In these volatile times, businesses' need to monitor and improve efficiency and to meet customer expectations is paramount. Business performance management (BPM) initiatives address these requirements, but with many disparate voices in the marketplace making conflicting claims about performance management, the BPM concept risks becoming diluted. Unfortunately, because of increasing competition and vendor consolidation in the business intelligence (BI) space, the volume of these voices -- and the resulting confusion -- will likely only increase.

In view of this increased competition and consolidation, and because vendors are promoting "performance management" solutions that only tangentially provide BPM functionality, prospective buyers need to assess where the BPM software market stands today and how they can optimize their BPM investment decisions.

How BPM Differs From BI

Many buyers (especially non-IT executives) who are evaluating various BPM software solutions first require a definition of what BPM is, and how it relates to BI and analytic applications. BPM is a management approach that enables a business to analytically measure and manage performance. It requires an organizational commitment that is guided, first and foremost, by a business methodology. The Balanced Scorecard is the most widely adopted framework, but other systems, such as Total Quality Management (TQM) and Six Sigma, also have many adherents. Whichever methodology a company chooses, full backing from senior management must come first. With such a commitment, BPM software can play an important supporting role.

IDC has defined, measured, and forecast the market for BPM analytic application software for the past five years. By classifying BPM software as an "analytic application," IDC distinguishes it from the category of "BI tools."

BI tools are classified according to their respective technologies -- for example, query, reporting, and analysis tools vs. data mining/predictive analytics tools. By contrast, analytic applications are classified according to the business processes they support. These process-specific applications support customer-intensive processes (e.g., customer segmentation, cross-selling, pricing Web analytics), production-intensive processes (e.g., merchandise assortment analysis, fraud detection, demand planning), employee-intensive processes (e.g., employee recruitment, scheduling, retention analysis), finance-intensive processes (e.g., budgeting/planning, financial consolidation, activity-based costing [ABC]), and BPM processes (e.g., developing, measuring, and optimizing a business strategy according to key performance indicators [KPIs] across business functions).

BPM software, as a cross-functional analytic application, captures the key insight of Balanced Scorecard theorists Kaplan and Norton, who distinguished leading and lagging indicators. Specifically, they noted that nonfinancial indicators (such as customer satisfaction) turn out to be early warnings or predictors of financial performance.

BPM software generally includes an executive dashboard. Yet unlike the executive information systems of old, BPM must reach beyond senior management to line managers and knowledge workers across the organization if the organization is to experience measurable improvement in reducing costs and increasing revenue. A scorecard alone, without the tie to specific processes and the operational decisions encompassed within them, will not be successful. In the language of Balanced Scorecard advocates, this is the "linking of strategy to action."

Exhibit 1 illustrates the relationship between a Balanced Scorecard application and process-specific applications in support of a BPM process. No vendor today can offer a solution of the scope exhibit 1 shows. But with the current climate of diversification and integration, vendors are providing suites of analytic applications in support of a BPM process. The proliferation of specialized analytic applications in support of BPM is causing the analytic applications market to grow faster than the BI tools market.

Exhibit 2 compares the market growth for all types of BI tools (query/reporting/analysis tools, data mining tools, and packaged data-warehousing tools) with the market for all types of packaged analytic applications.