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Business Performance Intelligence Software: A Market Evaluation Table of Contents
Purpose and Executive Summary (Section A) Purpose Executive Summary
1
Introduction (B) The Need For BPI Technology Changes Affecting BPI BPI Market Changes Research Objectives Research Approach Report Context
3
BPI Market Segmentation (C) BPI Market Definition Basis for Segmentation Segment Definition Applying the Segmentation
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Planning, Budgeting & Forecasting Applications Segment Description Vendor Segmentation – Table 1
(D)
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Strategy Development/Execution & Performance Management Applications Segment Description Vendor Segmentation – Table 2 Strategic Analysis and Cost/Profitability Management Applications Segment Description Vendor Segmentation – Table 3
(F)
(E)
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14
Evaluating the Alternatives (G) Identifying the Right BPI Applications The Potential Value of BPI Applications Integrated BPI Considerations Business Intelligence Considerations
16
Technology Issues: Ask the Right Questions (H) Accessibility Database Maintenance and Security Summary (I)
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About Bywater and the FEI Research Foundation Appendix – Vendor Contact Information
(K)
22 (J)
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This report is not intended to be the sole source of information upon which an organization bases its software selection. Each organization needs to undertake its own research to confirm that the application is right for them. However, the insights will assist in creating a framework decision-makers can use to categorize BPI applications (and vendors) according to their organization’s needs.
Executive Report Dean Sorensen
July 2002
Business Performance Intelligence Software A Market Evaluation
Purpose This report aims to help executives identify Business Performance Intelligence (BPI) software best suited to their organizations’ objectives. It provides an overview of the increasingly complex BPI market and suggests a framework CEOs and CFOs can use to evaluate the capabilities and potential value of 47 specific BPI systems.
Executive Summary Investing in BPI software requires an understanding of the factors affecting an application’s potential value to organizations. Three key questions need to be asked and answered before a decision can be made: What vendor applications are most likely to meet the intended objectives? What are the key issues to focus on when assessing these applications? And what are the key technical issues to be aware of when making this assessment? Based on our research, we offer the following recommendations to help organizations begin the evaluation process: Develop an understanding of the BPI market BPI applications enable organizations to establish strategy that is rooted in a clear understanding of the economics of a business, translate it into objectives and measures, and monitor/drive its execution.
In other words, they enable the management process.
BPI
comprises three components: x
Strategy Development/Execution & Performance Management.
x
Planning, Budgeting & Forecasting.
x
Business Analytics And Cost/Profitability Management.
The number of competing BPI applications has increased significantly in recent years. Navigating through vendor offerings can be time consuming, confusing and costly. Therefore, it is important to gain an understanding of the market before engaging vendors. Clearly define your objectives to focus your efforts Three high-level objectives formed the basis for our market segmentation: x
Automate – Quickly and economically establish a simple, common platform (for each BPI component) that provides the basis to “get off spreadsheets”.
x
Collaborate – Provide the basis for broad-based participation in a sophisticated and financially focused management process, while providing the tools to manage it.
x
Coordinate – Provide the basis to more effectively coordinate strategy and allocate resources horizontally across functional and organizational boundaries.
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Recognize the potentially broader value of BPI applications to your organization Many organizations are evaluating BPI applications particularly for planning and budgeting. While they will improve process efficiency and make information more accurate and timely, their potential value goes well beyond these traditional tactical sources, including: x
Executing strategy by coordinating resource allocation across functional boundaries.
x
Making overhead cost structures more responsive to changing market conditions.
x
Maintaining profitable product and customer portfolios.
Ultimately, the real value of these tools lies in better decision-making, and excellence in strategy execution. Planning, measuring costs and managing performance around processes, activities and outputs are the key capabilities driving this value.
Therefore, this broader
potential should be understood and its value assessed. Define your management process up front Distinguishing between applications using functionality lists (i.e., Request For Proposal) and vendor demonstrations can be difficult, since most provide similar capabilities.
The key to
getting the right BPI solution is assessing how it enables a defined management process from strategy through to execution and feedback. This will provide the basis to: x
Define your critical requirements.
x
Develop a “short list” of vendors based on their ability to meet these critical requirements.
x
Define scenarios that can be used as a basis for a “proof of concept” to determine if vendors can operationalize your process.
x
Focus on detailed and “basic functionality” later in the process during the proof of concept – the point at which these details are important.
Assess the flexibility and scalability of potential solutions Virtually all products employ proprietary or third-party OLAP (On Line Analytical Processing) engines, each having strengths and weaknesses. Standard vendor demonstrations do little to assess their flexibility and/or scalability/performance. As part of the “proof of concept,” have the vendors demonstrate two things: x
Flexibility – How the product can be “configured on the fly.”
x
Scalability – How it works with your data and the number of people who will be using it.
Consider the potential value of integrated systems Organizations should consider the opportunities integrated systems offer; however, they should also realize that they don’t always offer “best of breed” functionality and/or performance. Assess the total cost of ownership The initial software cost is a relatively small part of the total cost of owning an application. Therefore, organizations need to quantify the total cost to make an informed comparison between applications.
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B. Introduction The Need For BPI Exhibit 1 summarizes the result of research identifying where finance organizations were most constrained by a lack of technology/tools, demonstrating the market’s need for BPI. Exhibit 1 – How organizations are constrained by a lack of management systems
Facilitating analysis and decision making Measuring product and customer profitability Integrating strategy with daily business operations Helping to position company for profitable growth Maintaining effective relationships Reducing enterprise operating costs Developing effective cost management methods Integrating the financial function with the overall enterprise Measuring the financial performance of the enterprise Moving from record keeper to strategic advisor Managing business risk Creating and administering effective internal controls Managing integration of systems, following mergers or acquisitions Conducting lifecycle analyses of products and customers Enabling the company to engage in global operations Keeping projects on track Managing cash effectively Maintaining effective controls Evaluating candidates for outsourcing Managing corporate divestitures Other
1st Constraint 2nd Constraint 3rd Constraint
“Please rank the top three areas in which you believe your entity is most constrained by a lack of appropriate technology solutions.”
