Home » Topics » IT management » Corporate performance management

Corporate performance management

Avatar photoby Ben Rossi

 
 

The CPM recipe: How it works

Corporate performance management (CPM) is not a new technology, but the amalgam of several product areas that are used to enhance business decision-making and ensure high levels of corporate governance.

These include : business modelling, planning, forecasting and budgeting applications – technologies that have been available from specialists for many years; monitoring and scorecarding technologies, which help organisations track their performance against key indicators; and, lastly, a group of business intelligence tools that can provide insight into the business’ operations – through data query, analysis and reporting.

These technologies are used to present managers with a unified and clear view of enterprise activities, showing key performance indicators. The essential element, given recent changes in the fiduciary responsibilities of senior executives, is that managers have clear visibility into their organisations figures and confidence that these are a true reflection of activities. Aberdeen Group estimates that CPM-related spending will approach $5 billion by 2005.

 

 

According to David Norton, the co-inventor of the balanced scorecard approach to business performance monitoring, seven out of 10 organisations fail to execute on their strategy. The simple reason? They still lack adequate management tools.

That statement may be a little surprising given that a whole software sector has grown up over the past 20 years with the specific aim of helping strategic decision-making. But over that time, it has gone through many incarnations, suggesting that it has not quite got it right yet.

First, in the 1980s, there was the concept of executive information systems (EISs), a dashboard of key performance indicators for the chief executive and a few other senior managers – the only problem, EISs did not work and were beyond the capabilities of most (at the time) PC-illiterate CEOs. Then came decision-support systems, platforms that were largely used by specialist business analysts whose job it was to feed key data points to executives. The issue there: they were too removed from the day-to-day business operations to really know how to analyse effectively, plus by the time they had fed the information to executives the business had moved on.

In the 1990s, under the term business intelligence software, the scope of such tools has been progressively widened to provide relevant decision-making information and analytic capabilities to both senior and middle management. And latterly, analytic applications have tailored select business intelligence functions to specific business areas.

But in themselves, these technologies have not delivered the desired level of management insight and control – a situation that has become all too apparent in recent years as businesses have come under pressure to be more responsive to change, and (post-Enron, Arthur Andersen, et al) show higher levels of accountability and corporate governance.

In short, organisations need corporate performance management (CPM) technologies: sets of integrated tools and applications that cover the gamut of business planning, monitoring and analysis – that includes business modelling and optimisation, planning, budgeting and forecasting, scorecarding, financial consolidation, as well as generic query analysis and reporting.

But there is one other fundamental aspect to CPM. To facilitate analysis, organisations also require a data infrastructure that will enable them to pull data from multiple sources, combine it and make that available to the CPM applications in near real-time.

   
 

Keeping score: the metrics

One of the key management methodologies behind corporate performance management is the Balanced Scorecard.

First outlined in 1992 by Harvard Business School professor Robert Kaplan and David Norton, the president of Renaissance Strategy Group, it asserts that a company’s financial metrics reflect the cumulative effects of only a small proportion of the decisions that are made within an organisation, and that its true value could be more accurately evaluated and increased by measuring the effect of decisions made at every level of the organisation.

By keeping score of how close management actions align with the organisation’s strategy, and feeding that into an analysis framework, typically supported by business intelligence software and a data gathering backbone, senior managers can discover which of their metrics are on or off track, they can discover why they are that way, and they can see what can be done about them.

  • Essential reading – The Balanced Scorecard: Translating Strategy into Action by Robert S Kaplan and David P Norton

    Act of faith: governance

    The exposure of financial irregularities in the US during 2001 and 2002 prompted some major changes to companies’ business reporting obligations. Most importantly, the Sarbanes-Oxley Act requires much greater levels of disclosure and corporate governance from US companies and any companies that trade on US stock markets.

