Widely accepted best practices suggest that companies need to implement a comprehensive, enterprisewide solution before they can realize the many potential benefits of business performance management (BPM). Large and well-thought-out initiatives can certainly reap great rewards, but in my experience, companies don't need to "swallow the elephant whole." The idea that BPM can't add incremental value until the organization has a clear strategic vision for it is old-school thinking. BPM buyers are increasingly coming to realize that, so there's a trend in the market toward more pragmatic and tactical implementations.

Many organizations today are starting small and slowly climbing toward BPM nirvana. They are making tactical deployments of performance management software to address a specific business requirement (e.g., planning, metrics management, consolidation). Then they're building on these smaller projects to develop a corporate performance management strategy.

If there is a cost justification for using BPM to improve a business process, it may be foolish to ignore the opportunity. Sometimes these projects are temporary and have a limited life span; the company may want to eventually roll all business units into one application suite. But if a division can make a compelling return-on-investment forecast and enterprisewide BPM is still years away, it doesn't make sense to disallow the business benefits because the company lacks a formal overarching approach.

As this attitude becomes more prevalent, BPM is expanding beyond the finance function. Approximately 70 percent of performance management projects currently have their roots in finance; most are sponsored by the controller, the business planning director, or the CFO. Yet a growing number of projects begin with a focus on a specific business area. For example, a marketing department trying to improve its sales forecasts may find that an off-the-shelf application designed for financial plans can bring great benefits.

Even among companies in which BPM clearly starts in finance, an isolated financial planning system might not be sufficient. An ideal solution links human resources planning with financial expense planning, demand planning with supply chain planning with sales forecasting with revenue planning, etc. Within five years, the largest planning customer will not be the finance organization.

No More Circumventing IT

IT managers might have to reconsider some of their policies before they can approve, for instance, the marketing department's use of its own performance management software package. IT portfolio management has received a lot of attention over the past several years as companies have sought integrated solutions, consolidated vendor relationships, and attempted to delineate which solutions they will need in the future. This frequently puts IT at odds with internal purchasers of technology. The IT department must recognize that the BPM components that best fit every division of the company are unlikely to be available from a single vendor.

Still, finance and operations folks are increasingly realizing that they cannot exclude IT from the BPM decision-making process. In the past, a business manager might have insisted on the purchase of a specific application that he was enamored with, only to find out too late that the software could not connect to other corporate systems that it needed to connect to. BPM leaders must work with IT to ensure that the applications they're considering are consistent with IT strategy and that they will work with the other systems they need to work with (e.g., databases, reporting tools). During the evaluation process, integration problems must be documented, and the solutions to those problems must be included in the new software's cost-benefit analysis.

Another reason that IT must be involved in performance management is that after the purchase, the correct configuration of the software requires a solid understanding of the organization's business intelligence (BI) architecture. An effective BI strategy -- including the standardization of reporting tools; data warehouses/data marts; and extract, transform, and load (ETL) processes -- enhances any BPM initiative. In fact, achieving the elusive goal of "one version of the truth" requires that all applications be firmly integrated into enterprise BI platforms.

Rising Profitability and Process Management

Although the term "activity-based costing" (ABC) still conjures up notions of failed projects in many organizations, ABC is reinventing itself as an important component of profitability management. It is not surprising that many firms really do not know whom their most profitable customers are or which of their products/services bring in the highest earnings. This lack of insight stems from the fact that most firms do not gather cost data in their ERP systems around the parameters of product or service line -- and an allocation is required to approximate expenses based on resources and cost drivers. For profitability analyses to be effective, they need to be linked to reporting and planning activities. Many BPM projects are expanding to include functionality for profitability.

Likewise, many business performance management projects are converging with business process management in two primary areas: process analytics and workflow technologies. More and more companies are finding that the embedded analytics in business processes can provide real-time outputs of information in the form of dashboards, alerts, and notifications. In many cases, BI tools are being utilized to generate these process analytics. For best results, process analytics should be linked to enterprise objectives that are defined as metrics in the firm's performance management initiative.

Additionally, as the sophistication of business performance management grows, simple workflow designs are becoming insufficient for many companies to model and execute BPM processes. Over time, performance management vendors will need to accommodate elaborate workflow and collaboration processes -- so they will need to incorporate business process management engines into their solutions.

Compliance, of Course

Most businesses affected by government regulations such as the Sarbanes-Oxley Act are spending a great deal for professional services firms to document their processes, attest to those processes' quality, and demonstrate compliance to their auditors. Ongoing compliance efforts are now a major concern, and corporations are focusing in on the costs. Compliance is changing business performance management in three ways.

The first is the increased focus on financial consolidations. When firms consolidate their financials using offline processes, such as spreadsheets, they have few automated controls of those processes. Add in the eliminations and consolidating entries that larger firms have to navigate, and effective controls become difficult -- if not impossible -- to administer. As a result, financial consolidation concerns are driving many organizations to initiate BPM projects that target the preparation of external financial reports.

The second way in which compliance is changing BPM is through the move toward decentralized financial management. Sarbanes-Oxley Section 302 requires that officers who sign off on financial reports do so with a firm belief that the results are accurate. A decentralized planning environment that makes financial management more of a collaborative process, with strong central control/administration, will be an enabler for these executive assurances. This too will drive the popularity of BPM.

Finally is the linkage of financial-results reporting with process assertions. Many of the tools that companies are using to improve their assertion processes for Sections 404 and 302 consist of a business process management solution with strong content management. Now companies are requesting the linkage of these tools to financial reporting and performance management systems to gain drill-down capabilities into the processes (and assertions) that were used to develop the numbers. By 2007, this linkage will be a requirement for most new BPM implementations.

Primary Take-Aways

Companies implementing performance management software should continue to seek out best practices. They need to carefully develop a BPM strategy and make choices within that context. However, it's only smart to be pragmatic when opportunities arise that can be addressed by a BPM component which does not fit into the big picture. Firms should allow one-off BPM projects when they offer demonstrable benefits. Managers must base project approvals on the business value they are likely to achieve, whether they are long-term propositions or just short-term solutions until the company can execute on an enterprisewide BPM agenda.

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