EDITOR’S NOTE INTEGRATION ISSUES STALL CPM SUCCESS

CLOUD, ANALYTICS DRIVE INNOVATION IN CPM SUITES

THE KEY TO UNLOCKING FINANCE, OPERATIONS INTEGRATION

Tapping Into the Analytics of CPMCompanies that take advantage of the analytical capabilities of corporate performance management tools report better business performance. But few see it as more than amped-up budgeting software—and many say that’s a big mistake.

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EDITOR’SNOTE

Exploitation Is Essential

Corporate performance management software has two identities. Some organiza-tions use it as a glorified budgeting and report-ing tool. Fewer are the companies that tap the other, more analytical parts to exploit CPM software as the business intelligence tool it is considered to be, collecting data from across the enterprise to guide real business strategies.

Nowadays, CPM’s identity is usually the higher self that analysts and vendors want it to be: the essential tool for aligning departments and business processes with strategy and mea-suring their performance against goals.

Proponents have long recognized none of this can happen without integrating financial and operational data. Finance and operations’ effects on each other must be made visible and alternate scenarios discerned. This guide will lay the groundwork for doing just that.

First, management consultant Dean Sorensen chides makers of CPM software for not living

up to their promises to integrate finance and operations. He explains what integration should look like—with examples like the causal chain between payroll budgets driven by staff-ing plans that are themselves derived from skill and head count requirements produced by demand and revenue forecasting, all done in CPM.

Next, reporter Emma Snider writes on CPM software trends and vendor rankings from research outfit Gartner, which updates progress on integration, cloud deployment and the soft-ware’s growing use in last-mile financials, such as compliance reporting.

Linda Rosencrance finishes with expert tips that remind us to bring people and processes together before even thinking about integrating applications and data. n

David EssexExecutive Editor, SearchFinancialApplications

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Integration Issues Stall CPM Success

I recently had the opportunity to speak to a group of companies, most of which had recently purchased corporate performance management applications. The vast majority answered yes to the following question: “Did you hear the term fully integrated from more than 75% of CPM companies?”

It’s a term that is widely used in CPM circles, but often with different meanings, not to men-tion liberal interpretations. The result is confu-sion about what integrated really means, what it’s worth and how it can support leading prac-tices for planning and managing a business.

Why is integration so important? Because it’s the means by which organizations achieve key planning and performance management (PPM) objectives, such as improved planning and forecasting accuracy, financial and opera-tional data consistency, cross-functional coordination and optimization, and forward visibility into risk. In addition, integration

can reduce planning and budgeting cycle times.

The problem is that organizations aren’t always achieving these PPM objectives, despite investments in CPM and business intelligence (BI) technology. Understanding how integration issues contribute to this situation starts with an understanding of the different types of inte-gration: technical, financial and operational.

Technical integration has become an important consideration for selecting CPM applications. It refers to the ability to easily move data in and out of CPM platforms—as well as between the applications that comprise them. This involves automating connections between the following:

■n Applications within the CPM platform

■n CPM and BI and reporting tools

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■n CPM and ERP applications, by way of pre-defined extract, transform and load logic

■n CPM and other applications, such as cus-tomer relationship management and supply chain management

Beyond lower costs, integration provides the foundation for a single source of data that is readily available to users through common user interfaces. These are important factors that shape decisions for IT professionals about their CPM and BI strategies.

Financial integration describes the ability of CPM software to support such financial pro-cesses as developing planned or actual financial statements (income statement, balance sheet and cash flow) as well as planning, budgeting, forecasting and consolidation. It also enables companies to use CPM software for detailed budgeting and forecasting of such processes,

including payroll, fixed asset management and travel expenses. Balanced scorecards and activ-ity-based costing also become feasible.

In recent years, financial integration has also come to include the ability to support driver-based planning, a term used to describe the means of deriving financial plans from under-lying operational activity. But companies have found these processes difficult to establish, which has brought operational integration to the foreground.

Operational integration refers to the ability to bring together finance and operations to sup-port more effective PPM. The objective is to ensure that financial plans are executable—and to optimize the performance of the business entity as a whole. In other words, to expose and address potential risks.

Examples of key integration points that com-prise such integrated processes include the ability to do the following:

Integration provides the foundation for a single source of data that is readily available to users through common user interfaces.

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■n Drive payroll budgets from staff plans, where skill and head count requirements are derived from revenue and demand plans.

