Performance Management with Business Intelligence

Luminita Hurbean Ph. D. Associate Professor West University of Timisoara, Romania Faculty of Economic Sciences, Pestalozzi 16, Timisoara, cod 300115, Romania luminita.hurbean@fse.uvt.ro

Key words: Business Intelligence, Corporate Performance Management, Key Performance Indicators, Enterprise Resource Planning, Predictive Analytics

Abstract In todays highly competitive business, the quality and timeliness of business information for an organization is not the choice between profit and loss, it is a question of survival or bankruptcy. No business organization can deny the inevitable benefits of business intelligence. Business intelligence takes the advantage of already developed and installed components of IT technologies to help companies leverage their current IT investments and use valuable data stored in ERP or legacy systems. Business intelligence software can be a transformational asset for organizations. It can eliminate much of the guesswork within organizations, enhance communication and joint planning across functions and lines of business, and enable organizations to respond much more quickly to changes in financial conditions, customer preferences and supply chain operations. Specialists assess the use of business intelligence will become so widespread that every desktop will have a BI icon. Business intelligence will become an integral part of an enterprises information system and, like word processing software, it will be used by almost all end users. Gartner Dataquest estimates a 2.3 billion dollars global market in 2005 and an 8.2% growing rate for 2005-2007. It is expecting for business intelligence to spread its wings to cover everyone, from small, medium, and to large companies we will show that the Romanian market is also reactive to this trend.

Introduction Today many organizations are realizing that to maximize the value of the information stored in their ERP systems, it is necessary to extend the ERP architectures to include more advanced reporting, analytical and decision support capabilities1. This is best accomplished through the application of data warehousing tools and techniques, integrated in a Business Intelligence system.

As analysts estimate, Business Intelligence will continue to proliferate, especially into the mid-market2. Unlike CRM (Customer Relationship Management), SCM (Supply Chain Management) and other large-scale projects which demand extraordinary amounts of money and time, BI is a strategic, manageable, and implement-able initiative for all sizes of companies. It is why Business Intelligence was listed in the Top 10 Trends for 20053: more and more companies realize they can implement BI in a cost-effective manner, while acquiring the benefits of finding information hidden in the company and being able to perform complex what if scenario planning in real-time.

Business Intelligence can be a large bucket into which one can place many activities. The latest evolutionary step introduces the concept of corporate performance management (CPM), which is often interchangeably referred to as enterprise performance management (EPM) or business performance management (BPM). CPM is a promising portfolio of applications and methodologies with Business Intelligence architectures and technologies at its core. Historically, BI applications have focused on measuring sales, profit, quality, costs, and many other indicators within an enterprise, but CPM goes well beyond these by introducing the concepts of management and feedback, by implementation of processes such as planning and forecasting as core beliefs of a business strategy.

Fotache D., Hurbean L., Sisteme integrate pentru gestiunea afacerilor ERP, Economica, Bucuresti, 2004, p. 94 2 Cojocaru S., Decizii intelepte, in Computerworld Romania, nr. 8/2005, p. 1 3 IDC predictions 2005: convergence, consolidation, and realignment as the new IT game plan accelerates, on www.idc.com

CPM: transforming information in a strategic resource In fact, CPM is an umbrella term used to describe the methodologies, metrics, processes and systems used to monitor and manage the business performance of an enterprise4. CPM refers to the applications that help direct modeling or scenario exploration activities: rather than simply exploring what happened and why, the application can help the user consider the implications of alternative courses of action before they become operational.

Driven by technology and business, CPM combines management methodologies with long-standing business needs for executive reporting and budgeting, plus newer business needs for financial planning tools and enterprise-wide, web-based analysis and reporting. CPM also crosses traditional department boundaries to manage the full life cycle of business decision-making, combining business strategy alignment with business planning, forecasting, and modeling abilities. In other words, it would involve mapping a structured set of data against predefined reports, alerts, dashboards, analysis tools, key performance indicators (KPIs), etc., to monitor and improve business processes based on the upfront established corporate strategic objectives. Further, CPM creates a closed-loop process, starting with developing high-level corporate goals and subsequent predefined KPIs, through measuring actual results against the KPIs and representing this comparison in a scorecard, with the results reported to management through intuitive reporting tools, and ultimately delivering these results back into the business modeling process for corrections in the next planning cycle.

