Hands on the controls
Savvy manufacturers make enterprise performance management a core competency
by David Caruso -- Manufacturing Business Technology, 7/1/2005 6:00:00 AM
Lao Tzu, known as the father of Taosim, once said, "The key to growth is the introduction of higher dimensions of consciousness into our awareness." While scholars place Tzu's birth between 600 and 300 B.C.E, his words ring true today, as business managers require more awareness, more foresight, and more responsiveness than ever before.
All eyes need to be on key indicators of end-to-end performance. As companies peel back the layers of process to uncover what factors most influence customer satisfaction and financial performance, forward-thinking managers are moving beyond measuring the current performance of the supply chain to actively managing desired states of future performance.
Improved visibility leads to insight on what makes a company tick. Dashboards, analytics, and enterprise performance management—or EPM—are the tools of choice for answering the call. EPM reporting has taken on a central role in IT and operations strategy, as documented by a recent AMR survey that reveals line-of business execs put compliance and organizational readiness at the top of their priorities lists (see Fig. 1).
If that's not enough, CEOs now seemingly push CIOs to work shoulder-to-shoulder with line-of-business execs to use IT to transform companies into leagues of high performers.
To get the most out of their efforts, companies across industries are investing aggressively in EPM. In the manufacturing sector alone, more than 60 percent of executives surveyed say they will increase EPM spend with an average year-over-year increase of 5 percent-plus.
As more companies seek the promise of a demand-driven supply network (DDSN), AMR predicts companies will spend $22B on EPM-related projects in 2005 alone. Buyers say this spending will be for a range of solutions, from spreadsheets and business intelligence tools all the way up through hardware, software, and implementation services for analytic infrastructures (see Fig. 2).
Reporting's quadrant
While EPM has its roots in basic reporting tools, there is no basic approach to the challenge of performance management. Some reporting and analytics tools are highly structured and baked into the framework of all manners of enterprise applications, while others are meant to be extended with customer-specific data type and content.
Another class of product offers a do-it-yourself approach: the hammer, saw, and nails are delivered, with customers building highly specific performance environments for their needs. Dashboards and scorecards are wide-ranging, the potential user base is diverse, and the data access requirements are considered complex. The field of technologies in the space is best understood in the following breakdown (also see Fig. 3):
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Business intelligence (BI) tools—Affording end users with the highest level of information interaction, these tools are best suited for companies that want to build their own dashboards and scorecards based on their own set of key performance indicators (KPIs) and reports, and have the appropriate resources to do so.
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Analytics applications—These solutions gather, unify, and coordinate companywide data as transactions occur, thereby providing a good degree of standard business content, and a generally sufficient toolset to customize dashboards and scorecards, and aggregate data from multiple sources.
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Enterprise applications—Dashboards and scorecards from ERP and other enterprise application vendors tend to provide the highest degree of business context and the closest integration to their transactional systems.
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Infrastructure—Enterprise application integration (EAI); business activity monitoring (BAM); and portal tools deliver a platform for deploying dashboards and scorecards that leverage their real-time data and support complex integration requirements.
Easing into it
Understanding how operational excellence contributes to increased customer satisfaction—and ultimately, top- and bottom-line financial performance—is something companies want to know. Just how to gain this understanding has an executive audience asking vendors for fast deployment and instant gratification. The more widespread these programs, the easier they must be to use—regardless of the underlying technical sophistication. According to AMR surveys, evaluators often report a visceral response from users concerning "ease of use," which becomes a trump card that's played quite often when user adoption is critical.
For many IT staffs, the exciting part of their work is delivering operational dashboards and scorecards. These projects are yielding increased visibility, timeliness, and control for the company as a whole—along with glowing reviews from users. Success with the tools is winning over management-level users who more frequently take the lead to deploy performance management throughout the organization.
In fact, recent data shows that in one-third of the companies surveyed, the VP of operations is the primary sponsor of the EPM initiative, followed by the VP of finance, in 24 percent of companies. C-level officers sponsor EPM initiatives in 16 percent of the companies surveyed (see Fig. 4).
But the CFO and CIO are no longer the sole stakeholders in EPM programs, as performance management has moved out into the business. Considering that compliance, aligning business with IT, and organizational transformation are the three most important initiatives affecting IT investments, the connection between business executive influence on technology spending—and the areas in which companies plan to spend—is clear.
