InformationWeek

January 18, 1999

Performance Management:Powered Planning

New applications make management philosophy and strategy information accessible companywide

By Beth Davis

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Enterprise Applications Resource Center

new class of software promises to help companies plan, execute, and measure the effectiveness of their long-term business goals. These strategic-planning applications give managers a way to look to the future while tracking the small but important business metrics that can get them there. Whether it's called enterprise performance management or strategic enterprise management, many analysts see huge potential for this new category.

This week, Oracle will reveal four applications designed to help companies gather data from a host of systems, then relate that information to business strategy. The package includes Balanced Scorecard, which translates a strategic plan into a set of performance metrics; Activity Based Management, for making business decisions based on cost information; Strategy Formulation, due in 2000, which will facilitate the creation of a global strategic plan; and Value Based Management, also slated for 2000, which will let a company view itself from the perspective of the investment community.

Thermo King Corp. is an early user of Oracle's activity-based management tool. "It helps us understand exactly how much it costs to make each of our products, and what our profitabilty is," says Mark Sanquist, a senior analyst at the Minneapolis maker of temperature controls and refrigeration units for trucks, buses, and trailers. The costs of making each product include overhead, staffing, and materials, but it can be difficult to itemize these. Sanquist wants

that detailed information so he can tell if Thermo King is pricing its products properly. "The accounting application itself may be concealing that from you," Sanquist says. "That's why we need [Oracle's application]."

Analysts agree. "With these kinds of tools, you can look into the future and plan your business in a well-informed way," says Joshua Greenbaum, president of Enterprise Applications Consulting. "Planning is tough enough, but planning without the right data is very difficult."

Other vendors are moving in the same direction. Last week, Gentia Inc., a U.K. maker of business-intelligence tools, rolled out a new version of its Renaissance Balanced Scorecard, which lets companies compare performance metrics with profit forecasts. Also last week, OmniVista Software Corp. unveiled a strategic-planning suite, OmniPlan, that ties the planning process to financial information. And PeopleSoft Inc. has begun shipping its Enterprise Performance Management suite of analytical applications, unveiled in September.

But some analysts say companies eager to leverage the value in these strategic planning tools should proceed with caution. "This is tantamount to business-process reengineering," says Howard Dresner, an analyst with Gartner Group Inc. "It sounds great in a marketing brochure, but these systems take many, many person-years of effort to build them.''

The reason, analysts and early users say, is that the systems touch every facet of an organization and require input from numerous data sources: enterprise resource planning systems, mainframes, call centers, forecasting systems, help desks, and desktop software such as spreadsheets. They also require companies to quantify processes and strategies that can be subjective-even theoretical.

For example, some of the first strategic-planning applications are so-called balanced scorecard systems, which let managers define the indicators they want to use to measure finances, customer relations, operations, and employee performance. Those indicators are then set as parameters in the software and can be compared with strategic goals, such as increasing market share by 20%.

But because some indicators may involve human bias, they're not easily transferred to technology. If, for example, a manager is trying to measure the success of an employee-training program, he or she will assess whether the employee has learned anything, then assign a numerical value to it. It's a subjective process, so while the systems can codify the measurement, they can't automate it completely.

Primed For Takeoff
Perhaps because of those challenges, the market isn't expected to pass the $500 million mark until after 2000. Nonetheless, it's likely to become one of the fastest-growing areas of the software industry, says Stacie McCullough, an analyst with Forrester Research Inc.

And the potential benefits are huge. "These types of tools will prevent us from killing the golden goose-long-term, forward-thinking strategy and the profits that we'll gain from that," says Daniel Laskero, a process-improvement engineer at GE Capital, which is starting to test Gentia's Renaissance Balanced Scorecard.

GE Capital will initially let some 25 managers and executives access the balanced scorecard app. Here's how it works: An executive will pull up a scorecard with an icon representing return on equity. Underneath that, there are categories for earnings growth, decreased spending, and balanced risk. If the return-on-equity icon is green, indicating all is fine, but the earnings-growth icon is red, indicating trouble, the executive might see that market share has dropped because the company isn't gathering new market and customer data, even though repeat sales are up. At that point, the executive can look at specific marketing initiatives-and perhaps discover that a project has stalled. The executive can then take quick, targeted action.

American Century Investments, a Kansas City, Mo., financial services company, has been testing PeopleSoft's Activities Based Management since 1998. It will install the general release in February, when it will also begin testing PeopleSoft's Balanced Scorecard. "Activities Based Management allows you to look at the business in different ways," says IT director Roby Shay. He uses the software to examine profitability by customer, region, and product-all of which, he says, helps him see which activities are driving costs and which are driving revenue.

Shay also has high hopes for the balanced scorecard tool. "Every company has visions and strategies, but without facts around them, how do you know you're executing correctly?" he says.

SAP has also been developing strategic-planning applications. The company's suite is due this spring and includes Corporate Performance Monitor, which tracks a performance by measures such as employee satisfaction and share price, and Stakeholder Relationship Management, which helps manage ties with investors, employees, customers, suppliers, and analysts.

Ed Tobin, VP of global information technology at Colgate-Palmolive in New York, is testing SAP's Business Intelligence Warehouse and evaluating the strategic-planning suite that data warehouse supports. "We sell products in more than 200 countries," he says. "The ability to gather and analyze information is critical to our business. These applications provide richer data, faster."

Analysts expect this emerging class of applications to make management philosophy and strategy information accessible to and usable by more people in an organization.

"You can do without these kinds of tools, but it's the same as having communication without E-mail," says GE Capital's Laskero. "I can write you a note, get in my car, and drive it to your office. But E-mail speeds the communication process.'' Strategic-planning software promises to help do the same for a company's vision-and its bottom line.

--with additional reporting by Tom Stein and Jeff Sweat

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