CPM augments BI applications, traditionally focused on measurement mostly useless without the ability to act on it! CPM ensures the closed-loop management, leveraging the performance methodologies such as the balanced scorecard or activity-based costing (ABC). CPM represents a renewed focus on quantitative management, a management by numbers method using insight gained from data analysis and performance reporting.

http://www.dmreview.com/resources/glossary.cfm

Consequently, a perplexing variety of existing tools and techniques can lay claim to being part of the CPM trend ranging from BI tools and analytics (e.g., packaged data-marts, data mining tools, ETL tools, dashboards) to CPM applications and scorecard products, as shown in Table 1. Table 1. CPM applications CPM Business need
Organization-wide accountability

Capability
Enterprise Scorecarding &Reporting

Addressed to
Entire organization and its partners

Technology
Business Intelligence

Basic performance analysis Enterprise data investigation Future performance prediction Red Zone monitoring Target setting

Pre-defined analysis

Entire organization

Business Intelligence

Transaction-level analysis Advanced analysis &Statistics

Entire organization

Business Intelligence

Analysts and Statisticians

Business Intelligence

Scanning and alerting

Entire organization and its partners

Business Intelligence ERP

Financial budgeting, planning& forecasting

Finance managers

Thus, CPM is the evolutionary combination of technology and philosophy, building on the foundation of technology and applications that many enterprises will have likely already implemented. The demand for these applications lies in the fact that they incrementally add value to already installed business applications, even the legacy ones, to a degree that the enterprises may finally see some long belated benefits and feel somewhat better about implementing cumbersome ERP systems. Indeed, many enterprises have already deployed some BI products too, such as querying and reporting tools, planning and budgeting applications, analytic applications, incentive management systems, portals, and scorecards, along with data warehouse technology, data models, and integration software. Anyone attempting to conduct the technology inventory stocktaking will likely find some CPM components already in use.

CPM alternative strategies CPM advocates start their speech with an undisputed motto: You cant improve what you dont measure. This idea emphasizes the decision makers need for timely, accurate and comprehensive information about business performance. In addition to Business Intelligence packages, the last years have brought many different corporate performance management applications in response to the challenge of putting actionable information on every managers desktop.

Historically, enterprises have relied (and many of them still have) on data captured in Microsoft Excel spreadsheets or in a similar database-driven, structured format as the source of corporate intelligence. Yet recent analysts have thrown new light on the importance of unstructured data which gathers a surprising 85% of corporate knowledge5, pointing out the critical element in order to gain a complete understanding of organizational performance. Unstructured operational information is scattered across multiple systems or buried on employee desktops in documents, e-mail attachments, or even Web site links.

A new class of CPM software is the key to bring together structured and unstructured organizations business information into a single, unified version of the facts, helping companies gain a comprehensive, real-time snapshot of their current performance, build an accurate forecast for the future, and precisely determine the optimal actions required to achieve their objectives. The market evolution6 remarks competition from the pure BI providers, such as Cognos, Business Objects, SPSS, CorVu, or ProClarity, and from ERP providers tier one (SAP, Oracle, Microsoft) or tier two (Scala, Bit Software, S&T Romania, WizRom, Softexpert) despite many of these vendors are likely less sharp focus on financial reporting, planning, and budgeting at this stage. Traditional ERP vendors have long been trying to

5 6

Cowan T., Unified Business Performance Management, on www.businessintelligence.com, 2004 in Romania, as stated in IT publications: Computerworld Romania in this case

expand their product offering in tune with the ever-changing trends and requirements of the new collaborative economy. The current CPM market leaders offer the advantage of first-class analytics and planning capabilities, but these advantages will shrink as the ERP vendors continue to improve their analytic competences and accessibility and add universal interfaces, including Web Service standards, in order to facilitate access and integration of data outside their organizations.

The most important point for prospective buyers of CPM technology is to do a very thorough analysis of their existing systems, where the organization's business needs will be in the next few years, and how they intend to integrate the systems before even talk to a vendor7. Analysts pointed that it is tempting to create specialized data models and tactical data marts to support quick deployment of CPM portfolio, but this usually leads to the long-term inflexibility. The CPM evaluations should involve the IT organization, finance and operations, and firms should create a joint team to evaluate how automation can improve enterprise-wide performance management. Although CPM focuses financial management, it will eventually extend to almost all areas of corporate activity, so future integration should be taken into consideration.

The best start for CPM initiative towards building the entire corporate information factory would be to identify the most painful points and to try solving them by leveraging existing BI/analytics applications, while staying aware of being inflexible and of automatically settling for an present vendor if its products and plans do not match up well to the companys strategic requirements. Also, one should not fall into the trap of easily obtainable short-term return on investment benefits at the expense of long-term strategic benefits that are either of a soft nature or are of lower value in the short-term. While the needs of employees, customers, and business partners will vary, successful integration tools will need to provide access to such applications as inventory control, ERP, CRM, data stores, packaged applications, legacy systems, and a myriad of other applications. The effort will likely be immense, but the returns from an integrated

Cojocaru S., Evolutii si tendinte de dezvoltare a pietei solutiilor de business intelligence, in Computerworld Romania, nr. 8/2005, p. 6

information portal can be significant. As with any such purchase, users choosing point planning or BI products should consider the integration infrastructure and effort needed to combine these products versus the cost and functionality issues of choosing an integrated CPM product suite (if still possible to find). Mission-critical issues like scalability, reliability, manageability, and ease-of-use go without saying.

