spreadsheet information systems are essential to business

7/28/2019 Spreadsheet Information Systems Are Essential to Business

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Working Paper, please do not quote, reference, or distribute. November 9, 2005

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SPREADSHEET INFORMATION SYSTEMS ARE

ESSENTIAL TO BUSINESS

Thomas A. GrossmanUniversity of San [email protected]

Vijay MehrotraSan Francisco State University

zgr zlkSan Francisco State University

ABSTRACT

In the business world, spreadsheets are ubiquitous and are widely recognized as

essential tools. In the academic world, spreadsheets have received scant

research attention, and there is evidence they are perceived as mere personal

productivity tools, distinct from more important information systems. This is

unfortunate, because the business world would benefit greatly from research that

improved spreadsheet practices.

We seek to bring spreadsheets to the attention of information systemsresearchers as an area with rich opportunities for research that is relevant to

business. We present empirical observations that show how spreadsheets and

spreadsheet information systems are essential to business, highlighting their

large diversity, and their deep integration with business processes and work

systems. We provide examples of a wide variety of users (ranging from top

executives to front-line workers) using spreadsheets or spreadsheet results to

make risky decisions, capture and store crucial data, performed advancedanalysis, communicate critical information to internal and external stakeholders,

and other vital activities.

We show that spreadsheets are essential to business; spreadsheets function as

information systems; spreadsheets are an effective application software


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development platform; spreadsheets inherited from other people are important;

and spreadsheets play a central role in the evolution of work systems. We

document misalignment between the high importance of a spreadsheet and the

low level of resources devoted to creating and verifying it. Our findings suggest

that spreadsheets merit significant research attention. We propose research

questions on empirical and prescriptive aspects of spreadsheet creation,

maintenance, use, and culture.

Keywords: spreadsheets, empirical research, information systems

I. INTRODUCTION

The business world and the academic world have different perceptions ofspreadsheets. Since the invention of VisiCalc (the first computerized

spreadsheet) in 1979, spreadsheets have become ubiquitous in the business

world, and are widely acknowledged to be the oldest killer-app of them all

[Liebowitz, 2002] that drove the growth of personal computing. Today,

spreadsheets are ubiquitous, and there are tens of millions of spreadsheet users.

The business impact of spreadsheets is in marked contrast to their conspicuous

absence from information systems research and teaching. There seems to exist

a perception that spreadsheets are somehow different than other programming

tools, and that spreadsheets are suitable for personal use but not for important

tasks which are reserved to information systems. We present three examples of

these perceptions, from software engineering, a model IS curriculum, and a

leading information technology textbook. The popular software engineering book

[McConnell 1996, p. 516, italics added for emphasis] mentions domain-specific

tools such as spreadsheetsthat solve problems that would otherwise have to

be solved by creating a computer program. This is remarkable in that it suggests

that a spreadsheet is not a computer program. The IS 2002 Model Curriculum

[Gorgone, et al, 2003, p. 12] promulgated by The Association for Computing

Machinery, The Association for Information Systems, and The Association for

Information Technology Professionals identifies spreadsheets as fundamental


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tools of personal computing, along with e-mail, Web browsing, spreadsheets,

word processing, desktop database management systems, presentation

graphics, and external database retrieval tools, suggesting that spreadsheets

are simply personal productivity tools, of equivalent importance to information

systems as word processors or PowerPoint. A leading textbook [Senn 2004, p.

60], italics added for emphasis] states that Information systems differ in an

important way from spreadsheet packages Information systems focus on

business processes while [spreadsheets] focus on solving problems, aiding in

personal decision making, and increasing personal productivity, indicating that

spreadsheets are not information systems, and implying that spreadsheets are

unworthy of the attention that is lavished upon information systems.

The research literature on spreadsheets is small. Spreadsheets are conspicuous

by their absence from journals and conferences in information systems and

computer science. In short, spreadsheets are almost invisible in the information

systems and computer science research communities.

This invisibility of spreadsheets has led to (and is perpetuated by) a lack of

awareness of the importance of spreadsheets and spreadsheet information

systems to organizations, and how much individuals at all levels, in companies

across the economy, depend on spreadsheets. We hypothesize that this

invisibility has caused the research community to neglect spreadsheets. The

challenge of invisibility is not unique to spreadsheet information systems; as

[Benbasat and Zmud 1999] point out, many IS academicians have only

infrequent exposure to the practical contexts where IT-related usage and

management behaviors unfold.