0%
10%
20%
30%
40%
50%
Source: Technology Issues For Financial Executives – A Joint Publication by FEI and Computer Sciences Corporation – 2000 (Page 17)
Technology Changes Affecting BPI Technological advances have significantly changed the BPI market. They provide the basis to continuously collect, interpret and drive action based on a collective understanding of everchanging market conditions and financial objectives. These advances include: x
Web Enablement – Virtually all vendors offer this capability. differentiator it has been in recent years.
Therefore, it is not the key
x
Work Flow – Workflow capabilities are incorporated in most tools in one form or another. This ranges from simple alerts prompting email reminders to more sophisticated tools that provide the basis to manage key components of the management process.
x
Portals – Portal technology provides the basis to tailor web-page user interfaces to individual users, while also presenting different types of information. Performance management applications are making the most use of this technology.
x
Data Base Integration – Most vendors are moving toward Open Data Base Connectivity Standard (ODBC) compliant data base technologies, making it much easier to integrate BPI
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`applications with source systems such as ERP and CRM.
The majority of vendors are
compatible with Oracle and/or SQL server databases. These technologies enable BPI applications to overcome five obstacles that have historically undermined management processes: Maintaining Strategic Priorities Improves the ability to capture “front line” insight, allowing the strategic planning process to be continuously updated through immediate agreement on the strategic implications and required actions. Maintaining Accurate Plans and Forecasts Reduces the time to develop and reconcile plans by collecting operational planning data and converting it into financial terms, leading to greater participation, frequency and accuracy. Timely Collection of Accurate Data Reduces the time to collect data, thereby improving the accuracy and the frequency of cost, profitability and performance reporting. Delivering Information & Ensuring that It is Acted Upon Present meaningful information in terms relevant to users and ensure that it is acted upon and that corrective actions are reflected in forecasts & updated plans. Maintaining Accurate Economic Models Maintaining economic models at “the front lines” provides the basis to accurately convert operational and financial data required for planning, costing & performance measurement. BPI Market Changes These technological advances are driving three key changes in the BPI software market: x
There have been many new entrants.
x
More vendors are providing “integrated applications”, offering capabilities in multiple BPI categories.
x
Business Intelligence (BI) vendors are entering this market as a means to leverage existing tools, including financial consolidation, management reporting, ad hoc query, and analysis.
Exhibit 2 illustrates the difference between BPI applications and so-called Business Intelligence (BI) software. BPI is an extension of BI in that the applications incorporate and build upon BI tools to provide capabilities that enable more efficient and effective management processes.
BPI applications differ from BI in three respects. They:
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x
provide frameworks that present information in a business context.
x
incorporate economic models that provide the basis to better understand the economics of the business.
x
enable organizations to manage the process more effectively, from the development of strategy and goals and objectives through to executing against them and learning from the experience.
These differences are important to understand as BI vendors start to enter the BPI market. Some claim to offer BPI capabilities but are really providing the tools to develop them. While these tools were not the focus of this analysis, they should be considered as part of the purchase decision. We address this in more detail in Section G (Evaluating the Alternatives). Exhibit 2 – BPI Definition and Relationship to Business Intelligence Software
BPI software include three types of applications: 1 Strategy Development / Execution & Performance Management 1a Strategy Development 1b Performance Management 2 Planning, budgeting & forecasting
3 Strategic Analysis & Profitability Management
2
1a
BI software generally includes the following types of capabilities upon which BPI applications are built:
1b
1 Analytical tools – modeling tools enabling more advanced analysis
3
Business Intelligence Software
Transaction Systems
2 Ad hoc analysis – intuitive query tools often delivered through web-based interfaces 3 Management Reporting – delivering predefined reports to users, 4 Portals – information delivery through userdefined interfaces
Research Objectives Navigating through the various offerings can be time consuming, confusing and costly.
The
objective of this research is to help organizations (CEOs and CFOs, in particular) focus their search on those applications most likely to meet their needs. Specifically: x
What vendor applications are most likely to meet the intended objectives?
x
What are the key issues to focus on when assessing these applications?
x
What are the key technical issues to be aware of when making this assessment?
While the scope of this report is not broad enough to provide all the answers, it should enable decision-makers to ask the right questions. Armed with this insight, we believe executives will be in a better position to make a more informed decision about BPI software.
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Research Approach Our research focuses on those vendors specializing in providing BPI applications; it excludes ERP vendors. Our work included the following: x
Conducting interviews with BPI vendors (usually involving web demonstrations) to understand the features their product offered.
x
Analyzing our findings to define a market segmentation that could be used to categorize vendor products.
x
Confirming our findings with vendors, together with the categorization of their products.
x
Categorizing the BPI applications using the segmentation described below.
Report Context This report is not intended to be the sole source of information upon which organizations rely. Decision-makers need to undertake their own research to confirm the tool(s) that are right for them.
However, we believe the results of our research will assist in identifying applications
appropriate to an organization’s needs. In addition, the findings and recommendations pertain only to the BPI applications themselves. This is important to understand, because creating value from them is more complex than merely implementing software. Using these tools to align organizations around executing strategies that create profitable growth often involves some profound, but not necessarily obvious, shifts in the ways companies are organized and operate. In fact, it often calls for changes to some of the subtlest, deepest and most ingrained corporate behaviors. C. BPI Market Segmentation BPI Market Definition The BPI market comprises three categories of software, which are shown in Exhibit 3 and described in more detail below. Strategy Development/Execution and Performance Management x
Automate and manage the process of developing, communicating and executing strategy.
x
Monitor performance and drive action on issues (strategic or operational) to specific individuals or teams, using frameworks such as Balanced Scorecard and Six Sigma.
Planning, Budgeting & Forecasting x
Automate the development, validation, reconciliation and management of top-down and bottom-up plans/budgets.
x
Compare actual to planned costs and/or profitability at a business unit or corporate level.
