Companies can’t report their way to great results—though you wouldn’t know it from their accumulation of underused reports and dashboards. Companies that get this critical point are moving away from IT-centric business intelligence programs and toward results-focused performance management.

True, BI does more than just generate reports. But add in query and analysis tools, and sophisticated predictive and statistical analytics, and those tools and technologies are overwhelmingly under IT’s control. In contrast, performance management, or PM, is defined by business needs, providing decision makers with the data they need to make the right moves, ones that fit with company strategy.

Most often, companies incorporate performance management into their budgeting and financial processes, in what’s called corporate or financial PM. The next step is operational PM, where they apply BI to practical, day-to-day decisions—in the supply chain, sales, customer service, and other areas.

That’s what’s happening at United Agri Products, a unit of $5 billion-a-year chemical and fertilizer supplier Agrium, which started doing operational PM projects last year using Cognos’ BI platform. “After years of IT preaching the value of BI to business, we reached a point of maturity where the roles started to reverse, and the business started coming to us with ideas,” says David Wheat, UAP’s director of decision-support systems.
UAP’s director of operations brought one such project to IT. The CEO had asked him to cut end-of-year inventory by $25 million, a difficult task for an agricultural company given ever-changing weather conditions, crop disease, and insect infestations, all happening across a variety of regions.

The operations director sketched out exactly what he wanted on a whiteboard, Wheat says. Then he said, “If I can know at any point in time what I have in inventory and can forecast what the consumption will be through the end of the season, I’ll know what dollar amount I’ll have left and I can go after the high-dollar overages.”
With that context, Wheat laid out a model for a PM system: what data he needed and when he had to have it in order to make decisions. And his model came complete with a financial target.

UAP lacked a sales forecasting application, so Wheat’s team developed one by integrating relevant information—current inventory levels, open purchase orders, prior-year purchase histories, and predicted overages or shortages—into a single report. Launched in March, the app includes a daily alert that notifies managers in four regions whenever a purchase order has the potential to create excess season-ending inventory.

“All that data presented in one place, with exceptions highlighted in color, made problems jump right to the top for the director and his regional managers,” Wheat says. That information led managers to investigate open, unconfirmed purchase orders to see if they’re justified. The result: “Within two weeks, UAP had canceled $2 million worth of POs for products that weren’t needed.”

Real Results
Performance management, like knowledge management, melds technology with business discipline. But where knowledge management’s benefits are notoriously hard to quantify, PM yields concrete bottom-line results.

BI historically has been about dashboards and scorecards developed for specific uses, says AMR Research analyst John Haggerty. But that’s changing. “All of a sudden it’s about integrated analytics within applications,” he says. “The conversation is starting to shift to looking at information in the context of specific decisions and roles.”

As UAP found, performance management is easiest when IT and business team. The technical challenges are similar to those in BI: IT is responsible for data access and integration as well as developing core analyses and reports. Less familiar to tech pros are the challenges of consolidating disparate—typically spreadsheet-based—planning activities into centralized planning, budgeting, and forecasting apps, and translating strategies defined by the business into scorecards and key performance measures. PM also requires follow-up that’s not always prescribed in BI to ensure that scorecards and measures are driving the right behaviors.

One thing that sets performance management apart from BI is that the information collected and analyzed is tied to a model or framework for measuring performance. When PM is applied in finance departments, there’s a ready-made model in the form of the budget, and management activities revolve around budgeting, planning, forecasting, and consolidation. But in many companies, performance management never moves beyond finance, because agreeing to and developing frameworks that can be applied to nonfinancial performance is such a daunting task. Vendors have responded by combining BI and PM capabilities with business apps, and by providing pre-built PM applications for particular processes and industries.

SAP recently added a Spend Analytics application to its PM portfolio aimed at controlling purchasing. Oracle this summer added a Profitability and Cost Management module for financial performance management and a Strategy-to-Success framework to help companies put strategic plans into practice. Infor last month introduced “MyDay” interfaces designed to put role-based alerts and actionable information into the hands of specific users. Production planners, for example, can see which machines, production lines, and factories are overloaded and can shift work to underutilized ones.

Not all vendors agree that intelligence is best embedded in applications. The counterargument comes mainly from Microsoft and IBM, which argue that “nobody runs on one instance of anything in their business, and you shouldn’t have to lock in to a single-vendor approach,” AMR’s Haggerty says.

Despite this difference in approach, Microsoft and IBM are expanding their portfolios of pre-built business models and frameworks. IBM Cognos has extended its portfolio of transaction-system-independent PM applications, while Microsoft is relying mostly on partners to develop industry- and process-specific applications on top of its PerformancePoint system.

Several PM vendors were acquired last year, with Cartesis and OutlookSoft both rolled into the SAP/Business Objects portfolio. Some independents remain, including Symphony Metreo and Clarity Systems, which focus on financial performance management; Kinaxis provides an on-demand service that focuses on operational areas, including supply chain visibility, and sales and operations planning; River Logic specializes in modeling and planning, simultaneously modeling interdependencies such as between supply chain processes and related financial performance. Whitebirch Software offers pre-built financial-planning models.

These pre-built applications, frameworks, and models—whether from app vendors, infrastructure providers, or independent PM vendors—are aimed at jump-start- ing projects, saving companies the time and effort of developing everything from scratch. While these apps are described as customizable, the danger is that users won’t bother going beyond the generic content and, as a result, will fail to get to breakthrough performance.

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