In This Chapter
In this chapter, we take a closer look at the information-supply chain. We begin by contrasting an information-supply chain with a physical-supply chain, which helps you see the fundamental idea of what an information-supply chain is. We then walk you through the steps of creating an information-supply chain. Finally, we show you how creating information-supply chains for yourself eventually could be as easy as writing a blog or setting up a social network.
You may be familiar with a business-supply chain, which is an interconnected network of businesses that moves products or services from the point of origin to the consumer and all the points in between. The physical-supply chain spans many different organizations that are involved in all aspects, from obtaining and processing the raw materials to distributing the finished goods, perhaps to a store, where they're sold to a consumer. Retail models of supply chains, wholesale models, and many other business-supply chain models exist. These kinds of supply chains and the management processes that make these supply chains operate effectively and efficiently have been around for some time. Each organization and each stakeholder are like a link in the chain that helps the participants achieve some business objective.
These days, digital-supply chains are challenging some physical-supply chains. Consider how music was distributed when it was on a physical CD as compared to the improvements of music technologies that allowed iTunes and its competitors to distribute music and other media over the Web. The physical part of the music (the CD) is becoming a thing of the past because it is more of a constraint now that other nonphysical options of distributing music exist. These digital-supply chains are challenging physical-supply chains. The MP3 standard music format suddenly changed something physical to a digital distribution model.
Information distribution also operates like a supply chain. Before the computer, business information was in the form of paper, a physical media. Today, more and more information, just like music, is exchanged electronically as digital files. Many times, however, the business information is created digitally, transferred digitally, and then printed so that it becomes a physical medium again. But the new medium doesn't require physical distribution.
An information-supply chain is all the components, including people, processes, and technologies, required to collect information from the distinct processes that generate that information and then efficiently and effectively distribute it accurately and in a timely manner to the appropriate consumers of that information. The consumers turn that information into knowledge for one purpose or another.
Tip
To fully understand the notion of a supply chain, be it physical or digital, think of the entire supply chain rather than the links. For example, Wal-Mart's key competitive advantage is its supply chain. In his book The World Is Flat (Farrar, Straus & Giroux), Thomas Friedman writes,
"To appreciate how important supply-chaining has become as a source of competitive advantage and profit in a flat world, think about this one fact: Wal-Mart today is the biggest retail company in the world, and it does not make a single thing. All it makes is a hyper-efficient supply chain."
A friction-free and zero-latency information-supply chain, straight-through reporting, is a new way of thinking about the flow of information that you need to understand. Although a totally friction-free and zero-latency business information-supply chain is a theoretical target that you can never really achieve, if you understand the idea, you can understand the existing friction and reduce it.
What do we mean by friction-free and zero latency? Friction generally slows things down. Latency is the time you have to wait to have something you want. We're using the metaphor friction-free and zero latency to conjure up an image in your mind. Another way to refer to this is straight-through reporting, which is all about maximizing the objectives you're trying to achieve while minimizing the costs.
An information-supply chain is a set of components (organizations, people, and applications) that collects information and efficiently distributes that information to its consumers. The information-supply chain must meet all the objectives of exchanging business information. Enabling technologies let you achieve these objectives and offer characteristics that hadn't existed (see Chapter 6).
To understand the information-supply chain, we describe a specific, tangible example of one: external financial reporting. The processes and participants of the external financial-reporting-supply chain look something like Figure 7-1.
The typical large organization uses about 800 spreadsheets and word-processing documents to summarize the information that eventually becomes its external financial report. Figure 7-1 shows the processes and the participants in the external financial-reporting-supply chain. They work together to make external financial reporting work. Those that operate within the external financial reporting information-supply chain include
Standards setters, such as the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB), set external financial reporting standards that others in the process use. The standards express semantics, such as concepts and the relations between concepts and rules, and otherwise define financial-reporting standards.
Companies use the standards to create and submit their financial reports to central regulatory repositories, such as the U.S. SEC EDGAR database. (See Chapter 6 for more on EDGAR.)
Investors and other analysts look at the financial information provided by the companies using the standards for external financial reporting. This group includes regulators, lenders, suppliers, customers, potential investors, and so on. Central banks are a type of analyst and use this financial information in the process of establishing economic policies.
