At the end of October, Gartner released a report that essentially walked back from corporate performance management or CPM, a concept the research group coined back in 2001. The reason? Business conditions have shifted; specifically “digital business has sidelined corporate performance management methodologies and processes, leading to a renewed focus on financial performance and processes.”
I’m heartened to see this report, though my concerns differ from Gartner’s. For midsized businesses, CPM solutions pose unnecessary risks for a variety of reasons worth detailing.
There is a growing consensus within the business community that budgeting software is essential for companies with ambitious growth plans. No longer just a once-a-year checklist item, the budgeting software is now the foundation that enables better financial planning, analysis and reporting. It provides a direct line of sight into an organization, allowing its managers to monitor performance, test various what-if scenarios, and make smart business decisions before it’s too late.
CPM systems were widely hailed as the best approach, but I always begged to differ. CPM solutions are custom built from the ground up, requiring massive implementation efforts. Should a company with revenues between $10 million and $1 billion be expected to lay out hundreds of thousands of dollars—and wait many months—to implement a budget model? And is it fair to require those companies to re-engage a team of software implementers each time they want to change their budget models to test a what-if scenario? All of those expenses require companies to divert precious resources away from other strategic initiatives directly tied to growing their businesses.
All companies need to purchase and implement a wide array of business systems, with budgeting and planning software being just one of them. But all too often, the software companies that develop such products design them to meet the needs of enterprise clients, and then simply subtract a handful of features or modules in order to offer a solution for midsized businesses.
The cost of developing and maintaining those enterprise-level features is inevitably baked into the vendor’s product line, and passed along to the end customer. As a result, midsized organizations often subsidize features they’ll never use or need. I’ve always seen this as a key issue with CPM.
Creating solutions that address the needs of midsized companies requires a completely different approach, based on the constraints these businesses face. Total cost of ownership and ROI must guide the very design of software. Midsized companies live and die by cash flow, and they need the ability to predict what their overall costs will be, and realize a return on investment sooner than enterprise companies. After all, if the payoff is too long in coming, the company may not be around.
To effectively serve the midsized market, software developers need to offer an efficient implementation, meaning a cost that is both low and predictable, as well as a budget model that is available in a matter of weeks or even days. Moreover, the growth strategies of midsized companies require a certain amount of risk taking—such as borrowing money to expand a product line, or service a large client. But taking a risk doesn’t mean acting blindly. To properly assess the business risks of their strategies, midsized businesses need a budget model that lets them easily assess the impact of many different scenarios and iterations in order to identify the best strategy for their businesses—without breaking the bank. Put another way, they need the ability to change their budget models as often as they wish, by themselves, and without incurring any additional development expenses.
Providing the right combination of lower total cost of ownership with maximum flexibility is possible with the right approach to software design. It requires a fair degree of automation so the onus of creating complex formulas required to process data inputs doesn’t fall to end users. And it requires a logic that automatically processes inputs and financial data according to individual business structure and accounting rules so any tested what-if scenarios will deliver accurate results and instill confidence. Most importantly, it requires a fundamental respect for the midsized company, acknowledging the challenges they face and the opportunities they provide for all of us.