2009 FEI Technology Study: CPM and BI Pose Challenges and Opportunities

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1 Research Publication Date: 23 July 2009 ID Number: G FEI Technology Study: CPM and BI Pose Challenges and Opportunities John E. Van Decker Many organizations recognize that existing financial management processes are a constraint and are making investments in process and technology for improvement. At the same time, enterprises are increasingly adopting business intelligence (BI) technologies to boost the analytical and decision-making processes that underpin overall success. Key Findings Corporate performance management (CPM) is both a top priority and a constraint for the finance organization. Top constraints identified in the study are components of what the CPM suite targets, including measuring product and customer profitability and monitoring of business performance. CPM and BI are top investment priorities. According to the study, 57.6% planned to upgrade their analytical and decision support capabilities in the current year. Fifty-five percent of organizations have an average perception of their existing BI and CPM platforms. Although the majority of organizations (62%) view management and financial information to be consistent, this finding still represents a major opportunity for improvement, as 38% believe there are significant issues requiring manual reconciliation and a lot of time to prepare these reports. Recommendations An organization should establish a BI and CPM competency center that brings together business and IT personnel to determine what the reporting issues are and how to align technologies to address them. IT organizations must understand how CPM can benefit the organization and work in close collaboration to enable CPM platforms that are consistent with the IT portfolio. To align management reporting, organizations must define and deploy an enterprisewide metrics framework. Organizations need to have a consistent set of performance metrics that are clearly defined, aligned to corporate strategy and recognizable by all stakeholders. Use care when evaluating this document because it represents responses from the sample in the survey and may not reflect how your organization should or should not plan for CPM and BI implementation. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner's research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

2 ANALYSIS Gartner first defined the term "CPM" in 2001, and some of the individual components of a CPM suite existed for many years as stand-alone applications. Many organizations that have implemented CPM solutions, however, have not implemented more of the advanced functionality, including strategy management and profitability management. In fact, these are top constraints to success for the finance organizations. The 2009 Gartner FEI study of finance executives provides insight into the CPM capabilities and investment patterns for enterprises (see Note 1 Study Overview). By leveraging profitability modeling and optimization (PM&O), the finance organization can address its top constraint. However, a lack of understanding of product capabilities and a skills gap in the finance organization are inhibitors to success. Profitability Management Is the Top Constraint in the Finance Organization The study yielded that CPM is a top priority as well as a constraint for the finance organization. The study showed that many of the top constraints are components of what the CPM suite targets, including PM&O these applications can be used to address the measuring product and customer profitability constraints and monitoring of business performance. Understanding the drivers of profitability and positioning the company for profitable growth are top priorities. Most organizations are challenged to understand profitability at anything other than an aggregate corporate level. The study revealed that 51.9% of financial managers viewed measuring product and customer profitability as the top constraint (see Figure 1). Helping to position the company for profitable growth was another CPM-related constraint (40%), and budgeting, planning and forecasting (BP&F), as well as PM&O solutions, address this profitable growth constraint. There is a technology gap, and organizations are not yet effectively using technology to help them manage profitability. This is consistent with prior Gartner research that shows being able to understand the profitability of customers and products is a primary requirement in the office of finance. PM&O applications that are on the market can address many of these requirements by providing a sophisticated and powerful environment that supports a deep understanding of the drivers of profitability, and many of these are available in CPM suites (see Note 2 CPM). PM&O applications are one of the least-understood and least-implemented areas of CPM. Yet, they offer an increasing level of sophistication and business benefit, and they should be considered a worthwhile short-term investment. The study also found that other CPM functionalities are constraints for the finance organization. CPM suites can also address the constraint of creating an effective environment for sharing relevant information (36.7%). Of the respondents, 64.6% viewed integrating strategy with daily business processes (using tools such as strategy management and balanced scorecard) as a medium-high priority. Coupling this with profitability management capabilities, typically through the CPM suite, can provide a powerful technology solution to address many of these top constraints (see "FEI Study Shows Financial Executive View of IT and Opportunities to Improve Collaboration"). The ongoing monitoring of business performance, another critical CPM and BI capability, was ranked as the secondary constraint (45.7%). All of these results point to the need for new or improved CPM capabilities. Publication Date: 23 July 2009/ID Number: G Page 2 of 11

