Emerging technologies for finance.

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T h e s e c o n d i n a s e r i es of articles highlighting Financial Executives Research Foundation's published research over the past 65 years, this article looks at information technology and its use by the finance function. The goal of FERF research is advancement through knowledge that is relevant and practical for organizations.

From the early use of the computer by businesses--an "emerging technology" in the 1950s--to XBRL and SaaS today, Financial Executives Research Foundation has been working to identify those technologies that help the finance function work more effectively and efficiently. The following traces FERF research through the years to discover what is popular today, and why.

In the foreword to Appraising the Economics of Electronic Computers: An Approach for a Company to Determine the Feasibility of Acquiring a Computer, Frank Wallace, a partner with Peat, Mar-wick, Mitchell & Co., wrote: "Few scientific or industrial developments have received as much publicity as the electronic computer."

This research study was published in 1956 by the Controllership Foundation Inc., the predecessor to Financial Executives Research Foundation (FERF).

"The purpose of this report is to cut through the technicalities and get to the core of a commonsense, business appraisal of computers," Wallace continued, thus setting the direction for FERF research related to technology for the next 50-plus years.

Indeed, in the years that followed, FERF identified emerging technologies that would either impact or could be used by the finance executives executing the finance function (see chart on the following page).

And since its creation in 1968, FEI's Committee on Finance & Information Technology (CFIT, which was first known as the Committee on Information Management, or CIM) has worked with FERF to identify potential topics, participate in research projects and review drafts of research reports.

Coping with the Computer Revolution

By the late 1960s, society realized that the computer would revolutionize business as well as everyday life. In response to this revolution, FERF published Computer, Science and Management Dynamics, which was authored by three consultants from Arthur D. Little Inc.: Robert J. Fahey, Douglas A. Love and Paul F. Ross.

The first chapter, "Coping with the Computer Revolution: Executive Development Versus Obsolescence," predicted that "by the late 1970s or early 1980s, some large companies, at least, will be led by men whose knowledge of computers is thorough enough to permit their personal use of computers in strategic thinking and policy planning." The rest of the book explained how that would happen.

By the early 1980s, most companies realized they were dependent on the computer, and that they would now need to control its power. So, in 1983, FERF published Senior Management Control of Computer-Based Information Systems, the third study in a series on internal control, by three professors from the University of Michigan: Robert K. Mautz, Alan G. Merten (now president of George Mason University) and Dennis G. Severance.

In their executive overview, the authors stated that, "In discussions with senior financial and operating managers, effective management and control of computer resources ranked high on the list of challenges and concerns." This still holds true today.

EDGAR Will Become Interactive Also in 1983, the U.S. Securities and Exchange Commission created a task force to seek public input into the concept of an electronic filing and retrieval system. The meetings and research undertaken by the task force supported the development of EDGAR, the Electronic Data Gathering, Analysis and Retrieval System.

Top 10 Technologies That Will Have a Major Impact in 2009

Web-Oriented Software 37.1% XBRL 29.0 Governance (GRC) 24.8 Social Networking 19.5 Cloud Computing 16.7 SaaS 15.7 Green IT 14.8 Service-Oriented Software 13.3 Unified Communication 11.9 Carbon Accounting 6.2 Source: FERF/Gartner Inc. 2009 Technology Issues for Financial Executives Survey

In May 1986, the SEC issued a Request for Proposals for the operational system. Shortly thereafter, FERF published EDGAR: The SECs Pilot Program and Its Impact, by two professors from the University of Southern California: Jerry L. Arnold and Michael A. Diamond.

Fast-forward to the 21st century, and the SEC is now in the early stages of replacing EDGAR with "interactive data." The SEC wants investors and analysts to be able to perform custom searches as well as to quickly and efficiently extract meaningful filing data--and EDGAR does not have such capabilities.

XBRL

"Interactive data" is a generic term for extensible Business Reporting Language, or XBRL, which is a relatively recent development. In 1998, Charles Hoffman--then a employee of Knight Vale & Gregory (now part of RSM McGladrey Inc.) and currently director of innovative solutions for UB-matrix, a software-development firm based in Kirkland, Wash.--explained to the High Tech Task Force of the American Institute of Certified Public Accountants that there was a need to create a global openstandard data-tagging protocol for financial information.

Within a few years, AICPA had created XBRL International, a not-for-profit global consortium of companies and agencies working to develop the computer-readable XBRL open standard and support its adoption.

