At the first annual Business Performance Management Summit, held last fall, practitioners, consultants, academics, and vendors met to discuss issues and trends that are critical to the implementation of business performance management (BPM) software and processes. The event's meetings were organized around four essential themes: technology, culture, analytics, and ROI. The following excerpts from their discussions demonstrate the challenges inherent in improving systems, processes, metrics, and strategies to achieve better business management.

The sessions were moderated by John O'Rourke, Hyperion; Jim Bramante, IBM Business Consulting Services; Kraig Haberer, SAP; George Veth, Painted Word; David Axson, Bank of America; Chris Iervolino, ITEC Consulting Inc.; Robin Ranzal Knowles, Ranzal & Associates; Robert Kugel, Ventana Research; John Van Decker, META Group Inc.; Craig Schiff, BPM Partners; Jane C. Linder, Accenture Institute for High Performance Business; and Lawrence Serven, The Buttonwood Group.

Kraig Haberer, Global Director, Financial Management, SAP: Where are you in the BPM process? For those of you who have already undertaken an initiative, have you gotten a green light from management to go forth and expand the scope?

James Turner, Executive Director, Verizon: We're actually about three years into it. We completed a financial performance management initiative as a first step; we're now working on the operational components and we're building dashboards for executives, saving the best for last. Operational requires a great deal of data mining, a great deal of alignment around the data, ensuring we have a common dialogue when we talk about it -- so we're now beginning that phase.

Judd Nystrom, Director of Finance, Best Buy: Our primary reporting tools are Essbase and Adaytum (Cognos). While we pull information from various systems, we do not have a holistic scorecard or dashboard-type software. We just proved the value of putting all the information together, and now we are figuring out how to automate it.

Lawrence Serven, Principal, The Buttonwood Group: In a company like Best Buy, where you went from $1 billion to -- what was it, $24 billion? -- were you able to grow because of BPM, or in spite of it?

Susan Grafton, Senior Director of Finance, Best Buy: We didn't start to see the benefits of BPM until two years ago, when the new ledger and the new financial systems -- our ERP implementation -- were launched. By that time, much of the growth had already taken place, making the financial work all the more difficult. Too much of the financial measurement and analysis was still manual, or very difficult to do, because the infrastructure had not kept pace with the growth of the company. The BPM processes have allowed us to catch up to the size of the company and provide the level and quality of output that we need to provide to our internal customers.

So I would say we got to much of the first $20 billion in spite of it. But BPM is certainly part of how we will get the next $20 billion. It's part of how we're not going to let our competitors eat our lunch.

Serven: What are some strategic goals your company has? How do you think BPM can help address those strategic goals?

Jason Kaffenberger, Financial Analyst, ING: Customer retention and growing market share would be the two primary strategic goals. And an area where we would address that would be segmenting the market and targeting the customers that are going to be most beneficial.

Turner: A first [strategic goal] would be to achieve regulatory relief, second would be to capture the broadband market, and third would be top-line growth in our wire-line market. Now that Verizon is truly a national/international organization, we can better serve enterprise clients. Of course, we emphasize product innovation.

How is BPM helping with all of this? We've deployed dashboards to reflect these objectives. Key executives are able to look at how market conditions and operational and financial conditions are changing, and translate that to how it can impact shareholder value. I think we're pretty much on track to leverage BPM against these strategies. We've got the awareness, we've got the common dialogue; we now need to focus on refining the data and changing our systems and processes as these initiatives change.

John O'Rourke, Senior Director of Product Marketing, Hyperion: What are the most challenging obstacles you've had to overcome in implementing BPM?

Craig Schiff, CEO, BPM Partners: The thing we always run into is producing quantifiable ROI calculations. That's what our clients ask us to do -- help me make the business case by showing: How much money is this going to make for us or save us? And that's nearly impossible to do.

We've looked at strategic goals and then shown how BPM is going to facilitate them, and I think that's a better way to approach it. Because a lot of what we're talking about is intangible, you can't really put numbers on it. And to get the decision-makers to look more at the business drivers and how this enables them is the right approach. If you sit there and do the math, you're not going to get very far, and we've seen a lot of projects stall out because they can't make the financial case for the project to get off the ground.

