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TDWI
reportseries
Best Practices in
Business Performance
Management:
Business and
Technical Strategies
By Wayne Eckerson
March 2004
Best Practices in Business Performance Management
Research Sponsors
Applix, Inc
...
Hyperion Solutions Corp
...
3
Research Methodology
...
5
Sorting Out the Meaning of BPM
...
7
Bridging the Gap Between Strategy and Execution
...
8
Evolution of Software Automation
...
10
A Framework for BPM: Four-Step Process
...
14
Getting Started with BPM
...
20
Gathering Requirements
...
KPIs have Standard Measures
...
KPIs Contain Valid Data
...
KPIs Are Easy to Comprehend
...
KPIs Provide Context
...
KPIs Lead to Positive Action
...
KPIs Empower Users
...
KPIs Maintain Their Relevance
...
27
Build or Buy a BPM Solution?
...
28
Ensuring Users Will Use the System
...
31
TDWI www
...
com 1
Best Practices in Business Performance Management
About the Author
Wayne Eckerson is the director of research for The Data Warehousing Institute (TDWI), the
leading provider of high-quality, in-depth education and research for data warehousing and
business intelligence professionals worldwide
...
Eckerson has written and spoken on data warehousing and business intelligence since 1995
...
In addition, Eckerson has delivered
presentations at industry conferences, user group meetings, and vendor seminars
...
He can be reached at weckerson@dw-institute
...
Acknowledgements
TDWI would like to thank many people who contributed to this report
...
Second, we’d like to thank our report sponsors who
reviewed outlines, survey questions, and report drafts
...
Finally, we would
like to recognize TDWI’s account and production team: Denelle Hanlon, Theresa Johnston,
Marie McFarland, and Dale Chinn
...
TDWI offers quarterly educational conferences, regional
seminars, onsite training, professional membership, leadership awards, print and online
publications, and a public and private (Members-only) Web site
...
TDWI’s in-depth
reports offer objective, vendor-neutral research consisting of interviews with practitioners
and industry experts and a survey of DW/BI professionals worldwide
...
This special report is the property of The Data Warehousing Institute (TDWI) and is made available to a restricted number
of clients only upon these terms and conditions
...
Reproduction or disclosure in whole or in
part to parties other than the TDWI client, who is the original subscriber to this report, is permitted only with the written
permission and express consent of TDWI
...
The information contained in the report is believed to be reliable but cannot be guaranteed to
be correct or complete
...
dw-institute
...
©2004 by 101communications LLC
...
Printed in the United States
...
Other product and company names mentioned herein may be trademarks and/or
registered trademarks of their respective companies
...
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Executive Summary
Executive Summary
Growth Ahead
...
Today, early adopter companies are
deploying BPM initiatives to better communicate and execute business strategy at all levels
and gain greater visibility into organizational performance
...
Four-Step Process
...
The BPM framework consist of a
four-step business process—strategize, plan, monitor, and adjust/act
...
BPM Is More than
Any One Application
Enterprise BI
...
To succeed with BPM, organizations will need to upgrade their
departmental BI deployments to provide pervasive, proactive, and personalized analytics
across the organization
...
Since many organizations view BPM as an enterprise endeavor, they struggle to figure out where to begin
...
What is the right number of KPIs? Which really drive strategic value and proactive action? Which conflict with other
KPIs or incent employees to work at cross-purposes with key objectives?
How to Architect a BPM Solution? Architecting a BPM solution can also be challenging since it
requires pulling together data from a multiplicity of groups each with different business
processes and systems to deliver a single version of truth
...
How to Ensure Usage? Finally, deploying a BPM solution can be half the battle; getting users to
use the solution and drive performance in the right direction often requires a cultural transformation that must be initiated by top executives and reinforced with carefully thought out compensation plans and incentives
...
It also profiles the scope and dimensions of early BPM usage
...
TDWI www
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Best Practices in Business Performance Management
Scope and Methodology
Report Scope
...
TDWI contacted data
warehousing and business intelligence (DW/BI)
professionals in its database and 101communications’ database
...
) In total, 897 people
responded to the survey, but only 635 were
qualified to complete the survey in its entirety
...
These include respondents who said they work
at a vendor firm or are a professor or student
(105 total) or respondents who said their firms
have no plans to deploy a BPM solution (157)
...
The remainder (275
respondents) said they are “exploring” BPM
...
Survey Demographics
...
The remainder are independent consultants
(28 percent) and business sponsors/users (16
percent)
...
Most respondents are based in
the U
...
and work in a range of industries, the
largest of which are the consulting and financial
services industries
...
4 TDWI www
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56%
Independent consultant
or systems integrator
Methodology
...
Corporate IT professional
Business sponsor or user 16%
business and technical executives who would
like to learn more about business performance
management (BPM)
...