We are sympathetic to researchers who are unaware of the use and importance

of spreadsheets. Because of their invisibility in the academic world, it is difficultfor a researcher to understand the vital importance of spreadsheet information

systems, unless they happen to interact with the users of those systems, or with

the executives who make decisions based upon them.


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Contributions

The contributions of this paper are to demonstrate how 1) spreadsheets are

essential to business; 2) spreadsheets function as information systems, 3)

spreadsheets are essential for heterogeneous purposes, organizations, and

people; 4) spreadsheets are an effective application software development

platform; 5) inherited spreadsheets are important; 6) spreadsheet development

practices are diverse and puzzling; 7) spreadsheet development resources and

importance/complexity are misaligned; 8) spreadsheets play a central role in the

evolution of work systems. We do this by presenting and categorizing eighteen

examples of essential spreadsheets, highlighting the context of their use, and

their profound integration with critical business activities.

We intend this paper to add needed breadth to the very small empirical literature

on spreadsheets. [Croll 2005] discusses important spreadsheets within the

narrow domain of the UK financial center known as the City of London. Croll

concludes that Within certain large sectors, spreadsheets play a role of such

critical importance that without them, companies and markets would not be able

to operate as they do at present. [Cragg and King 1993] examine spreadsheet

model building processes, users' technical backgrounds, and other aspects of the

spreadsheet creation process, but did not concern themselves with theimportance of those spreadsheets.

Our intention is to stimulate research on spreadsheets, because the business

world would benefit greatly from academic research aimed at improved

spreadsheet practices. Because of the enormous practical importance of

spreadsheets in todays world, we strongly believe that the academic community

can and should do research on spreadsheets. There is clear potential to

generate significant benefits by developing improved methodologies for many ofthe very important activities performed by millions of people who interact with

spreadsheet information systems. We discuss specific research opportunities in

the Conclusions.


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II. METHODOLOGY

We interviewed people who use spreadsheets for essential purposes. We used a

snowball sample, asking contacts in industry about their use of spreadsheets, or

people they knew who used spreadsheets. Most interviews were conducted onthe phone, with a few conducted in the subjects place of work. We had no

difficulty identifying research subjects. Everyone we approached agreed to be

interviewed, and subjects were generally eager to speak with us. In a few cases

we called back with clarifying questions. Most interviews were recorded on

audiotape. A few interviews were not taped and we rely on our contemporaneous

notes of the interview. We showed each quotation in this paper to the research

subject and received confirmation that it was accurate.

We performed these interviews under human subjects research protocols

approved by our universities, including a mandatory informed consent

document. Our research protocols require that we not collect sensitive

information, divulge personally identifiable information, nor divulge the name of

the subjects organizations. To enhance confidentiality, we randomly assigned

the gender of the people we discuss or quote.

We sought a diverse group of subjects. Our subjects work in companies rangingfrom four employees to the tens of thousands. They come from corporations,

family business, and the non-profit sector. Our subjects range from CEO to front-

line analysts. Their industries include financial services, consulting, high-tech,

heavy industry, travel & hospitality, software, and personal services. Subjects

work in many functional areas including Information Systems, Manufacturing,

Marketing, Finance, Operations, and Sales.

Interviews were conversational, guided by a list of questions. We allowed the

discussion to roam freely, but attempted to cover all the questions. During the

first part of the interview, we asked subjects demographic questions, including

the role of spreadsheets in their current position, their own experience and

training with spreadsheets and other types of software development, and their

experience with spreadsheet complexity and errors.


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During the second part of the interview, we asked subjects to identify a specific

spreadsheet that they perceived as essential. We told subjects that essential

means that if the spreadsheet were destroyed you could not do your job, or

there would be a very significant negative impact on the organization. We then

had an in-depth discussion of this spreadsheet.

We asked the subject to explain what the spreadsheet was used for, why they

rated it as essential, how the need fulfilled by the spreadsheet had been filled in

the past, and what would happen if its contents were to become unavailable. We

discussed the origin, use and history of the spreadsheet, including the

organizations motivation to develop it and the way the spreadsheet was created,

modified, and used; the integration of the spreadsheet with other data systems

and business processes; the spreadsheets users and frequency of use (intended

at time of creation and actual); the role of the IT department in the design,

development, support, and maintenance of the spreadsheet; and the individuals

and organizations process for creating, testing, and maintaining the

spreadsheet. In addition, research subjects provided substantial additional

information that was not on our list of questions.

III. CLASSIFICATION OF ESSENTIAL SPREADSHEETS

We found wide diversity in the way people use spreadsheets. We organized the

results into five categories to provide a framework for the many different

spreadsheet uses we observed. Some of our examples contain elements of more

than one category, and we placed them in the category with the strongest fit.

