IT and the future of decision making: information technology has been changing the way business is done for more than 20 years, and its role in decision making has catapulated. Yet, while information is plentiful, the transparency has information is plentiful, the transparency hjas introduced new complications for making the best use of the data.

Information technology is used to gather data for a variety of reasons by investors, companies, consumers and competitors.

Investors use IT to learn more about company performance so that they can make better investment decisions. Company leaders use IT to get information about their costs and their customers so that they can improve performance. Consumers use IT to learn more about a firm's products and services so that they can stretch their dollars. Competitors use IT to compare their performance with that of their peers.

These and other needs can be answered with data, which has become plentiful.

But while technology has enabled delivery of increasing amounts of information to businesses and individuals, it has introduced new complications: What should be done with all the data? How can it be more relevant and be used more efficiently to foster better decision making?

To help answer these questions, Financial Executives Research Foundation sought insight from several IT gurus: a senior financial executive with a leading technology company, a representative of the U.S. Securities and Exchange Commission, an IT consultant and two IT service providers.

Clay Slabs: Looking Back

In an exhibit at the University of Pennsylvania in Philadelphia sits a 5,000 year-old Hittite clay slab that was produced by marking wet clay with a stylus. "It is said that 70 percent of the Hittite clay slabs produced were financial documents, such as invoices," says William D. Lutz, who chairs the U.S. Securities and Exchange Commission's 21st Century Disclosure Initiative.

"We have replaced the stylus and clay with ink and paper," he says, adding, "Now, after 5,000 years, it's time to update how we produce and store financial documents."

The SEC's 21st Century Disclosure Initiative is the commission's effort to fundamentally rethink financial disclosure--and catch up with technology already in use. Indeed, Lutz says that a chief financial officer of a top 10 United States corporation told him that the only time his firm puts its financials on paper is when it files with the SEC!

At any moment, Lutz adds, "this CFO could look at a monitor on his desk and see data from anywhere in his organization 24 hours a day." The individuals, and thus, the firms that understand the data they see are the ones that will be able to adjust and adapt, develop and grow, Lutz says.

He extends that vision to the SEC Web site, where visitors could someday key in a command, such as, "Let me see annual sales numbers for all retailers for the past five years," and have usable information appear in front of their eyes within seconds.

"Stop and think what you have to do in the SEC's EDGAR [Electronic Data Gathering Analysis and Retrieval] system to compare one business's 10-K with another's. In our [new] design, this would all be interactive online."

[ILLUSTRATION OMITTED]

How could this be done? By using interactive data, such as extensible Business Reporting Language (XBRL). Interactive data promotes transparency, because investors and potential investors would have access to a company's financial position and financial performance and would quickly be able to compare one company with another. Thus, investment decisions should become easier and better informed, enabled by today's IT.

Likewise, companies would benefit, explains Lutz, since filing electronically would save costs. Companies would only be required to enter data that has changed and not repeat the full document.

"Democratization of data" is the way Lutz characterizes the project. "By using basic, inexpensive, off-the-shelf software, individual investors will have access to the same analytical tools and data as any Wall Street analyst," he claims.

Released in January, the 21st Century Disclosure Initiative, Toward Greater Transparency: Modernizing the Securities and Exchange Commission's Disclosure System, states, "Modernizing the disclosure system will improve transparency by making disclosure information more accessible and easier to use."

The executive summary for the report provides four guiding principles for an interactive data-based approach for the SEC:

* Disclosure information and other data should be submitted and stored in an interactive format;

* The commission should consider establishing a data warehouse, with a principles-based framework for managing the data;

* The commission should consider providing for multiple submission methods for disclosures; and

* The commission should consider providing for multiple dissemination methods for disclosures.

Finally, the report encourages the commission to "lead the way in fostering greater transparency for investors." Interactive data, argues Lutz, may just be the first step.

Interactive Approach for Investors

For investors who want to find out about a specific company, one useful application of interactive data is a product known as "Investor Central," which is hosted on Microsoft Corp.'s Web site.

"People want information now," says Frank H. Brod, corporate vice president, Finance and Administration and chief accounting officer for Microsoft.

Brod, an FEI member, says he accompanied Microsoft CFO Chris Lid-dell to some of the subcommittee meetings of the SEC's Advisory Committee on Improvements to Financial Reporting (CIFiR), on which Liddell was a participant. "I wondered how we could use XBRL to provide useful information to outsiders," says Brod.

