Business Performance Management—What are the Real Benefits?

Originally published May 9, 2005

In re-reading our 2005 BPM Pulse Survey, we noted a clear message from the organizations not moving forward with business performance management (BPM) today—they lacked a thorough understanding of the benefits of BPM. Our assessment is that they probably have heard plenty about the benefits, but the results they heard may have seemed too broad or unrealistic for their specific organization.

Tie execution to strategy. Establish one version of the truth. Deliver real-time, actionable information. Enable better and faster decision making. Improve financial performance. All sound good; all are strategic goals linked with performance management. If these benefits are real, how do they translate into everyday changes in your company that you can see and quantify? Based upon our hands on field experience, combined with conversations with many organizations that have successfully deployed BPM solutions, this article should help you understand how business performance management can pay for itself, and why it has a better ROI than the other 20 projects on your radar—and is something you should champion inside your company today.

We believe that within the next 12-18 months, your company—whatever your industry, size and stage of IT development—should be initiating business performance management in some form. As evidence to support this belief, we offer the following discussion of specific BPM benefits and real-life examples to show how satisfactory—even outstanding—payoffs are attainable.

Tie Execution to Strategy

The corporate equivalent of getting all the fish to swim in one direction, linking execution to strategy is the overarching BPM payoff. Everything else folds under its rainbow. The idea is that with accurate and consistent analysis available throughout the organization, everyone will understand the corporate goals and all their activities can be in concert with the company's mission. Improved financial performance will follow naturally.

You can't mesh execution with strategy, however, unless several concrete elements are cooperating. Business performance management  can help wrestle them into place. The nitty-gritty components are:

  • Fast budgeting and planning cycles, with just a few iterations;
  • Linking data from different systems and forecasts from all levels of the company to give a common view of performance, present and future;
  • Making that view, and the company goals, easily available to all; and
  • Identifying and tracking the true sources of profitability and of cost savings.

After installing BPM software from SAS, Progress Rail Services, one of the largest rail services in North America, became a more entrepreneurial billion dollar company. Finance Manager David Klementz says, "Everyone has a strategic plan, but until you have performance management and an ongoing view of the key indicators, you cannot see how operational steps you take affect the financials."

Klementz describes a "before" in which business plans went on a shelf and thinking was short-term because the company was overly focused on financial measures. Now, "We pull up our scorecards at senior management meetings; and if a question comes up, we can drill down to get most answers right there," says Klementz.

The specific changes that came with business performance management included automated scorecards at the business unit and division level, and cutting month-end consolidation time from 14 to six business days. This, by the way, includes drawing data from Progress Rail's approximately 40 different systems, including Oracle, Baan, Hyperion and others.

The new measures also help unify discussions among business units. On a recent trip to a unit in Mexico, "They pulled up their scorecard and began talking to it, just as we do," says Klementz. The path forward with BPM at Progress Rail Services will provide scorecards for individual plants, where he expects to use different metrics. "Senior management can now make decisions much faster, going right from the strategic to the tactical and financial. We intend to provide those advantages at numerous levels in the company," says Klementz.

One Version of the Truth

Different managers and divisions, all looking at the same structure in budget templates and discussing forecasts with matching levels of detail is a wonderful goal that eludes many companies that were built through mergers, have international subsidiaries that define their own accounting and are a patchwork of transactional and planning systems. In practice, this requires a business performance management system to:

  • Link and consolidate data from disparate systems to give a common view of performance; and
  • Make the unified view available to everyone who can create value with it.

Coty Inc., a cosmetics manufacturer with more than 8,000 employees in 25 countries, has 40 different types of systems, including SAP, Oracle, JD Edwards and homegrown, each with unique financial consolidation and reporting. As a first step toward unifying this infrastructure, Coty installed Hyperion Enterprise for financial consolidation at more than 40 local sites. This delivered a consolidated view at corporate headquarters, but not the time to create complete, detailed views for each country office. "We had multiple versions of the truth," said Jim Shiah, Coty's controller. "At the country level, they did not get to see the impact of licensing fees, for example."

