The current economic climate is putting companies under more stress than they have experienced in quite some time. The economic downturn is forcing executives to sharpen their pencils, look for profit and eradicate losses in every nook and cranny of the organization, and make hard decisions about where to allocate scarce resources. Geopolitical uncertainty makes planning and modeling at once harder and more important than ever before. And new reporting rules have companies scrambling for faster, yet more detailed, information about results and performance so that they can report their financials with confidence.

As companies transform how they do business to cope with the current environment, they require unprecedented visibility into the dials and levers that affect their performance. Only through this insight can companies achieve the level of individual and group accountability that is at the heart of improving results and meeting reporting requirements. Business performance management (BPM) software provides critical insights into business performance and makes organizations more competitive.

Why Not Use the Tools We Have?

Some critics are asking why traditional solutions for decision support and business intelligence (BI) aren't adequate to deliver the insight needed. This is a fair question, considering that these systems have been available for decades and have been implemented in many companies. One reason is that often these solutions are implemented in a way that does not maximize their usefulness. Unfortunately, many companies have made substantial investments in disparate BI systems from multiple vendors. These applications operate with disjointed business rules and hold divergent data, so they provide organizations with multiple versions of the truth. Many BI initiatives are conceived to address a specific department's narrow set of needs, exacerbating the problem of siloed information that already plagues large organizations and that ultimately results in low usage of the software. The OLAP Report's OLAP Survey 2 (published by Optima Publishing Ltd.) makes the point that "there is a remarkably high rate of shelfware among OLAP [online analytical processing] products, ranging from 20 percent to over 70 percent. ... The already high shelfware rates seem to be increasing, and it seems likely that much of it will never be deployed."

Another problem is that frequently these systems are implemented by the IT organization in a way that makes it difficult for business users to extract what they need. In reality, most decision support and business intelligence products are essentially query and reporting (Q&R) software. IDC found that Q&R represented nearly 40 percent of all business intelligence tools sold in 2001.

Even when well-conceived and well-implemented, decision support and BI tools don't meet the current need for managing business performance because they don't inherently accommodate business management processes such as enterprisewide planning, financial consolidation, reporting, and modeling. As a result, they can't provide the operational and financial insights required for business improvement. Much like the difference between an engine and a car, the fundamental difference between business intelligence and BPM is that the former provides power, while the latter supports operating processes -- steering, braking, and gear-shifting in the automotive analogy.

For example, decision support and business intelligence tools are not designed to pull together all the far-flung information that is necessary to build a quarterly financial statement or balance sheet for a multinational, multidivisional corporation. They don't have the embedded processes, such as intercompany reconciliations and GAAP adjustments, to gather financial and operational plans from disparate business units, get them approved by tiers of management along the way, and roll them up into coherent strategic plans for the whole organization. These crucial yet sophisticated activities require an understanding of the business processes involved.

In addition to the lack of embedded processes, decision support and BI tools typically don't take into account how individuals perform their jobs and how those activities roll up into larger departmental and corporate business processes. In order to gain broad usage and adoption, a BPM system must support functions such as strategic planning, tracking of key performance indicators, and business modeling within its work flow and must be embedded into larger business processes. Decision support and BI tools are not designed to support these ends.

A Higher Ground

It has been over 25 years in coming -- and decision support and business intelligence are important predecessors to BPM -- but finally business users are driving the agenda for IT to enable better business performance. We are shifting from IT asking "How can this neat technology be used by the business?" to business users asking IT "How can you help me understand why profits are higher in our Toledo plant than in our Akron plant?" or "How can we model the financial impact of rerouting our delivery fleet?" We're clearly at the very beginning stages of this process. Gartner estimates fewer than 10 percent of enterprises had implemented performance management solutions as of the end of 2002, yet the firm expects 40 percent to have done so by 2005.

This doesn't mean that technology decisions about BPM should be made in a vacuum. To successfully implement the software, IT and business units must work together to achieve the proper blend of technology and process integration. IT needs to facilitate BPM in partnership with business units and leverage existing investments in hardware, networks, operating systems, databases, and transactional and operational applications. To understand IT's role in the big picture, we must first look a little more in-depth at what constitutes business performance management.

BPM is more than technology; it is a framework for organizing, automating, and analyzing business methodologies, metrics, processes, and systems to drive the overall performance of the enterprise. It helps organizations translate a unified set of objectives into plans, monitor execution, and deliver critical insight to improve financial and operational performance. In fact, IDC's first criterion in its definition of financial business performance management software is that it "structures and automates a group of tasks pertaining to the review and optimization of business operations (i.e., control) or the discovery and development of new business (i.e., opportunity)."

