Corporate Performance Management - It's ready - Are You?

Imagine driving a car without an instrument panel? Or the speedometer shows your speed from 5 minutes ago. You run the risk of getting a ticket, or much worse getting into an accident. Or maybe you will be late because you're being overly cautious.


Now imagine you're the CEO of a company without an instrument panel - that's one of the reasons for CPM. But you need more than an instrument panel; you also need a map especially if you're trying to get somewhere you have not been before. To the CEO, the map is similar to a company's strategy map - another component of CPM. Now consider that there are passengers in the car, and they all have different objectives. The child in the back wants to stop frequently or the grandmother wants to take the scenic route. This is not a big problem in a car as the driver can ignore the conflicts. But this is much harder in an organization where each department has its own objectives. Ensuring alignment to corporate objectives using scorecards is another key element of CPM.

Initially coined by Gartner, a research and advisory firm, CPM is an umbrella term that describes all of the processes, methodologies, metrics and systems needed to measure and manage the performance of an organization. One problem with CPM is that it's hard to find a common definition of exactly what it is and what functionality is included. Another problem with the definition is that it includes not just applications, but also processes and methodologies. CPM is on shaky ground if it depends on processes and methodologies to be considered CPM. Sure you need processes and methodologies to make it work as is the case with any technology. But would you dismiss an ERP system that lacked processes and methodologies? However, the consensus is that CPM does include:

  1. Strategic planning
  2. Scorecarding
  3. Budgeting and Forecasting
  4. Consolidation
  5. Business intelligence

Strategic planning

It all starts with the strategic plan. Unfortunately, the reality is that employees often don't know the strategic plan of their company. When asked about critical success factors (CSF's), many senior people don't have a clue. CSF's are those things that must be done well in order for a company to be successful. CPM provides tools to help with the strategic planning process. A whiteboard could also be used as long as the strategy and critical success factors are shared across the company.


The objective for scorecarding is to monitor performance related to strategy. The key question it answers is how you are doing regarding things that are most important. In the early 1990's, Drs. Robert Kaplan (Harvard Business School) and David Norton developed the concept of the 'balanced scorecard'. Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective.Kaplan and Norton describe the innovation of the balanced scorecard 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 that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:

  • The Learning and Growth Perspective
  • The Business Process Perspective
  • The Customer Perspective
  • The Financial Perspective

Financial measurements are inherently lagging indicators, which tell you about historical results - sales, gross profit, customer satisfaction… The other measurements can also be lagging, but the most important ones 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. Without being specific, the numbers are ambiguous and there can be many ways to interpret the results. You should not choose metrics that are can't be measured accurately or take a huge effort to obtain. Actionable means that the metric is easily understood and that it ties back to a specific team 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.

Budgeting and Forecasting

For many companies, budgeting is a big waste of time. It takes a ton of effort to create the budget, and by the time it's done, it's out of date. Budgets are often based on complex spreadsheets that are subject to errors and don't make the assumptions explicit. CPM speeds up the process, improves accuracy and provides auditability. Budgeting is typically based on history. But how to forecast the future? Statistical modeling algorithms are way beyond the traditional tools used by most companies. CPM also steps up to the bat when it comes to forecasting.


Consolidation can be a huge problem for larger companies with multiple levels in their consolidation process. Often the accountants struggle for weeks in consolidating 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 trusted with them. But even that person breaks into a sweat when there is a re-organization 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 with even the simplest request for more information. Consolidation is where CPM can make a big difference when it comes not only to compliance with Sarbanes-Oxley but also to speeding up the consolidation process. Consolidation is an important component in CPM as financials depend on the consolidation process and scorecarding depends on financials.

Business Intelligence

Business Intelligence (BI) is also a component of CPM. BI has been around for many years but called different things such as Executive Information Systems and Decision Support Systems. BI refers to turning data into information useful to make decisions. BI can be very basic - an important report is produced every Monday morning or it can be more complex using what is called OLAP (Online Analytical Processing). OLAP allows you to slice and dice information across multiple dimensions and drill down for more detail. Rather than generating 100 reports, you could generate 1 OLAP cube, which in turn could be used to view the data in 100 different ways. With OLAP you can easily change the rows and columns by dragging and dropping a different dimension. A dimension could be a region, which could have different levels for drill down including city and customer for example.

Is CPM a flash in the pan?

In the wake of Sarbanes-Oxley (SOX), many vendors and technology analysts looked upon CPM as the answer to SOX. CPM to SOX was compared to ERP to Y2K. Just as many companies implemented ERP systems as a result of Y2K, it was believed that many companies would implement CPM. This did not happen, and as a consequence, a shadow of doubt fell upon the future of CPM. The reason that CPM did not take off like ERP systems is that CPM was not really a requirement for SOX, and that technology investments today are now subject to more rigorous ROI analysis. But just as there are compelling reasons for ERP without a Y2K threat, so there are compelling reasons for CPM. The two most popular application software applications today are ERP and CRM. ERP is considered the back office, which includes financial, distribution and manufacturing functionality. CRM is considered the front office which includes contact management, sales force automation and marketing automation. Both ERP and CRM have one huge problem. They are data rich and information poor. Both ERP and CRM generate truckloads of data and don't provide the tools to turn the data into information useful to make decisions. CPM taps into both ERP and CRM, and transforms and delivers information to those that depend on it.