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Strategic Analysis and Profitability Management x
Strategic Analysis – provide highly sophisticated modeling capabilities that enable specific types of planning and analyses.
x
Activity-Based Costing – provide the basis to understand the “true profitability” of products and services as well as the customers that buy them.
Exhibit 3 – BPI Software Market and Vendors Included in the Research Study ActiveStrategy Brio Corvu Bizzscore Ergometrics iDashes
INPHASE PerformancePlus ISM Solutions NextStrat Open Ratings PB Views Show Business
Strategy Development / Execution and Performance Management
Cognos Comshare Elevon OutlookSoft (3) SAS Adaytum Applix Budget Maestro Clarity Systems Closedloop Solutions EPS Software FRX Software Corporation Management Systems Microsoft Great Plains PowerPlan REALInsight SRC Software Super Budget
Planning Budgeting & Forecasting
Alcar Armstrong Laing Cartesis KCI Computing Longview Solutions
ABC Technologies (3) Prodacapo QPR
Strategic Analysis & Profitability Management
Acorn Systems Decimal ICMS Lead Software Maxum MIS DecisionWare River Logic TRAC
Hyperion SAS & ABC Technologies (3)
1.
The above graphic is a summary of the vendors included in this research study. The reader is referred to the segmentations presented in Sections D, E and F for further details about the nature of these products.
2.
The groupings above, and the segmentations in Sections D, E and F, provide a summary of “what” the applications do and not “how” they do them. This is important to understand because some vendors provide applications that are more elegant than others. The reader is referred to the discussion of technology issues in Section H for a greater understanding of how they affect the performance of vendor solutions.
3.
SAS announced the purchase of ABC Technologies just prior to the release of this report as denoted by (3) above.
In past years, much of the focus in this market has been on planning, budgeting and forecasting as new applications are improving efficiency, accuracy and timeliness. However, equally impressive changes are occurring in applications that support other parts of the management process. The same collaborative tools that are transforming planning and budgeting are having a similar impact on profitability, management and strategy development and execution.
The collective
capabilities of these tools provide the basis upon which to make fundamental and profound changes to the management process.
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Basis for Segmentation Two distinguishing features provided the basis to differentiate vendor applications: Application Focus Application focus defines the breadth of the application, incorporating two dimensions: x
the degree of financial and operational integration.
x
the scope of the process. For example, the capabilities of performance management applications range from simple measurement to those enabling a continuous and collaborative strategic planning process.
Process Management The introduction of web technologies into BPI applications provides the basis to engage more people in the management process. The intended results are more accurate plans/forecasts and an ability to take action earlier. Two features are central to achieving this. x
managing broader participation.
x
integrating data from disparate data sources.
Segment Definition
Collaborate
and
Coordinate.
These
segments were defined from a user perspective rather than from a technological one. This provides for a more meaningful and insightful segmentation because it is focused on how applications will be used versus what they do.
Significant
Automate,
Coordinate
Collaborate Minimal
provide a framework for defining three market segments:
Exhibit 4 – Segment Features Process Management
As shown in Exhibit 4, these two distinguishing features
Automate Narrow
Broad
Application Focus
Automate Applications fitting in this segment generally serve small to medium-sized companies or divisions/functions within larger organizations. Two things make them attractive: x
They have enough functionality that enables organizations to “get off spreadsheets.”
x
They are relatively simple and inexpensive to implement.
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Collaborate Applications fitting in this segment often serve larger organizations that want standardized tools and more sophisticated capabilities. They achieve this by: x
Making heavy use of web, workflow and data base integration technologies, in order to
x
Expand participation in a more effective management process, so that
x
Financial and non-financial planning and reporting can be more accurate and insightful.
Coordinate Applications fitting in this segment offer collaborative capabilities that extend to both the boardroom and the “shop floor”. They do this by providing the capability to: x
Plan and manage around organization processes, activities and outputs, in order to
x
Integrate financial and operational planning and performance management, so that
x
Organizations can more effectively deploy strategy and allocate resources horizontally across functional and organizational boundaries.
Applying the Segmentation Each of these three market segments corresponds to potential organization objectives.
The
following are of note as organizations determine which of these objectives are the most appropriate: x
The
“Automate”
objective
expresses
basic
functionality,
upon
which
other
objectives/segments build. x
Some applications meet criteria for both Automate and Collaborate. For the sake of simplicity, they are categorized as Collaborate.
x
Segmentations were based on the existence of functionality to support the objective, and not on the elegance or strength/sophistication of those capabilities.
x
Segmentations were based on currently available functionality.
x
Differences in segmentation do not necessarily correspond to pricing differences
D. Planning, Budgeting & Forecasting Applications Segment Description There are two broad types of applications to which the segmentation model (Table 1) was applied: Those providing primarily planning and budgeting applications. x
Those enabling more complex/sophisticated consolidation (which are well suited for large multinational organizations), in addition to planning and budgeting.
Applications typically offer capabilities that go beyond just planning and budgeting. Most provide OLAP reporting tools and excel-based interfaces to the application. Virtually all provide some form
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of web-based access. The following are some of the key capabilities found in each of the defined segments: Automate x
Application focus is on simple, traditional, periodic budgeting.
x
Most useful in relatively simple environments where there are a limited number of legal entities, as their capabilities are stretched when consolidation becomes overly complex.
x
Simple OLAP tools enable periodic reporting.
x
Common budget tools include seeding budgets from prior versions, automatically spreading total budgets to periods using various algorithms, payroll budgeting by individual employee and line item detail for expenses such as travel.
x
Process management features include budget templates and workflow, providing the ability for managers to accept, reject or modify the budget, as well as submission alerts.
Collaborate x
Application focus is on continuous planning and forecasting.
x
Enables organizations to include hundreds/thousands of people in the planning process.
x
Typically enables top-down planning with reconciliation to bottom-up budgets. However, the business rules, modeling and workflow capabilities that enable reconciliation vary by application.
x
Some of the types of financially based scenarios that they handle easily include foreign exchange, interest rate and taxation analyses.
x
The more advanced applications provide:
flexible data bases that store any sort of non-financial data, on any frequency.
financial models that handle foreign exchange, interest rate and taxation analyses.
