Business Intelligence / Corporate Performance Management

Surveys have a way of changing slightly from year to year, and so it is with our annual survey of business intelligence systems. After three years running, it has now morphed into a corporate performance management survey. CPM. comprises BI as well as many other components. (See the chart for this year’s results, which include Cognos, DynacTools, Hyperion, Khalix, Microsoft Office Business Scorecard Manager, OutlookSoft, Panorama, PROPHIX, SAS, TARGIT and Vanguard.)

But what is CPM? Initially coined by Gartner, a research and advisory firm, the term describes all of the processes, methodologies, metrics and systems needed to measure and manage the performance of an organization. Unfortunately, it is also called business performance management and enterprise performance management, which causes some confusion. CPM typically includes strategic planning, scorecarding, budgeting and forecasting, consolidation and business intelligence.

For example, imagine you have to drive a car with no instrument panel, or with a speedometer that shows your speed from five minutes ago. You would risk getting a ticket or even having an accident. Or you might be late because you would be overly cautious. Now imagine you’re the CEO of a company without an instrument panel. It’s hard to operate without a dashboard view of up-to-date key performance indicators. You also need a map -- especially if you’re trying to get somewhere you have never been. To the CEO, the map is similar to a company’s strategy map – another component of CPM.

Now imagine you have passengers in the car, all with different objectives. The child in the back wants to stop frequently and the grandmother wants to take the scenic route. Sure, you can ignore the conflicts. But that is not so easy to do in an organization where each department has its own objectives. Ensuring alignment to corporate objectives using scorecards is another key element of CPM.

Last but not least, you need to comply with certain laws on the road. Otherwise you could go to jail or be fined. And so it is with organizations that have to comply with legislation such as Sarbanes-Oxley or Bill 198. CPM provides tools and controls for compliance, just as enterprise resource planning systems helped organizations with Y2K. Now for consolidation and financial reporting, it’s no longer acceptable to use spreadsheets that are error prone and don’t have an audit trail or approval process. CPM includes powerful consolidation processors, financial reporting and work flow for approvals, thus eliminating the need for spreadsheets.

Meg Dussault, director of market strategy for Cognos CPM, says the software helps improve performance by leveraging technology. CPM should answer three questions: 1) What should we be doing? 2) How are we doing? and 3) Why is there a variance? To answer these questions, you need more than just CPM technology. You also need to develop a strategy and decide on the key performance indicators (KPIs) or the scorecard to measure performance.

Cognos has found that a number of vendors offer similar CPM functionality. To stand out from other CPM vendors, Cognos offers packaged vertical applications, performance blueprints and CPM expertise from “thought leaders.” Vertical applications include prebuilt reports and KPIs customized by industry. Performance blueprints are predefined data, process and policy models that help with the implementation of CPM.

The objective of KPIs/scorecarding is to monitor performance related to strategy. The key question it answers is how well you are doing in relation to the things that are most important. In the early 1990s, Drs Robert Kaplan and David Norton developed the concept of the “balanced scorecard.” Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard provides a clear prescription as to what companies should measure to “balance” the financial perspective.
Kaplan and Norton describe their invention as follows: "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial-age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information-age companies must make to create future value through investment in customers, suppliers, employees, processes, technology and innovation."

The balanced scorecard suggests we view the organization from four perspectives, and develop metrics, collect data and analyse it in relation to each of these perspectives:

Learning and growth
Business processes
Customers
Finance

Financial measurements are inherently lagging indicators, which tell you about historical results – sales, gross profit, customer satisfaction and so on. The other measurements can also lag, but the most important are leading indicators, which foreshadow things that could happen. For example, rising error rates in shipping or longer time to ship often precede declining customer satisfaction.

Metrics should be SMART: specific, measurable, actionable, relevant and timely. If the numbers aren’t specific, the results can be interpreted in many ways. You should not choose metrics that can’t be measured accurately or take a huge effort to obtain. Actionable means the metric is easily understood and ties back to a specific item that is being measured. Relevant metrics are linked to strategy. Companies that need to wait a month or more for their metrics are in deep trouble. Real-time should be the goal, but accuracy objectives will cause a delay to make sure the numbers are right. You should be shooting for days, not weeks, and CPM will help achieve that goal.

As mentioned, business intelligence is a key component of CPM. Our definition of business intelligence is turning data into information that is useful for making decisions. It could be a simple report on your desk every Monday morning or a more sophisticated analysis using online analytical processing (OLAP).

