You can never have a revolution in order to establish a democracy. You must have a democracy in order to have a revolution." So said G.K. Chesterton, a man who, although he lived long before the Digital Age, surely understood the kinds of forces that now stand ready to reshape the business performance management (BPM) software market.
The flattening of the modern corporate management structure has democratized companies' decision-making, placing it in the hands of more people, at deeper levels and in more places, than at any time in modern history. Adding strength to these winds of democratic change has been the incredible pace at which corporate data is now created and used by everyone in an organization.
For many companies, however, the ability for large numbers of managers to easily and accurately assimilate, analyze, and share information -- to use it to make informed decisions -- simply hasn't matched the need. One reason is the slow maturation of powerful, yet easy-to-use and rapidly deployable BPM applications. Another is the antiquated model for enterprise software. Performance management systems' high license fees, ongoing maintenance, and lengthy and expensive implementation cycles have limited this software's reach, particularly among midsize companies.
But a revolution is brewing in the BPM field. Software vendors are rethinking their offerings with several key goals: access to powerful, easy-to-use analytical tools for everyone in a company; centralized and consistent information that presents a single version of the truth; and an affordability that allows state-of-the-art business intelligence to spread far beyond the realm of blue chip companies. These are the aims of the midmarket BPM revolution, a movement that is on our doorstep today.
To understand the potential of this sea change, let's take a look at the situation in which most companies find themselves. The average business, while certainly not the size of a Fortune 500 multinational, nonetheless has many of the same strategic information challenges. It needs to track profitability. It must understand its customers. It has to manage costs, respond to challenges from its competition, and much more.
Sadly, the information needed to address these challenges is often unavailable -- or too slow in arriving. Conventional reports are routinely generated, to be sure, but ad hoc analysis is problematic, especially for last-minute or urgent needs. What's more, much of the data that is compiled for analysis is incomplete, error-prone, or inconsistent.
It's easy to forget the high degree of difficulty involved with turning data into information. To generate truly usable and accurate information that can be broadly applied for decision-making, a number of things must happen. First, data must be captured from multiple sources. In most companies, managers are unable to pull all the information they need out of a single financial report or accounting system. Usually data must be aggregated from ERP, CRM, or supply-chain management (SCM) applications; departmental databases; and other data stores located throughout the enterprise. Next, the aggregated data must be processed and analyzed to incorporate the company's assumptions, add intelligence through calculations, update or change inaccurate data, enable the creation of meaningful metrics, and so forth. Lastly, the information is served to workers via dashboards, reports, and e-mail.
Midmarket Oppression -- Limited Choices
To create this information -- to achieve their BPM objectives -- enterprises have historically had two options: personal spreadsheets and centralized business intelligence (BI) systems. Neither of these alternatives has proved ideal for the typical midsize company.
Personal spreadsheets may appear to be an attractive option for midsize companies, since they are easy to use, seemingly low-cost, and provide flexible yet powerful modeling and analytics capabilities. They are indispensable for one-off, ad hoc analyses, and their very ubiquity means that little training is necessary for their use. However, their limitations and downsides are extremely familiar.
Spreadsheets are notoriously error-prone. People can enter data and formulas incorrectly and can change them inadvertently, and these errors are often difficult to identify. They are poor at tracking changes and so provide no clear audit trail. In addition, their lack of sophisticated usage controls -- that they allow sensitive company information to be e-mailed broadly both within and beyond a company's walls -- presents clear governance challenges. Of course, the pervasive problem of multiple versions of the truth is a nightmare for auditors and corporate decision-makers alike. The number of ways that data inconsistencies can creep into spreadsheet-based processes is almost limitless. In many companies, it becomes impossible to determine why two sets of numbers purporting to show the same thing do not agree.
In addition to these well-known problems is the fact that spreadsheets can be big time-wasters. Doing quick-and-dirty analyses or one-off reports with spreadsheets can be fast. But when these documents become a routine part of the information flow within a company, they become maddeningly time-consuming. Because of possible errors and concerns about data consistency, people have to check and double-check their numbers to ensure that they are using correct, up-to-date data. In addition, it is often impossible or infeasible to automate the process of pulling information out of enterprise software systems into spreadsheets, so whoever is responsible for creating spreadsheet-based models and reports must do so manually.
As a result of these problems, many companies have explored the second option -- traditional enterprise BI or BPM applications. BI software has come a long way from its mainframe origins in terms of adaptability and ease of use, but it is still not simple enough for a broad array of knowledge workers to navigate. An InformationWeek survey of 230 business technology professionals conducted in March reveals that ease-of-use issues with less technically savvy employees significantly hinder BI usage. Unfortunately, many revert to using spreadsheets.
In addition to user challenges, implementations are also problematic. Creating the centralized datamarts and cubes for BI applications can be a huge undertaking for many companies, given the infrastructure, time, and human resources required. And the software is not only time-consuming to deploy, it's also expensive. Software licenses, hardware, and consulting fees can quickly consume a midsize company's IT budget. Finally, in order to support ongoing changes to the system and data, companies often require specialized IT skills -- a luxury that many midsize companies simply cannot afford.
So, what do most firms do, faced with a choice between problem-ridden spreadsheets and costly, complex, difficult-to-use enterprise software? Many midsize firms, in particular, simply do not have the resources -- either dollars or time -- to embrace enterprise applications, and therefore settle for continuing to run their businesses using decades-old personal productivity tools. In fact, surveys consistently show that over half of all companies -- and well over half of midsize companies -- still use spreadsheets for variance reporting, budgeting, and forecasting.
