Business Performance Management

Business performance management (BPM) initiatives are major projects. Doing BPM right requires a great deal of time from various individuals across the company, and it’s often expensive. As a result, some companies indefinitely postpone the thorough evaluation of practices and software that a comprehensive performance management project entails. No one is interested in spearheading a high-profile project that they fear could result in failure.

Another approach is to reduce the scope of the BPM initiative. If a BPM project is limited to a simple software installation, the risk seems to be reduced for project planners. Unfortunately, limiting the project’s scope may be the surest way to drive a BPM initiative into the ground.

There is no silver bullet that guarantees success in BPM. But I recently had a conversation with Mike Davidson and Richard Holt, two directors at Alvarez & Marsal, in which they explained some not-so-silver bullets that frequently leave holes in performance management plans. Their firm has its roots in crisis management, and in their experience BPM failures tend to result from one (or more) of three types of problems.

The first of these problems will come as no surprise to anyone who reads BPM Magazine regularly: For a project to be successful, it needs a clear vision and strategy. The logic of this point is indisputable. A project that starts without direction could end up anywhere. But too many companies sidestep this crucial piece of the planning process, in the push to get resources for the project. An effective project begins with a clear vision, agreed upon by executives and project participants alike.

The second problem Alvarez & Marsal frequently encounters is inadequacy in project management or change management. Both are critically important. Quality project management involves stakeholders throughout the company in various stages of the project. Poor project management fails to involve all the right people at all the right times, and so is likely to result in the project coming in late or over budget, or to fail to deliver results that some stakeholders require. Change management is also critical, because the success of a performance management initiative depends on the buy-in of end users. Those who will be providing data for BPM processes, or those who will be using data from BPM systems to inform important decisions, must understand the purpose of the project and must be willing to change their behavior. Otherwise, the initiative is unlikely to produce desired results.

The third and final problem that Davidson and Holt have identified is pervasive misunderstandings about crucial details of the project. For example, expectations about the amount of time the project will consume often vary among participants. Data-quality problems are prevalent as well. And when businesspeople and the IT department disagree about the desired outcomes of the project, no one is happy with the results.

Obviously, these three types of problems are interrelated. A project that is well-managed will begin with the definition of its goals and will involve adequate communication to keep everyone on the same page. It’s interesting that so many projects continue to be poorly managed.

Building effective project and change management activities into initial projections of a project’s length and resource consumption may make the project less attractive to the executives who need to approve it, even sponsor it. But shortchanging these crucial elements in the beginning undercuts the project’s potential to be effective. In the experience of Davidson and Holt, at least, this is the surest way to lead a project to failure.

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.

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.

Extensible business reporting language (XBRL) may have moved to the SEC’s back burner in the past few weeks. There are obviously more pressing issues demanding the agency’s attention. Nevertheless, it’s a topic that isn’t going away – and it’s a topic that many people responsible for corporate planning and reporting remain clueless about.

In August, BPM Magazine conducted exclusive research on the topic, sponsored by TITAN-Pinnacle, a TITAN Technology Partners company. The results are astonishing.

Of the 196 respondents to the survey, two-thirds work in public companies that file with the SEC (a handful work in companies that file overseas; the remainder are in private companies or government agencies). Yet only 1 percent of respondents work for companies that have implemented XBRL.

The companies that haven’t implemented XBRL offer a range of reasons. For 9 percent of respondents, cost of new software to support data tagging is the largest obstacle; lack of demand for XBRL holds back another 16 percent. This is significant for some survey participants. Wrote one: “[XBRL] isn’t for our benefit; it is for the benefit of regulators, vendors, information aggregators, analysts, etc. It is foolish for a company to think it will save them money. We already know all our numbers and can look at them every which way. Some analyst or regulator will make assumptions and make a wrong analysis, and then we will have to spend more time and money explaining to them the error of their ways.”