Sophisticated consolidation capabilities required for large and complex organizations.
Coordinate x
Application focus is on both financially and operationally based planning.
x
Highly sophisticated planning tools are provided that range from continuous ActivityBased Planning to capabilities resembling those found in ERP systems.
x
Some BI vendors offer similar capabilities, although they are not as elegant or sophisticated as some of the “niche players.”
Vendor Segmentation While the applications within each segment share a number of common features, some are unique to certain applications. These features are noted by the numbers in parentheses and explained in the legend in Table 1.
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Table 1. Planning, Budgeting & Forecasting Applications Vendor Segmentation
Type
Primarily Planning & Budgeting
Automate
Collaborate
Budget Maestro
Adaytum
EPS
Clarity Systems (2)
Management Systems (5)
Closedloop Solutions
Power Plan
FRX Forecaster
REALInsight (1) Super Budget Complex Consolidation
Coordinate Armstrong Laing (3)
Elevon (1) SRC Software Alcar (6) Applix (6) Cartesis (2)
Hyperion (1,2,6) KCI Computing (4)
Cognos (1,2) Comshare (1,2) Longview – Khalix (2) Microsoft Great Plains (2) OutlookSoft (1) SAS (1,2) Legend 1.
BPI Suite – Part of a product Suite that has multiple BPI components.
2.
Activity Hierarchy – Provides the basis to express "traditional budget" from an activity perspective. However, this functionality is not provided "out of the box" as would be the case with an Activity-Based Planning application. This is typically achieved by using an "activity dimension" to translate from an account/organization hierarchy to a process/activity hierarchy.
3.
Activity-Based Planning – Provides continuous activity-based/operational planning capability that can be translated into a "traditional budget."
4.
Operational Planning – includes bill of material explosion functionality for forecasting costs, generating estimates, and rough-cut capacity planning. Provides the ability to dynamically model, evaluate and understand the short or long term impact of volume, pricing and routing assumptions for discrete or process manufacturing.
5.
Spreadsheet Modeling Platforms – The modeling platforms enable enterprise deployment of the organization's own spreadsheets as the interface to a common database. The specific model functionality is developed by and unique to each organization. The applications provide core functionality such as database connectivity, template management, data population and hierarchy consolidation. They simplify the process of managing complex spreadsheet models by automating many of the features/capabilities that normally require hard-coded links, macros, or advanced database knowledge.
6.
Activity View of Plan – Activity-Based Costing application provides the basis to express plan in terms of activity/output costs. For example, a Human Resource department could express costs in terms of key cost drivers: cost per hire, per employee, department, etc.
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E. Strategy Development/Execution and Performance Management Applications Segment Description There are two broad types of applications to which the segmentation model was applied: x
Those that are not part of Business Intelligence application – these are typically standalone products that are focused on enabling the “Balanced Scorecard” and other measurement frameworks.
x
Those that are part of Business Intelligence application – these generally provide financial reporting and OLAP capabilities in addition to performance management
The following are some of the key capabilities found in each of the defined segments: Automate x
Application Focus is on measurement – They compare actual performance to plan or history, at a single point or over a period of time.
x
Key Feature – Cascading objectives through performance metric hierarchies, ownership of which is assigned to individuals or teams.
x
Common Features – Color coding to identify when objectives are on or off track.
x
Data entry – Typically manual data entry or simple data downloads .
Collaborate x
Application Focus is on execution – Ensure that tasks (relating to both strategic programs and operational improvement) are being defined and completed.
x
Common Features – Cascading program / milestone reporting into detailed measures and collaboration for resolving (strategic or operational) issues.
x
Data entry – Enable manual data entry, but mostly through interfaces with transactional systems.
Coordinate x
Application Focus is on strategy development and deployment across business processes.
x
Strategy development – Workflow and collaboration tools provide the means to identify issues and incorporate them into a continuous and collaborative strategy development process
x
Strategy Deployment – Provides the basis to measure around business processes, activities and outcomes, enabling organizations to drive strategy horizontally across the organization.
A key point to note is that management reporting is not the same as performance management. This point is important to understand because some BI vendors claim to provide performance management/Balanced Scorecard capabilities, when in fact, what they really provide is a reporting system. 12
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While the applications within in each segment share a number of common features, some features are unique to certain applications. These features are noted by the numbers in parentheses and explained in the legend in Table 2.
Table 2. Strategy Development/Execution and Performance Management Applications Vendor Segmentation Type
Automate
Collaborate
Coordinate
ABC Technologies (2,3,4)
Prodacapo (2,3,4)
ActiveStrategy (1,2)
PB Views
QPR (3)
INPHASE (2,7,8,9,10)
Elevon (1,4)
Show Business (6)
NextStrat (1)
Brio (1,5)
Comshare (4,5)
Corvu (2,5)
Cognos (1,4,5)
Open Ratings*
ISM (1,2,5,8)
Hyperion (4,5,10)
OutlookSoft (1,4,5)
SAS (4,5,9)
Not part of a Business Intelligence Application
Ergometrics IDashes (1) Run Your Company
Part of a Business Intelligence Application
* formerly Gentia Software Legend 1.
Portal Technology – Application employs portal technology to present information.
2.
Activity Hierarchy – Provides the basis to report activity costs and associate metrics with processes, activities and outputs.
3.
Integrated ABC – Performance management product integrated with Activity-Based Costing product
4.
BPI Suite – Part of a product suite that has multiple BPI components.
5.
BI Integration – Part of Business Intelligence application that offers OLAP reporting capabilities.
6.
Culture – Survey tool that measures employee beliefs and behaviors, allowing organizations to continually monitor actual culture against the desired culture.
7.
Competencies – Incorporates a competency management tool whereby skills required to meet an objective can be defined, including the level, amount of the needed resource, and time period. This definition can be matched with employee competency availability, and/or training and development to meet the requirements
8.
Cause & Effect Mapping – Provides the basis to incorporate a cause and effect diagram that depicts the flow of performance results between objectives.