28%
Don’t know
Corporate Revenues
10%
Less than $100 million
30%
More than $50 billion
5%
$10 billion to $50 billion
9%
$1 billion to $10 billion
19%
$100 million to $1 billion
28%
Other
United Kingdom
27%
3%
Country
India
United States
4%
60%
Canada
6%
Industry
Other
Consulting/professional services
17%
17%
Transportation/logistics
2%
Financial services
Utilities
12%
3%
Computer manufacturing
3% Insurance
3%
State/local government
4%
Software/Internet
Federal
government
4% Healthcare
5%
10%
Telecommunications
6%
Retail/wholesale/
distribution
6%
Manufacturing
(non-computers)
8%
The BPM Landscape
The BPM Landscape
Sorting Out the Meaning of BPM
Biases and Confusion
...
” To me, BPM was just another
term to describe business intelligence (BI), which I view as the processes and technologies to
turn information into insight and action
...
Despite my initial skepticism and intrinsic bias to BI (I’ve been covering data warehousing
and business intelligence since 1995), I’ve come to realize that BPM is real, and it’s distinct
from BI
...
BPM Is Real and
Distinct from BI
Early Adopter Market
...
Much of the confusion is that BPM is a new category to describe multiple applications
that many companies have already implemented, including planning, budgeting, and KPI
reports
...
Today, companies implement individual BPM applications isolated from each other
...
As a strategic and technical framework, BPM is still in an early adopter phase, similar to
where data warehousing was in the mid-1990s
...
And
IDC estimates the market for financial and BPM applications will grow at an annual compound rate of 10 percent a year from 2002 to 2007, which is faster than most segments of the
software industry
...
Confusion also arises because industry experts can’t agree what to call
BPM, let alone how to define it
...
” To add to the confusion, the acronym BPM also stands
for business process management, a related but distinct discipline
...
When I attended a BPM conference in November 2003, I also discovered
that everyone used the term BPM as short-hand for something else
...
In addition, I found attendees who thought BPM meant financial reporting, scorecards,
or business intelligence (as I first thought)
...
In researching this report, I discovered that these presenters and attendees are
both right and wrong
...
You can’t do BPM without them
...
BPM is much
broader and bigger than any of these individual components
...
My “big picture” definition is this: a series of processes and applications designed
to optimize the execution of business strategy
...
IDC figures are from “Worldwide
Total Analytic Applications Software Competitive Analysis, 2003: 2002 Shares and Current Outlook,” Aug 2003 Doc #29886
...
The concepts behind managing a business are straightforward: Executives set
strategy, managers develop plans to achieve the strategy, and staff executes the plans
...
But defining a good strategy and managing to it are two different things
...
“It takes a lot of corporate maturity to do business performance management,” says Thomas
Legere, enterprise architect for Pfizer Global Research and Development in Groton, CT
...
BPM is about improving performance in the right direction
...
This is why TDWI’s definition of BPM does not contain the word “performance
...
What BPM Is Not
Sometimes it’s easier to define things by describing what they’re not
...
BPM fosters good
58%
Scorecarding
management by making it easier for executives at
56%
Budgeting
all levels to understand, communicate, and moni55%
Financial reporting
tor the key drivers of business value
...
0
10 20 30 40
50 60 70 80
Respondents to TDWI’s BPM survey got it right
when they said the above components are critical Illustration 1
...
components as “high
...
6 TDWI www
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Trends Driving BPM
Trends Driving BPM
Bridging the Gap between Strategy and Execution
Poor Execution
...
The main problem is that there is a huge gap between strategy and execution
...
Usually,
nothing much happens
...
Inertia reigns supreme
...
Most plans and budgets are simply irrelevant and out of date before they are
completed
...
BPM bridges the gap between strategy and execution
...
,
a BPM consultancy
...
“It’s the application of fundamentally sound business management
practices enhanced by timely and accurate information in order to effectively communicate,
comprehend, and control the performance of an organization
...
BPM provides executives an effective mechanism for communicating strategy and expectations to managers and staff at all levels of the organization via planning models and performance metrics tied to corporate goals and objectives
...
BPM also fosters a two-way exchange of ideas and information, both vertically between levels within an organization and horizontally among departments and groups which manage a shared activity
...
BPM enables staff to continuously adjust plans and fix or improve
operations in a timely manner by providing them with up-to-date information about market conditions and the status of operational processes
...
BPM improves coordination among business units and functional groups that otherwise might act as independent fiefdoms, hoarding rather than
sharing resources and information
...
Organizations are
better able to exploit market opportunities as they arise and catch operational problems
before they escalate out of control
...
BPM Increases
Organization
Effectiveness and
Competitiveness
“We wanted to provide a competitive advantage by providing access to timely, actionable
information,” says Kathy Niesman, director of financial systems at International Truck and
Engine, a manufacturer of mid-range diesel engines, medium and heavy-duty tucks and buses,
and service parts based in Warrenville, IL
...
The portal
“Timely Access to
Actionable Information”
TDWI www
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Best Practices in Business Performance Management
provides executives and business group managers a personalized view of key business drivers,
enabling them to get at the “root causes of problems in hours or days, not weeks or months,”
says Niesman
...
In many organizations, chief financial officers (CFOs) are driving BPM
initiatives to obtain greater visibility into the business
...
In addition, recent corporate financial scandals are putting corporations under greater
pressure to increase the accuracy and timeliness of their forecasts and financial reports
...
