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A better view of business finance

New regulations and ongoing efforts to make businesses more productive spur a market for software tools that can monitor financial performance in real time.

Cingular Wireless may be in the business of cutting-edge mobile technology, but its financial planning system used to be strictly old school.

To assemble a companywide financial plan, employees sent spreadsheets back and forth between regional offices and headquarters, in the process creating multiple copies and the potential for errors. But after Cingular was officially formed by the merger of the wireless divisions of BellSouth and SBC Communications three years ago, it decided to scrap its round-robin financial forecasting process in favor of a centralized planning system.

"Before it was easier to overlook things because we had so much data," said Trevor Rigby, senior manager of financial planning at Cingular. "But now, we can keep everything in sync and manage the data more effectively. Everybody across the whole country is looking at the same data."

To verify a number's accuracy during the planning and budgeting process, employees simply click on a spreadsheet cell to find its origin, Rigby said. The result of the new software, which Cingular purchased from OutlookSoft, a small software provider, is a more accurate, detailed and up-to-date picture of the company's overall financial health, he said.


What's new:
The growing pressure to meet financial disclosure regulations and make businesses more productive is fueling an increase in demand for performance management software.

Bottom line:
Dozens of software makers are targeting this market and are expected to step up their efforts in performance management products over the next two years.

More stories on this topic

Clear visibility into corporate finances is becoming increasingly important for all businesses, according to analysts. Regulatory changes such as the Sarbanes-Oxley Act and Basel II, which deals with the disclosure of financial risk, are forcing top corporate executives to sign off on financial records and pushing companies to ensure the accuracy of information.

That regulatory fervor, coupled with ongoing efforts to make businesses more productive with better information, is giving shape to a new software market in business performance management tools, analysts say.

To be sure, business intelligence and data warehousing tools, which are used to examine historical trends, have been available for years. But new performance management systems, which combine past information with incoming data, allow managers to do something that until now has been very difficult: see how companies are actually performing in near real time.

"Pieces of corporate performance management have existed for years--it's the same old story," said Lee Geishecker, an analyst at research firm Gartner. "But the new news is that companies are moving away from silos of information to one version of the truth, not just the bits and pieces...The technology has finally caught up with the idea."

In particular, standards to exchange data using XML (Extensible Markup Language) are allowing businesses to wring more out of existing software investments, notably the enterprise applications that handle a company's day-to-day operations such as manufacturing, sales and supply chain management.

Business performance management systems also build off existing data analytic systems to create a single set of information that underlies financial planning, reporting and data analysis systems.

The growing pressure to meet financial disclosure regulations and improve companies' competitiveness is fueling an increase in demand for performance management software, according to analysts and providers.

Gartner predicts that by 2005, 40 percent of Fortune 1,000 companies will implement pieces of corporate performance management and by 2006, 90 percent of those companies will have some sort of performance management system in place. Total revenue from the business intelligence and data analytics market will surge from $8.5 billion this year to $10.5 billion in 2006, AMR Research predicted.

"Five years ago, people were doing tactical reporting to show what their (enterprise) applications were doing," AMR Research analyst John Hagerty said. "Now people are past that point, and they are trying to make information work for them by using analytics to get insight in how their business really runs."

Software maker stampede
In the search for new business, dozens of software makers are targeting the performance management tool market.

Because performance management systems are largely an outgrowth of data analysis tools and financial applications, the field is dominated by existing "business intelligence" companies.

Cognos earlier this year purchased a company called Adaytum to add planning and budgeting to its data analysis and scorecard tools. OutlookSoft, Hyperion, SAS Institute, Business Objects and Geac, which merged with Comshare earlier this year, also are players in the market, according to analysts.


To turn business intelligence software
into enterprise advantage, companies
need to evolve what they measure and
how they use those metrics.

Enterprise application companies, including SAP, Siebel Systems, PeopleSoft, Oracle and Microsoft's Business Solutions applications group, all have some sort of performance management products in place already, analysts said. They are all expected to ratchet up their efforts in this area over the next two years.

