Is Driver Based Budgeting Picking Up Speed?

In a recent survey of planning and budgeting practices, analysts Aberdeen Group, found that the ‘Best in Class’ - the 20% of respondents who had shorter budget cycles, more accurate budgets and who had actually improved their year-on-year profitability by 20% or more, were roughly twice as likely to use methodologies such as zero-based budgeting and driver-based budgeting – the majority sticking to tweaking the previous year’s actuals.

Driver-based budgeting is something close to my heart in that I wrote a book on it back in 2007 – Planning and Budgeting for the Agile Enterprise. Other than receiving a few metaphorical pats on the back from the folk who make their living by writing or lecturing about performance management, the book languished on the Amazon listings where it has stubbornly remained for the last few years, while I moved on to travel writing which is both more enjoyable and more lucrative. But clearly driver-based budgeting hasn’t gone away. In fact, Aberdeen found that the ‘Best in Class’ enjoyed some considerable benefits in that they were more able to perform ‘what-if?’ analysis and re-forecast as market conditions change. Given that many people talk about rolling re-forecasts, but few can actually achieve the frequency they desire it looks as though driver-based budgeting is on the ascendant; an idea whose time has finally come.

Now the interesting thing is that the Aberdeen research didn’t find much difference in the type of software used for budgeting between the ‘Best in Class’ companies and the industry average. So although enterprise applications may help improve productivity in finance and make the data easier to manage, it’s not the technology that is making the difference here. It’s the simple step of moving away from traditional budgeting, (little more than the collection and collation of line item expenses to my mind), and adopting a driver-based methodology that makes the difference.

Being a numbers business, telecoms is an ideal industry in which to implement a driver-based approach to planning and budgeting and I’ve written before about how I sat through a breakfast meeting at SAP Sapphire in Orlando earlier this year and was gladdened to hear to Sandy Rogers, Director of Financial Systems at Qwest Communications talk on their adoption of driver-based planning and budgeting that consulting organization Column 5 Consulting helped them implement in SAP BusinessObjects Planning and Consolidation. Sandy shared some of the benefits of the approach as well of some of the change management issues in helping financial analysts and business folk move away from the ultimately false security that comes from a traditional approach to budgeting with its endless line item detail. It was compelling stuff. Who knows; if this momentum continues then that book might just begin to pay back on the time and effort invested in writing it!

Prioritizing and Investing in Performance Management

At SAPPHIRENOW today SAP customers including Steelcase, Forest City Enterprises, Dow Corning, Under Armour and USDA came together with leading industry analysts from IDC and Aberdeen for a lively and interactive debate about the performance management market looking at why EPM is important to them, how it helps drive value and what the future holds for this exciting growth market.

One element of the debate focused on the economic climate with customers focusing on why they invested in EPM during a period of economic uncertainty. Steelcase, a manufacturer of office products open the debate explaining how their business is one of the first to be impacted and last to recover from an economic downturn. They explained how their investment in SAP BusinessObjects Spend Performance Management was the only software investment allowed during the recession as part of a wider project to increase visibility and lower costs. Dow Corning, a joint venture between Dow Chemical and Corning, implemented SAP BusinessObjects Planning and Consolidation to insure greater visibility which was critical for them during this period. Under Armor who was seeing huge growth chose to implement SAP BusinessObjects Planning and Consolidation version for SAP NetWeaver to drive greater visibility and model new business opportunities. The US Department of Agriculture (USDA) added that for all federal government organizations the key words are “accountability” and “transparency”. This has become even more important where funding is at a premium in a tight economy but also where government mandates increase the focus on these areas. They explained how SAP BusinessObjects Profitability and Cost Management is used to help them comply with the mandates and demonstrate value to key stakeholders.

Aberdeen’s Cindy Jutras commented on the importance of investments suggesting that organizations are showing greater optimism and that is now feeding back into their planning processes. She cautioned that the recovery may take longer than people think which may require them to be ready adjust plans and have the mechanisms to cope with this if and when required.

