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I coined the term “cryptic data” to mean information that isn’t easy to find or access by people who could make use of it. In one instance, cryptic data offers professional investors – portfolio managers and securities analysts – a source of proprietary information that can improve their ability to pick stocks and achieve superior performance relative to their benchmarks. Automation through technology now makes collecting cryptic data substantially more efficient than manual methods and thus makes accessing it practical. In particular, Web scraping tools (what I call “data drones”) can be programmed to retrieve specific information once or on an ongoing basis. Although this data is accessible to anyone, it requires insight and experience to understand how to use it for superior investment performance.

Having such technology comes at a time when active portfolio management and the securities analysis that supports it are increasingly challenged by a shift to passive investing strategies. Active portfolio management uses human judgment to select investments for particular purposes, such as retirement, a college education or short-term liquidity. Active managers apply their experience and judgment to industry and company research, economic forecasts and financial analyses to select investments. The main alternative, passive management or indexing, involves buying an entire basket of similar investments, for instance, all of the companies in the Standard & Poor’s 500 stock index. In this way, an investor is able to approximate the average performance of equities in that index. Active portfolio management and the research performed by the “sell side” (investment banks and brokers) analysts, which evolved to serve active managers, are being challenged by indexing. Index funds are displacing active managers and putting pressure on their fees, which reduces the money available to pay for sell-side research. The shift is significant in magnitude. From 2007 to 2014, indexed equity mutual funds and exchange traded funds (ETFs) in the U.S. received $1 trillion in net new cash and reinvested dividends, while over this same period actively managed domestic equity mutual funds had a net outflow of $659 billion, including reinvested dividends.

Two factors have been driving the shift to passive investment management. One is the consistently poor performance of active managers relative to their relevant investment benchmarks, such as a major stock index. The second is that in a period of relatively low returns on investments, management fees have become more important, which favors the lower-cost passive alternative. Technology has made it feasible to create low-cost index fund alternatives to compete with active management.

Portfolio managers and securities analysts base their investment decisions for actively managed portfolios or investment recommendations on a variety of sources. Some of the most useful are based on personal relationships because they can provide more insight, context and nuance and because the information is not widely available. (I’m excluding insider information here.) However, a great deal of the research is based on generally accessible investment research and information services provided by trading platforms and information aggregators. These sources are an essential component of equity research, but because they are readily available, they offer limited competitive advantage to investment managers or research analysts. Cryptic data, on the other hand, can provide investors with an edge in stock selection because it requires individual insight to understand what information is necessary, where it is located and why it is useful, as well as the analytic skills to understand what it means.

Cryptic data can be found on any industry or subject somewhere in the Internet. Here are a few examples:

  • Tables of related data assembled through repetitive queries of a free or paid data source (such as patents, real estate ownership or uniform commercial code filings)
  • Store or retail outlet locations
  • Product lines or price lists
  • Industry data collected by a group that makes it available only to members
  • Data contained in footnotes in financial filings that are not already collected in tabular form by data aggregators.

Collected, aggregated and analyzed, cryptic data can provide companies and individuals with information and insight that is not readily available. This is particularly true of data sets gathered over time from a source or a combination of sources that can reveal trends and relationships that otherwise would be difficult to spot.

Collecting the data in a consistent format makes it easier to do mashups of data sets to understand trends or spot potential issues. For example, starting with a list of addresses of store locations of a retailer, restaurant chain or consumer services provider, it’s possible to assess their geographic dispersion to determine whether new locations will fill in gaps or on the other hand cannibalize sales at existing stores. The data also can underpin analysis of the amount of capital needed to add productive sites to increase market share in a region. Geographic areas of overlap with competitors can be assessed. Location-based demographic databases can provide insight into their proximity to target customers. The impact of weather or natural disasters on such chains can be pinpointed quickly. While this data is openly available, knowing what to look for, how to analyze it and how to assess the results requires individual insight, skill and experience. This proprietary element is what makes cryptic data valuable to active investment management. Until automation technology became available, collecting cryptic information was too time-consuming to be practical.

vr_NG_Finance_Analytics_17_accessibility_of_external_dataThe challenge of accessing widely scattered information on the Web is daunting. Our next-generation finance analytics benchmark research shows that companies have limited access to information about markets, industries and economies. Only 14 percent of participants said they have access to all the external data they need. Most (63%) said they can access only some of it, and another 14 percent said they can’t access any such data.

I recommend that portfolio managers and securities analysts consider how they might utilize cryptic data as part of their investment analysis. By automating the process of routinely collecting information and transforming it into usable formats, technology can expand the range of data available by lowering the cost of acquiring it. To address this constraint, data drones are designed for business users. They use a visual user interface design and hide some of the complexity inherent in the process. They can automate the process of collecting cryptic data and expand the scope and depth of data used for analysis, alerting and decision support. Having the ability to do this work in house can lower its cost in comparison to paying a service bureau. More importantly, by keeping the data retrieval and analysis in house (as opposed to contracting the work to a third party), the unique insights and the metrics that support it remain proprietary.

Automating the process of collecting cryptic data requires software that business people can use. I recommend taking a look at tools that can help you take advantage of cryptic data.


