The Performance Management Payoff

Linking execution to strategy is the main payoff of Business Performance Management (BPM). The idea is that, with accurate and consistent analysis available throughout the organisation, everyone will understand the corporate goals and will act in concert with the company's mission. Improved financial performance will follow naturally.

You can't align execution with strategy, however, unless several concrete business elements are cooperating. BPM can help wrestle them into place.

The key components are:

• Fast budgeting and planning cycles, with just a few iterations
• Linking data from different systems and forecasts from all levels of the company to give a common view of performance, present and future
• Making that view and the company goals easily available to all
• Identifying and tracking the true sources of profitability and of cost savings

After installing BPM software from SAS, Progress Rail Services, one of the largest rail services in North America, became a more entrepreneurial billion-dollar company. Finance manager David Klementz says: 'Everyone has a strategic plan, but until you have performance management and an ongoing view of the key indicators, you cannot see how the operational steps you take affect the financials.'

ONE TRUTH

Having different managers and divisions all looking at the same structure in budget templates and discussing forecasts with matching levels of detail is a wonderful goal that eludes many companies that were built through mergers, have international subsidiaries that define their own accounting or are a patchwork of transactional and planning systems. In such situations a BPM system is required to link and consolidate data from disparate systems to provide a common view of performance and make the unified view available to everyone who can create value with it.

Coty, Inc, a cosmetics manufacturer with more than 8,000 employees in 25 countries, has 40 different types of systems – including SAP, Oracle and JD Edwards systems – each with unique financial consolidation and reporting.

As a first step towards unifying this infrastructure, Coty installed Hyperion Enterprise for financial consolidation at more than 40 local sites. This delivered a consolidated view at corporate headquarters, but not the time to create complete, detailed views for each country office. "We had multiple versions of the 'truth'," explains Jim Shiah, Coty's controller.

When a new CFO mandated improvements in resource allocation, Coty bought a Hyperion suite of analytic products. With this software, Coty expects to lower infrastructure and personnel costs and spend significantly less on deployment, software support and hardware investment, saving more than $2m over three years.

Coty had several specific problems to tackle. While it had reporting by brand, the views were not multidimensional. To make the shift to BPM work, Coty had to redesign the underlying data structures and hierarchies that varied from one country to the next.

Some payoffs in capital expenditure are already evident. Until 2003, Coty took an annual wish list from each department, containing requests for everything from furniture for marketing to extra clerks in operations. 'We tended to allocate capital by negotiating on the wish list,' says Shiah. 'Now, we start at the strategic priorities facing the company and decide what each department needs to fulfil the strategy. Only when we can see what is left over do we consider the wish list.'

Coty now has some 250 users of its BPM capabilities. Thanks to web accessibility, the 'audience' is gradually widening beyond finance. Coty has found new subtleties in its decision-making processes, with more 'fact basis' and objectivity replacing subjective gut decisions. Executives find that using the same metrics across the organisation brings confidence because all those affected see and share the results of their decisions.

REAL-TIME INFORMATION

If information can't be in real-time, it should be as fresh as possible. The faster the information arrives, the faster you can turn the ship. To capitalise on a BPM system and run a company more tightly, your system should:

• Deliver data with minimal time lag from transaction or event to availability for analysis
• Enable faster closing cycles
• Automate error-prone tasks, getting people out of the data chain and putting them at its end
• Support faster forecast preparation

Miles Kimball, a multi-channel marketer best known for its catalogues, sells more than 12,000 stock-keeping units through three websites and three sets of catalogues. CEO Mike Muoio, after implementation of a BPM system from Geac to supplement its core CRM system, asserts that nothing outweighs its ability to bring corporations onto a real-time footing.

Real-time information stirs near-religious fervour among its converts. 'Ten years from now, if you're not real-time, you'll be crushed,' Muoio says. 'There is a heartbeat to this business, and now our people can get in touch with that rhythm. Behaviours can be aligned, and the way you go to work, culturally, is forever altered in a positive way.'

In a company that depends on personalised products, it is imperative to cut data precisely and quickly, and to respond nimbly. At Miles Kimball, the real-time culture appears to mean that many more questions are asked because rapid answers trigger more questions. It can also mean that more decisions occur, but they are often smaller adjustments.

For the company's merchant, product planning and operations staff, immediately spotting the success or failure of products, categories and offers leaves more time to improve the next catalogue.

Miles Kimball wants to realise half of its sales via the internet, thereby saving through decreased use of paper catalogues. BPM lets the company put tactics behind that strategic shift. 'Say we change the homepage on a website and offer free shipping from 9–11am,' says Muoio. 'We instantly start to see the results and gauge efficacy. That's real time, and it's very powerful.'

OWNERSHIP AND ACCOUNTABILITY

Companies often seek to involve more employees in the planning process, but without turning budgeting into their full-time job. If budgeting and planning draw on knowledge sprinkled throughout the company, you can avoid a top-down, forecast-by-decree situation.