To improve financial reporting, International
Truck revamped its entire reporting structure to align financial and operational metrics and
provide more detailed information behind a few key high-level metrics
...
Like International Truck, almost two-thirds of organizations (65 percent)
said they have adopted BPM to gain “greater visibility into the business,” according to TDWI
research
...
) An even greater percentage of respondents (73 percent) who are
still exploring BPM cited the same reason, suggesting that pressures to accelerate financial and
performance reporting are increasing
...
The top reason that organizations are deploying BPM is to gain greater visibility into the business
...
8 TDWI www
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Trends Driving BPM
Sarbanes-Oxley Act
...
However, section 409 has not yet gone into effect, which is perhaps why only 19 percent of survey respondents cited “new regulations” as a BPM driver
...
The twin drivers of performance
monitoring in 2004 will be a “carrot” (optimize the execution of strategy) and a “stick” (minimize risk of non-compliance)
...
)
Sarbanes-Oxley Compliance
Maximize Value
(BPM)
Performance
Monitoring
Minimize Risk
(Compliance)
Illustration 3
...
Evolution of Software Automation
From a technology perspective, business management is merely the latest—and perhaps last—
business function that corporations are “automating” with software and information technology
...
The Last Big Market
for Software?
SC
es
lers
kag
M
Front-Office
(Sales Service, Marketing)
nab
re/
IT E
ERP
Efficiency
twa
Back-Office
(Manufacturing, Finance Human Resources,
Procurement, Logistics)
Sof
198
5–2
000
Pac
199
0
M
BP
Cross-Functional
Value Chains
(Customers, Supplies, Products)
SW Cal SFA
Au Ma l Cen ,
tom rke ter
ati tin
on g
199
5
M
Mgmt
(Strategy and
Execution)
CR
Effectiveness
200
0
The Evolution of Software Automation
Business Activities
Operations
Illustration 4
...
TDWI www
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Best Practices in Business Performance Management
In the past two decades, organizations have deployed software to automate back-office operations (manufacturing, finance, human resources), followed by front office activities (i
...
, sales,
service, and marketing), and finally cross-functional value chains (i
...
, customer relationship
management, supply chain management
...
This is the domain of BPM
...
Organizations evolve from automating operational tasks that enable the business to run more
efficiently to automating strategic activities that make the business run more effectively
...
Thus, applying software
automation to higher level business processes delivers the greatest overall return on investment, although the benefits may not be readily visible or quantifiable
...
However, BPM places tremendous demands on BI and data warehouses to deliver
the right information to the right people at the right time
...
This is a far cry from the departmental BI solutions that most organizations have implemented to date
...
Here is a quick comparison of the way organizations have traditionally implemented BI (“Traditional BI”) versus the way they
need to implement BI to support a full-fledged BPM initiative (“BI for BPM”):
Traditional BI
Scale
Focus
Decisions
Users
Orientation
Output
Process
Measures
Views
Visuals
Collaboration
Interaction
Analysis
Data
BI for BPM
Departmental
Historical
Strategic and Tactical
Analysts
Reactive
Strategic Analysis
Open-ended
Metrics
Generic
Tables/Charts
Informal
Pull (ad hoc query)
Trends
Numeric only
Enterprisewide
Timely
Strategic, Tactical, and Operational
Everyone
Proactive
Strategic Action
Closed Loop
Key Performance Indicators
Personalized
Dashboards/Scorecards
Built-in
Push (alerts)
Exceptions
Numeric, Text, etc
...
BPM is a four-step, closed-loop process that turns business strategy into
action, as shown in the following diagram
...
The last step adjusts the strategy
10 TDWI www
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A Framework for BPM: Four-Step Process
and plans to better conform to the demands and shape of the market or customer base
...
The first two steps in the top half of the circular process—strategize and plan—constitute the
“strategy
...
Within each step, organizations or groups use
enabling techniques or technologies (i
...
, BPM products or solutions) to drive the process
...
When all steps in the BPM process are executed in a concerted manner, they enhance communication, collaboration, control, and coordination among staff and groups in the organization
...
BPM Framework
ze
gi
St
ra
te
gic
St
ra
Pl
te
an
gy
s
M
ap
s
re
lys
is
ar
ec
er
ts
/A
ns
Al
tio
na
or
els
Ac
rts
od
Sc
M
po
&
Re
rs
3
...
P
Pl
n
la
1
...
A
Execution
Illustration 5
...
Each step is
enabled by various techniques or technologies, depicted on the inner quadrants of the circle
...
“We are moving
from a planning process that was completely manual and disconnected from strategy to a portal-based BPM application that enables us to tie together strategy, plans, and performance
measures into a coherent whole,” says John Monczewski, manager of balanced scorecards at
Booz Allen Hamilton
...
Step 1: Strategize
Here, executives define key drivers of business value and ways to measure them
...
They set targets and
measures for each driver,” says Lawrence Serven, principal at The Buttonwood Group, a management consulting firm in Stamford, CT
...
”
Measures for these drivers might be “customer satisfaction index” and “number of defects per
thousand,” respectively
...
TDWI www
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Best Practices in Business Performance Management
Top executives are not the only ones who can define strategy
...