The result, he explains, was Investor Central. Microsoft's goal was to provide a single portal of information where any investor--whether a small, individual investor or professional analyst--could go to get information on the company.

Microsoft has had extensive experience with XBRL. In March 2002, it was the first company to provide its financial statements to the SEC in the tagged XBRL format.

[ILLUSTRATION OMITTED]

Then, in March 2005, it furnished its complete 10-Q in XBRL format--including the management's discussion and analysis, financial statements and footnotes--in anticipation of the SEC's Voluntary Filing Program. It furnished a complete 10-K for fiscal 2005, and upgraded to the XBRL 2.1 taxonomy in September 2007. Investor Central was released in January 2008.

Brod says Microsoft discussed the concept with the SEC. "They did not give us a safe haven, so we reviewed the concept with our outside counsel. All the information in Investor Central is already available elsewhere, so we had no incremental liability."

When building Investor Central, Brod says Microsoft asked: "What key performance indicators can we disseminate?" Investor Central now provides 50 different KPIs, but since KPIs can change over time, Microsoft will continually review which ones will be most useful to investors.

Feedback from analysts has been very positive, notes Brod. The Motley Fool contributor Tim Byers wrote last year that Investor Central was "as powerful as it sounds. This is where you go to know everything there is to know about the business."

Basically, Investor Central promotes transparency, by helping outsiders drill down and peer into Microsoft's finances. The company's next step will be to integrate XBRL into its internal management-reporting system.

Brod says the firm has interactive, "at your fingertips" information for internal users that use its secure Share-Point technology. "We have a huge data base of information from which we produce one version of the truth."

However, he says, they're still a few years away from integrating XBRL into the internal management-reporting system. XBRL, he notes, holds the promise of enhancing internal management reporting and enabling better and quicker decision making by senior executives.

Enabled by Transparency

Decision making is fundamentally all about transparency, says James A. Champy, chairman of Consulting for Perot Systems and author or co-author of books including the 1990s landmark Reengineering the Corporation and his latest, Inspire! Why Customers Come Back.

Companies were designed to be opaque, Champy explains.

"The old theory was that you should not disclose too much information about your products, services or processes. But the Internet enables customers to get much of this information online. This is transparency," he claims.

Champy cites Wal-Mart Stores Inc. as an example of superior use of information management and collaboration with its vendors. Wal-Mart demands full disclosure from its suppliers, he says. The company then works with them to reduce costs, so that it, in turn, can reduce its prices. The result, he says, is that "Wal-Mart's suppliers say this has helped them become more efficient."

Champy says this process can force an internal struggle within a company. Ultimately, however, this transparency is good, because it forces internal improvements to a firm's systems and processes.

"If you are good at what you do, you will have nothing to hide," notes Champy. "There is no secret sauce at Wal-Mart; they are successful because of their great execution."

The SEC's Lutz agrees with the excellent execution, citing the company's use of data for automatic inventory control. "Wal-Mart was built on an understanding of data and its use and management."

So who's the beneficiary of this execution? Champy believes of the many constituencies who have been and will be affected by advances in technology, it's customers who benefit the most.

For example, he explains that many--if not most--consumers do extensive Web research before making a major purchase, for an automobile, high-definition television and more.

[ILLUSTRATION OMITTED]

"Technology has changed the dynamics of buying," argues Champy. For proof of that thinking, he cites two recent studies:

* A Yankelovich study found that many customers knew more about a company's products and services than the company's own salespeople; and

* A J.D. Powers study showed that 40 percent of car buyers know the dealer's price before they even visit the dealer.

A company can no longer be opaque about its finances, its products or its services. The Web provides transparency in each of these dimensions, and thus enables customers to make better-informed decisions about how they spend their money.

Developing a Customer-Driven IT Strategy

So, as customers are armed with extensive information about a company's products and services, how can the firm develop an IT strategy to effectively compete?

By compiling and analyzing information on its customers, says Scott Brennan, executive director, Enterprise Performance Management practice in North America, for global consulting and technology firm Accenture.

"Managers have too much information," says Brennan. "They need to understand what data is critical." Naturally, he says, customer data is very critical.

For example, he describes the IT strategies of a hypothetical retailer: desiring to optimize both its costs and its revenues that wants to have the right salespeople on the store floor at just the right times. So, how does this retailer decide who should be on the floor at any given time?

Before deciding, the firm must track customer traffic data and then conduct multiple levels of analysis. The retailer can decompose the customer traffic data to determine the following:

* When do we need our best sales people to be on the floor?