9.
Stakeholder Performance Management – Provides the capability to view performance of three stakeholder groups: employees, suppliers and customers.
It combines financial information, non-financial metrics and balance sheet
information in a single view. For example, a person responsible for individual customers or customer groups, can view actual vs. planned sales/profitability, and accounts receivable aging, while also viewing customer-related metrics such as on time delivery and invoice accuracy.
10. Benchmarking – Provides access to benchmark database as part of the application.
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F. Strategic Analysis and Cost/Profitability Management Applications Segment Description There are two broad types of applications to which the segmentation model was applied: x
Activity-Based Costing – these provide the basis to understand the “true profitability” of products and services as well as the customers who buy them. Moreover, they provide the basis to perform “what if” analyses using Activity-Based planning tools
x
Other Analytical Tools – these applications offer highly sophisticated modeling capabilities that enable very specific type`s of analyses.
Both groups of tools can be used for strategic planning and to conduct detailed analysis to support front-line decision-making. The following are some of the key capabilities found in each of the defined segments: Automate x
Typically desktop applications relying on manual processes to either input data or download it from source applications.
x
Generally provide periodic cost and profitability information.
Collaborate x
Easy to collect and extract data, enabling frequent activity based cost and profitability information. Note that these tools have made it possible to refresh ABC models within days rather than weeks and months, as was the case a few years ago.
x
The tools can be tailored to meet operational needs to support continuous improvement activities. For example, an activity, such as resolving customer problems, can be broken down into its component tasks.
Coordinate x
Integrate applications into business process to support decision making with real time information.
For example, a tool can be used to determine whether to accept a
customer order in light of what they are willing to pay and manufacturing capacity. As a general rule, the analytical and modeling capabilities tend to be more sophisticated than those incorporated in “planning, budgeting and forecasting” applications. The main distinction between the two is that the latter provides the basis to manage the budgeting process (i.e., templates & work flow) and to express the resulting plans/budgets in the appropriate time periods (i.e., weekly, monthly, quarterly), while the former do not.
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Table 3. Strategic Analysis and Cost/Profitability Management Applications
Vendor Segmentation Type
Activity Based Costing
Automate
Collaborate
Coordinate
ICMS QPR (4)
ABC Technologies (1,2,3,5,6,7)
Armstrong Laing (1, 3, 4, 5, 7)
TRAC
Decimal Systems (1,4,5,9,10)
Acorn Systems (4,5,6,7,11)
Hyperion (2, 6) Lead Software (5)
Other Analytical Tools
Alcar (1,2) Cartesis (2)
MIS-DecisionWare (2, 4)
KCI Computing (5)
Longview – Khalix (2)
Maxum (6)
River Logic (3) Legend Activity-Based Costing Features 1.
Single User – Vendor provides single-user solution that meet “Automate” objectives.
2.
BPI Suite – Part of a product suite that has multiple BPI components.
3.
Shared Service – Provides the capability to manage shared service costs.
4.
Process Simulation – Provides the capability to conduct process simulations and capacity analysis.
5.
Activity Driver – Web-based tool to collect activity driver information not contained in transaction systems.
6.
Performance Management – Vendor application also includes performance management capabilities.
7.
Activity Planning – Part of a tool that provides continuous Activity-Based Planning.
8.
Inventory Valuation – Maintains an inventory subledger, valued using activity-based costs.
9.
Flexible Budget – Provides the basis to calculate a flexible budget using actual volumes and planned activity costs per unit of output.
10.
Plant Capacity Management – Provides the basis to allocate capacity to those products contributing the greatest profitability when plants running at full capacity.
11. Time-Based Modeling – Provides the basis to model in terms of units of time for each activity, which can then be translated into dollars per activity. It is this translation capability that enables organizations to use the tool for both operational and financial analysis. This is different than other applications that calculate only in terms of dollars per unit of activity.
Other Analytical Tools Features
1.
M&A and treasury analytics – Pre-built functionality for evaluating and integrating the impact of acquisitions/divestitures and different financing strategies on corporate or business unit plans. It also supports financially based what if analysis such as exchange rate & interest rate scenarios.
2.
Economic Profit – Provides the basis to perform Economic Profit analysis.
3.
High Level Modeling – Uses sophisticated modeling techniques to quickly develop high-level models to understand the impact on profitability under certain scenarios. For example, this tool might be used to quantify the potential opportunity that the potential cost reduction opportunity that an Activity-Based Costing analysis might reveal.
4.
Analytics – Decision support tool that provides the capability to conduct historical analysis and reporting along with metric based forecasting and planning. Provides an open framework for building customized planning, forecasting and budgeting applications.
5.
Simulation – Includes bill of material explosion functionality for forecasting costs, generating estimates, and rough-cut capacity planning. Provides the ability to dynamically model, evaluate, and understand the short or long term impact of volume, pricing, and routing assumptions for discrete or process manufacturing. The tool also provides the capability to produce detailed resource and financial plans for project-based activities based on a user-defined library of project profiles.
6.
Pricing & Capital Allocation – Focus of this product is on supporting pricing and capacity allocation decisions for capital-intensive manufacturers.
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G. Evaluating the Alternatives Much of this report has focused on the three individual application categories comprising BPI. This insight may be appropriate for organizations requiring individual applications. However, for those with broader needs, these insights need to be put into the right context to determine their value potential. This section provides: x
A framework for identifying the right BPI applications.
x
An understanding of how BPI applications can create for organizations.
x
The advantages of integrated BPI solutions in realizing this value.
x
How Business Intelligence capabilities should be factored into the value equation.