There is another problem in relying on ERP or CRM to make decisions. These systems can give you historical information, but what about tomorrow. Decision makers need predictive information (forecasting) - another component of CPM. There are other factors that make CPM compelling today. Things change more rapidly today then ever before partly due to new technology. Before the crash, the technology pundits declared the internet changed everything and new business models were introduced that made no sense. But the pundits were right after all. A few clicks on the internet and a customer can find competitors around the corner or ½ ways round the world ready to compete. Another phenomenon is that products become commodities as competitors are able to quickly copy and market their look alike and cheaper brands. Things change so fast that annual budgets don't last a quarter. You can't rely on history or if you do, you better be able to detect changes rapidly. Why wait six weeks before taking corrective action because things did not go as planned?

Another compelling reason for CPM is change management. It's not easy for people to change what they have been doing for years. They could be concerned about their job security or reluctant to change what seems to work well enough. They may also feel more empowered with the current methods because they know how to do it well, and there is reliance on their skills. By providing strategy maps that clearly communicate what should be done and score cards that tell how well it's being done, employees will be compelled to make changes if necessary Score cards that reflect how well employees are doing are a powerful motivator for change.

CPM typically replaces unwieldy spreadsheets that are spread across an organization. Spreadsheets have been the CPM tool of choice for many organizations. It's hard to understand how we survived Before Spreadsheets. We all know the advantages of spreadsheets. Spreadsheets are great in the beginning to analyze a problem or prepare a report in exactly the right format. The problem creeps in when the spreadsheet becomes of a victim of its own success. They proliferate like rabbits until a company depends on them for decision making and operations. Another reason for spreadsheet pervasiveness is related to control. With a spreadsheet, you have the ultimate control over what is presented. Many people don't want to give away their power.

However, spreadsheets are inefficient and not completely reliable: errors can slip in through re-keying or calculation mistakes. There is no audit trail on changes and mistakes may not be detected. To make matters worse, spreadsheets are typically not shared across an organization and they are not updated as things change. So decisions are made with old data. A common complaint is the lack of one version of the truth, as individuals take the same underlying data and work their magic in the spreadsheet. Another common problem is that each department in an organization gets very creative with spreadsheets in resolving issues within their own department. The spreadsheet may be ok for an individual department, but a disaster outside the walls of the department. Spreadsheets contribute to the silos found in many companies.

How do you know you have a spreadsheet problem?

  1. Someone in your organization spends most of his/her time managing spreadsheets that no-one else can understand. First you have over reliance on one person. Second, it's obvious that the spreadsheet is too complex.
  2. You are afraid to change a spreadsheet. You are also exposed to big problems in supporting the system and making changes when necessary.
  3. Anyone is re-keying information from or to a spreadsheet.
  4. You need to wait too long for the analysis.
  5. You are the victim of bad information.
  6. You have been told to comply with Sarbanes-Oxley or the equivalent.

CPM eliminates or substantially reduces the reliance on spreadsheets, which often solves the main compliance issues related to Sarbanes-Oxley. There are four improvements to expect from CPM:

  1. Speed
  2. Accuracy
  3. Auditability
  4. One version of the truth

Companies that took six weeks to close their books may now take six days. CPM prevents the accidental or otherwise 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.

Low Hanging Fruit

The budgeting is ripe for CPM. Just about every company has a budget and most of the budgeting is done using Excel. The budgeting process is painful, expensive and takes too long. Resources are tied up manipulating numbers and hoping that things won't change. Change can be dangerous with spreadsheets - one small change could easily break the links on dependent spreadsheets. But change is a fact of life. Unless the budgeting system can adapt to change, it is useless. Key people are sucked into the process and only they can change the spreadsheets, but even these spreadsheet gurus are reluctant to make changes, and if they do, it takes too long. Rather than help business units within a company, the budget process is dreaded and done only because it is mandated from the top. But what if the budgeting process actually helped the business units plan more effectively? What if it was easy to modify the budget to reflect changes as they become known? What if it was easy to collaborate in the updating of the budget so that each person's input could be easily identified and approved? What if, you could do what ifs?

BI means different things depending on your 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 analyze a particular problem, and need ad-hoc querying, meaning the ability to get information out of the system without reliance 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. It depends on the organization and level of detail required by senior management, but many of them will want to drill down for more detail. Same goes for middle management that will want to drill down for more detail. It's also true that operations may want some of the reporting tools at higher levels, but there are costs associated with providing it especially if it's OLAP. There are license costs and training/support costs to consider. As well, perhaps operations should be more focused on the day to day operations rather than potentially spinning their wheels analyzing information. BI is the one component in BI that is useful no matter the size of a company. Small and mid sized companies may not need tools for strategic planning, scorecarding, budgeting and Forecasting, and consolidation, but all organizations require BI.