Clearly, many of our readers have not bought into SEC chairman Christopher Cox’s assertion that using a standard, searchable data format such as XBRL “promises to let companies prepare their financial information more quickly, more accurately, and for less cost.”

Even worse for XBRL’s prospects in the near term, at least among organizations that aren’t required to adopt it, is the fact that our survey respondents most frequently cited “time and effort needed to learn about XBRL” as their company’s biggest barrier to data tagging (selected by 32 percent of participants). When asked to describe their current level of knowledge about XBRL, 43 percent called themselves beginners, and 38 percent said they have no knowledge at all. Of those who have no knowledge of XBRL, 81 percent work in public companies, and 43 percent work in companies with more than $1 billion in annual revenue. They include finance managers, financial and business systems analysts, vice presidents of finance, project managers for BPM software implementation projects, even consultants with well-known firms.

Perhaps these results aren’t as alarming as some of the other news rocking the SEC this week – but they’re worth noting. A proposed SEC rule would require certain very large companies to use XBRL in all of their SEC filings for fiscal periods ending this December 15 and beyond. Says KPMG director of advisory services Michael Ohata, “CFOs and other finance executives don’t need to be XBRL experts, but they should understand XBRL’s potential impact on the organization’s financial reporting processes, including what XBRL reporting actually looks like and how it differs from current filings.” Our research indicates that many finance managers remain far from this base level of understanding.

If I’m describing you, what can you do? The BPM Magazine and BPM Express online archives can help. In May’s newsletter, I explained XBRL at a pretty fundamental level. We’ll continue to cover XBRL reporting in future issues. It’s also a good idea to monitor the XBRL information coming out of the SEC, and many software vendors and consultants are interested in making the case for benefits companies stand to gain by making their data more accessible to investors, analysts, and others.

XBRL is coming, whether companies like it or not, and there’s no longer a good excuse for finance professionals in public companies to stay uninformed.

Last month in BPM Express, I talked about the fact that amid all the hype about integrated technologies and the oversized marketing budgets of the big players in the business performance management (BPM) space, many companies are still stuck in spreadsheet hell. They don’t need the complexity of a big-budget solution. They can pretty dramatically increase the efficiency and effectiveness of their performance management processes by implementing a very basic BPM application.

I believe that’s true for many companies. But I came across an interesting white paper this month that takes the opposite view. Companies that are going to do BPM, it argues, should aim to fully integrate their various technologies in order to synchronize data across planning, customer management, and operations. The white paper makes the point that decisions are better when companywide data is consistent — and it raises some questions companies should consider when shopping for performance management software today.

The white paper was put out by Ventana Research, and was sponsored by Cognos. One might expect it to be skeptical about Oracle and SAP’s claims that they have achieved full integration and all’s hunky-dory within their family of BPM products. It is. “Identifying fragmented performance management platform offerings can be difficult,” Ventana states. “The vendors have … pressure on their sales staffs to sell larger packages or more than one of their products. Hence you wind up in the crosshairs of extreme marketing, replete with words like ‘complete,’ ‘unified,’ ‘integrated,’ and other characterizations that aren’t precise or technically accurate and more often are matters of opinion.”

That’s strong language, but ever since the BPM megadeals of 2007, it has been hard to get a handle on exactly what products will be integrated, how integrated they’ll be, and when. The Ventana white paper offers advice on how to figure out the level of connectivity among different offerings from the same vendor. The first suggestion is to hire a consultant for professional guidance. This is, probably, the safest route. Another good suggestion is to ask the vendor to commit to a specified deployment schedule for the software, and then ask for customer references who can vouch for the vendor’s ability to meet its deadlines.

Moreover, Ventana recommends remaining skeptical throughout the process. “Can you actually achieve an integrated environment with disparate tools?” the white paper asks. “How do you weigh the fragmentation challenges of the vendor’s technology and the amount of implementation consulting required, which could heavily outweigh the cost of the software? … Ask, and be sure you understand, what levels of effort, time, and skill will be required to build and maintain disparate environments.”

