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In our benchmark research at least half of participants that use spreadsheets to support a business process routinely say that these tools make it difficult for them to do their job. Yet spreadsheets continue to dominate in a range of business functions and processes. For example, our recent next-generation business planning research finds that this is the most common software used for performing 11 of the most common types of planning. At the heart of the problem is a disconnect between what spreadsheets were originally designed to do and how they are actually used today in corporations. Desktop spreadsheets were intended to be a personal productivity tool used, for example, for prototyping models, creating ad hoc reports and performing one-off analyses using simple models and storing small amounts of data. They were not built for collaborative, repetitive enterprise-wide tasks, and this is the root cause of most of the issues that organizations encounter when they use them in such business processes. Software vendors and IT departments have been trying – mainly in vain – to get users to switch from spreadsheets to a variety of dedicated applications. They’ve failed to make much of a dent because, although these applications have substantial advantages over spreadsheets when used in repetitive collaborative enterprise tasks, these advantages are mainly realized after the model, process or report is put to use in the “production” phase (to borrow an IT term). To date most dedicated applications have been far more difficult than spreadsheets for the average business user to use in the design and test phases. To convince people to switch to their dedicated application, a vendor must offer an alternative that lets users model, create reports, collect data and create dedicated data stores as easily as they can do it in a desktop spreadsheet. Spreadsheets are seductive for most business users because, even with a minimum amount of training and experience, it’s possible to create a useful model, do analysis and create reports. Individuals can immediately translate what they know about their business or how to present their ideas into a form and format that makes sense to them. They can update and modify it whenever they wish, and the change will occur instantly. For these business users ease of use and control trump putting up with the issues that routinely occur when spreadsheets are used in collaborative enterprise processes. Moreover, it’s hard to persuade “spreadsheet jockeys” who have strong command of spreadsheet features and functions that they should start over and learn how to use a new application. Those who have spent their careers working with spreadsheets often find it difficult to work with formal applications because those applications work in ways that aren’t intuitive. Personally these diehards may resist because not having control over analyses and data would diminish their standing in the organization. Nevertheless, there are compelling reasons for vendors to keep trying to devise dedicated software that an average business user would find as easy and intuitive as a desktop spreadsheet in the design, test and update phases. Such an application would eliminate the single most important obstacle that keeps organizations from switching. The disadvantages of using spreadsheets are clear and measurable. One of the most significant is that spreadsheets can waste large amounts of time when used inappropriately. After more than a few people become involved and a file is used and reused, issues begin to mount such as errors in data or formulas, broken links and inconsistencies. Changes to even moderately complex models are time-consuming. Soon, much of the time spent with the file is devoted to finding the sources of errors and discrepancies and fixing the mistakes. Our research confirms this. When it comes to important spreadsheets that people use over and over again to collaborate with colleagues, on average people spend about 12 hours per month consolidating, modifying and correcting the spreadsheets. That’s about a day and a half per month – or five to 10 percent of their time – just maintaining these spreadsheets. Business applications vendors started to address business users’ reluctance to use their software more than a decade ago when they began to use Microsoft Excel as the user interface (UI). This provides a familiar environment for those who mainly need to enter data or want to do some “sandbox” modeling and analysis. Since the software behind the UI is a program that uses some sort of database, companies avoid the issues that almost arise when spreadsheets are used in enterprise applications. There also are products that address some of the inherent issues with such as the difficulty of consolidating data from multiple individual spreadsheets as well as keeping data consistent. Visualization software, a relatively new category, greatly simplifies the process of collecting data from one or more enterprise data sources and creating reports and dashboards. As the enterprise software applications business evolves to meet the needs of a new generation of users, as I mentioned recently, it’s imperative that vendors find a way to provide users with software that is a real alternative to desktop spreadsheets. By this I mean enterprise software that provides business users with the same ability to model, create reports and work with data the way they do in a desktop spreadsheet as well as update and modify these by themselves without any IT resources. At the same time, this software has to eliminate all of the problems that are inevitable when spreadsheets are used. Only at that point will a dedicated application become a real alternative to using a spreadsheet for a key business process. Regards, Robert Kugel – SVP Research
Tagetik provides financial performance management software. One particularly useful aspect of its suite is the Collaborative Disclosure Management (CDM). CDM addresses an important need in finance departments, which routinely generate highly formatted documents that combine words and numbers. Often these documents are assembled by contributors outside of the finance department; human resources, facilities, legal and corporate groups are the most common. The data used in these reports almost always come from multiple sources – not just enterprise systems such as ERP and financial consolidation software but also individual spreadsheets and databases that collect and store nonfinancial data (such as information about leased facilities, executive compensation, fixed assets, acquisitions and corporate actions). Until recently, these reports were almost always cobbled together manually – a painstaking process made even more time-consuming by the need to double-check the documents for accuracy and consistency. The adoption of a more automated approach was driven by the requirement imposed several years ago by United States Securities and Exchange Commission (SEC) that companies tag their required periodic disclosure filings using eXtensible Business Reporting Language (XBRL), which I have written about. This mandate created a tipping point in the workload, making the manual approach infeasible for a large number of companies and motivating them to adopt tools to automate the process. Although disclosure filings were the initial impetus to acquire collaborative disclosure management software, companies have found it useful for generating a range of formatted periodic reports that combine text and data, including board books (internal documents for senior executives and members of the board of directors), highly formatted periodic internal reports and filings with nonfinancial regulators or lien holders.