3 Figure 1. Top Areas of Constraint Measuring product and customer profitability Ongoing monitoring of business performance Helping to position the company for profitable growth Integrating the financial function with the enterprise Creating an effective environment for sharing information Facilitating analysis and decision making Creating/maintaining an enterprisewide view of performance Managing business risk Reducing enterprise operating costs Consolidating financial processes/instances Integrating strategy with daily business processes Developing business plans and budgets Understanding and managing the drivers of performance Other Improving financial value chain areas Managing integration of systems following implementation Data quality and information integrity Modeling business development scenarios rd 2nd 1st Percent Source: Gartner (July 2009) Action Item: Consider profitability modeling and optimization applications as candidates for shortterm investment, even in challenging economic times. Ensure that any CPM evaluations include Publication Date: 23 July 2009/ID Number: G Page 3 of 11

4 an assessment of CPM vendors' profitability modeling and optimization capabilities. Profitability modeling and optimization applications enable organizations to understand which aspects of their business operations (such as products, customers and services) drive profitability. For commercial organizations, this is fundamental to understanding what drives financial performance, and how shareholder value is created. In public-sector organizations, profitability modeling and optimization helps them understand how effective they are in delivering value to internal customers and external constituents. In all cases, this understanding can lead to new, more-effective ways of conducting business and delivering services. Consequently, CIOs and CFOs should view profitability modeling and optimization as a high-priority investment. Profitability modeling and optimization applications can be implemented without major infrastructure changes, and they will complement existing ERP and BI investments. These applications are also valuable as part of a cost optimization program because they help control margins and identify areas in which cost reductions will have the least impact on profits. CPM Applications Are the Top Investment Priority Many of the top constraints point to the need for better BI and CPM platforms in organizations. The study found that 57.6% of organizations plan to upgrade their analytical and decision support capabilities in From the study, this represented an average of $87,000 per company for software and $74,000 for services to implement these, considering that both large and smaller companies participated in the study. Because many BI and CPM projects require services to bring in these applications to configure the product after first understanding what is required and how to address CPM business processes, this is in alignment with how we see many firms budgeting for most projects. The top constraints are all CPM capabilities, so CPM is the top area in BI for investment. Coinciding with the CPM-related constraints in Figure 1, many firms will be making investments in these platforms, with CPM technologies getting a boost in support. CPM provides functionality that targets many of the areas with planned upgrades in 2009, including management dashboards (54% plan an upgrade; see Figure 2), consolidation and reporting (54%), performance measurement/scorecard (51%), planning/budgeting/forecasting (49%), customer and product profitability (47%) 51.9% identified this as a top constraint and financial consolidation and reporting (42%). Forty-one percent of organizations cited that making improvements to these CPM functions relies on investments in data warehousing as a means of improving reporting. Business plans will only be as good as the information that was used to create a baseline. (Note: The study defined consolidation and reporting as being more focused on data consolidation and BI, while financial consolidation and reporting was more focused on the production of external financial reports.) Publication Date: 23 July 2009/ID Number: G Page 4 of 11

5 Figure 2. Planned Upgrades Management dashboard Consolidation and reporting Performance measurement/scorecard 51 Planning/budgeting/forecasting 49 Customer and product profitability Financial consolidation and reporting Data warehouse Statistical analysis Predictive modeling Other Percent Source: Gartner (July 2009) Action Item: CPM is the top area of opportunity for most organizations. Most finance organizations see the benefits of improvements in these areas, and most seek to upgrade their platforms and solutions in the next 12 months. IT must understand how CPM can benefit the organization and work in close collaboration to enable CPM platforms that are consistent with the IT portfolio. In the absence of this collaboration, many finance organizations pursue their own solutions, including those built on SaaS platforms without the coordination of IT. Views of Existing BI and CPM Investments Show Opportunity Most organizations (55%) have an average perception of their existing BI and CPM platforms (see Figure 3). This finding is not surprising, given that many view the lack of management information, particularly in financial management and CPM areas, as a constraint. CPM applications offer potentially significant benefits. However, business users' and IT organizations' lack of knowledge and understanding mean that most CPM applications will fail to deliver significant improvements in business performance management (see Note 3 The CPM Skills Gap). There have been many improvements in CPM suites during the past few years. Despite the dramatic vendor changes and increased capabilities of the available solutions, Gartner still has not seen a significant shift to increase to more-advanced capabilities, such as the adoption of strategy management and profitability modeling. This is because most business users are shifting from legacy, manual and spreadsheet-based systems; they simply don't know what these advanced applications can do or how they should be deployed. Consequently, in most implementations of CPM suites, organizations are using a sophisticated solution to automate Publication Date: 23 July 2009/ID Number: G Page 5 of 11