■n Base capital budgeting on capital planning, which focuses on the profit, cost and cash impact of potential investments derived from analysis of as-is and future processes across a spectrum of scenarios.

■n Translate functional budgets into productiv-ity (for example, cost per outcome) targets that span across functions and entities.

■n Automate integrated reconciliation—a pro-cess used in sales and operations planning (S&OP)—to reconcile operational forecasts to annual plans, budgets and financial forecasts.

■n Forecast cost of sales and expected pro-duction variances based on planned bill of

materials and routing changes that result from S&OP processes.

■n Forecast purchase plans by vendor and mate-rial, along with purchase-price variances and commodities, as a natural by-product of the above.

■n Support direct cash flow and foreign currency planning, the latter being the process of quantifying cash, receivable and payable posi-tions by country to identify exposed foreign exchange positions.

At this level of maturity, there is little differ-ence between financial and operational plan-ning processes. The processes share the same models, data and applications. The net result is that financial and operational plans are always in sync.

The ability to support such operational integration is driven by one primary factor:

The goal of operational integration is to ensure that financial plans are executable—and to optimize the performance of the entire business.

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the maturity of the modeling logic that connects financial and operational plans and forecasts. More mature CPM applications

employ embedded and industry-specific modeling logic, which is shared between financial and operational applications on a sin-gle platform. The absence of such logic is one of the primary reasons why organizations

fail to achieve their PPM objectives. This is especially true for larger organizations, where the logic gaps impede the ability to manage complexity.

As organizations seek to achieve their key PPM objectives, they will need to employ more mature planning models and applications. They should focus on deploying CPM applications that support the necessary modeling logic, because that logic is what drives most of the value from CPM investments. While technical and financial integration will always be essen-tial, what will differentiate CPM applications will be the level of operational integration they support. —Dean Sorensen

As organizations seek to achieve their key PPM objectives, they will need to employ more mature planning models and applications.

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Cloud, Analytics Drive Innovation in CPM Suites

When comparing the 2013 and 2014 Gartner Magic Quadrants for corporate per-formance management suites, it would seem not much has changed. Besides the addition of three new vendors—Adaptive Insights, Axiom CPM and Solver—the positioning of vendors has stayed fairly consistent.

But just because the report doesn’t look radi-cally different doesn’t mean the technology space is static.

“This is a market where things aren’t swing-ing hard one direction or another, but there are definitely some changes happening,” said Christopher Iervolino, a Gartner analyst and co-author of the 2014 CPM Suites Magic Quadrant.

For instance, Iervolino pointed to cloud and analytics as forces driving innovation in cor-porate performance management (CPM) suites. Integration issues and industry-specific capa-bilities are additional areas of focus in this

year’s report, while last-mile-of-finance tools have fallen somewhat out of the spotlight.

A GROWING NUMBER OF OPTIONS

“Cloud traction in the space is accelerating,” according to the report. “Growth continues to be high for pure-play public SaaS [software as a service] vendors, and they continued to attract investors in 2013.”

The majority of respondents surveyed for the quadrant currently use on-premises CPM suites, but acceptance of cloud technology in other areas is shifting attitudes within the CPM market. Iervolino has witnessed this greater interest in and acceptance of cloud technology firsthand.

“If I look back on conversations I’ve had with organizations two years ago as opposed to one year ago, the character has changed,” he said. “Two years ago, in particular, large

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organizations were kicking the tires as related to cloud—‘Is it real, is it ready, who’s using it?’ ” Today, more organizations come to the table already viewing cloud as a viable option, and their questions now focus more on the strategic use and goals of cloud technology, Iervolino added.

In addition to pure SaaS vendors and offer-ings, the report notes there are an increasing amount of hosted cloud options available—and both forms of CPM system cloud deployment are catching on.

Also, the decision between cloud and on-premises doesn’t have to be either-or, the report points out. “Large organizations may be able to use CPM cloud solutions to comple-ment on-premises solutions for planning, analytics and data collection, especially when project time frames are short and consult-ing resources are limited,” it states. “Given the appropriate use cases, a hybrid on-premises/cloud approach could be a viable option.”

SaaS vendor Adaptive Insights, formerly Adaptive Planning, made its debut this year in the “visionaries” quadrant. Iervolino explained that the vendor wasn’t included in previous

years because it didn’t meet the minimum functional requirements for financial con-solidation and close. With the addition of a financial consolidation module, the platform now contains all components of what Gartner defines as a CPM suite. Besides consolida-tion and close, the other four functions that comprise a CPM suite are financial and man-agement reporting and disclosure; financial budgeting, planning and forecasting; strate-gic planning and forecasting; and profitability modeling and optimization.

