White Paper

By Eric Krell

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Executive Summary

Business Performance Management (BPM) helps executives to make better decisions.

Until recently, however, BPM systems were too expensive and resource-intensive for

most mid-sized companies to afford and maintain. That’s changed, and there has

never been a better time for mid-market executives to invest in powerful, cost-

effective BPM. Before they do, they should understand four aspects of business

performance management that will help them make the best investment decision.

1. BPM’s definition and benefits are broad.

Use of BPM is soaring. Some vendors are co-opting the term to pitch other

types of software, so a standard definition is needed – and one is emerging

thanks to a new standards-setting group. The BPM Standards Group, a

collection of BPM experts from BPM Partners, META Group, IBM Consulting

Services, the Data Warehousing Institute and other leading organizations,

recently established a three-part definition of business performance

management:

1. BPM is a set of integrated, closed-loop management and analytic

processes, supported by technology, that address financial and

operational activities.

2. BPM enables a business to define strategic goals and then measure

and manage performance against those goals.

3. The core BPM processes include financial and operational planning,

consolidation and reporting, modeling, analysis and monitoring of key

performance indicators (KPIs) linked to organizational strategy.

Many large enterprises and a handful of mid-sized companies have gained

significant benefits from BPM processes and systems. These benefits include

efficiency improvements as well as more strategic gains. For example, one

mid-sized manufacturer of bar code label printers used BPM to help post a 70

percent jump in its valuation during the recessionary years of 2001 and 2002.

Organizations that have successfully integrated their budgeting, planning,

financial reporting and analytics capabilities into a BPM framework have:

_ Significantly reduced the length of closing cycles and budgeting processes

_ Greatly improved the accuracy of forecasts

_ Improved finance and accounting staff productivity

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_ Equipped important decision-makers with more, and more accurate,information on a timelier basis

_ Boosted the value of customer relationships

_ Contributed to gains in shareholder value

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2. The mid-market’s BPM needs differ significantly from those at larger

companies.

Mid-market executives shopping for BPM should consider six “must-haves” tied

to the unique demands of their company’s size. A robust, cost-effective mid-

market BPM solution should:

_ Be easy to implement

_ Deliver essential reporting capabilities without excessive complexity

_ Be able to scale with the mid-market company’s growth and changes

_ Be implemented one element at a time

_ Show transaction-level data

_ Leverage existing technology investments

3. Microsoft’s building blocks represent a key consideration in mid-market BPM

decisions.

Most middle-market companies already own key components of BPM solutions

through their Microsoft technology platforms. Properly leveraged, those

building blocks give mid-sized organizations the opportunity to build powerful,

flexible, cost-effective solutions in several different ways: by building their own

solution; by purchasing, implementing, customizing and integrating a solution

from a BPM software vendor; or by selecting the best components from

leading software packages and integrating them in a single solution.

4. The best mid-market solutions enable companies to implement one

capability at a time.

The essential components of BPM include the following capabilities:

_ Budgeting and planning

_ Financial reporting and consolidation

_ Business intelligence/analytics

_ Score-carding metrics, which gauge performance against key performanceindicators on a continual basis

End-user resistance represents the most formidable obstacle to any software

implementation, as companies with expensive CRM and ERP implementations

and rock-bottom utilization rates have demonstrated. End-user acceptance is a

change management challenge: successful software implementations require

the smooth integration of new capabilities into existing technology and

processes. To limit risk and reduce end-user resistance, effective mid-market

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BPM solutions must possess strong integration capabilities and strong internal

controls frameworks to support the integration.

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Mid-Market BPM:

A Single – and Cost-Effective – Version of the Truth

Business performance management (BPM) enables CFOs, CEOs and business

executives to make better decisions.

That’s a valuable benefit, but also a very expensive one. Until recently, the

purchase, implementation and maintenance of BPM software has been too

cost-prohibitive and too risky for most middle-market companies. But the BPM

proposition has changed thanks to the emergence of widely available BPM

building blocks, which most mid-sized companies already own and can operate

cost effectively.