Finally, Ventana advises, buyers need to dig beyond the vendor demos that are designed to show how integrated products are. Just because its dashboards are flexible and configurable doesn’t mean the data is seamlessly (or easily) integrated. In the end, buyers must do their best to evaluate their requirements for the software in the areas of installation, configuration, data modeling, user preparation, and readiness for business usage. Scrutiny of the vendor’s claims, in addition to testing with data integration top of mind, can give a company a better idea of how much integration a particular product offers.

To those readers who are braving today’s somewhat muddled market and investing in a major BPM suite: Drop me a line. I’d love to hear (and share) your techniques for evaluating how integrated the big vendors’ products really are.

Everyone who was shopping for business performance management (BPM) software — or on the BPM Express subscriber list — last year knows that the market experienced a dramatic, fundamental shift as large ERP vendors purchased the biggest players in performance management. That was the big news in 2007.

This year, the vendors involved in this earth-shaking M&A have been working furiously on integration, while the smaller suppliers of this software have been working furiously on distinguishing themselves. Meanwhile, the question remains: Where will performance management software buyers come out as the vendors race to gain competitive positioning? And when vendors spend their energy sniping at one another, will buyers feel their BPM initiatives are getting caught in the crossfire? Answering these questions may be the big news story of 2008.

The vendor making the most noise this month is Oracle, which released a new performance management suite that integrates former Hyperion BPM products with Oracle Fusion Middleware and the Oracle E-Business Suite. The Product Briefs section provides more information about the functionality of the Oracle Enterprise Performance Management System and the related release of a Hyperion Profitability and Cost Management application.

Not too surprisingly, Oracle calls its new EPM System “the industry’s most comprehensive, fully integrated suite of EPM solutions.” Even less surprisingly, SAP/Business Objects disagrees with that assessment. Sanjay Poonen, the executive vice president and general manager of performance optimization applications for Business Objects, responded to the Oracle release by stating, “Oracle is playing catch up to us on our vision about the importance of combined EPM, GRC [governance, risk, and compliance], and BI. Business Objects is the only vendor today that offers a complete vision and solution portfolio which unifies EPM, GRC, and BI.”

Such language is understandable; after all, these vendors are trying to establish new, joint brands in a market currently marked by confusion. But this kind of marketing noise only adds to that confusion, which means it’s counterproductive for many organizations that these vendors want to woo. It’s not that Oracle and SAP shouldn’t be working to integrate the products that they spent a pretty penny to own. It’s in everyone’s interest for BPM systems to run as efficiently, and to be as easy to install, as possible. But in my experience, there are an awful lot of companies that still stand to reap big benefits from the most basic BPM functionality.

I recently spoke with two organizations that exemplify this point. Both have implemented performance management software in the past two years, and both are pleased with the results. One is a relative newcomer to the insurance industry that, until very recently, used only Excel for financial planning and reporting activities. The company is in the process of implementing a system that will function as a back-end data storage engine for its BPM processes, while retaining an Excel-like front end. By implementing a more efficient, streamlined BPM system, the company has reduced the number of individually stored formulas it uses for performance management-related calculations from 840,000 to 754. The numbers are dramatic, but the explanation is simple. The BPM product this company selected stores formulas in a central repository, so a formula does not have to be re-entered in a new spreadsheet cell every time it is used in a new calculation.” This product may not offer all the bells and whistles of Hyperion/Oracle or Business Objects/SAP — but think how many more mistakes the company would be likely to make in its forecasting, planning, and reporting processes if individuals were entering 840,000 formulas versus 754!

Another company I talked with in the past month has implemented software from a different, but also small, BPM vendor. This organization is in the food-production business, and it’s currently facing a rapidly changing financial landscape. Like the insurer, it recently shifted its financial planning and management reporting processes away from Excel to escape some specific pain points of a cumbersome spreadsheet-based process. This food producer went with a smaller vendor in large part because of the urgency with which it needed to replace Excel. Its vice president of finance told me, point blank, “I will probably get into some preconceived notions here, but it seems to me that the bells and whistles of a lot of the more established budgeting packages add complexity in terms of time to implement and in terms of users being able to pick them up and go.”