Robert Kugel

Senior Vice President, Research


The evolutionary pace of technologies that shape the design of ERP systems has been accelerating over the last couple of years. In addition to cloud computing there is the increasing availability of analytics and reporting integrated into transaction processing systems, which I have noted; support for mobile users; in-context collaboration; and more intuitive user interface (UI) design. Each of these features enhances productivity and the usefulness of ERP software in managing a business. The latest release of FinancialForce, a cloud-based ERP system, offers significant enhancements to its user interface and collaboration capabilities.

In regard to the UI, ERP vendors have been rethinking the design of their screens and workflows to improve the user experience. In legacy ERP systems, screen layouts are relics of technology limitations that no longer exist. Almost all ERP vendors are focusing on refining their UI. FinancialForce has a slightly different approach: Let each customer decide what works best. In its Spring 2016 release, the company has made its input forms fully configurable so that companies are able to create their own “personalized user forms” to fit the specific requirements of a given process. Input forms also can be optimized for mobile devices to facilitate their use by users in situations such as a manager or executive giving an approval or a mobile worker doing multipart matching in some process. This approach is an example of a more “consumerized” experience because the user organization can configure the forms to fit their preferences. Unlike almost all other ERP systems, FinancialForce does not require specialist skills or outside consultants. With minimal training, someone in the finance organization can start with the basic input screen templates and customize them by dragging and dropping elements to fit the requirements of processes executed by a specific department. No programming is necessary. The result is a data entry interface that can be faster to learn and simpler to use than older styles, and which can boost accounting department quality and productivity.

vr_Office_of_Finance_21_information_access_in_ERPFinancialForce introduced its Action Views reporting engine last year to produce Excel-like reports directly from data stored in its cloud. Sources include ERP, human resources or any other data that is accessible to the user in the Salesforce Sales Cloud or Service Cloud (for example, to access customer records or to create a receivables aging analysis by sales agent). Action Views address the need companies have for easy access to ERP data and other enterprise data without having to set up a data warehouse. Action Views are designed to present actionable information to individuals so they can make informed decisions sooner. In our benchmark research, regardless of the size of the company or the age of the system, only half of users of ERP systems said it is easy or very easy to access the information in their ERP system.

The latest release offers a useful enhancement to Action Views called Related Content Panels (RCPs). These pop up to show tabs with account details and the account history, a task calendar for managing follow-ups such as a collection call and collaboration capabilities using Salesforce Chatter. As I’ve noted, collaboration is an essential aspect of the accounting function. Individuals often need input from others, for example to confirm or clarify some aspect of a report, track a specific transaction, find missing information or comment on or explain some piece of analysis or variance. RCPs enable the relevant group of people in a company (which could be anyone with access to Chatter) to have discussions about what is in a report. Our research shows that a majority of companies rely on email with spreadsheet attachments to facilitate collaboration, probably because once upon a time it was the only practical alternative. RCPs provide such an alternative. Rather than being scattered in multiple email threads, these discussions are readily accessible in the context of the report, and users can easily reference them later. Collaboration-in-context capabilities are a far more productive way for individuals to collaborate and interact. An in-context collaboration capability like RCPs provides direct contact with individuals while they perform a specific task. In-context collaboration will become an essential feature of ERP software because it increases productivity and provides easy access to historical records of conversations.

The Spring release of FinancialForce adds intercompany reconciliation and automated elimination entries, both of which can significantly reduce the amount of period-end accounting work and accelerate the financial close. Continuous accounting is the term we coined to describe a new approach to managing the finance and accounting function. Today’s financial software gives companies much more flexibility than paper-based systems or legacy software in how and when they perform their work. The monthly, quarterly and annual period-end bunching of tasks was a practical approach to dealing with the limitations of paper-based systems. Today it’s possible to use technology to spread workloads evenly across accounting periods. Reconciliations and eliminations can be done more frequently, reducing the end-of-period workloads, shortening the close, reducing the need for temporary hires and easing stress in the department. In the new release, FinancialForce Reconciliations enables companies to post a single record of an intercompany transaction in separate general ledgers simultaneously to eliminate potential discrepancies at their source. For entities using different functional currencies, a global exchange rate facility automates their translation at the time the record is posted.

FinancialForce’s software is designed to meets the needs of several types of companies. As a cloud-based application, it’s suited to the needs of corporations that have outgrown their small business accounting software packages and can benefit from having the ability to connect sales, marketing and customer service capabilities with their back-office functions. It can help midsize businesses – especially those selling business services – grow while minimizing the need to add administrative staff. Many companies with 50 to 500 employees still use basic accounting packages even though they have outgrown their process management, reporting and analytical capabilities because they hesitate to make a new investment in an on-premises accounting package and the resources necessary to support it. Maintaining an existing accounting package might appear the safe choice, but it foregoes the operational and management benefits that more capable software can deliver. Cloud-based software usually entails a smaller upfront commitment and does not require ongoing reliance on paid staff to support a system. FinancialForce also is well suited for larger companies that have a professional services group with 30 or more employees who bill their time and expenses, especially those who engage in discrete projects. users of all sizes can find FinancialForce components useful in automatically connecting their processes with other enterprise systems in a managed and controlled fashion, without having to re-enter data. I recommend that all these organizations consider how this vendor’s products can help meet their needs.


Robert Kugel

Senior Vice President, Research

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