Before they can do so, mid-market executives should:

_ Clearly define BPM and its value

_ Understand how their BPM needs differ significantly from BPM needs atlarger enterprises – and how those unique needs translate to a differentbreed of BPM solution

_ Consider how any subsequent BPM investment can thoroughly leveragetechnology, such as spreadsheets and databases, that their organizationalready owns and operates

_ Identify the distinct elements of business performance management andhow those capabilities can be implemented with a modular approachthrough strong integration and controls

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BPM Defined

The term “business performance management” began cropping up two to

three years ago to describe how companies – primarily larger enterprises –

were pulling together their budgeting, planning, analytic and financial

management data. To accomplish that objective, BPM systems consolidate

data stored in files, databases and on company intranets. That data can be

sliced, diced and analyzed, and then delivered in a timely fashion to

appropriate executives and managers through user-friendly interfaces,

applications also known as viewers or, in some cases, dashboards.

The key value lies in establishing a single version of the numbers that the

entire organization relies upon and uses. That requires that the data be stored

in a single repository. If any business unit or individual disagrees with a

number, the accuracy can be confirmed or refuted by drilling down to the

individual entries through reporting tools.

“That in and of itself is critically powerful because now you have a consistent

set of data across all the areas of your company that everyone can believe in

and have equal access to,” explains BPM pioneer Craig Schiff of BPM Partners.

“So when you’re talking with a manager out in the plant, you’re looking at the

same numbers he is.”

The software’s use is exploding. META Group has estimated that 85 percent of

organizations will have some form of BPM initiative in progress by the end of

this year. The research firm also estimates that BPM will grow an additional 15

to 20 percent in 2004. That flurry of interest has prompted some vendors to

loosely interpret the term in hopes of inviting more attention to their offerings.

META also notes that “users have difficulty distinguishing between BPM

solution providers and generalists not typically considered vendors of BPM

solutions.”1

A New Standard

Fortunately, BPM standards are emerging at the right time for mid-market

companies considering investing in the technology. Schiff, who is a member of

the founding team of BPM software provider Hyperion Solutions and who co-

founded BPM software provider OutlookSoft Corporation before launching BPM

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Partners, has teamed with META Group, IBM Consulting Services, the Data

Warehousing Institute and other leading organizations to develop BPM

standards. The BPM Standards Group recently established a three-part

definition of business performance management:

1. BPM is a set of integrated, closed-loop management and analyticprocesses, supported by technology, that address financial as well asoperational activities.

2. BPM enables a business to define strategic goals, and then measure andmanage performance against those goals.

3. The core BPM processes include financial and operational planning,consolidation and reporting, modeling, analysis and monitoring of keyperformance indicators (KPIs) linked to organizational strategy.

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The Value is Better Decisions

As the use of business performance management has blossomed in recent

years, software vendors have latched onto “a single version of the truth” as a

de facto marketing standard. Judging from the benefits companies have

achieved with their BPM systems, there has been, for the most part, truth in

advertising.

Companies that have successfully integrated their budgeting, planning,

financial reporting and analytics capabilities into a BPM framework have:

_ Significantly reduced the length of closing cycles and budgeting processes

_ Greatly improved the accuracy of forecasts

_ Increased the productivity and efficiency of finance and accounting staffs

_ Equipped important decision-makers with more, and more accurate,information on a timelier basis

_ Boosted the value of customer relationships

_ Contributed to gains in shareholder value

Sometimes, the returns on BPM investments can be eye-opening. Zebra, Inc.,

a mid-sized manufacturer of bar code label printers, credits its BPM system as

a major influence in the company’s 70 percent jump in valuation during the

recessionary years of 2001 and 2002.2

BPM capabilities recently helped Ford to boost its per-vehicle profit via deeper

customer analysis, Dell to predict a shift in consumer preferences (from CD-

ROM drives to CD/DVD rewriteable drivers) well ahead of its competitors, and

Bank of America to sharpen its marketing efforts by understanding which

types of loans are most attractive to different types of customers. By

aggregating that type of information, companies can provide decision-makers

with a deeper and quicker understanding of how changes on the front edge of

forecasting and planning processes affect financial performance and working

capital.

