The electronic spreadsheet is entering its fourth decade. It has revolutionized the finance function, giving it a powerful information technology tool. Desktop spreadsheets are cheap and versatile, and millions of people work with them every day. They're a handy way for individuals or small groups to do ad-hoc analysis and reports, prototyping, and other common tasks.

In a corporate setting, however, where they are used over and over or are employed by larger groups, they have serious disadvantages that outweigh these conveniences. They are error-prone: Our benchmark research shows that a majority of business users find mistakes in data and formulas in the most important spreadsheets they use. Most people have to combine spreadsheets, a task that even experienced users find arduous. They are difficult to audit and clumsy to work with in collaborative, repetitive, business processes such as budgeting. They do not readily support complex analysis and reporting.

Unfortunately, none of these issues is fatal, which is why people persist in using desktop spreadsheets where they shouldn't. This is the problem, because the misuse of desktop spreadsheets in small, unnoticed increments wastes large amounts of time and prevents companies from improving important processes, especially in finance departments.

There was a time when there were few if any practical alternatives to desktop spreadsheets. Today there are many. You'll never eliminate spreadsheets -- and you shouldn't try -- but there are four areas where companies will find it cost-effective.

Desktop spreadsheets were never designed to manage repetitive, collaborative business processes. If a spreadsheet is used by six or more people six or more times in a process, it is a candidate for replacement. Planning and budgeting is one type of business activity where desktop spreadsheets usually stand in the way of better performance. Planning cycles that are too long, an inability to change plans rapidly enough, and an inability to drill down to underlying causes of actual/plan disparities in real time are just some of the almost inevitable problems that companies face because of the shortcomings of spreadsheets. Spreadsheets also make it difficult for different parts of the business to share their planning data rapidly. By replacing desktop spreadsheets in repetitive, collaborative processes with a dedicated application, companies can make the process a more effective business tool (especially in the case of planning and budgeting), save time, or both.

Where spreadsheets are going to be used, they should be controlled. There are audit and control features in applications such as Microsoft Excel, but they are woefully inadequate for most midsize or larger corporations. It will pay to deploy one of the available comprehensive applications that offer a full range of discovery, management, and control (DMC) or those that help to audit spreadsheets to keep track of who made what changes when. Managing spreadsheets more tightly can cut internal and external audit costs, reduce errors, speed up the completion of processes, save time, or some combination of all of these.

A third area that ought be addressed is the complex analyses that organizations do that involve more than a couple of dimensions. When applied to businesses, "dimensions" are categories of attributes used to group information -- customers, products, currency, or time, for example. Desktop spreadsheets are two-dimensional structures that do not handle multiple categories easily.

Users have developed extremely clever adaptations to deal with this. Sometimes, these are good enough to accomplish the task at hand. Too often, however, even with these adaptations, spreadsheets are time-consuming and error-prone when used for complex drill-down analyses or when you want to apply global changes. The adaptations to enable dimensionality also make the spreadsheets inflexible, meaning that very often users will have to start from scratch when more than a couple of things change. Using analytical tools that have true multidimensional capabilities can enable them to perform and present more complex analyses, increase a company's flexibility in doing ad-hoc analyses, and save time.

A fourth area where companies frequently have trouble is in using desktop spreadsheets for periodic repetitive reports. In larger companies, it is common for reports created by the IT department to be downloaded and the results dumped into a spreadsheet for further analysis and presentation. The problem is that the data may be out of date or not synchronized with other, similar reports, meaning that the numbers in different reports are different. Moreover, the results of the analyses may not be readily available to everyone who needs them because the spreadsheets are kept in some department or business unit. There are emerging solutions in this area as well. Spreadsheets are fine for one-off or small-scale reporting tasks, but in company-wide applications they can be a source of inefficiency and confusion.

The attached table covers software vendors that offer spreadsheet control and reporting management solutions. There also ire many applications that replace spreadsheets in business processes; we have covered some of these in recent columns on financial planning/budgeting and sales planning.

See a larger version of "Much Ado About Spreadsheets."