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Linking Strategy to Execution with SAP Solutions for Enterprise Performance Management: Now You Can Run Your Business — and Manage It!

by Sanjay J. Poonen | SAPinsider

October 1, 2008

In this executive Q&A, Sanjay J. Poonen details SAP’s offerings in the EPM space and advises customers on what this evolution will mean for them.
 

Profitability, shareholder value, regulatory compliance: These are the dimensions of a business environment that executives must consider on a daily basis. And while every business is different, no matter the industry, each environment is fluid — comprised of a continual adjustment of plans and strategic priorities based on financial and operational changes. Managing this fluidity requires tools to monitor the business environment, analyze diverse data streams, and assess levels of risk. These tools must be linked to an ability to take action based on real-time information coming from every segment of the business — including external partners, vendors, and customers. This is the domain of enterprise performance management (EPM).

EPM is a set of business-user applications quite different from the structured, transactional ERP systems best known for helping employees boost efficiency. By comparison, EPM applications are less structured and more collaborative, and they place more emphasis on effectiveness.

In this executive interview, Sanjay Poonen describes how SAP has successfully combined its recent acquisitions of OutlookSoft, Pilot Software, Virsa, and Business Objects with its existing business intelligence (BI) and governance, risk, and compliance (GRC) offerings to form SAP solutions for EPM, a suite of tools including:

  • Strategy management
  • Business planning and consolidation
  • Financial consolidation
  • Intercompany reconciliation
  • Profitability and cost management
  • Spend analytics

It's a suite that is designed to close the gap between strategy and operational execution — a gap that SAP customers are now well armed to fill.

Q: SAP has put together a host of applications — SAP Strategy Management, SAP Business Planning and Consolidation, SAP solutions for governance, risk, and compliance (SAP solutions for GRC), and others — and bundled them under the category of enterprise performance management (EPM). What is the overarching strategy behind this approach?

A: Enterprise performance management is about converting strategy into action with tools that enable better decision making. One of the best commentaries that explains how to better manage system performance is a Harvard Business Review article called "Mastering the Management System" by Robert S. Kaplan and David P. Norton.1 According to Kaplan and Norton, an EPM initiative begins by examining your strategies and understanding how the accompanying goals and objectives are measured, usually in a matrix or scorecard. (At SAP, we offer SAP Strategy Management.) Then comes planning, and again there are software tools to help.

But equally important is the way you conduct the planning process so that you can adapt and modify it. Once the plan is built, you execute. And as you execute, you come to understand how your plan works, and from there you test, modify, monitor, and learn — all to improve profitability.

Although Kaplan and Norton aren't SAP employees, their view of enterprise performance management is completely congruous with how we at SAP view it. It's almost as if they had a window into our boardroom over the past three years.

Three years ago, SAP embarked on a deliberate path to build the best EPM offering on the market.

Q: What changed three years ago?

A: SAP embarked on a deliberate path to build the best EPM offering on the market. Two and a half years ago, we began with the acquisition of Virsa, then last year Pilot Software and OutlookSoft, and early this year, Business Objects. We assembled this new family of business-user applications that, when combined with our current SAP offerings, gave us the ability to offer business users — that is, those users whose jobs were less transactional and more collaborative and analytic — the tools to help them better manage their performance.

As an example, in the finance area, there's a set of performance management applications that help manage performance from articulation of strategy through planning, execution, and modeling, and then understanding the profitability of it all. That entire cycle is an example of performance management.

EPM applications are more ad hoc and unstructured, with a stronger emphasis on making people more effective rather than the traditional model of simply making them efficient. EPM applications are less focused on automation and more focused on usability and collaboration. Probably the closest analogy is Microsoft Office tools. Microsoft Word, Outlook, PowerPoint, and Excel are not structured like an order-entry screen constructed using Web Dynpro would be; these tools have and require a context around them.

Q: So if we view this from the perspective of enterprise software, ERP tools are what customers use to run their business. Aren't we talking about tools for managing one's business?

A: Not quite. Typically business users have employed a set of tools to run their business and then a separate set of tools to manage their business. EPM represents a convergence of the two.

Let's go back to the average finance user. There are three core software components that will enable that user to run the business better. One set of software contains the efficient processes — that's ERP. Another set of software helps them stay out of jail — that's GRC. And finally, a third set of software helps them understand where their business should be going, and that's EPM.

If we imagine these three software components as corners of a triangle (see Figure 1), at the center is a business intelligence system that collects the data and distributes it. Our mission is to be the first vendor that can bring this complete triangle together with leading products in each of those areas.