Nipping $3 Million Problems in the Bud

“It adds tremendous value by accelerating an organization’s ability to make

decisions,” Schiff reports. “It’s hard to value a good decision, but that is one of

the primary benefits BPM delivers. We’ve heard BPM users tell us that they

found a potential $3 million problem before it happened. Some large

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companies have demonstrated savings as high as $50 million per year by

eliminating the time required of analysts to manually enter information into

systems.”

Companies that have successfully implemented BPM software derive

immediate benefits from the process of pulling data together in a consistent,

accurate manner. The average-performing mid-to-large-sized company,

according to The Hackett Group, owns 48 disparate finance systems.3

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That technological complexity is problematic at a time when the need for agile

reporting and forecasting has sharply increased in response to competitive and

regulatory pressures.

“It would be unthinkable to do business today using information only

accessible by manual cards,” notes Blythe McGarvie, a former Fortune 500

CFO. “The same can be said for companies that keep their information

segregated into different systems. Bringing both together, using historical data

and forecasts, is a natural step in the evolution of using BPM for competitive

advantage.”4

Other Value Drivers: The Economy and the Law

The motivation for BPM’s consistent view is economic, and more recently,

regulatory in nature.

“The increased interest in BPM is primarily due to the rapidly changing

economy and new public accounting regulations intended to provide greater

transparency and visibility,” reports John Van Decker of the META Group. He

notes that BPM initiatives typically begin “in an attempt to support a more

centralized, dynamic and active planning process within an organization. They

often expand to cover reporting metrics management and, when applicable,

financial consolidations.”5

Organizations often invest in BPM to alleviate time-consuming and expensive

budgeting and planning processes. “In general, budgeting is the key driver

because it is so painful,” says Schiff. “People don’t believe in the numbers

because the process takes too long, doesn’t involve enough people, doesn’t

delve deeply enough into the organization and is out of date by the time it

finally appears.”

The Hackett Group’s David Axson says that massive write-downs as a result of

inventory problems of the sort that struck Cisco Systems a few years ago

“triggered many CEOs to wander down the corridor, bang on the CFO’s door

and say, ‘How the heck do we get a better forecast?’”

Alex Veytsel of the Aberdeen Group compares BPM’s benefits to the efficiency

pressures that a free market exerts by “weeding out problems before they can

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linger and grow. You also gain the ability to evaluate your company as a whole

much more precisely, which can help you see more clearly where you stand

versus the competition.”6

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Size Matters: Risk and Cost Differences

Many mid-market executives have seen larger competitors invest in BPM

technology that has been too expensive, resource intensive and time

consuming to implement in their own organizations. When scanning the BPM

success stories that proliferate in the pages of corporate finance magazines, it

becomes clear that large organizations have more actively implemented BPM

solutions than their mid-sized counterparts.

Mid-sized BPM successes like Zebra’s have been an anomaly so far – for good

reason. Most of the reasons for that gap center on budget and resource issues.

Companies with annual revenues south of $1 billion operate with much smaller

IT budgets than the multi-million-dollar technology budgets at Ford, Bank of

America, Cisco (which spends $1 billion annually on IT) and other large

corporations. Lower IT budgets mean mid-market companies have less to

spend not only on software, but also on training, implementation (e.g., large

amounts of customizations and lengthy visits from systems implementers are

to be avoided), maintenance and upkeep.

Thin IT staffs must be run in a cost-efficient manner, which makes it more

difficult for mid-sized companies to hire specialized and, therefore, high-

priced, IT professionals to serve as the expert troubleshooters for specific

software systems.

Above all, mid-sized firms cannot afford to assume the same risks that their

larger counterparts routinely accept. A $400 million failed software

implementation might not slow down a behemoth like Nike7, but an error of a

similar magnitude by a mid-sized company might effectively stomp out its

ability to stay in business.

In his thorough examination of BPM best practices, Axson identifies the ability

to use proven technologies as a common Achilles’ heel among technology

buyers. “Since the advent of the computer, creative marketing and sales types

have touted the almost limitless potential of technology to revolutionize the

world,” Axson writes. “No self-respecting technology company would dare

launch a new product that was not revolutionary, groundbreaking, or

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transformational. However, the gap between technology promise and delivery

has proven dishearteningly wide.”8

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The Unique BPM Needs of the Mid-Market

The following considerations should help mid-market executives shopping for

BPM software avoid costly gaps between what is promised and what is actually

delivered.