When a new CFO mandated improvements in resource allocation, Coty bought a Hyperion suite of analytic products. With this software, Coty expects to lower infrastructure and personnel costs and spend significantly less on deployment, software support and hardware investment, saving more than $2 million over a three-year period.

Coty had several specific problems to tackle. While it had reporting by brand, the views were not multi-dimensional. "We used to look at our company by country first, brand second, category third," said Shiah. "Now, the analytic systems really invert our decision pyramid from geographic to brand-category."

To make the shift to BPM work, Coty had to redesign the underlying data structures and hierarchies that varied from one country to the next. "Country managers had to give up some familiar ways of breaking down their business," said Shiah.

Some payoffs in capital expenditures are already evident. Until 2003, Coty took an annual wish list from each department, containing requests for everything from furniture for marketing to extra clerks in operations. "We tended to allocate capital by negotiating with the wish list," said Shiah. "Now, we start at the strategic priorities facing the company and decide what each department needs to fulfill the strategy. Only when we can see what is left over do we consider the wish list."

Coty now has some 250 users of its business performance management capabilities. Thanks to web accessibility, the "audience" is gradually widening beyond finance. Coty has found new subtleties in its decision-making processes, with more "fact basis" and objectivity replacing from-the-gut decisions and their attendant subjectivity. Executives find that using the same metrics across the organization brings confidence because all affected see and share the results of their decisions.

Real-Time Information

If information can't be real-time, it should be as fresh as possible. The faster the information arrives, the faster you can turn the ship. To capitalize on a BPM system and run a company more tightly, your system should:

  • Deliver data with minimal time lag from transaction or event to availability for analysis;
  • Enable faster closing cycles;
  • Automate error-prone tasks, getting people out of the data chain and putting them at its end; and
  • Support faster forecast preparation.

Miles Kimball, a multi-channel marketer best known for its catalogs, sells more than 12,000 SKUs through three websites and three sets of catalogs. CEO Mike Muoio, after implementation of a BPM system from Geac to supplement its core customer relationship management (CRM) system, asserts that nothing outweighs its ability to bring corporations onto a real-time footing.

Real-time information stirs religious fervor among its converts. "Ten years from now, if you're not real-time, you'll be crushed," Muoio asserts. "There is a heartbeat to this business, and now our people can get in touch with that rhythm. Behaviors can be aligned and the way you go to work, culturally, is forever altered in a positive way."

In a company that depends on personalized products, it is imperative to cut data precisely and quickly to respond nimbly. At Miles Kimball, the real-time culture appears to mean that many more questions are asked because rapid answers trigger more questions. It also can mean that more decisions occur, but they are often smaller adjustments.

For the company's merchant, product planning and operations staff, immediately spotting the success or failure of products, categories and offers leaves more time to improve the next catalog.

Miles Kimball wants to realize half its sales via the Internet, thereby saving through decreased use of paper catalogs. BPM lets the company put tactics behind that strategic shift. "Say we change the landing page on a website and offer free shipping from 9:00 a.m. to 11:00 a.m.," says Muoio. "We instantly start to see the results and gauge efficacy. That's real time, and it's very powerful."

Ownership and Accountability

Companies often seek to involve more employees in the planning process, but without turning budgeting into their full-time job. If budgeting and planning draw on knowledge sprinkled throughout the company, you can avoid a top-down, forecast-by-decree situation. In theory, that's good because it tends to join strategic goals with reality. Here's an example. Winn-Dixie, a major retailing chain, has approximately 120,000 employees and 1,100 stores located mainly in 12 southeastern states. Barry McMenamy, financial analyst, represented the finance department during Winn-Dixie's implementation of a BPM system beginning in late-2002.

Excel-based budgeting at Winn-Dixie was a problem that called for a cure. "Some of those spreadsheets would go missing," says McMenamy, "and not everyone got their numbers in. It was a real struggle."

