As organizations begin to shift their focus from surviving to thriving in an improving but still-uncertain global economy, corporate performance management (CPM) software may be poised to become more front and center in the minds of savvy chief financial officers and other business executives.
Despite all the economic challenges – or perhaps because of them – sales of financial performance management software and other CPM tools have been on a growth path. Gartner Inc. pegged the worldwide CPM software market in 2008 at $1.867 billion, up 28% from the year before. Forrester Research Inc. calculated that the CPM market was closer to $2 billion in 2008, and it predicts that total revenues will increase by a compound annual rate of 12.7% through 2012, reaching $3.2 billion.
There’s still a lot of room for growth, though. According to Neil Chandler, a CPM and business intelligence (BI) analyst at Gartner, only about 60% of large enterprises and less than 30% of midsized organizations have adopted CPM applications thus far. And Gartner has found that for the most part, even the users that have embraced CPM technology are installing finance-oriented point products instead of full-fledged enterprise CPM systems for use by multiple departments or business units.
"What we haven't seen is widespread adoption of the suites – all the functionality that CPM can really offer,” Chandler said. “What we've seen is the adoption of budgeting, planning and forecasting [tools] and financial consolidation and financial reporting [software]." Many organizations, he added, still use spreadsheets or legacy applications to support their core financial performance management processes. “So there's definitely a lot of upside [for CPM tools]," Chandler said.
Even with IT budgets remaining tight in many cases, the impact of the economic recession and the slow pace of the ongoing recovery may give companies good reasons to invest in a CPM system as part of an effort to develop more effective performance management capabilities.
"What the last couple of years have uncovered is that the demand signals from customers and markets are very volatile – more volatile than they used to be,” said Del Krause, manager of financial performance management product marketing at IBM. “Companies used to have pretty solid ideas as to the drivers and trends that would impact the demand signals on their business, [but] those old trends seem to have changed or disappeared."
Krause also noted that during economic downturns, the pace of corporate decision-making often accelerates. Senior management teams and boards of directors may meet more frequently than usual in an effort to get a handle on performance gaps and to adjust and realign resources as needed.
CPM tools may be lacking for effective performance management
But executives may not always have the tools that they need in order to manage corporate performance more effectively. For example, in a survey of CFOs that IBM released earlier this year, 44% of the 1,900-plus respondents said their companies were doing a poor job of anticipating external market forces, according to Krause. He added that 55% said they weren’t satisfied with their operational planning and forecasting analysis capabilities.
CPM tools could help change that, if implemented properly. Forrester analyst Paul Hamerman said the core promise of CPM systems is that "if you focus on the right measures, you can focus on better outcomes" when making decisions that might affect corporate performance.
Planning more intelligently is what companies need to do in this environment.
Robert Kugel, analyst, Ventana Research
Choosing from among the various CPM solutions offered by vendors can be complicated, though. Even before IT and business managers begin evaluating CPM products, they may find themselves trying to unravel a jumble of different terms that are used to describe various flavors of CPM. For example, there's financial performance management, business performance management and business performance solutions – the latter a category that Forrester coined to describe CPM tools without using terminology that some CPM vendors have built into their product names.
As it stands now, the CPM software market is dominated by three BI mega-vendors that have all acquired the core elements of their CPM suites: IBM via its acquisition of Cognos, Oracle by nabbing Hyperion, and SAP through its pickup of Business Objects. "The large vendors are increasingly aggregators or integrators over the smaller guys," said Chandler, who authored a Gartner Magic Quadrant report on CPM tools that was published earlier this year.
Even Microsoft found itself stuck between the big boulders: After briefly marketing its PerformancePoint Server software as a stand-alone CPM tool, the company abruptly scrapped PerformancePoint Server last year and merged some of the product’s functionality into SharePoint Server Enterprise. Microsoft currently is relying primarily on business partners to provide CPM capabilities to customers, Gartner analyst Rita Sallam said at the consulting firm’s recent Business Intelligence Summit in Las Vegas.
A full menu of CPM software choices
But there are plenty of potential vendor choices in addition to the three CPM market leaders. Ten other vendors got spots on Gartner’s latest CPM Magic Quadrant; between them, Gartner and Forrester track more than a dozen additional companies that sell CPM software. And, Chandler said, it’s the smaller vendors that tend to be the innovators in the market.
Robert Kugel, an analyst at Ventana Research, said that although the economic storm is easing, effective performance management capabilities are becoming even more important as executives focus less on cutting costs and more on trying to maximize revenue and profits at a time when business still hasn’t fully recovered. For example, Kugel noted that it's hard for manufacturers to raise product prices in the current environment, even though their raw-materials costs may be increasing.
"In this particular economy, the challenge is maintaining levels of profitability as you begin to add back people and manage business expansion," he said. "It's much more difficult to plan and execute, but planning more intelligently is what companies need to do in this environment.”
Chris Maxcer is a freelance writer.