Cindi Mady McCarthy, President, The Medi Group Ltd.: I think it's credibility. How many times have you had changes in your organization to meet a specific objective and which didn't impact you personally and which required additional effort on your part? When the process is all over, did you meet your objective? If you did, was it conveyed? And if not, why not? People don't like change; that's the bottom line. They want to know, what's in it for me, specifically?

Turner: I believe it's incumbent upon senior management, if they want to start a culture change in the business, then they have to adjust the measurement and compensation system to drive that culture change. People will respond to what they're measured and compensated for. They're not going to respond with, "Oh, isn't this a great thing? Think about how much better it will be; you'll feel more accountable." It comes down to the paycheck in many cases.

Nystrom: We're trying to create a full-transparency culture at Best Buy. We're taking a longer view as we drive our incentive structure forward. This expanded outlook is evidenced through recent changes in compensation payment strategy. We're pulling back on the options piece and emphasizing performance shares to drive more long-term thinking. A longer-term focus changes a lot of behaviors and, in turn, creates a culture that is more focused on doing the right thing for the shareholder.

Bette Walters, Director, B.D. Walters Inc.: But isn't that contrary to the prevailing American business ethic -- where, if you're a publicly held company, you have to manage quarter to quarter?

Nystrom: That catches up to you at some point.

Walters: It certainly does; I don't disagree with you. I think from the director's perspective, and as an attorney, I find what you're saying very appealing; I think it's the right thing to do. But having been with a publicly held company and lived through the nightmare of managing by quarter, what do you do about Wall Street? As Arthur Levitt has been saying, restoring faith and trust in the financial markets is critical, but companies are still chasing earnings quarter by quarter, and the market rewards that. What do you anticipate may happen to your company among its peers in the market?

Nystrom: We see it as a competitive advantage to align our employees -- and all of our stakeholders -- so that in the long run we perform better. I think everyone agrees that when you start thinking only short-term, it may pay off for a couple of quarters, but down the road you increase your chances of a surprise. So we're viewing it more as a cultural change that will drive superior long-term performance. We want to be a top-quartile company in terms of shareholder performance. And we are. But in order to continue this kind of performance going forward, we've got to do something different, and doing this right will differentiate us from our competitors.

Jim Bramante, Global Leader, Financial Management, IBM Business Consulting Services: If we say we're going to get rid of the budget culture, really what are we replacing it with, and what are the specific change implications around that?

Robin Ranzal Knowles, President, Ranzal & Associates: It all depends on what you're doing. Getting buy-in to go from an annual budget to a rolling forecast, your CEO should buy in on that. But line-of-business management and your finance and accounting staff are another matter. They may prefer the annual budget. Until people get used to the idea of a new process and understand what the benefits are -- not only to executive management but to them -- you'll find some resistance to moving from the budget culture and the way things always have been done.

George Veth, President, Painted Word: The transformation from an embedded budget process to a rolling forecast -- what level of difficulty and complexity have you encountered with that? And what tool changes went along with that?

Kathy Allen, CFO, Millipore: One of the first challenges we identified in our project to adopt rolling forecasts was deciding on the level of detail to forecast. Historically, the annual budget is much more detailed than the quarterly forecasts. It turns out primarily due to the difficulty of the process we've been using at the budget time -- you wouldn't want to make the organization go through this four times a year. Therefore, our current focus is on implementing an improved tool set to significantly streamline the effort involved in planning. We will also be reducing the amount of detail in the annual budget to a level that can be readily updated quarterly.

O'Rourke: What things can derail the process? Are there obstacles to getting around the budget culture, implementing a BPM kind of culture?

Bryan Wirthlin, President, Sandpoint Consulting: A lot of times these BPM projects start with the finance group spending a lot on consolidating spreadsheets and trying to manipulate all this data to create one version of the truth. So on the outskirts, out in the trenches, they don't see the benefits until you have that top-down vision.

But what could derail it would be, again, when that priority drops from the senior management, and you lose sponsorship from all different levels. And there are issues like training, for example; many people aren't trained well enough in the new technology and they just revert back to their old methods.

Catherine Mulhern, Vice President, Technology Solutions Company: If you have someone who is pulling data, massaging data, presenting data, and giving it to a manager, their job sort of goes away. IT's going to deliver all that data, analyzed, and sliced and diced in a beautiful report.

