Until recently, companies relied mainly on financial data for management reporting, largely because it was most readily available. Before computers, much of this data was stored in paper ledgers, and analysts performed basic analyses to measure basic ratios in the balance sheet and income statement (such as the current ratio, gross margin, or days sales outstanding). As corporations became larger and more complex and acquired computers able to store, analyze, and report on the accumulation of data, businesses developed more sophisticated methods of looking at their financial data.
But this advance wasn't enough. Executives moaned about not having the right data available soon enough. As information technology has advanced over the past decade, companies have invested billions of dollars in business intelligence, data warehousing, and reporting systems to try to get better information sooner.
This investment finally has paid off: In a recent research survey of ours, nearly two-thirds of respondents from large corporations in North America (those that have 1,000 or more employees) told us that they are getting all or most of the basic financial and operating data they need, and two-thirds said that they are getting this information soon enough. Midsize companies (those with 100 to 1,000 employees) have fared less well, probably because they have lagged larger ones in making these IT investments.
Now, even for companies that have addressed the long-standing requirements of better financial information received faster, it's time to move on to the next set of management reporting needs.
In most companies, a large portion of the information in reports still is related to accounting. As a result of the proliferation of large-scale computing systems that cover a variety of business processes, which include enterprise resource planning (ERP), customer relationship management (CRM), and supply chain management (SCM), companies collect -- and therefore should have access to -- a wider range of business data than ever before. Yet our research shows that a majority of large and midsize companies underutilize the data they already collect for making business decisions and planning.
Of course, standard financial data is important, but relying mainly on this information is likely to produce less-than-optimal results. The idea of the balanced scorecard originated in the experience of an executive who was frustrated by his company's exclusive use of accounting data to measure performance and make decisions. Rather than relying on analysis of margins and ratios alone, he believed that his company needed to consider customer satisfaction metrics such as fulfillment ratios and measures of production quality. That company was successful in applying nonfinancial information to performance assessments and planning to produce better results. Today, though -- some two decades later -- many companies still rely too heavily on GAAP measures in management reporting to assess their performance.
We think that you will find opportunities to add to your arsenal of management information just about anywhere you look. Your ERP, CRM, and SCM systems are -- or should be -- collecting data that can become useful information. Your company may already be tracking its fulfillment rate, since timely and complete shipment of goods is important to customer satisfaction, but if your company has recurring orders, it probably does not track the frequency and amount of these orders.
Why do that? Because not getting a new order within an average period or having an order that is smaller than usual may be an indicator that you are losing ground to the competition. Or you might want to track how long it takes from getting an order to collecting payment for it. Focusing attention on this metric and identifying the factors that delay receipts can speed your cash flow. Thinking in the other direction, does your company know how much it has lost so far this year by not taking discounts for timely payment?
Our research also shows that while a majority of respondents said that they are getting enough higher-level information, they do not have enough ongoing feedback about how well they are performing to their objectives. Many companies have already purchased software for creating and managing scorecards that will collect and present this kind of information for individuals, work groups, and business units, but have not made full use of it.
We also find that most companies do not provide employees with information about what's going on outside the company -- information about how well competitors are performing, or key customers. The Internet has made it far easier to collect and distribute information, so there are many more accessible sources available for any kind of business. Need to know trends in shopping mall occupancy in a specific area for the past 10 years? It's available. Most of these data sources cost money, but public company data, such as found in the United States' EDGAR or Canada's SEDAR databases, is there for the taking. It used to be that collecting and disseminating this kind of information was difficult, but not anymore.
The quality of reporting information has improved over the past decade as reams of green-bar paper crammed with endless rows of numbers have given way to custom electronic reports available in portals or dashboards delivered through e-mail. These make information more accessible, and using a visual representation of data (through gauges or stoplights, for example) helps to orient people quickly and highlight exceptions that require attention.
These tools are common; fewer companies make use of location intelligence by displaying information in a geographic context to help spot trends and relationships between data. For example, the New York City Police Department has used this approach to find areas where many petty crimes have been committed and require more intensive policing. Retail establishments can use location intelligence to understand better where their customers are and how they can site new locations most effectively. Likewise, sending reports to mobile devices has steadily become easier to do and can help any employee who spends more time outside the office than in it.
What prevents companies from collecting and using more sources of management information, particularly the nonfinancial kind? We think that it's mainly a result of not realizing how much more is out there or even that their existing systems could collect, analyze, and report it.
Normally, this column provides a list of IT vendors that supply tools related to the topic, but we won't this month. Our point is that your company may not have to buy anything new or hire a single consultant to improve the quality of the information that management uses to make decisions.
Our research shows that companies are not using their existing IT resources as effectively as they should. To correct this needless oversight, your company should have a steering committee consisting of people from finance, IT, and lines of business that looks for new ways of applying the systems you already own.