XBRL Tagging: GPS to Navigate Your Financial Reporting and Data
Why You Shouldn't Report From Your ERP
A comprehensive enterprise resource planning (ERP) system can be rocket fuel for your organization, assuming you choose and implement the right one. However, that doesn't mean an ERP should be your go-to for everything, especially when it comes to financial reporting.
Sure, that's a somewhat contrarian view given how many enterprises report from their ERP these days. But just because your Swiss Army knife has a little saw attachment doesn't mean you should cut down a tree with it, right?
The same holds for your ERP – the fact that you can report from it doesn't mean you should. Simply put, there's a more robust, dynamic, and accessible approach to financial reporting. And as we're about to explain, these digital finance tools will streamline your better business processes and drive decision-making across your entire enterprise.
The Limitations of Enterprise Resource Planning
Let's get this out of the way upfront – we're not making a blanket statement about ERP and financial reporting. If you're a smaller company that doesn't have the time or resources to invest, implement, and utilize certain digital tools – as transformative as they are – then reporting from your ERP software is perfectly fine.
Similarly, if QuickBooks constitutes your entire tech stack, then by all means, stick with it. However, for nearly everyone else, you're sacrificing what could be a massive competitive advantage by using QuickBooks – or even a more comprehensive ERP software solution like NetSuite – for your financial data and reporting.
In fact, just a high-level look at ERP reporting creates a pretty lengthy list of drawbacks that can impede success, including:
An ERP Will Always Create Bottlenecks and Silos
An ERP is an inherently closed system. Whatever data you use to generate your finance and accounting ERP reports must stem exclusively from the ERP software system. Therefore, you can't integrate operational metrics – HR KPIs and supply chain data, for example – or any external market data that isn't already in the ERP.
However, that doesn't mean companies using enterprise software for reporting rely solely on that system. For instance, maybe your board requests some of those operational metrics that aren't in your ERP. Are you going to tell the board you can't create that report because the data isn't already nestled within the comfy confines of your ERP? Of course not.
Instead, you're drawing information and reporting from other systems to accomplish that task. And in doing so, you're automatically creating information silos because your business data is spread out across different systems that don't speak with one another.
Alternatively, you could pull that missing data into your ERP from Excel, but that creates a whole separate set of issues. Not only is it a time-consuming and mind-numbing process that does a number on your workflows, but is also unrepeatable and susceptible to human error.
Drilling Further Down Is Next to Impossible
Let's say you're a multi-entity business using ERP data for your financial reporting. While individual line items might be big, bold, and obvious, drilling further down into those line items is anything but.
In other words, if you need to dig into the journal entries generating a particular line item, you're most likely out of luck because an ERP is simply incapable of providing that to you. Like it or not, you usually cannot see consolidated reporting if you're using a multi-entity reporting structure. And that's a problem.
Reporting Is Generally an Afterthought in an ERP
Even the best ERP systems are, at their heart, simply your system of record for financial information. They are, for lack of a better term, a database of journal entries. Yes, you get base-level reporting functionality with many of them, but it will never be as dynamic, intuitive, or user-friendly as a dedicated reporting solution.
Going back to our Swiss Army knife, just because you can technically report out of an ERP doesn't mean you should. In doing so, you're losing an entire world of deeper insights and self-service analytics that could otherwise help you successfully navigate a crowded and ever-changing marketplace.
ERP Systems Lack Reporting Features
Are you always sitting at your desk when looking over your financial reports? Probably not. But with an ERP, you're sacrificing the many reporting capabilities included in most dedicated solutions, including the ability to access the reports on a mobile device.
And that's just the beginning. By reporting from your ERP, you're also unable to use variable-based reporting for commentary in your actual financials, relegating your organization to a one-size-fits-all solution that you can't tailor to your specific business needs. We won't go so far as to say the reporting is an afterthought with an ERP, but it's certainly not a priority.
No Data Infrastructure or Agility
Assume you have a customer that moves to a new address. Of course, updating your ERP system to reflect their new address isn't a problem. However, you can forget about retaining their old address in your ERP.
Why is that an issue, you ask? Well, your marketing department might appreciate that type of information to integrate into their models. If you’re using a data warehouse that retains that information – or at least an infrastructure you can pull data from – our marketers would never lack those critical data points.
Thus, if a customer moves from Topeka, Kansas, to New York City, your marketing can target the audience with more appropriate product messaging. Over time, a data infrastructure that houses such vital customer information can help your enterprise determine key data points like how often your audience moves, where they move to, and how customer affinities evolve. And that's a marketing cornucopia if there ever was one.
