In the beginning, there was VisiCalc, the first killer app for the PC. Lotus 1-2-3 subsequently took over, before yielding the throne to Microsoft Corp.'s Excel. Today, spreadsheets are so easy to use and ubiquitous that they've sprouted like weeds throughout most companies. And they often hold important financial data.
But what if Mary's sales spreadsheet differs from Tom's and has faulty data or a modeling error? What if Tom hoards his spreadsheet data -- it's a form of power, after all -- and won't let go? How do you get the data from dozens of far-flung spreadsheets into a companywide planning or budgeting system that meets the latest accounting standards?
Various studies report that 47% to 64% of companies use stand-alone spreadsheets for planning and budgeting, for example. But critics say spreadsheets -- invented as a personal productivity tool -- aren't well suited to collaboration, data quality or regulatory compliance. "Excel is a tool of information mavericks," says Eleanor Taylor, manager of business intelligence strategy at software vendor SAS Institute Inc. in Cary, N.C.
"Besides being extremely unwieldy for processes involving large volumes of data and multiple users, spreadsheets often contain substantial, material errors, according to academic research," wrote Paul Hamerman, a Forrester Research Inc. analyst, in a report last year.
Companies are just starting to look at the problems caused by spreadsheet proliferation, says Gartner Inc. analyst Michael Silver. "Some enterprises are addressing it, but most aren't," he says.
No one is suggesting that the spreadsheet is going away anytime soon or that it's a top-of-mind IT issue. "The subject is certainly of interest and has potential for improvement, but in the scheme of things, it's not high on the list of priorities," says Joe Iannello, CIO at watchmaker Movado Group Inc. in Paramus, N.J.
What's the Problem?
Questioning the desirability of spreadsheets, after their widespread acceptance over the past two decades, is almost like questioning mom and apple pie. But for a modern corporation looking for consolidated planning and financial reporting, spreadsheets pose challenges not dreamed of when they first began popping up on PCs across the land.
Here are three of the more significant spreadsheet issues that companies have to address:
Decentralization. Mentor Graphics Corp. in Wilsonville, Ore., had a central 25MB Excel spreadsheet and 1,200 budget spreadsheets across the enterprise, one for every cost center. But having numerous spreadsheets makes it difficult to collect important data. "Spreadsheets are great analysis tools, but at some point you start using them as a planning system, and that's where Excel starts breaking down," says Jan-Willem Beldman, Mentor's enterprise data architect.
So Mentor decided to use SAP AG software as a centralized database of accounting transactions and Hyperion Solutions Corp. software as a budget planning tool. The Hyperion system allows Mentor to quickly do a what-if analysis of, say, changing employee benefits in various countries. "These are things you might be able to model in Excel, but if you have a lot of details, it's much more than you could have in a spreadsheet," says Beldman.
Compliance. Having financial data in a hodgepodge of spreadsheets also makes it hard to maintain one version of the truth , which is important for complying with the law. For example, the Sarbanes-Oxley Act requires companies to maintain a good audit trail, and generating such a trail is difficult to do with Excel, Beldman says.
"With financial data, the risk of using spreadsheets is too high under Sarbanes-Oxley," says Hamerman. "Let's say you use spreadsheets for consolidations of financial reporting. I think there's a chance for errors to occur in the spreadsheet formulas in this environment. That's a risk the company shouldn't take."
Dirty data. "One major issue with spreadsheets is poor data quality. As you make changes or add information, your spreadsheet will have errors or mismatched formulas," says Ed Chen, director of IT at KQED Inc., which operates public television and radio stations in San Francisco.
That's why some users are moving from decentralized data held in spreadsheets to a centralized database. "The quality of data improves greatly because you have much more control of the different calculations," Beldman says.
Spreadsheet incompatibilities can even cause conflicts within a company. "If I have developed a spreadsheet, I trust my spreadsheet more than yours, even if yours [is really] more accurate. That creates political problems," observes Shaku Atre, president of Atre Group Inc., a database and business intelligence consultancy in Santa Cruz, Calif.
Reality Check
To some extent, the criticism -- it's been called "the demonization of spreadsheets" -- comes from vendors pushing their own, more expensive financial software, such as business performance management software. Vendors put out press releases with headlines like "Spreadsheets Out, Hyperion In" and "Extensive Reliance on Spreadsheets Dulls CFOs' Strategic Edge," while arguing that spreadsheets won't help companies comply with the Sarbanes-Oxley Act.
"Only to a degree is that true," says Chris Iervolino, head of ITEC Consulting Inc. in White Plains, N.Y. He says it's true that spreadsheets aren't a good corporate data store, and they aren't good for managing processes like planning and budgeting because there's too much error-prone manual work involved. For Sarbanes-Oxley compliance, it's easier for executives to sign off on the integrity of a financial process if it's fully automated, without manual steps like in spreadsheets, Iervolino says.
"But that doesn't mean spreadsheets are down and out," he continues. Iervolino and other observers say the future of the spreadsheet is as a user interface for manipulating data extracted from a central, back-end database. "[Spreadsheets] are a great manipulation and analysis tool; they're not such a great database," says Beldman at Mentor Graphics.
Besides, it would be hard to snatch spreadsheets away from the power users. "You'd have to pull the spreadsheets from the cold, dead hands of the analysts," Iervolino quips. That's why the vendors of even the most sophisticated business performance management tools have interfaces for connecting to spreadsheets -- it's a market requirement.
"People can quickly become computer-literate [with spreadsheets]. They feel empowered; their confidence is boosted," Atre says.
So be prepared for resistance when moving to a centralized system. "Trying to get people not to save data locally and not to do their own spreadsheets is a cultural problem based on 15 years of PC use," Gartner's Silver says.
Although spreadsheets have significant shortcomings, they provide enough benefits -- usability, what-if analysis and presentation graphics -- that most observers say they'll be around for the foreseeable future. "They will persist as an interface that people will continue to use to manipulate and store data," says Herbert A. Edelstein, president of Two Crows Corp., a data mining consultancy in Potomac, Md. "I can't envision a world where the spreadsheet will disappear."
Prashant Dholakia, senior vice president at FreeMarkets Inc., a procurement services provider in Pittsburgh, isn't so sure. Someday, large corporations may have to consider a postspreadsheet world, Dholakia says. "Spreadsheets can go only so far," he says. "Something will have to replace it, but there's no consensus of what that is."
Horowitz is a freelance business and technology writer in Salt Lake City. Contact him at alan@ahorowitz.com. Additional reporting by Mitch Betts.