In theory, that's good because it tends to join strategic goals with reality. Here's an example: Winn-Dixie, a major retailing chain, has approximately 120,000 employees and 1,100 stores located mainly in 12 south-eastern US states. Barry McMenamy, financial analyst, represented the finance department during Winn-Dixie's implementation of a BPM system beginning in late 2002.

Excel-based budgeting at Winn-Dixie was a problem that called for a cure. 'Some of those spreadsheets would go missing,' says McMenamy, 'and not everyone got their numbers in. It was a real struggle.'

Contributors to the budget were also frustrated because they were unclear about what happened to their numbers when the final budget was issued. Choosing Outlooksoft's EAP for its combination of budgeting and reporting, Winn-Dixie targeted budgeting at the administrative level across all its divisions. Next, it enabled the district managers to build their store budgets on the new system.

'These early phases required approximately five weeks,' says McMenamy. 'As a result, most end users finished their budget work earlier, and that gave our management extra time to tweak the budget for several weeks.'

'By 2004, every Winn-Dixie store will prepare its budget on the system,' he adds. 'We'll have thousands of users with every level of management involved. At that point, we will really see the benefits in terms of budget buy-in and sense of ownership.' Winn-Dixie's finance group tallied up the time, paper, printing and mailing costs of the previous budgeting and reporting methods and found that, over five years, more than $1.1m would be saved, easily paying for its BPM initiative.

COST SAVINGS, REVENUE GAINS

It's still difficult to find examples of BPM usage leading to new revenue. This is no surprise because these are the early days of BPM. BPM is more heavily used by finance than by product marketing or sales. There are numerous areas where BPM saves companies money, however. One such area which vendors tend to gloss over – but shouldn't – is the sensitive area of head count reduction. A BPM system may demand from 10 to 200 IT man-months during implementation, and it needs ongoing maintenance. However, it may sharply reduce the need for junior number crunchers to do rote work on budgets and reports.

ACTIONABLE INFORMATION

Everyone agrees that actionable information is a noble goal. BPM Partners has found that BPM enables actionable information with the following concrete elements:

• BPM enables faster comprehension of rapidly changing data from multiple sources through its Extract, Transform and Load (ETL) capabilities
• BPM systems enable a sharp focus on key business metrics through the use of scorecards and dashboards
• BPM systems can proactively alert managers to significant variations from expected results with email alerts and stoplighting in report

Catherine Duffy is a senior systems analyst at software company Macromedia, based in San Francisco. She was the primary leader of a BPM project that involved building an application using TM1 from Applix. Macromedia already had one version of the financial 'truth' in an Oracle data warehouse. However, manipulating the data in that warehouse was difficult.

Like many companies, Macromedia had conducted all its forecasting on Excel. Macromedia also has approximately 20 users on a purpose-built budgeting application. A key reason Macromedia chose TM1 is its RAM-based architecture, which Duffy credits with speeding up response time significantly. 'We have instant access through our web reporting, and our sales managers are constantly plugged in. We can see rollups and do weekly forecasting in our Excel model with much better turnaround time. Drilling from top to bottom is fast,' he says.

At Macromedia, actionable information means different things to different users. For its product management group, it is a marketing-based revenue forecast that looks at history, what is planned and the known seasonality factors. The sales group builds its forecast customer by customer. 'Every quarter, we do an "interlock" where we compare the two approaches to find a meeting of the minds. We identify discrepancies and discover what underlies them.'

After some initial bumps, with users being challenged by the many options available, the BPM system caught on. 'Once the sales managers had a full quarter cycle under their belts, they were thrilled with it,' says Duffy. 'After getting to desired data very quickly and asking for more screens, and getting those too, they saw its power. It has changed how many people do their jobs.'

Actionable information was also an important win at Lockheed Martin. 'Internally, it's meant we benchmark continually against competitors, and we now have a changed approach to managing our balance sheet,' says Mike Gabaly, managing director of Lockheed Martin Financial Shared Services. 'In addition, we developed new capital metrics around our assets, liabilities and all our operations. Our culture has solidified around performance.'

BETTER PERFORMANCE

While improved decision-making and competitiveness are cited by nearly every software vendor's marketing material, the claims are often stretched beyond reality. Nevertheless, BPM Partners finds that competitiveness and decision-making are boosted by BPM. BPM can deliver meaningful payoffs on two levels: first, in terms of strategic, if somewhat less tangible, benefits, such as tying execution to corporate strategy; and second, in terms of concrete benefits you can count, such as saving millions of dollars. BPM Partners' work with companies that have adopted BPM has also highlighted a common theme about which many users are enthusiastic: a change in their work culture to being performance-oriented, greater awareness of the marketplace consequences of actions and a more rapid and aggressive response to competitive changes.