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June 17, 2003

Lest History Repeat Itself ...

To achieve the promise of business performance management and other new solutions, we need to be mindful of past hopes dashed

by Cynthia Holladay

"Those who do not remember the past are condemned to repeat it." — George Santayana

The growing resurgence of financial analytic applications — and the key drivers forcing companies to take action and acquire these solutions — gives me pause. What makes this software market trend different from previous ones?

Motivated by challenges of the economic environment, today's drivers are costs, profits, corporate governance, and compliance with regulations like the Sarbanes-Oxley Act of 2002. What better breeding ground is there for establishing fear, uncertainty, and doubt (FUD) in the hearts and minds of chief executives?

Let's consider the enterprise IT trends over the past 20 years: the move from centralized to distributed computing; business process reengineering; data warehousing; adoption of enterprise systems for ERP and CRM; the rise of the Internet and the associated dot-com frenzy; and Y2K. Through the successes and failures of these technology investments and implementations, certain patterns have emerged. Unless we stop to think about what history teaches us, past failures will repeat.

Did we fulfill our promises and business goals? Which technology implementations succeeded or failed, and why? And finally — did we, as technology vendors and buyers, collaborate effectively to grow our businesses? Keep these questions in mind as we look at financial analytics in the intelligent enterprise today.

Goals and Solutions

After spending millions on ERP systems and data warehousing projects, companies now want to realize return on investment (ROI) by taking advantage of their resulting data-rich environments. Business objectives include:

Tighter cash-flow and profitability control
Visibility into current results and future performance trends
Regulatory compliance for the Securities and Exchange Commission, board of directors, and stakeholders
Predicting industry changes and opportunities.

It's not surprising that analytics and business intelligence technologies — which claim to analyze the past, manage the present, and predict the future — are now at the top of many IT budgets. Software vendors are busy repackaging their offerings to fit this opportunity. We see extended data platforms and financial applications for budgeting and forecasting, virtual close, pricing optimization, Balanced Scorecard frameworks, and digital dashboards. Who would ever have imagined that the acronym BPM — reborn not as business process but business performance management — would be hot again?

Several vendors have impressive platforms and tools that provide the foundation for these applications. SAS, Hyperion Solutions Corp., and Business Objects SA are targeting CEOs and CFOs with a complete line of financial performance offerings. Informatica Corp. has a strong integrated data platform, and Brio Software Inc. includes specific performance metric capabilities for analyzing and quantifying business trends. Other niche providers, such as Metreo Inc. and Model N Inc., focus on pricing optimization applications, featuring remarkably well-designed interfaces. Thus far, no provider has emerged with an analogous platform that includes the depth required for industry-specific functions that help customers in a way that transcends technology to address higher-level requirements. Such a comprehensive approach usually requires strong partnerships with systems integrators and other technology providers.

Last year, IDC did a study on the ROI of business analytics, interviewing 43 companies to examine what they were actually doing to meet their objectives. Henry Morris, vice president of applications and information access at IDC, says, "Most of the financial applications were narrow and very specific: to save human labor and increase productivity, not to change or improve business processes with the information. In contrast, the CRM analytics applications did require organizational changes and so they took longer to get going. Even so, the successful [CRM analytics] applications were only addressing one function."

Business process management relies on both cross-functional metrics and processes, which add several layers of complexity. These major challenges require radical new business approaches and data analysis. History shows us that behavioral shifts generally take about 10 years to materialize. Technology typically becomes available years before most companies can fully utilize it.

Avoid The Trap

Many executives who are either mandated or inspired to address these business goals will research what early adopters in their industry have accomplished and how they did it. In parallel, they listen intently to the technology vendor experts, who dedicate themselves to figuring out not only how to solve world problems in data management but also how to grow a business by providing generic platforms and suites.

These are all noble endeavors in our free enterprise system; ultimately, we're all in business together to help each other. Vendors can't succeed unless their customers do, too. However, historical patterns show that this system is fraught with danger. In many cases, vendors and their respective IT customers fall victim to the same herd mentality of addressing the crisis du jour without considering what it truly takes to succeed and grow profitable businesses for the long term.