Enterprise Performance Management

EPM

Enterprise Performance Management (EPM) is an emerging management discipline that focuses on supporting integrated management processes on a strategic, financial and operational level. This Knol provides a quick introduction to EPM, along with extensive links and references for readers that would like learn more about EPM.

EPM - Enterprise Performance Management:
Introduction
Industry Definitions – What is EPM?
What an EPM System Consists of:
Which EPM methodologies do exist?
Software Vendors
In conclusion
This write-up was developed jointly by Mark Conway and Frank Buytendijk.
Further reading.
Also See:

EPM - Enterprise Performance Management:

Introduction

The term Performance Management is not very well defined. Different disciplines have a different understanding. For instance, in the field of HR it means managing employee performance ¹and in IT networks performance management means optimizing the performance of IT systems and networks². When performance management refers to organizational development, many different terms are used, amongst which Corporate Performance Management ³, Business Performance Management, Strategic Performance Management⁴ or Integrated Performance Management⁵. Performance management is closely connected to the term performance measurement. They are sometimes mistaken for each other. In careful usage, Performance Management is the larger domain and includes Performance Measurement. Here we use the term Enterprise Performance Management (EPM).

Some try to define the differences between these terms. In an article in BPM Magazine (12/08), David Giannetto, the author of “The Performance Power Grid” and a professor at Rutgers University made the distinction: “BPM is usually considered to be an approach that solves operational problems through better information, whereas CPM is often used to refer to the solution of problems that revolve around financial information. Meanwhile, EPM tends to be seen as the unification of operational and financial information to solve problems with a holistic approach.” ⁶

The term Business Performance Management was used extensively, but seems to have lost some traction. However, it is more likely the different terms exist because different authors, analysts and software firms want to differentiate themselves. The different terms can largely be used interchangeably.

Industry Definitions – What is EPM?

Academics, authors, analysts and consultants have proposed different definitions:

Industry analyst Gartner introduced the term CPM in 2001 and defined it as an umbrella term that describes all of the processes, methodologies, metrics and systems needed to measure and manage the performance of an organization ⁷. Later, Gartner started using the term Performance Management and expanded the definition “as the combination of management methodologies, metrics and IT ( applications, tools and infrastructure) that enable users to define, monitor and optimize results and outcomes to achieve personal or departmental objectives while enabling alignment with strategic objectives across multiple organizational levels (personal, process, group, departmental, corporate or business ecosystem).”⁸
Ventana Research, a firm specializing in performance management research, defines it as “a business and IT imperative and management method that links people, process, information and technology to align business and technology to improve results.”⁹
Professor Andy Neely of Cranfield University School of Management, states that performance measurement is the process of quantifying past action, in which measurement is the process of quantification and past action determines current performance ^10.
McGee, of the Ernst & Young Center for Business Innovation defines strategic performance measurement as the integrated set of management processes which link strategy to execution¹¹.
Consulting firm Accenture promises that “Enterprise Performance Management solutions can help organizations dramatically improve their ability to organize, integrate and analyze a wide range of financial, operational, competitor and marketplace information to deliver sustainable high performance.” ¹²
Consultant Deloitte introduces Integrated Performance Management as a method for translating strategic objectives into operational results, with a focus on value creation ¹³.

Elements that are common across these definitions are measurement, organizational alignment, linking strategy to results and information technology.

What an EPM System Consists of:

Various analyst firms have defined the components of what an EPM system should consist of. Gartner recognizes six components: Budgeting, Planning and Forecasting; Profitability Modeling and Optimization; Strategy Management; Financial Consolidation; Financial, Statutory and Management Report ^14. Analyst firm Forrester has a different break-out: budgeting, forecasting, financial reporting, profitability analysis, and performance measurement ¹⁵.

Analyst IDC does not use the term performance management, but only recognizes a larger category labeled ‘Business Analytics’, in which performance management is summarized as ‘Financial Performance and Strategy Management Applications’ ¹⁶.

Another part of Business Analytics is a software category called business intelligence, which includes technologies for database querying, reporting, and analysis, making use of for instance statistics, data mining, and OLAP.

The link between Business Intelligence and Enterprise Performance Management is relevant because these two categories are quickly converging, after the wave of acquisitions in 2007. This wave was started by Oracle acquiring Hyperion Solutions, later followed by SAP acquiring Business Objects and IBM acquiring Cognos.

Which EPM methodologies do exist?

There are many methodologies that help implementing Enterprise Performance Management. Some of them have a financial background, others are rooted in strategy or operations. Table 1 provides an indicative overview ¹⁷:

Origin	Example Methodologies
Finance	DuPont Ratio
	Economic Value Added (EVA)
	Budgeting
	Beyond Budgeting ¹⁸
Operations	Activity-Based Costing
Operations	Six Sigma
Strategy	Critical Success Factors (CSF)
	Balanced Scorecard
	European Foundation for Quality Management (EFQM)
	Performance Prism ¹⁹

Table 1: Indicative overview of performance management methodologies.