* When do we need a lot of salespeople to be on the floor?

If the retailer can have just enough of the right salespeople on the floor at the right time, it can lower its costs and increase sales.

A technique used by some retailers to learn a lot about their customers is the use of affinity cards. When a customer applies for an affinity card, he or she provides a lot of useful information, such as data on income and education. The retailer can tie that demo-graphical information to the customer's purchases and use the resulting customer information to train its sales force and properly staff its stores.

These tactics will help the retailer be more competitive by reducing costs, getting better prices, getting more sales revenue and ultimately delivering products and services to achieve better customer satisfaction.

A second example involves a computer retailer. All retailers want repeat customers, says Brennan. When you buy a computer, he explains, the retailer will try to sell you a service contract. Not only will the retailer get revenue from selling the service contract, but if it can provide good future service, as requested, it can achieve better customer satisfaction and ideally a future sale of a second computer.

Thus, technology helps provide customer information that can be used by senior management to decide which products and services to sell and how much to charge.

Decision-making In the Cloud

As if on-the-ground technology isn't enough, the future is actually in the "clouds."

An example for understanding the concept of the cloud--as described by Charles E. Bess, an EDS fellow with Hewlett-Packard Co.--is the Internet. The Internet, he says, is a cloud focused on transporting data. "Add in the ability to compute on that data and you have infrastructure and possibly 'platform as a service.' Add the intellectual property on top of that and you have software as a service (SaaS); add the people and process on top of that and you have business process outsourcing."

Bill McNee, founder and CEO of Saugatuck Technologies Inc., says cloud computing is the delivery (and refinement) of optimized IT and business simultaneously, in real time and on-demand, or more likely as parts of selective outsourcing strategies in a hybrid IT and business environment. Cloud computing is available on demand and via subscription solutions.

[ILLUSTRATION OMITTED]

(McNee's comments on SaaS are expanded in depth in Financial Executive's June 2008 cover story, "SaaS Sets the Stage for Cloud Computing.")

"Competition used to be described as 'you against the world,'" says Bess. "In the future, competition will be described as 'you and the network you can bring together against your competitors.' "

Bottom line, he says, in the future, a company may not be able to compete on its own--it will have to collaborate with other companies. Wal-Mart's relationship with its suppliers is a good example of a company that collaborates to compete.

Bess lists three tenets that will guide the next-generation enterprise:

1. We have an ever-increasing need for more--and more relevant--information.

2. We have a growing need to quantify uncertainty with greater precision.

3. We must constantly adapt.

To get the information and the computational resources they need to compete, companies need to access the cloud, Bess says.

Collaboration and coordination will be very important to the next-generation enterprise. Bess cites the experience of Goldcorp Inc. as told by Don Tapscott and Anthony Williams in their book Wikinomics: How Mass Collaboration Changes Everything.

Goldcorp was a corporation on the edge of failure. By sharing its proprietary information with a diverse group of individuals and organizations through the Web, it was able to find 8 million ounces of new gold within its existing properties. Thus, collaboration accomplished something that Goldcorp would not have been able to do on its own.

Collaboration and the sharing of information have incredible potential for the future of decision making by allowing companies to do what they could not do on their own. "Having a set of innovative partners linked via collaboration can make the whole greater than the sum of its parts," says Bess.

Beyond Clay

So, what does all this mean for financial executives? How do companies make the leap from clay to the cloud? And, how can technology enable transparency?

One option is to consider integrating external reporting technologies such as XBRL into internal management-reporting systems. But, regardless of the type of technology used, the pressure for increased transparency of corporate information will become greater.

Government regulators and investors will demand and expect more transparency in financial information. Customers will demand and expect more transparency in product and services information.

"Execution is the ultimate differentiation among companies," says Champy. "Long term," he adds, "a company's sustainable competitive advantage may simply lie in its ability to execute."

Indeed, the ability to execute is directly related to a company's ability to access and analyze critical information. Critical information may be generated internally, but leading companies will find ways to access information generated externally via the cloud.

The global economy currently finds itself in the midst of a severe recession, with no end in sight. It's a time when all companies will surely have to compete harder and smarter than ever for capital and customers. Those with not only the most and best information--but those that make the best use of that information for their business decisions will have the best prospects for survival.

William M. SINNETT ([e-mail]) is director of Research for Financial Executives Research Foundation (FERF) and serves as the liaison to FEI's Committee on Finance and Technology.