However,
these executives must be careful to tie their drivers, measures, and goals to those of the
organization at large
...
Measures of business drivers are called key performance indicators or KPIs
...
In other
words, they are leading, not lagging, indicators of performance
...
As we shall see later, it is not easy
to create effective KPIs
...
One technique for defining business drivers is “strategy
mapping” which emanates from a BPM methodology known as Balanced Scorecard
...
Step 2: Plan
Next, groups within the organization meet to develop plans and allocate resources to carry out
the business strategy
...
Enablers
...
The planning
process involves breaking down high-level corporate objectives (i
...
, increase market share by
10 percent) into discrete targets and operating models––or scenarios––for different parts of the
organization which then create projects and initiatives to meet those targets
...
“BPM brings planning to the people, it gives them context, not spreadsheets, to understand
causal relationships in the metrics they are seeing,” says Patrick Morrissey, World Wide Director,
EPM Marketing
...
It projects last year’s
activities onto the coming year and once approved is rarely adjusted as circumstances change
...
Part of the problem is that most organizations use custom spreadsheets to disseminate and
collect data, a process that is cumbersome, error prone, and time consuming
...
For
example, each division may have a separate planning system, which makes it impossible to
deliver a consistent high-level corporate view and associated detail for analysis, says ThinkFast
Consulting’s Phelps
...
“The biggest trend in the marketplace is that companies are moving
away from grueling, bottom-up budgeting to continuous planning with rolling forecasts based
on actual performance,” says Hyperion’s O’Rourke
...
dw-institute
...
Many experts believe that BPM cannot be implemented effectively unless the organization ties performance to compensation
...
Step 3: Monitor
It’s one thing to devise strategies and plans, it’s another to execute them
...
This step continuously monitors performance against the measures
defined in the strategic planning process so that individuals and groups always know where
they stand in relation to goals and objectives
...
Enablers
...
Data warehouses and data marts bring together data from multiple systems inside and outside the organization to monitor KPIs
...
e
...
Data Warehouses and BI
Tools Are Key Enablers
BI tools, on the other hand, enable users to access, analyze, and act on the data in the data
warehouse or data mart
...
In common parlance, these terms are often used synonymously to refer to a graphical user interface that personalizes the display of KPIs using various
visual metaphors (i
...
, stoplights, gauges, dials, etc
...
The best BPM systems proactively monitor performance
...
BI tools enable users to define alerts for KPIs
they want to track
...
e
...
“Alerts embed analysis into an action-oriented process—they operationalize BI,” says David
Menninger, vice president of marketing at Applix
...
Step 4: Act & Adjust
The last part of the BPM process is the most critical
...
To execute
strategy, workers must take action to fix broken processes before they spiral out of control or
exploit new opportunities before they disappear
...
“We now get to root causes of
problems almost immediately, preventing millions of dollars of runaway issues at the plant,”
says Jim Rappé, group leader of enterprise data warehousing at the firm
...
It’s like an automobile dashboard that lets drivers
quickly check their fuel level and speed
...
Unlike a dashboard, a scorecard is always tied to business strategy and is often associated with a formal methodology
like Norton and Kaplan’s Balanced Scorecard
...
The bottom line is that a dashboard informs users what they are doing, while a scorecard tells them how well they are doing
...
TDWI www
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Best Practices in Business Performance Management
Links to Detailed Data
Guided Analysis Steps
Users through Reports
and Decisions
Enablers
...
For example, International Truck links its KPIs to detailed reports to give users additional information
...
“If the metrics show
something is wrong, the first thing users want is more information
...
Direct Energy-Essential Home Services, an Ontario-based energy company
that sells and services furnaces, air conditioners, and other home energy equipment, goes one
step further
...
“If district managers see that their closing ratio is low, we provide them with a decision tree that
shows them three additional reports they might want to look at to find out what’s going on and
what to do about it,” says Ripley Maddock, manager of performance reporting at the firm
...
For well-known processes, organizations are also implementing agents which can
automatically recommend or take action in response to predefined events
...
Continuous Planning
...
With centralized, Web-based planning systems, staff can more
easily adjust the forecasts and models that they’ve built into their budgets
...
Planning at
“Warp Speed”
“Lucent Technologies now has the ability to greatly reduce cycle times and realize other efficiencies in their planning and forecasting arena,” says Daniel Bearison, former group manager
at Lucent Technologies, who is now director at e-Business Solutions, a BPM consultancy in
Farmington, CT
...
Lucent now forecasts sales up to eight times a quarter and financials once a quarter since
implementing a new planning solution
...
Profiling BPM Deployments
Status
...
Only 13 Percent
have Deployed a
BPM Solution
According to TDWI research, only 13 percent of respondents have implemented a BPM solution
...
Only 14 percent
have no plans
...
)
Among the 13 percent of organizations that have deployed BPM, less than one-third (21 percent) have had a solution in place for more than two years
...
Scope
...
This is
a surprisingly high percentage compared to those organizations that are contemplating BPM
...
(See illustration 7
...
dw-institute
...
Almost half of respondents (46 percent) have deployed or will soon deploy a BPM solution (i
...