Third-party accountants and auditors play a role in verifying that everything is on the up and up. Transactions have to be arm's-length. These auditors do their best to prevent the use of fraudulent information, and they generally verify that the standards are correctly followed.
Regulators make sure that the process operates fairly, smoothly, and in the best interest of the markets. Regulators, which include stock exchanges in some countries, may play the role of standards setters, or they may use standards set by others, such as IFRS, so that they don't have to create their own standards. Many times, regulators operate centralized repositories to store information.
Financial publishers publish financial statements in a variety of formats for filing with regulators, mailing to stockholders, and otherwise disseminating the financial information.
Data aggregators operate in this supply chain to take the information companies prepare, put it together to make it comparable in their own proprietary way, and then sell the information to analysts and investors. Data aggregators help the process because each analyst or investor doesn't have to rekey financial information themselves; it's a value-added service.
Software vendors create software that assists their clients in their different roles within these processes. Different participants use different software in order to meet their specific needs.
Note
Take note: In this model, data aggregators are rekeying data or developing costly sophisticated semi-automated parsing and mapping technologies. Do you really need data aggregators to provide these kinds of costly value-added services? Well, under the current model, it's certainly a necessary value-added activity.
The costly rekeying, mapping and parsing may sound like an obvious inefficiency, but other, not-as-obvious inefficiencies also result from this rekeying:
Table 7-1 takes a closer look at how the roles look under the current historical supply-chain model and how it looks based on an emerging model that some systems are moving to.
Table 7.1. Comparing Old and New Models
Aspect of Model | Historical Model | Emerging Model |
|---|---|---|
Sets standards | Each country's own standard setter, such as FASB | One standard setter, IASB |
Articulates standards in | Books (can sometimes be somewhat vague and hard to understand) | Books (will still be used), Web pages, XBRL |
Creates financial information using | Spreadsheets, word processors | XBRL |
Distributes information | Postal service on paper, HTML, or PDF on Web | XBRL and RSS feed |
Aggregates, normalizes information | Manually rekeying by data aggregator, data is generally normalized | Substantially less rekeying, less normalization |
Publishes information | Unstructured or structured for presentation; paper, PDF, HTML | XBRL structured for meaning; one version can be rendered as PDF, HTML, other formats, or printed on paper |
Reconfigures financial report | Inflexible; you get one format | Flexible, interactive, users can adjust the format as they see fit |
Regulates the market | Regulator | Regulator, the market itself (crowd-sourcing) |
Analyzes information | Regulators, analysts and investors | Regulators, analysts, and investors (less rekeying) |
We use external financial reporting as an example because information is available and external financial reporting has been through this change process to a degree in several countries around the world. As such, you can find clues as to how this process can work for other areas of business information exchange.
Note
No new model will be perfect. Different mediums have different characteristics. New things are possible, but some old approaches and techniques should continue. Each different supply chain decides for itself what is and isn't appropriate.
The transformations caused by the Web and other technologies aren't unique to business, and no business is exempt from change, no matter how much it wants to be. In fact, the only constant in any supply chain is that things will change. Consider for a moment what is happening in other industries:
Everyone is in the news business. More and more newspapers are struggling because of new economics of information. Blogs are making everyone a reporter who chooses to be a one. Professional journalists aren't always the first to provide information. Everybody with a decent cell phone can take pictures or video. Video's rich media is cutting into how much people want or need to read.
Digital photography is overtaking film. Digital photography wreaked havoc on those businesses set up to process film. Not only that, but the removal from the physical film, converting the physical film into something a computer can understand, totally changed distribution channels.
Digital movies abound. Digital movies (rather than film-based ones) are in the process of revolutionizing the movie business.
Think about the bigger picture of business information exchange for a moment. We consider the platform or framework in which business information exchange takes place by focusing on one specific area of business information exchange: external financial reporting.
You can view external financial reporting as part of a platform. The platform's purpose is to enable businesses to obtain the necessary capital they need to operate, and part of this process is the exchange of financial information from the organizations who make use of capital to the investors and lenders who provide the capital. This process of exchanging external financial information has many participants (refer to Figure 7-1).