For companies running ERP systems from Oracle or SAP, the integration of BPM and transaction data is likely to be a key selling point. And for large organizations running many different ERP systems, data integration is absolutely essential if a performance management software implementation is to have any hope of success. Nevertheless, innumerable organizations are still handling budgeting, reporting, and related processes in Excel spreadsheets. As sniping among Oracle, SAP, and others introduces even more confusion into the market, some prospective customers may decide to postpone purchase decisions until the big guys sort themselves out. And that would be a shame. For many businesses, particularly midsize and smaller organizations, implementing something today may offer big benefits. How much a particular organization could benefit from performance management software depends on a variety of factors, but the confusing marketing noise coming out of the big guys should not muddy that basic analysis.

As business intelligence (BI) and business performance management (BPM) software become increasingly pervasive, vendors of these technologies have begun to see the value of incorporating into their budgeting, financial reporting, analytics, and similar applications some of the capabilities that are popular in the consumer world. This trend has the potential to substantially expand BPM software’s usefulness to managers throughout the enterprise.

Requiring managers outside the finance function to use proprietary software for their budgeting and planning activities can reduce the quality of those managers’ budgets. They have plenty to do running their niche of the business and may resist dedicating much time to achieving proficiency in a technology they don’t see as core to their job. Its familiarity, at least at a baseline level, to businesspeople in almost every industry is part of the reason for Microsoft Excel’s success.

Ever since “BPM” was identified as a category of business software, vendors have been searching for a way to simplify the look and feel of their products in order to encourage nonfinance budget managers to use BPM tools to their fullest. The first, and most common, attempt at a standard and easy user interface came in the form of the spreadsheet itself. Several vendors developed Excel front ends, in which their performance management functionality was accessed through options added into Excel menus or formulas that expanded the power of standard spreadsheets. However, in many cases this approach has fallen short of the ideal of full use of BPM features companywide. One explanation is that while finance people adore Excel, operations managers are far less familiar with some of the more complicated activities required to develop solid, defensible budgets within spreadsheets.

Now, many vendors are turning their attention beyond spreadsheets to consumer technologies that promise to improve both user interfaces and actual functionality for ease of use and better decision-making among operations managers. Collaboration technologies are drawing interest among some software makers. As one article in the June issue of BPM Magazine explains, the future of performance management applications may incorporate Web 2.0 technologies, so that teams of people could discuss forecasts and concerns with the finance department as they developed their budgets, then could upload budgets (along with commentary and explanations) into a centralized, transparent corporate database. Such a solution would have the potential to substantially improve not only the efficiency, but also the accuracy, of each step of the budgeting process.

Even more widespread over the past couple of years has been vendor attention to incorporating search functionality into business intelligence applications. The ultimate goal of adding search to BI or BPM software is to enable users to search for information both in databases and in other types of files (e.g., in spreadsheets, on Web pages, in Word documents) from within their BI or BPM software suite. Previous issues of BPM Express have reported on the addition of search technologies (usually Google technologies) into various BI and BPM applications.

A survey by Ventana Research that is also covered in the June issue of BPM Magazine found that 34 percent of organizations believe linking this “semistructured” and “unstructured” information with BI data is very important, while 50 percent believe it’s somewhat important. Why? The same survey found that most respondents think integrating BI and search technologies will help them make better-informed decisions (for 53 percent, this is the most important benefit of this integration), as well as make decisions faster.

The ERP vendors have been understandably sidetracked over the past year with efforts to fully integrate the BPM products they’ve purchased into their own enterprise applications, so much of the recent noise about extending performance management to operations managers has been coming from smaller players. However, once ERP vendors get their integration efforts under control, consumer technologies may begin to gain more of their attention as well.