Contributors to the budget were also frustrated because they were unclear as to what happened to their numbers when the final budget was issued. Choosing Outlooksoft's EAP for its combination of budgeting and reporting, Winn-Dixie targeted budgeting at the administrative level across all its divisions. Next, they enabled the district managers to build their store budgets on the new system. "These early phases required approximately five weeks. As a result, most end users finished their budget work earlier, and that," McMenamy notes, "gave our management extra time to tweak the budget for several weeks."

"By 2004, every Winn-Dixie store will prepare its budget on the system," says McMenamy. "We'll have thousands of users with every level of management involved. At that point, we will really see the benefits in terms of budget buy-in and sense of ownership."

As a side note, Winn-Dixie's finance group tallied up the time, paper, printing and mailing costs of the previous budgeting and reporting methods and found that over five years, more than $1.1 million would be saved, easily paying for its BPM initiative. This leads to our next topic.

Cost Savings and Revenue Gains

It's still difficult to find examples of BPM usage leading to new revenue. This is no surprise because these are the early days of business performance management. Business performance management is more heavily used by finance than by product marketing or sales. There are numerous examples of BPM saving money for companies, including one area that vendors tend to gloss over, but you shouldn't: the sensitive area of head count reduction. A business performance management system may demand from 10 to 200 IT man-months during implementation, and it needs ongoing maintenance; however, it may sharply reduce the need for junior number crunchers to do rote work on budgets and reports. A compelling example is Lockheed Martin's use of Longview's Khalix system.

We estimate that Lockheed Martin is saving an impressive $50 million annually using their new business performance management system. Mike Gabaly, Managing Director of Lockheed Martin Financial Shared Services, tells us the aerospace company can attribute a finance-related head count reduction of 1,000 to its BPM project and related accounting changes.

After years of acquisitions and mergers, in 1998 Lockheed Martin had a large variety of transactional systems, and nothing seemed to match. Lockheed's answer to the problems stemming from this heterogeneous environment was to conduct one of the largest BPM implementations of which we are aware.

While Lockheed Martin saw a number of important benefits—Gabaly speaks enthusiastically about getting "one version of the financial truth" and dramatically speeding up reports, restatements and consolidations—its cost savings truly stand out. The savings reflect the ambitious scope of the project; the challenges were sizable. "99 percent of the effort was accounting changes, rather than technical," said Gabaly. "The transactional systems had different data structures, and each of the 350-plus entities within Lockheed Martin had multiple, differing charts of accounts." Lockheed Martin not only bit the bullet on enforcing standardization with one master corporate chart of accounts, but it was a BPM pioneer in tackling the three major functions of financial accounting, tax reporting and planning at the same time.

Create Actionable Information

Everyone agrees that actionable information is a noble goal. We have found that BPM enables actionable information with the following concrete elements:

  • BPM enables faster comprehension of rapidly changing data from multiple sources through its extract, transform and load (ETL) capabilities.
  • BPM systems enable sharp focus on key business metrics through use of scorecards and dashboards.
  • BPM systems can proactively alert managers to significant variances from expected results with e-mail alerts and stop-lighting in reports.

Catherine Duffy is a senior systems analyst at software company Macromedia in San Francisco. She was the primary leader of a BPM project that involved building an application using TM1 from Applix. Macromedia already had "one version of the financial truth" in an Oracle data warehouse; however, manipulating the data in that warehouse was difficult.

Like many companies, Macromedia had conducted all its forecasting on Excel. Macromedia also has approximately 20 users on a purpose-built budgeting application. A key reason Macromedia chose TM1 is its RAM-based architecture, which Duffy credits with speeding up response time significantly. "We have instant access through our Web reporting, and our sales managers are constantly plugged in. We can see rollups and do weekly forecasting in our Excel model with much better turnaround time. Drilling from top to bottom is fast."

At Macromedia, actionable information means different things to different users. For their product management group, it's a marketing-based revenue forecast that looks at history, what is planned and their known seasonality factors. The sales group builds its forecast customer by customer. "Every quarter, we do an 'interlock' where we compare the two approaches to find a meeting of the minds. We identify discrepancies and discover what underlies them," says Duffy.