6 outdated management processes and, therefore, fail to achieve potential business benefits (see "The Skills Gap Will Limit Success With Corporate Performance Management"). Figure 3. Relative Maturity of BI and CPM Platforms Exceptional 0.9 Superior 14.4 Average 55.0 Poor 24.9 Failing 4.8 Source: Gartner (July 2009) Percent Action Item: Evaluate where you are with the major components of CPM, including BP&F, financial and management reporting, scorecarding and strategy management, and profitability management from both a business process and technology perspective. CPM projects are often viewed as strategic applications, because they provide a link between strategy and tactical execution. This capability is important, but its significance has increased during the current economy, as it may be a means for an enterprise to manage its way through difficult times. CPM projects also can help clients address transparency, reporting and regulatory issues. Leveraging CPM in a downturn will help organizations make better cost-reduction decisions that don't impair their enterprises when there's a return to growth. Consistency of Management and Financial Information Has Room for Improvement While a majority of organizations (62%) view management and financial information to be consistent, of which 13.5% see that it is highly consistent and 48.5% view this as quite consistent with minor differences, these findings still represent a major opportunity for improvement because 38% believe there are significant issues that require manual reconciliation and time to prepare these reports (see Figure 4). With this survey result, as we look at larger companies, there is less consistency due to the numerous data sources that need to be aggregated together to produce meaningful reports. Many organizations approach their BI and CPM initiatives tactically by responding to immediate reporting or dashboard requests from managers. This approach may be required in some cases, but leading organizations are evolving their focus to support these initiatives strategically for diverse users and applications. Instead, a more coordinated approach Publication Date: 23 July 2009/ID Number: G Page 6 of 11

7 is needed. To implement CPM effectively, it needs to be architected in a way that is consistent with the firms' chosen/targeted BI platforms. Publication Date: 23 July 2009/ID Number: G Page 7 of 11

8 Figure 4. Consistency of Management and Financial Reporting Delivered by the Finance Team With Operational Reporting Highly consistent; there is never any disagreement over numbers in management meetings 13.5 Quite consistent; there are minor differences between operational reports and finance data 48.5 Somewhat consistent; high-level numbers agree (due to manual reconciliation), but data variances exist between finance/operational systems 32.3 Inconsistent; we spend a lot of time in management meetings arguing over whose numbers are right Percent Source: Gartner (July 2009) Publication Date: 23 July 2009/ID Number: G Page 8 of 11

9 Still, the issue for many organizations is that they do not have alignment on what should be measured. Mostly, this does not represent a technology issue; rather, the main issue is coming to a consensus in terms of what should be measured, and then determining how it fits into the enterprise business model. Organizations need to have a consistent set of performance metrics that are clearly defined, aligned to corporate strategy and recognizable by all stakeholders. Undertaking a project to provide this alignment requires the identification of a comprehensive set of performance metrics across all areas of the business, as well as the creation of a workable plan to calculate these metrics and to provide transparency of the metrics to all stakeholders. Action Item: Organizations should establish a BI and performance management competency center that brings together business and IT personnel to determine what the reporting issues are and how to align technologies to address them. They should establish BI and CPM platform standards. This project includes picking the right vendors and tools to meet various aspects of the BI and CPM initiative as well as determining how to effectively integrate these technologies into the CPM business process. To get management reporting in alignment, organizations must define and deploy an enterprisewide metrics framework. This project is the single most visible project of the BI and CPM initiative. Organizations need to have a consistent set of performance metrics that are clearly defined, aligned to corporate strategy and recognizable by all stakeholders. RECOMMENDED READING "Business Intelligence and Performance Management Initiative Overview" "Magic Quadrant for Corporate Performance Management Suites" "Q&A: CPM Reduces Operating Expenses in a Troubled Economy" "Pitney Bowes Leverages a SaaS CPM Solution to Improve Its Reporting" "How to Use Metrics in Corporate Performance Management" Note 1 Study Overview The 2009 survey provided 267 responses to more than 50 questions that covered senior finance managers' views of technology. Most of the respondents (87%) represented a corporate perspective, while 9% answered based on being a division or wholly owned subsidiary, and 4% from a group or sector perspective. Privately held organizations accounted for 56% of the responses. What distinguishes this study from other Gartner studies to date is that this was targeted at financial executives: More than 73% of the respondents were senior financial executives. Many industries were represented, with about one-quarter coming from the technology sectors hightechnology and professional services. This data provides a consistent picture of the CFO view of technology. However, organizations must take care as they attempt to benchmark individual initiatives and position against the aggregate because this composite view may not take into consideration vertical differences. The survey also encompasses both larger and smaller enterprises, with 9% of the respondents with revenue of more than $5 billion, 13% with revenue between $1 billion and $5 billion, 10% with revenue between $500 million and $999 million, 21% with revenue between $100 million and $499 million, and 47% with revenue below $100 million (which comprises a solid percentage of the responding technology firms). Gartner will generate multiple sets of research that will provide a more in-depth view of several areas covered in the study. (We will highlight areas in which company size makes a sizable impact on the results.) Publication Date: 23 July 2009/ID Number: G Page 9 of 11