Business performance management is helping companies tie goals to strategic objectives; model scenarios to anticipate possible outcomes resulting from those goals and objectives; develop plans to support their goals; monitor execution -- both tactics and results -- to see whether activities support organizational goals; report results internally and externally; analyze the dynamics underlying those results to see where improvements can be made; and set new goals based on outcomes and analyses. When deployed enterprisewide, BPM solutions improve on previous technology models by helping individuals throughout a business network work collaboratively across strategic, tactical, and operational levels; facilitating a single version of the truth; and aligning disparate parts of an organization to ensure optimal performance.

The Role of IT

Clearly, IT is critical to the success of BPM solutions, especially since the maximum value of the software is realized when it is deployed at the enterprise level. To achieve enterprisewide deployment (for both users and applications), a company must first have the right supporting technology in place.

For business performance management to deliver maximum value, the underlying platform must be enterprise scalable in terms of number of users, amount of data, and number of applications. It must be able to deliver functionality for forward-looking processes, such as forecasting and modeling. It must support collaborative processes, such as planning and budgeting. It must be easy for business users to learn, operate, and customize with minimal IT intervention. Deploying, administering, and maintaining it must be seamless for IT. The platform must have an open architecture that supports common IT standards; it must integrate with the company's existing transactional and data warehouse systems on the back end and with a broad range of information-access tools, such as report writers and graphical analysis tools, on the front end. Finally, it must be secure, and it must support business process integration.

The IT organization needs to support an enabling platform for BPM. Key requirements of this software environment include:

Analytics and business logic. This is the most important technological component of an enabling BPM platform. The platform must be able to deliver the analysis required to predict results and must support a common set of business logic or calculations that enable a single version of the truth. It needs to handle large volumes of data, parallel tasks, and extremely complex calculations. Usually this platform is based on OLAP technology.

Management process. BPM solutions must be capable of supporting the management process or work flow of the organization. These processes make all the supporting technology relevant to the business user and drive the value of the solution across the enterprise. The platform must be capable of simplifying the complexity of these processes. An example of this complexity is the process impact of moving from calendar-based planning to event-based planning. Most organizations find the former challenging enough. Moving to an event-based plan is daunting from a process point of view and is nearly impossible if the underlying technology doesn't support it.

Query and reporting. Even though Q&R is not a complete BPM solution by itself, it is a necessary component of one. BPM's query and reporting requirements are extensive. This component must scale to a large volume of users and information. It must be capable of handling both financial and operational data. It needs to deliver very detailed, highly formatted reports as well as quickly deliver ad hoc reports requested by business users.

Data visualization. This goes beyond standard query and reporting. It focuses on delivering BPM information in a highly interactive, highly visual environment. The business user must be able to navigate the information at the "speed of thought" and view it in visual metaphors that simplify comprehension. To that end, data visualization must be personalized to the specific needs of the business user.

Data access and consolidation. The information required by BPM is scattered across many sources of information (transaction systems, third-party databases, business partners, and the Internet). The platform needs to be able to access all of these data sources and consolidate them into a single view.

Support of packaged and custom applications. The platform must be capable of supporting both packaged and custom applications. For instance, many companies have selected packaged applications for common tasks such as financial consolidation and reporting. However, activities that are unique to a business or vertical category will often require a customized solution. Companies opting for this approach need the ability to quickly develop, deploy, and maintain Web-based solutions and tools that are capable of actively engaging the business user in the process of specification and development of the application.

Support of standards. Integration within the existing IT infrastructure is a requirement. BPM technology will not deliver maximum value as a cluster of stand-alone applications. The platform must support industry standards to achieve this integration and interoperability.

We've Only Just Begun

At this stage, we have realized the potential for business performance management solutions that add business value; are easy to deploy, use, and maintain; and truly help an organization perform better. Still, this nascent software category faces challenges in this period of IT budget cuts and widespread aversion to large-scale (read: costly) deployments. Some fear that BPM will require them -- as their ERP systems did in the 1990s -- to "eat the elephant" all at once. Fortunately, there are options for implementation, and many companies can start small and expand incrementally as business needs require.

The right BPM solution is one that addresses all of the company's needs and can start at any point in the management cycle or with any business process. Expansion can occur by rolling out a solution to more business units across the organization, by driving solutions to more levels of the organization, or by addressing new management processes. The key is to have a clear strategy for what needs to be accomplished and prioritize business needs.

John Kopcke, chief technology officer for Hyperion, has more than 25 years of experience developing the key technologies that enable business performance management.