Industry powerhouse IBM--which in large part led the move to an earlier generation of data warehousing systems--is planning a concerted assault on the business performance management area, connecting the dots between its various software products and consulting services.

The company is assembling performance-tracking applications for some early customers and is looking to establish industry standards and partnerships with other companies. Rather than focus on specific processes, such as financial planning, IBM is taking a broad view, developing software and proposing standards that will work within a range of industries.

Although performance-tracking systems have a major financial component, analysts and software providers see greater potential in keeping tabs on all sorts of corporate operations, from retail to manufacturing. Much like companies identify important financial indicators they wish to track on a scorecard, they can combine that data with other measures, such as customer retention rates or pricing information.

A "single version of the truth," or a consistent view of a company's data, allows companies to better measure how close they are to meeting their goals.

Corporate dashboard, or scorecard, tools offered by some software makers create a visual display with red, yellow and green indicators to track how businesses are meeting their targets. This dashboard, which can be displayed through a Web portal, is designed to demonstrate which way important financial indicators are going, giving managers better insight into company operations.

"You take the concepts and metrics commonly used and understood on the financial side, like revenue per employee, and you extend that to operational data," said Craig Schiff, CEO of BPM Partners, an industry consulting firm. That combination "brings out things that you may not have spotted before."

The building blocks for these types of tools are currently available--if disconnected, said Marie Wieck, IBM's vice president of WebSphere Business Integration.

IBM last month at the Gartner IT Symposium conference demonstrated a prototype of a system that allows insurance managers to view how quickly claims are being processed. With the application, an insurance professional could, for example, spot bottlenecks in the process and determine whether a problem is due to too few people assigned to a task or to a misfiring server.

The starting point for IBM's vision is a business process modeling tool that it acquired last year and which is now part of its WebSphere Business Integration software for transferring data between disparate systems. Using the design tool, business managers or technology professionals can sketch the steps of a business workflow and identify the computing systems, such as a customer database and an order management system, that need to be connected to complete tasks.

IBM's plans to capitalize on the need for business performance management tools indicate that the category is beginning to go mainstream, Schiff said. But Big Blue's lofty ambitions are quite removed from where the market is today, he said.

"The definition of BPM (business performance management) is extending to include business process integration and business activity monitoring, and they are separate and distinct," Schiff said. "They can strengthen a BPM initiative, but that's a lot for people to bite off...Pulling them all together is the future."

Worth the price?
Performance management initiatives get to the root of a business' strategy and profitability. That's good news for software makers, because the commitment from a CEO or chief financial officer can mean a large-scale sale and greater profits.

"Typically, budgeting or planning would have been operationalized by the financial controller or the vice president of planning," said Meg Dussault, director of marketing at Cognos. "But as soon as an initiative is tied to a company strategy or outcomes, that's the inflection point where it goes to the CFO office or the manager of the (division) and you get far further deployment. (Top management) is probably the favored place to sell."

But even with the promise of more productive companies, performance-tracking systems aren't guaranteed to benefit from future corporate technology spending. Like existing business analysis systems, it's not always easy to quantify a tangible return on investment because the goal of performance-tracking systems is to help employees make better decisions, analysts say.

Business performance management initiatives can be costly as well. A simple data analysis application with input from different operational systems can cost tens of thousands of dollars. For large-scale applications, an initial installation could cost $1 million, and follow-on work can raise that initial price tag to several million dollars, AMR's Hagerty said.

As competition heats up in the performance management market, businesses may look to the likes of IBM and other companies with strong consulting skills for guidance on choosing the best ways to measure overall performance, Hagerty said.

That may give IBM and other consulting powerhouses a leg up over niche providers.

Data analysis tool companies already have a foothold in the market and can sell tools or applications that target smaller-scale performance-tracking initiatives, which may involve only a single department rather than an entire company.

"One of things we've seen around performance management is that it's a very appealing vision and people buy into it at a strategy level," Hagerty said. "But they don't implement everything--planning, budgeting, business intelligence, scorecards, data infrastructure--at once. They implement at places where they have pain."