Business Performance Management

At the same time that the market for business performance management (BPM) software was maturing and spreading, the software-as-a-service (SaaS) industry was flourishing as well. Businesses began using “on-demand” and “hosted” software for all sorts of corporate functions. In many cases, they decided life would be simpler if they’d let the software vendor or third-party hosting provider handle all the IT responsibilities that surround running a complex software system, including hardware issues, system maintenance, and software upgrades. In other cases, the speed with which a SaaS provider could get a customized software package up and running was very attractive. Still other customers liked the cash flow proposition of paying subscription fees.

Despite these benefits of SaaS software, it seemed unlikely back when both markets were fledglings that they would have much success at the point of their intersection. After all, the information in companies’ BPM systems is often highly confidential. It was widely believed that hosted performance management might suffice for small companies that couldn’t afford a big software package but that businesses which had a real choice would generally avoid accessing their financials via the Internet. Over the years, that attitude has changed.

The shift isn’t entirely recent. Back in a 2006 BPM Magazine survey, we found that although only 6 percent of survey respondents used a hosted solution for their performance management software needs, 40 percent of companies that did go with a SaaS application spent more than $100,000 on the software. We were surprised that this percentage wasn’t lower, when compared with the 50 percent of all survey respondents who spent more than $100,000 on their performance management software. SaaS solutions weren’t just for those with minuscule budgets.

Still, the 6 percent was low. My experience indicates that this, too, may be changing. The number of companies considering hosted solutions seems to have taken off in recent years. Companies tying their performance management capabilities in with numerous other types of software systems, or those with complex data integration needs, are probably not good candidates for the SaaS model. However, for companies still looking to move away from Excel for their budgeting, planning, and/or management reporting activities, a hosted solution may sound appealing.

I recently spoke with Kent Wegener, the vice president of finance, and Joel Feldman, the director of financial planning and analysis from Otis Spunkmeyer, a $500 million food manufacturer; their detailed case study will appear in the December issue of BPM Magazine and will be online early next month. The company switched about a year ago to a SaaS-based performance management system, and its finance managers are not looking back. Formerly, they used Excel to manage planning and budgeting. The link between financial data and production management was tenuous in Excel. Otis Spunkmeyer derived supply-chain, transportation, and other production plans by backing into product mix and sales volume expectations based on revenue forecasts. Its new software allows for forecasting case volumes, as well as financial forecasting. This and the ease with which the company can now make broad-stroke adjustments in its pricing expectations have made its planning process far more effective. And because it went with a SaaS solution, the manufacturer was able to switch to its current BPM solution in two months. (It does plan to add functionality in the future.)

I frequently talk to finance and IT managers who have achieved this kind of impressive outcome by moving performance management processes from Excel to dedicated software systems. What was a bit different about this company’s software-selection process is the fact that it specifically set out to use a hosted system. When the company began seeking new BPM software, its IT department was already tied up in the process of shopping for a new ERP system. “Our CIO had a major concern about division of resources. … It seemed to make perfect sense to us — since the ERP project is going to be consuming resources for two, three, four years — that we should go with a SaaS solution,” says Wegener.

Although they admit to forgoing the bells and whistles available in some larger, on-premises BPM software installations, these executives have no regrets. “I think a lot of times people bite off more than they can chew,” says Feldman. “So we tried to stay very prioritized about which parts of the application we want to use.”

This is the kind of success story that warms the hearts of advocates of performance management and SaaS alike. And it’s music to the ears of those who stand at the intersection of the two.

Many companies still wrestling with Excel for their financial and operational performance management realize that they need to change but remain intimidated by the idea of a major software implementation. This economy makes a large software investment a scary proposition, yet accurate planning and forecasting are more important than ever before. Companies caught at this crossroads should consider SaaS BPM vendors. It’s an increasingly popular option for quick wins in performance management.

The International Federation of Accountants (IFAC) Professional Accountants in Business (PAIB) Committee conducted a survey to see how public sector organizations around the globe develop financial and nonfinancial performance measurement and reporting structures. Participants — from local councils, public utilities, and various ministries — were satisfied with performance management processes that included a balanced combination of relevant financial and nonfinancial objectives supported by respective KPIs; accrual accounting for the budgeting, appropriation, and financial reporting processes; the capability to capture, report, and process financial and nonfinancial development information; an independent external review to assess financial and nonfinancial performance; a formal structure for measuring and assessing risk and developing strategies to mitigate it; and a regularly scheduled review to ensure that the performance measurement structure remains effective and efficient.

Late last week, the SEC proposed a road map leading to the filing of U.S. financial statements prepared in accordance with the International Financial Reporting Standards (IFRS). The road map introduces “several milestones that, if achieved, could lead to the required use of IFRS by U.S. issuers in 2014 if the [SEC] believes it to be in the public interest and for the protection of investors.” The road map also includes proposed amendments to various regulations, rules, and forms through which U.S. issuers in industries that use IFRS as the basis of its financial reporting “more than any other set of standards” could begin IFRS-compliant SEC filings as early as 2010.

Also, as the SEC’s deadlines for mandatory filing of financial reports in extensible business reporting language (XBRL) draw near — large, accelerated filers are now expected to be required to file in XBRL starting early next year — XBRL US has formed a working group to act as an advisory team on prospective changes to the U.S. GAAP taxonomy. The group includes Landon Westerlund of KPMG, Lisa Nelson of Microsoft, Lou Rohman of Merrill Corp., Patricia LaValle of Ernst & Young, Glenn Doggett of the CFA Institute, and Simon Hecht of United Technologies Corp.

