The Right Stuff

Our benchmark research consistently shows that a majority of companies do not provide all of the right information to their employees. It's true that 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. The same research shows that a large majority of companies now do at least an adequate job of delivering basic accounting and operating data efficiently and accurately — which is not surprising, since this has been the focus of most IT investment and deployment efforts from the start of business computing. This mission is largely accomplished, so it is time to move on to providing more complex reporting capabilities that can deliver competitively valuable information and insights. To put it differently, senior executives — especially in finance — must guard against their IT departments devoting too much effort to refining basic reporting and ensure instead that they are taking steps to provide the next level of information. We refer to this as addressing the 21st-century reporting requirements rather than the 20th-century ones.

For many years, companies focused their reporting and analysis efforts on accounting measures and some high-level operating data (units produced, utilization rates, or number of employees, for example). As corporations have broadened the scope of their automation in recent years to include customer relationship management, supply chain management, and other externally facing and operating functions, they 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 and ensuring that it is accurate, consistent, and shared across the organization.

For the most part, our research shows that companies provide enough of the traditional, high-level accounting and operating information. For example, in recent research nearly three-fourths of participants reported that they are getting enough financial information about their company, and fewer than one in five said that they get too little. This is terrific, but now it's time to move on to the newer challenges of the Information Age.

These challenges include the other types of information we asked about. When it comes to providing more specific operational information, participants reported many shortfalls. More than half said that they are getting sufficient information about their business units' operating performance, as well as how well they are performing to their objectives, but about one-third are not. Moreover, based on other benchmark research we have done in this area and our ongoing work with companies, we think that 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 to gain a broader and deeper view of their performance and the performance of their business units.

But companies have to cast a wider net to get a broader set of data. The traditional reliance on accounting information as the basis for management reports produces information mostly about the past. Thus it is not surprising that our benchmark research finds that only 20 percent of participants said that they get enough information about leading indicators that will help them to anticipate business issues or opportunities, 60 percent reported that they do not get enough, and 20 percent are not getting any. Creating leading indicators usually requires a combination of operating and accounting information.

Almost all companies' management reports present results in the context of year-over-year performance or actual-to-budget comparisons. But obviously, business is not just 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 that they have adequate information about their competitors' performance, while more than one-third (36 percent) said that they receive no such information at all.

Until relatively recently, it was hard for companies to systematically collect information about their own business and far more difficult to acquire information about markets and competitors. Moreover, since the budgeting, forecasting, and review process in most companies sets an us-vs.-us context, it is no surprise that people do not by default compare their performance in contexts that really matter. Today, however, it is far more manageable to collect this type of information centrally and disseminate it to managers to provide the proper context for their evaluation of their business performance.

One common reason why most companies do not go beyond a historical, inward focus in their reporting is a set of constraints that have been internalized to the point where they have become habit. Until recently, this was all they could do with the computing systems they had. This no longer needs to be the case. Yet most people in business roles are not aware of what they can do because they do not know what IT systems 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. Not knowing what information could be useful and what is actually available, it is difficult for the end users of systems to specify the data they need. This is particularly true when it comes to using information in innovative ways, such as using leading indicators. In workshops, we find that most people have had limited experience with them and can have a hard time identifying the measures that could help them to anticipate changes in their business.

They also may not have an IT infrastructure that makes doing this feasible. In far too many cases, information is held in separate systems that don't interoperate easily or is fragmented across multiple data stores, both of which hinder more timely or insightful reporting and analysis. Performing ongoing analysis of leading indicators, for example, usually involves bringing together accounting and operating data, which is hard to do without centralizing data sources and being able to access up-to-date information from these sources efficiently.

Again, our point is that these capabilities are within reach, if only organizations realize this 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.

See a larger version of the chart here.