by Jeremy Woolfe
Brussels — Tightening accountancy regulation around the world is driving the expansion of a group of firms that supply the advanced software systems that manage the rules as they come into place.
It is pressure from the regulatory side that is driving the adoption of business performance management systems, an innovative management technology. BPM is emerging as a special market currently being described as “young, but growing quickly.”
According to Meta Group, a market research firm with headquarters in Stamford, Conn., and offices around the world, 35 percent of companies in a study group now have BPM programs in the planning stage. While only 5 percent already have the system fully integrated across their organization, the surveyed group expects this to have increased to 18 percent by the end of this year.
Global spending on BPM was expected to be over $1 billion by the same time, following growth on the order of 24 percent this year, says Meta Group. Andreas Bitterer, vice president for technology research services, described BPM as vastly superior when compared with the traditional use of spreadsheets for budget planning and for monitoring progress.
BPM brings to management and regular staff a number of performance indicators that vary among different sectors of a company’s activity (sales, production, marketing, etc.), that can be rationally planned, and monitored during implementation. BPM reduces the number of decisions based on “gut feel,” said Bitterer.
Speaking from Hamburg, Germany, Bitterer added that there is no big difference between take-up of BPM in Europe and the U.S., though U.S. companies are slightly in the lead. However, his impression is that European banks are resisting adopting the necessary software upgrades to meet the growing regulatory burden, which in Europe in imposed mainly by International Accounting Standards, the impending Basel II packet of banking regulations on capital adequacy, and, to some extent, Sarbanes-Oxley for companies with listings in the U.S.
European banks see Basel II as something to resist, or at least delay, because of the large amount of work that they will have to do to meet compliance regulations. Bitterer adds wryly that some banks seem to prefer to focus their efforts on lobbying to hold back Basel II enforcement, rather than addressing the job in hand.
On the supply side of BPM, there are at least three major companies in the field. They include SAP AG, based in Walldorf, near Frankfurt; Hyperion, of Sunnyvale, Calif.; and Cartesis, which has its head office in Paris. James Fisher, of Cartesis, which was formerly owned by PricewaterhouseCoopers, said that the overall buoyancy of the BPM market in Europe is largely thanks to IAS. He estimates that it accounts for perhaps a third of today’s global turnover.
Fisher, who is the company’s European marketing manager, explained that the activity is also due to the legal obligation for Europe’s 7,000 listed companies to tell the “full story behind the numbers,” especially to their shareholders. Markets react dramatically to any failure, he added, and management consultants are also customers for BPM software.
For Hyperion, vice president of worldwide field marketing Philippe Adam saw 10 percent of Europe’s total BPM business coming from Basel II and 15 percent from Sarbanes-Oxley. He strongly supported the view that IAS compliance is stimulating companies to rethink their whole business performance management strategy. “It is the first step for companies on the road to more rational reporting of numbers,” Adam said.
Stefan Karl, a director in the financial services sector at SAP AG, agreed that IAS is certainly contributing to the overall management software business.
Discussing IAS compliance in particular, in Karl’s opinion, the majority of large European listed companies are already prepared for IAS compliance. Others will apply for an intermediate procedure that will involve producing comparison figures for the changeover period. Karl noted that subsidiaries of international groups will have to continue to provide statements to suit their local reporting rules.
In other news
Separately, accountants in the EU are gratified at the rise of their professional colleagues to high positions. Former finance minister of Ireland Charlie McCreevy, a member of the Institute of Chartered Accountants in Ireland, now heads the European Commission’s Internal Market DG (division).
European accountants feel that it’s appropriate that when he takes up his post on Nov. 1, he will take over responsibility for internal market matters in the European Union, competitiveness, and company law issues. Importantly, the internal market commissioner will also be responsible for accounting and auditing policy issues.
Commissioner McCreevy will no doubt be particularly interested in one of the issues currently going through the legislative mill in Brussels: The 8th Company Law Directive, which lays out the rules for the EU’s audit profession, falls under his direct responsibility.
The Internal Market DG is splitting off taxation and customs matters to a new DG, to be headed when the change takes place on Nov. 1 by Ingrida Udre, another qualified accountant, of Latvia, one of the three Baltic nations that joined the EU in May. Udre was at one time a senior audit manager for Coopers & Lybrand and subsequently at PricewaterhouseCoopers.
She says that she has a “healthy euro-skepticism.” In the Latvian Parliament, she was on committees dealing with budgets, finance and taxation, and combating corruption, contraband and organized crime. In Brussels, one task to fall on her desk will be competitively low company taxation, especially in the 10 new union member states.
The Internal Market DG remains under Commissioner Frits Bolkestein, of the Netherlands, until the end of October.
