|CORPORATE PERFORMANCE MANAGEMENT: IMPROVING BUSINESS PERFORMANCE
With Corporate Performance Management (CPM), rather than simply analyzing certain areas of their operations, businesses view all of their critical business data and key performance metrics in a holistic manner. This article explores how businesses can combat data overload while supporting better decision making that has the greatest impact on the bottom line.
This article is one in a series from Microsoft Office System that explores issues and perspectives facing finance executives.
The Opportunity: A Holistic Approach to Viewing Business Performance
With the advent of intelligent equipment on the plant floor, networked computers and devices, and reporting systems that collect and aggregate data across the entire enterprise, today’s businesses are being presented with the opportunity to monitor and analyze the business performance of every corner of their organization in real-time.
This potential for gathering and analyzing a vast array of business information has led to a proliferation of business intelligence (BI) solutions. BI solutions automatically gather raw business data, analyze that data, and then present the findings in such a way as to simplify the measurement of business performance and to support better business decision making.
BI solutions have become so popular that, according to technology research
firm Forrester Research, as many as 44 percent of companies are currently considering investing in BI solutions and putting the interest in BI ahead of the interest in many other enterprise solutions, including customer relation-ship management (CRM) and enterprise resource planning (ERP).
“Performance-driven enterprises are increasingly standardizing on applications and IT infrastructure that will enable solutions that transcend traditional departmental boundaries”
However, many forward-thinking businesses are recognizing the limitations of BI. Some BI solutions are strictly confined to the silos in
which they operate, such as those used to help managers visualize sales figures or monitor manufacturing throughout. So, taken alone, they do not provide the complete picture of business performance. To partly combat this challenge, according to Colin Masson, an analyst with technology research firm AMR Research, performance-driven enterprises are increasingly standardizing on applications and IT infrastructure that will enable solutions that transcend traditional departmental boundaries.
Yet, even when the silos are taken together, the data they yield can lead to information overload, one of the most pressing challenges facing business decision makers today. For example, corporate financial officers and their teams, no matter how adept, cannot take in and analyze all of the financial information now at their fingertips. And, even if it were humanly possible to take in all of the data that is available today, it may be impossible to manually tie everything together in such a way that anyone could identify the cause-and-effect relationships between all of the data that spans the enterprise.
In the face of this realization comes a new approach called “Corporate Performance Management” (CPM). According to Howard Dresner, a 22-year veteran of the computer industry and distinguished analyst with technology research firm Gartner, CPM refers to a new family of solutions that, with integration at its core, builds on BI to bridge the gap between reviewing compartmentalized information and understanding the true management of a business. Where BI focuses on measuring metrics such as sales, profit, and quality within an enterprise, CPM goes beyond these measurements to become a true strategic asset, encapsulating BI but also adding elements of business strategy such as planning and forecasting.
Enabling a Focus on the Right Business Process
Analysts Robert Moran, Alan Young, and Alex Veystel of technology research firm Aberdeen Group state that CPM holds the promise to deliver the perceptiveness and agility managers require to make effective business decisions. They describe CPM as an amalgam of new technologies reporting both analytical and transactional data stretching across five disciplines - corporate objectives, accounting, reporting/ analysis, prediction and optimization - to give managers an integrated and analyzable view of the entire enterprise.
One advantage of viewing CPM in this context is that the BI silos that businesses have developed over the years may not need to be torn down. If they run on a technology foundation that enables data integration, they simply will need to feed up to the CPM solution to enable a holistic view.
“CPM holds the promise to deliver the perceptiveness and agility managers require to make effective business decisions”
Another advantage to viewing CPM in this context is that it enables businesses to apply their resources not toward wrestling with data integration, or with generating an endless stream of reports, but instead on monitoring and managing the business processes that matter most to their bottom line. That is where CPM not only ensures it can provide a more accurate picture of true business performance, but also where CPM combats information overload. For example, one leading provider of CPM software, Comshare, is helping doughnut retailer Krispy Kreme put in place a system that enables budgets, plans, and forecasts to be created and
revised based on a continuous flow of financial and non-financial measurements. Krispy Kreme had been using a mostly manual process. By using a combination of financial reporting and consolidation software and spreadsheets to gather historical data, and polling U.S. and worldwide franchise operators, Krispy Kreme can generate forecasts of monthly sales and profits one year in advance. According to the company, the manual nature of the process left little time for analysis of the data, was not tightly integrated into many of its
“The BSC moves beyond the traditional financial measures that were adequate for industrial-age companies”
data stores, and was too cumbersome and fragmented to allow Krispy Kreme to realize the benefits of a true performance management system. Now Comshare is implementing a CPM solution on top of Krispy Kreme’s existing Microsoft BI platform. The CPM solution is intended to give Krispy Kreme greater data integration as well as gains in analytical reporting efficiency through an easily accessible, intuitive portal that Krispy Kreme anticipates will drive better decision-making companywide.
