Business Performance Management

Earlier this month, we reported that despite spending cutbacks by many corporate IT departments, the market for software-as-a-service (SaaS) performance management applications is thriving. Since that report, we’ve seen more evidence of this trend. Both Host Analytics and Adaptive Planning reported record results in 2008. Adaptive Planning CEO William Soward says that customers who have chosen his SaaS solution lately have tended to take the attitude that they are willing to sacrifice a few bells and whistles they might find in more complex BPM products if forgoing those extra features means they can improve their performance management for a low up-front cost.

Analyst firm IDC recently raised its projection for 2009 growth in the SaaS software market overall (i.e., not only among firms that specialize in SaaS performance management solutions) from 36 percent to 40.5 percent. How is this possible as the rest of the software industry is hurting? “People are likely to be commitment-phobic,” suggests Ray Wang, an analyst with Forrester Research.

Companies across the board are reeling from the changes to the global business environment over the past few months. Purchases of enterprise software systems have become fewer and farther between. Organizations in almost every industry sector put the squeeze on their CapEx budgets in general, and IT budgets in particular. A Gartner study released midmonth reveals that global IT budgets will be flat this year.

Gartner surveyed CIOs in more than 1,500 companies in 48 countries and found that improving business processes and business intelligence capabilities are these organizations’ top IT priorities for 2009. CIOs expect to invest in business intelligence applications and information consolidation in order to raise enterprisewide visibility into performance, a priority in this economy. “These investments are expected to pay extra dividends by responding to new regulatory and financial reporting requirements,” Gartner reports.

Although it doesn’t contradict that the enterprise software market overall is in a state of gloom and doom, an IDC report released on Monday indicates that one segment of the software market is likely to come out of the downturn stronger than it went in: software-as-a-service (SaaS) — also known as hosted or on-demand software.

“With a broad slowdown across IT sectors, businesses are increasingly bearish about their short-term ability to invest…” said Robert Mahowald, director of on-demand and SaaS research at IDC. “But SaaS services have benefited by the perception that they are tactical fixes which allow for relatively easy expansion during hard times, and several key vendors finished the year very strong.”

Among IDC’s findings: Seventy-six percent of U.S. businesses will use at least one SaaS-delivered application by the end of this year. And the proportion of U.S. firms that spend a quarter (or more) of their IT budget on SaaS applications is expected to rise from 23 percent last year to 45 percent next year.

A KPMG study of corporate practices in working capital management, which was released last week, shows that organizations are doing a poor job of forecasting cash flow. This comes as little surprise in today’s economy; still, the numbers are staggering. Of the 556 finance executive participants, who come from companies across the U.S. and Europe, 95 percent expend the energy to forecast cash flows, but only 14 percent claim that their cash flow forecasts were accurate over the past year. Said Brad Hillier, a managing director in KPMG’s advisory services practice, “Many companies do not gather the right data to produce accurate forecasts, nor do they have the right people involved in the process. In addition to improving the forecasting and reporting processes, executives should consider using other best practices, such as targeting metrics and establishing dashboards and controls that offer better visibility into cash performance.”

In an open meeting Tuesday, the SEC finalized its rule requiring companies to begin filing their financial statements in extensible business reporting language (XBRL) format. In the final ruling, public companies with a market cap greater than $5 billion must begin filing their financial statements in XBRL format starting with their first fiscal period on or after June 15, 2009. All other large, accelerated filers will be required to file in XBRL format 12 months later; and all other public companies will need to comply starting with their first fiscal period on or after June 15, 2011. Companies still not ready for XBRL need to get to work — and a BPM Magazine survey conducted this summer suggests that the vast majority of companies fall into this camp.

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.

New research by Ventana Research suggests that increasing numbers of companies are improving their systems for decision-making by improving the analytics technologies they rely on. The firm rated participants’ maturity in four categories: people, process, information, and technology. Surprisingly, more companies excelled in the information and technology categories — with evaluations focused on activities such as their use of spreadsheets in data analysis and their attention to data integration and data visualization – than in their people or processes. In terms of people, only 28 percent of companies received Ventana Research’s highest maturity rating (“innovative”), and in terms of processes, only 14 percent of organizations reached that level. Reasons behind this discrepancy, according to the study, include poor communication and a widespread lack of confidence in planning processes.

Despite these problems, the benchmark research rated nearly two-thirds of organizations as mature (either “innovative” or “strategic”), overall, in terms of their use of analytics in performance management. Technology is helping companies make better decisions. Companies that have not invested in processes and technologies in the area of performance management analytics cite the following reason: budget (66 percent), resources (56 percent), and a failure to recognize the value of an upgrade (46 percent). The study concludes: “To maximize the value of what [business analysts] do, organizations must provide them with tools and support that make their work easier and more productive. Doing so involves committing to moving away from spreadsheets and inefficient processes and establishing a shared platform and technologies that enhance analytics for decision-making and performance management. Giving analysts and management immediate access to accurate information can yield business value in the form of optimized prices, successful marketing of products, and more effective competition.”

An American Institute of Certified Public Accountants (AICPA) study released this month found that 62 percent of CPAs in business-executive positions are pessimistic about the economic outlook for the United States over the next year. Yet 38 percent are upbeat about the near-term future of their own company. How do they expect their organizations to fare better than the economy as a whole? According to Deloitte it’s not through smart cost-cutting. A Deloitte survey found that companies are, indeed, tightening their figurative belts, but it also found that two-thirds of executives expect those measures to result in only single-digit savings.