It's not just another software upgrade. Business Performance Management is about defining your company's key metrics that matter now and in the future
Six years ago, when Hyperion Solutions Corp. arrived with pioneering software in business performance management, finance executives at semiconductor maker International Rectifier Corp. made two smart decisions: First, they bought the software, and second, they didn’t make every department sign on right away. According to Doug Burke, senior manager for financial analytics, the plan was to start with the departments that needed it most. “Our people in finance and sales would spend 80% of their time collecting data, and 20% of their time using it,” Burke recalls. “Now, we do things in minutes that used to take us hours, and we’re able to forecast sales and spot problems quickly.”
Not only did International Rectifier’s executives show great prescience about the ultimate utility of BPM, they also helped the company to avoid what has emerged as the biggest pitfall of BPM—trying to implement it across an organization all at once. As a result, the experiment proved so rewarding that the company proceeded this year to expand its BPM system into manufacturing and other areas. “What we’re aiming for is to be fully automated,” says Burke, “with exception-based reporting in every department to show us when there is a problem instantly.”
If only all companies could report such stellar results. “There has been a high degree of failure in this space,” concedes Lee Geishecker, research director at tech consultancy Gartner Inc. “People either get lost during the implementation phase, or the system gets rolled out and nobody uses it. They just revolt.”
Unfortunately, with the advent of the Sarbanes-Oxley Act and the investment community’s insistence on more accurate corporate forecasting, BPM—or EPM for enterprise performance management—is moving from a nice-to-have to a must-have overnight. What was considered a novel concept a few years ago has now moved into the mainstream for the Fortune 1,000, offering managers the ability to monitor sets of functional, cross-departmental metrics of their choosing on a real-time or close to real-time basis. Companies can no longer afford to walk away or fail.
After several years of sluggish adoptions, tech consultants now predict a steep trajectory for growth in the market for BPM software: • AMR Research pegs the BPM market at $5.6 billion in 2001 and predicts it will more than double to $12.2 billion by 2006. • Gartner expects that while today only 5% of U.S. companies have implemented some initial phase of BPM, that figure will rise to more than 50% in just two years.Either of these projections spells fast growth for the market. But a BPM solution is not cheap, running from $130,000 to millions of dollars for a larger enterprise, and it’s certainly not easy. “Our initial project took about a fiscal year to complete,” reports Burke. Much of that time, he explains, was spent “defining what data we wanted and what we wanted to do with it.” Then, there was the problem of getting people who were accustomed to spreadsheets to accept a new way of doing things. “People start out being very skeptical,” says Burke. “You have to show them how this is going to free them up to use higher-level brain power.”
“The key mistake people make is biting off too much,” says Craig Schiff, president and CEO of BPM Partners, a performance management consultancy. Schiff and other experts agree that too often, especially in the early days of BPM, companies pursued a “big bang” approach to BPM adoption, with the result that nothing worked as planned and employees became resistant to change.
That said, most companies today that decide to shift their operations to a performance management approach start with finance and treasury. “It makes sense,” notes Schiff. First, he says, because people in finance are used to working with numbers and computerized systems, and second, because the return on a BPM investment is greater in departments like finance that crank out lots of reports. “We had a number of people globally whose entire job was producing reports,” says International Rectifier’s Burke. “Now, nobody has such a position in our company.”
The next most common error in introducing BPM is leaving it to the IT department, or simply, as Schiff puts it, “failing to have strong project management.” Says Gartner’s Geishecker, “Even when you’re doing a phased approach, this is not just an IT project. It’s a cross-functional collaboration that involves cultural change and information sharing. That means you need the blessing of people at the executive level—the CEO, CFO, COO and CIO.”
Michael Morrison, vice president of enterprise planning at Cognos, a major BPM provider, goes further. “You need to have an owner who is responsible for the success of the whole project,” he says. For example, he suggests, if performance planning is being introduced in a finance department, that project should probably be “owned” by the company’s CFO.
The third common error made by companies is viewing BPM as just another software upgrade. “You can put in a dashboard and get pretty graphics,” says Steven Pugh, CEO of CODA Financial, a maker of BPM software aimed at the financial services industry. “But if you haven’t looked at your key issues and your programs, it’s really a waste of time.” Rather, he says, a company introducing BPM “needs to ask what I call the ‘meaning of life’ kinds of questions, like where do we see the company going in five years or what are the key metrics for success in this business.”