ERP systems are known to generate lots of data, but not a lot of information (data rich and information poor). Business intelligence is the solution to this problem. Some of the ERP vendors are introducing their own business intelligence systems, but companies like Cognos provide business intelligence solutions that can be used with many of the leading ERP systems. This would make sense especially for organizations that have multiple ERP systems and want to analyse all the data at the same time. As well, ERP does not contain all the information that is needed for business intelligence. For example, it does not include the results of a customer survey, the time it takes to ship an order or the total costs of servicing a customer.

Increasingly, CPM and ERP vendors are offering a dashboard approach to providing the most important information/business intelligence. A dashboard could look like the instrument panel on your car and alert you to problems. Ideally the dashboard is tailored to a specific person or role so that only the most critical information is provided. It is better if you can also drill down for more details.

CPM should bring improvements in speed, accuracy and auditability, as well as providing one version of the truth. Companies that took six weeks to close their books might now take six days. CPM prevents accidental or other errors from distorting the system. There is no internal control without an audit trail. CPM provides an audit trail not just in transactions but also in the approval process. For example, managers must approve the financial results of their department or company before the numbers are passed along to the next level in a consolidation. One version of the truth is the result of eliminating the spreadsheets in favour of a centralized, controlled CPM database.

In the attached vendor survey you will see a lot of questions related to consolidation. That’s because consolidation can be a huge problem for larger companies with multiple levels in their consolidation process. Often the accountants struggle for weeks to consolidate multiple levels in their organization using Excel. Adjusting entries are booked in Excel and need to be replicated multiple times for each level. Then something changes in one of the subsidiary companies, and more changes are required at each level in the process. Inter-company eliminations cause delays while the accountants reconcile the differences between the companies. The spreadsheets are fragile and only one person in the company is entrusted with them. But even that person breaks into a sweat when there is a reorganization and the consolidation spreadsheets need to be redone. There are lots of links between all the spreadsheets and one change could cause cascading errors in unsuspected places. Then when it’s all done, the CEO asks for a breakdown of one of the numbers. It seems like a reasonable request, but the accountants are unable to comply.

Consolidation is where CPM can make a big difference, not only when it comes to compliance with Sarbanes-Oxley but also to speeding up the consolidation process. Some CPM systems offer a huge opportunity for business process improvement by moving some of the responsibility for consolidation out to the subsidiaries. The latter will be able to access the consolidation system with just a browser on their workstation.

Sarbanes-Oxley has pushed some companies into CPM. The smart ones will take the opportunity not just to address compliance issues but to improve efficiency, strategy, corporate alignment and, ultimately, decision making.

As mentioned, last year’s survey was confined to business intelligence. This year we expanded it to include consolidation. Next year we will add other CPM functionality. Stay tuned.

2005 Accompanying Article

Most organizations don’t get the information they want from their existing systems. Some get their IT department to write a report, which usually takes too long. Others create spreadsheets that let users do exactly what they want. But errors can slip into spreadsheets through rekeying or calculation mistakes. To make matters worse, spreadsheets are not usually shared across an organization and they are not updated as things change. So decisions are made with old data.

That’s where BI tools come in. They are supposed to take the mechanics out of the process. Analysts don’t need to fiddle with the spreadsheet or wait for the IT department. With BI, analysts can slice and dice data any way they want. Since the BI information is all stored on a central server rather than on one user’s desktop, BI tools should also provide just one version of the truth.

The BI world is full of technical terms, such as extract, transform & load (ETL), data warehouse, cubes and online analytical processing (OLAP). This may explain why the technology has not done well in organizations without an IT department. But what does it all mean? First, data must be extracted, usually from multiple sources, and transformed (cleaned up) for consistency and accuracy. Then it is loaded into a data warehouse that stores the data in a logical way. ETL can account for 50% of the total cost of a BI implementation. The data is then placed in “cubes” that are designed to optimize retrieval of information using online analytical processing (OLAP). It is possible to create these cubes with tools from BI vendors or from databases such as Microsoft SQL Server. With an OLAP cube, you can interactively slice and dice the data across multiple dimensions and drill down for more detail either in a spreadsheet or graphic view of the data.

One way to think about business intelligence is to consider reporting needs by level within an organization.

Operations need the traditional/preformatted reports. Middle management wants to slice and dice across multiple dimensions using OLAP. Middle management will also want the flexibility to look at information in new or creative ways to analyse a particular problem, and need ad hoc querying, i.e., the ability to get information out of the system without relying on a programmer. At the top of the reporting pyramid is senior management, who may just want a dashboard that summarizes the critical information on one page. Depending on the organization, many may want to drill down for more detail. Same goes for middle management.

It’s also true that operations may want some of the reporting tools at higher levels, but there are licence and training/support costs associated with providing these tools especially if it’s OLAP. As well, perhaps operations should be more focused on the day-to-day operations, rather than potentially spinning their wheels analyzing information.

