Spreadsheets Enter the 21st Century: Innovation Is Coming (Part 2) - InformationWeek

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Spreadsheets Enter the 21st Century: Innovation Is Coming (Part 2)

After a decade of stagnation, new advances are coming to spreadsheets. A key technology helping to bring the widely used software tool to the 21st century is extensible business reporting language.

VentanaView

Summary

Stand-alone spreadsheets are an ingrained feature in almost all corporations. Although they are fine for individual tasks or one-off analyses, Ventana Research asserts they are a problem when used for collaborative, repetitive and enterprise-wide processes. We advise companies to eliminate them as much as possible from important tasks such as the accounting close, budgeting, sales commission calculations and others, by fully automating them within their enterprise resource planning (ERP) or business intelligence systems, or with analytical packages or dedicated applications.

Still, it is unlikely that companies will be able to eliminate all or most of their spreadsheets. After a decade of stagnation, innovation is coming to spreadsheets that will address some of their most important shortcomings. A key technology in this advance is eXtensible Business Reporting Language (XBRL).

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XBRL is a data-tagging technology based on international standards that enables individuals and organizations to share financial information regardless of the form or format in which the data is presented. XBRL addresses an important defect in stand-alone spreadsheets in that the context of a number depends entirely on its location in a grid.

For individual or ad-hoc use, this is almost never an issue. However, when, for example, users add rows or columns and the spreadsheet is one of several rolled up into a consolidated view, chaos ensues because the numbers no longer “line up” properly. In a situation involving dozens of spreadsheets, the debugging process becomes the arduous task sometimes called “Excel hell.”

In addition, when one company publishes its financial statements, in a press release or even a spreadsheet, individuals who wish to use this information must re-key it into their own spreadsheets, which can be time-consuming. It also can produce errors even when those doing the work copy and paste the information; the data may be placed in the wrong cell or grouped together incorrectly.

XBRL addresses these issues because the tags preserve the context of the data (the metadata) no matter how and where the data is used. It identifies a number as, say, “advertising” for “July 2006.” What’s more, the taxonomic structure of XBRL automatically classifies it as an expense and as belonging to the third quarter of 2006. Regardless of how the person or organization chose to organize the data originally, other individuals will be able to structure the presentation however they wish at whatever level of summarization they want. (Different countries present the items on their balance sheets in different ways and, of course, use different languages to caption the data.) The benefits are not confined to public reporting. Since the metadata definitions follow standards, it will enhance data quality significantly in internal reporting and reduce the incidence of “dueling spreadsheets.”

XBRL was developed with the idea of facilitating the process of publishing and using financial reports by corporations required to make their statements public. Indeed, this is where companies have applied it first. Investors may be the main consumers of the information, but Ventana Research expects large corporations will find it useful for tracking a range of potential acquisition targets, competitive intelligence, performance benchmarking and other uses. Yet XBRL can (and we think likely will) be used for a variety of shared data. Since the tags are extensible, companies or industry groups may develop their own tags to process Web-based forms and handle data interchange between corporations.

We are still in the early days of XBRL. While the U.S. Securities and Exchange Commission (SEC) has tried to encourage broad use, the uptake by filers has been limited. Regulators have made XBRL use mandatory mainly in situations where such reports were an extension of existing requirements and the tags were based on well-established definitions consistent across the regulated companies. Tools that will simplify the task of creating, editing and sharing XBRL-tagged data are still in their infancy. The taxonomies that define the tags and their structure require further refinement. Most important, organizations have not developed the requisite skills to work with XBRL. Nonetheless, we assert XBRL is coming and will be a “must have” skill in companies within a decade.

Assessment

Stand-alone spreadsheets have been a source of productivity for finance organizations, but when used in enterprise-wide activities they have serious defects that inflate costs and limit effectiveness (budgeting and closing are good examples of this). These defects are particularly pernicious because the problem is largely invisible to finance executives. Ventana Research advises companies (led by CFOs and controllers) to assess how new technologies (such as XBRL, applications that enhance control and auditability, and server-based spreadsheet options in the upcoming release of Microsoft Office) will enable them to reduce costs, reduce the risk of financial misstatement and enhance the effectiveness of finance and business processes. Stagnation in the evolution of spreadsheets is ending at last, and finance executives should be ready to sharpen this critical tool of their trade.

About Ventana Research
Ventana Research is the leading Performance Management research and advisory services firm. By providing expert insight and detailed guidance, Ventana Research helps clients operate their companies more efficiently and effectively. These business improvements are delivered through a top-down approach that connects people, process, information and technology. What makes Ventana Research different from other analyst firms is a focus on Performance Management for finance, operations and IT. This focus, plus research as a foundation and reach into a community of over two million corporate executives through extensive media partnerships, allows Ventana Research to deliver a high-value, low-risk method for achieving optimal business performance. To learn how Ventana Research Performance Management workshops, assessments and advisory services can impact your bottom line, visit www.ventanaresearch.com.
2006 Ventana Research

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