A CALL FOR BETTER INTEGRATION

While hybrid cloud and on-premises methods of CPM software deployment raise the need for quality integration, the report notes that the issue is popping up in other areas as well, such as integration between CPM and enterprise resource planning systems—and between CPM and operational planning.

To the latter point, the report states, “Bridg-ing the gap between operational and financial performance management is a cultural and technical challenge; however, CPM solutions

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are increasingly embedding IMC [in-memory computing], cloud, mobile and social comput-ing capabilities to support more integrated financial planning.”

Iervolino pointed out that speed of data is particularly important when integrating financial and operational planning. “Opera-tional planning requires more timely data, so the integration has to be closer to real time,” he said. “Whereas finance is more periodic—monthly, quarterly, annual—operational is going to be a much more frequent planning process, so that makes integration more of a factor.”

Industry-specific capabilities of CPM suites can also help companies better integrate finan-cial planning with other types of critical plan-ning, such as workforce or capital planning, Iervolino said. The report highlights several vendors that currently have or are in the pro-cess of developing industry-specific capabili-ties, including Axiom CPM for healthcare and financial services, Infor for healthcare, Prevero for utilities and airports, and Tagetik for insur-ance and banking. Improvements are needed in regard to analytics.

“CPM application users require access to more detailed operational data to investigate critical issues or to employ forecasting algo-rithms that require highly granular, timely data,” the report states. “There continues to be a growing need for user-friendly analytics within CPM solutions.”

However, vendors are making progress on this front, with many adding advanced analytics, data discovery and collaboration capabilities to their products, according to the quadrant.

MEGAVENDORS STILL ON TOP

As in previous years, the CPM market is domi-nated by three megavendors: Oracle, IBM and SAP. These three companies are the exclusive occupants of Gartner’s “leaders” quadrant in the 2014 report.

While a mid-2013 Nucleus Research CPM Technology Value Matrix positioned Oracle lower than SAP and IBM, claiming the ven-dor lagged behind its competitors on strategic CPM adoption, Oracle is the foremost vendor in Gartner’s Magic Quadrant, although by a narrower margin than last year. “Strategic CPM

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capability, enabled by cloud, in-memory com-puting and analytics, is having an increased impact on the market. The different CPM investment strategies of the megavendors [Oracle, SAP and IBM] will have a more dra-matic impact as associated market adoption characteristics develop in 2014,” Iervolino said in response to the idea that Oracle is falling behind.

As in 2013, SAS and Infor are positioned

within the “challengers” box. “Niche players” include Prophix, Bitam and KCI Computing, and new entrants Axiom CPM and Solver. In addition to Adaptive Insights, the visionar-ies quadrant contains Host Analytics, Tagetik, Longview Solutions, Board International and Prevero. The latter two vendors moved to the right this year after being labeled as niche players in last year’s quadrant. —Emma Snider

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TIPS

The Key to Unlocking Finance, Operations Integration

Experts have long asserted that the most effective corporate performance man-agement aligns operational data and finan-cial data to drive enterprisewide performance improvements.

That means identifying and collecting per-formance measures based on an organization’s strategic goals and bringing operational activi-ties in line with business priorities.

To do that, managers must align the bud-geting process with an understanding of how operations such as manufacturing, sales and service affect the bottom line. The challenge is measuring and collecting the right things.

The following are some tips to help integrate operational and financial performance at the business-process and technology levels.

1. Understand how users and business managers

are creating financial input. “Financial manag-ers know how to crunch the numbers and

understand how to get to the balance sheet and how to charge back things correctly, going through accounts payable and accounts receiv-able,” said Hyoun Park, a consultant at Data-Hive Consulting. “All of those processes tend to be fairly fixed and consistent from month to month and people are very good at that consis-tency of process.”

However, financial managers typically don’t think about integration—how those processes fit into the rest of the business. They’re more interested in getting things in and out in the way that they’ve defined, he said.

One of the big challenges is bringing finan-cial performance management to the rest of the organization—using technology that goes beyond Microsoft Excel.