    While previously CEOs and CFOs of such companies simply had to review the company’s accounts and certify that they were ‘true’ to the best of their knowledge, they are now personally liable for the financial information. That requires a much greater level of visibility into the figures and the ability to analyse, understand and trust the numbers.

    The Act also requires companies to open up the processes behind their numbers to external scrutiny. Again, the need for data integrity and transparency is paramount. Lastly, companies will be under obligation to generate much more frequent and detailed reports.

     

    		•  
       

       
     

    Performance players: key vendors

    Vendors from four overlapping software segments have regrouped their software around the concept of corporate performance management (CPM).

    Financial analytics

    The leader in this specialist area, Hyperion Solutions, boasts by far the broadest line up of ‘business performance management’ applications and tools, covering modelling and optimisation, planning budgeting and forecasting, scorecarding, consolidation and reporting. Comshare offers a similar but narrower line up, while close competitor Applix provides financial planning and consolidation, and customer- and service-oriented analytical applications.

    Business intelligence

    Most of the major business intelligence (BI) software vendors have all embraced the corporate performance management concept, but Cognos is trumpeting the CPM message most loudly. Alongside its traditional analysis and reporting tools, the company has extended its portfolio to planning, budgeting and forecasting, consolidation and financial reporting, financial analytics, and scorecarding software. Its main rival, Business Objects, mirrors much of that coverage, with a weaker hand in financial planning and budgeting but greater strength in data integration. Other BI software companies enable many aspects of CPM, including Information Builders, Crystal Decisions, Microsoft, Brio, Informatica, MicroStrategy, Computer Associates, Actuate and Hummingbird.

    Business applications

    Two of the major business applications companies stand out as having identified CPM as a key area. Oracle (using the label corporate performance optimisation) and SAP (through its Strategic Enterprise Management and Business Analytics software suites) both differentiate themselves from the specialist BI vendors by tying their CPM offerings directly into their underlying business applications.

    Data infrastructure

    While the BI and business applications companies provide the analysis platform for CPM, many lack the broad data consolidation capabilities of some of data integration specialists. The key players in building that CPM backbone are Informatica, DataMirror, and iWay Software.

     

    		 
       

       
     

    Buzzwords: word play

  • Key performance indicators

  • Balanced scorecard

  • Corporate, business or enterprise performance management/optimisation

  • Sarbanes-Oxley Act

  • Corporate governance

  • Real-time analytics

  • Activity-based costing

    The CPM message: opinions

    “Users should embrace the enterprise performance (EPM) philosophy and apply it to all aspects of the business and technology landscape. However, apply the EPM architecture simply, because you cannot manage what you cannot measure.”
    John Hagerty, AMR Research

    “It’s a whole new ball game now. Not only do you need to show that your business model is good, but you have to demonstrate that your financial statements are sound and your management team operates with integrity.”
    Jeff Rodek, CEO of Hyperion Solutions

    “Organisations do not have the management tools to compete in the new economy. As a result seven out of 10 organisations fail to execute their strategy.”
    David P Norton, Renaissance Strategy Group

     

    		•  
       

    Avatar photo

    Ben Rossi

    Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

    Related Topics

    Related Stories

    IT management

    Andrew McAfee – ‘Human beings are chronically overconfident’

    Management expert Andrew McAfee has studied how mavericks such as Jeff Bezos and Elon Musk have turned the established way of doing business on its head. And he thinks their way of doing things can transform any business, no matter how established or how small

    Cybersecurity

    Keys to effective cybersecurity threat monitoring

    A strong cybersecurity threat monitoring strategy that evolves with current and prospective threats is crucial towards long-term company-wide protection

    Cybersecurity

    How businesses can vet their cybersecurity vendors

    Choosing the right cybersecurity tools is crucial to business security — here's how security teams can vet potential partner vendors in the space

    Business & Strategy

    Five key signs of a bad MSP relationship – and what to do about them

    Sometimes, the relationship with your managed service provider (MSP) may not work out long-term. Here are five signs of an underperforming partnership, and how to overcome them