Decision support: key for material-events reporting.

Section 409, a key provision of the Sarbanes-Oxley Act dealing with real-time disclosure of material events, is dividing companies into two distinct camps: the "haves" that historically valued real-time disclosure and the "have-nots," those that had not addressed the issue until the recent legislation. The haves, in theory and practice, are already equipped to meet the new disclosure standards. Conversely, the have-nots--an unfortunate majority of companies--are now scrambling for solutions.

Section 409 of Sarbanes-Oxley calls for the real-time disclosure of material changes that will impact the financial condition or operations of a corporation on a "rapid and current basis." This may include such issues as trend and qualitative information, and significant changes in sales volume or operations structure. The deadline for adoption is tentatively set for January 2005.

Interestingly, those companies that have invested in decision-support capabilities, even before Sarbanes-Oxley, are already meeting the requirements. (Decision support is the function that enhances business planning with detailed analytical information and is actively engaged in managing the business strategy for the long term.) For these companies, the difficulties associated with meeting the legislated requirements have already been absorbed, and the practices are routine. Not surprisingly, these same companies are also realizing the associated business benefits of the more efficient systems.

On the other side of the equation, the companies that are just getting started have a long road ahead, and are finding it difficult to adapt their business practices to comply with the new standards. Others simply lack the capability and internal systems to make instant disclosure to the marketplace, even as new requirements are mandating such practices.

Cap Gemini Ernst & Young has documented data to support this claim, based on anecdotal experiences of clients and a study it initiated in 2003 of more than 300 CFOs in a wide range of industries. In fact, fully three-quarters of the respondents cite better decision support as the basis for their business case for improving finance, and only about half cite a need for better regulatory compliance.

While this statistic may be somewhat surprising at first glance, the logic behind it is sound. Focusing only on Sarbanes-Oxley compliance is for short-term, quick fix-focused executives. In contrast, focusing on world-class decision support capabilities yields the changes required to comply with Sarbanes-Oxley and much more effectively positions companies for long-term profit improvement.

As an example, more than two-thirds of companies responding to the survey said they need more than two days to make an accurate disclosure to the marketplace. This misses even the benchmark of 24 hours used in addressing unintentional selective disclosure infringement under Regulation Fair Disclosure (Reg FD). It's obvious why companies in this situation are counted among the "have-nots."

The "haves," on the other hand, can provide corporate information instantly to senior leaders who may be facing a major corporate decision. According to the survey, of the companies that can report material changes to their financial status within 24 hours, 71 percent have already improved their management reporting processes or systems. Yet, only 45 percent of the total respondents have made these improvements.

CFOs are clearly focused on ensuring regulatory compliance, but they are also seeking to supply their businesses with decision-support services; thus, they become an integral part of the strategy-setting process. In the case of Section 409, it's obvious that a company that has invested in decision support is better able to meet the reporting requirements.

Decision Support In Action

A look at what several companies with leading finance departments have done clearly indicates that financial managers in these companies view Section 409 differently from those companies not currently meeting the requirements.

For example, Principal Financial Group Inc. had a unique perspective on Section 409: "We did not see this in terms of regulation," says Mike Gersie, its executive vice president and CFO. "We saw it as investing so that managers, account reps, finance and other executives--people from top to bottom--could get better decision support, key information and analysis in a more timely way. It just so happens that as we made these investments, we also gained the capability to meet material event requirements under Sarbanes-Oxley."

[ILLUSTRATION OMITTED]

FedEx Express, the largest operating unit of Federal Express Corp., another pioneer in decision support, was among a handful of large companies that understood early that decision support capabilities were crucial to its abilities to run a multinational growth company. Real-time information was not a luxury--it was a necessity. The same principle applied to compliance involving real-time disclosure and Section 409. FedEx Express reiterates that decision support and improved operational and financial performance are indeed complementary, not conflicting.

Investing early in decision-support technology capability has turned out to be visionary. One bonus is that powerful new tools allow a company better insight into the nature of what is happening within the company, what is driving change at the company and in the marketplace, and to see new openings for improving operations and financial performance.

Today's Decision Support Tools: Next Logical Step

Decision support through IT has been around in one form or another for 40 years. Today's decision support is the next logical step in applying the powers of IT more widely and effectively in business, improving sales and marketing, developing new products and getting them to market faster.

CFOs are aware of this shift. As the finance function evolves, CFOs see technology as playing a major role. However, three technologies that yield the greatest savings are still underutilized. Today, only 25 percent use Webbased self-service; 36 percent have standardized processes and systems; and 38 percent are leveraging data warehousing. Companies who have used these technologies, however, report that they are more likely than others to generate long-term savings.

Through the application of new tools and IT infrastructure, today's version of decision support is also taking analysis deeper and wider. At the same time, it is more focused--mining information from more places to find previously unnoted relationships and insights into drivers of change, for improving the use of capital and assets. All of these can improve marketing, sales and product development. A piece of information in one database might not mean much when isolated from three or four others. Put those together, however, and the assembled information begins to add up to something significant.

Building on what has already been learned, companies will achieve more effective decision support and gain the capacity to have greater insight into what happened the last year, the last quarter and the last week. Subsequently, as companies identify their key operating drivers, integrate systems, validate the appropriate sources for data and redesign related processes, they will begin to forecast the future more clearly.

For better or worse, Sarbanes-Oxley will continue to separate weak finance departments from the strong. Those finance groups that are starved for development resources are feeling the most heat from new regulations. In contrast, finance groups that have been steadily improving management's insight by building strong decision-support capabilities and becoming value-added business partners are meeting the new requirements without having to endure a major upheaval.

For now, though, the prudent concern for many companies is short-range: gaining decision support that will promote compliance with Section 409. While moving towards this objective, these companies should also aim to get more and better information and analysis to the widest possible audience, thus improving operations and financial performance.

Ian Downes and Richard de Moll are both vice presidents with Cap Gemini Ernst & Young. For more information on Cap Gemini Ernst & Young's Finance Transformation offers, visit the Web site at www.us.cgey.com/transformfinance.