In-Depth
4 Performance Management Trends to Watch in 2012
Performance management solutions have been around for years, but momentum is building, as these four future trends reveal.
By Craig Schiff, President and CEO, BPM Partners, Inc.
Performance management solutions have been in existence for many years, and in the past 10 years we've seen their adoption and feature set grow. This momentum will likely continue for several years. Performance management started with a focus on consolidating information from multiple general ledgers and then moved on to providing a real system alternative to spreadsheet budgeting. Today it encompasses those areas plus financial reporting, operational analytics, governance, risk, compliance, strategy management, and profitability optimization.
As the technological advances and business benefits have grown, so, too, have the implementation challenges. The future will bring new capabilities and provide ways to reduce the complexity and enable more organizations to come closer to realizing the full benefits of performance management.
The Past
Before modern performance management solutions became available, companies struggled with fundamental financial processes such as the month-end close and the annual budget. Most approaches to addressing these areas were labor-intensive, error-prone, and utilized tools not really designed for the purpose (e.g., spreadsheets). More advanced organizations built custom in-house solutions. Although an improvement, they were difficult to maintain and required significant ongoing IT involvement. In both cases it was still a challenge to produce accurate, reliable, timely information. In addition, the sheer complexity of these approaches limited the number of users who had input into the budget process and ready access to the monthly reports. If companies had a dashboard at all, it was a static executive information system (EIS) pre-loaded by IT and intended only for senior management.
The Present
The situation today is quite different. There are numerous packaged applications available that automate the underlying processes in a consistent fashion but they are fully customizable to meet the unique requirements of most organizations. Designed for business end users, the role of IT in setting up and maintaining these systems is greatly diminished. Most packages include some form of built-in extract, transform, and load (ETL) tools to enable the timely and accurate import of summary transaction-level data required for performance reporting. Spreadsheets may be used as an interface, but are tied to a centrally controlled and managed database.
Many organizations have yet to move forward due to cost and complexity issues. Quantifying the value of "better decision making" these systems provide is difficult, making it harder to cost justify the combined software and service price of current solutions. As performance management's capabilities have grown, the solutions have also grown in complexity, with some implementations requiring a sizeable investment in time and resources.
Performance Management Trends to Watch
The good news is that there are trends that will come into their own in 2012 that should address current challenges and advance the benefits of performance management.
Trend #1: More enterprises will move to the cloud
Performance management has had hosted (software as a service (SaaS)) solutions available for several years. Organizations struggling to cost justify a large investment can start small, prove the value, and grow from there. Both the subscription pricing model as well as the reduced demands on IT make for an easy entry point.
Many companies have been reluctant to utilize this approach. The primary issue has always concerned security, especially because of the type of data these systems hold. This clearly is more perception than reality because in many cases their current approaches (e.g., e-mailing spreadsheets) are far riskier.
The second issue has been that the performance management solutions built from the ground up for the cloud environment have been limited in scope and functionality. Not anymore. The existing SaaS performance vendors have been aggressively expanding their offerings and deepening their functionality to compare favorably with on-premise solutions. In addition, there is at least one new vendor in the wings that plans to deliver a comprehensive, enterprise-class performance management solution designed for the cloud. The robustness of these solutions, and therefore the benefits they provide, may just prove to be the tipping point for those hesitant to consider cloud-based performance solutions.
Trend #2: Vendors finally wake up to verticalization
This topic has been talked about for many years. What could be easier than a product that speaks your business language and has built-in functionality to handle the unique needs of your industry? Apparently the answer is a generic product that requires massive customization and training because that's what most vendors have been providing.
It is changing, however. Vendors that have provided industry solutions such as those designed for financial services and healthcare have seen increased success in those areas, and more vendors are catching on. An additional benefit for all parties is the ability to offer complementary solutions for that industry that supplement and expand the core performance management capabilities. In 2012, more vendors will follow this path. This should reduce the learning curve, the amount of time it takes to implement, and the total cost of ownership.
Trend #3: Performance benchmarks focus on competitors, not internal budgets
How is your company performing? It seems like a simple question, but it is somewhat meaningless unless you define what you're comparing your performance to. Most companies compare their actual performance to the targets contained in their budgets. That's useful, but only to a point.
Suppose your budget targets were too aggressive, unrealistic, or conservative. Even if the budget was appropriate, an important piece is still missing. How do you stack up against the competition? Suppose you targeted and achieved 5 percent revenue growth. That's great -- unless everyone else in your industry is growing by 10 percent or more. That's where benchmarking comes into play: comparing your performance to your peers. This area has come in and out of favor in the performance management world over the years mainly because it has been difficult to accomplish. Getting access to this external data is the first challenge, figuring out where and how to map it into your existing data is the second. Vendors are tackling this with enhanced solutions and alliances for the data. As this becomes easier, there will be greater adoption and more vendors will follow suit. This is an important step forward in getting a more meaningful picture of your company's performance.
Trend #4: Introduction of new choices
Performance management solutions have been developed by a strong group of established vendors. There are three very large vendors that offer performance management solutions as part of a larger portfolio. There is also a group of specialized vendors that just focus on performance management. Most of these players have been in place for many years. Although they continue to enhance their products, true innovation is rare. That's about to change.
Several "new" vendors with new offerings will show up on the scene in 2012. While some of these vendors will be brand new, others have been around for several years but haven't merited serious consideration. These existing vendors are in effect re-launching themselves with new investment and/or new management and renewed focus and energy.
To compete in this market, they will need to offer something new and different to distinguish themselves. To remain competitive, the established vendors will need to evolve as well. The result will be better solutions all around and far more choices than we have today.
All in all, 2012 should be a good year for performance management solutions.
Craig Schiff is president and CEO of BPM Partners, Inc., a full-service performance management firm.
He was a founding member and senior VP of Hyperion (now part of Oracle) and co-founder and CEO of OutlookSoft (now part of SAP). Mr. Schiff has over 30 years of experience working in the areas of analytic applications, business intelligence, and performance management. You can contact the author at cschiff@bpmpartners.com.