Figure 1
The three important facets required to manage any business (EPM, ERP, and GRC) all rely and center on dynamic and flexible business intelligence functionality; with the acquisition of Business Objects, all of these suites now feed from a real-time data stream that is at once immediate, highly usable, and intuitive

 

SAP is known as the number one player in ERP, we're known as the number one player in GRC, and with Business Objects, we're now known as the number one player in BI. Together with several of the acquisitions we've recently completed, we will be the number one player in EPM. We're bringing that innovation now to CFOs to help them access the type of financial excellence they care about.

Q: Can you give us an example of a dynamic that customers can measure using EPM?

A: The ability to measure and track profitability, for example, is a huge priority, especially in periods of economic downturn. With SAP solutions for EPM, you can examine cost drivers and analyze the impact of how you are allocating costs. From there, you can identify revenue drivers and get a clear understanding of the core metrics that drive your business. In a tight economy, every business has to scrutinize profitability — because as revenue and business opportunity potentially shrinks, the emphasis must be on how to manage costs.

Q: So EPM is for finance customers?

A: Yes, but not only them. Every department has its own version of EPM. If we talk about sales and look at the triangle, then instead of ERP, you have customer relationship management (CRM). Instead of GRC, you have compliance or revenue recognition or sales and operational compliance steps. And performance management takes on a very different role than financial planning. Within the sales environment, the focus is on sales and operational planning, as an example. But they still use the same central system, and that's BI.

Finance is simply where we at SAP have started; we're now pushing EPM into many other parts of the enterprise, and we're starting to get enormous feedback from our customers. This is a strategy that really differentiates us in the market, and customers are eager to join us on this journey over the next several years (see Figure 2).

EPM Business Benefits

SAP Solutions for EPM

Example

Link execution to strategy; deliver on corporate strategy with enterprise-wide alignment

SAP Strategy Management

Identify metrics using KPIs and convert them into a dashboard scorecard for daily monitoring by responsible employees throughout the organization

Achieve efficient, unified business planning and consolidation with improved statutory and management reporting and decision making

SAP Business Planning and Consolidation

Increase accuracy in planning and reduce budget cycles while aligning resources in support of corporate strategy

Manage organizational costs and optimize profitability

BusinessObjects Profitability and Cost Management

Create activity-based cost analysis by customer, product, channel, and market, and review options using "what-if" scenarios
Match sourcing strategies and spend with business goals to drive savings SAP Spend Analytics Realize measurable cost savings and align sourcing goals with corporate goals by rationalizing and strategizing on supplier relationships
Figure 2
Building the EPM business case

 

Q: And what's the connection between business process management (BPM) and EPM?

A: They are different universes in the sense that one consumes the other. BPM is about the way in which workflow and events get orchestrated, conducted, and driven in an enterprise. It allows you to load events, establish workflow, and set up business rules that will drive your EPM applications. In financial performance management, as an example, a BPM component would be used to guide workflow from your planning tool.

While BPM is infrastructure, EPM is a set of tools that enhances and extends the skills of the users. It's the difference between flying blind and flying with a set of controls, so to speak. Analytic applications give you more power in your cockpit, so that as you're trying to take off or land your plane in foggy weather, you have all the best controls at your fingertips and can make decisions with more certainty. You still need a good pilot, but the controls give you a significant amount of leverage.

EPM is the difference between flying blind and flying with a set of controls, so to speak.

Q: To extend that airplane analogy, we're not talking about complex control panels, are we?

A: We realize that one of the keys to being successful as an EPM vendor is usability. People need to realize that EPM is a new set of user interfaces built on top of traditional SAP solutions combined with recent acquisitions. The solutions distinguish themselves from the competition by being more usable and intuitive, and also by being flexible in both SAP and non-SAP environments. This is a new face of SAP.

Additional Resources

  • The Reporting and Analytics 2008 conference in Marseilles, October 28-30, 2008, and Las Vegas, November 17-19, 2008, for critical strategies and insight into improving your reports, analyses, planning, and performance management (www.sapreporting2008.com)

Sanjay J. Poonen is Senior Vice President and General Manager of Performance Optimization Applications at Business Objects, an SAP company. In this capacity, he is responsible for the Governance, Risk, and Compliance (GRC) and Enterprise Performance Management (EPM) product lines. Previously, Poonen has served as Vice President of Line of Business Operations at Symantec, Vice President of Strategic Operations at VERITAS, and Executive Officer at Informatica. He began his career as a software engineer at Microsoft, working on early forms of Microsoft Exchange. Poonen holds an MBA from Harvard Business School; a master's degree in management science and engineering from Stanford University; and a bachelor's degree in computer science and math and engineering from Dartmouth College.

 

 



1 Robert S. Kaplan and David P. Norton, "Mastering the Management System," Harvard Business Review (January 2008). [back]


 

 

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