By employing business reporting and data standards across the entire
company, an enterprise can generate actionable information using a foundation
of quality data from a variety of sources. This information can be easily
accessed by various departments to make decisions about marketing, execution,
management, and most importantly, strategic analysis.
Successful market and competitor comparisons allow executives to determine if there are unrequited market needs. In leveraging this on-demand information – based on rich and solid data – companies know when and how to act, rather than merely how to react to the market.
Important data standards are built on top of a common nomenclature or taxonomy
developed not just by IT, but by businesses themselves. The taxonomy defines
the structure of the data, how much or how little information has to be
reported, and the business rules that describe how the data can be validated, shared
and visually displayed.
The taxonomy tells how information will be presented for machine and human-readable formats that are easily understood and can be simply analyzed. The challenge with these taxonomies and data standards lies in the inherent technical nature of programs and the expertise of the individual accessing and creating the data. In order to bring value to the data, the information has to be tagged in such a way that investors, executives and analysts can use it.
Financial industry leads the way
The financial industry is already demonstrating the value of employing data standards with the adoption of eXtensible Business Reporting Language (XBRL). The Securities and Exchange Commission (SEC) requires all public companies within the U.S. to file quarterly and annual financial reports using this international business reporting standard. The value of XBRL lies in its machine-readable reporting format, which details how financial performance and information must be reported to the SEC and investors. XBRL data is highly enriched with standardized mark up, and users can access XBRL information via common desktop applications such as spreadsheets and word processors for competitive comparisons and for internal governance, risk and compliance purposes.
Beyond just satisfying regulatory requirements, data standards provide enterprises with the information they need for better decision-making, risk management, and enhanced investor relations.
For instance, the XBRL data standard results in greater transparency into company operations for investors – something that investors have begun to demand recently – and allows organizations to target messages for specific audiences.
For investors and regulators in markets where XBRL is a standard and competitive market analysis is essential, it is relatively simple to pull in information from several companies and compare various items such as cash balances, liquidity, invoices, etc. Internally, executives and board members can leverage this information to improve company operations, reduce enterprise risk and enhance overall governance of the organization.
Cloudy skies ahead
Data standards and taxonomies are becoming more widely accepted, especially with the emergence of big data and as more enterprises deploy and implement cloud-based solutions. Data standards and taxonomies, including XBRL, are moving to the cloud platform, as well. Software-as-a-service (SaaS) applications and cloud platforms are becoming the norm for IT infrastructure, allaying concerns of data security.
Additionally, vendors are thoroughly educating IT teams and company executives about security and validation of data standards on cloud platforms through independent standards-based reports, enterprise references and direct access to security experts. Previously, business leaders were concerned about the submission of sensitive financial information over the Internet or via a cloud; however, industry education and specifically designed security and data standard validations are reducing these anxieties. There are greater opportunities now for IT administrators to assist other departments and executives in selecting the best cloud-based applications for data standards and analytics.
How standards affect enterprises
As the SEC and public companies demonstrate their use of XBRL for financial filings, data standards are driving greater transparency and insight into the operations of a company. The normalization of detailed and often complicated data increases efficiencies and reduces the costs and time business users spend analyzing the information.
A case in point is the Internal Revenue Service (IRS), which
implemented a data standard more than 10 years ago to evaluate how returns are
processed. Using a standard machine-readable format based on a specific
taxonomy that surveys the data to pinpoint when an actual audit is required,
the IRS’ standardization results in savings for the agency and taxpayers.
Data standards and taxonomies help ensure that the information gathered is valid, complete, meaningful, and comparable. The taxonomy clearly outlines the rules for how the data is reported, allowing for compliance with regulatory requirements. Once the data is submitted to the IRS, the company executives and board members can leverage this information to drive value-based decision-making and risk management that will result in overall lower costs.
Efficient company operations and management heavily rely on technologies like cloud-based solutions and software standards such as XBRL. The combination allows public companies to share data in a common format between other companies and regulators like the SEC.
Executives at many firms don’t understand the value that XBRL data can bring to governance, risk and compliance efforts, and market research initiatives because of its inherent technical nature. But the value of XBRL data and formats goes beyond just that of financial data, as other industries have shown.
The healthcare industry is using HL7 as a data standard version, and the shipping and logistics industry is examining XBRL. Data standards and a common taxonomy are essential for a specific industry or public companies to manage their operations and interact with investors. It is the role of the IT administrator to drive the adoption of these standards within the enterprise.
Carter is the chief technology officer at EDGAR Online, a division of RR
Donnelley, and has more than 20 years of experience in developing enterprise software.