At the time, there was a convergence of three critical trends that would enable the development of XBRL as a global standard for financial reporting:

* A public outcry for more transparency in corporate financial reporting;

* Increased regulatory oversight of the financial markets; and

* The focus by many businesses on integrating and improving the efficiency of their information systems.

Even before the SEC established a voluntary program for reporting financial information on EDGAR using XBRL in 2005, FEI's CFIT brought XBRL to the attention of FERF. CFIT member Taylor Hawes, then controller, global platforms and operations for Microsoft Corp., co-authored Everything You Wanted to Know About XBRL, but Were Afraid to Ask: A CFO's Guide, which was published in September 2003.

This report was followed in 2006 with Financial Reporting in the XBRL Age: A Step-by-Step XBRL Implementation and XBRL Reference Guide: Guidance for the Application and Conversion Capabilities of XBRL, also co-authored by Hawes. This report explained how financial statements could be "tagged" using XBRL "taxonomies," and provided a seven-step implementation plan.

Nevertheless, XBRL would not get widespread public attention until the SEC formally proposed its use by public companies in 2008.

SaaS

William McNee, founder and chief executive officer of Saugatuck Technology, a firm that has expertise in the area of software as a service (SaaS), was introduced to FERF by CFIT. SaaS refers to the delivery and use of software through a network. (See "SaaS Sets the Stage for Cloud Computing," Financial Executive, June 2008.)

In practical terms, SaaS could be considered the renting of rather than the purchase of software. It thus holds the promise of significantly lower information technology expenses.

Saugatuck worked with FERF to develop a survey of FEI members on how well their current systems were meeting their evolving needs, and how SaaS could address and fill critical business gaps. FERF published the survey results in February.

Among the key findings:

* Finance executives see broad-based value in the use of SaaS across both tactical point solutions and core finance systems, functions and roles.

* Nearly 60 percent of finance executives indicated that their firms are using SaaS for mature business applications, such as payroll.

* Chief financial officers see SaaS as a way to bridge many of the "effectiveness gaps" that exist

relative to how well current systems address their needs.

* SaaS is seen as a cost-effective means of getting finance out of software and systems management, enabling it to focus more on being a finance department.

Sourcing

Today, perhaps more than ever, companies are looking at their Finance functions for efficiencies and better means of control. In 2007, with the help of CFIT, FERF published Building an Agile Finance Function: Alternative Approaches to Sourcing Financial Operations. This research report was based on interviews with executives at 18 companies, who discussed the management issues and economics of alternative approaches to sourcing financial operations highlights some of their insights into these alternative approaches (see the sidebar on page 43).

Information Integrity

Another major concern of senior financial executives is the integrity and quality of their company's data. For example, in this year's Technology Issues for Financial Executives survey, 75 percent of respondents said information integrity was hampering business objectives; only 59 percent said that they have a formal program for improvement.

In 2008, FERF published Excellence in Information Integrity. This research report defined and described the concept of "information integrity" and provided several case studies of companies that had been awarded the Excellence in Information Integrity award by the Information Integrity Coalition (www.informationintegrity.org). These case studies illustrated application of the following lessons:

* Involve senior management in information integrity initiatives to emphasize that the project is a top priority.

* Standardize systems on a common technology platform and use a common chart of accounts.

* Processes should be automated. This will result in increased control and reduction of manual intervention and errors.

* Quality standards can be assured and maintained through rigorously applied service-level agreements and key performance indicators.

* Implement software that will automatically detect errors.

* This software should replace manual controls.

What's Next?

Each year, FERF and CFIT surveys FEI members about their top IT management issues as well as strategies, applications and management of the IT function at their firms. While many surveys are available on the key technology issues from the point of view of chief information officers, this survey is unique in that it focuses on CFOs' views of key technology trends.

For the first 10 years, the survey was conducted in partnership with CSC. This year, the 2009 Technology Issues for Financial Executives survey was conducted in partnership with research and advisory firm Gartner Inc.

In this year's survey, members were asked, "Are there any emerging technologies or other technology-related issues that will directly impact your company or your industry in the next few years?" (See sidebar Top 10 Technologies

That Will Have a Major Impact in 2009 on the previous page.)

More than one-third of the financial executives replied that the technology with the most potential impact would be Web-oriented software; XBRL was second.

Regarding the top three emerging technologies, Gartner believes that:

* The Web can provide the largest impact to the enterprise.