As with the Krispy Kreme example, the most effective CPM solutions typically focus on both financial and non-financial performance indicators within a few key areas, such as the supply chain, productivity, quality, customer-facing metrics, customer satisfaction, and return rates. To ensure that a CPM solution will be effective, businesses may want to consider comparing what their CPM solutions will cover to the Balanced Scorecard (BSC). The BSC is a measurement-based approach to strategic management developed in the early 1990s by Dr. Robert Kaplan of the Harvard Business School and Dr. David Norton of the Balanced
Scorecard Collaborative. The BSC gets its name by providing a clear prescription of what companies should measure in order to “balance” the financial perspective. The BSC moves beyond the traditional financial measures that were adequate for industrial-age companies, to include analysis of factors that not only speak to current business performance, but also help businesses gauge their ability to learn and improve as they go. The BCS does this by collecting and analyzing data relative to each of four perspectives:
The Customer Perspective - the ability to provide quality goods and/or services
The Financial Perspective - the ability to achieve long-range profitability goals
The Business Process Perspective - the key business processes at which an organization must excel to ensure profitability and customer satisfaction
The Learning and Growth Perspective - the ability to manage the business and adapt to change.
Ford Financial Europe: Early Signs of CPM’s Potential
According to Gartner, few enterprises are deploying CPM today. The research firm estimated that at the end of calendar 2002, less than 10 percent of Global 2000 enterprise companies had implemented CPM solutions. However, Gartner is quick to point out this will increase to 40 percent by 2005.
Gartner’s prediction matches those of other notable research firms, including Aberdeen, Forrester, and IDC, which are all closely following BI and CPM (which itself may be a sign of the growing corporate interest). For ex-
ample, Aberdeen expects CPM-related spending to near $5 billion by 2005. And, according to Gartner enterprises that effectively deploy CPM solutions within the next one to two years will outperform their industry peers because, as Gartner puts it, “CPM will drive the convergence of monitor and manage.”
One example of a company that is achieving gains through taking a holistic approach toward aggregating and analyzing its business data is Ford Financial Europe. Ford Financial Europe is a wholly owned subsidiary of Ford Motor Company that stretches over 19 European locations, employing more than 3,500 people and holding assets worth more than $20 billion. One of its main roles is to manage the sales of automotive finance contracts. It recently implemented a system that aggregates key contract-related data, sales data and customer information into one holistic, Web-based solution with the familiarity and reliability of the Microsoft Office suite of products.
By combining the data mining of individual BI systems with a broad view of the interrelated data, the group can quickly and accurately analyze a vast quantity of data ranging from number of contracts sold, to their financial value, risk, customer information, and country of origin. The group can then share that information with key management across Europe via the company’s intranet.
The system already handles data aggregated from half a million contracts in a rolling portfolio across Europe with room to grow. When implemented in early 2003, the solution was made available to more than 100 employees across Europe, but is expected to eventually scale up to 600. With access to the aggregated financial and non-financial data, the group anticipates it will maximize customer value while more effectively managing its risk portfolio and maximizing profitability.
Our Assessment: Build with an Eye Toward Making Better Business Decisions
In the scientific world, the adage is that “better information will lead to better decisions.” That adage is viewed as a truism and often is used to justify extensive research efforts. However, in the scientific world as well as the business world, at times “more information” can be confused with “better information.”
With the proliferation of intelligent equipment and devices, many businesses live and breathe within smart facilities, operate smart plant floors, and collect real-time data from across the enterprise. However, they often cannot make good use of that data. For example, while BI is gaining popularity in the business world, a
“Businesses today can ensure they have visibility into the key performance indicators that truly matter”
recent survey by technology research firm Forrester Research, revealed that more than 80 percent of companies currently operate multiple BI tools. With the right tools in place, and access to the right business data, businesses today can ensure they have visibility into the performance indicators that truly matter. In addition, thanks to the real-time nature of data collection, the key performance indicators can have a currency that is increasingly more valuable in today’s fast-moving, competitive business environment.
Microsoft Office System
The Business Forum Online
Balanced Scorecard Collaborative
Balanced Scorecard Institute
Harvard Business School - Working Knowledge
The McKinsey Quarterly
Nolan, Richard L. Dot Vertigo: Doing Business in a Permeable World. New York: John Wiley & Sons, 2001
usinesses should guide their investments with an eye toward ensuring that they break down the silos of data, and that they also allow for capitalizing on new solutions as they arrive, such as CPM. They also should invest in technologies that allow them to move their focus away from issues such as integration and more toward improving their business processes and decision making for greater business success. Microsoft under-stands the importance of BI and CPM in today’s fast-moving business climate, and that the key to CPM is leveraging the right business data in a holistic view. At its core, through its support of open standards and XML Web services through Microsoft .NET,
Microsoft is working to ensure businesses will be able to more easily integrate and share data across enterprise boundaries. And, through its work with solution partners as well as through the continuing development of its BI-related offerings, Microsoft is making sure customers not only have the ability to analyze and easily visualize that data, but also support business decisions that promote overall business success.
It is with this level of analysis, and this holistic view, that companies will be able to more accurately forecast their future business performance and cause a positive change on all levels. It’s at this point that the power of CPM for shaping business strategy will exceed expectations.
Microsoft Office System Can Help
Identifying the right business applications to meet your organization’s needs sometimes can be overwhelming. Microsoft is experienced in helping companies address their critical business needs such as cutting costs while simultaneously planning for growth and innovation. Microsoft Office System is a reliable business platform that allows you to manage business insight, adapt processes to address ever-changing customer needs and leverage your organization’s strategic assets while improving productivity, visibility and integrity.
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Microsoft Corporate Performance Management:
Improving Business Performance