Robert Kugel's Analyst Perspectives

SAP Hits Suite Spot for Financial Performance Management

Posted by Robert Kugel on Dec 1, 2010 9:52:07 AM

Ventana Research recently completed its 2010 Financial Performance Management Value Index of the major financial performance management suites. Financial performance management (FPM) is the process of addressing the often overlapping issues around people, process, information and information technology that affect how well finance organizations operate and support the activities of the rest of the organization. FPM deals with the full cycle of finance department activities including planning, forecasting, analysis, closing and reporting. As I noted in my earlier blog about this year’s FPM Value Index, one striking feature of this software category is its general maturity. Budgeting and planning, reporting, closing and statutory consolidation, as well as dashboards and scorecards, have been around for more than a decade, so the suites we examined are all feature-rich and with one notable exception have remarkably similar capabilities at this time. (The exception is automated preparation of XBRL-tagged financial documents for the United States Securities and Exchange Commission – the SEC). Consequently the Value Index scores were tightly clustered. SAP’s suite just edged out those of IBM and Infor in the rankings, though both of those earned the Hot Vendor rating.

Another finding that’s remarkable to me is that while the financial performance management suites have a mature set of functionality to support finance departments, users consistently underutilize their features and functions. For instance, our research shows persistent lack of maturity in companies’ planning and budgeting processes: Half of the companies with 1,000 or more employees that we benchmarked take longer than a business week to complete their financial close; the use of advanced analytics continues to be hampered by inertia; and although organizations have made important advances in their use of scorecards, there is still plenty of room for improvement, especially in explicitly incorporating risk as part of a balanced scorecard assessment.

SAP’s suite handles all of the financial performance management functions well and scales to the needs of very large organizations. It can support the most advanced integrated business planning efforts. It offers advanced analytics for developing measures and metrics, identifying trends and anomalies and refining forecasts. It handles the needs of companies with complex legal and financial structures in a variety of industries for statutory consolidations in multiple accounting regimes. But it has one notable omission. Currently, although SAP has automated XBRL tagging capabilities, it lacks the document assembly features that Host Analytics, IBM (through its recent acquisition of Clarity Systems, Longview and Oracle offer. At the same time, SAP has software that manages and automates aspects of the financial close, including intercompany reconciliation and close management.

One element of SAP’s offering that wasn’t included in our Value Index is profitability management. While these packages have come a long way over the past couple of decades in simplifying profit optimization, only a relative handful of companies outside of financial services (the earliest and most enthusiastic user) have adopted them. I think one important reason is that “profitability management” is rarely part of someone’s specific job description. However, this software is adept at methodically automating the allocations process for management reporting. So rather than having analysts repetitively perform their magic in spreadsheets every month, quarter and year, corporations can ensure that shared costs are applied accurately and consistently to business units. This is especially useful in situations where utilization of shared resources changes from one period to the next, or replacing a simplistic approach with a more robust model for cost allocation will lead to better business decisions.

Companies that are looking to implement or upgrade their financial performance management software have an impressive selection of vendor offerings from which to choose. I recommend that if you’re in this position you review the 2010 Value Index for Financial Performance Management to learn why we awarded SAP a Hot Vendor rating.

Let me know your thoughts or come and collaborate with me on Facebook, LinkedIn and Twitter.


Robert Kugel – SVP Research

Topics: SAP, ERP, Financial Applications, CFO, finance, Financial Performance Management (FPM), Financial Performance Management

Robert Kugel

Written by Robert Kugel

Rob heads up the CFO and business research focusing on the intersection of information technology with the finance organization and business. The financial performance management (FPM) research agenda includes the application of IT to financial process optimization and collaborative systems; control systems and analytics; and advanced budgeting and planning. Prior to joining Ventana Research he was an equity research analyst at several firms including First Albany Corporation, Morgan Stanley, and Drexel Burnham, and a consultant with McKinsey and Company. Rob was an Institutional Investor All-American Team member and on the Wall Street Journal All-Star list. Rob has experience in aerospace and defense, banking, manufacturing and retail and consumer services. Rob earned his BA in Economics/Finance at Hampshire College, an MBA in Finance/Accounting at Columbia University, and is a CFA charter holder.