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IBM Software recently held a user group conference called Vision 2011 that focused on its Clarity Systems acquisition’s users but also covered broader finance department topics. For me, the highlight of the show was the continued evolution and enrichment of the Clarity FSR external reporting application designed to automate the close-to-report cycle. This process is commonly referred to as “the last mile of finance,” a term coined by a now-defunct company, Movaris, and adopted by Gartner. If you think about it, though, it isn’t “the last mile” for the tens of thousands of companies that don’t publish financial statements and is only one of several important finance department processes that follow the accounting close (such as internal reporting and tax statement preparation).
Finance departments have long needed to automate the assembly of periodic documents that combine words and numbers. These documents include the quarterly and annual reports public corporations are required to submit to the United States Securities and Exchange Commission (SEC), the Canadian Securities Administrators, the United Kingdom’s Financial Services Authority (FSA) and other agencies. Historically, companies have cobbled together these filings from bits of text created by a variety of people in several departments (chiefly finance and legal), using numbers that come from a range of sources. These sources include accounting data from a consolidation system, other enterprise systems, data warehouses and spreadsheets that track headcount, leased premises, stock performance, advertising expense and executive compensation, to name just five.
FSR automates the document creation process, eliminating the need to perform repetitive, mechanical functions and reducing the time needed to ensure accuracy and the time spent managing the process. Manually assembling this information into a document has always been a chore, even after word processing and spreadsheets were adapted to this purpose decades ago. These 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 numbers as they are reviewed by different parties, and those responsible need to ensure that any change to a number that occurs (such as the depreciation and amortization figure) is automatically reflected everywhere that amount is cited in the document (in this 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). Those managing the process 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 each and every part of the filing. FSR workflow-enables the process, meaning that 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.
Despite the fact that technology (specifically document management systems) has been widely available to automate the close-to-file process for a couple of decades, it was not widely adopted by finance departments. Some of this reflected the cost and effort required to deploy these heavy-duty systems and some was the usual “we’ve always done it this way” resistance to change. To be fair, about 50 years ago the SEC’s 10-K (annual report) and 10-Q filings were rather sparse and there wasn’t much to check. They have only gradually become the data- and disclaimer-rich documents we know today. Companies would have kept pulling these reports together manually except that the SEC mandated tagging that they use eXtensible Business Reporting Language (XBRL). This represented a tipping point in the workload because although tagging the basic financial statements is not labor-intensive, the broader requirement for tagging footnotes is. This has been enough for many companies to adopt tools like Clarity FSR.
FSR, built on Microsoft software components, takes advantage of a wide familiarity with Excel and Word to reduce the amount of training required of end users. The time required to prepare the document is reduced, since once a company has configured its system to establish, in effect, a template, it’s relatively easy to create each quarterly or annual XBRL-tagged filing for the SEC. IBM Clarity has continued to incorporate new techniques in FSR for simplifying and further automating the creation and tagging processes.
The users conference included a presentation by Time Warner, which was an early adopter of FSR. Its reasons for using the software to do the work, rather than relying on a third party (such as a financial printer or service provider), seem sound to me. Namely, it saves time and reduces the effort required to produce an accurate and complete document. Moreover (and personally I think this is extremely important), it gives those responsible for external financial reporting, the legal department and the company as a whole greater control over the process. Corporations can have more time (even a crucial day or two) to review what is in the document and concentrate more on what the document should contain rather than defaulting to what’s practical in the time allotted. (As they like to say in auditing, the threshold of materiality rises exponentially as deadlines near.)
Although FSR was designed specifically for the SEC’s XBRL mandate, once FSR is in place, it can be used in many other ways. For example, Time Warner is using it to file statutory reports in the U.K. The number of jurisdictions that require XBRL-tagged filings is increasing worldwide, and not just for periodic corporate financials. This is especially true for financial services companies engaged in banking and insurance. Companies can and should also offer their financial press releases in a tagged format to make them easier for analysts and investors to incorporate these numbers in their models at the time earnings are announced. (This was one of the reasons why XBRL was created.)
Beyond external financial reporting, FSR can be used by finance organizations to create any periodic document (even ones simply for internal consumption) that combines words and numbers. This would be especially useful where multiple people must collaborate to produce narratives and collect data from multiple sources. It can cut the amount of time and effort required to produce them and it gives whoever is responsible a valuable administrative tool for automating workflows and monitoring the status of each component.
FSR has evolved from its original release, with ongoing improvements that have increased the efficiency of the process. I think finance departments in midsize and larger corporations, especially public companies, can benefit from utilizing a tool such as FSR. I also believe most companies that are outsourcing the tagging process and have avoided automating their document assembly are making a strategic mistake. The benefits of automation are greater and the net cost of using this sort of tool is much lower than they probably realize. I recommend that companies that are considering a tool for automating their periodic external filing include IBM Clarity FSR in their software evaluation list.