1. The BPM solution should be easy to implement. That means less

customization of the sort that large companies routinely conduct. “Smaller

companies want something that’s going to go in relatively painlessly,” says

Schiff. “Some of the bigger, more robust systems out there require a

significant amount of consulting or IT work to get in.” Schiff sees mid-market

companies leaning toward BPM packages that are easier to implement and

maintain. “From an end-user side,” he adds, “they focus on systems that are

more intuitive and easier to use. That way, they don’t have to spend as much

time and money training people. They gravitate toward systems that have a

heavy Excel emphasis and, sometimes, Excel as the primary interface. That’s

obviously key – playing off that familiarity and reducing the learning curve.”

Large organizations can afford the cost and resources necessary to customize

a sizeable BPM system. At last year’s Business Performance Management

Summit, an Ahold Financial Services executive described her company’s

transition from Excel to their BPM software package as “painful.” Although the

investment eventually yielded significant benefits, the implementation posed a

significant challenge because Ahold’s Excel-based reporting system had grown

so complex.9 Most mid-market companies cannot afford to work through that

pain.

2. A mid-market solution must deliver essential reporting capabilities without

overdoing it. In other words, beware of inundating new BPM users with

features and benefits they may never have a need to use. This is a common

pitfall – the tendency to overbuy – in the modern technological era, and mid-

market executives should take pains to sidestep it. Excessive complexity and

too many key performance indicators can slow, rather than quicken,

forecasting, planning and budgeting processes. “The danger is if you try to

analyze and model every piece of data, you'll never finish the forecast,” notes

Axson. “There will always be one more analysis you can do.” 10 Plus, a glut of

software features can complicate the implementation process and confuse end

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users. The single greatest obstacle to any software implementation is user

adoption. Longer, more complicated software implementations tend to result in

more user-adoption problems. At the same time, mid-market executives

shopping for BPM software should be careful not to sacrifice too much in

exchange for ease of implementation and upkeep. “There’s an important

decision that needs to be made: does it have enough functionality?” notes

Schiff. “I’ve actually seen companies make that mistake and go with a system

that’s too simplistic for their needs.” A company should keep it simple but still

meet its needs.

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3. A mid-market solution must be highly flexible. Given the rapid growth rates

and fierce competition most mid-sized companies face, a business

performance management system geared to their needs must be able to adapt

with those changes. Ideally, the software can be enhanced and supplemented

as the mid-market company’s needs change. That flexibility is achieved

through strong integration by vendors who are deeply knowledgeable of both

accounting and IT.

4. A mid-market solution should be able to be implemented one element at a

time. Sound integration also enables mid-market companies to add one BPM

element or application (e.g., budgeting and planning and financial reporting

and consolidation first, followed by BI later) at a time. That modular approach

enables companies to make smaller investments and then monitor adoption

and returns before extending their BPM footprint. Schiff says that medium-

sized companies may have an advantage over their larger competitors

because they usually encounter less cultural resistance in their business

performance management efforts, particularly when the initiatives progress in

a modular fashion. “The key,” he says, “is not trying to do everything at once,

but instead to measure success with BPM in small bites.”11

5. A mid-market BPM solution should show transaction-level data. In the

current regulatory environment, no company can afford to make accounting

and consolidation mistakes that have a material impact on their financial

statements. Mid-sized companies cross that materiality threshold much more

easily than their larger competitors: small errors can have major impacts. For

that reason, mid-market accountants need access to analyses at a more

granular level than a squad of financial analysts at a multi-billion-dollar

corporation. Mid-market accountants need to look at reports that confirm that

an entry in the general ledger was accurate and placed properly so that it will

roll up to feed higher-level reports. That’s why so much work is done outside

of ERP systems – and why spreadsheets play such a crucial role at smaller

companies. Mid-market BPM solutions should deliver summary-level

information to decision-makers while also providing accountants with reports

that confirm the accuracy and completeness of transaction-level bookkeeping.

6. A mid-market solution must leverage existing technology investments. This

may be the most important consideration of mid-market BPM investments.