, in “construction”
or “planning/design” phases)
...
BPM Scope
75% 72%
Enterprisewide
25%
23%
Deployed BPM
Divisionwide
31%
Exploring BPM
5%
Departmentwide
24%
1%
Not sure
17%
0
10
20
30
40
50
60
70
80
Illustration 7
...
Based on 635 respondents
...
Plus,
BPM solutions expand at lightning speed
...
Hewlett-Packard Services (HPS), for example, deployed a balanced scorecard in early 2002 to
measure customer service in its European region
...
Within 18 months, the system grew to support more than 120 metrics in all functional areas of HPS and 5,500 registered users in all
Rapid Growth at HPS
TDWI www
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Best Practices in Business Performance Management
regions of HPS worldwide
...
Number of Users
...
The average number of BPM users is expected to jump by
almost 100 percent in organizations with BPM solutions, from 404 users today to 777 users in
18 months
...
)
Half of Organizations
Support Fewer than
50 Users
However, the median number of users tell a slightly different story
...
While the
growth rate exceeds 100 percent, the numbers suggest that many BPM solutions start small
even if the metrics or planning models reflect enterprisewide interests
...
Half of all BPM deployments today support less than 50 users, but there are a number of very large BPM
deployments as well
...
Type of Users
...
Only 5 percent said they
allow customers and suppliers to participate in a BPM solution
...
)
HPS initially geared its balanced scorecard solution to senior executives who wanted a global
view of key metrics, but it quickly modified its solution to support managers at all levels in the
Types of Users – Percent of Whole
Top executives
75%
25%
Middle managers
27%
Business analysts
27%
Operations (customer facing)
16%
Operations (others)
13%
Customers/suppliers
5%
0
5
10
15
20
25
30
Illustration 9
...
Based on
360 respondents
...
dw-institute
...
Some metrics, such as customer satisfaction, are shared worldwide and the
numbers roll up within the hierarchy
...
Functional Areas
...
(See illustration 10
...
Not surprisingly, operations is the next most likely department to implement BPM
...
For example, the
BPM solution at International Truck improved communication and coordination between the
financial and operations departments
...
Functional Areas
73%
Finance
68%
68%
Operations
60%
61%
Sales
55%
49%
Marketing
49%
46%
Service
39%
38%
Human resources
29%
32%
Supply Chain
Deployed BPM
28%
Exploring BPM
28%
Orders
19%
24%
Manufacturing
24%
22%
19%
Regulatory
16%
16%
Shipping
13%
7%
Other
7%
0
10
20
30
40
50
60
70
80
Illustration 10
...
TDWI www
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Best Practices in Business Performance Management
Organizations Deploy
Many BPM Components
BPM Components
...
(See illustration 11
...
”
BPM Components
Reporting and analysis
75%
88%
Scorecards or dashboards
70%
Planning
65%
Budgeting
58%
Forecasting
58%
“What if” modeling
42%
0
20
40
60
80
100
Illustration 11
...
Based on 360 respondents who have deployed BPM solutions (including those in
planning or construction phases)
...
Given the strategic nature of BPM and its imperative to improve business
management, it’s not surprising that top executives are the predominant drivers of BPM solutions
...
Top technical executives
(CIO/director of IT) led the initiative in one-third (30 percent) of the cases
...
)
Most projects also have more than one executive driver, especially when c-level executives are
leading the charge
...
Strategic Value and Satisfaction
...
An
almost equal percentage (81 percent) said the executives were either “very satisfied” or “fairly
satisfied” with the BPM solution
...
” (See illustration 13
...
Since most organizations have less than
two years of experience with BPM, they may not have had enough time to fully evaluate its
effectiveness
...
18 TDWI www
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Getting Started with BPM
Drivers
47%
Top executive (CXO)
39%
Business unit executives
20%
Functional unit executive
30%
Director of IT
7%
Other
0
10
20
30
40
50
Illustration 12
...
Percentages don’t equal 100 percent because users
could select more than one answer
...
Strategic Value and Satisfaction
Strategic Value to Executives
Sponsor Satisfaction with BPM
Not very satisfied
Not very strategic
Somewhat strategic
2
...
Based on 360 respondents
...
Meg Dussault, director of
product marketing at Cognos, says organizations initially deploy BPM in one of three ways:
• “Big Bang” Enterprise Approach
...
• Cross-Functional Approach
...
• Functional Approach
...
TDWI www
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Best Practices in Business Performance Management
“Each of the above approaches has very different requirements and objectives
...
In terms of specific applications, most organizations begin by implementing either a planning
or dashboard application
...
Start Small
...
“Companies are impatient and the tendency is to try to do everything at once,” says Phelps of
ThinkFast Consulting
...
Start with
the area that provides the greatest impact, with a goal of delivering short-term, incremental
results
...
However, delivering BPM from the bottom up puts organizations at risk when
creating performance silos
...
”
Incremental Deployment
...
“The planning application is so intuitive that we’ve been able to expand quickly,” says Bearison
...
To deliver an enterprise scorecard in manageable increments,
International Truck took the unusual approach of prioritizing development by source system
...