IDC’s Brian McDonough took the debate one step further to look at how companies are looking to expand beyond a point EPM investment into a broader portfolio of solutions. Forest City Enterprises suggested that this is about doing things in the right way for the business. Moving beyond SAP BusinessObjects Planning and Consolidation they see their EPM expansion moving toward SAP BusinessObjects Spend Performance Management and SAP BusinessObjects Strategy Management. Dow Corning added that today it’s even more important to bring together investments as part of a broad EPM and BI strategy and see how these assets can be leveraged together. This prompted a quick survey of where investment priorities lie and the results speak for themselves – expanding beyond planning to support Strategy Management and Profitability and Cost Management, the continued inclusion of BI and a new focus on sustainability. All good news for SAP then.

Driving Value Through Industry and Line of Business Solutions

When SAP’s acquisition of BusinessObjects was first announced in October 2007, one of the things that I heard people saying most often was that SAP was going to spend the next 5 years integrating a bunch of acquired technologies and would do so at the expense of innovation. Having been party to at least 5 previous acquisitions in the preceding 8 years it won’t be a surprise to many that it was not exactly the first time I’d heard that. It’s fair comment after all…when you acquire a technology you need to integrate it in order to extract value but when SAP designed its current enterprise performance management (EPM) roadmap innovation was at the heart of it.

By designing a roadmap which delivered integration it also factored in a healthy dose of innovation not least of which is the ability to enable a complete closed-loop performance management process which it announced in January of this year and which attracted significant attention with a subsequent certification by Kaplan and Norton. This built upon its visionary and unique integration between its EPM and governance, risk and compliance solutions which it has continued to progress still further with exciting announcements expected later in the year. However one area of innovation which is often over-looked is the value that it’s creating through new line of business and industry solutions. BusinessObjects had a long history of delivering such solutions on its core EPM applications. Solutions to support planning processes in healthcare, banking and retail proved extremely popular with customers, as did its IFRS and US-GAAP starter kits designed to speed time to value for consolidation implementations.

Since the acquisition this has not gone away and SAP has been heavily investing to deliver additional solutions in this area including new solutions for planning in the public sector and Consumer Products built on SAP BusinessObjects Planning and Consolidation, Retail Store Profitability based on SAP BusinessObjects Profitability and Cost Management and new solutions for Banking and Retail based on SAP BusinessObjects Strategy Management.

Its latest showpiece was unveiled this week at the SAP Insider Financials event in Orlando and in an effort to further help organizations streamline the entire capital-expenditure planning process SAP announced a starter kit for capital planning also built on the planning and consolidation application. The new starter kit provides an automated way to request, plan, model and evaluate large, complex projects as well as smaller, simpler ones. Developed in collaboration with SAP partner Aster Group, the starter kit is especially helpful for organizations in capital-intensive industries like automotive, chemicals and oil and gas. Pre-built templates and content Its also features embedded analyses of investment returns using industry-standard methodologies such as internal rate of return and payback period.

By all accounts this is not the last we will hear from SAP in this domain and the latest version of its EPM roadmap highlights this as an area of continued focus. In the keynote at SAP Insider Financials this week it gave us a glimpse of this as it demoed a forthcoming solution for Customer Value Analysis built on its Profitability and Cost Management solution. This focus is it seems at the heart of its EPM vision and rightly so. By taking its core applications and delivering these solutions it’s leveraging its assets in the form of the technology but also the domain expertise it has acquired. Good for SAP but also good for the customer who is able to take this content, speed time to value and ultimately deliver a higher return on investment than it would have done if it had started with a blank canvass. ROI being a topic to which I intent to return to in this blog very shortly.