The first category is application software, where a development team creates a

spreadsheet for the benefit of end users. The second is financial risk

management, where the spreadsheet is used for financial purposes with a

concomitant risk of financial loss if there is a problem with the spreadsheet. The

next category is executive information systems where spreadsheets enable

executives to understand their business and make important decisions. The

fourth category is business process infrastructure, where a spreadsheet serves


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as an integral part of an essential business process. We distinguish between

business processes related to sales and marketing (convincing a potential

customer to purchase a product or service) and business processes related to

operations (providing the product or service). The final category is complex

analytics, where a researcher or analyst uses a spreadsheet for advanced

scientific or engineering analysis.

In the sections that follow, we provide examples of essential spreadsheets. For

each example, we describe the business, discuss the essential business activity

that is aided by the spreadsheet, describe the spreadsheet and its use, and

indicate how the spreadsheet was created. Quotations are the words of our

research subjects.

IV. SPREADSHEETS USED FOR APPLICATION SOFTWARE

Application software is programs written for a specific application to perform

functions specified by end users [Laudon and Laudon, 2006]. Despite a

widespread perception that application software is usually created using

procedural programming languages or object-oriented development

environments, we found that some developers choose to create application

software in spreadsheets.

Our first example is an application software package, which is a set of

prewritten, precoded application software programs that are commercially

available for sale or lease [Laudon and Laudon, 2006]. Our second example is

application software created by a company for use by employees worldwide. The

third application software is a decision support system created by a consulting

firm and delivered to a client for ongoing use. It was very easy for us to find these

three examples, and we hypothesize that the use of spreadsheets for application

software may be widespread.


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APPLICATION SOFTWARE FOR SALE

SmallSoft is a privately-held software start-up with four employees. They sell a

software application package for compiling a business case. This application is

implemented as an Excel spreadsheet, with a couple of dozen sales to date. Theproduct is implemented as three tightly linked spreadsheets with a total size of 73

megabytes, accompanied by a 150-page training manual. This spreadsheet

product is the companys only source of revenue. It is priced at $30,000, along

with ongoing costs for technical support and maintenance releases.

The CEO and software architect of SmallSoft is a former software product

developer with successful software start-up experience. He created the product

over a series of consulting engagements. At each round of changes, the CEO

carefully architected the spreadsheet, sometimes necessitating extensive

recoding; formally designed the user interface; and followed disciplined coding

practices. He chose to implement their product in a spreadsheet rather than in

traditional software due to the rapid way that we had to change it because we

were learning from the customers as fast as we had our ideas. SmallSoft is now

porting their product to a third-generation language because the size of the

spreadsheet program was causing Excel to fail.

APPLICATION SOFTWARE FOR INTERNAL USE

AnalyCo is a large consulting firm that provides analytic and organizational

development services to customers around the globe. One popular service is a

large scale study of the attitudes and behaviors of clients customers, prospects,

and/or employees. A typical study considers thousands of individuals. AnalyCo

performs extensive analysis and compares the results to those from similar

companies. They interpret the results and share them with executives,managers, and employees within the client organization.

The bulk of the data analysis is done by scientists in a centralized group, utilizing

a statistics application software package and special software to populate and

query AnalyCos database. At the conclusion of the analysis, field consultants


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examine the results and provide detailed output to clients. Unfortunately, this final

project phase was an exhausting race to print thick binders containing

thousands of pages of results, followed by a tedious, expensive and painful

combing of these printouts to prepare multiple client presentations. When clients

asked questions, the field consultants found it very difficult to conduct even

simple follow-up analysis due to the structure of the data and difficulty accessing

it. These were serious problems, inhibiting AnalyCos ability to make full use of its

data and harming client satisfaction.

A group of field consultants obtained internal resources to develop new

application software called the Proprietary Calculator. They prepared a set of

requirements for application software that would enable AnalyCo field consultants

to access and analyze the results generated by the central scientific group. The

software applications team at AnalyCos headquarters developed the software as

a client-server system using Excel as the client. The applications team created a

prototype and obtained feedback from the field consultants on bugs, workflow

issues and possible enhancements. They performed formal testing and created

detailed documentation before distributing the Proprietary Calculator template to

AnalyCo offices worldwide.

Today, this spreadsheet-based application software is used several times a day

by thousands of people all over the world. Our executive presentations to clients

depend on the content of these worksheets, said the project manager, and we

would lose significant credibility if we presented incorrect results. Were able to

respond very, very quickly to follow-up questions as a result of the spreadsheets

capabilities, and weve won millions of dollars of additional consulting services as

a result.

