Corporate performance management software is often just an executive dashboard front end to a data warehouse. Its...
value is that it lets executives see where they've been. But increasingly, these systems are taking on forecasting and modeling capabilities that, like a GPS system, can help steer the company to where it needs to go in a timely manner.
Companies are already pushing corporate performance management (CPM) systems beyond executive dashboards to enable rapid changes in the business. Take Virgin Megastore in Los Angeles. The entertainment retailer built a data warehouse back in 2004 but recently launched a CPM system that tracks a range of performance indicators such as customer traffic, overall store sales and inventory.
"We didn't try to create beautiful, fancy dashboards like you would for the CEO level," said Robert Fort, CIO at Virgin Entertainment Group Inc. "We realized that data is actionable at all levels of an organization. If we put data in the hands of the people on the floor, they can influence and change their results throughout the day."
Today 1,500 associates receive daily reports on their sales performance. After the first 18 weeks of using the performance monitoring system, sales increased by $8 million. That's an impressive boost. The system was built using an existing data warehouse, augmented by Microsoft's SQL Server and BizTalk server at a cost of $250,000.
CPM tools gaining power
CPM grew out of business intelligence and is one of the fastest-growing segments of the BI market. In 2007, corporate performance management adoption grew by 19%, according to Stamford, Conn-based Gartner Inc.
That growth is expected to continue, given the current economic conditions, said Nigel Rayner, an analyst at Gartner. Companies of all sizes are putting more stock in performance management applications such as CPM that offer not only a consolidated view of a company's financial performance, but, more importantly, also a means by which users across an organization can forecast and analyze data to make immediate changes and plan for the future.
If we put data in the hands of the people on the floor, they can influence and change their results throughout the day.
Robert Fort, CIO, Virgin Entertainment Group Inc.
"Both the need to get a consolidated view of financial performance and a need for better budgeting, planning and forecasting are driving performance management [tool] adoption," Rayner said. "Unless you are a very small organization, Excel spreadsheets are totally inadequate tools -- companies need more."
Of course, Excel spreadsheets can have a place in BI and CPM systems, and just about every software vendor in this space gives companies the ability to use this familiar interface. Most tools also provide mature budgeting, planning, forecasting and management reporting functionality. Not all vendors are on equal footing, however, when it comes to the next wave in CPM: profitability modeling and optimization. The features address a risk for many executives today: They're under pressure to cut costs but without the proper systems in place, they don't understand the relationship between cost, revenue and profit.
"They will cut off a limb and hope the limb was not a crucial one," Rayner said. Profit modeling can help management figure out what impact cutting prices or shedding resources or staff could have on profits.
Corporate performance management specialists such as Prophix Software Inc., Clarity Systems Ltd. and Longview Solutions Inc. have profit-modeling capabilities. Software companies that are targeted at the enterprise, such as SAP Business Objects and IBM Cognos, offer profit modeling on a standalone basis as well.
There are also Software as a Service vendors, such as Host Analytics and Adaptive Planning Inc., that offer a Web-based approach to getting CPM efforts off the ground vs. the on-premise approach.
CPM can be light and inexpensive
Keep in mind that purchasing corporate performance management software does not mean a business intelligence system must also be in place. However, more midmarket companies are buying performance management applications from larger vendors such as IBM, Oracle and SAP with the intention of introducing more complex BI analytics over time, Rayner said.
Midmarket companies also should not view a CPM installation on the scale of a complex and costly ERP system initiative. A CPM solution can be installed for less than $100,000. The tradeoff is less functionality, but the core budgeting, planning and forecasting needs should be covered.
With CPM, price points are an issue for smaller companies, but cost savings are not the typical driver for adoption. Many organizations are more interested in the impact it will have on decision making and profitability.
Let us know what you think about the story; email Christina Torode, Senior News Writer.