Identifying the Right BPI Applications Finding the right BPI solution depends on the characteristics of the organization itself. A solution that is right for one may not be right for another. How then should organizations determine the solution right for them? While it depends on the circumstances, it is easier to generalize at the extremes. As Exhibit 5 shows, for organizations that are smaller, not overly complex nor subject to rapid change, the answer is often relatively straightforward. They generally require simple applications to make the management process more efficient. “Getting off spreadsheets” is the primary concern. Applications meeting this business objective are segmented into an “Automate” objective. Exhibit 5 – Factors Influencing Objectives 1 – Automate
BPI BUSINESS OBJECTIVES
2 – Collaborate
3 – Coordinate
Improve the efficiency of
Improve the
Coordinate strategic
the management
effectiveness of the
and tactical resource
process by employing
management process by
allocation horizontally
common tools to
enabling broad-based
across functional
improve the accuracy
participation and access
boundaries by
and accessibility of
to a central repository of
structuring collaboration
planning, profitability &
relevant and timely
around organization
performance information
information
outputs
ORGANIZATION CHARACTERISTICS Size
Small
Large
Complexity
Simple
Intricate
Change
Slow
Rapid
Decision-Making
Centralized
Decentralized
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At the other end of the spectrum are larger organizations that are highly complex, subject to rapid change, and are moving decision-making authority closer to points of execution. They are the most likely candidates for using applications falling into the “Coordinate” segment. Anywhere in between is where judgment must be applied, requiring an understanding of the factors driving the potential value of these applications. The Potential Value of BPI Applications BPI applications offer a variety of value sources, with the reduction of planning, reporting and performance management cycle time and costs being the most obvious. organizations, much of the value generally comes from this source.
For smaller
However, for larger
organizations, BPI applications have the potential to create significant and sustainable value by: 1
Optimizing shareholder value through more effective management of conflicting objectives Optimizing value for both customers and shareholders entails maintaining a delicate balance between objectives that often conflict with one another. This tradeoff between customer and shareholder value affects virtually every aspect of the activities and outcomes that comprise organizational performance. Expressed in another way, tradeoffs between cost and service objectives exist everywhere in an organization. However, most organizations do not explicitly manage all tradeoffs because they’ve not had the tools to practically do so. BPI applications make it possible to practically manage them by: x
Expressing tradeoffs in terms conflicting cost and service objectives for the outputs of processes and activities.
2
x
Explicitly linking high and low level tradeoffs through a hierarchy of processes & activities.
x
Providing the means to continuously plan and manage around them.
Enabling cost structures to more naturally self correct to changing market conditions Following from point 1 above, BPI applications provide the basis to align overhead cost structures with what customers are demanding (i.e., the market) and willing to pay for. They do this by making it both possible and practical to translate: x
Overall profit (or economic profit) objectives to the customer and product/service levels.
x
Customer profit objectives into objectives for the services and activities comprising it.
This also provides the basis to more effectively manage both the cost of, and the value provided by, Shared Services (i.e., IT, HR and Finance). 3
Executing Customer-Focused Strategies BPI applications enable organizations to integrate strategy and tactics by:
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x
Expressing strategic objectives in terms of processes and activities, allowing strategies to be driven horizontally across an organization.
x
Reducing process cycle time by promoting collaboration across functional boundaries.
x
Effectively delegating authority to individuals/teams by framing decision-making authority in terms of optimizing tradeoff between conflicting cost and service objectives.
4
Enabling more effective management processes Achieving this value comes with more effective budgeting and performance management. Using budgets as one of the primary managing performance often promotes behavior that actually undermines performance. BPI applications can help to overcome this by integrating: x
Budgeting and performance management, providing the basis to change the role of budgeting from control device to a funding mechanism.
x
Financial and operational planning and performance management, thereby improving the accuracy of plans and making planning assumptions more explicit.
Integrated BPI Considerations A number of vendors offer solutions in more than one BPI category. In general, integrated solutions offer three key benefits: x
Vendors are responsible for maintaining application interfaces and data base accuracy as enhancements are introduced.
x
They have the potential to be more cost efficient, since functionality in the three BPI categories can overlap to some extent.
x
They can offer functionality that wouldn’t otherwise exist if individual applications are purchased. For example, the ability to ensure that corrective actions that are defined as part of performance management, are reflected in updated plans and forecasts.
Organizations must recognize that these vendors offering integrated solutions don’t always have best of breed functionality. Moreover, some solutions are not as elegant as others, in that moving between different parts of the application is not as seamless as one might expect. Business Intelligence Considerations Business Intelligence is a very broad area. Therefore, this discussion will not go into detail about what it is and what it does. Numerous resources are available on the Internet that provide this information. However, this report only addresses those BI issues that should be considered when acquiring BPI applications.
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1
A single application provides the basis for a “consistency of truth” Improving decision-making is one of the key benefits of BPI and BI applications/tools. Bringing together data from different sources to ensure that people are working from the same information (and that it is consistent with the general ledger) can be an important component of a purchase decision. Not only to ensure that people are working from “correct information,” but also to move performance management beyond questioning data integrity, to acting upon it.
2
Managing customer profitability and segmentation from a single application Tools such as Activity-Based Costing are essential for managing profitability – both at an individual customer and segment level. However, customer segmentation is not a static thing. It changes over time, based on a variety of factors, such as cost to serve/profitability. Thus, it may be advantageous to use the same set of tools to both report profitability, and develop segmentation insights through data mining.
3
Using the same tool for both performance reporting and analysis All performance management tools enable organizations to measure performance, but not all provide the capability to analyze the data underlying performance issues. While arguments can be made for and against this approach, organizations favoring it may want to consider those tools that integrate performance management with reporting and analysis tools.
4
Providing users with a consistent interface Portals are becoming increasingly popular for presenting information. One of their advantages lies in their ability to combine different types of information through a single user interface. For example, consider a customer account manager. Portal technologies enable presentation of sales and profitability information, key performance metrics, together with other information pertinent to managing the account.
5
Providing the basis for complex financial consolidation and scenario analysis While most planning & budgeting applications perform financial consolidations, only a subset of vendors handle more complex and large-scale consolidation issues, including foreign currency translation, minority interest and different GAAP reporting requirements.
Therefore, if an
organization has complex financial consolidation needs, it could become a key consideration in selecting the vendor(s) best suited to meet its particular needs. 6
Integration with Customer Relationship Management Certain BI vendors are offering Customer Relationship Management capabilities. For some, there may be advantages to including these types of capabilities in a single BI application.