As the economy continues to worsen, it also becomes increasingly murky. On Monday, Adaptive Planning and the BPM Forum released the results of a survey on finance executives’ attitudes toward both the future of the economy and their ability to project their organization’s performance into that future. Not surprisingly, the answers to the first set of questions was not optimistic; 75 percent of respondents said economic conditions in their industry are worse today than they were six months ago, and 27 percent expect them to get worse still. Also not surprising — but perhaps more alarming for corporate executives — are the facts that 57 percent came in below their revenue plans for the third quarter of this year, and only one-third expect to hit their financial plans in the next year.

As the global financial markets melt down, the stock market takes a roller coaster ride, and business credit practically vanishes, companies are hunkering down. This is a natural reaction, and for many organizations it is necessary. But achievement in the longer term will depend on a company’s ability to do more than cut costs. It will require ongoing creativity, a culture of perpetual innovation.

Of course, it’s easy to suggest that companies need to be innovative. It’s a lot more difficult to build a company that actually is, especially when other matters demand immediate attention. However, the latest issue of BPM Magazine includes two feature articles that could guide organizations in using a well-known method for cost reduction and process improvement to also help build the innovation needed for long-term success once the business environment stabilizes.

The method is Lean Six Sigma, which is the product of companies’ incorporation of the Lean approach to process optimization into Six Sigma quality-control initiatives. Lean Six Sigma benefits from a focus on fact-based analysis and direct customer input, and it is typically thought of as a way to find efficiencies in corporate operations. That’s not the full extent of its potential, though; it can also spur broad-based innovation.

Many companies attempt to cultivate a culture of innovation by declaring creativity to be a core corporate value and by encouraging employees to spend time pursuing independent research. Such actions may stimulate employees to give innovation more thought than they otherwise would, but they don’t create a mechanism for promoting those projects that are aligned with the company’s overall goals over those that aren’t. Lean Six Sigma introduces discipline to innovation, encouraging companies to create a strategic vision for innovation that is based on insights into the needs of customers and other stakeholders (provided by the Six Sigma half of the equation).

The results can be astonishing. We published an article by IBM’s Amy Blitz and Dave Lubowe that tells the stories of three companies in different industries and facing different market challenges, each of which has used Lean Six Sigma to radically reshape themselves and drastically improve their competitiveness.

We also published an article by Forrest Breyfogle, a Six Sigma expert who has developed a comprehensive, nine-step approach to the problem of choosing projects to undertake. He adds to Lean Six Sigma a thorough analysis of corporate metrics at two different levels so that initial selection of which innovations to pursue becomes more regimented and so that flailing projects can be nipped in the bud.

A major initiative like a Lean Six Sigma implementation may be the last thing you think your business needs right now — this may seem to hardly be the time to dump resources into such a project. But for companies wanting to come out of the downturn with a competitive advantage, now may be the perfect time to simultaneously introduce efficiencies and spur innovation.

Do you agree? Along with all your colleagues who read this column, I would love to hear your take.

And it seems we can expect the trend toward verticalization of BI and performance management software to pick up steam in the near future. BI vendor MicroStrategy and data warehousing giant Teradata announced a partnership through which they will provide dashboards for select industries. The goal will be easier and faster decision-making, and the first industry up seems to be retail, via integration of MicroStrategy’s Dynamic Enterprise Dashboards with Teradata Retail Decisions and Teradata’s Retail Logical Data Model.

This month, Lawson Software launched a product called Lawson M3 Analytics for Food & Beverage, which is designed to reduce the time food companies must invest to access meaningful business intelligence information. The product comes with 70 preconfigured key performance indicators (KPIs) and 50 prebuilt scorecards to analyze information ranging from days sales outstanding to gross margin.

ERP vendor CODA has released a new version of its financial consolidation software. Formerly called OCRA, the product is now known as CODA 2control Consolidation v4.0. Enhancements in this version are designed to simplify consolidations for multinational and multicompany organizations and to help them cope with transitional dual reporting under GAAP and IFRS. 2control Consolidation handles reconciliations and combines accounts from across a range of different transactional software systems into a single, consolidated group for statutory or management reporting. Meanwhile it offers the ability to drill down from a report into the details behind the numbers.

In time for the first wave of filing under the SEC’s XBRL mandate, UBmatrix Inc. has released UBmatrix Report Builder 3.5. Version 3.5 is an SEC-ready reporting tool for creating, engaging with, and validating XBRL documents. An embedded SEC viewer enables users to see how their reports will be seen by analysts and investors. Other features include a footnotes capability, a notes and disclosures import option, and a Hyperion SmartView plug-in. The solution is integrated with Microsoft Excel and Word in an effort to ease workflow among departments when preparing SEC reports.

Finally, Information Builders also released a new BI tool midmonth. This one, WebFOCUS InfoAssist is designed to make query, reporting, and analysis simpler for business users. Its front end is a familiar, Microsoft Office-like interface, but it can pull information from a range of multidimensional databases, including SAP Business Information Warehouse, Oracle Hyperion Essbase, and Microsoft Analysis Services.