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By improving the quality of their management information, finance and IT executives expect to make better operating decisions more quickly, perform better annual planning, and have greater confidence in business process controls.
Randy Myers, CFO Research Services
March 6, 2006
A majority of business decision makers don't have ready access to high-quality, reliable, useful information on operating and financial performance at their companies — so say senior finance and IT executives in this global study of information quality (IQ). As a result of this IQ shortcoming, decision makers are forced to spend time building special reports and analyses and reconciling the "multiple versions of the truth" provided by their disparate, non-integrated business processes and IT systems.
But finance and IT executives see real value and investment return in improving the quality of their management information — in boosting its timeliness, accuracy, and transparency. They foresee broad benefits, including the ability to make better operating decisions more quickly, better annual planning, and greater confidence in business process controls.
To remedy their uneven quality of information, companies are investing in process simplification and tighter integration of their IT systems. Doing so, say survey respondents and executives interviewed for this study, requires not just time, money, and attention, but also a new and much closer collaborative relationship between the CFO, the CIO, and their teams. This new relationship calls on finance to take greater responsibility for information quality and for companies to instill accountability for IQ throughout their organizations. Collaboration, responsibility, and accountability may not be enough, however, to solve the IQ problem effectively.
Companies' IQ and the collaborative relationship between finance and IT will benefit from the CFO and the CIO building their real knowledge of the other's discipline. When finance comes to understand IT — its capabilities, limits, and role within modern enterprise — and when IT comes to see robust financial thinking as a source of business value, and not just of cost control, companies will be on a path toward higher IQ and sustained operating and financial improvement.
In the summer of 2005, CFO Research Services (a unit of CFO Publishing Corp.) launched a research program to explore the quality of management information and its proficiency in meeting information needs at large companies around the world. Through a survey and interview program among senior finance executives in North America, Europe, and China, we sought to understand how companies rate their information quality — its accuracy, timeliness, reliability, and transparency — and their capabilities in providing information relevant to achieving governance and performance objectives. We also sought to document how the chief financial officer and the chief information officer are working together in new ways in an effort to boost information quality. This report contains our findings and was prepared in collaboration with Deloitte Consulting LLP.
All told, we gathered 385 responses to the survey, two-thirds of which were from executives at companies with more than $1 billion in annual revenue. Seventy percent of respondents are from North American companies, 22 percent are from European companies, and 8 percent are from Chinese companies. We sought to include both finance and information technology executives in this study. Executives with top finance titles such as CFO, controller, and vice president of finance make up 64 percent of respondents, while IT executives — including CIOs, VPs of IT, and directors of IT — comprise 18 percent of respondents.
Companies Still Have Trouble Delivering Basic Information
If information is the lifeblood of business, the corporate vascular system appears to be blocked.
It has been more than 50 years since the introduction of the first electronic computer, a generation since the debut of resource management applications for manufacturing, and a decade since the advent of performance management software. Over the past five decades, companies have poured tens of billions of dollars into information technology aimed at automating business processes, improving data management, enhancing customer interactions, digitizing records, and enabling E-business.
But what about information for making decisions, monitoring performance, reporting financial performance, and governing the enterprise? Despite massive IT investments, today when executives reach for the accurate, timely information that they need to make well-informed decisions and to report performance, they often come up empty-handed. In what might surprise many observers and confirm the views of their more skeptical peers, this study finds that fewer than half of finance and IT executives surveyed believe they have achieved their IQ objectives. Indeed, in a recent survey of senior finance and IT executives around the world, 61 percent of respondents say they could still do a better job of just making sure the financial information they generate accurately reflects the performance of their businesses. The business impact of this poor IQ, say respondents, includes widespread decision-making problems that are often tied to inaccurate, untimely, and irrelevant information.
Queried on ten categories of information quality — combinations of the utility, timeliness, and accuracy of financial and operating information — a majority of the senior financial executives responding to this survey report room for improvement in every category. The most common problem area, cited by more than 80 percent of respondents, is the utility of operating and financial information as a foundation for forward-looking planning and strategy (see Figure 1). This analytical ability to gain insight from experience — to learn what has and what hasn't worked well — should drive better modeling, planning, and forecasting.
Daniel Ladenberger, president of SPX Air Filtration, a German-based air filtration distributor — and until recently CFO of its parent company, SPX Corp. — is among the CFOs who recognize that many companies still have an information problem. "We want to provide a greater breadth of information to the business, not just data," Ladenberger says. "And, we want to provide it in a timely manner so we're not reactive but proactive when trends are impacting the business." For Jan Timmermans, too, the challenge revolves not just around the quality of information, but also its timeliness. "Yes, we are trying to reduce the gap between forecasts and actual figures," says the finance director for NV Roche SA, a Belgium-based subsidiary of Switzerland's $27.6 billion Roche Holding Ltd. "But we also want to reduce the time required to produce financial reports." Similarly, Larry Michieli, vice president, financial systems, for Toronto-based Rogers Communications, Inc., says the company's goals in installing an enterprise resource planning system in 2005 were equally weighted on improved data accuracy and more timely access to data.
That companies are still struggling with turning data into useful performance information speaks both to the enormity of the task and an ever-shifting goal line. Many companies, especially those that can attribute some of their growth to acquisitions, find themselves wrestling with multiple, disparate information systems and, in some cases, decades of process sprawl and inertia. Can reliable information emerge from such a system? Perhaps. But not with optimal speed or accuracy, particularly when definitions for key metrics might easily vary from one part of the business to the next.