For smaller enterprises that are more inclined to rely on their ERP vendor on extended functionality such as BI and portals, the route to the complete CPM might be more straightforward. However, even as a first step, like leveraging the reports that come with ERP systems, usually works if users do not need a real depth to what they are doing. It is however, a completely different case when they have to produce contextually insightful financial reports.

CPM: next generation The main purpose of CPM solutions refers to collecting, consolidating, validating and reporting enterprise data from a variety of sources in order to give decision makers a clearer overall view of how the business is performing. The most difficult task is analyzing what this data signifies about current performance of the business and, more significantly, where its headed in the future.

For example, a manager who wants to explain a variance in business results like the difference between expected and actual performance must first identify the key performance indicator that is out of tolerance and then manually drill down within the historic data for further detail. This task is not as difficult as it is time-consuming, leaving the manager with little time for actual decision making. Furthermore, it holds back the proactive manner of taking action.

Briefly, variance and root cause analysis are critical necessities for managers needing to better understand business performance, promptly perceive opportunities or problems, and take corrective action when necessary. If most of the CPM software is doing a good job in collecting, integrating and reporting data, only few are providing automated root

cause discovery and analysis in context, along with the ability to predict future variances, in the appropriate context for each user.

The concept of predictive analytics represents the next evolutionary step beyond current CPM software offerings. Armed with deeper insights into the real causes of business performance variances, in addition to the context surrounding them, managers can better predict tomorrows outcomes and make proactive decisions that enable the enterprise to stay ahead of competitors and market forces8.

Predictive analytics consolidates data from all important business processes within a single application platform and offers the following core capabilities:

Discovery: the ability to automatically discover variances in key performance

indicators (under-performing or over-performing) and analyze the root cause in business performance data that exceed their limit.

Prediction: tools that generate predictions (on-demand forecasts, alerts or

early-warning indicators) about other likely performance deviation scenarios and their impact on business performance.

Delivery: means of serving the above information to key decision makers in

the appropriate format and context.

Conclusion Competitive companies in todays business environment should not shy away from business intelligence because it is a popular business term and they equate it with the more expensive and hard-to-implement enterprise application systems. Unlike enterprise applications, business intelligence can be easily implemented and companies can quickly see the benefits. These benefits come in the form of greater clarity to the performance of the business and more strategic information on which to base vital business decisions.

Gheorghe C., How Predictive Analytics Enables Enterprises to Stay Ahead of Market Forces, on www.businessintelligence.com, 2004

CPM improves corporate performance by enabling companies to plan, measure and adjust to the activities of their businesses. In todays economy, the pressure to improve performance is relentless. It comes from shareholders, directors, executives and leaders all wanting more, wanting it better, wanting it faster. Companies need analytical answers in real time so they can plan more accurately and react more quickly to changing conditions and they need to perform analytics across their organizations. Romanian companies also became interested in Businesss Intelligence and associated solutions, even though the adoption degree is still insignificant.

Some confusion still persists over the difference between corporate performance management (CPM) and business intelligence (BI). The difference can be described this way: if CPM is the goal, then BI is the way to reach that goal. Combined, they assess performance management, which helps organizations align strategies by tracking and analyzing key performance indicators. CPM is the dashboard of the enterprise; it helps decision makers by providing accurate, detailed, and timely information on the enterprise. BI, on the other hand, turns data into information, and CPM uses that information for accurate decision-making. BI technologies and analytics have enabled CPM applications to mature significantly in recent years.

Bibliography
1. 2. Cojocaru S., Decizii intelepte, in Computerworld Romania, nr. 8/2005 Cojocaru S., Evolutii si tendinte de dezvoltare a pietei solutiilor de business intelligence, in Computerworld Romania, nr. 8/2005 3. 4. Cowan T., Unified Business Performance Management, on www.businessintelligence.com, 2004 Fotache D., Hurbean L., Sisteme integrate pentru gestiunea afacerilor ERP, Economica, Bucuresti, 2004 5. Galliers R., Leidner D., Strategic Information Management. Challenges and strategies in managing information systems, Buttenworth-Heinemann, 2003 6. Gheorghe C., How Predictive Analytics Enables Enterprises to Stay Ahead of Market Forces, on www.businessintelligence.com, 2004 7. 8. http://www.dmreview.com/resources/glossary.cfm IDC predictions 2005: convergence, consolidation, and realignment as the new IT game plan accelerates, on www.idc.com