Captain Jack and the BPM Market: Performance Management in Turbulent Times
By by John Colbert | Jun 1, 2009
Just like the fictional Master and Commander, today's business executives face tempestuous challenges. BPM can help them to chart a course through the storm, even as the winds of change buffet the major market players.
In the early scenes of the epic drama Master and Commander - The Far Side of the World, Captain Jack Aubrey, played by Russell Crowe, is found on the quarterdeck making decision after decision to protect his ship and save the lives of his crew (as well as his own) while accomplishing his mission. Gale-force winds, dense fog, the unrelenting sea, and the sinister presence of an enemy ship threaten the captain's chances of survival, and he has to make constant course modifications, jettison a fallen mast (along with a deckhand), and demonstrate supreme confidence to his crew so that they can all survive to see another day of blue skies and calm seas.
Just like Captain Jack, business executives in 2009 confront tempestuous challenges. But instead of the aggressive forces of nature, today's corporate leaders battle unrelenting pressures from investors, wildly fluctuating capital markets, and threats of new regulations, as well as the not-so-occasional broadside from a competitor. The good news is that many (though not all) executives who have adopted basic performance management and business intelligence capabilities are now standing on the deck looking forward and charting a course for the future in this turbulent environment. Their situation differs dramatically from that of leaders who preferred to hide belowdecks in the relative safety of the executive suite, poring over historical Excel spreadsheets and stagnant reports that may help them to understand where they've come from but don't do much to show where they should be going.
According to research conducted by the Corporate Executive Board (www.executiveboard.com) entitled "Executive Guidance for 2009," companies that make it into the top quartile during a downturn sustain their market premium for an average of three years. With stakes this high, any failure to assertively identify performance improvement opportunities during the slowdown can spell trouble for less well-positioned companies. The principle of survival of the fittest is already being applied to the financial services, automotive manufacturing, and print media markets. Firms that wish to sustain a healthy future need to act now or risk becoming a casualty of market evolution.
Are Companies Still Investing in Performance Management?
Performance management is one of the few IT investments receiving heightened focus during this economic downturn. At a time when sales are down and earnings nearly nonexistent, you might think that companies would be well advised to cut back their spending on software. Yet when it comes to managing performance and profits, it actually might make sense to invest in systems that can help you to improve the bottom line, better analyze and forecast your business, and improve decision-making.
Companies that we at BPM Partners have talked to are not as concerned with mere survival as you might expect; rather, they're focused on how best to take advantage of current market conditions. For the 2009 Business Performance Management (BPM) Pulse survey, conducted from October 2008 to February 2009, we interviewed over 850 senior executives to assess their perspectives on this topic. It's heartening to note that investment in performance management improvements is a priority for many of these firms. Fifty-two percent of respondents said that they will increase their focus on performance management investments, although the majority of this group (28 percent of the overall sample) acknowledge that they need to do so more cost-effectively. Thirty-eight percent of respondents reported no change in their focus (Exhibit 1).
It's important to note that performance management improvements are not synonymous with technology investments. In 2005, the BPM Standards Group, a group of end users, vendors, analyst firms, and implementers, defined business performance management as solutions that enable an organization to define strategic goals and then plan, measure, and manage performance against those goals. These solutions require a set of integrated, closed-loop management and analytic processes, supported by technology, that address financial as well as operational activities. In sum, improved business processes, skilled people, and the right content (data) comprise the primary pillars of BPM, with technology as a supporting foundation.
What BPM Consumers Want
Given the upheavals in the economic environment, we decided to ask BPM Pulse Survey respondents to identify areas of performance management that are of heightened interest these days. It's no surprise that profitability optimization, enhanced operational analysis, scenario (what-if) modeling, and improved strategic planning topped the list of important focus areas (Exhibit 2).
We also drilled down into the core business processes that require greater emphasis in these trying times. Respondents identified profitability analysis and enhanced reporting as two areas of expanding interest within their performance management systems.
Voices of the Vendors
Due to the nature of competition in the performance management and business intelligence markets - in particular, the reality that the technology vendor community aligns on higher areas of prospect interest - it's helpful to get the vendors' perspective on what's different in today's buying cycles.
Meg Dussault, program director with IBM Software Group, reports that "there are four new focus points we have noted through discussions with existing clients and prospects: cost management, profitability optimization, risk management, and new opportunity assessment."
Those are pretty overarching themes, so let's dig into them a little more deeply:
This is about better managing the costs you can control. You need to understand the relationship between cost and value to figure out what can be deferred or omitted and what cannot. The worst thing to do is to scale back on investments that can best position your organization to withstand this tough environment and win in the longer term.
You need to understand the customers, products, and regions that are driving the best contribution, because that's where your priority needs to be. Focusing efforts on your most profitable customers and products, while paring back the less profitable ones, will surely provide the bottom-line impact that you need to achieve.
The way in which your organization addresses risk impacts everything from cost of capital to compliance. Given the constant and rapid changes rocking the financial markets and competitive environments today, organizations need to be able to set tolerances that make sense, monitor potential exposures, and change course as appropriate.