So these report generators need to be trained on not only how to integrate the new technology, but also how to extend it throughout the enterprise and apply new methods and metrics to derive greater value from it.

John Van Decker, Vice President, Technology Research Services, META Group Inc.: How has Sarbanes-Oxley affected your performance management processes?

James McCallum, President, Sum2 LLC: External events have really driven us to take a look at and implement BPM, even if we weren't realizing we were implementing BPM. The introduction of the euro, Y2K, Basel II, and now Sarbanes-Oxley are the external circumstances that are prompting more rapid, and widespread, growth in what has come to be known as the BPM market.

Nasser Hanif, Senior Manager, Deloitte Consulting: You find that many organizations have compliance management cultures within their organizations, so the need to seek radical change is less what you might find at most companies. Others see compliance management as a component of performance management, and can grasp the concept of integrating compliance management into their performance management framework. Others are seeking to comply -- period -- and are reconfiguring their current systems as best they can to meet the new requirements.

Chris Iervolino, Senior Managing Director, ITEC Consulting Inc.: We continue to see many companies using spreadsheets for aspects of compliance management, while also serving a critical function in both analysis and presentation. But when they're used for storage and process purposes, obviously, things start coming apart.

Spreadsheets are essentially an end-user development tool, in that they allow users to design and implement solutions to satisfy their own functional requirements. However, overly complicated spreadsheet solutions become unmanageable, and the valuable functional knowledge they contain needs to be captured within a more comprehensive, integrated solution.

Kathleen Gabor, President, KTG Consulting: But I also think that the ease of use of spreadsheets -- you just sit down and throw a couple of numbers together and you're able to see a trend, or you're able to see the analysis -- I think that's what's driving people to keep on using the spreadsheets. When you have a bigger tool that's a little bit more cumbersome to use, people tend to shy away from using those kinds of tools and they go to what they know, which is spreadsheets.

Carl Goossen, CFO, Spray Equipment: The beauty of Excel is that you can do the same thing 50 million different ways. But that's also the horror of Excel, especially when you try to pull that data together.

O'Rourke: Has anyone moved away from spreadsheets to another technology? If so, what was the process like?

Kaffenberger: I formerly worked at UPS, where they're very committed to improving their systems. From a technology standpoint, we went from being totally dependent on spreadsheets to being at a point where the system was a fully closed loop. We were collecting all kinds of operational information for the actuals, while also pumping the data into the planning process.

Kris Murphy, Director Process Performance, Ahold Financial Services: In our case, the transition from Excel to Essbase was painful because of the intricacies of the Excel spreadsheets that were being used. When we implemented our shared services, which was only about three years ago, we took systems that were "best of breed" throughout all of our operating companies. One we tried to integrate was an Excel-based reporting system. The spreadsheets were so complex that to replicate what they were doing into Essbase was extremely difficult. But we were ultimately able to emulate it, and now that it's in place, it's a huge benefit because it's just so much easier to get the data and analyze it a lot more thoroughly. We collect both financial and operational data in Essbase for analysis.

Mulhern: For our clients, a big problem is that data availability is not there yet. There are systems in place and sometimes there are projects in place, but nobody has all the data they need to do the analysis that they'd like to do.

Jane C. Linder, Ph.D., Executive Research Fellow, Director of Research, Accenture Institute for High Performance Business: Let's discuss BPM methodologies. Have any of us implemented a new performance management methodology? What was your experience?

Nystrom: At Best Buy we use EVA [Economic Value Added]. We've been doing it for a number of years. We're trying to get EVA by customer now -- that's the big-stretch goal. In terms of Six Sigma, I'm actually a green belt, so I've been trying to roll it out in my area. The retail world moves very quickly, so there's not a lot of patience for it. I'm trying to show the results by more of an "if we build it, they will come"-type model.

Edward L. Feinberg, Independent Consultant, ELFeinberg: When I was at Texaco we went through the process of trying to design a scorecard. It never took off. We couldn't get enough agreement between the divisions to implement any scorecard system. One of the difficulties in implementing a scorecard methodology is upper management on the quantitative side wanted one set of metrics which didn't match what the operating people wanted. Management was solely focused on the bottom-line impact, whereas the operating people said, "That's not how we work. We're trying to increase our revenues in this particular marketing area; we're trying to increase the efficiency of this and that process."

