Business performance management (BPM) has come a long way in the past several years. If someone took a look at BPM five years ago and again today, they probably wouldn't recognize it. As is often the case though, as much as things change, there are also many aspects that remain the same. In the case of business performance management, many of the same challenges that have existed from day one are still with us. Let's took a look at the state of BPM as we enter 2010.

What is business performance management? Five years ago BPM was primarily focused on addressing the budgeting and planning needs of the finance department. For information technology (IT), business performance management meant graphically displaying information from a data warehouse in a performance dashboard. While BPM has grown significantly beyond its humble beginnings, some in finance and IT still view it as budgeting and/or dashboards.

The fact of the matter is that business performance management has become much more than that. In effect, it has become the primary front-office strategic decision-making tool. To deliver on this promise, BPM utilizes business intelligence (BI) tools to convert data from transactional systems into meaningful and actionable information for management decision making. This should be great news for all concerned. For end users, it leverages the sizeable investments they have made in back-office transactional systems over the years to provide potentially large returns. For vendors of enterprise resource planning (ERP), customer relationship management (CRM), supply chain and other transactional systems, it provides a strategic use of their data beyond the automated collection and storage of large volumes of information. For the BI vendors, it gives their tools a key business purpose that will bring them into management offices across the enterprise. For the BPM vendors themselves, they are now positioned as providing the key set of applications that leverages and makes sense of all that has gone before. As a matter of fact, the so-called “BPM mega-vendors” provide solutions in all three areas: transactional systems, business intelligence tools and business performance management applications.

So, more specifically, what comprises business performance management today? Well, budgeting, planning, forecasting and strategic planning are still part of the core foundation. You need to know where you are planning to go before you can tell if you got there. Most BPM application vendors provide some or all of these capabilities. Performance dashboards displaying scorecards containing an organization's key performance indicators (KPIs) are still one of the main ways BPM data is made available for decision making. Many BI vendors offer performance dashboards, and most BPM application vendors have added this component over the years. Financial consolidation is a more specialized BPM application that only a handful of vendors address. It is important when there is the need to combine and reconcile data from multiple general ledgers. When the U.S. moves forward with International Financial Reporting Standards (IFRS), it will become a critical component for many companies as a way to handle the transition.

While all that we have discussed so far has been part of business performance management from early on, there are many recent additions. Financial reporting, particularly management reporting, has grown in importance. There are many business intelligence vendors that provide reporting tools; but when combined with BPM applications, such as consolidation systems, they can address financial reporting, legal reporting and management reporting. Predictive analytics was a buzzword a few years ago, but has now gone mainstream. Everyone is more concerned today about the accuracy of their forecasts. Systems incorporating predictive capabilities can help companies better understand the probability that a particular forecast will come to pass.

Another newer area of BPM is profitability analysis and optimization. Several vendors have been offering this for a while, but the tough economy we have been experiencing has really accelerated user adoption. Companies are looking to wring every dollar of profits out of their businesses that they can. Along with that goes risk reduction. Governance, risk and compliance has grown in importance as more companies try to get a handle on the quality of their investments, internal controls and external reporting. Of course, industries with increased government oversight are particularly focused on this.

Many companies have come to the realization that you really can't fully understand the business by just looking at the consolidated numbers at the top. You need to examine what is going on, on a daily basis, at the operational level. This has led to the use of operational analytics as part of BPM. As one of the newest areas, it is still sort of a “wild frontier.” That is, while there are well-developed and polished applications for most other aspects of business performance management, this is still one area that requires custom-built IT solutions. There is one exception – sales performance management. As one of the first operational areas to be targeted for this type of analysis by most companies, it is also the area the application vendors have tackled first as well.

As we enter 2010 this new, comprehensive business performance management has become a mission-critical initiative for many companies. For others though, it remains a back-burner item. Some have attempted BPM, but failed either fully or partially. Next month we will look at the challenges these companies have faced with business performance management and provide some thoughts on how to overcome them.

SOURCE: Business Performance Management in 2010, Part 1

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