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.

• Author: Sinnett, William M.
• Position: READ FOR CPE CREDIT

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.

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...