The Hosted Alternative
Into this complex and challenging environment has come a transformational alternative: software as a service (SaaS). SaaS providers typically develop software that they then host in a central data center and make available to users over the Web. They provide access to the software, ongoing upgrades, and support on a subscription basis. And the software is usually designed to provide a set of core functionality that is particularly attractive to midsize companies.
Recently, the concept of software as a service has broadened to include additional dimensions. Many SaaS companies have now begun to offer on-premises versions of their applications, in conjunction with remote management and support, in order to serve customers who prefer to keep their data behind a firewall. And now, leading SaaS companies are incorporating the concept of open-source development and distribution, in which end users can access the source code underlying the software product to create their own tailored solutions and share customizations with other users around the world.
The SaaS model has proven to be revolutionary for midsize businesses. It enables companies that were never able to access powerful enterprise applications to do so quickly and easily. In a relatively short period of time, SaaS providers such as Salesforce.com, RightNow, SugarCRM, and NetSuite have made high-quality CRM and ERP solutions available to tens of thousands of small and medium-size businesses.
This powerful trend is moving quickly into the realm of BI and BPM, providing an alternative for midsize companies that previously did not have the money or the time to invest in enterprise software implementations. SaaS applications for BPM and BI can provide a number of key benefits for midsize companies, including:
Low cost. The subscription-based approach lowers the up-front expense, matching payments with the value that customers receive from the solution. In addition, customers that adopt the on-demand deployment approach do not have to acquire new hardware or supporting software, which reduces costs. And because implementation times are shorter, the costs associated with professional services are lower. In addition, SaaS providers' use of open-source applications within their solutions lowers their development costs, allowing them to pass along savings to their customers. And SaaS companies that leverage open-source distribution often provide free versions of the software application -- a complete paradigm shift from the old enterprise software model.
All told, the cost savings associated with SaaS BPM and BI solutions can be significant. While the up-front cost of licensing and deploying enterprise BPM and BI often exceeds $250,000, the first year of subscription and services for an SaaS solution is often an order of magnitude less expensive. $25,000 is a common level of spending.
Focused features and better quality. SaaS solutions are typically focused on providing the key functionality required for midmarket customers, avoiding the extraneous bells and whistles that are endemic in enterprise software. SaaS providers also release frequent product upgrades, often on a quarterly basis, ensuring continuous innovation. And customers can actually take advantage of the new releases since they receive automatic upgrades.
The open-source dimension also improves solution quality. Open-source communities can contribute thousands of new "eyes" to the quality-assurance process and can play a key role in defining a product road map that will meet the community's requirements. The availability of source code allows companies to more easily customize solutions to their specific needs and also enables partners and other community members to extend the solution by developing new templates, adapters, and other modules.
Improved support. The entire nature of the support process also undergoes dramatic changes when software is offered as a service. Because customers do not need to make large up-front investments in SaaS solutions but instead pay ongoing subscription fees, SaaS providers have a tremendous incentive to provide exceptional customer service; if they don't, customers will not renew their contracts, which jeopardizes the provider's core business. In this model, control finally shifts back to the customer.
Open-source systems add a new type of support to the mix. The user community can deliver support beyond that offered by the SaaS provider, via forums that allow users and partners to share recommendations and how-to information. Plus, the open access to source code ensures that companies are not locked in to a vendor over the long term. If the vendor doesn't provide excellent support, someone else can step in and do so.
Rapid deployments. Because no new hardware or software is required for on-demand solutions, and because they are "packaged" applications with predefined functionality, they can be deployed extremely quickly. The difference between this and the traditional BPM implementation is striking. Whereas the average deployment time for traditional BPM and BI software is five months, deployment of SaaS solutions typically lasts only two to six weeks. While the on-premises versions do require the installation of software, there is still a focus on easy, efficient delivery. In fact, the benchmark is one-click download and installation, with no IT skills required.
Enhanced collaboration. Because the foundation of SaaS solutions is Web-based access, they are ideally suited for the collaborative nature of corporate budgeting, forecasting, reporting, and analysis. The centralized database means the end of "multiple versions of the truth" -- everyone is literally on the same page and working from the same set of numbers. It also eliminates time-consuming, error-prone consolidations. The Web-based delivery of SaaS applications means that managers anywhere in the world can immediately access their dashboards, reports, budgets, or forecasts.
Open-source communities introduce a completely different type of collaboration. Users can tap into a broader community outside the company, obtaining third-party information and assumptions, discussing financial modeling and budgeting best practices, and gaining insights into how their company's KPIs and metrics compare with industry averages.
Transparency. SaaS providers also strive to operate with newfound openness, putting all of their cards on the table. On-demand providers often enter into service-level agreements and publish availability (uptime and downtime) statistics. Vendors that offer open-source software not only provide access to the source code, but also make public bug lists and sponsor forums in which users -- and prospective users -- are encouraged to openly share their experiences. This new mode of operations is yet another example of control shifting from software vendors back to customers and users.
Through the advent of SaaS solutions, midsize companies and divisions of larger corporations finally have an option that provides the simplicity and flexibility of spreadsheets, combined with the power and unified database control of BPM and BI applications, at a fraction of the cost of current enterprise-caliber alternatives.
Viva la Revolución!
By taking advantage of SaaS BPM and BI products, midsize companies in particular will see a remarkable transformation in their ability to quickly and easily access, create, and share the key information required to make decisions and run a business.
The corporate world moves too fast today, and the bar is set too high, for midmarket businesses to do without the BI and BPM tools used by their larger and more affluent competitors. Now that data and decision-making are becoming democratized, it's time for midsize companies to arm their knowledge workers -- the white-collar proletariat -- with the BPM and BI tools they need to compete successfully. The time is now. Viva la SaaS revolución!
William A. Soward is the president and CEO of BPM software-as-a-service vendor Adaptive Planning.