UPDATED 11:03 EDT / JANUARY 23 2017

BIG DATA

Adaptive Insights CEO: Why corporate performance management will disrupt financial forecasting

The annual corporate financial plans that have long been a business staple seem almost quaint in the context of today’s breakneck business pace. The hottest new concept is corporate performance management, known as CPM, an evolution of business intelligence that gathers data from around the organization in a closed-loop process of continuous adjustment. The intent is to make the company more nimble and responsive to changes in its environment.

Adaptive Insights Inc. was one of the first companies to provide a cloud-based CPM solution and, with more than 3,000 customers, has broken into a market that includes some of the largest software vendors. It has raised $176 million in the process. Its chief competitor, Anaplan Inc., has raised $234 million and recently lured Red Hat Inc. Chief Financial Officer Frank Calderoni to become president and chief executive.

In a recent interview with SiliconANGLE, Tom Bogan (pictured), CEO of Adaptive Insights, said these moves testify to the promise of the CPM market.

What has made CPM such a lucrative new space?

There’s a lot more data available today. That changes the way companies plan. A few years ago they’d create a budget at the beginning of the year that would remain static. Today, planning is much more sophisticated. Continual updates create a richer plan. For example, CFOs can integrate information from sales and marketing automation systems to factor in things like conversion rates and leads. Planning frequency has gone from annual to monthly. It’s much more strategic.

Do people really understand performance management?

The more sophisticated organizations do. The companies that think in terms of budgeting have more trouble. We spend a lot of time talking about maturity curves, best practices and being more strategic.

How does CPM change the way financial people need to think about the planning process?

You have to think of rolling forecasts every month. That requires collaboration with operating managers and also new tools. Spreadsheets don’t lend themselves to collaboration, so cloud has a big advantage.

For example, [China Bistro Inc.’s] PF Chang’s is a customer. They brought in Adaptive 18 months ago, and now restaurant managers are updating their forecasts each month. That completely changes the way the finance team works with restaurant managers. Everyone now have access to information in Adaptive.

You can also find new areas of cost savings. For example, [Intellectual Property Holding Co. Inc.’s] Zagg makes protective devices for smart phones. They substantially missed their numbers one quarter and so focused on better forecasting. In the process, they found unexpected efficiencies in their supply chain. They saved $8 million in freight costs alone.

Where’s the payback of CPM?

One is maintenance costs. In many cases, customers fund Adaptive for what they were paying in annual maintenance fees on legacy on-premise tools. The other is people, because they can run planning more efficiently [Adaptive claims it can reduce planning times by up to 90 percent].

You and Anaplan have raised more than $400 million between the two of you. Why is there so much venture funding flowing in?

I think investors believe planning solutions will be one of the categories of software that converts from on-premises to cloud solutions the earliest.

When you win, what’s the reason?

Ease of use and functionality. Our goal is to continually reduce that time to value. We believe that if you’re going to deploy broadly, the design philosophy has to be intuitive.

Conversely, what are most common objections you encounter?

For smaller customers, the ROI [return on investment] may appear to be less tangible compared to spreadsheets. Some companies also aren’t ready to switch their planning cycle. Customer readiness is probably the number one objection.

We just saw SimpliVity Inc. sell out at a fraction of its estimated value, ostensibly because its market was saturated. Does over-saturation concern you in your market? 

I spent about five-and-a-half years in venture capital and observed that there is a follower mentality among investors. The way you win is you’re one of the breakout companies. Value accrues to leaders.

Are you under much pressure to go public?

There’s no urgency. We have been more thoughtful and measured about burn rates than some other companies. We did our last financing in June 2015 with an eye toward finding strategic investors rather than valuation. The market appears to be moving toward more of a sustainable state in terms of multiples.

Image courtesy of Adaptive Insights

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