Your guide to corporate performance management

Accountability and visibility are two of the most critical issues facing corporate financial professionals today, particularly in terms of compliance with legislation such as The Sarbanes-Oxley Act and International Accounting Standards. Increasingly, Corporate Performance Management, or CPM, is viewed as a strategy to address both challenges.

But there is confusion as to what exactly CPM is. This may stem from the fact that the idea sometimes goes by other names, including "business performance management" (BPM) and "enterprise performance management."

Whatever other words or acronyms are used, CPM is the term most often discussed. While CPM does offer more visibility into the financials of a corporation, it can and should do much more.

At its simplest level, CPM is the union of business intelligence and financial applications. The analyst firm, The Gartner Group, defines CPM as "an umbrella term to describe the methodologies, metrics, processes and systems used to monitor and manage the business performance of an enterprise."

It provides organisations with a single source of information bringing together all types of data, including both financial and operational information.

By integrating this data into a singe instance, every view of the business arrives enriched with information from all over the organisation: information from data warehouses, standard ERP applications, spreadsheet and legacy or proprietary systems, all providing a greater understanding what is happening right now.

At Oracle, we believe CPM is the next generation in financial analysis. It provides the 'C suite' with the tools it needs to regain control of the business, increase organisational credibility and remove barriers across the enterprise.

Why CPM?
Companies want the ability to pro actively make decisions, not only react to market and situational change. Blue chip and smaller organizations businesses require a single view of operations, be it global or regional. Because CPM is broader than current scorecards and executive dashboards it enables managers to get a handle on their business, understanding and responding to the changes and trends that are taking place.

CPM enables managers to perform dynamic business calculations to investigate what-if scenarios, allowing forecasts to be updated and budget adjustments made. And it is not only relevant for companies: the ability to better plan, budget and respond is critical for public organizations striving to offer best value.

The benefits offered by CPM are crucial for many types of businesses in today's increasingly competitive economy. Global competition and economic uncertainty are all working to squeeze margins for almost any business.

As a result, organisations are increasingly looking to make the investments that will help them trim costs in the future. The ease of administration associated with CPM helps drive costs down further.

A single copy of information is easier to maintain and eliminates the latency between copies and extracts.

In addition, this simplification frees up time for managers to be involved in more strategic projects. Another aspect of improving results is to hold people accountable for performance management.

For example, alerts can automatically e-mail the person who runs the underperforming area of the business and where appropriate request action.

Furthermore, CPM can help those multinational companies that have grown without rationalising business processes and operations and are faced with a number of disparate systems, causing information to be fragmented and disjoined.

With the focus on the financial regulatory environment with SOX and IAS, and increased security awareness, another benefit of CPM is that it gives users visibility only to the information they need.

Data security is vital for sensitive information: the results are scoped by user so that a single report available to many people shows only the data to which the user has been granted access.

By providing the right people with the right information at the right time, the focus can be on improving business. Given all these drivers, Gartner predicts that by 2005, 40 percent of businesses will adopt CPM.

How to start? Set your KPIs
The key to CPM is measurement: deciding what needs to be measured, how it needs to be measured and when. Identify these objectives and set Key Performance Indicators for evaluation, such as profitability or performance to plan, or return on investment.

But the emphasis should be on starting small. Start in one area of the business in the short term which could include financial, internal process, learning/growth and customers and then you can move across into other areas.

Within internal processes, for example, the business would consider its products, markets, supply chain, processes and services. Oracle recommends the finance function as a good entry point for CPM. As benefits are shown, additional elements such as linkages to the ERP or CRM systems can follow.

One company that has adopted a CPM strategy is California Eastern Laboratories (CEL). CEL, the North American sales and marketing partner for products made by NEC Compound Semiconductor Devices, wanted to make sure it was ready for future growth. "Our objective was to meet our existing needs and support key business requirements for the future," says CEL Chief Information Officer Kalki Radhakrishnan.

CEL hired a consulting firm to help evaluate its systems and compiled a list of requirements that focused on three areas of the business: human resources, supply chain planning and accounting. With the help of the consulting firm, CEL identified big picture goals, which included: positioning the company to meet changing business conditions with a scalable solution, to better serve global customers, create an integrated supply chain and consolidate the applications into a single, integrated package.

CEL implemented the software applications it chose in phases, starting with human resources and benefits management and moving onto financial, order management, advanced supply chain planning, purchasing and business intelligence tools. The whole process took about eight months.

The company was able to consolidate its applications into a single integrated package. Instead of gathering data from separate warehouse management, accounting, supply chain planning and human resources systems, CEL can turn to a single source for information.

Now, CEL's distribution system is closely linked to its planning system. Its 13 sales offices, multiple distribution channels and distribution center are tightly interconnected. By connecting planning, execution and business intelligence, it has global visibility into demand and supply across its supply chain.

"We run the planning engine each day, which establishes what we can or cannot supply and what is required to support the plan," Radhakrishnan says.

Integration between CEL's order management, supply chain planning and order processing lets the company provide accurate order information, which increases customer satisfaction. With a single system in place, managers in all areas of the company have stronger support for decision-making and faster access to accurate, consolidated data.

More and more companies are finding what CPM can do for an organization. Their successes are clearing up the confusion in the CPM market that has been fueled mainly by the different definitions of what exactly constitutes a CPM solution.

It's clear that a very strong trend toward using CPM solutions is underway. Businesses are learning that integrated, widespread business analysis applications can significantly improve the way they operate. CPM is on the way to becoming an established function inside most enterprises.