Reporting From an ERP Makes a CFO's Job More Difficult
Out of the myriad responsibilities falling on a CFOs plate, just one informs and guides all of the others – a CFO must be a genuine business partner for the other departments and stakeholders across an enterprise. Unfortunately, that responsibility becomes infinitely more difficult – in some ways, impossible – without accurate, timely information driving business decisions.
For the many reasons we've discussed thus far, reporting from an ERP puts any CFO behind the business intelligence eightball. Put another way, you can't be a true business partner for your enterprise if you don't have the right data at your disposal, and an ERP just isn't designed to provide that to you.
Reporting Alternatives to an ERP
At this point, you're probably wondering what you can use as an alternative given how deeply ingrained your ERP is across every nook and cranny of your organization, including your reporting. Aside from strictly using your ERP for reporting, you really have two options.
Report Out of Your Information Silos
You can always use your ERP in conjunction with other reporting systems. Sure, this approach breeds information silos but, if you're okay with that, then so be it. This way, you're reporting your sales metrics out of your CRM (customer relationship management), staffing metrics out of another dedicated system, and basically using a piecemeal approach to your reporting.
Now, is this going to unlock untold insights and business intelligence? Nope. Will it help you, as a CFO, be the very best business partner you can be for your enterprise? Not so much. But at least this approach expands your reporting abilities so you're not relegated to the confines of your ERP, albeit from walled data silos.
Let's take that previous solution and improve it. While using different tools rather than solely relying on your ERP for reporting certainly expands the depth and scale of your data, those pesky information silos keep you from the real-time, accurate data you crave.
As an alternative, you can use a database, data warehouse, or some sort of centralized repository to collect, store, and distribute data from. This way, you're combining your data sources into a single location where they can interact and, thus, tear down those inefficient silos and bottlenecks.
That's where dashboard reporting enters the picture, combining all of those formerly disparate sources of data into a unified, cohesive source that your decision-makers can use to create fully informed strategies. Along the way, data visualization tools expand the insights even further with self-service, actionable business reports accessible from virtually any device with an internet connection.
Dashboard Reporting Best Practices
Obviously, in most enterprises, a dashboard-driven approach to financial reporting is a faster, more reliable, and intuitive solution than an ERP or piecemeal one. For that reason, we're now going to narrow our focus to data dashboards and things to keep in mind when both implementing and utilizing them.
One of the most common battle cries against dashboard reporting, particularly from the accounting crowd, is its inability to address SEC reporting. And it's absolutely a valid point – dashboards aren't your best choice for SEC reporting because they're simply not designed for that function.
However, that doesn't mean your ERP is the right choice for SEC reporting because of the same reasons we've already discussed. Instead, your best bet is to find another solution – we really like Workiva, but it's not the only SEC reporting tool on the market – that works in conjunction with your dashboard or analytics applications.
This approach gives you access to all the operational and financial metrics you need from across your enterprise for SEC reporting, including finance, accounting, human resources, IT, and others. From there, you populate your 10-Q and 10-K directly within Workiva using all the benefits and features that a dedicated SEC reporting tool provides.
Build a Data Culture
Dashboard reporting – along with any component of a digital transformation – will always have a better chance of flourishing when you've built a data culture in your enterprise. Therefore, if data-driven forecasting and decision-making inform every level and facet of your organization, then your people are far more likely to embrace something like dashboard reporting.
Without a data culture, you could very well be spinning your wheels no matter what technology-driven approach you take to reporting. Because technology only goes so far if your people don't embrace it.
Thus, you must be just as willing to invest in educating your people on these new tools as investing in the tools in the first place. Remember, Excel was completely alien to your people at one time, but now they know it like the back of their hands. The same thing will occur with your data dashboards as long as you educate, train, and emphasize how vital they are to your company.
Implementing Your Data Dashboard
We've already spoken at length on migrating your data and integrating your data sources into one, so we won't belabor the topics. Just remember this – if you're willing to buck current trends and use dashboard reporting rather than your ERP, it just makes sense to implement everything correctly.
Yes, we understand that for the uninitiated, the new vocabulary involved might be intimidating at first. ETL (extract, transform, and load), schemas, data repositories, automations, and customizations – they all play essential roles in your pursuit of digitally-driven reporting bliss, but don't exactly slide off the tongue at first.
But that's why Embark's finance transformation team is here. With our specialists leading the way, you don't have to understand every nuanced benefit of the three-step ETL process. Instead, we take care of that for you, leaving you with insightful, intuitive, real-time data reporting that's equal parts competitive edge and open window into your operations. And that’s a recipe for success, no matter your industry.