DECISION SUPPORT SYSTEM

ConsultCo is a small supply chain management consulting firm that develops and

implements sophisticated mathematical models for forecasting and optimization.

A large retailer of fashion goods contracted with ConsultCo to deliver a system to


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provide store managers with guidance on marking down prices as fashion goods

reach the end of their life. The revenue from such markdowns represent a

significant portion of the retailers profit, so the timing and amount of the

markdowns are essential decisions.

The client stipulated that ConsultCos solution must be easy to distribute to its

stores, very straightforward for store personnel to use, and provide robust pricing

recommendations. ConsultCo chose to implement and deliver this decision

support system in an Excel spreadsheet, with live feeds from transaction

processing systems via SQL queries. The client paid a price in the six figures

for this spreadsheet.

The spreadsheet decision support system was a major success for its client,

allowing it to manage its prices and inventory more effectively during the product

life-cycle, enabling the client to increase its profitability. This success was

instrumental to ConsultCos establishment of their product in the marketplace.

ConsultCo ported the spreadsheet system to a 3rd-generation language to

improve performance and because prospective customers balk at spending

hundreds of thousands of dollars on a spreadsheet, although they have no

qualms spending the same amount for a production-quality piece of software.

V. SPREADSHEETS USED FOR FINANCIAL RISK MANAGEMENT

Spreadsheets are widely used for financial applications in companies and in the

financial services industry. Problems with these spreadsheets can lead to serious

financial losses, as is shown in our first example, which discusses corporate use

a spreadsheet to reduce the risk of foreign exchange fluctuations. The second

example describes how an investment bank uses spreadsheets to issue bonds.

FOREIGN EXCHANGE HEDGING

BigSoft is a large publicly-traded international software company. BigSoft has

foreign currency revenue in the of hundreds of millions. To minimize financial risk

from fluctuations in exchange rates, they routinely hedge their foreign exchange


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exposure. In essence, they lock in foreign exchange rates to control variability

in the revenue numbers that are reported to Wall Street.

BigSofts Assistant Treasurer has responsibility for foreign exchange hedging. He

uses a spreadsheet that he inherited from his predecessor on a monthly basis tomanage the information that is sent to the bank that executes their hedging

contracts. The spreadsheet takes data from multiple sources and performs a

complex series of calculations to determine the proper hedging values. Without

the spreadsheet, BigSoft would not be able to determine the details of its hedging

plan.

At the time that the Euro currency supplanted most western European

currencies, the Assistant Treasurers predecessors predecessor modified the

spreadsheet to include the Euro. This modification resulted in a subtle error that

intermittently computed incorrect hedging values. After a cell-by-cell code

inspection and other work, the Assistant Treasurer repaired the spreadsheet, and

concluded that the error resulted in a direct financial loss of approximately $3

million.

BOND UNDERWRITING

I-Bank is a major US investment bank that underwrites financial transactions for

its clients. One of their important lines of business is underwriting municipal

bonds, with its transactions typically valued in the tens of millions of dollars. It is

vital that the bonds structure and pricing be attractive to the client selling the

bond and to investors who will ultimately buy the bond. Because a default

(inability to pay back the investors) by the municipality has a major impact on the

municipality, bondholders, and I-Bank, it is vital that I-Bank determine that the

bond is appropriate for the clients unique financial circumstances. Therefore, I-Bank performs extensive financial analysis throughout the underwriting process.

For each deal, an analyst creates a spreadsheet Model in Excel. The process of

data acquisition, spreadsheet development, evaluation of data quality and

spreadsheet accuracy, and use of the Model is continuous and iterative. Analysts


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use the Model throughout the underwriting lifecycle such that the entire

underwriting of the deal depends on the content of the Model.

The spreadsheet Model serves several essential functions: it is a repository of

the data inputs and sources; a living record of the assumptions made in theunderwriting process; and a vehicle for implementing complex financial

calculations. Upon completion of the deal the Model is retained on a server as a

lasting record of the analysis that was behind it. The spreadsheet Model is so

tightly integrated into I-Banks business processes that one analyst told us I

have no idea how we could run our business today without the Model

spreadsheets.

VI. SPREADSHEETS USED FOR EXECUTIVE INFORMATION

SYSTEMS

One important role of spreadsheets is to provide information to executives. An

Executive Information System is a computer-based system intended to facilitate

and support the information and decision making needs of senior executives by

providing easy access to both internal and external information relevant to

meeting the strategic goals of the organization [Wikipedia 2005]. We present

three examples of spreadsheet executive information systems. Our first example

discusses spreadsheet outputs used by top executives in managing billions of

dollars of capital investment. The second describes how executives use

spreadsheet outputs to evaluate investment strategy performance. The third

describes how executives use spreadsheet outputs to understand consumer

perception of their products, and use the results to guide many important

decisions.

