“Market conditions are also becoming more difficult for SMBs, which means they need to make even more of an effort to remain competitive,” says Jörg Narr, an analyst at the Würzburg-based Business Application Research Center (BARC), describing the situation. This can only be achieved if they have a good understanding of their in-house processes and the environment they operate it, including competitors, customers, suppliers and products. Jörg Narr firmly believes that, “A Business Performance Management initiative enables SMBs in particular to measure their own performance and retain influential control over it.” And Professor Dieter Spath, Head of the Fraunhofer Institut für Arbeitswirtschaft und Organisation IAO (Fraunhofer Institute for Industrial Engineering) also thinks that BPM initiatives will have a key role to play in SMBs in the future because, “SMBs have to make far-reaching strategic and business-management decisions in ever shorter cycles in an environment which is becoming increasingly complex by the day, coupled with rising risks on short-term markets.”
BPM – the next generation of BI
The phrase Business Performance Management was first coined by Gartner, but what does it actually mean? Craig Schiff, CEO of US consulting company BPM Partners that specializes in BPM says it all comes down to a series of software-supported financial and operational processes, such as budgeting, planning, consolidation, reporting and analysis. The BPM Standards Group, founded by SAP among others in March 2004, builds on this approach and is striving for a generally accepted definition of BPM as an IT-supported, integrated and closed management and analysis process. BARC analyst Jörg Narr describes this as a “complete control system”, in which company managers have to define appropriate management systems and link them with value-oriented business management methods and parameters (KPIs) for analyzing internal and external processes and business development. What’s more, Narr says BPM is “synonymous with utilizing BI systems across the board and incorporating them in the management cycle, rather than focussing on specific tools.” Professor Spath from the Fraunhofer IAO totally agrees. For him, comprehensive BPM initiatives include aspects such as positioning against the competition, corporate and management culture, process management and intangible assets. They also include employee knowledge and expertise, factors which play a particularly important role in knowledge-intensive fields such as service and consulting. That’s why web encyclopaedia “Freedictionary.com” rates BPM as next-generation Business Intelligence (BI).
Improving business processes
Experts all agree that Business Performance Management holds great potential for improvement within companies, particularly when it comes to process optimization. This is hardly surprising, yet the BPM approach is based “on the knowledge that corporate goals can be best optimized from a process perspective,” writes BI and BPM expert Dr. Wolfgang Martin in his bulletin “Business Performance Management and Realtime Enterprise”. He goes on to say that, without thorough knowledge of business processes, no company would be able to survive in a networked world where cooperation takes place across departments and corporate boundaries.
Management of customers, supply chains, company resources, planning and production are mutually dependent and real-time company management is only possible if processes can be modified quickly. In this age of intensifying competition, the right information must be available at the right time and in the right place for its intended purpose. What’s really needed is forward-looking analysis, something which Giga Group analyst (now Forrester Research) Lou Agosta alluded to with the ironic quip: “Stop predicting the past, predict the future.” The statement, which seems contradictory at first, makes sense when taken in the context of company valuation under the Basel II regulations on equity capital which come into force as of 2006. A good or bad rating for a company will not only be determined by criteria such as indicators of profitability and debt, location factors and corporate processes. Transparent and informative data on the order situation, products, product planning and utilization of capacity, i.e. indicators which give a (partial) overview of a company’s future performance, will now also be taken into account.
Moving away from isolated information sources
Success in the form of a better rating is something that SMBs will be able to quantify directly, because they will receive more favorable credit conditions from the bank. “Traditional credit checks, which focus on criteria such as financial statements and therefore only look at the past, will no longer convince banks and investors,” concludes Professor Spath. For META Group Vice President John Van Decker, the new financial reporting and management regulations, such as the Sarbanes-Oxley Act in the USA and the International Accounting Standards (IAS) in the EU, exert external pressure on companies, forcing them to ensure their finances are more transparent and to improve performance.
But how can this be done? BPM expert Wolfgang Martin believes that traditional Business Intelligence (BI) tools, “don’t have the desired effect, i.e. they don’t provide results that can be directly applied to business processes and strategies.” BPM solutions go further as they can overcome departmental boundaries and provide an integrated and, more importantly, real-time view of business data. Nathaniel Palmer, Chief Analyst at US business consultants Delphi Group, says a new age is dawning. Over the past two decades, companies have succeeded in developing “isolated sources of information” and now they want to bridge the gaps that have appeared in their operational processes.
The BPM trend
The growing interest in BPM is hardly surprising, since companies have to show their planning, budgeting, KPI analysis and consolidations as transparent processes. And empirical studies by various market research groups, such as META Group, IDC and Gartner, have provided proof of this trend. In their worldwide study “Business Performance Management, 2003”, META Group analysts revealed that the market volume increased in 2003 to approx. USD 1.1 billion. They also predicted a market growth rate of between 15 and 20 percent for 2004. Of a total of 459 companies surveyed, 5 percent have already implemented a BPM solution, 22 percent have implemented parts of one, 35 percent are currently in the planning stage and 7 percent are just in the process of selecting a BPM provider. However, there are also obstacles to utilizing BPM. The META Group says a small or insufficient budget in particular is a real “BPM killer” for many companies.
The companies surveyed said the three most important reasons for implementing BPM solutions were improving company decision-making processes, making company reporting and planning processes more efficient and merging company resources more effectively. “The technology and software tools that a company utilizes for an end-to-end BPM system really depend on its current requirements and long-term planning,” says John Van Decker.
Measuring and modifying
Jörg Narr therefore advises SMBs to establish well in advance of a planned BPM initiative what information and decision-making platforms they require and what tools need to be implemented to capture the relevant information. They should then find out which providers and solutions offer the best possible cost-benefit ratio. The BARC highlights SAP, with its mySAP BI software, as one of the few providers to offer a practically end-to-end, integrated product suite for translating such plans into a technical solution.
If SMBs are looking to use BPM software to increase company performance and thereby their value, they should first and foremost measure their own performance and incorporate it in the management cycle and decision-making process. If necessary, the management model should be modified at the same time. According to Professor Dieter Spath, it is “absolutely essential” to tailor management and control systems with a view to improving company performance. “Information of a suitable quality has to be available to employees who are making decisions,” says Jörg Narr. This could even mean giving more authority to individual employees. “A company will only experience a positive return on investment if it makes full use of the systems – both technically and in terms of business management. Only then will success really be measurable,” says Narr confidently.
General: http://bpm-today.newsfactor.com/, www.bpmstandardsgroup.org, http://encyclopedia.thefreedictionary.com/
Studies: www.bpmpartners.com, www.delphigroup.com, www.forrester.com, www.metagroup.com,
SAP AG: www.sap.com/solutions/netweaver/businessintelligence