A review of new software products that can make a big difference to your business

First BI, now CPM*

By Michael Burns

*This is an expanded version of an article that first appeared in the June/July 2006 issue of CAmagazine.

Surveys have a way of changing slightly from year to year, and so it is with our annual survey of business intelligence systems. After three years running, it has now morphed into a corporate performance management survey. CPM. comprises BI as well as many other components. (See the chart for this year’s results, which include Cognos, DynacTools, Hyperion, Khalix, Microsoft Office Business Scorecard Manager, OutlookSoft, Panorama, PROPHIX, SAS, TARGIT and Vanguard.)

But what is CPM? Initially coined by Gartner, a research and advisory firm, the term describes all of the processes, methodologies, metrics and systems needed to measure and manage the performance of an organization. Unfortunately, it is also called business performance management and enterprise performance management, which causes some confusion. CPM typically includes strategic planning, scorecarding, budgeting and forecasting, consolidation and business intelligence.

For example, imagine you have to drive a car with no instrument panel, or with a speedometer that shows your speed from five minutes ago. You would risk getting a ticket or even having an accident. Or you might be late because you would be overly cautious. Now imagine you’re the CEO of a company without an instrument panel. It’s hard to operate without a dashboard view of up-to-date key performance indicators. You also need a map -- especially if you’re trying to get somewhere you have never been. To the CEO, the map is similar to a company’s strategy map – another component of CPM.

Now imagine you have passengers in the car, all with different objectives. The child in the back wants to stop frequently and the grandmother wants to take the scenic route. Sure, you can ignore the conflicts. But that is not so easy to do in an organization where each department has its own objectives. Ensuring alignment to corporate objectives using scorecards is another key element of CPM.

Last but not least, you need to comply with certain laws on the road. Otherwise you could go to jail or be fined. And so it is with organizations that have to comply with legislation such as Sarbanes-Oxley or Bill 198. CPM provides tools and controls for compliance, just as enterprise resource planning systems helped organizations with Y2K. Now for consolidation and financial reporting, it’s no longer acceptable to use spreadsheets that are error prone and don’t have an audit trail or approval process. CPM includes powerful consolidation processors, financial reporting and work flow for approvals, thus eliminating the need for spreadsheets.

Meg Dussault, director of market strategy for Cognos CPM, says the software helps improve performance by leveraging technology. CPM should answer three questions: 1) What should we be doing? 2) How are we doing? and 3) Why is there a variance? To answer these questions, you need more than just CPM technology. You also need to develop a strategy and decide on the key performance indicators (KPIs) or the scorecard to measure performance.

Cognos has found that a number of vendors offer similar CPM functionality. To stand out from other CPM vendors, Cognos offers packaged vertical applications, performance blueprints and CPM expertise from “thought leaders.” Vertical applications include prebuilt reports and KPIs customized by industry. Performance blueprints are predefined data, process and policy models that help with the implementation of CPM.

The objective of KPIs/scorecarding is to monitor performance related to strategy. The key question it answers is how well you are doing in relation to the things that are most important. In the early 1990s, Drs Robert Kaplan and David Norton developed the concept of the “balanced scorecard.” Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard provides a clear prescription as to what companies should measure to “balance” the financial perspective.
Kaplan and Norton describe their invention as follows: "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial-age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information-age companies must make to create future value through investment in customers, suppliers, employees, processes, technology and innovation."

The balanced scorecard suggests we view the organization from four perspectives, and develop metrics, collect data and analyse it in relation to each of these perspectives:

• Learning and growth
• Business processes
• Customers
• Finance  

Financial measurements are inherently lagging indicators, which tell you about historical results – sales, gross profit, customer satisfaction and so on. The other measurements can also lag, but the most important are leading indicators, which foreshadow things that could happen. For example, rising error rates in shipping or longer time to ship often precede declining customer satisfaction.

Metrics should be SMART: specific, measurable, actionable, relevant and timely. If the numbers aren’t specific, the results can be interpreted in many ways. You should not choose metrics that can’t be measured accurately or take a huge effort to obtain. Actionable means the metric is easily understood and ties back to a specific item that is being measured. Relevant metrics are linked to strategy. Companies that need to wait a month or more for their metrics are in deep trouble. Real-time should be the goal, but accuracy objectives will cause a delay to make sure the numbers are right. You should be shooting for days, not weeks, and CPM will help achieve that goal.

As mentioned, business intelligence is a key component of CPM. Our definition of business intelligence is turning data into information that is useful for making decisions. It could be a simple report on your desk every Monday morning or a more sophisticated analysis using online analytical processing (OLAP).

ERP systems are known to generate lots of data, but not a lot of information (data rich and information poor). Business intelligence is the solution to this problem. Some of the ERP vendors are introducing their own business intelligence systems, but companies like Cognos provide business intelligence solutions that can be used with many of the leading ERP systems. This would make sense especially for organizations that have multiple ERP systems and want to analyse all the data at the same time. As well, ERP does not contain all the information that is needed for business intelligence. For example, it does not  include the results of a customer survey, the time it takes to ship an order or the total costs of servicing a customer.

Increasingly, CPM and ERP vendors are offering a dashboard approach to providing the most important information/business intelligence. A dashboard could look like the instrument panel on your car and alert you to problems. Ideally the dashboard is tailored to a specific person or role so that only the most critical information is provided. It is better if you can also drill down for more details.

CPM should bring improvements in speed, accuracy and auditability, as well as providing one version of the truth. Companies that took six weeks to close their books might now take six days. CPM prevents accidental or other errors from distorting the system. There is no internal control without an audit trail. CPM provides an audit trail not just in transactions but also in the approval process. For example, managers must approve the financial results of their department or company before the numbers are passed along to the next level in a consolidation. One version of the truth is the result of eliminating the spreadsheets in favour of a centralized, controlled CPM database.

In the attached vendor survey you will see a lot of questions related to consolidation. That’s because consolidation can be a huge problem for larger companies with multiple levels in their consolidation process. Often the accountants struggle for weeks to consolidate multiple levels in their organization using Excel. Adjusting entries are booked in Excel and need to be replicated multiple times for each level. Then something changes in one of the subsidiary companies, and more changes are required at each level in the process. Inter-company eliminations cause delays while the accountants reconcile the differences between the companies. The spreadsheets are fragile and only one person in the company is entrusted with them. But even that person breaks into a sweat when there is a reorganization and the consolidation spreadsheets need to be redone. There are lots of links between all the spreadsheets and one change could cause cascading errors in unsuspected places. Then when it’s all done, the CEO asks for a breakdown of one of the numbers. It seems like a reasonable request, but the accountants are unable to comply.

Consolidation is where CPM can make a big difference, not only when it comes to compliance with Sarbanes-Oxley but also to speeding up the consolidation process. Some CPM systems offer a huge opportunity for business process improvement by moving some of the responsibility for consolidation out to the subsidiaries. The latter will be able to access the consolidation system with just a browser on their workstation.

Sarbanes-Oxley has pushed some companies into CPM. The smart ones will take the opportunity not just to address compliance issues but to improve efficiency, strategy, corporate alignment and, ultimately, decision making.

As mentioned, last year’s survey was confined to business intelligence. This year we expanded it to include consolidation. Next year we will add other CPM functionality. Stay tuned.

Michael Burns, MBA, CA, is president of 180 Systems (http://www.180systems.com/), which provides independent consulting service, including business process review, business case development and system selection. Michael can be reached at 416-485-2200 or mburns@180systems.com.