CAPITAL INVESTMENT PERFORMANCE AND DECISION MAKNG

MajorCorp is a Fortune 50 company in a capital-intensive industry with

operations around the world. Senior management and stock market analysts pay


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particular attention to the financial return on capital and the political risk

associated with capital invested around the world.

As part of their annual investment planning cycle, MajorCorps top executives

require detailed information on the geographical distribution over time ofearnings, cash flow, capital expenditure and capital investment. A planning

analyst uses the Long Term Geographic Distribution of Earnings, Production and

Capital (LTG) spreadsheet to conduct the analysis needed to support this

requirement.

The LTG spreadsheet consists of more than 10MB of data, along with extensive

calculations that describe the distribution and financial performance of

MajorCorps $50 billion of deployed capital. The analyst who owns the LTG

spreadsheet uses it for several different purposes, most notably to generate a

report that plays a vital role in the annual capital planning cycle. The analyst

inherited the spreadsheet from his predecessor, then reprogrammed it from

scratch while adding new functionality.

The MajorCorp Strategy and Planning Committee, which consists of the top 14

executives including the Chairman of the Board, uses the output of LTG as d

This information plays an important role in investment decisions, and a large

error in the spreadsheet would alter the capital spending pattern and approval of

capital projects. Some of the information from LTG is shared with Wall Street

analysts who influence the price of shares in the company.

EVALUATING INVESTMENT STRATEGIES

AssetFund is a large Wall Street financial firm. One division of the firm manages

several portfolios of bonds and related financial instruments for major institutional

clients. To remain competitive, AssetFund must devise new ways to produce

superior returns for its clients: client capital is very portable and the markets are

more efficient every daywe cant afford to sit still. Therefore, the firm employs

a research team to develop and test new investment strategies, which they refer


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to as bets. Portfolio managers are constantly examining and changing the

allocation of assets in the context of different strategies.

AssetFund has accounting systems that are used to execute and track

transactions, and to provide timely information on portfolio assets andperformance. However, the executive team, the head of institutional research,

and the portfolio managers were unable to connect their decisions and

investment strategies to the resulting contributions in each portfolio. This lack of

visibility limited their ability to evaluate the performance of different investment

strategies: We were continually getting questions about different components of

the overall return, but we didnt really know how well which bets were paying off.

The head of the research team charged a senior analyst to develop a

Performance Attribution Model (PAM) that he could use to effectively estimate

and allocate portfolio-level returns to different bets within each portfolio. The

PAM spreadsheet receives raw data from seven mainframe production

information systems, performs data pre-processing, and implements a

proprietary algorithm to compute the desired outputs. The results are distributed

to senior management and other stakeholders on a daily basis through the PAM

spreadsheet. In turn, this information is a key source of feedback and guidance

to portfolio managers and to the research team as they allocate assets.

UNDERSTANDING CUSTOMER PERCEPTIONS

ShrinkSoft is an S&P 500 corporation that sells shrink-wrapped software

products and professional services through multiple channels. Shrinksoft is the

market leader. They have a very large customer base and a strong record of

profitability and growth.

ShrinkSofts senior executives are committed to implementing the customer

perception survey concepts presented in [Reichheld, 2003]. They believe that

they must obtain a detailed, quantified understanding of how customers perceive

the company, and how loyal they are to the company and its products and


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services. ShrinkSoft acquires information by inducing customers to give feedback

via web-based surveys on a regular basis.

To provide senior management with the necessary understanding of customer

perceptions and loyalty, the divisions Chief Operating Officer directed an internalconsultant to develop a tool that can be used to quantify and track customer

attitudes. He used Excel to develop the Net Promoter Correlation Analysis

(NPCA) spreadsheet. An analyst downloads survey data and uses NPCA to

analyze it daily. Senior managers review NPCA reports weekly.

Shrinksoft bases most of its decisions about major new initiatives on NPCA

reports. New value-added services are often developed to meet needs that are

identified through NPCA. Product managers facing critical choices between

different product features and bug fixes use NPCA results to support design

decisions. Shrinksoft uses NPCA outputs to develop customer communication

campaigns designed to increase customer loyalty, and to measure the

effectiveness of those campaigns.

