In late 2001 and early 2002, analysts and vendors started publicly describing the concept of business performance management (BPM) as a silver bullet that had the potential to help corporate managers control their organization's performance in an increasingly volatile world. A company that employed a comprehensive BPM software suite would gain a competitive advantage over its peers, they argued, because its enhanced command-and-control capabilities would allow it to better execute strategy in the face of globalization, deregulation, and other factors.

BPM was expected to deliver this enhanced management capability through substantial improvements in transparency (not only of historical results, but also in forward-looking estimates, risk factors, and procedural compliance); systematic techniques for attaining goals and managing risk; and nearly real-time collaboration between decision-makers.

This vision of strategic BPM portrays managers in complex organizations behaving in an entrepreneurial fashion while, paradoxically, enhancing the corporate command-and-control structure. If it were to become reality, it would lead to much better organizational agility and innovation. But BPM is struggling to live up to this strategic promise.

A More Sober Reality

From a technology perspective, today's business performance management software can be seen as the fusion of business intelligence's data querying and presentation capabilities with packaged analytics applications that offer budgeting, planning, reporting, and financial consolidation functionality. Vendors have concentrated on migrating these various technologies into a common suite that uses a single set of data-management tools. Customers have certainly benefited from this approach; it centralizes key management data and increases the visibility, control, availability, and consistency of their performance information. CFOs deploying these solutions generally achieve cost and time savings at a time when they're being expected to do more with less.

Still, BPM is currently only marginally better than the sum of its parts. Buyers of these software suites could achieve a similar strategic impact on their business if they implemented good practices, then bought stand-alone reporting, analysis, and planning tools. For this reason, it is hard to claim that BPM has made significant progress toward its strategic goals.

The published financials of leading BPM vendors support this position. Their new-license revenue growth rates are adequate but unexciting (in the region of 8 percent to 15 percent). They spend approximately $1 on sales and marketing for every $1 in new license fees won. There is an active cycle of vendor consolidation, with the consequent focus on cost management. And new-license revenue growth over the coming three years seems likely to reduce to the 5 percent to 10 percent range. These are not the characteristics of an industry that is servicing a massive and growing demand for its product. There is no evidence of market disruption here. If customers were truly achieving the touted strategic benefits of BPM, we would expect to see new-license revenue growing at 30 percent to 40 percent, with new players flooding into the market, much as we did early in the enterprise resource planning (ERP) market's development.

Why the Limited Impact?

To understand the reasons for BPM's limited impact, consider two observations: First, most managers still prefer to use stand-alone personal productivity tools (primarily spreadsheets), rather than currently available BPM solutions, to support the vast majority of their local management tasks. In fact, the proportion of these activities performed in spreadsheets is typically estimated, by vendor surveys and experienced consultants, at 75 percent or more. And second, the solutions the BPM industry offers are primarily tactical. They help improve the efficiency, accuracy, timeliness, and controls of highly structured management tasks. But the partial strategic solutions that BPM vendors now provide (e.g., business intelligence tools on top of data warehouses) are not, by themselves, able to drive competitive advantage for their users.

Business performance management is a turbulent river, and BPM software vendors have bridged half the gap across those rough waters. They have concentrated on the problems that can be solved using centrally deployed, enterprise-style technologies. BPM software suites are designed to force the entire organization to conform to common standards. Yet every department has unique performance management needs, which are constantly changing. The details of a regional marketing team's BPM requirements are quite different from those of the corporate distribution group -- and BPM software is failing to address a majority of these local needs.

In addition, although good data is required to make good decisions, there is much more to successful business management than having accurate information about the company's past performance. Managers need to be encouraged to interact in complex and unpredictable ways during ongoing decision-making processes. They need to understand one another's goals and assumptions, plans and forecasts, analyses of the world, and risk-mitigation strategies. Needless to say, information sharing is cumbersome and counterintuitive in a spreadsheet. But spreadsheets are what most managers naturally reach for when asked, for example, to submit a revised estimate of their business unit's head count needs by five o'clock today, for use in a departmental meeting tomorrow. They may use business intelligence tools to gather this information, but they are highly likely to synthesize their response in a spreadsheet and illustrate their findings in a standard presentation tool.

We are at an impasse. Today's BPM solutions cannot be used to perform the majority of tasks that occupy managers' time, so managers use approaches that, effectively, hide valuable performance information in documents such as spreadsheets. This, in turn, prevents collaboration, which relegates the BPM solutions to a nonstrategic role. It's no wonder that executives are still seeking ways to improve goal alignment in their organizations. If BPM suites could better meet companies' needs, they would earn strategic value in the eyes of customers and trigger a flood of adoption across organizations worldwide.

Where We Go From Here

So, what are the unaddressed needs of local management, and how can they be met? To answer that, let's use an analogy from the military world and break down the activities of each organizational unit into a series of "missions." A mission can be ongoing, like an operational process in manufacturing or sales. It can focus on resolving a tactical problem, such as a hiccup in product quality. Or it can represent a long-term project that enhances the capabilities of a business unit, such as the opening of a distribution facility. A variety of missions are under way in every organizational unit at any particular moment in time. And every mission has its own set of management tasks: agreeing on targets, planning, monitoring, forecasting, analysis, reporting, and so on. It is at the mission level where all of these management tasks must be linked together into a systematic management process.