Robert Kugel – SVP Research
SAP announced the release of version 10 of its SAP BusinessObjects Enterprise Performance Management (EPM) Solutions suite, an enhanced and updated set of applications and capabilities for executives and managers. In our Value Index assessment of financial performance management suites and my analysis of it last year, Ventana Research gave SAP’s offering the highest score, and this new release builds on that solid foundation that I already assessed in my blog. It has been several years since SAP began acquiring and assembling its performance management and analytical software assets, and the company has progressed to the point where discussing the integration efforts is becoming irrelevant. This release revamps the user interface of the different components to provide a more consistent look and feel – a crucial factor in facilitating training and improving user productivity. Outside of the suite itself, the current release is designed to integrate better with ERP, SAP NetWeaver BW, risk management and BI. In facts it establishes a foundation for finance analytics that I have researched and is essential for doing what I call and have written about in putting the “A” back in FP&A.
EPM incorporates a range of financial and performance management functionality, including strategy management, planning, sales and operations planning (S&OP), financial information management, profitability and cost management, spend management and supply chain performance management, as well as finance department process management software for financial consolidation, intercompany reconciliations and disclosure management. These components now have a more consistent user interface and all have been given some enhancements to their functionality especially in the path to supporting the need for I call integrated business planning that SAP has indicated is strategic to its future and use of its in-memory computing technology called HANA.
SAP also has improved integration of EPM with mobile devices like Apple iPad, which allows executives and managers who spend a large portion of their time away from their desks to have access to the information they need in a timely and contextual fashion, and lets them interact with the data to gain deeper understanding of underlying causes and potential outcomes. (My colleague Mark Smith covered mobile business intelligence in this blog.)
Release 10.0 includes the Disclosure Management application, which enables companies to automate the process of preparing external financial reports and regulatory disclosures. This capability will aid the increasing number of public companies in the U.S. that need to file their financial statements with a more complete set of eXtensible Business Reporting Language (XBRL) tags that I already assessed on the importance of automating. Companies can save considerable time using the software by systematizing their data collection, using workflows for managing the assembly of the text that goes into these filings, applying tags to text and data (if necessary) and automating the assembly of text and numbers in the exact format required. Automating this process gives executives more time to review filings and lessens the risk of reporting errors by changing mainly manual processes into a more systematized one. Performing this work in-house rather than outsourcing it gives companies greater control over the process and likely will save them a considerable amount of time following a relatively short learning curve. I provided some insight on this advancement when SAP acquired software assets for this new offering that has now come to market.
The current release builds enhanced enterprise risk management procedures into the overall performance management process. Outside of financial services, few companies explicitly quantify risk in their planning and performance assessment processes. Too often, managers are evaluated solely on productivity measures and therefore can be given disincentives to weigh risk factors. These risks may be well understood by business unit and divisional managers but are almost never communicated to senior executives. As I noted in a previous blog, this gives rise to agency risk within a company.
Although almost every company is mindful of achieving its profitability objectives, many fall short in coordinating the actions of their various silos and operating units to optimize the trade-offs they must make, especially as events unfold after the annual planning process. Profitability management enables senior executives to analyze and assess alternatives and optimize these trade-offs.
EPM 10 continues the necessary evolution of the financial performance management suite. It’s not necessary for finance organizations to manage performance and core finance operations using software from a single vendor (and most don’t). However, suites give companies the option of doing so, which can be a less costly way of buying and maintaining this functionality. Finance organizations looking at a consistent user experience and technology for GRC will find SAP BusinessObjects GRC 10 is empowered by SAP EPM 10 capabilities.
Today, technology is pushing a fundamental shift in how companies use financial performance management software. The increasing availability of in-memory computing (HANA in SAP’s case, which my colleague David Menninger discussed in his blog), cloud computing and mobile devices enables a fundamental shift from today’s once-a-month, accounting-based rear-view-mirror approach to assessing performance via an anywhere, anytime interactive view that blends financial and operating results and provides a richer, more accurate measure of results. In fact my colleague at SAPPHIRE NOW 2011 user conference has already seen how SAP was demonstrating a new dynamic cash flow management on SAP HANA to help advance the efficiency of accounting and financial operations.
I recommend that organizations considering any component of a financial performance management suite should include SAP BusinessObjects EPM 10 in their list of products to investigate. This application suite can clearly help finance and is a better path than doing what I call the ERP forklift migration
Robert Kugel – SVP Research