developed by a group of vendors and analysts in 2005. It is a little out of date in that performance management is somewhat broader today, but it is light years ahead of the inaccurate descriptions provided by the newly-minted 'experts'. 

A new player has arrived on the performance management scene and they have the potential to make a big impact. Tidemark, formerly Proferi, came out of stealth mode just this week. To understand their technology approach to performance management you just need to look at some of their partners: Terremark for cloud infrastructure, Cloudera's Hadoop distribution, VMware vCloud, and SnapLogic middleware for integration. While this is clearly a step ahead of the current performance management pack, Tidemark's technology is not the main reason I expect them to be successful: It's the team. The investors, board, management, and employees consist of senior executives from Hyperion, OutlookSoft, PeopleSoft, Oracle, and SAP. Saying they have a great understanding of enterprise applications and performance management would be an understatement. I have personally worked with several members of the team in the past and was quite impressed with not only their expertise, but their laser sharp focus on the customer. Their depth of understanding of the space is evident in the areas of performance management they elected to tackle first: Strategic, operational, and financial planning/budgeting/forecasting, Metrics management and management reporting, and Profitability modeling. According to our 2011 BPM Pulse survey results these are exactly the areas that many companies still need to address. Well, perhaps they'll find their solution in Tidemark.

 

When companies start to focus on operational analytics the first area they typically look at is sales. The reason is obvious - optimizing the performance of this area of the business can provide a quick, and sizeable, payback. To accomplish this most organizations have had to utilize custom built solutions or one of the few (and very basic) packaged applications offered by the incentive compensation management vendors. An established and successful performance management vendor, Adaptive Planning, is about to change all of that. With their Spring 2011 release they are introducing their version of a sales performance management application. It is a robust SaaS solution, tied to their core financial planning and reporting solution. If that isn't enough to make it unique it also has an optional direct link to Salesforce.com to pull in the underlying transactional data required for analysis. As an aside, Adaptive now has over 900 customers and the highest performance management customer satisfaction rating as determined by both Gartner and BPM Partners. We believe their new sales planning and analysis solution has the potential to be a game changer.  

In our daily interactions with companies that are considering business performance management (BPM) and business intelligence (BI) initiatives we are finding that those projects are generally not moving forward right now. They are taking a back seat to more pressing, but mundane, operational and back office system requirements. Performance management and BI are often seen as enabling easier access to better  information, or specifically in the case of BPM, fixing a painful process such as budgeting. When there are enough resources to go around these projects are generally given the go ahead since they are seen as valuable. However, when resources are tight and there are critical operational projects that must be done, such as  a new order entry system or basic transactional  accounting system for example, then BI and BPM get moved to the back burner. Senior management becomes less concerned about fixing a process that is only painful to those below, and the value of better information access is difficult to quantify.

So, how do these projects get attention in this environment? As I'm sure you've observed in your own company projects that are closest to having a measurable impact on the bottom line are of more interest to senior management.  The question then is how do we tie Bi and BPM to the bottom line? The easy answer is profitability optimization. This is a focus well-suited to these disciplines as it is a data intensive task that requires complex analysis. It is an area that is also an acknowledged priority for many organizations. Whether a company is large or small, having a good year or a bad one, they all could benefit from improved profitability. The 2011 BPM Pulse survey found that it was the number two priority for organizations pursuing performance projects, just behind enhanced reporting. Unlike enhanced reporting though, profitability improvement can directly impact the bottom line and is more likely to get the green light right now.

What are the challenges? For one, many organizations think they have this nailed already. They believe they understand the true profitability of their products, territories, and customers. The reality though is  that they don't. Secondly, this is much more than a technology project. It requires significant business and financial expertise to pull off. So how best to address these challenges? Work with a vendor and/or consultant who is expert in this area. Many large management consulting firms will have a practice built around profitability improvement.  Several performance management and BI vendors include profitability analysis and optimization as part of the many things they offer. One of the core vendors we identified for 2011 is solely focused on this area - Acorn Systems. Acorn's expertise is recognized by other vendors  and consultants as well since they bundle Acorn into their own offerings. The choice in how to proceed here is yours. To not include profitability optimization, or something equally as compelling to senior management, as part of your BI/BPM initiative at all is probably going to relegate it to the back burner for the time being.