One of the principal value-creating mechanisms of BPM is the linking of management tasks to create a feedback loop in which plans are frequently updated to reflect changing conditions. This mechanism provides agility and optimizes the use of resources, but it works well only when the metrics monitored match the metrics planned for, so the metrics must be mission-specific. Suppose, for example, that a brand manager is launching a new product in a regional market. In order to manage that mission as effectively as possible, he needs to monitor the progress of the product launch activities and analyze them against the expectations of the product launch plan. This analysis enables him to modify the launch plan to quickly address opportunities and problems as they arise.

Attempts to integrate the management cycle at the enterprise level, or even the business-unit level, are fundamentally limited to providing oversight of performance rather than driving performance. If the brand manager had access only to aggregate data for his entire department or cost center -- aggregated plans for all his missions and those of his colleagues, as presented in the corporate planning system, and/or the aggregate results for his cost center, as derived from operational systems -- he may have valuable information on how well the unit is doing overall, but he wouldn't see the steps he must take to improve the performance of his product launch.

The problem faced by our brand manager, and by thousands of other people across the organization, is that his mission-planning and analysis tool is his spreadsheet and his performance monitoring tool is a business intelligence query application sitting on a data warehouse populated with data that reflects the configuration of the operational systems it came from (general ledger account codes, cost centers, reporting schedules, and so on). How can the brand manager possibly construct an effective mission-management system from these components?

More problematic, how can his spreadsheet-based mission-management system allow collaboration with all the other managers who might impact or be impacted by his plans? What if there is a delay in manufacturing the new product? What if a competitor undermines the launch themes with a new product release of its own? Questions like these demonstrate why BPM solutions must be designed to help teams manage missions. The team may be collectively responsible for the organizational unit, but its members are involved in many individual missions that underlie that unit's performance. BPM systems and processes need to create an uninterrupted connection from organization to organizational unit to mission.

Bridging the Gap

One way to complete the BPM bridge might be to extend enterprise-centric systems down to the mission level. The company could push out BPM software it has already implemented at headquarters to its business units and require managers to log all factors related to their planning, forecasting, and results -- both financial and operational -- within this centralized software package. This would create a system that might best be described as "the ERP of BPM." There are many reasons why we believe this would not work.

The first reason is because a complex organization may have hundreds of organizational units and thousands of active missions, with many new missions being added daily. This would make centralized maintenance of all the details of each mission a practical impossibility. Another problem with simply extending current BPM systems is that they don't offer the accessibility and flexibility of spreadsheets. Attempting to force BPM suites on business managers' day-to-day decision-making would perpetuate the use of spreadsheets. In addition, the politics and culture within most organizations assume that managers have the authority to run their part of the business as they see fit. A centralized system would challenge that authority, and its standardization would quickly degrade as managers insisted on exceptions to the rules to accommodate their unique needs. Finally, companies have become very wary of large-scale software systems that require material up-front investment and a long time to benefit. Centralized BPM would fall into this category.

The alternative to centralized BPM, which we advocate, is an approach whereby individual management teams purchase their own packaged BPM solutions, applications that contain all the functionality employees need to run their particular organizational unit. The software can serve as a virtual mission control center for the department.

At NASA, mission managers see the most important situational information on the big screens in their control center. Missions are divided into sub-missions (e.g., monitoring telemetry and communications, looking after the health of the astronauts, guiding on-board experiments), and the mission control center provides consoles of specialized tools through which these sub-missions can be executed. Due to the integrated nature of the mission control center, information can be exchanged among the consoles and, if necessary, posted to the big screens for broadcasting to everyone. The mission controller can oversee all activities and quickly set goals and priorities when critical events occur.

Likewise, the team-owned BPM solution would provide a shared workspace in which all management team members could see the status of their organizational unit's critical activities and could update forecasts, analyze results, and revise plans, either individually or in collaboration with their colleagues. This shared-workspace concept has significant advantages when it comes to responding quickly to unexpected changes in circumstances; the combination of shared awareness and integrated management tools would mean that complex plans involving many parts of the organization could be rapidly revised and resources could be quickly redeployed.

Under team-owned BPM, managers would also be able to establish links between teams. Through this mechanism, management teams from separate organizational units could participate in one another's modeling, planning, and analysis processes. Our brand manager could much more easily produce reliable forecasts if he had access to the distribution team's capacity and shipping models. Meanwhile, the distribution team would benefit from this collaboration by being able to optimally allocate resources to each product it delivers.

This type of activity-based planning is not new. What is new about the team-oriented model is how fluid the process becomes and how quickly managers can cope with unanticipated changes in business conditions. Interteam links form and dissolve in response to current needs; they are not designed into the organizational structure. This agility is the result of enhanced interteam communication and information exchange -- resulting in shared situational awareness -- combined with common tools for planning, reporting, modeling, and analysis.

