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Strategic CPM software can fill gaps in process innovation

As strategic CPM becomes a key point of differentiation between vendors, you will need to understand how it differs from OFCPM.

The term strategic CPM is a recent addition to a long list of buzzwords that have made their way into business and technology vernacular. Strategic CPM is not to be confused with office of finance CPM (OFCPM). Industry analyst firm Gartner has made a distinction between the two types of corporate performance management (CPM) applications: OFCPM applications automate financial processes such as budgeting, forecasting, reporting, consolidation, activity-based costing and planning, balanced scorecard and measurement; strategic CPM applications support organization-wide transformation and growth.

OFCPM has been the primary focus of CPM vendors for many years. During this time, differences between basic functionality have narrowed to the point where most vendors provide similar capabilities for automating financial processes. However, missing are meaningful process innovations that drive value.

Strategic CPM addresses this innovation gap. Going forward, it will become a key point of differentiation between vendors, especially in the manufacturing sector. However, the term is not well defined. To make informed decisions about its relevance, organizations need to understand what it is and how it's different from OFCPM.

What is strategic CPM?

Strategic CPM software enables organizations to plan, manage and govern strategic, financial and operational outcomes. Strategic CPM differs from OFCPM in three ways: it expands the boundaries of CPM software by including related applications such as project and portfolio management, process and quality management and goals management; it supports industry-specific processes, such as sales and operations planning (S&OP), production costing and supply chain finance; and it integrates all processes by enabling them to share the same data, models and workflows.

What results are four features that comprise the key differences between the two CPM approaches.

Manufacturing-specific logic: Manufacturing planning model logic is shared by financial and operational processes and applications. The key distinction is that they can support operationally realistic simulations of inventory and resource requirements. Underlying these simulations are time- and version-sensitive models that enable mass changes to support decision making.

Cross-functional processes: Workflows can be executed horizontally across entities, rather than only following organization charts of account structures. For example, planning for an order-to-cash process could be executed across the functions and entities that support it. The result: a "matrixed planning process" that provides an ability to coordinate and optimize target setting and resource allocation for the entity as a whole -- not just individual entities.

Synchronized processes: Integration provides the means to connect objectives to resource requirements. A single planning model (that supports driver-based planning, activity-based planning and S&OP) provides the means to maintain these connections. Moreover, in the order-to-cash example above, a single workflow can capture activity volumes, performance feedback, planning model updates, as well as updates to project forecasts. This enables processes that can quickly and explicitly connect business objectives to resource requirements across multiple scenarios.

Knowledge repository: Knowledge can be captured and shared for any combination or group of data. Following from the order-to-cash process example, explanations for performance variances can be captured for all metrics used to manage the process, such as cost per order, perfect order fulfillment and days in receivables. At the same time, rationale for planning model updates can also be captured. What results is a process that becomes one of learning that enables a shared understanding of a business' economics.

Strategic CPM enables key process improvements

Collectively, these features enable four key improvements to the processes that manufacturers use to plan and manage their business:

  • Strategy integration: Budgets are always explicitly connected to strategy because targets (e.g., demand, quality and service levels) can be translated directly into resource (e.g., head count and cash) requirements.
  • Value alignment: Cross-functional productivity (e.g., cost per outcome) targets can be used as the basis for rewards, rather than fixed, functional budgets. This is because productivity data is always reconciled to budgets, forecasts and actuals.
  • Risk visibility: Risks are more visible because operationally realistic planning models expose unrealistic assumptions that connect strategic, financial and operational plans.
  • Fast processes: Processes are faster because integrated models enable concurrent processes that eliminate redundant activities, thereby collapsing planning, budgeting and forecasting cycle time.

In smaller manufacturers, these capabilities aren't always needed. Manual workarounds often can compensate for capability gaps. But in larger manufacturers, their absence can be very noticeable. Without them, it becomes increasingly difficult to establish targets and allocate resources while balancing conflicting objectives and competing priorities across multiple functions, business units and legal entities. Many moving and interconnected parts within the supply chain complicate the process of connecting business outcomes with resources required to achieve them -- and to maintain linkages as conditions change.

These gaps are one of the primary reasons organizations have difficulty executing strategy and creating sustainable value from operational excellence and cost reduction programs. They simply lack the ability to manage complexity effectively. In this context, the central value proposition of strategic CPM lies in the ability to do so.

When CPM is not strategic

Strategic, financial and operational integration is a key feature of strategic CPM. What's confusing is that "integrated" is a term often used to describe CPM software. Some use the term "integrated financial planning." But in most cases, these terms are not describing the same business capabilities noted above.

To complicate the matter further, supply chain software vendors are using the term "integrated business planning" to describe S&OP processes that incorporate financial elements. But in most cases, they fall short of the type of enterprise planning that name implies.

In light of the above, it's just as important to recognize warning signs of applications that may not support strategic CPM. These include the following:

  • OLAP planning: OLAP or "cube-based" planning tools can have challenges supporting combinations of complex models and large data volumes. Moreover, there can be limits to the number of dimensions supported within applications, thereby undermining the ability to deliver the synchronized and cross-functional processes described above.
  • Standalone applications: Individual applications (e.g., budgeting, activity-based costing and balanced scorecard) rather than one application that supports all processes. This is often the case when these applications have been purchased by vendors, rather than developed from the ground up.
  • Separate CPM and S&OP applications: Gaps often remain when CPM and S&OP applications don't share the same models and workflows. These gaps undermine the ability to achieve operationally realistic rolling forecast, scenario planning and profit-based S&OP processes.

The presence of these characteristics doesn't mean an application isn't viable. What it does mean is that extra care should be taken in validating its capabilities and total cost of ownership.

Strategic CPM enables significant improvements in processes for planning, managing and governing enterprise performance. It addresses capability gaps in OFCPM systems that are exposed in larger and more complex manufacturers. Leveraging strategic CPM fully starts with a deeper understanding of the incremental capabilities it provides and the benefits derived from its use. 

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