How is this important information created and communicated in today's global environment? We highlight a few characteristics to show that external financial reporting is a platform and that platform organization can create dramatic efficiencies:
One global set of financial reporting standards: IFRS is getting more and more traction, replacing the approximately 80 different sets of financial reporting standards that did exist around the world, which made exchanging financial information more challenging. For example, imagine that you had to regulate banks that operate in 27 European countries, and they each had different financial reporting standards.
One global financial publishing format: XBRL is becoming the publishing format for financial information. Working with IFRS, which is the metadata of the financial information, XBRL and IFRS together allow for a standard, flexible, reusable financial publishing format. Contrast that one format to the multiple formats generally used today to publish financial information.
One global capital market: Because of IFRS and XBRL, analysis of financial information can be vastly easier because you use one standard set of metadata (IFRS) and one publishing format (XBRL) globally. Business analysts can more easily analyze and compare companies from any country in their search for good investments.
Is this the way external financial reporting works today? No, not yet. Maybe it never will. Political or business agendas could preclude the creation of one global capital market. The point here is to show that external financial reporting works within a platform and to demonstrate how efficiently a system can work. It's up to the participants of the external financial-reporting-supply chain, or other supply chains, to leverage the available tools to maximize the effectiveness and efficiencies of their supply chains. Some regulators, such as the U.S. SEC, are already doing so. Others will likely follow.
General business information exchange, much of which is business reports, also operates within a platform. You control that platform, at least for business information exchange in your organization. Your current platform for the distribution of business information, such as business reports, was designed and developed in the age of paper, long before the creation of the Web and other technologies. The tools and technologies your platform can leverage have changed — consider the Web — but the fundamental infrastructure components of that platform haven't yet changed much. Chapter 6 discusses these existing fundamental infrastructure's characteristics: paper-based, proprietary, inflexible document formats, and so on. These characteristics result in a lot of rekeying as information gets moved around within the current platform for exchanging business information.
Like the Web, XBRL is very much part of a new infrastructure that will allow new models for achieving the objectives within the platform for exchanging business information.
Large business systems, such as ERP and CPM, house much of this business information, while smaller, but important, spreadsheets house other information, and still more systems smaller than ERP systems, but larger than simple spreadsheets, contain other information. New types of specialty systems have been developed in order to meet specific objectives and to work together to create a way to supplement core systems, including
Business intelligence applications: Business intelligence (BI) is the ability of a business to convert its data into relevant, timely, accurate information that generates competitive advantage and stakeholder value. Today, data from the workhorse of transactional systems, the relational database, is generated by Online Transaction Processing (OLTP) and put into data warehouses, which are also known as data marts or Online Analytical Processing (OLAP) systems. These data marts are accessed by flexible proprietary BI applications, which make use of the flexible multidimensional model.
Content-management systems: Content management (CM) is the practice of supporting the life cycle of digital information of all sorts. This digital information, many times referred to as content, may take the form of word-processing documents, spreadsheets, text files, HTML, PDF, XML, audio, video, images, or other types of digital resources, all which require management.
Knowledge-management systems: Knowledge management (KM) is the practice of consciously and comprehensively identifying, gathering, organizing, expressing, and distributing an organization's information and other resources, such as the skills of its people.
Flexible micro-applications: Software commonly used today is generally too inflexible. New software-building tools, such as XSLT, AJAX, FLEX, WPF/XAML, and microformats, allow for the creation of much smaller and more flexible applications, adjustable not by technical people via programming, but rather by business people who edit domain metadata.
These applications are small — we refer to them as micro- or nano-applications, and sometimes they're called widgets. These highly flexible applications make use of information across many different business software systems typically accessible via the Web. Mashups, which use data from a number of sources mashed up into one interface, are a good example of these flexible micro-applications.
Internal semantic webs: The Semantic Web (capital letters, think Internet) is Web 3.0. It's the external system that everyone is connected to. In addition, every company will, or likely should, have its own internal semantic web (lowercase, think intranet or extranet) that provides the organization with one database in the sky for all their internal information. Companies can look at all their information as if it were one single database, using one set of metadata. That database will weave all information together into, well, a web of meaning that a company can leverage for competitive advantage.