Team-Owned BPM in the Real World

The best examples of organizations that have adopted (actually invented) some of the features of this team-owned BPM concept are NATO military forces. NATO is deploying technologies that enable individual units from different armed forces, often from different countries, to coordinate their battle-fighting tactics. These technologies synthesize information from many sources into a real-time view of the battlefield that is shared between commanders and troops on the ground. The same technologies allow commanders to select objectives, assemble mission teams to meet those objectives, and monitor the missions -- again, in real time. A virtual network is set up for the missions; it provides a shared workspace for communication and information exchange, with common tools for analyzing and updating information. The U.S. military refers to this approach as "network-centric warfare" (www.dod.mil/nii/ncw).

Two points are worth noting in the military example: First, the introduction of the team model does not undermine the chain of command that has always existed. In fact, the commanders are much closer to individual units than they were before. Bringing local leaders into the scope of the hierarchical chain of command enhances organizational transparency and accountability. Senior commanders can interact with a particular squad at any time, and the squad leader benefits from much more extensive situational analysis capabilities and communication with other units, and from an up-to-the-minute awareness of shifting priorities. Second, the technology enables a smaller, more agile force to engage and defeat a larger enemy because it lets the mission team replan and redeploy forces much more rapidly through shared, up-to-date situational awareness and collaborative planning tools.

Leap to Competitive Advantage

A team-ownership approach to BPM offers corporate entities other benefits, as well. One is faster deployment of the BPM software and processes. Rather than needing an extended, companywide implementation, managers can grow their team solution through daily use, creating forecasts, plans, models, and reports as simply as they create spreadsheets today -- but within a structured environment. The team leader can configure new missions and allocate members to perform the associated tasks whenever necessary.

This incremental-deployment model clearly avoids the traditional "big bang" approach, with all its associated risks. Team-owned BPM can be adopted wherever the need is the greatest. Individual management teams can purchase BPM solutions that ease the arduous task of running their specific unit, rather than spending time on implementations just because of a corporate mandate. Team members retain control over their management processes and information, so the company avoids all the political implications inherent in centrally deploying a BPM solution. Over time, as more teams come on board, the benefits are amplified due to the "network effect" -- the way in which the power of an information network rises in proportion to the square of the number of nodes in the network.

Corporate managers could gradually see more and more units setting up team-owned BPM solutions and integrating them with the existing enterprise BPM applications -- the other half of the bridge -- as well as networking with one another. Team-owned BPM solutions would then become the vehicle by which managers dynamically balance risks with rewards and behave more entrepreneurially, while simultaneously allowing the corporate center to gain greater insight into their activities.

There are few examples of organizations employing the team-owned BPM concept today. This is largely because any implementation with current tools would require vast amounts of customization and may have trouble delivering value. It is also because, until recently, businesses have achieved greater marginal benefit by investing in their core operational capabilities (e.g., manufacturing, distribution, sales) and operational business systems (e.g., ERP, customer relationship management). Now that those investment cycles are mostly complete, and economic volatility is on the increase, excellence in command and control may well deliver competitive advantage.

Although no vendor yet offers a packaged BPM solution that aligns with our model, we believe that today's vendors could reapply their current technologies to develop team-owned BPM, albeit with the adoption of some recent innovations based on semantic modeling for exchanging information among different autonomous units. Vendors also need to find an effective method for combining their technology with expertise and services from the consulting, research, and systems integration communities in order to create a complete packaged solution that teams will be able to pick up off the shelf and start using with minimal configuration.

Do our thoughts about the state of BPM today mean that organizations should strike the current generation of business performance management solutions off their agenda? We do not believe so. But companies must approach BPM realistically and discount some of the more expansive marketing statements.

If a business is using separate applications for planning and reporting -- especially if any of those "applications" are actually spreadsheets -- it would certainly experience a reasonable amount of cost savings, efficiencies, and tactical process improvements from implementing a consolidated BPM suite. These savings and improvements are how the organization should evaluate the return on the BPM investment. The software suite would likely improve the accuracy, timeliness, transparency, and availability of corporate financial and performance information. It would also support the critical task of compliance reporting.

However, if executives are expecting a BPM suite to spark a dramatic improvement in the way the business is managed, they are likely to be disappointed by today's offerings. BPM will not live up to its marketing hype until vendors deliver the team-owned approach. To date, there is little evidence that the vendors are taking on this challenge. Nevertheless, we are pushing them from the consulting and product innovation perspectives because we know that doing so would create an explosion of benefits for both the vendors and their customers. Improvement in this area will be even more likely if customers also hold their vendors' feet to the fire and demand a road map for how their products will ultimately deliver on the strategic promise of BPM.

Alistair Shaw is the founder of coOptimum Management Framework Technologies LLC. He has worked in the BPM industry insce 1991.

David Jones is the director of services for Paragon Consulting. He is also chairman of BPM International, a European network of BPM consultancies.