"The reason for the difficulties of producing timely, consistent, transparent information today is that we have lots of legacy systems that have been patched together over the last 30 years," says Gerry Lord, vice president, finance and strategy, for the North American division of $7.5 billion Campbell Soup Co. "Understand, people learn to live with the best tools they've got; it's not like the world stops. Ultimately, we are able to get the information we need to make decisions. But when that information is difficult to get or takes too long to get, or when people don't necessarily trust the source because there are alternate sources of theoretically the same information, they sometimes try to make decisions without it. Clearly, that is suboptimal."
Asked to identify the drivers of poor IQ, nearly half the survey respondents — 45 percent — cite disparate, non-integrated IT systems and the variability of business processes as an acute problem that constrains management's ability to work effectively and focus on high-value activities. Approximately the same number agree that finance and business units alike spend too much time developing special reports and analysis to supplement system-generated reports. Other disappointing and productivity-sapping by-products of poor information quality include "multiple versions of the truth," misguided incentive programs, and unrealistic plans and budgets (see Figure 2).
These are particularly evident at companies with a "very thin" corporate structure in which business units operate independently with different business models. For example, 46 percent of the survey respondents who operate under a "very thin" corporate model say their planning and budgeting information is unrealistic or loses relevance quickly, versus only 26 percent of all respondents.
Meanwhile, even as companies have made progress in refining their information-gathering and reporting processes, the expectations of end users have grown, too, making yesterday's success stories today's shortfalls. "As IT organizations have become more and more mature, the bar has continued to rise for quality of information," says Diana Melick, vice president and chief information officer for Siemens Energy & Automation, the $2 billion U.S. unit of German manufacturer Siemens AG. Feike Brouwers, chief financial officer for global banking institution ING Direct, agrees. "More and more, when we get questions, people expect an answer within hours, or at least the next business day," Brouwers says.
Milton Johnson, executive vice president and CFO of $23.5 billion hospital operator HCA, Inc., says the demands being placed on his IT team had become so great five years ago that the company was in danger of losing its ability to effectively manage IT initiatives. To bring the process back under control, it created a formal program-management office which, among other things, now helps the organization set priorities for its IT activities. Global specialty chemicals company Rohm & Haas Co. found it necessary to create an entirely new position — director of finance IT — to help it better align its finance and IT organizations.
Multiple Forces Drive Demand for Better IQ
Finance executives are being pushed to improve IQ by CEOs and corporate directors anxious to reach and sustain compliance with new financial reporting legislation such as the Sarbanes-Oxley Act in the United States or Bill 198 in Canada; by business units eager for better decision-making support; by Wall Street analysts demanding better insight into company performance; and, in some cases, by government regulators overseeing heavily monitored industries such as health care.
Beth Summers, chief financial officer for Toronto-based electric utility operator Hydro One Inc., says managers at her company realized just how inefficient their systems were for gathering operational data when about 1,000 of Hydro One's engineers went on strike for 14 weeks in the summer of 2005. "We used to be able to rely on these people to get data for us, and when other people had to find it themselves, they realized it wasn't as accessible as they had thought it was," Summers says. "It forced us to think about the inefficiencies and helped us realize we needed to streamline certain processes and do things in a different way."
"We're not going back to the way we did work," seconds Hydro One chief information officer Sandy Struthers, who notes that the company is now in the process of searching for systems that will give its operational managers faster access to data about the company's physical assets — from poles to transformers — and help them develop more efficient and effective maintenance programs for those assets. In many ways, this new effort will do for operational data what the implementation of corporate performance management software did for financial data a few years ago — allow management to spend less time searching for data, and more time acting on it.
Not surprisingly, though, CFOs themselves see real business benefits from improving information quality. Eighty-one percent of survey respondents say timely access to higher quality information would improve profitability, and 82 percent say it would reduce costs. A healthy majority also see a direct link between having access to better information and enjoying better investment returns, improved inventory management, and greater asset productivity. And a majority of respondents say the benefits of improving IQ more than offset the costs (see Figure 3).
At Campbell Soup, where the IT group is in the midst of implementing enterprise resource planning software in North America, Gerry Lord is counting on reaping "almost real-time access to financial information, structured in a way that allows us, with full transparency, to see the information we need to understand how the business is doing." At present, he concedes, the company's multiple information systems sometimes take days to reveal what actually has been happening. "I think this will be a huge enabler for us to run our operations more efficiently," he says.
At Jones Lang LaSalle, Inc., a $1.2 billion real-estate and money-management organization, chief operating officer and chief financial officer Lauralee Martin anticipates similar rewards from her company's implementation of a global ERP system. It will, she predicts, provide management with faster access to more robust business information, more consistent management reporting, faster monthly closings, and greater insight into the profitability of each of the company's customers so that it can tailor better service to them.
"In a world where you are managing risk of any kind — financial, operational, quality — the ultimate tool is perfect information," concludes Dan Pavlick, vice president, information technology services, for $912 million Respironics, Inc., a maker of respiratory products. "That's an elusive goal; perfect information doesn't exist. But arriving at as much information as you possibly can digest, and having it available in nearly real-time in a simple form that allows you to make decisions, is the goal."