EPM targets
The ability to manage future performance—not just measure past results—becomes critical as the level of maturity of EPM increases within an organization. Many EPM implementations target information that could be used to anticipate business activity and improve decision-making across the organization. Here are some examples:
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Effectively managing supply and demand: A pharmaceutical company is experiencing rapid growth through patent acquisition and new product introduction. A dashboard enables the company to quickly analyze market acceptance for new products with KPIs that present sales results by territory, with competitor data available on the Internet. A dashboard that presents market demand alongside inventory allows balancing supply with demand, and reducing backlogs.
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Improved manufacturing performance: A leading manufacturer of home products focuses on predictable supply by eliminating bottlenecks in the production line. It deploys dashboards and scorecards specifically for its operational managers. In one case, the scorecard promptly escalated a problem affecting quality and yield on one of the production lines. The operator took action and within 30 minutes, a refresh showed the issue was resolved. In the past, the problem would have gone undetected for 24 hours.
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Accelerated time-to-market: A consumer products company uses a performance management application with specialized dashboards to communicate transportation-related KPIs to managers. With the information highlighted by the dashboards, management determines when to use people to unload inventory and when to automate the process. At the end of the day, the company gets its new products to stores quicker than before.
Further gains
Nothing makes the case for proven success more clearly than increased investment and new application demand. Research shows it's common for early users to sing the praises of these applications throughout the business. The most common consequence is that once other business users see what dashboards and scorecards can do, demand soars.
So it seems that enterprise performance management is growing up. Best practices are still emerging, and the vendor landscape is still taking shape, but EPM's powerful potential is being realized. In 2005 and beyond, expect some market consolidation as vendors build more fully integrated technology stacks to address customer demand. EPM is a market built upon mature technologies supported by sound business principles and methodologies, and is among the fastest-growing segments of the manufacturing software industry today.
Top-ranking business performance suppliers
| Rank Company | Total revenue (in millions of dollars) | |
| 1 SAS | 1,530 | Business analytics software leader boasts 27 years of consecutive growth; used at more than 40,000 sites |
| 2 Business Objects | 926 | Launched XI platform, completing integration of the Crystal and Business Objects product lines; integrates with SAP platforms |
| 3 Cognos | 825.5 | BI and corporate performance vendor notchs 21-percent annual revenue growth; ReportNet delivers enterprise reporting from SAP BI Warehouse |
| 4 Mercury Interactive Corp. | 686 | Business technology optimization offerings include IT governance, application management; for three months ending 3/31/05, revenue rose 27 percent |
| 5 Hyperion | 679 | Business performance management including scorecarding and financial consolidation solutions; announced $125-million stock repurchase plan |
| 6 FileNet Corp. | 397.6 | Enterprise content management vendor now addresses e-mail system content; unveils enterprise reference architecture |
| 7 Open Text Corp. | 385 | Enterprise content management vendor topped off calendar 2004 with record $114-million quarter; announced new business process management solution |
| 8 Information Builders | 300 | Business intelligence vendor also offers integration software via its iWay subsidiary, which announced adaptive SOA framework |
| 9 Microstrategy | 231 | Business intelligence solutions span reporting, analysis, and business monitoring; grew total revenues by 32 percent for year |
| 10 Informatica | 220 | Data integration vendor expands ties with Siebel, IBM; gains SAP NetWeaver certification |
Enterprise performance management spending
| 2005 | ||
| Category | Dollar spend | Percent spend |
| Business intelligence | $ 5.7B | 26% |
| Dashboards & scorecards | $ 4.1B | 19% |
| Budgeting & planning | $ 4.1B | 19% |
| Analytics applications | $ 3.7B | 17% |
| Analytics infrastructure | $ 4.4B | 20% |
| Total enterprise performance management | $ 22 billion | 100% |
| 2005 | ||
| Budget allocation | Dollar allocation | Percent allocation |
| External and internal services | $ 10.3B | 46.4% |
| Hardware | $ 5.7B | 26.2% |
| Software (licenses & subscriptions) | $ 6.0B | 27.4% |
| Total enterprise performance mangement | $ 22 billion | 100% |
| Source: AMR Research | ||
