In most companies, financial business performance management (BPM) initiatives begin with a need to move off of Microsoft Excel for budgeting. However, many projects quickly expand in scope to include management reporting, financial and regulatory consolidations, forecasting, business modeling, and metrics management.

BPM is a management discipline enabled through integrated analytics. It was initially based on financial analytics applications with planning and budgeting at its core; BPM now supports a closed-loop approach to enterprise metrics, planning, modeling, and reporting. Although most organizations will not embrace the discipline's full potential until 2005 or later, companies making product decisions today should consider integrated suite solutions rather than point solutions (commonly known as best-of-breed -- i.e., applications developed to fulfill a specific functionality and often not integrated with other products).

Companies can assemble an integrated BPM system by cobbling together products from several point solution vendors, but that approach can lead to redundancies -- and data disconnects -- because the various products use different databases. Too often, when businesses try to piece together BPM functionality in disparate applications, IT must invest a great deal of manual effort to get solutions synchronized -- for example, seeding planning applications with a consistent picture of what is depicted in the management reporting software.

The best approach for a BPM initiative is to evaluate integrated suites from business intelligence (BI) vendors (e.g., Cognos, Hyperion, SAS); financial analytics vendors (e.g., Cartesis, Comshare, Longview, SRC, OutlookSoft); and ERP vendors (e.g., Oracle, PeopleSoft, SAP, Microsoft Business Solutions). Many BPM vendors have application linkages to numerous ERP suites; they must be ERP-agnostic to play in this space. However, organizations shopping for a solution need to understand how much effort will be required to integrate the BPM and ERP software.

Business performance management expands the traditional strengths of BI reporting and modeling by adding planning functionality, and a BPM suite ultimately can link sales forecasting with the enterprise business plan and the revenue budget. Soon BPM functionality will spread into other areas of the business; it will realize its greatest success in the corporation outside finance -- for example, in quality improvement, supply chain planning, and customer relationship management. Therefore, BI and ERP vendors with strong financial management products as well as broad business operational analytics (e.g., CRM analytics, HR analytics) may be well-positioned to develop the next generation of business performance management products.

By 2005, the leaders in the BPM market will be the BI and ERP vendors. As organizations evaluate BPM offerings today, they should consider leveraging the platforms they are currently using for reporting and online analytical processing (OLAP) and select products that do not require a completely new infrastructure. In 2004 or 2005, tier-one BPM offerings from ERP vendors -- that is, ERP BPM for companies with more than $1 billion in annual revenues -- will match best-of-breed products in terms of functionality. Organizations should contrast leading best-in-class BPM solutions from BI and financial analytics vendors with similar offerings from their incumbent ERP vendors.

The Future at a Glance During 2003, Global 2000 organizations will continue to choose point solutions and suite products to fill out their analytics platform, on a trajectory toward fully embracing BPM. By 2004, companies will increase implementations of solutions that embody the BPM concept and will move to BPM suites to gain a closed-loop life cycle approach that incorporates metrics, reporting, and planning. Many businesses will consolidate disparate platforms as part of their IT portfolio management, and they will increase deployments from ERP and best-of-breed vendors. By 2005 or 2006, organizations that have implemented BPM solutions will have improved decentralized management approaches and accelerated their reactions to economic and competitive pressures.

The Business Intelligence Vendors

Hyperion has an extensive solution imprint (business planning, reporting, consolidations, scorecarding, business modeling) and has been effectively selling to both the CFO and the IT community -- a key requirement for success for BPM vendors. Hyperion benefits from an extensive network of more than 330 partners, so it enables customers to implement complete performance management solutions, including much-needed process reengineering. The company's acquisition of Alcar in April 2003 further extends its solution by adding support for advanced modeling and mergers and acquisitions. Hyperion is improving but still has work to do in terms of uniformly refining its marketing position with legacy products -- such as Pillar and Enterprise, which are more applicable to the midmarket -- and its tier-one BPM offerings like Planning and Financial Management. Many of Hyperion's solutions are built on the firm's Essbase XTD technology, enabling customers to build extensions into nonfinancial areas (e.g., human resources, customer analytics) internally or take advantage of offerings from third-party independent software vendors. Hyperion's partnership with Crystal Decisions further extends end-user reporting capabilities.

Cognos has the most extensive financial analytics application and business intelligence platform to support BPM. Its acquisition of Adaytum, a leading planning solutions vendor with a superior CFO messaging feature, brings improved planning and modeling capabilities to Cognos' BPM offering, which was already strong because it includes embedded financial analytics tools (e.g., accounts payable, accounts receivable) and a leading scorecarding tool, Cognos Metrics Manager. As a BI vendor, Cognos has embedded reporting and data warehousing capabilities, and customers can purchase both the analytics and BI platform from the same vendor, which pleases many IT organizations. Cognos' current challenge is to effectively integrate the Adaytum product with its platform and Cognos Finance solution (into a comprehensive integrated BPM solution).

