Appraise organizations better
Major accounting scandals around the turn of the last century have led governments and shareholders to want to be able to appraise organizations better. The recently increased focus on corporate governance and on information exchange between shareholders and organization executives illustrates this. Shareholders – and governments – presently demand that organizations be transparent.
A firm’s income statement may be likened to a bikini
Stakeholders simply do not settle for financial numbers alone. Decision-making based on such figures alone provides a distorted picture of what is actually happening within an organization (De Waal, 2002). To quote Burton G. Malkiel: “A firm’s income statement may be likened to a bikini – what it reveals is interesting, but what it conceals is vital”.
BI allows for a better-integrated picture
Besides financial figures, stakeholders would also like to have information about lead times, absenteeism, customer satisfaction etc. Business Intelligence allows for a better-integrated picture of the operation and performance of an organization resulting in a single version of the truth and making business operations more transparent for external stakeholders. In his book, Paul Frentrop touches on this problem, (information asymmetry between stakeholders and current management) however he does not offer a solution for the issue of corporate governance (Frentrop, 2002).
Reveal something other than financial KPIs
The Financial Director website does however highlight the issue: “The difference today is that investors, employees and customers want measurements that reveal something other than financial figures and ratios” (Robert Bruce, 2003). We see an increasing number of annual reports that do provide information on the intellectual capital, on working conditions, on CSR and environmental issues, although in some cases these subjects are being misused to improve company reputations.
Covering up was quite easy for managers
Formerly, covering up the actual state of affairs was quite easy for managers since they had access to their own database and were able to apply their own definitions. The same goes for financial departments, which would treat figures (and sometimes definitions as well) with a measure of creativity, often by using a spreadsheet. As we all know, this information – the profit figures in particular – are being manipulated often in favor of the incumbent management (Hermalin and Weisbach, 2001).
One single controle language increases transparency
With Business Intelligence, organizations have a joint (data) source that is not so easy to manipulate. One single control language is spoken throughout the company and people have access to each other’s data. This increases transparency and helps to prevent fraud.