Finance Geek: 21st Century Reporting Needs

Companies have spent much time, money and effort assembling IT systems that make it easier to collect information in a coherent, consistent fashion and then to use it effectively. Yet our benchmark research consistently shows that a majority of companies do not provide all of the right information to their employees. To be sure, the same research shows that most do at least an adequate job of delivering basic accounting and operating data efficiently and accurately. This is hardly surprising given the substantial IT investment that’s been made over the past 20 years.

Now that this mission is largely accomplished, though, it’s time to move on to providing deeper and more insightful reporting capabilities that will deliver competitively valuable information and insights. Senior executives, especially in finance, must guard against their IT department devoting too much effort to refining the technology that delivers basic reporting. Rather, these executives ought to be ensuring that steps are being taken to provide all who need it with the next level of information. We refer to this as addressing 21st century reporting requirements rather than the 20th century ones.

For many years companies targeted their reporting and analysis efforts at accounting measures and some high-level operating data (for example, units produced, utilization rates or number of employees). In recent years, though, corporations have substantially broadened the scope of their automation to include customer relationship management, supply chain management and other externally facing and operating functions, and as a result have been collecting a much wider and deeper range of data that can be used to measure performance. Addressing 21st century reporting requirements means increasing the availability of this nonfinancial operational information in useful forms and ensuring that it is accurate, consistent and shared across the organization.

Our research shows that in general companies provide sufficient traditional accounting and operating information. For example, in recent research nearly three-fourths of participants reported they are getting enough financial information about their company, and fewer than one in five said they get too little. When it comes to nonfinancial information, though, the picture isn’t quite as pretty. True, more than half said they are getting sufficient information about their business units’ operating performance, as well as how well they are performing to their objectives. Still, about one-third are not getting even this basic level of service. Moreover, based on other benchmark research we have done in this area and our ongoing work with companies, we think the assessments of adequacy are too lenient because they are based on what people are used to receiving. Considerably more information exists that would help people gain a broader and deeper view of their performance and the performance of their business units.

When it comes to providing more specific information about operations, participants reported some key shortfalls. One of the most significant was the lack of forward-looking information. Only 20 percent of participants said they get enough information about leading indicators that will help them anticipate business issues or opportunities; 60 percent reported they do not get enough, and 20 percent are not receiving any. This response isn’t surprising; the traditional reliance on accounting information as the basis for management reports produces information mostly about the past. Creating and reporting on leading indicators usually requires bringing together operating as well as accounting data because of the need to identify and quantify “things” related to the business such as units, time on task, defect rates and frequencies (to name just four) to yield information that can be used in conjunction with the financial details to predict unfolding issues.

Almost all companies’ management reports present results in the context of year-over-year performance or actual-to-budget comparisons. Why? Business is ultimately not an us-vs.-us proposition – it’s us vs. them. If sales are up 5 percent and you were expecting a 10 percent increase, is that bad? Not if your major competitors are experiencing flat sales. Yet only 15 percent of our participants said they have adequate information about their competitors’ performance, while more than one-third (36 percent) said they receive no such information at all.

The us-vs.-us approach used to be understandable because until relatively recently it was hard for companies to systematically collect information about their own business and even harder to acquire information about markets and competitors. Moreover, the budgeting, forecasting and review process in most companies is set in an us-vs.-us context: How did we do compared to the plan and to last year? It is no surprise that people do not compare their performance to key competitors and the market as a whole. This need not be the case, though; today it is eminently feasible to collect market and competitor performance information centrally and deliver it to managers to provide a relevant context for their evaluation of their business performance. The U.S. Securities and Exchange Commission’s “interactive data” mandate requires companies to publish their filings electronically in a way that standardizes and simplifies the way they present company information. In the past you had to manually copy data from SEC. This new mandate will make it far easier for companies to collect and use performance data from comparable companies to benchmark their performance.

One common reason why companies do not go beyond an inward historical focus in their reporting is that they have internalized a set of one-time constraints to the point where they have become enduring habit. That’s because until recently that was all they could do with the computing systems they had. That no longer need be the case. Yet most people in business roles are not aware of what they can do today because they do not know what IT systems now are capable of, and people in IT roles do not see the potential of the data they are collecting to provide useful information to managers.

Without knowing what potentially useful information is actually available, it is difficult for the users of systems to specify the data they need. This is particularly true when it comes to using information in innovative ways, such as to create leading indicators. In workshops we find most people have had limited experience identifying leading indicators and using predictive analytics and can have a hard time identifying the measures that could help them anticipate changes in their business.

Companies also may not have an IT infrastructure that makes it easy enough to get a more complete picture about company operations, to create more forward-looking metrics or to get a deeper understanding of performance relative to competitors or the market. In far too many cases, information is stored in separate systems that don’t interoperate easily or is fragmented across multiple data stores, both situations that hinder timely or insightful reporting and analysis. Performing ongoing analysis of leading indicators, for example, is hard to do without centralizing accounting and operating data sources and being able to access up-to-date information from these sources efficiently.

These and many other capabilities are within reach, but organizations must realize that and seek them out. Those that do can take a big step forward into the 21st century, ahead of those that still look to the past.

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