“Until now, the general ledger had no understanding of the purchasing system,” says Nazhin Zarghamee, chief marketing officer at Hyperion Solutions Corp., in Sunnyvale, California, one of many software companies offering CPM suites. “The notion of an integrated flow of information across the organization did not exist.” Goal-setting, planning, budgeting, performance-monitoring, and other activities often took place in a near-vacuum. CPM, says Zarghamee, unites these related methods and metrics in order to consolidate and analyze financial and operational data, thus providing insight into key business drivers. (Caveat emptor, however: adopting CPM may require a customer to invest in newer generations of software from the same vendors that offered the earlier budgeting or forecasting products on which its CPM suites are now based. On the plus side, this may be an ideal opportunity to shop around, since current investments in some budgeting or forecasting products may not provide the basis for a move into CPM.)
A typical set of metrics might include information about customer profitability, product innovation, and supply-chain vendor performance. One aim is to show how things that are often measured separately actually affect one another. Related to that, CPM tries to take the pulse of everything and everyone within an organization so that, as Schroeck says, “even at the lowest levels, everyone knows they’re being measured to ensure that what they’re doing is consistent with top-level strategy.”
This provides, in theory at least, a single and up-to-date version of financial truth and corporate health. More important, since CPM is an event-driven methodology, monitoring and measuring various key performance indicators, it serves as an early-warning system and will raise the appropriate red flags when performance goes awry.
Into the Loop
As mentioned, CPM is less a technology in its own right than a reconception of technologies that have existed for years. “CPM is the umbrella system, with various sets of technology underneath it,” explains Sanjay Poonen, vice president of worldwide marketing at Redwood City, California-based business-intelligence vendor Informatica Corp. Other BI vendors — including Hyperion, SAS Institute, Cognos, Comshare, MicroStrategy, Business Objects, and many more — either tout performance-management suites outright or market their products with a decided CPM slant.
Poonen says CPM begins with the formulation of a business strategy. “First you develop a strategy, then a plan, then you execute the plan, measure the success of the executions, analyze these metrics, bring it all back to strategy, and start all over again,” he comments. “Each enterprise, given its particular market, customer base, vendor relationships, and so on, requires different types of data and metrics. But it all boils down to the same thing — turning data into information for decision-making purposes.”
Decision-support technologies are decades old, of course. What makes CPM different, says Comshare Inc. senior vice president Brian Hartlen, is the “closed-loop” nature of its design, in which data doesn’t just flow toward a decision maker but through a company, allowing decisions at all levels to be driven by strategy and, when needed, to alter that strategy. Tom Manley, CFO of Ottawa-based Cognos Inc., says, “There is this mountain of data coming from ERP systems, CRM systems, supply-chain systems, and all these other applications, but few companies use it to improve performance.”