VII. SPREADSHEETS USED FOR BUSINESS PROCESS

INFRASTRUCTURE

Business processes are the nuts-and-bolts of everyday business activity. More

formally, a business process is a collection of activities that takes one or more

kinds of inputs and creates outputs (or outcomes) that are of value to customers

external and internal to the organization [Silver, 2004]. Spreadsheets frequently

play a vital role in key business processes. Without them, businesses would have

difficulty functioning in todays fast-paced and highly competitive business

environment. We consider two classes of business processes. The first class is

sales and marketing business processes, which have to do with persuading

customers and potential customers to purchase products and services. The

second class is operational business processes, which have to do with the

creation and delivery of products and services.


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MARKETING BUSINESS PROCESSES

Software Project Time and Cost Estimation

DevCo is a small, publicly-traded software corporation that performs custom

software development and technology consulting. Software project management

is a core competency, and they believe they manage and deliver software

projects particularly well.

DevCo bids for software development projects by offering the customer a fixed

price for developing a specified piece of software. DevCo determines the bid

price by estimating the cost to develop the software, multiplied by a standard

number to provide for profit.

DevCo requires accurate cost estimates in a short period of time. Accuracy is

essential, because under- and over-estimates cause serious problems. If we

miss on the low side, we take it on the chin and incur a financial loss, whereas

overly-high-priced estimates run the risk of losing the customers business.

DevCos sales team must wait for the cost estimate to complete its proposal to

each prospective customer, so rapid estimation is essential.

DevCo creates all of its estimates using a software project estimation tool

(SPET), which is a spreadsheet template. The SPET spreadsheet embodies all

knowledge in the company about how to do project estimation. The only process

documentation of the way DevCo estimates projects is instructions contained in

the spreadsheet. DevCos sales process is completely dependent on the SPET

spreadsheet. The projects software architect develops and maintains the

spreadsheet for a particular estimate. The spreadsheet provides the foundation

for project management, and represents the project plan and all the thinking

that went into it.

Lead Generation and Sales Development

CommCorp is a publicly-traded company that provides web-based

communications services to corporations and small businesses. An essential part


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of their strategy is to maintain their existing customer base while acquiring new

customers.

CommCorps whole sales process and business model is lead-driven, so

everyone in the company is intensely interested in understanding how we aredoing with lead generation and development. CommCorp devotes significant

resources to stimulating demand via lead generation activities, and yet the

company, which had grown much faster than its IT infrastructure, had struggled

to gather information about which efforts were producing what quality of results.

CommCorp staff regularly engaged in fire drills to madly chase reports from

multiple systems and decipher them in order to develop information on their

sales process.

In order to meet the constant demand for this difficult-to-obtain information, a

Marketing Operations Manager created a spreadsheet called the Lead

Performance Analysis Workbook (LPAW). The spreadsheet takes live inputs

from several departmental databases, including CommCorps sales force

automation system, marketing automation database, order fulfillment system,

and billing systems. LPAW analyzes the performance of the various lead

generation and sales development processes and is recognized as the one

source within CommCorp that can be relied upon to accurately quantify the return

on specific lead generation investments.

The information created by the LPAW spreadsheet is eagerly sought by

CommCorp executives and marketing managers. It is used for a wide range of

management communication and decision making. The spreadsheet is reviewed

at every Mondays business operations meeting. Within an hour of the weekly

distribution, the Marketing Operations Manager receives tons of email

requesting additional clarification and detail about the LPAW results. TheMarketing Operations Manager receives requests for changes every week, and

his team puts out a major new version of the LPAW spreadsheet approximately

every three months.


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Contact Management

DealCo is a small publicly traded firm that licenses medical technologies,

commercializes them, and manages their distribution. Their business depends on

their ability to identify, understand and evaluate the commercial potential of new

innovations, and to create effective long-term relationships with the technology

developers. They invest great effort into contacting research leaders and

inventors in companies and laboratories around the world. They use the

expertise of many individuals in the company plus the members of their medical

advisory board when interacting with potential partners. It is a lengthy process to

determine which of many promising opportunities should be pursued, and to

attempt to negotiate a licensing arrangement.

Initially, when nearly everyone on staff was actively pursuing new business

opportunities, there was a blizzard of memos, emails, and documents being

exchanged helter-skelter across the company. It was crazy, and you were

never quite sure if you had all the background when you called into an account.

You just tried not to put your foot in your mouth.

The business need was clear. We needed a common log of all contacts with all

potential business partners to be easily shared by all core team members.

DealCo executives decided to create this functionality using a spreadsheet

residing on a shared drive for everyone in the company to access freely. The

founder and CEO spent half a day designing and programming the spreadsheet.