These core and supplemental business systems make up your business information platform. XBRL will help weave core systems and supplemental systems together to create more robust yet flexible connectivity between systems for substantially less cost and effort.
Note
Software is some of the most complex equipment ever created by humans. What is even more complex are the processes humans invent to undertake the business that the software was built for. XBRL and other technologies will help weave these systems together into hyper-efficient and effective information-supply chains that help you do business and that are flexible enough to evolve as your business adapts to the ever-changing environment in which you operate.
The new model of business information exchange is not Star Trek or Star Wars-types of notions, but rather the realities of living in the digital-integrated information age. The same technologies that are causing information overload can help solve the problems associated with information overload. Living in today's world with yesterday's technologies will be painful. (Chapter 8 explores these new possibilities.)
Every business is a member of numerous information-supply chains. Some are simple and straightforward, while others are more complex. In this section, we walk you through the tasks you need to perform to create a simple information-supply chain. These steps better help you get a sense for what an information-supply chain is and what you need to do in order to set one up. These steps include references to specific chapters that can help you perform each step:
Identify a process where information is exchanged (see Chapter 9).
Examine the existing process and see whether it has room for improvement and what the ROI may be (see Chapter 10).
Understand the information that is to be exchanged and express that information's definition in the form of an XBRL taxonomy (see Chapter 17).
Create an instance of information that will be exchanged in the form of an XBRL instance (see Chapter 18).
Transfer the information from its creator to its consumer.
This transfer can take a lot of different forms and is really dependent on a bunch of factors. Is the recipient within your organization or external to it? Is the recipient a human or a business system? Is the information confidential? How much security infrastructure is needed? Chapter 14 can help you find software to help transfer information.
(Optional) Store the information in something other than the final destination of the information.
For example, many systems desire to keep a copy of every XBRL instance received (document of record) as opposed to simply taking the information, extracting it, and feeding it to the application that will ultimately consume the information. Chapter 14 can help you find software for storing XBRL.
Consume the information within some process.
The consumption process may be consuming one XBRL instance at a time, simply feeding it as an input to some other process (see Step 8), or it may be analyzing a number of XBRL instances received.
Output information that is possibly the input for some other process.
Go back to Step 1 and repeat this list of steps.
Those are the basic steps. How often you repeat Steps 5 through 8 really depends on the process. You can exchange information hourly, daily, monthly, quarterly, annually, or some other period of time.
The preceding steps are the pieces of the process. The process is general. You can input the output of this process into another process. Conversely, your input may be from the output of some other process. (Chapters 11 and 12 can also help you with the details of implementing your information-supply chain.)
You can understand what a business information-supply chain is by looking at one in detail. The state government of Nevada and IRIS Business Systems published a white paper that explains the vision of the state for creating a Nevada Business Portal (NBP). We use that white paper as a basis for explaining the NBP.
The NBP will be a complete end-to-end system, enveloping the state's individual agencies, constituencies that the state serves, and all the business systems within those entities:
Business systems within one state agency: Many times, one state agency has many different business systems that it uses to transact its business.
Other state agencies: One state agency interacts with other state agencies.
Constituencies: State agencies also interact with their constituents, such as a business or an individual.
County and other local government agencies: At times, interaction with other local governmental agencies occurs.
Other states: In some cases, interactions with other states occur, such as when an insurance company operates in Nevada and also within another state.
Federal government: In some cases, interactions with the federal government occur, such as in FBI background checks or submission of CAFR reports (financial statements of government agencies) to the U.S. Census Bureau.
The NBP system is based on other standardized business reporting systems created in the Netherlands and Australia (see Chapter 9).
Key aspects of the NBP include the following:
Laws and regulations are created. The actual rules, policies, and procedures come from legislation, administrative rulings and other state agency decisions, and so on.
These legislative and administrative decisions are articulated as platform-independent policies and procedures (and aren't locked into any one agency's proprietary business-system format) in a form readable and clearly understandable by both humans and computers (an XBRL taxonomy), enabling seamless cross-system interactions among the various state agencies and with constituents. This setup minimizes misunderstandings, misinterpretations, and illegal acts, such as an agency collecting information it's not legally entitled to collect.