Tagetik’s Collaborative Disclosure Management automates the document creation process, eliminating many repetitive, mechanical functions and reducing the time needed to administer the process and ensure accuracy. Automation can shorten finance processes significantly. For example, our benchmark research on trends in developing the fast, clean close finds that companies that use little or no automation in their accounting close take almost twice as long to complete the process as those that fully automate it (9.1 days vs. 5.7 days). Manually assembling the narrative text from perhaps dozens of contributors and combining it with data used in tables and elsewhere in the document is a time-consuming chore. Regulatory filings are legal documents that must be completely accurate and conform to mandated presentation styles. They require careful review to ensure accuracy and completeness. Complicating this effort recently are increasingly stringent deadlines, especially in the U.S. Anyone who has been a party to these efforts knows that there can be frequent changes in the narratives and presentation of the numbers as they are reviewed by different parties, and those responsible need to ensure that any change to a number that occurs is automatically reflected everywhere that amount is cited in the document; to use the depreciation and amortization figure as an example, that would include the statement of cash flows, income statement, the text of the management discussion and analysis and the text or tables of one or more footnotes. Moreover, automated systems afford greater control over the data used. They make it possible to answer the common question of where a number came from quickly and with complete assurance. While inaccuracies in other types of financial documents may not have legal consequences, mistakes can have reputational or financial consequences.
Those managing the process also spend a great deal of energy simply checking the document to ensure that the various sections include the latest wording, that the numbers are consistent in the tables and text, that amounts have been rounded properly (which can be really complicated) and that the right people have signed off on every part of the filing. Automation obviates the need for much of these tasks. Tagetik’s CDM workflow-enables the process, so handoffs are automated, participants get alerts if they haven’t completed their steps in timely fashion, and administrators can keep track of where everyone is in the process. Workflow also promotes consistent execution of the process, and the workflows can be easily modified as needed.
In designing Collaborative Disclosure Management, Tagetik took advantage of users’ widespread familiarity with Microsoft Excel and Word to reduce the amount of training required to use its product. CDM’s workflow design makes it relatively easy for business users to define and modify business process automation. Typically, individuals or small groups work on different sections of the document. CDM enables multiple contributors from finance, accounting, legal, corporate and other functions to work with their part of the document without being concerned about other contributors’ versions. Work can proceed smoothly, and those administering the process can see at any time which components have been completed, are in progress or have not even started. Tagetik’s software can cut the time required to prepare any periodic document, since once a company has configured its system to create what is in effect a template, it’s relatively easy to generate these documents on monthly, quarterly or annual bases. The numbers relevant to the current period are updated from the specified controlled sources, and references to tabular data within the text are automatically adjusted to tie back to these new figures. Often a large percentage of the narrative text is boilerplate that either must not be updated or requires only limited editing to reflect new information. Starting with the previous edition of the report, contributors can quickly mark up a revised version, and reviewers can focus only on what has changed. Other important automation features are data validation, which reduces errors and revisions, and the system’s ability to round numbers using the appropriate statutory methodology.
CDM also handles XBRL tagging, which is essential for all SEC documents and necessary for an increasing number of regulatory filings around the world. The software specifically handles tagging for the two main European prudential regulatory filings for banks and other credit extending institutions, COREP (Common Reporting related to capital) and FINREP (Financial Reporting performed in a consistent fashion across multiple countries).
Companies can gain several key benefits by automating the production of their periodic regulatory filings and internal or external financial reports that combine text and data. One of the most important is time. Automation can substantially reduce the time that highly trained and well-compensated people spend on mechanical tasks (freeing them to do more productive things), and the process can be completed sooner. Having the basic work completed sooner gives senior executives and outside directors more time to review the document before it must be filed or made public. Time that can be devoted to considering how best to polish the narratives or if necessary lengthen upstream deadlines to handle last-minute developments and consider options for how best to treat accounting events. Automation can also reduce the chance of errors, since the numbers tie directly back to the source systems and (if properly configured) ensure that references in the narratives and footnotes to items in tables and the numbers in those table agree completely. Restatements of financial reports caused by errors are relatively rare but when they occur are exceptionally costly for public companies’ reputations.
Disclosure management systems are an essential component for any financial performance management (FPM) system. All midsize and larger corporations should be using this software to automate the production of their periodic mandated filings and other documents that combine text and data. They will find that they are useful in cutting the time and effort required to produce these documents, provide senior executives and directors more time to review and craft the final versions, and reduce the chance of errors in the process. Companies that are using older FPM software should investigate replacing it with an FPM suite to gain the additional capabilities – including disclosure management – that newer suites offer. Tagetik’s should be among the financial systems evaluated for office of finance.
Robert Kugel – SVP Research