The spreadsheet contains no cell formulas. There was extensive discussion

across the firm about the need for every individual to be extremely disciplined

about data entry. The spreadsheet is modified several times a day, every day!

as new information is logged and new needs emerge.

This spreadsheet is the lifeblood of our business, says DealCos founder and

CEO. The board of directors sees the spreadsheet, and it is used by the Chief

Financial Officer, executives, and sales staff. If we lost its contents, we would

suffer a lot of pain and embarrassment.


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OPERATIONAL BUSINESS PROCESSES

Managing and Interpreting Qualitative Data

Archiva is a small professional services company that provides information

management and historical research studies for its clients. A large institution

hired Archiva to write a history of a certain class of transactions that occurred

over a century ago. Archiva dispatched several teams of researchers to find

relevant historical documents in public archives in a large number of locations.

Researchers used spreadsheets to capture, stored, and analyze all data for this

project. As relevant documents were discovered in each archive, the team

entered carefully selected bibliographic and historical data into a spreadsheet.

Because the delicate condition of these unique historic documents proscribedmaking photocopies, and photographic images were not able to record faded

script, the spreadsheets are the only record of what we found in weeks of

research in remote locations. At the end of the discovery process, Archiva

concatenated the teams spreadsheets into a master spreadsheet containing

approximately 4,000 records that included approximately 20,000 distinct entities.

The data were entirely qualitative, and the master spreadsheet initially contained

no cell formulas.Because a single transaction might be recorded at multiple dates at multiple

locations, Archivas senior historians used the master spreadsheet to perform

analysis of the historical data, sorting and searching the data in different ways,

seeking to identify the multiple records that referred to the same transaction.

They combined records for the same transaction into a single record, resulting in

approximately 2,000 independent records. (We note that a senior historian did

write a lone cell formula that summed a numeric value they appended to each

record during their analysis.)

This spreadsheet, which represented all of Archivas data gathering and analysis,

became the centerpiece of their deliverable to the client. The simple and flexible

sorting, searching, and display capabilities of the spreadsheet allowed more rapid


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analysis than would have been possible using other means, which was essential

to Archiva: It would not have been possible to do this in the timeframe we had

without the spreadsheet.

Project Planning and Management

CompEng is a small engineering firm that designs and manufactures systems

that combine advanced software with complex hardware. Its clients include the

worlds largest electric utilities and engine manufacturers.

Most CompEng projects have multi-million dollar price tags. Upon project

initiation, the Project Engineer creates a spreadsheet project management tool

called BOM. The BOM spreadsheet serves as a project plan, with individual

steps, dependencies, schedules, costs, and estimated durations; as a traditionalbill of materials, with a detailed listing of the components and sub-components of

the deliverable; and as a project notebook, with annotations, manufacturing

process information, and embedded notes from project team members to one

another.

The product development process revolves around the BOM spreadsheet.

Members of the project team use the BOM spreadsheet daily, including

individuals from sales, manufacturing, engineering, purchasing, and finance. It isupdated constantly, and serves as the basis for weekly project review meetings.

The BOM spreadsheet is linked to multiple other spreadsheets, including parts

catalogs and engineering calculation worksheets that are in turn updated

regularly. The final version of the BOM is maintainedas a record of the inputs

and outputs of the project, and provides an important resource for accounting

and customer technical support.

The project engineer we interviewed felt strongly about the essential importanceof this spreadsheet: Every project here has unique needs, requirements, and

relationships. The BOM spreadsheet drives the whole project: many people,

many parts, many dependencies. Without a very flexible way to track everything

that is happening on a project, we would be at greater risk for more chaos,


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purchasing and billing mistakes, and embarrassing engineering problems. I really

dont know what wed do without the BOM spreadsheet.

Tracking Productivity

CleanCo is a family business with four locations and 20 employees that providesdry-cleaning, laundry, clothing maintenance and pick-up/delivery service. The

President of the company is involved with all aspects of the business. Employee

productivity is particularly important to this business, and changes in productivity

need to be identified quickly so that the President can quickly take any necessary

action.

The President uses the Weekly/Monthly Management Report spreadsheet

(WMMR) to track and manage employee productivity. He obtained the WMMRspreadsheet from a cost club of twelve dry cleaning businesses that provide

support and training on best practices. He modified the spreadsheet to fit his

specific needs at CleanCo.

Once a week the President manually transfers data from the companys

employee timecard spreadsheet and point-of-sale system into the WMMR

spreadsheet. Each month, the WMMR spreadsheet produces a summary of

sales by product category; a summary of productivity by category and employee;and the costs associated with recruiting, hiring, training, and terminations.