The NBP has a workflow-intensive framework, based on rules, policies, and procedures, that both drives and controls the system. The electronic and human-readable rules drive this workflow. Transactions are platform-independent and easily transferable using the same Web technologies to transfer information between state agencies, and between state agencies and constituents.
The NBP stores and centrally controls the rules, polices, and procedures XBRL taxonomy accessed by all systems. Individual systems store transactions and must comply with the centralized set of rules, policies, and procedures.
Hence, when a business entity registered with the system initiates a transaction, the system looks at various criteria defined in the rules, policies, and procedures and automatically guides the business user through each step of the process and all transactions required for each step. The objectives that system is trying to achieve include
Reduced redundancy: No multiple submissions to different agencies by constituents — information is submitted to the system once via one interface, and the system then distributes the information to the state agencies authorized to have the information.
Greater agency autonomy: Agencies are free to use whatever systems they like; the only thing they must do is integrate with the NBP.
Clarity: The rules, policies, and procedures are clearly communicated in a form both computers and humans can understand.
Here's a quick example to show you how this business information-supply chain works. Say that Mr. Walker, a citizen of Nevada, is planning to set up a trucking company called Business A. For this new company, he needs to obtain the appropriate licenses and clearances from a set of state agencies. Because it's a new business that currently has no systems in place, Mr. Walker can go to a Web site and complete forms to submit information. (Later, when he has business systems in place, he can build interfaces to the NBP's Web services interface.)
Mr. Walker goes to the Setting Up a Business section of the NBP. All the needed encryption, security, credentials, logins, and so on are taken care of. He fills in his information, the information is validated before he can submit it to the state, and then the process is integrated with other processes.
For example, Mr. Walker's registration needs to be approved by the Department of Motor Vehicles (because he has to have a commercial truck driver's license) and by certain County offices. Mr. Walker can view the status of his application throughout the process, receive updates via e-mail alerts, and view comment letters from state and county agencies until he either receives an approval or a rejection letter for starting his business.
You get the idea of how this business information-supply chain might operate and how you have similar types of transactions, only for different purposes and between different parties. But the idea of exchanging business information is fairly universal.
As little as 15 years ago, setting up a supply chain would have cost millions of dollars. Today, it costs substantially less. Granted, creating a bullet-proof, highly secure, robust system similar to what the FDIC or the SEC has will cost way more, but these systems are still less expensive than they once were and are significantly higher in functionality.
Think about what else has happened with Web 2.0. Before systems for creating things like blogs and wikis existed, you had to be a programmer to create them. However, today, because systems exist that enable you to create such systems, you can simply use the systems to add another instance of the type of system you desire to create.
Also, all these different systems (blogs, social networks, and so on) focus on one type of information. But where is the system for uploading business information to the Web and making that information available for others to use? In the future, creating a supply chain will likely be as easy as setting up some other things with which you may be familiar:
Blog (
www.blogger.com): If you want to become a news reporter, go here, and you can set up your own blog in a matter of minutes.Wiki (
www.wikispaces.com)" "Want to set up a wiki?" the site asks. You can have your own wiki up and running in moments.Discussion group (
http://groups.yahoo.com): Discussion groups have been around for years; this site is one of the most popular.Social network (
www.ning.com): LoveFacebook.comorMySpace.com? Build your own social network.Video channel (
www.youtube.com/members): How about your own on-demand TV channel?Photo gallery (
http://picasaweb.google.com): Create your own photo gallery here.Information-supply chain: Well, sorry we're not quite there yet. . . . Maybe such a system will be the next billion dollar IPO!
Yup. Simple as that. Use a wizard, plug in the ability to receive information, validate, render, analyze, store — all the things you'd do with any information-supply chain. Just as enterprising people have created Web sites to facilitate the sharing of videos, photos, blogs, and wikis, it's just a matter of time before someone will create a Web site that allows you to set up your own information-supply chain, upload information, share it with others, and allow others to access the information.