SAS has not yet demonstrated an ability to execute in BPM, due in large part to its relatively weak financial management offering. It is the largest of the business intelligence BPM vendors, with approximately $1.1 billion in revenues, but it has focused most of its attention on analytics areas other than BPM. With its legacy CFO Vision and current Financial Management offerings, SAS has been ineffective at selling to the CFO and making a major thrust into the BPM space, despite the fact that it has acquired leading activity-based management vendor ABC Technologies.

Compliance Pressure on Performance Management Solutions BPM is currently one of the most important categories of enterprise business applications, and it will continue to be important for Global 2000 organizations through 2006. In 2002, many businesses initiated BPM projects to improve budgeting and planning in the wake of the U.S.'s Sarbanes-Oxley Act. New regulations on financial reporting are forcing vendors to extend drill-down capabilities, and companies are scrambling to add new solutions, which often are disconnected from their primary BPM platform. Current BPM tools and niche solutions targeting compliance (e.g., DecisionPoint) can provide a framework to support both high- and low-level analysis of results, but buyers must ensure that these products have the necessary data-integration capabilities. In 2003 and 2004, companies will implement tools that enable them to drill down into business events at the transaction level when required and identify anomalies in low-level details (e.g., account, journal entry) before they become material problems. By 2005, a consolidated approach that links operational analytics enterprisewide will be a requirement, and many companies will build this type of solution on top of an enterprisewide financial data warehouse. Companies should immediately begin launching or expanding existing BPM initiatives to accommodate new financial reporting regulations.

The Financial Analytics Vendors

Longview Solutions is a private BPM vendor focused on financial analytics. This company is one of the business performance management market's best-kept secrets due to its low-key marketing efforts. Its solution, Khalix, includes strong multinational, consolidations, and planning capabilities, despite the fact that Longview has not established partnerships with any major ERP vendors. Khalix's reporting, modeling, and OLAP functionality is proprietary. The software does not offer Web-based entry of budgeting and planning data, which is a concern for many organizations looking to distribute BPM to a dispersed organization. This functionality is planned for Khalix's next release, scheduled for this summer.

Cartesis is headquartered in France and is a wholly owned subsidiary of PricewaterhouseCoopers. Its Magnitude product (replacing Cartesis Carat) has a long-established reputation outside of North America with strong multinational, consolidations, and planning capabilities. Its 40-plus dimensions probably make it one of the most multidimensional software products in the BPM market. Cartesis partners with Crystal Decisions for its reporting capability.

Comshare's Management Planning and Control (MPC) offering embodies the concept of BPM through its clear integration of reporting, consolidations, and planning in a single product. Although it has a robust consolidations capability and support for multinational companies, MPC is available only in English, which is a limitation for many large organizations. MPC is often a strong candidate for midmarket enterprises.

SRC Software is the bargain of the bunch, and it has relatively high client satisfaction due to its rapid implementations. SRC leverages Microsoft Excel for planning and reporting but also has the capability for distributed Web access for reporting and planning contributors. The product is limited from a multinational support perspective, but it recently began providing for financial consolidations and is often considered to be a midmarket-targeted solution. SRC is one of the first horizontal (nonvertical-specific) BPM vendors to provide verti-cal functionality, with the introduction of its FI Series prod- ucts, focused on the financial services industry (see the sidebar Targeting the Verticals).

OutlookSoft's Enterprise Analytics Portal (EAP) relies extensively on Excel and Microsoft OLAP products. OutlookSoft provides for financial consolidations, although this functionality is not as extensive as that of many of its competitors. Like Longview, OutlookSoft has a name-recognition challenge, perhaps due to a limited marketing budget.

Targeting the Verticals SRC Software, a leading provider of business performance management applications, has released a solution targeting closed-loop metrics, reporting, and planning for the financial services industry (SRC FI series). This is consistent with the expectation that BPM vendors, whose functionality is typically more horizontal across financial management, will develop more complete industry-specific offerings linked to operational performance. While SRC is one of the exceptions, most BPM customers must engage systems integrators from third-party firms (e.g., Accenture, IBM Global Services) to build out vertical functionality in BPM solutions. Their other option is to seek an industry-specific application that, while strong in the discipline, may not provide a complete BPM imprint (e.g., INEA, SunGard, i4Cast). Through 2008, BPM buyers will have to evaluate closed-loop functionality from leading horizontal vendors against vertical-targeted products, understanding the effort required to build out vertical functionality.

The ERP Vendors

When in the market for business performance management software, companies should also evaluate the solution from their incumbent ERP vendor. Currently, the leading ERP BPM solutions come from PeopleSoft and SAP. With extensive resources to devote to development and a large installed customer base to mine, ERP vendors are emerging as strong players. This is a natural extension for them, as they can augment current transactional solutions with the deep and broad analytics required for the next generation of BPM.