* XBRL can provide visibility into enterprise performance, but firms do not have a plan to take advantage of it at this time.

* Governance, risk and compliance will impact firms both externally and internally.

Looking back, some observers might find it humorous that the computer was once thought to be an "emerging technology," and would require a feasibility study to decide on its purchase. But as the costs of computers fell and the technology advanced, widespread adoption followed. One can only ponder what others will think humorous 20 years from now.

Will it be that it took an SEC mandate to get companies to adopt XBRL when the technology had already been available for 10 years?

According to the FERF/CFIT technology issues survey, there are other new technologies yet to be adopted--social networking, cloud computing and green IT--and they will be adopted, once companies see that the benefits more than outweigh the costs.

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FERF Technology Research Reports

1954 * Business Electronics Reference Guide, Herbert F. Klingman, editor

1956 * Appraising the Economics of Electronic Computers: An Approach for a Company to Determine the Feasibility of Acquiring a Computer, by Frank Wallace

1969 * Computers, Science and Management Dynamics, by Robert J. Fahey, Douglas A. Love and Paul F. Ross

1983 * Senior Management Control of Computer-Based Information Systems, by Robert K. Mautz, Alan G. Merten and Dennis G. Severance

1986 EDGAR: The SEC's Pilot Program and Its Impact, by Jerry L. Arnold and Michael A. Diamond

1987 * Financial Practices in a Computer Integrated Systems Environment, by Earl D. Bennett, Barbara M. Fossum, Roy D. Harris, Don Robertson and J. Franklin Skipper

1988 * Automating Global Financial Management, by Business International Electronic Data Interchange and Corporate Trade Payments, by The Globecon Group Ltd.

1989 * Information Technology Management: Evolving Managerial Roles, by Howard O. Rockness and Robert W. Zmud

1992 * Managing IT for Success: The Empowering Business Partnership, by V. Sambamurthy and Robert W. Zmud

1997 * Safety Nets: Secrets of Effective Information Technology Controls, by Barbara J. Bashein, M. Lynne Markus and Jane B. Finley

2003 * ROI and the IT Value Life Cycle, by William B. Walton Technology Tools for Sarbanes-Oxley Compliance, by Cheryl de Mesa Graziano and Tiffany McCann Everything You Wanted to Know

About XBRL, but Were Afraid to Ask: A CFO's Guide, by Taylor Hawes and Isaac Cheifetz

2005 * Technology Issues for Financial Executives - 2005 Annual Report, by Gerald Boltin

2006 * Financial Reporting in the XBRL Age: A Step-by-Step XBRL Implementation, by Taylor Hawes and Tiffany McCann XBRL Reference Guide: Guidance for the Application and Conversion Capabilities of XBRL, edited by Bill Sinnett Technology Issues for Financial Executives - 2006 Annual Report, by Gerald Boltin

2007 * Technology Issues for Financial Executives - 2007 Annual Report, by Gerald Boltin Building an Agile Finance Function: Alternative Approaches to Sourcing Financial Operations, by Bill Sinnett

2008 * Technology Issues for Financial Executives - 2008 Annual Report, by Gerald Boltin

2009 * Software as a Service and Core Finance Effectiveness, by Bruce Guptill, Mark Koenig, Bill McNee and Michael West. 2009 Technology Issues for Financial Executives

Sourcing Financial Operations

Shared services

* The need to streamline financial operations often motivates the shift to shared services. * Implementation of enterprise resource planning (ERP) systems facilitates the transition to shared services.

Co-sourcing

* Provides access to talented professionals who execute special projects at the direction of the client.

* To backfill internal employees increases a company's capacity and flexibility, while ensuring that important work is completed during times when internal resources are constrained.

Offshoring

* Provides the opportunity to reduce costs.

* Offshore co-sourcing may be used to transition to shared services.

Outsourcing

* Select only highly functioning processes to outsource.

* Lends itself to worldwide processes.

Source: Excellence in Integrity, FERF, 2008

William M. Sinnett (bsinnett@financialex ecutives. org) is director of research for Financial Executives Research Foundation and serves as liaison to FEI's Committee on Finance & information Technology. WILLIAM L. OVERELL (bill@overell.com) is president of Overell Solutions and chairs the Emerging Technologies subcommittee of CFIT, and is a co-vice chair of CFIT He also chairs FEI's IT Chapter Taskforce.

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