A number of factors are leading to continued interest in methodologies and associated software that facilitate financial and performance management. These factors include:
The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities.
The corporate governance function should protect and facilitate the exercise of shareholders' rights.
The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights.
The corporate governance framework should recognise the rights of stakeholders established by law or through mutual agreements and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.
The corporate governance framework should ensure that timely and accurate disclosure is made in all material matters regarding the corporation, including the financial situation, performance, ownership and governance of the company.
The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board's accountability to the company and the shareholders.
Performance measurement experts, and more lately, software suppliers have for some time been attempting to link a variety of financial and other operational measures to offer a more balanced measurement of performance than financial measures alone can provide. Understanding the financial position without paying any attention to other performance areas results in a 'blinkered' view. The more modern approaches, as well as aiming for a set of 'balanced' measures, may also try to offer a measure of potential, of future as well as current performance. Probably the best known methodology is that of the balanced scorecard, devised by Robert Kaplan of the Harvard Business School and David Norton of the Balanced Scorecard Collaborative in the early 1990s. It retains traditional financial measures but also includes measures and assessments in other areas relating to internal business processes and their external outcomes. Though it has been very successful and hugely influential, it does have a 'blind spot' at the operational level. However, the success of the balanced scorecard has resulted in the pursuit of healthy revenues by the creation of systems to deliver similar 'balanced measurement regimes'. This has given rise to a new category of application - business performance management (BPM) or corporate performance management (CPM) - which promises to combine traditional business intelligence technologies with packaged analytic applications to deliver a balanced, cross-functional, strategic view of the enterprise.
True BPM or CPM requires underlying data systems which can share consistent and reliable data in flexible ways. This enables managers to compare data for different activities or parts of the organisation knowing that they are comparing like for like. This gets difficult for multi-nationals where accounting conventions might be different in different parts of the business; the BPM/CPM system must recognise and deal with such difficulties. It is this creation of common, consistent data (probably in the form of a data warehouse) which underpins the need to include 'business intelligence' within the remit of BPM/CPM.
Most BPM/CPM systems incorporate a range of financial activities/measures (such as budgeting, forecasting, management (statutory and external) reporting, activity-based management and cost management) together with a performance measurement or 'scorecard-like' application based on metrics and key performance indicators (KPIs). The software then adds a 'front end' web portal or similar interface to display the results to users. Often, this is the most important part since it is the ease and effectiveness of interaction with the data that renders the package both attractive and useful.
BPM/CPM is still an emerging market that has yet to be fully defined both in terms of its technical boundaries and process. Giga Group estimates that the BPM/CPM applications market is currently worth $400 million in software licence revenues, and is poised for a healthy compound annual growth rate (CAGR) of 16% over the next three years at least. This points to a $650 million market in 2006. However, at the same time, Gartner estimates that by 2005 only 40% of companies will have implemented BPM/CPM - there is plenty of room left for growth.
For any organisation, BPM/CPM offers the opportunity to examine the links between strategy and operation in a way that is supported by hard data to inform judgement and decision-making, improve collaborative working and enhance performance. In creating the resulting system, they will need to address technical, process and cultural issues. Not easy - but essential for real, sustainable, improved business performance - Corporate Governance should be seen as a facilitator for such aims, and, ideally, should feature as a 'corporate health check' in any subsequent scorecard applications.