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BPM relies on a diverse collection of data, and the building blocks for business

performance management capabilities are already in place at most companies.

Mid-sized organizations with limited IT investment dollars can leverage

technology that they already own and operate, particularly spreadsheets,

databases and back-office accounting systems, to develop BPM capabilities.

Microsoft Excel spreadsheets are ubiquitous for a very good reason: everyone

knows how to use them and is comfortable doing so. Seventy-three percent of

respondents to a recent Business Finance survey use Microsoft Excel as their

primary budgeting tool. Nothing is inherently wrong with spreadsheets; Excel

is so widespread because it meets its users’ needs. “You never will completely

remove Excel, and that

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shouldn’t be the intention,” notes Herman R. Heyns, a partner in Accenture’s

finance and performance management service line. Rather, Heyns and others

note, the intention should be to ensure that spreadsheet use is governed by

sound internal controls.

Unique BPM Needs of the Mid-market

1. The BPM solution should be easy to

implement

2. A mid-market solution must deliver essential

reporting capabilities without overdoing it

3. A mid-market solution must be highly flexible

4. A mid-market solution should be able to be

implemented one element at a time

5. A mid-market BPM solution should show

transaction-level data

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The Microsoft Factor

Given those needs, what does a suitable mid-market BPM solution look like?

Ideally, it should be easy to implement, maintain and adapt; should be

relatively inexpensive; and should make good use of spreadsheets, such as

Excel. The Microsoft technology platform in place at most mid-sized companies

possesses each of those qualities. It also possesses essential BPM building

blocks that are critical components of mid-market BPM solutions.

It behooves the mid-market executive to consider the “Microsoft factor” when

searching for a BPM solution. BPM effectively coordinates the connection of

financial, accounting and operational data stored in a company databases to

applications that let decision-makers re-arrange that data into information that

improves budgeting, forecasting and planning processes. Those databases and

analytics components, which re-arrange the data, at most mid-market

companies are Microsoft products. As a result, most mid-market IT

professionals are comfortable maintaining and trouble-shooting SQL Servers

and the operating systems that run those servers (Windows Server 2003, for

example, is the latest incarnation). Most mid-market finance and accounting

professionals and business managers are comfortable using Excel to

consolidate and crunch numbers.

That familiarity and comfort can play a major role in keeping implementation,

training and maintenance costs low.

The latest version of that technology emphasizes the same two qualities that

anchor the most effective BPM systems: collaboration and control. The heart of

Microsoft’s Office 2003 System, note the technical reviewers at PC Magazine,

makes data available throughout the workplace in a highly controlled manner

thanks to Microsoft’s SharePoint Services, which enables employees in

different parts of the company to collaborate on the same documents – such

as Excel spreadsheets – while tightly managing version control and usage

rights.12

Microsoft does not offer a BPM solution, only the building blocks. One of the

company’s strategies to increase its server and database market share is to

encourage other software companies to develop solutions in which Microsoft

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servers and databases play an integral role. Those components support

homegrown BPM solutions as well as packaged software from enterprise BPM

software market leaders like Hyperion and Cognos. Although that connection

sometimes makes large BPM software vendors nervous – shares of Cognos,

Hyperion and business intelligence vendor MicroStrategy dipped last year on

the day that Microsoft announced it was bolstering the BPM building blocks it

includes with its database offerings13 -- it gives purchasers of BPM solutions

more options.

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For example, a mid-market company can: A) build a BPM solution on its own;

B) buy, implement, customize and integrate a solution from a BPM software

vendor; or C) select powerful individual components of large BPM software

packages and integrate them with their existing technology platform.

In short, the technology that already exists in most mid-market companies

can be utilized to take advantage of the best BPM capabilities on the market.

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Incremental Ingredients and Key Qualities

As Schiff notes, mid-sized companies are often best served by biting off their

BPM investment in manageable chunks. That’s fortunate because business

performance management systems by nature consist of a collection of chunks,

or processes, including:

_ Budgeting and planning

_ Financial reporting and consolidation

_ Business intelligence/analytics

_ Score-carding metrics or key performance indicators (KPIs)

Those capabilities must be protected by internal controls. The modular or

“small bites” approach requires that different systems and applications be

integrated in a controlled fashion so that the BPM solution can “talk” to

multiple systems. The most effective brand of integration helps limit the

amount of IT involvement required in the implementation and maintenance of

the system, which further reduces costs.

