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Beyond Financial Performance: Q&A With Forrester's Paul Hamerman

Sep 29, 2006 (12:09 PM EDT)

Read the Original Article at http://www.informationweek.com/news/showArticle.jhtml?articleID=193100708


Why does financial performance management get so much more attention than operational performance management?

A big part of the demand for the financial piece is to meet regulatory compliance demands around external financial reporting, but there's also a part of that information-delivery capability that's used to run the business. The challenge is that financial information is generally historical. There's such a lag in terms of being able to close the books to create financial reports, so it's often not that useful in running the business. That's where performance measures come in. Companies have engineered a different information-delivery system that's not totally dependent on the financial accounting process. These systems take data out of operational systems and render it in the form of performance measures and graphical analyses [scorecards]. That information is most useful when it's timely-typically not more than a day old.

So if financial measures are lagging measures, why is performance management so closely identified with financial planning, budgeting and consolidation?

The CFO's organization has been a key buyer of the software, and lately they've had healthy budgets to enhance their information systems supporting financial reporting and budgeting because of the Sarbanes-Oxley imperative. SOX exposed a lot of weaknesses in financial systems, so the financial folks are buying those budgeting, planning and reporting applications.

In many cases the performance measures started in finance, but now they're reaching out throughout the organization. Companies are going to an enterprise focus from a departmental focus. The sales organization might have one measurement systems and the supply chain organization another, but companies are consolidating their information assets and looking at this more holistically. The vendors talking about operational performance management see an opportunity to provide a more comprehensive solution.

Many BI and performance management vendors are all over that opportunity, but now the applications vendors are stepping up as well. Do you like what they're doing?

The ERP vendors have done some good work engineering reporting systems that take data out of their own transactional systems. Oracle, for example, has something called Daily Business Intelligence that really has some good design concepts, though it hasn't been widely adopted by the customer base. I think it's a good model of a consolidated reporting system that looks at various performance measures across the entire business, and it has a lot of potential.

But can apps vendors handle the depth and breadth of analyses needed for operational performance management?

I think they can. Oracle has broad capabilities around information with its platforms and their tools. There's also the fact that a lot of the data that's being analyzed is housed within its ERP systems. Oracle understand its systems and where the data comes from, so it can engineer things into its application and into its database that support the prebuilt approach to surfacing a lot of that data.

What about SAP and Microsoft?

Applications are a small part of Microsoft's business, and some of the things it's developing with the PerformancePoint server initiative go well beyond its [Dynamics] applications customer base. I think it can engineer some usability around its Office franchise that's going to be compelling. SAP has a warehouse platform and lot of capabilities in the realm of analytics, but it hasn't been so successful with its [SCM] performance management applications in terms of adoption.

Critics say the apps vendors run into trouble when the data resides outside their systems. Do you agree?

That has been a challenge for the ERP vendors in that they designed their reporting systems to get data out of their own system, but not out of other systems. They've tried to address that in recent years through data-integration and application-integration tools, and I think they've gotten past that issue from a technical standpoint. Where they've fallen short is that the purpose-built applications in the realm of planning, budgeting consolidations and some other areas just haven't been competitive with the best-of-breed tools.

So where should customers turn if they have incumbent ERP and BI vendors and they're thinking of getting into performance management?

That depends on where the data is coming from. If it's, say, a wall-to-wall SAP environment, you would look to SAP for some of the reporting technology and some of the performance management applications, but you would supplement that with best-of-breed solutions in areas where those tools are better for their needs.

Most big ERP shops use a lot of the BI reporting tools, and that's not going to change. The problem with the ERP reporting tools is that they're notoriously hard to use and tend to be inferior to those provided by leading BI vendors. The ERP vendors have come to the realization that they can't do everything, and that's why you see lots of partnerships.

Outtakes:

Favorite travel destination?

My last two trips were out of the country, to Quebec and Portugal. I always enjoy experiencing different cultures, learning about their history and especially sampling the food and wines.

Favorite sports team?

My graduate school experience at Duke brought me in close contact with college basketball, and I've been a loyal Blue Devils fan ever since.

What do you miss?

I miss the simpler times when we had fewer phone numbers and secret passwords to keep track of.