At Texaco we also tried to include soft information, such as initiatives for training staff, initiatives for diversity, initiatives for community relations, initiatives for public relations and industry activities. That was part of an overall Balanced Scorecard image, which included qualitative information, as opposed to anything that's numerical information -- nonoperational and nonfinancial.

Robert Kugel, Vice President and Research Director FPM, Ventana Research: Now with the different financial vs. nonfinancial data, who is looking at that data? Is it a different group looking at the operational data vs. the financial, or are the same people looking at both?

Brett Gladden, Senior Budget Analyst, Keystone Mercy Health Plan: We have a large operational structure. And because we've implemented our activity-based costing [ABC] model, we're using that to drive a lot of our BPM initiatives. And as we've been going through and mapping the processes, we in finance are also looking at financial and nonfinancial indicators. We're hoping that next year all the processes will be successfully mapped, and we'll build our budget based on nonfinancial measures, rather than in the past when we built it strictly on financial.

Haberer: How would you characterize your organization's use of leading vs. lagging indicators? How current is your data?

Michael Schwindle, Director of Financial Planning and Analysis, Galyan's Trading Company: As with most retailers of any significant size, we spend a great deal of time looking forward, especially when we start to talk about merchandise planning and sales planning. There's always room for improvement into forecasting processes. The key axiom is that one thing you know about forecasts is that it's wrong. I'd say we're looking to make some improvements.

Nystrom: With retail, you have to. But I think our company, Best Buy, can do an even better job of that. Our goal is to be "closest to the pin."

We have a lot of leading indicators -- such as macroeconomic factors and customer loyalty -- as well as many different operational leading indicators, but at the same time we recognize that it's probably not enough. And I don't know if there's an organization that ever has enough data. You've got to strive for more leading indicators to get better long-term visibility.

Haberer: How do you get that KPI [key performance indicator] information out to the organization in a timely and efficient manner?

Nystrom: It's reported very frequently throughout the entire organization. Once a month we summarize all information in the form of a six-page scorecard that goes to all officers, including our operating committee. And we're pushing it to our online reporting portal.

Gladden: We're actually in the process of designing those reports right now. One of the things we're looking at doing is, on the standard budget-vs.-actual variance report, including key metrics and tying them to a lot of the nonfinancial statistics. We need to understand why we're over- or under-budget through these data.

David Axson, Corporate Planning Executive, Bank of America: Is anybody monitoring how they're doing vs. competitors?

Nystrom: We look at competitor data very frequently -- daily, in many cases -- because we want to know if we are gaining market share.

Axson: Are you purchasing that data?

Nystrom: Some of it, yes, but some of it is included in their press releases when our competitors issue comparable store sales. Obviously, we want to know how our competitors are doing: Are we gaining market share? If so, how much? But we also look at shareholder performance, too; competition for shareholder return.

Gladden: With us, it's kind of difficult, especially whenever we're trying to do benchmarking. There are not very many companies exactly like us. Plus, a lot of our services are in regulated markets. So we're not able to market; the state basically divvies up the Medicaid population among the plans. But we do what we can; we get what data we can and try to extract the pieces of other businesses that are similar to ours.

Kugel: For those of you not using scorecards, what would you say if someone said they were going to implement scorecarding in your company? Do you think it would be useful?

Schwindle: What comes to mind is "the illusion of precision." You've got all these different indicators and there's no way you can focus on all of them, and frankly, even if you could focus on them, it's highly unlikely that all of them are material to the business, whatever business that may be.

When you put an indicator on a page, it takes on a life of its own, and it starts to breathe its own life, and it starts to get circulation and attention. And if you're not careful, you can get people focused on the minutiae, rather than on the big picture.

The Event

The Business Performance Management Summit brings together leading practitioners, academics, consultants, and vendors to discuss the most important issues and trends in evaluating, implementing, and extending BPM in organizations today. Convened annually, the BPM Summit plays a critical role in building the growing body of knowledge related to BPM. The 2004 BPM Summit will be held at the New York Marriott Financial Center October 19-20. For more information, please visit www.bpmmag.net.