When that happens, performance management technologies may finally extend as far into the organization as vendors and consultants feel they should. A Facebook- or Google-inspired front end is sure to make finance software less intimidating. And the more budget managers take advantage of BPM’s full capabilities, the better organizations’ BPM processes are sure to be.

The hottest acronym right now in the realm of business performance management (BPM) has to be XBRL. That’s not because it’s new; the concept has been around for a decade, and the acronym has been mainstream for several years.

In 2004, the SEC began to investigate the benefits of using XBRL tags to label each piece of data in a financial report. The idea is that if SEC filings were labeled with XBRL tags, public-company transparency would be vastly expanded. Software used by investors, market analysts, and competitors would be able to automatically gather data from online financial reports, then organize the data in a way that enables easy analysis and comparison of companies’ financials.

The timing of the SEC’s entry into the world of XBRL was not a coincidence. SEC staff publicly stated that the organization was considering this means of improving transparency as a direct result of the Sarbanes-Oxley Act and the financial-reporting scandals that led up to that law. Since early 2005, the SEC has allowed companies the option of submitting their financial information in an XBRL-tagged format — and ever since then, software vendors, consultants, and (yes) the business media have been beating the drum for the eXtensible Business Reporting Language.

What’s changed, then, to make XBRL such a buzzword all of a sudden? Many companies that have previously ignored XBRL now have to pay attention because tagging of SEC filings will likely be mandatory by the end of the year.

On Wednesday, May 14, the SEC voted unanimously to adopt a rule proposal to mandate the XBRL tagging of SEC filings of financial statements. If the rule is adopted this fall, the first companies affected by the change will be large, accelerated filers (those with a market cap of $5 billion or more), which will be required to submit reports in XBRL format for fiscal periods ending December 15, 2008, and thereafter. The XBRL requirement will be phased in until it encompasses all public companies, both domestic and foreign, that are listed on U.S. exchanges.

In addition, on May 21, the SEC approved a proposal to mandate XBRL tagging of risk/return information in mutual fund prospectuses. The goal of this rule is to simplify for investors the process of comparing investment objectives, strategies, risks, historical fund performance, and fees among funds.

Said SEC chairman Christopher Cox in February, “A standard data format for sharing financial statements and other information that is important to investors will facilitate the kind of comparisons among global investment options that investors need. The international movement to employ extensible business reporting language for this purpose will let investors easily find and compare business and financial data with the same ease of doing a Google or Yahoo! search today. And it promises to let companies prepare their financial information more quickly, more accurately, and for less cost.”

Whether companies will save money through XBRL tagging remains to be seen. But consumers of corporate financial information certainly stand to gain dramatically.

XBRL US, a consortium of software vendors, consulting firms, and other organizations interested in the future of XBRL in the United States, predicts that for preparers of financial statements, the XBRL reporting requirement will increase the time and costs involved in SEC filings in the short term. In the long run, though, XBRL US expects filers to benefit from improved data consistency and faster reporting, once their financial management systems include XBRL functionality. For investors, XBRL US believes that short-term gains may not live up to the current hype. However, the organization expects analysts and investors to benefit greatly in the long term, as tagged financial data improves both the accuracy and granularity of information available on public companies. XBRL US anticipates that once XBRL tagging becomes widespread, XBRL-formatted financial data will be in great demand by investors and market analysts.

When XBRL is finally prevalent in corporate financial reporting, it will be fair to say it’s been a long time coming. But it will probably also be fair to say it’s well worth the wait.

Every year, advisory firm BPM Partners conducts a “BPM Pulse” survey in order to, well, take the pulse of the marketplace for business performance management (BPM) products. Are companies working on improving their performance management processes and systems? If so, where are they in the initiative? And if not, why not?

The results usually present a telling picture of the state of corporate planning and reporting. But this year, they provide additional insights — into trends in enterprise software spending that likely extend beyond the realm of BPM. The survey’s 1,951 valid respondents indicated both an increased openness to the idea of purchasing performance management from an ERP vendor and an increased struggle to find funding for BPM upgrades.