New Opportunity Assessment
Any change brings new opportunities; you need to exploit the favorable winds that others haven't yet noticed. To do that, you have to understand the profit potential of opportunities and prioritize the most promising prospects.
Stephanie Buscemi, vice president of marketing for enterprise performance management and governance, risk, and compliance at SAP, emphasizes the need for flexibility and agility in turbulent times: "Today's successful companies are able to apply their resources to initiatives and functions in the enterprise that can deliver the greatest value," she notes. "They're agile, and they operate flexible processes to capitalize upon opportunities that present themselves during a crisis. Performance improvement projects should not only drive cost reduction but also provide strategic insights and identify new opportunities to improve margin and drive profitable growth while mitigating business risk."
Organizations should recognize that performance management means much more than just a new set of reports, insists Jonathan Hornby, director of worldwide marketing, performance management, at SAS. "Don't just report on performance, but focus on improving and optimizing performance across the enterprise," he says. "The top-of-mind challenges that we see include controlling costs without sacrificing future growth objectives, understanding what drives cost and profits, and creating organizational alignment to improve agility."
Fundamental economic changes are driving broader adoption of new planning processes that found only a minority following in better times. "Virtually everyone is talking about doing rolling forecasts," reports Rand Heer, founder and CEO of Alight Planning. "Underlying this is strong confirmation that last year's budgets are not useful now, and forecasting is needed to keep up with rapid changes in the economy and their businesses.
Scenario planning is another important undercurrent. If you can't predict the future - and none of us is doing a very good job of that - then thinking through alternate scenarios becomes more critical."
At the same time, the vendor community is recognizing that in these leaner times, cost considerations are crucial. "Companies that had sizable six-figure budgets last year and were looking only at the Big Three vendors (IBM, Oracle, and SAP) have become more cost-conscious and risk-averse," reports Greg Schneider, vice president of marketing with Adaptive Planning. "As a result, they have been expressing greater interest in software-as-a-service (SaaS), which has lower upfront cash outlays; a lower-risk, pay-as-you-go model; and shorter implementation times. The model is not only economically attractive, but also allows our clients to have a more immediate impact on their business."
A View from the Non-Vendor Experts
At BPM Partners, we have noted that clients are shifting from an approach that addresses the budgeting, planning, and forecasting process with one system to one that breaks down each of these components into individual business processes that might benefit from best-in-class solutions that address the unique attributes of each. Budgeting is a specific closed-loop process that requires a solution that's user-friendly for infrequent users yet comprehensive enough to be able to collect granular data and roll it up into a summary data structure. Planning involves documenting a scenario and then being able to run "what-if" scenarios and models with sufficient sophistication to address changing market dynamics. Forecasting involves taking an established budget, compiling actual performance data and comparing this to the plan, and then enabling various analyses that help to provide a range of possible outcomes and a degree of certainty associated with a certain performance level.
administrative and user benefits can be gained by supporting these
three processes through a single system. But if there are unique
best-in-class capabilities that will better support your business
modeling (for example, your strategic planning process), you shouldn't
remove them from your prioritized requirements list as part of the
vendor selection process.
The economy is also impacting the way decision-makers approach their plans for deployment. "Today's focus is on proving value where it matters most - better revenue and cost forecasting and streamlining both financial and operational management," reports Trevor Walker, managing partner of Perfiniti, a collaborative business intelligence and performance management consultancy. "In working with our existing customers and prospective new customers, we are seeing buying cycles taking longer, and projects tend to start smaller. Customers are looking to us to help prove quick time-to-value from a core starting point and then add on to this core with other projects. This means that in some cases we are partnering to break projects into phases so that they better fit with priorities and budgets."
But in these difficult times, it is even more important to keep an eye on the big picture. "The current economy makes it more urgent than ever that a company runs efficiently; maximizes opportunities; plans and forecasts accurately; and manages its costs," says David Den Boer, founder of Column 5 Consulting. "Performance management systems allow companies to shine a light on all corners of their business to see where costs come from and where opportunities may lie. By better understanding their business, management can prioritize and make better decisions. For example, in a down economy it may be necessary to make cuts, but making cuts in the wrong places can cause you to lose market share and weaken your chances of recovery when the market improves. Having a clear view of your company's business drivers can save you from making shortsighted decisions."
Prepare to Hoist Full Sail
While many companies are focused on identifying the bottom of the downturn, forward-thinking organizations are looking for the silver lining in the storm clouds. With stricter attention to performance improvement, well-informed management can use this opportunity to trim less profitable and less strategic parts of their operations, sharpen their focus, and put systems in place that will provide competitive advantage going forward.
At the end of his journey, Captain Jack Aubrey succeeded in tracking down his foe, and he and his crew were much richer for the experience. I'm confident that organizations that take the correct steps today - establishing cost controls to meet short-term constraints, yet finding incremental ways to improve their performance management systems - will be best positioned to accelerate out of this economic squall and set full sail to the upturn.
John Colbert is vice president of research and analysis at BPM Partners, a leading independent authority on performance management and business intelligence solutions.