The key is understanding where else the information can be used and how to deliver it and associated processes to the 90% of employees who are not as adept at accounting

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and financial management, according to Park.It’s also important for finance managers to

understand where the information comes from. “It gives you an idea which applications you’re going to need to integrate the financial infor-mation with,” he said. “Those sources need to be understood to create a technical deployment in the long run that is helpful for performance management.”

2. Identify the costs and value drivers in the orga-

nization. CFOs must do a value-stream analysis to identify where value is created or reduced in the organization’s business processes.

“The financial figures from an operational perspective are a result of running an efficient and effective business,” said Rob Livingstone, a former CIO and now principal of Rob Living-stone Advisory. “So the key thing is to identify the cost and value drivers that are analogous to the inputs that one can control or manage.”

For example, if warehouse throughput can improve by rearranging the way workers pick and pack, an operational measure of pick-and-pack times would be a key performance measure.

“If you can measure it, you can manage it,” he said. “So you have to identify the subset of key operational and process-oriented measures that you can quantify. These should go through a process of selection by all stakeholders to make sure that these measures are valid, that they’re appropriate and represent the key processes.”

Determining effective performance requires a multidisciplinary approach because the organi-zation’s balanced scorecard doesn’t just contain financial measures, he said.

“Running on pure financial measures alone is more an indicator of what historic events have occurred rather than the operational measures that are a measure of what is happening right now,” Livingstone said.

The truly valuable and effective measure-ments of the business’s intrinsic performance are the ones that are “timely, important and

Financial managers typically don’t think about integration—how those processes fit into the rest of the business.

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relevant,” and can be acted on in the short term. “Most experienced CFOs and COOs would understand very rapidly which parts of their business create the most value and where to focus their efforts,” Livingstone said.

CFOs and finance teams have a clear view of the monetized value of processes, and assets and liabilities. They need to engage with the operational side of the business to agree on valid measures on which to base a timely and appropriate management response, he said.

“Reporting stuff is fine—that’s almost the easy bit,” Livingstone said. “Deciding what to do is often the hard bit.”

3. Don’t look for technology until you figure out

what you want to measure—and how. “There are lots of dashboards and performance measure-ment software and tools around, but the key thing is trying to understand what you’re try-ing to do first,” Livingstone said.

Otherwise, you’re putting the cart before the horse, he said, and can be subjected to the vendor “wow” factor that can distract from the important and often harder decisions about what to measure and how.

Chris Iervolino, an analyst at Gartner, agreed: “Understanding the business problem and then understanding which technology or which product is the best fit is the way to go.”

But, he added, it might make sense during this process to take a look at the technology that’s out there to give perspective because “you may not imagine what you couldn’t imagine.”

4. Expand the financial plan with additional

operational detail, involvement. Companies should explore opportunities to bring more meaning to the financial plan with operational detail related to, for example, workforce, sales, capital, demand or tax plans. Such comprehen-sive planning capabilities are becoming more widely available, Iervolino said.

“ Understanding the business prob lem and then understanding which technology or which product is the best fit is the way to go.”

—CHRIS IERVOLINO, Gart ner analyst

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More operational involvement may be needed to give meaning to and manage the detail, he said. “Having that detail could be useful, but it’s optimal to have that operational involve-ment from front-line managers to help ensure the data is accurate and timely.”

What’s needed is a more collaborative plan-ning approach and the technology to manage more expansive involvement and more frequent planning cycles.

5. Take an enterprisewide look at the planning

process. Operational planning processes are typically siloed, which is understandable since they encompass disparate processes and sys-tems, Iervolino said. What’s needed is the abil-ity to establish the relevance of the financial plan to the business units and vice versa.

“This is most often the first piece in terms of integrating those plans more thoroughly,” he said. —Linda Rosencrance

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ABOUT THE

AUTHORS

DEAN SORENSEN is a management consultant, director of strategic services at Archetype Group and founder of the IBP Collaborative. He is based in the Seattle area. Email him at deanbsorensen@ibpcollaborative.org.

EMMA SNIDER was the associate site and news editor of SearchFinancialApplications.

LINDA ROSENCRANCE has more than 20 years of experience as an investigative reporter. Her articles have appeared in Computerworld, CIO magazine, ITworld, SecurityNews-

Daily, TechNewsDaily and MSDynamicsworld.com. She is also the published author of five true-crime books. Email her at rosencrance1@gmail.com.

Tapping Into the Analytics of CPM is a SearchFinancialApplications.com e-publication.

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