BPM Pulse survey results usually show increases in the proportion of respondents who are planning performance management improvement projects for the short term and in those actually undertaking BPM initiatives. The proportion of respondents who have already completed their projects also generally rises, while those with no plans falls. However, this year’s survey reverses most of those trends; it seems that many companies have shelved their BPM improvement initiatives. Most notably, the proportion of respondents with a BPM project in progress dropped from 50 percent in 2007 to 36 percent in 2008; the proportion with an expectation to improve performance management, but only in the long term, rose from 10 percent to 23 percent; and the proportion with no plan to improve BPM at all jumped from 16 percent to 23 percent.

The state of the economy as a whole is undoubtedly one driver of these changes. Among companies that have no plans to upgrade performance management, 32 percent cited lack of funding as a reason, compared with 22 percent in 2007 and only 13 percent in 2006. Thirty-two percent this year cited “other priorities” as their reason, up from 26 percent in 2007.

Equally informative (and a cause for optimism about the future of performance management once the economy improves) are the declines in several other explanations for companies’ lack of a BPM improvement plan. “ROI justification not clear” declined from 22 percent in 2006 to 17 percent in 2007 to 15 percent this year. Over the same time period, “benefits not clear” fell from 41 percent to 35 percent, down to 24 percent this year. And “lack of executive sponsorship,” which was on the rise through 2007, fell from 38 percent last year to 24 percent this year.

As companies have begun to realize the benefits of improving performance management, they have also begun, it seems, to appreciate the ongoing nature of performance management improvements. The proportion of respondents claiming to have completed their BPM initiatives was on the rise, from 12 percent in 2006 to 14 percent in 2007 — but this year that number dropped back to 8 percent, a decline by almost half. Explains John Colbert, BPM Partners’ vice president for research and analysis, “People are beginning to realize that improving performance management is an ongoing process, not a one-shot project. There aren’t a lot of companies that have reached the nirvana of BPM — where financial and operational strategies are measured against actual performance on an automated basis.”

Another “big nugget,” as Colbert puts it, is the BPM Pulse survey’s revelation this year of a greatly increased interest in purchasing performance management software from ERP vendors. When asked “Where did you/will you get your BPM solutions?” 36 percent of all respondents, and 42 percent of those from companies with 5,000 or more employees, selected “our current ERP provider.” Even more surprising, 18 percent of all respondents — and nearly a quarter of those in companies with between 1,000 and 5,000 employees — said they would buy BPM from an ERP vendor other than their own ERP provider. Last year only 10 percent were interested in buying their performance management functionality from an ERP vendor.

This shift must stem in part from the fact that ERP vendors have bought up many of their BPM competitors over the past year. A company that wants to buy from Hyperion is now buying from an ERP vendor. Still, the leap is remarkable. Last year, performance management software from the vendor category BPM Partners terms “tools and applications” — i.e., those that offer both business intelligence tools and specific performance management applications, but not ERP suites — appealed to around 40 percent of respondents. This year that number was 26 percent. Vendors of only packaged applications appealed to 30 percent of respondents last year but 11 percent this year (and only 9 percent of respondents from companies with more than 5,000 employees).

What does all this mean? This year’s economic climate has robbed the entire market of steam. Some companies actually seem to be taking on performance management improvement projects because of financial challenges — among large companies, reducing labor and other costs was cited by 34 percent of respondents as a driver of their BPM projects today. But overall the economy has put a squeeze on funding for this type of initiative, and many projects have been tabled for the time being.

That said, it appears that when the market rebounds the ERP vendors’ major M&A play over the past year will bear fruit. Companies that are planning or undertaking performance management improvement projects now are much less sold than they were in the past on the need to purchase BPM software from a vendor specializing in it. There is certainly still a market for niche players, but the niche has shrunk dramatically over the past year.