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7
Integrating knowledge management into the management process The management process is one of setting goals, measuring progress related thereto, and making appropriate adjustments.
In this context, it is really a learning process; the insight
gained therefrom being integral to any knowledge management strategy. Since knowledge management is a key component of what some BI vendors do, it should be considered as part of the purchase equation. Ultimately, each vendor has its own set of strengths and weaknesses that will affect the benefits ultimately realized.
A key part of understanding these strengths and weaknesses lies in the
technical architecture.
The issues raised in the next section will aid in understanding these in
greater detail. H. Technology Issues Selection processes often get mired in discussions of technical nuances, especially when considering the advantages of one architecture over another. However, this should be a business discussion rather than a technical one. As a buyer, there are really only three questions to answer: x
Does the product provide the required functionality?
x
What risks does this application impose on the organization?
x
How much will that functionality cost over the expected life of the application?
Other considerations fall under three categories: Accessibility, Databases and Maintenance & Security. Accessibility 1
Is all system functionality available through a web interface? The functionality of some products is not fully available through web-based interfaces.
2
Can people work offline? Some systems only provide access when directly connected to the server.
Applications
allowing off line access will often require components of the application to be maintained on desktops. This can be both costly and risky if the update process is not effectively managed 3
How much network bandwidth does the application require? The architecture of some products requires more network bandwidth than others. For some, this may not be an issue now. However, as organizations grow, it could become one, thereby requiring greater investment to maintain accessibility levels.
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Database 1
Does the application employ a centralized or a decentralized data base structure? Decentralized database structures replicate either all or parts of data “cubes” throughout an organization. While this may offer local accessibility advantages, it may limit corporate access since data consolidation times can take hours and inhibit people from accessing information.
2
Does the application have one common database? There are two potential issues when applications don’t share a single database.
First,
information isn’t always real time as batch programs are often employed to keep databases in sync. Second, they can be prone to errors, especially when used in larger organizations if update rules and security are weak. 3
Is the application fully divorced from the underlying database? Some applications include parts of the system functionality in proprietary databases. Therefore, functionality is either lost or must be recreated if the application is purchased separately from the database.
4
How strong are the data interface tools provided with the application? Strong data interface tools have two key benefits. First, they enable users to develop and maintain data interfaces rather than IT personnel. This is especially important as hierarchies changed in transaction systems. Second, they “cleanse” incoming data and reduce errors. The net result is a lower cost of ownership and accurate and timely information.
5
Does the application employ a database that is ODBC (open data base compliant)? Most vendors employ open data base structures.
However, some applications employ
proprietary databases, making it challenging to exchange information with other systems and/or upgrade to newer systems. Maintenance & Security 1
Can non-technical people maintain the data models? Some products require specialists to maintain the application, contributing to a greater cost of ownership and more reliance on IT.
2
Does the product offer security at the cell level? Stronger products provide read & update access at the cell level while others only provide it at “dimension level.”
Security at this level is especially important for larger organizations to
maintain accurate consolidated information.
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I. Summary BPI applications are entering a new era. While the functionality provided is much richer, they are also becoming increasingly complex. Vendor solutions are moving beyond traditional financially based systems, whose primary objective is to control costs. They are evolving into enterprise-wide management systems that create value by integrating strategy with tactics, and finance with operations, to make organizations more flexible and responsive. As many Finance executives are experiencing, the role of the Finance organization is changing. They are being expected to play a more significant role in shaping and executing strategies that create value. In other words, they are expected to create value rather than just control costs. Effectively utilizing BPI applications lies at the heart of this evolving role as a business partner. This report is intended to help decision-makers identify BPI applications best suited to their organization’s objectives by providing a framework to categorize vendor applications according to their ability to meet three objectives: Automate, Collaborate and Coordinate. As an organization begins the evaluation process, it must: x
Establish an understanding of the BPI market
x
Clearly define its objectives in order to focus efforts
x
Determine the potential value of BPI applications to the organization
x
Define the management process up front
x
Assess the flexibility and scalability of potential solutions
x
Understand the potential value of integrated systems
x
Assess the total cost of ownership.
Of equal importance is how organizations utilize these recommendations. The strategic value of BPI applications stems from establishing integrated management systems that act as a translation device between finance and operations to drive more customer-focused decision-making. Therefore, a multi-functional team should be involved in the design and implementation.
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J. About Bywater and the Research Team Bywater (www.bywater-consulting.com) is an international consulting firm dedicated to helping companies achieve their ambitions. With more than 20 years of worldwide experience, seasoned
consultants
have
performed
more
than
1,000
assignments
in
Enterprise
Transformation, Process Improvement, Acquisition & Partnering Assistance, Private Equity Financing, Growth Strategy Development, Strategy Execution, and Value-Added Systems. Research Leader – Dean Sorensen (
[email protected]) is a Principal in Bywater Management Consulting where he specializes in “Creating Profitable Growth By Making Strategies Work”. He has authored two white papers on the subject. The first focuses on improving decision-making, by instilling a business owner mentality and overcoming organization politics. The second addresses how BPI applications can enable this and the role of the CFO therein. Prior to joining Bywater, Mr. Sorensen worked with other Management Consulting Firms where he obtained 13 years of extensive experience in all phases of business operations. Mr. Sorensen is also a Chartered Accountant in Canada, having spent 8 years in public accounting. He has a Bachelor of Business Administration, is a member of the Canadian Institute of Chartered Accountants and is certified in Production & Inventory Management (CPIM) by APICS. Research Associate – Ken Peckham (
[email protected]) is an associate of Bywater Management Consulting.
He brings to Bywater over 10 years of executive level
experience within the financial services industry in Canada and the United States.
Mr.
Peckham is a member of the Canadian Institute of Chartered Accountants.
