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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:
15 | 15
_ Financial Portal
_ Financial Reporting
_ Budgeting and Planning
_ Business Intelligence
_ Score-carding
For more information, visit www.biznetsoftware.com .
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