His team decided to develop KPIs one source system at a time which enabled it to
deliver some functionality to every group every three to four months
...
“Our first two releases [of the BPM solution] sourced data entirely from our
enterprise data warehouse,” says Rappé
...
”
Identifying the Right Metrics
One of the biggest challenges in deploying a BPM solution is selecting the metrics to serve as
key performance indicators
...
Dussault says that these skills take time to learn, and the process often involves considerable
trial and error
...
Another key, she says, is to ensure that people closest to the business
have input into the process
...
’ BPM requires widespread input, feedback, and communication to succeed
...
dw-institute
...
Organizations use many techniques to identify key
drivers of business value and the metrics that encapsulate them
...
The survey generated
133 KPIs, many of which were common across multiple divisions
...
If we had done 30
minute one-on-one interviews, we may not have gotten all the KPIs that we did
...
Focus on Metric Owners
...
It met
with senior executives to help them identify and describe metrics in business terms
...
Once the
metrics were described in business terms, the technical team defined technical specifications,
including display name, data sources, regional nuances, user functions, security levels, relationships to other metrics, and so on
...
The most common techniques are to analyze corporate objectives (65 percent) and review existing reports/KPIs (62 percent)
...
5 percent), business process mapping (54 percent), KPI definition sessions
(52 percent), and group interviews (50 percent)
...
)
Although the process for gathering requirements may be relatively straightforward, many BPM
teams may still struggle to define appropriate KPIs
...
Assign Owners to KPIs
KPI versus API
...
As a result, most organizations can’t sort out a KPI from
an API—all performance indicator
...
Methods for Identifying KPIs
65%
62%
57
...
Organizations use a variety of methods to identify KPIs
...
TDWI www
...
com 21
Best Practices in Business Performance Management
According to BPM experts, good KPIs exhibit the following characteristics:
1
...
Usually, the only
method available for gaining consensus is to put executives together in the same room so they
can hash out differences
...
“We’ve had strong backing from our CEO to make
this work and we’ve made a lot of progress
...
Our
partners have decided to postpone trying to resolve some issues until a later time
...
“We wanted a worldwide metric for cost reduction and we discovered that the operation and finance people had 16 measures combined for that measure
...
Planning applications also need to establish standards or rules to facilitate budgeting and forecasting processes
...
They can then build these assumptions into
the planning application so everyone in the entire organization works against the same rules
...
2
...
The most well-defined KPIs are irrelevant if there is no data to support them
...
Make Sure there
Is Data to Support
the KPI
“Data integration is critically important to BPM but it’s often overlooked, especially by the
business side of the house,” says Business Objects’ Morrissey
...
The larger
the organization, the bigger the data integration challenge
...
If no data exists, or its condition is dubious, executives need to decide whether to
build a system to collect the data or revise the KPI within the constraints of data that already
exists
...
Once deployed, KPIs must be perceived as an accurate reflection of
reality if users are going to invest time and energy using the system
...
“It took time, but we finally convinced the business
that the numbers in the [BPM solution] were correct
...
Not surprising, the next biggest
challenge is “selecting KPIs” (39 percent) followed by “cross-department coordination” (35
percent), and “resistance to data sharing” (33 percent)
...
)
22 TDWI www
...
com
Identifying the Right Metrics
BPM Challenges
Delivering trustworthy data
53%
Selecting KPIs
39%
Cross-department coordination
35%
Resistance to sharing data
33%
Getting users to use the solution
29%
Developing effective incentives
22%
Implementing and integrating technology
28%
0
10
20
30
40
50
60
Illustration 15
...
3
...
If business users can’t remember the KPIs or understand what they
mean, the KPIs won’t be effective
...
“Our repeat call metric is complex
...
We then have the best lead technicians meet with others to discuss strategy and techniques that they can use to positively
influence the metric,” says Direct Energy’s Maddock
...
To avoid confusion and focus workers on critical areas of value and growth,
organizations should limit the number of KPIs they publish to a handful of measures
...
“When people
have too many metrics to track, the messages get blurred
...
The median number of KPIs that organizations deploy in total is 20, and
they only publish an average of seven KPIs (median) per user
...
)
TDWI www
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com 23
Best Practices in Business Performance Management
Number of KPIs
Total number of KPIs
Average number of KPIs per user
Average
64
16
Median
20
7
Illustration 16
...
Based on 360 respondents
...
KPIs Provide Context
By definition, KPIs provide context
...
KPIs embed organizational expectations
...
Thresholds define an upper and lower range of acceptable performance
...
Targets define a desired end-state at a particular point in time
...
These targets may come
from the plan or budget
...
• Benchmarks
...
However, not every metric in a BPM solution needs to be a KPI
...
The general metrics do not have targets or goals attached to them
...
KPIs Lead to Positive Action
The most important characteristic of a KPI is that it leads to positive outcomes
...
A KPI alone won’t change behavior or improve performance
...
“Measures without
Meetings Are Useless”
“Measures without meetings are useless,” says Maddock
...
Managers need to
ask, ‘What are you doing about this number? How will we avoid this happening next time?’”
Organizations as a whole appear to be struggling to find KPIs that impact employee performance, according to TDWI research
...