Vendor survey

The accompanying survey [click here] includes responses from many of the leading BI systems – including Microsoft, Cognos, Hyperion, Panorama, Clarity, SunSystems, Applix and Actuate. We asked a variety of questions about their cost, user base, target market and technology, as well as more than 80 questions related to BI functionality.

This year’s survey includes several new features, including a section where vendors list the top five reasons to purchase their software, and another section on target market by industry. In the charts, you’ll see a lot of the products do the basics. What makes them different? Cost and average number of users, among other things. BI vendors also vary in their offerings. Some provide budgeting, forecasting and consolidation in what is referred to as business (or corporate or enterprise) performance management. The need to comply with Sarbanes-Oxley has turned business performance management (BPM) into the technology du jour.

You also need to take a good look at the technology section. You can’t go wrong if you just need support for Microsoft SQL Server, but you may find some of the products don’t support other databases. The same applies to the operating system/network: Microsoft is a sure bet but the others may be a problem.

The survey includes seven responses from Microsoft for their various ERP solutions. According to Nancy Teixeira, ERP product manager, Microsoft Canada, BI can be achieved through ERP. In fact, there are distinct advantages to working with a one-stop shop that offers BI and ERP from the same vendor. Advantages include having one repository for data, enabling companies to move away from information silos spread across multiple systems.

Microsoft has been creative in responding to the survey using various reporting tools, which differ across systems. Microsoft’s financial report writer, FRx, is partly used for both Great Plains and Solomon. As well, hot off the press this year, is what Teixera calls the business Intelligence layer for Great Plains. Great Plains now includes analysis cubes for Excel, that were acquired from Professional Advantage, a Microsoft Business Solutions partner. The system delivers BI across an organization by using OLAP cubes for more in-depth analysis. With Navision and Axapta, Microsoft has taken another approach in offering what is called business analytics -- a BI tool developed by TARGIT, another Microsoft Business Solutions partner. Other BI tools include Microsoft SQL Server Reporting Services, which was launched in 2004 and competes with products such as Crystal Reports.

Microsoft also brings a platform for BI that includes extract, transform and load (SQL Server Data Transformation Services), a data warehouse (Microsoft SQL Server), OLAP (SQL Server Analysis Services) and reporting (SQL Server Reporting Services). What makes all this so compelling is that it all comes with Microsoft SQL Server. Microsoft is also gearing up for the release of SQL Server 2005, which is targeted for the second half of 2005. The new version includes many new BI enhancements, including an end-user ad hoc reporting environment.

Challenges

At Gartner Inc.'s Business Intelligence Summit in London recently, analysts warned that although BI offers great business opportunities, most enterprises still don’t use it strategically. Gartner's leading BI analysts highlighted a number of major flaws inherent in the technology:

Flaw 1: If we build it, they will come. Too many IT departments build a data warehouse based on the assumption that once it is built, users will automatically see the benefit.

Flaw 2: Reliance on spreadsheets. Too many people hide behind spreadsheets because they are used to them and because they know how to manipulate the numbers to satisfy the politics of their organizations.

Flaw 3: Data quality. More than 50% of data warehouse projects will have limited acceptance or fail completely because data quality has been ignored. Many organizations don’t even see they have an issue with data quality, focusing rather on identifying, extracting and loading data.

According to Alex Resnick, president of the Catalytics Group, part of the problem with BI today is that analysis is not linked back to strategy . Alex sees business users struggling to get data from core transactional systems and using spreadsheets to meet their needs. Data is extracted in a variety of ways, often merely by keying the data from printed reports, and seldom fully reconciled back to the core systems after being manipulated to provide the desired analytical views. Although Alex works with one of the BI solutions called Panorama, he does not think spreadsheets need to be eliminated.

Resnick suggests using a database such as Access or Microsoft SQL Server to store the data. This eliminates the need to save multiple copies of a spreadsheet to reflect snapshot data at different points in time, and overcomes the challenges associated with changes to historical data that then cause the snapshot-type spreadsheets to be incorrect. Good spreadsheet design should also include the use of pivot tables rather than duplication of data through the use of tabs or additional spreadsheets. Alex speaks about hitting the wall of spreadsheet functionality when the spreadsheets are too complex, there’s too much data, or you need to restrict access to certain dimensions. This is when you need to select an appropriate BI tool.

Bottom line

BI continues to offer accountants a big opportunity to help their organizations and clients better analyse their operations. It’s time to get on the BI bandwagon – preferably in the driver’s seat. It’s not just about number crunching. You can help reduce the risk of BI errors. You can ensure the systems are effective and efficient, and not too dependent on one person. Most important, you can make sure BI is answering the right questions.

Click here for 2004's article and survey.

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