Market Definition/Description
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The corporate performance management (CPM) application suite market is mature and composed of vendors offering solutions that are widely adopted by both large and midsize organizations (midsize can roughly be defined as having annual revenue of $100 million to $1 billion). Given the range of solutions available, CPM suites are also accessible to smaller organizations (those with $10 million to $100 million in annual revenue). CPM initiatives aim to either improve processes within the office of finance (OOF) or support performance management (PM) throughout the organization. CPM deployments can typically be categorized as one of two types: OOF CPM and strategic CPM. OOF CPM largely involves the improvement of financial processes, while strategic CPM supports organizationwide transformation and growth. Driving higher levels of CPM maturity requires that attention be paid to both types (see "Getting More Value From CPM: Strategic Versus Office-of-Finance CPM"). Gartner uses the term "CPM" to highlight corporate finance's critical role in aligning siloed PM processes and applications across multiple business domains.
Competitive business environments require that organizations find new ways to reduce costs while simultaneously improving their ability to manage performance. Corporate finance is uniquely situated to address both these requirements. Traditionally, finance applications have been primarily designed for accuracy, compliance and efficiency. The availability of more-capable CPM solutions supported by additional in-memory computing (IMC) and mobile, social and advanced analytics capabilities is providing finance with additional options to address more strategic needs (see "Strategic CPM as a Driver for Organizational Performance Management").
In addition to the term "CPM," vendors use other descriptions, such as enterprise performance management (EPM), dynamic performance management (DPM) or simply PM. The use of one label or another is irrelevant. What's important is the recognition that no single current offering can provide end-to-end PM support. Organizational PM encompasses distinct, domain-specific PM processes of which CPM is one. CPM's role in enabling a broader approach to PM is firmly established; however, CPM offerings continue to evolve. CPM efforts typically focus on financial budgeting, planning and forecasting (BP&F), and financial consolidation and reporting. However, they also support the coordination of more-comprehensive planning processes (see "In-Memory Computing Reinvents Integrated Financial Planning"). CPM suites can also extend into functional domains to support specific processes and provide the "glue" to link these operational areas back to financial and enterprise performance targets.
This Magic Quadrant presents a global view of the primary CPM suite vendors from a market perspective. Vendors tracked in this Magic Quadrant vary in their capabilities to support different CPM processes and use cases. More specific comparative product information can be found in "Critical Capabilities for Corporate Performance Management Suites."
This Magic Quadrant also briefly reviews specialist vendors that support particular CPM processes, such as BP&F (see "Market Guide for Specialty Budgeting, Planning and Forecasting Applications"). These products can augment CPM suite solutions to satisfy specific functional or industry requirements. Both suite vendors and specialist vendors should be considered by organizations pursuing a comprehensive CPM strategy.
Gartner defines the components of a CPM suite as follows: financial consolidation and close management (FC&C); financial and management reporting and disclosure; financial BP&F; strategic planning and forecasting and strategy management; and profitability modeling and optimization (PM&O).
Financial Consolidation and Close Management
This type of application is a fundamental part of CPM and a core component of a CPM suite. Support for this process is central to the responsibilities of the OOF because it creates the compliant, enterprise-level view of financial information for more transparent, accurate and timely external reporting, insightful management reports, and variance analysis from targets. Financial consolidation and close management applications allow organizations to reconcile, consolidate and summarize financial data based on different accounting standards and government regulations, and provide financial results at local, regional or business unit subconsolidations. These applications require complex transaction processing rules to automate intercompany transaction management (elimination and matching), and perform currency translations and revaluation capabilities.
Financial and Management Reporting and Disclosure
The traditional CPM financial close process has specific disclosure and reporting requirements that require specialized reporting tools. CPM applications supporting financial consolidation and budgeting, require some of their output to be formatted as structured financial statements; therefore, reporting tools need additional logic and presentation capabilities to handle these requirements (for example, calculation rules for creating a cash-flow statement from profit-and-loss and balance sheet data). They should support specific generally accepted accounting principles (GAAP) presentation rules, such as U.S. GAAP and International Financial Reporting Standards (IFRS), to enable the preparation of statutory financial statements with appropriate commentary and supplementary notes. Many financial reporting solutions incorporate process controls for reporting and disclosure, such as industry-specific templates, collaboration capabilities, business rules, workflow and audit trails, to better meet regulatory, compliance and governance programs. In addition, these solutions can provide additional financial reporting technologies, such as eXtensible Business Reporting Language (XBRL). These CPM applications provide the reporting capabilities required to produce the management reports used by executives at corporate and business unit levels to manage and explain financial performance. They should also facilitate analysis by providing drill-down and analytics against more detailed business unit ledger and sometimes transactional data.