The FEI Research Foundation The Financial Executives Research Foundation is a non-profit affiliate of the FEI association. We are an independent 501(c)(3) educational organization. The Foundation receives no portion of FEI member dues; rather, we rely on voluntary tax-deductible contributions from corporations, chapters and individuals. Our mission is to identify and develop timely research to advance the financial management profession generally and to assist senior financial executives in their jobs specifically. Our work is informational rather than editorial. We deliver this information in the form of Issues Alerts, Executive Reports, longer research studies as well as magazine articles. The Foundation also develops content for conferences, telediscussions and chapters. One of our special services is Ask an FEI Researcher, an online Q&A resource, part of the Knowledge Center at www.fei.org/rf. For more information, contact: Nora Peyton, Director of Development 973-898-4632
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K. Appendix – Vendor Contact Information The following is a summary of the vendors included in this research study.
A more detailed
summary of each vendor can be found on the Bywater web site. Vendor
Web Site
Contact Information
1. ABC Technologies
(919) 531-8463 www.sas.com
Bobbi Harris
[email protected] 2. Acorn Systems
(800) 982-2676 www.acornsys.com
Leslie Haight
[email protected] 3. ActiveStrategy
(610) 239-8517 www.activestrategy.com
Michael Brazukas
[email protected] 4. Adaytum
www.adaytum.com
N/A
5. Alcar Group
(847) 663.6955 www.alcar.com
Chris Tucker
[email protected] 6. Applix
(508) 870-0300 or (800) 827-7549 www.applix.com
John Todaro
[email protected] 7. Armstrong Laing Group
(404) 842-7777 or 888 374-4321 www.armstronglaing.com
Jerome Feltracco
[email protected] 8. Bizzscore
www.bizzscore.com
N/A
9. Brio
(408) 496-7400 www.brio.com
Neil Patil
[email protected] 10. Cartesis
(203) 964.0202 www.cartesis.com
Paul Giardina
[email protected] 11. Clarity Systems
(416) 250-5500 #229 www.claritysystems.com
Dan Shimmerman
[email protected] 12. Closedloop Solutions
650-780-5700 www.closedloop.com
Doug Barton
[email protected] 13. Cognos
(613) 738-1338, ext. 3284 www.cognos.com
Delbert Krause
[email protected] 14. Comshare
(734) 769-6180 www.comshare.com
Rod Radojevic
[email protected] 15. CorVu Corporation
770.993.5995 or 770.891.0833 www.corvu.com
sara nicole combs
[email protected] 24 24
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Vendor
Web Site
Contact Information
16. Decimal Technologies
(450) 449-4118 or 888-886-4551 www.decimal.ca
Claude Côté
[email protected] 17. Elevon
(415) 243-2915 or (877) 265-5226 http://afp.elevon.cc
Michael Andrews
[email protected] 18. EPS Software
(800) 387-5915 www.epssoftware.com
Marc Altshuller
[email protected] 19. Ergometrics
www.ergometrics.com
N/A
20. FRx Software Corporation
(800) 600-9696 x 12 www.frxforecaster.com
Joanne Pinter
[email protected] 21. Hyperion
(905) 678-1661 or (800)-558-1127 X235 www.hyperion.com (817) 483-6511 www.ICMS.net
Corinne MacLean
[email protected] 23. iDashes
(585) 387-0770 x101 http://www.idashes.net
Robert Fetterman
[email protected] 24. INPHASE Performance Plus
+44 (0) 1895 829111 www.inphase.com
Victoria Keogh
[email protected] 25. ISM Solutions
+31 6 212 78 229 www.asureworld.com
Wouter van Loon
[email protected] 26. KCI Computing
(310) 921-6222 www.kcicorp.com
Naida Shaw
[email protected] 27. Lead Software
(630) 351-5155 www.leadsoftware.com
Alan Tietjen
[email protected] 28. Longview Solutions
(905) -940-1510 x5234 www.longview.com
Frances Critchley-Moore
[email protected] 29. Management Systems International 30. Maxager Technology
(615) 264-3777 www.managementsystems.net
Rick Willis
[email protected] (888) MAXAGER www.maxager.com
Mark Oppenheim
[email protected] 31. Microsoft Great Plains
(800) 281-6351 www.solverusa.com
Nils Rasmussen
[email protected] 32. MIS DecisionWare
(973) 679-0724 X621 www.MISDecisionWare.info
Anthony Politano
[email protected] 22. ICMS
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Christine Nola
[email protected] 25 25
Vendor
Web Site
Contact Information
33. NextStrat
(888) 697.9876 or (949) 442-1465 www.nextstrat.com
[email protected] 34. Open Ratings
Andreas Scheffler
[email protected] 35. OutlookSoft Corporation
(877) 377-6825 (U.S.) +44 (0) 20 8971 4000 (Europe) www.openratings.com (203) 964-3100 www.outlooksoft.com
36. Panorama Business Views
(416) 537-9336 www.pbviews.com
Noriko Oyama
[email protected] 37. Planet Corporation – Budget Maestro
(800) 366-5111 www.budgetnow.com
Holly Intravia
[email protected] 38. PowerPlan Corporation
(714) 969-5353, ext. 17 www.PowerPlanCorp.com
Tina Kemp
[email protected] 39. Prodacapo AB
+46 (70) 698 25 03 www.prodacapo.com
Patrick Olsson
[email protected] 40. QPR
(952) 835-4131 www.qpr.com
Sumner Schmiesing
[email protected] 41. RealINSIGHT
(888) 404-2266 www.realinsight.com
Alan Melville, CEO
[email protected] 42. River Logic
(978) 753-5016 www.riverlogic.com
Phil Clarke
[email protected] 43. SAS Institute
(919) 531-8463 www.sas.com
Bobbi Harris
[email protected] 44. Show Business Software
44 – 20 -73873888 www.showbusiness.com
Adrian Reason
[email protected] 45. SRC Software
503-221-0448 www.srcsoftware.com
Kelly Fitzgerald
[email protected] 46. Super Budget
(877) 442-8343 or (972)-766-7777 www.superbudget.com
William W. Levi, CPA
[email protected] 47. TRAC
(800) 229-7736 www.abctrac.com
Ed Daddour
[email protected] Dean Trachtenberg
[email protected] `
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