Improve Compliance and Process Controls

CPM will facilitate compliance and process controls, but more important are the procedures and policies. Old fashioned internal controls can be very effective. For example, reconciling the closing balance of Accounts Receivable to the opening balance plus all transactions for the month is one effective manual control over completeness and accuracy. Just about every system will provide an audit trail for financial transactions. In all the higher end systems, you don't have a choice. However, you may choose to ignore the audit trail. As well, just about every system will give you security controls to restrict access to programs and access rights (view, add, change and delete). Segregation of duties can be controlled using a system's security system, but not if the company chooses not to set the system up properly. While audit trails over transactions are commonplace, many systems don't provide controls over changes to master files such as salesman's commission rate. Even if the system provides this control, the audit trial could be turned off or ignored. However, just having the control is beneficial as employees with fraudulent ideas will worry about being detected. In any event, these program controls are outside of CPM and are found in systems such as ERP or CRM. CPM's biggest contribution to controls is in providing one version of the truth by eliminating spreadsheets. As well, CPM will not only provide an audit trail on the numbers for consolidation but also on the approval process.

Target Market

To date, large companies have been the target market for CPM vendors. Large companies will benefit the most from strategic planning, scorecarding, budgeting, forecasting, consolidation and business intelligence. Consolidation can be a huge problem for large companies that consolidate companies running different accounting or ERP systems. The subsidiary companies could have different databases, different fiscal years and ownership could change during the year. The consolidation component is a must for large diversified companies with complex consolidation. But middle market companies would also benefit from CPM except for consolidation. The trouble is that prices are often too high and it takes too much time and effort to implement. The mid market companies don't have the financial and human resources of the larger companies that could assign a team to the CPM implementation. Things will

Best of breed vs. fully integrated

A fully integrated system is normally the better approach. You don't need to worry about the costs of integration. Don't forget that the cost of integration is not a one-time expense. You also need to consider the costs to keep the systems in synch as the best of breed products evolve. Another advantage to a fully integrated system is that learn curve should be reduced because of the common interface. And with a fully integrated system you won't get the classic finger pointing between vendors that can happen when something goes wrong. However, when the ERP or CRM system does not include CPM or when these systems don't meet specific CPM needs, a best of breed approach makes sense.

Business Case

It wasn't that long ago when companies invested in Information Technology (IT) just to remain competitive. From an IT textbook taught at a Canadian University today, you would find "Boards of directors have finally realized they have to bite the bullet and fund these huge multiyear projects just to remain competitive" Those days are over. Business is back in the driver's seat. As IT projects have a bad reputation for being over budget, not on time and not generating the expected results, senior management is not going to proceed with IT projects unless there is a compelling business case. Sometimes the compelling business case is you don't have a choice. For example, your existing system is no longer supported or your business has changed. Still, there could be a big spread between the low and high end of the potential solutions. How do you justify the higher end solution if that is the one you think is best for your company? You will often find the vendor/solution provider willing to help you with a business case. But do you think you are getting unbiased help?

So you ask the same people that will be involved in the project to prepare the business case. Although their lack of independence is not as glaring as the vendor/solution provider, it is still a big problem as they may have lots to gain if the project goes through. They are unlikely committing fraud in developing a business case, but they are likely to be overly optimistic in their eagerness to proceed. Another big problem is that there is a lot of confusion about how to do a business case. Many of those building the business case don't have relevant training or experience. Further, even if they do have the experience, it's tricky. The basic calculations, such as ROI and NPV, are not difficult. But how do you convert the intangible benefits into numbers? It's not just the benefits you need to worry about. Some costs are very easy to identify but there may be missing costs from the calculations which would include the internal costs related to the project.

Let's start with the easy benefits. You need to understand the bottlenecks in your organization and how much time will be saved if the CPM project proceeds. This requires a careful review of business processes. In some cases, there may be savings because there are fewer employees. However, that does not often happen. More frequently, these people end up doing their work more efficiently and can focus on other activities. The results are usually that the company can grow at a rapid rate without hiring additional administrative resources. If you have one person responsible for complex spreadsheets, you should at the very least train someone to act as a backup. The time to get this person up to speed as a backup would be an appropriate cost to consider in the business case.

But how do you measure clearly defined strategies, alignment with corporate strategy, risk reduction or better decision making? No company should be without all of this, but there may not be a compelling business case to automate it all with CPM. There is no one size fits all formula to develop the business case. It depends on your specific situation in terms of both benefits and costs. You may be able to achieve a portion of CPM if your existing ERP or CRM vendor has the tools and they are already integrated. A sensible approach to CPM would be to start with the area that causes the most pain and can be accomplished with the least effort. Get that fixed and prove your business case before taking on more challenging areas with less payback.


Compliance and Sarbanes-Oxley has pushed some companies into CPM. The smart ones will take the opportunity not just to address compliance issues but to improve strategy, corporate alignment and ultimately decision making.CPM is ready for prime time. Are you ready for CPM? Want some advice - don't try to hit a home run with CPM. Just get on 1st base.