The full BPM Pulse survey results provide much more insight into these and other trends in the market. Anyone who’s interested can request a summary from BPM Partners’ white paper page, and BPM Partners will send a summary when it is ready.

Presumably, if you’re reading this newsletter, you’re intimately familiar with the budgeting process — perhaps more intimately familiar than you’d like to be. In many (most?) companies, budgeting is not only time-consuming, but also tedious and intensely frustrating for those focused on optimizing overall corporate performance. The usual budget is submitted by a line-of-business manager, who either adds a set percentage to his or her previous year’s spending, or else underestimates revenues and inflates expense projections in order to build a cushion for negotiations and secure the biggest prospective bonus.

It’s a sad story that is just a part of life for organizations of all sizes and shapes. As the editor of Business Performance Management (BPM) Magazine, I talk to a lot of people who are trying to rewrite the story in their organization. The changes they’re making are often significant, but they’re also usually incremental. That’s why I was so interested to hear the story of operating expenses (OpEx) at American Express, as told by that company’s VP of corporate portfolio management and strategic business analysis in this month’s issue of the magazine.

Anand Sanwal’s article describes a radically new approach to budgeting, in which American Express divides all of its spending into two buckets: discretionary and nondiscretionary. That company’s definition of discretionary, he says, is “all spending that is not required for a company to be a participant in its industry.” Every business will define “discretionary” differently, but Sanwal cites research by the Corporate Portfolio Management Association as finding that 25 percent to 40 percent, on average, of a company’s OpEx is discretionary. In fact, he says, “aspects of virtually every line item are discretionary.”

How could this be? Sanwal is careful to note that labeling an expense as “discretionary” doesn’t identify it as unimportant. Instead, it means that managers within the organization are making decisions about where exactly to put the money. What type of campaign should the marketing team engage in to promote a new product? Should marketing spend more on the campaign to get the product off to the right start today, or should some of the funds be directed instead to research and development to jump-start future enhancements to the product line? Although highly simplified, these questions exemplify the types of trade-offs that are inherent in many, many of the spending decisions made during the corporate budgeting process.

While the goal of budgeting is typically to minimize costs across the board, American Express’ approach is to make strategic investment decisions about all discretionary spending. (Well, almost all. Sanwal does make the point that “portions of salaries and benefits can be considered discretionary as well, but politically and operationally that position is usually not advisable.”) The company has established an internal marketplace in which business units compete for their discretionary dollars in the same way that many businesses’ capital expenditures (CapEx) compete for resources.

Meritorious ideas gain funding based on the business’ strategic priorities for the year and the risk profile of various ideas. For example, the company might decide that 25 percent of corporate discretionary spending should go to customer acquisition, 20 percent to IT, and 55 percent to customer retention, and it might allocate 60 percent to low-risk projects, 30 percent to medium-risk projects, and 10 percent to those with high risk. Instead of taking last year’s numbers and boosting them by 5 percent, OpEx managers at American Express must make a case for all of their planned discretionary spending, and their plans move forward only if the spending meets the business’ strategic goals.

For many companies, this approach would entail a seismic shift in corporate culture, and it would undoubtedly be met with resistance. But Sanwal cites several benefits of making OpEx decisions strategic. Clearly, doing so enables a company to better allocate resources. It also can bring a new level of appreciation for OpEx managers; they gain respect when their areas of spending are thought of as investments in achieving corporate goals. Finally, making OpEx strategic lends a level of agility to a company’s operations. Unlike traditional budgets, an OpEx marketplace makes it immediately clear when spending in a certain area is not providing benefit to the business. As the external environment changes, the organization necessarily changes with it.

I’m intrigued by the way in which American Express has redefined standard budget items as discretionary and begun treating them like CapEx. Considering the vast number of companies that find the budgeting process painful, there have to be a lot more innovative ideas out there. If your company has tackled planning in an unusual way, I’d love to hear your story too.