SAP and Microsoft Join Forces in Enterprise Performance Management

You may recall that in January 2009, Microsoft announced it would be discontinuing PerformancePoint Server, its standalone BI/EPM offering. Many of the elements of PerformancePoint will be bundled with Microsoft SharePoint Server; however, the planning module/capabilities within PerformancePoint will no longer be developed. This announcement surprised many, and industry analysts like Forrester’s Paul Hamerman, who wrote about the news, suggested that companies evaluating Microsoft’s planning, budgeting and forecasting capabilities should now look elsewhere. But where exactly should they look? While there are a number of vendors that provide planning capabilities based on Microsoft technology, they are smaller, niche vendors. What’s been missing is a Microsoft strategic partner with global reach, delivering a suitable offering to support many of Microsoft’s enterprise customers.

Until now that is, as SAP today announced that is has joined forces with Microsoft on the EPM front; more specifically, Microsoft supports SAP BusinessObjects Planning and Consolidation, version for the Microsoft platform (formerly known as OutlookSoft and Business Planning and Consolidation, and often referred to as simply, “BPC”) as a preferred planning, budgeting, and forecasting application for its customers. As part of a strategic partnership the two organizations plan to engage in joint go to market initiatives and collaboration on the product front – in fact some of the collaboration has already begun . This is a very exciting announcement at a time when according to research recently conducted by AMR Research and SAP, many organizations see investments in planning, budgeting, and forecasting solutions as their most strategic priorities in 2010. You can read the announcement here: http://www.sap.com/solutions/sapbusinessobjects/large/enterprise-performance-management/newsevents/index.epx

So what was the genesis of this partnership? This announcement is the culmination of discussions that began soon after Microsoft ‘s announcement. As already mentioned the move surprised many and left Microsoft customers wondering what they should do when it came to selecting a planning application or in the case of services partners/value added resellers, an application to align (re-align) their practice around. The only leading (as recognized by industry analysts such as Gartner and Forrester) unified planning and consolidation application built on a Microsoft platform is SAP’s BusinessObjects Planning and Consolidation, version for the Microsoft platform (built on Microsoft Office i.e. Excel, .Net and Sql Server). Over 1400 customers are already using the application (the installed base has more than doubled since SAP acquired OutlookSoft in 2007) or the recently launched SAP BusinessObjects Edge Planning and Consolidation, designed for small to midsized enterprises and also built on the Microsoft platform.

This announcement should also help answer a question that has been lingering in many people’s minds ever since OutlookSoft was acquired by SAP, and the application was ported to the SAP NetWeaver platform (in case you weren’t aware, there are now two versions of the product – the successor to the OutlookSoft product built on the Microsoft platform and a new version built on SAP’s NetWeaver technology platform): Is the Microsoft version of SAP BusinessObjects Planning and Consolidation going away and/or not being invested in? The answer is no. SAP’s roadmaps have clearly stated this - much of the confusion surrounding this has been fueled by competitors trying to spread fear, uncertainty and doubt in the minds of existing customers and prospects. So let’s set the record straight - the reality is that SAP is continuing to optimize its EPM solutions for SAP and non-SAP environments and SAP BusinessObjects Planning and Consolidation, version for the Microsoft platform is a key part of the roadmap moving forward. The SAP and Microsoft partnership around SAP BusinessObjects Planning and Consolidation is testament to this.

Industry analyst and media comments on the announcement have been positive (http://blogs.wsj.com/digits/2009/11/17/microsoft-and-sap-again-team-up-against-oracle/ , http://seekingalpha.com/article/173987-microsoft-and-sap-vs-oracle-a-very-big-deal, http://www.amrresearch.com/content/view.aspx?compURI=tcm:7-49246&title=SAP+Partners+With+Microsoft+for+Planning+and+Consolidations) but what does this partnership mean to you if you are an organization looking to invest in a planning solution? To begin with you can rest assured that your investment is safe – as mentioned above, SAP is continuing to invest in the SAP BusinessObjects Planning and Consolidation, version for the Microsoft platform. Secondly, SAP and Microsoft product teams plan to collaborate focusing on continuing to optimize the application for the Microsoft platform and leverage key Microsoft technology components. Thirdly, you have an option to consider that is backed by two of the leading global software organizations.