J.D. Edwards and Lawson rely on components from their analytics partners (e.g., Hyperion, MicroStrategy). They don't provide the seamless integration between reporting and planning that is becoming increasingly important for performance management initiatives. Although Lawson does not have a budgeting/planning solution, it is a "thought leader" in integrated performance management notifications (e.g, performance outside threshold) with transactional ERP products.

The ERP vendors have a key advantage over other BPM providers: They can lock in prospects that have already made a significant investment in their transactional solutions. However, in some cases, customers' experience can be a disadvantage, as many firms have been turned off by the perceived lack of value and lengthy implementation of their ERP solution.

The business intelligence BPM vendors have demonstrated strength in working in multi-ERP environments, which appears to be the norm rather than the exception. Many multinational firms have employed ERP solutions from more than one vendor.

The Bottom Line

It is obvious that consolidation in the BPM marketplace will continue, primarily among BI and financial analytics vendors. The financial analytics vendors are the most susceptible to acquisition, as they typically offer a financials-only view that may appear too limited when BPM extends farther into the enterprise.

Cognos has been gaining momentum in the marketplace, further propelled by its acquisition of Adaytum, and may be providing a blueprint for how a BPM vendor can own both reporting and infrastructure tools, in addition to the analytics solutions. Such a model is consistent with most organizations' desire to minimize vendor relationships. The Adaytum acquisition will accelerate the consolidation trend by pressuring Cognos' competition in the BI market. Other BI vendors will add performance management capabilities in the near term or at least will be looking at partnerships to expand their capabilities. Struggling best-of-breed financial analytics vendors which provide niche technologies are likely to be acquisition targets for larger suite vendors or enterprise application vendors that are looking to augment their functional footprint.

These developments raise concerns about the future viability of some BPM software vendors, as well as future customer service and support issues. Finance departments evaluating their BPM options must closely scrutinize the strategic direction of BPM players, ensuring they have a strong vision, can demonstrate the value of their solutions, and can back up their plans through execution and -- ultimately -- survival.

Organizations should evaluate BPM software within the context of a larger consolidated-solutions framework that leverages common schema and metadata across reporting and planning applications. Within two to three years, the solutions landscape will be owned by the business intelligence and ERP vendors as these firms continue to consolidate BI and analytics platforms.

BPM Software Evaluation Guide Use the following criteria to evaluate business performance management solutions: Financial reporting. Consider the solution's flexibility. Can it develop standard and ad hoc reports? Can line-of-business staff create custom reports in conjunction with OLAP analytical reporting? In addition, the amalgamation of account details for financial, management, and tax reporting at a summary level is often a requirement. Financial consolidations. Evaluate the software's effectiveness at consolidating multiple entities. Organizations must determine whether eliminations of interentity transactions need to be returned to each respective general ledger instance. As an extension of consolidation functionality, evaluate the system's ability to process financial transactions from one entity to another using single sided cross-entity journal entries for interentity cost transfers to reduce or eliminate the need for interentity clearinghouse transactions. Localization. Consider the vendor's ability to support local statutory requirements; many products are primarily focused on U.S. GAAP. Consider the vendor's support for multiple currencies, country-specific reporting and consolidation requirements, and global office locations. Also important is the product's ability to account for differences in language, currency, implementation expertise, and resources. Paris-based Cartesis is particularly strong in meeting local business requirements in Europe. ERP integration. Choose solutions that can integrate information from multiple ERP systems. Many ERP business performance management solutions (e.g., PeopleSoft) were built with consideration for bringing in data from other ERP systems. Some best-of-breed BPM products (e.g., Hyperion, Longview) have prebuilt integrations to several ERP suites. Support for dynamic planning and budgeting. Evaluate the software's capability to support decentralized budgeting and planning, where planning becomes dynamic and top-down plans and budgets can be reconciled. Business modeling. Evaluate your organization's need for business modeling, including activity-based management, profitability analysis, and economic value added (EVA) analysis. Activity-based management may be critical for organizations that require customer-based income statements or profit optimization reporting where not all of the expense detail is available in the general ledger. Companies must also understand the ease of incorporating business modeling into enterprise business planning solutions. Visibility through dashboards and scorecards. Find out whether the solution supports performance frameworks such as the Balanced Scorecard and whether the user interface is an easy-to-comprehend graphical format with status indicators. Distributed access via portals. Many solutions include a portal, which gives companies a suite of tools focused on the business manager. Usability. The length of the end-user learning curve is a critical factor for adoption. Many vendors, such as Longview, have recently released versions of their BPM suite that improve on existing user interfaces in terms of navigation and look and feel. In addition, some vendors, including OutlookSoft and SRC, provide a totally Excel-based user interface to minimize the learning curve for end users. Technical architecture. Given the frequency of technology changes (e.g., user interface options, application rearchitecture) and the complexity of BPM implementations, organizations should evaluate technology on three primary domains: the vendor's ability to integrate with other products, the core technology architecture, and technology implementation/application management issues.

John Van Decker is Senior Vice President and Principal Research Fellow for Robert Frances Group, a leading business IT research and consulting firm.