Expanded capabilities are also provided in financial close solutions or by separate offerings that provide additional close management functionality. These capabilities primarily include improved close control process management, reconciliation management, intercompany activity management, journal entry control, financial control testing and tax data provisioning. Note that the availability of extended close/reconciliation solutions has expanded over the last year to include a wider range of functionality that extends beyond the FC&C-oriented period end close into a broader solution that can enhance the management and control of combined ERP, CPM and other systems involved in the finance process throughout the accounting cycle. As a result, Gartner has renamed this asset class "enhanced finance controls and automation (EFCA)," to reflect this expanded scope (see "Enhanced Finance Controls and Automation Fills the Gaps in ERP and CPM Processes").
Financial Budgeting, Planning and Forecasting
The financial budgeting process sets short-term targets for revenue, expenditures and cash generation, and usually has a one-year horizon. It typically uses financial classifications found in the general ledger to classify financial goals and targets. The budget (and the budgeting process) is typically wholly owned and controlled by the CFO, and needs to link with underlying finance systems. The budgeting process typically acts as a fixed control mechanism.
Traditional OOF CPM planning and forecasting processes consist of a financial modeling engine with an integrated profit-and-loss balance sheet and cash-flow forecasting capability. This is the key feature that distinguishes CPM from other analytics applications that also create plans and forecasts (such as applications for sales and operations planning [S&OP] or marketing campaign planning). These capabilities support the creation, review and approval of financially focused plans and forecasts, as well as their associated workflow. They should also maintain an audit trail of all associated activity. Planning generally differs from budgeting in two ways. First, the time periods involved can be longer term (three to five years is common). Second, the focus is less on budget line items and more on business drivers that impact the financial line items. This means that planning is more relevant to operational managers, who do not run their part of the business using general ledger codes. Longer-term financial plans are used by executives to evaluate the effects of alternative strategies, such as merger and acquisition activity. They typically represent a high-level perspective of revenue, expenses, balance sheet items and cash flows.
Strategic Planning and Forecasting and Strategy Management
These types of planning and forecasting applications should also enable more strategic planning activities. For example, they can support a broader approach to PM through more integrated corporate financial planning by joining the financial planning components of other business domains, such as workforce and sales, with those of corporate. These applications can also include additional functionality to extend planning to operational domains. They can also support aspects of initiative management. Vendor capabilities vary, and some processes can be limited by a solution's capability to leverage transactional information and support in-memory, social and mobile computing.
Strategic forecasting typically differs from budgeting in that once a budget is created, many organizations tend to strictly adhere to it, regardless of changes to the business environment. The goal of strategic forecasting is to dynamically create more-accurate predictions of future outcomes based on experience, and to predict alternative outcomes if business conditions change. Traditional financial forecasting is often simple (for example, add three months' actual data to nine months' budget data); however, strategic forecasting can incorporate statistical techniques to help predict future performance and guide strategy. Currently, these applications most commonly support techniques such as extrapolating new versions of plans based on comparisons of actual results to budgets, the analysis of historical data and "what if" analysis. More-modern solutions with advanced analytics, especially those effectively leveraging IMC, can leverage constraint-based optimizations, predictive analytics capabilities and other methods using much bigger datasets that include additional operational internal and external context data.
Strategic planning also involves strategy management. These solutions provide a packaged approach to support strategic planning, modeling and monitoring to improve corporate performance, accelerate management decision making and facilitate collaboration. They're usually tied to strategy maps or methodologies, such as the balanced scorecard. Strategy management comprises:
Scorecards and strategy maps — These are used to record strategies, objectives and tasks; monitor performance; identify, explain and maintain the relationship of key performance indicators (KPIs); and enable related communications and collaboration capabilities.
Initiative/goal management — This Includes project-management-like tools to enable responsible managers to execute specific tasks related to a strategy.
Dashboards — These are used to aggregate and intuitively display metrics and KPIs, enabling them to be examined at a glance or analyzed interactively using embedded filters and drill-down/across capabilities.
Profitability Modeling and Optimization
PM&O includes activity-based costing (ABC) and activity-based management (ABM) applications that determine and allocate costs at a highly granular level in order to, for example, determine the cost of each activity that an agent may perform across all channels in a customer service contact center. This information can be applied to various cost objects, including products, customers and customer segments, to help determine product and customer profitability. PM&O applications often take this approach further and provide modeling capabilities to enable users to model the impact on the profitability of different cost and resource allocation strategies. This approach can help determine optimal product and service offerings in packaging, bundling and pricing, as well as optimize channel strategies. PM&O applications can also provide profit optimization capabilities that enable executives to plan the impact of different strategies on profitability from different perspectives, such as customer or product. These solutions may also be able to model business processes and provide other advanced features, such as constraint-based, bidirectional and predictive modeling.
