Reporting and forecasting: More than ever, earnings surprises can hurt the value of your stock. The need for forecast accuracy is pushing demand for more timely and accurate information. Unfortunately, financial reporting and summarization tools often aren't connected to transactional systems, and the manual intervention used to make the connections work causes errors or misinterpretations. CFOs need their CIOs' vision to help develop systems that can collect and organize better information faster, with the goal of providing true visibility into the operational drivers of share price and the unexpected events that impact valuation. The details of the relationship between raw transactional data and the summarized or restructured data used for analytics and reporting are critically important. But the technology of business intelligence and business analytics is changing rapidly, and even the best tools provide unreliable results if they're fed the wrong data.
While industry spent billions of dollars on ERP systems to provide a 360-degree view of business operations, many were implemented hastily as a way to consolidate disconnected systems in distributed or newly acquired business units. The rush to beat the Y2K deadline also pushed many IT departments to skip the crucial steps of true business-process re-engineering and the development of architectures to improve reporting and forecasting. Many companies still fall short in connecting front-, middle-, and back-office processes, relying on manual processes and complex points of application integration to match customer orders, credit reports, bills of materials, warehouse pick lists, and invoices.
The self-service arena needs attention, too, to balance the need for speed in gaining access to accurate information with security and identity management. Memos requesting reports from the data-processing department or a couple of IT staffers in charge of manually converting financial information into HTML for publishing on the Web will no longer suffice. Fast companies have digital content-management strategies, and provide reports and sophisticated analytic tools to employees via the corporate portal.
Best practices link the corporate portal to the HR system and use single sign-on technology to determine exactly who users are, what department they're with, and what content they can access.
Market valuations: The intent of Sarbox is to push companies to account for brand reputation, customer satisfaction, and workforce quality. Most companies can't measure such intangibles—though institutional investors own 70% of most corporate equities, and up to a third of the confidence of these institutional investors is based on nonfinancial criteria. Research shows that 80% of corporate executives cite nine intangibles among the 10 top value drivers in their business units.
Technology has an important role to play in contributing to intangible value and enabling investor confidence. A high percentage of large companies have sophisticated IT capabilities; a mortgage lender may use technology to automate and validate property valuation, while a transcontinental logistics handler may use it to predict reroutes and delays. Yet they don't treat those capabilities as strategic assets, let alone as sources of revenue.
Balanced-scorecard approaches can help build measurement dimensions to address nonfinancial performance, but it takes time to calibrate each metric. It also takes thought and analysis to determine what any particular change in a metric actually will mean in terms of business performance. Does a decline in patent grants mean a loss of R&D effectiveness or a welcome focus on fewer, higher-yielding areas? Making these measures meaningful requires intelligent interpretation and quantitative support for conclusions—and a new set of "corporate memories" that capture the context. Companies must discover new external and internal factors to illuminate these nonfinancial performance dimensions, and the CIO has an opportunity and a responsibility to help in that effort.
While having that conversation, consider that it's also important to leverage technology to establish a communication and collaboration platform with investors. The online experience, for example, has almost as much to do with investor perception as with the financial information itself. C-level executives should pay close attention to how they communicate with all external stakeholders. They should ask themselves: When someone clicks on our Web site to ask for financial information, do we meet their expectations? Does the ease of use and visual architecture of the investor-relations section promote a sense of professionalism and an image of a well-run business? Does our online branding communicate that we get the concept of using technology for competitive gain?
Best practices here include a comprehensive strategy for online marketing and technology-enabled collaboration.
Compliance: All the previously mentioned challenges and changes must be addressed to ensure that no matter what changes are made to Sarbox, your company will have the information it needs on a comprehensive, contextually valid, near-real-time basis to report, explain, and communicate to all audiences.
Technology plays a significant role in such compliance for many reasons. Obviously, all business functions today are dependent on systems, software, and networks to execute. Clearly, the excuse, "I can't sign off on the financials because the system is down" won't play well on Wall Street or in court. But even more relevant are the risks that technology introduces into the reporting process.
With gigabytes of sensitive information being broken into bits, transformed into electrons, and streamed through strands of glass, businesses take on new responsibilities and liabilities for protecting customer information, privacy, and the associated regulatory compliance. State by state, we're seeing new levels of regulation in this area, and we're just now beginning to see the leading edge of what will likely be substantial penalties for not keeping systems secure.
Best practices are to treat the technology infrastructure as a strategic asset, and to have a comprehensive security and business-continuity strategy. Preventive security measures, intrusion detection, and identity management are part of their operating plans. Information technology, driven by the business issues the CFO and CIO face, is viewed not as a necessary expense, but as a requirement to play.