” Meanwhile,
23 percent said their KPIs were only “somewhat effective” and 19 percent weren’t sure
...
)
“Users Always Look for
Loopholes in the
Metrics”
One problem is that users often try to circumvent established KPIs out of laziness or personal
gain
...
At
HPS, to prevent users from “fudging” customer satisfaction numbers, the company hires a
market research firm to audit customer surveys
...
For instance, a logistics
group that is trying to streamline inventory costs may decide to reduce inventory which makes
24 TDWI www
...
com
Identifying the Right Metrics
How Effective Are Your KPIs at Changing Employee Performance?
13%
Very effective
34%
Fairly effective
23%
Somewhat effective
4%
Not very effective
19%
Not sure
8%
Not applicable
0
5
10
15
20
25
30
35
Illustration 17
...
it difficult for a retail store to prevent stock-outs of fast-moving items—a key performance
measure for them
...
6
...
TDWI’s research shows that more than one-third of organizations (37 percent) with BPM solutions have restructured incentive systems to reinforce KPIs
...
(See illustrations 18 and 19
...
The KPIs need to be tested
to ensure that the metrics won’t produce an unexpected backlash or unintended consequences
...
“Only when we believe a metric is institutionalized enough at all levels of the
organization will we begin working with human resources to tie compensation to it
...
Based on 360 respondents
...
Based on 360 respondents
...
dw-institute
...
“Ultimately,
money drives performance,” says Morrissey
...
”
7
...
Once KPIs are deployed, organizations must continually evaluate their
effectiveness
...
HPS holds quarterly meetings to review KPI usage, which it
tracks at a detailed systems level
...
If not, we remove the metric
...
Only 15 percent of organizations “rarely” or “never” modify KPIs
...
” (See illustrations 20 and 21
...
“We usually see tremendous upswing in performance when we first implement a
scorecard application,” says HPS’ Summerhayes
...
In the end you can’t control people, so you have to continually reeducate
them on the importance of the processes that the metrics are measuring or you have to
change the processes
...
Based on 360 respondents
...
Based on 360 respondents
...
dw-institute
...
As interest in BPM increases, so do the numbers of BPM products offered by vendors
...
In the past year, however, several vendors, including most of the sponsors of this report, have
shipped comprehensive BPM solutions that contain most BPM components: budgeting, planning, forecasting, business intelligence, and scenario modeling
...
TDWI’s
research indicates that a majority of organizations that have deployed a BPM solution (59 percent) have built it, while less than a third (31 percent) who are contemplating implementing
BPM will do the same
...
)
Most Organizations
Build BPM
Solutions Today
Did You Primarily Build or Buy Your BPM Solution?
59%
Build
31%
30%
Buy
Deployed
27%
Exploring
5%
Neither
--6%
Not Sure
43%
0
10
20
30
40
50
60
Illustration 22
...
Given the lack of BPM packaged solutions until recently and the strategic nature of BPM
which encourages custom development, we are not surprised by these numbers
...
However, it is likely that as more BPM products become available, a larger percentage of
future BPM customers will purchase BPM applications rather than build them
...
It may be less true with scorecarding applications,
which many organizations view as extremely strategic
...
The suites offer compelling
value in terms of tightly integrating various BPM processes and data, but installing suites within existing environments can create architectural and integration challenges
...
TDWI www
...
com 27
Best Practices in Business Performance Management
Data Architectures
The danger with BPM systems, especially packaged solutions that come with predefined
data models, is that they can become silos of information, fracturing a consolidated view of
corporation performance
...
Half (50 percent) use
a data warehouse as the underlying data source for the BPM solution, while 21 percent use a
dependent data mart, which leverages data from a central data warehouse
...
Another 14 percent build BPM on top of an operational system
...
)
Some Hand-Feed Data
into a Dashboard
However, some teams are tempted to cut corners on the BPM architecture when they are
under pressure to deliver tangible results quickly
...
“This is a challenge—it is difficult to balance short-term deliverables with the
proper data architecture to support long-term growth and provide meaningful information
...
Based on 360 respondents
...
In terms of database architecture, most organizations deploy BPM
solutions on OLAP databases linked to a relational data warehouse
...
The data warehouse pulls data from 32 source systems
...
Three-quarters of
respondents (75 percent) said that they were using a relational database and slightly more
than half (54 percent) said they were focusing on an OLAP cube
...
) Since
respondents could select more than one answer, this suggests that most organizations are
using both relational and OLAP technologies to build their scorecarding applications
...
dw-institute
...
When asked which source systems the BPM solution pulls data from, twothirds selected “data warehouse or data mart” (67 percent), followed by legacy applications
(63 percent)
...
) Thus, the data warehouse sits at the center of most BPM
applications, preserving a single version of the truth
...
Like many IT-supported initiatives, BPM requires high-level executive
sponsorship
...
“Getting sponsorship and buy-in at the senior levels of the organization is the key
...
What Is the Database?
75%
Relational
54%
OLAP cube
19%
Spreadsheets
6%
Other
0
10
20
30
40
50
60
70
80
Illustration 24
...