After some initial bumps, with users being challenged by the many options available, the BPM system caught on. "Once the sales managers had a full quarter cycle under their belts, they were thrilled with it. After getting to desired data very quickly and asking for more screens, and getting those too, they saw its power. It has changed how many people do their jobs," says Duffy.

Actionable information was also an important win at Lockheed Martin. "Internally, it's meant we benchmark continually against competitors, and we now have a changed approach to managing our balance sheet," says Mike Gabaly, managing director of Lockheed Martin Financial Shared Services. "In addition, we developed new capital metrics around our assets, liabilities and all our operations. Our culture has solidified around performance."

Enable Better and Faster Decision Making

While improved decision making and competitiveness are cited by nearly every software vendor's marketing material, the claims are often stretched beyond reality. Nevertheless, we find that competitiveness and decision making are in fact boosted when companies achieve the following benefits:

  • An ability to view, track and manage the business at a more precise level;
  • A shorter closing cycle;
  • Automation of error-prone, slow manual processes of data handling and forecasting;
  • Reduction of time required for rote spreadsheet analysis tasks;
  • Easy access to information, company- wide, in the form that individual users need; and
  • A work culture in which employees embrace ongoing measurement and focus on improving performance.

Fred Carl, a project manager at L-3 Communications, says that prior to installing a BPM system from Cognos, the defense contractor's finance department spent 85 percent of its time gathering information and just 15 percent analyzing. "Now it's the exact reverse," says Carl.

Faster delivery of information allows, of course, for more timely decision making. "In the old system, we could only get the full view every three or four months," reports Carl. "Now, we have it every month, and in some programs, it's every week or two."

In terms of data presentation, L-3 has developed dashboards that are accessible by many employees. Acceptance was not instantaneous. "It took time for many managers to grasp the system and let go of their paper reports," says Carl. "We have found, at times, a mentality that if it is not produced by a mainframe, it cannot be right."

L-3 has found that better decision making is making decisions more frequently. That, and considering more viewpoints on the data, enables more frequent and accurate adjustments of their business. "Before, decisions were based on gut feel and stale history," says Carl. "Now the assessments are founded on more facts."

L-3 cited a situation where missing the annual spend budget in one business unit by $3.6 million was avoided because the problem was spotted at the beginning of June rather than late October as would have been the case without its BPM system. The early detection enabled corrective action in time to solve the problem.

Summary

Business performance management can deliver meaningful payoffs on two levels. First, the strategic, if somewhat less tangible, ­benefits such as tying execution to corporate strategy. Second, the concrete benefits you can count, such as saving millions of dollars or closing in three days rather than three weeks. Our work with companies that have adopted BPM has also highlighted a common theme about which many users are enthusiastic: a change in their work culture to being performance-oriented, greater awareness of the marketplace consequences of actions, and more rapid and aggressive response to competitive changes.

  • Craig SchiffCraig Schiff

    Craig, President and CEO of BPM Partners, is a pioneer in business performance management (BPM). Craig helped create and define the field as it evolved from business intelligence and analytic applications into BPM. He has worked with BPM and related technologies for more than 20 years, first as a founding member at IMRS/Hyperion Software (now Hyperion Solutions) and later cofounded OutlookSoft where he was President and CEO.

    Craig is a frequent author on BPM topics and monthly columnist for the BeyeNETWORK. He has led several jointly produced webcasts with Business Finance Magazine including "Beyond the Hype: The Truth about BPM Vendors," the three-part vendor review entitled "BPM Xpo" and "BPM 101: Navigating the Treacherous Waters of Business Performance Management." He is a recipient of the prestigious Ernst & Young Entrepreneur of the Year award. BPM Partners is a vendor-independent professional services firm focused exclusively on BPM, providing expertise that helps companies successfully evaluate and deploy BPM systems. Craig can be reached at cschiff@bpmpartners.com.

    Editor's Note: More articles and resources are available in Craig's BeyeNETWORK Expert Channel. Be sure to visit today!

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