In different ways, each of these methodologies contributes to linking strategy to execution. This concept of linking strategy to execution is the basis and theme of Kaplan and Norton’s “Mastering the Management System”, as described in Harvard Business Review in December 2008. ²⁰ They have expanded on this concept and the importance of linking strategy and execution as a cornerstone of performance management, in their new book, The Execution Premium.²¹

The importance of linking strategy and execution was highlighted in a study by Cranfield University’s Centre for Business Performance entitled: Enterprise Performance Management: The Global State of the Art which found that the “ultimate gap” in implementing EPM was the “execution gap”. But that: “Appropriately designed and implemented enterprise performance management systems can overcome all of these gaps and deliver significant value.” - as long as firms realized EPM is more of a journey than a project with a clear finish line.²²

For a very comprehensive of reading across the spectrum of Performance Management, visit the Reference area on the Performance Management Associations web site.²³

Software Vendors

There are many software vendors, selling complete suites or partial functionality for enterprise performance management. Analyst firm Gartner has highlighted a number of these vendors in its magic quadrant.

For 2008 the following vendors were listed:

Leaders: Oracle Hyperion , SAP Business Objects, IBM Cognos

Challengers: Infor

Visionaries: SAS, Clarity, Microsoft (that retreated from the market in the meantime), Exact Longview

Niche players: Tagetik, Lawson, Board

The leading three vendors each position their solutions different. SAP Business Objects focuses on combining enterprise performance management with governance, risk and compliance (GRC)²⁴. IBM Cognos shows ‘best practice decision areas’ such as finance, operations, sales and marketing in its performance management framework ²⁵. Oracle introduced a comprehensive body of research around management processes, introducing the strategy-to-success management process framework ²⁶.

In conclusion

Enterprise Resource Planning is a discipline enabling organizations to reach a level of operational excellence, and focuses on business processes. Enterprise Performance Management is a discipline that focuses on management processes, allowing organizations to invest in management excellence ²⁷. From the numerous studies and it is clear that EPM is a growing management practice and methodology. The first step is a common understanding of the basic components and principles. In summary, EPM brings all management processes under a single umbrella, connecting strategic, financial and operational decisions and activities, to create a complete management picture, within the organization as well as the complete value chain.

This write-up was developed jointly by Mark Conway and Frank Buytendijk.

1. Guide to Managing Human Resources, Chapter 7, Performance Management, University of California, Berkeley; http://hrweb.berkeley.edu/guide/performance.htm

2. The Evolution of IT Performance Management, Gartner, Nov 10, 2004, www.gartner.com

3. Corporate Performance Management (definition) at SearchDataManagement.com

http://searchdatamanagement.techtarget.com/sDefinition/0,,sid91_gci1218615,00.html

4. Marr, Bernard (2006), Strategic Performance Management, Leveraging and measuring your intangible value drivers, BH/ Elsevier

5. Integrated Performance Management: http://www.thefinancedirector.com/downloads/whitepapers/consultancy/file33/

6. Giannetto, David F. (2008). Method or Madness – Initiating a Transition to Make BPM Last, BPM Magazine, December 2008, pg. 8 http://bpmmag.net/mag/method_madness_initiating_1201/

7. Buytendijk, Frank; Geishecker, Lee; Wood, Brian, Magic Quadrant for CPM Suites: No Dramatic Movement in 2004. Gartner Research,14 October, 2004.

8. Rayner, N. et al (2006), Understand Performance Management to Better Manage Your Business,Gartner Report G00142724. www.gartner.com

9. Ventana Research, “http://www.ventanaresearch.com/research/category_new.aspx?id=1031esearch Agenda for 2008”, 2008, www.ventanaresearch.com

10. Neely, A. (1998), Measuring Business Performance: Why, What and How, Economist Books, London

11. McGee, J.V. (1992), What is Strategic Performance Management?, Earnst & Young Center for Business Innovation, Boston, MA.

12.http://www.accenture.com/Global/Consulting/Finance_and_Performance_Mgmt/Enterprise_Performance_Mgmt/default.htm

13.http://www.deloitte.com/dtt/article/0,1002,sid%253D26553%2526cid%253D205037,00.html

14. Chandler, N., Rayner, N., Van Decker, J. (2008), Magic Quadrant for CPM Suites, Gartner RAS Core Research Note G00163218

15. Hamerman, P.(2009), Business Performance Solutions: Clash Of The Titans: The Market Remains Vibrant Following Vendor Consolidation, www.forrester.com

16. IDC, “Worldwide Business Analytics Software 2008 – 2012 Forecast and 2007 Vendor Shares”, 2008

17. Buytendijk, F. (2008), Performance Leadership, McGraw-Hill, New York

18. http://www.bbrt.org/

19. Neely, A.; Adams, C.; Kennerley, M., (2002), The Performance Prism: The Scorecard for Measuring and Managing Business Success, Prentice Hall, UK.