In most cases, organizations
run scorecarding applications on OLAP databases which draw data from relational data warehouses
...
Will it Draw From?
Data warehouse or marts
67%
Legacy applications
63%
Packaged applications
53%
Planning, budgeting, forecasting apps
45%
External data files
36%
Spreadsheet
35%
Manual data entry
28%
Personal databases or files
23%
Pre-existing BI reports
17%
Web content
15%
0
10
20
30
40
50
60
70
80
Illustration 25
...
Based on
360 Respondents
...
dw-institute
...
“The BPM puts data in the open that
used to be hidden and this is not easy for many people,” says Farrah Foroushani, project lead
at New United Motor Manufacturing
...
”
Delivery Formats
...
Most users respond positively to graphical dashboards or scorecards embedded in corporate
portals and require little if any training in how to use them
...
For example, field technicians at Direct Energy receive their scorecards in a paper format
when they meet with managers every week
...
“Some officers have been around for 20 or 30 years and
that’s what they’re comfortable with
...
Drill to Detail
...
The
most common BPM analytical techniques are links to detailed reports and interactive charts
(that also presumably link to detailed reports)
...
Other critical
functionality are alerts, continuous planning and budgeting, and links to individual transactions
...
)
Business Processes
...
Planning applications
need to give users the opportunity to revise forecasts in response to market activity and reallocate resources to meet objectives
...
"We let users attach comments to any metric at any level so they can raise any issues they feel
are important
...
Occasionally, organizations find it necessary to get rid of old reports and information sources
before users are willing to adopt the BPM solution
...
To address a similar problem,
HPS shut down 16 various reporting systems, saving $3
...
30 TDWI www
...
com
Conclusion
Analytic Techniques
Links to detailed reports
Interactive charts/graphics
Alerts
Continuous planning/budgeting
Links to individual transactions
Annotations
Predictive analytics
Strategy maps
Built-in workflows
Context-based recommended actions
Agents (automation based on context)
Wireless access
Built-in threaded discussions
0%
20%
Today
40%
Future
60%
80%
100%
Not Planned
Illustration 26
...
Based on 350 Respondents
...
Given the current economic climate, increased financial pressures, and the evolution of information technology, it’s no surprise that BPM is gaining traction now
...
The Future of BPM
Belongs to BPM-Savvy
Organizations
BPM will succeed because it automates strategy execution and enables good management
...
BPM raises the bar for good management by applying information technology to the execution of business strategy
...
The advent of
new regulations, such as the Sarbanes-Oxley Act, will also hasten the implementation of BPM
...
The most compelling element of BPM is that it provides
executives at all levels a mechanism to communicate strategy, allocate resources, and proactively monitor their groups’ progress towards meeting goals and objectives that they’ve set
forth
...
Because the metrics are tied to operational data, workers and executives
can take action to catch problems before they escalate out of control
...
Like any new information technology, challenges abound with BPM
...
The key is to gain top-level commitment and ensure that the
business drives the initiative from start to finish
...
TDWI www
...
com 31
Research Sponsors
Applix, Inc
...
870
...
366
...
com
Web: www
...
com
Applix (www
...
com) is a global provider of business intelligence and business performance management solutions
...
Recently named best performing analytics engine in the OLAP Survey 3, TM1 allows today’s complex
enterprises to respond faster, better to changing market dynamics
...
Headquartered in Westborough, MA,
Applix maintains offices in Europe, North America, and the
Pacific Rim, as well as a global network of partners
...
953
...
businessobjects
...
Business Objects enables organizations
to track, understand, and manage enterprise performance
...
Popular uses of BI include enterprise reporting, management
dashboards and scorecards, customer intelligence applications,
financial reporting, and both customer and partner extranets
...
Business Objects can be reached at +1
408
...
6000 and www
...
com
...
738
...
738
...
com
Web: www
...
com
Cognos, the world leader in business intelligence and corporate
performance management, delivers software that helps organizations drive, monitor, and understand corporate performance
...
dw-institute
...
Our integrated CPM solution helps customers drive performance
through planning; monitor performance through scorecarding;
and understand performance through business intelligence
...
For more information, visit the Cognos Web site at
www
...
com
...
744
...
744
...
hyperion
...
cfm
Web: www
...
com
Hyperion is the global leader in business performance management software
...
Hyperion combines the most complete set of interoperable applications with
the leading business intelligence platform to support and create
business performance management solutions
...
ThinkFast Consulting, Inc
...
Bryn Mawr, Suite 800N
Chicago, IL 60631
888
...
9750
Fax: 713
...
9998
E-mail: contact@thinkfast
...
thinkfast
...
is dedicated to delivering business
performance management (BPM) solutions that integrate
people, processes, and data
...
As one of the largest services firms in the nation solely dedicated to BPM, our customers
are increasing profitability, enhancing client relationships, and
expanding market share
...
We deliver client-focused services through
an expert team of consultants with depth of expertise in
strategy, application and technology, proven methodologies,
industry best practices, and premier partner relationships
...
, Suite 250
Seattle, WA 98188
Phone: 206
...
5059
Fax: 206
...
5952
Email: info@dw-institute
...
dw-institute