The metrics element, which often takes the form of a dashboard interface that

presents KPIs to decision-makers, appears to be particularly attractive to mid-

market companies. “We see more mid-market companies start their BPM

efforts with dashboards than we see in the large market,” Schiff reports. “The

mid-market companies use the capabilities as an inexpensive way to get some

BPM value.”

The capability makes data very accessible to the right people in a hurry.

“Implementing a dashboard is a lot faster and less costly than implementing a

new budgeting and planning system,” Schiff observes. “I’m not saying it’s

necessarily the right thing to do, but it is a door used more often as an entry

point in the mid-market than in the large market.”

Action Determines a Decision’s Value

Yet BPM thought leaders emphasize the wisdom of a modular approach, which

can lessen the risk of a new technology investment and help reduce the

inevitable cultural resistance to change by establishing the BPM’s value faster.

In that way, smaller BPM bites add up to a single version of the truth.

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“Even though that phrase sounds very much like marketing hype, there is real

value in it and systems can deliver on that,” Schiff says. Finance executives

who fail to deliver less painful budgeting processes, greater visibility and more

accurate and timely information to hungry decision-makers face risks of their

own. According to McGarvie, “The moral of the story is that time does not

wait for management to make the right decisions. It’s one thing to analyze

and evaluate, and quite another to take action. Those organizations that are

strong in analysis, but weak in turning information into action, may find that

other organizations with their own BPM strategies will make decisions for

them.”14

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1 “85 Percent of Organizations to Have BPM Initiatives Underway by End of 2004”; CRM

Today: Aug. 25, 2003.

2 “BPM Vision,” by Tad Leahy; Insight Magazine: The Magazine of the Illinois CPA

Society; September/October 2003.

3 “Profile of World-Class IT”; ©The Hackett Group: 2003.

4 “A Personal Case Study: A CFO’s Perspective on Business Performance Management,”

by Blythe McGarvie; Business Performance Management Magazine: November 2003.

5 “85 Percent of Organizations to Have BPM Initiatives Underway by End of 2004”; CRM

Today: Aug 25, 2003.

6 “Better Information, More Shareholder Value,” by Tad Leahy; Business Finance:

September 2003.

7 “How Not to Spend $400 Million,” by Craig Schneider; CFO.com: March 5, 2001.

8 “Best Practices in Planning and Management Reporting: From Data to Decisions,” by

A.J. Axson; John Wiley & Sons Inc.: 2003.

9 “Business Performance Management: First Movers Speak Out”; Business Performance

Management Magazine: March 2004.

10 “BPM Accelerates as Short-Term Forecasting Slows,” by Eric Krell; Business Finance:

May 2003.

11 Ibid.

12 “Microsoft Office 2003: A New Strategy,” by Matthew P. Green; PC Magazine: Sept.

18, 2003.

13 “Microsoft’s Yukon to Get Reporting Tools, Data Mirroring,” by Barbara Darrow; CRN:

Feb. 12, 2003.

14 “A Personal Case Study: A CFO’s Perspective on Business Performance Management,”

by Blythe McGarvie; Business Performance Management Magazine: November 2003.

Eric Krell, eric@erickrell.com , is a business writer based in Austin, Texas. Hehas covered most aspects of corporate finance as a longtime contributor toBusiness Finance magazine. His articles and columns have appeared in avariety of consumer and business outlets, including Consulting, CRM, AmericanExecutive and NPR.

About BizNet Software® Inc.

BizNet Software is a provider of Business Performance Management (BPM)

solutions to the mid-market.  Its flagship product, BizNet InsightTM, provides

financial and accounting professionals with one, easy to use location to collect,

report, distribute and analyze information to improve business performance.

BizNet's fully integrated line of BPM applications, built upon the Microsoft

framework for business reporting and analysis, includes:

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_ Financial Portal

_ Financial Reporting

_ Budgeting and Planning

_ Business Intelligence

_ Score-carding

For more information, visit www.biznetsoftware.com .