10 Note 2 CPM CPM includes the processes used to manage corporate performance, such as strategy formulation, budgeting and forecasting; the methodologies that support these processes, including the balanced scorecard, or value-based management; and the metrics used to measure performance against strategic and operational performance goals. However, CPM also comprises a series of analytic applications, such as BP&F, financial consolidation, and financial reporting solutions, which provide the functionality to support these processes, methodologies and metrics that are targeted at the CFO, finance team, senior executives and corporate-level decision makers (see "Magic Quadrant for Corporate Performance Management Suites"). CPM projects typically focus on BP&F, or on financial consolidation and reporting. But CPM applications are also key in linking strategy to operational execution; they also leverage BI investments to bring consistency to financial and operational reporting, which can improve corporate governance and can help address compliance issues. Increasingly, CPM applications can be used to identify the drivers of profitability to help organizations pursue profitable revenue growth. However, there is a lack of knowledge among most finance and business users about the potential of these applications, and few companies appear to be leveraging them to their fullest extent. CPM is a journey for all organizations. Successful organizations whose projects have yielded the expected business value (and are deemed ready to take on more business requirements) generally take incremental steps to value, usually starting with a smaller project, such as an extremely well-focused BP&F initiative, financial reporting and consolidation or a balanced scorecard. Many organizations have employed CPM suites, as opposed to separate point solutions, to meet these challenges, and they're considering how they can extend their CPM projects to capture more value. Sometimes, this is easier to plan than to execute because many of the next steps require more-carefully orchestrated planning and implementation, often with the assistance of a business strategy service provider. Still, organizations should consider opportunities to deploy more-integrated components of the CPM suite, because there's a transformational opportunity to improve CPM initiatives. Note 3 The CPM Skills Gap The CPM skills gap is a result of the following: To date, CPM implementations have been dominated by BP&F. Most finance teams implement these systems to automate established spreadsheet-based financial budgeting systems, instead of implementing best practices in the form of driver-based planning. Most finance users don't appreciate the role of financial consolidation systems in a BI and CPM strategy, nor do they understand the capabilities of the current generation of CPM applications to deliver management and statutory consolidations in a federated manner. This means these finance users still implement financial consolidation systems as separate silos of financial data. There's no training available for finance users that describes best practices for implementing "visionary" CPM solutions. Also, industry best practices developed by system integrators are unlikely to emerge in the short term because their focus is more on tactical point solutions. Publication Date: 23 July 2009/ID Number: G Page 10 of 11

11 This research is part of a set of related research pieces. See "ATV: 2009 Gartner FEI Technology Study Research Collection" for an overview. REGIONAL HEADQUARTERS Corporate Headquarters 56 Top Gallant Road Stamford, CT U.S.A European Headquarters Tamesis The Glanty Egham Surrey, TW20 9AW UNITED KINGDOM Asia/Pacific Headquarters Gartner Australasia Pty. Ltd. Level 9, 141 Walker Street North Sydney New South Wales 2060 AUSTRALIA Japan Headquarters Gartner Japan Ltd. Aobadai Hills, 6F 7-7, Aobadai, 4-chome Meguro-ku, Tokyo JAPAN Latin America Headquarters Gartner do Brazil Av. das Nações Unidas, andar World Trade Center São Paulo SP BRAZIL Publication Date: 23 July 2009/ID Number: G Page 11 of 11