The President personally updates WMMR and carefully reviews the cell formulas

and data. He pays close attention to the output of the spreadsheet because it

provides a track record of where weve been and where were going, and a tool

to keep productivity at target level.

Before WMMR, the President had no mechanism to extract meaningful

knowledge from the raw data regarding his business. Without the spreadsheet,he would not have sophisticated tools to measure key metrics that require data

from multiple systems, such as pieces per operator hour. If the WMMR

spreadsheet were not available, we would have to build it again right away.

Cost Allocation


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NonProfOrg is a small (approximately 30 employees) non-profit organization that

provides services and information to disabled individuals. Private and

government grants fund NonProfOrgs operations.

NonProfOrg faces significant financial challenges obtaining funding andcomplying with the rules governing the grants. Each grant has a different set of

restrictions on labor costs, direct program costs and indirect costs, including the

period within which the funds must be spent; specific personnel and/or programs

toward which the funds must be applied; maximum amounts, types, and/or rates

of indirect costs that can be charged to the grant; and billing and reimbursement

procedures.

NonProfOrgs controller needed a structured method to decide which expenses

to allocate to each funding source across multiple months. She inherited from her

predecessor a spreadsheet called the Payroll Recap Sheet (PRS). She

extensively reviewed it, finding and fixing many errors, and extended it to meet

her needs. She enters information about the allowable uses of each grant. On a

regular basis, she enters into PRS all labor costs, direct program costs, and

indirect costs. She uses Excels Solver add-in to perform optimization to allocate

costs to funding sources while honoring the grant restrictions. She uses the PRS

outputs to populate NonProfOrgs payroll and billing systems.

The controller describes their dependence on PRS: When I started working on

the PRS, I thought it would get used once a month. I now use it 2-3 times each

week to examine the impact of different hiring and funding scenarios and can

quickly answer the many what-if questions that our Executive Director loves to

ask. And at the end of each month, we rely heavily on the PRS to close out the

books: it provides the basis for our contract billing and our assignment of

revenues to costs.

VIII. SPREADSHEETS USED FOR COMPLEX ANALYTICS

Some researchers and analysts choose to perform complex analytical

calculations using a spreadsheet rather than a scientific programming language.


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We present three examples. The first is high-tech algorithm development. The

second example is the pricing of long-term electric power contracts with

stochastic demand. The third is forecasting and pricing for a large hotel.

ADVANCED ENGINEERING ANALYSIS

TechStart is a small start-up firm with less than a dozen employees. They have

venture capital funding to develop advanced algorithms to generate more precise

locations using the Global Positioning System. It is essential for TechStart to

understand and communicate the performance of different algorithms throughout

the development process, because these results drive their relationship with

venture funding sources, and potential customers around the world.

The TechStart research team analyzed and compared algorithm outputs using

Excel. On a routine basis, they took millions of records of output, pared them

down to tens of thousands (sometimes they ran into Excels 64k row maximum),

and read the selected data into Excel. From here, engineers use Excel to

perform extensive analysis of the data, and produce graphs summarizing the

results.

The output of the spreadsheet was sought after by many people, including

engineering, marketing, and potential customers. In some cases, TechStart

needed to generate complex results in 24 hours to satisfy a demanding potential

customer, and could not have done so without the spreadsheet.

PRICING POWER CONTRACTS

PowerCo is a large provider of electric power to municipalities and utilities in

competitive electricity markets. The sales force generates about twenty proposed

contracts a day, and PowerCos pricing analysis group (PAG) must quickly and

accurately price each proposal. If the proposal is successful PowerCo will be

bound by the quoted prices for years to come, so accurate and rapid pricing is

essential to their business.


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The PAG relies on a Pricing Model spreadsheet to conduct the pricing analysis

and determine its recommendations. The inputs to the Pricing Model include

historical data about the customers energy consumption, prospective data about

future consumption, and information about the competitive landscape. After

preparing a structured set of inputs that represents the prospective customers

demand, the Pricing Model spreadsheet calls a commercial application that

estimates future generation and transmission costs, which in turn are factored

into the final pricing calculations in the spreadsheet. Essentially all of PowerCos

own proprietary knowledge about how to understand customer demand history

and translate this into detailed power demand forecasts is captured in the Pricing

Model spreadsheet.

Each Pricing Model is developed from a spreadsheet template. The template is

constantly evolving as PowerCo updates the model and its logic. The PAG

leader we interviewed is clear about the importance of the Pricing Model

spreadsheet: We are in a really competitive low-margin business, so the pricing

models are critical. If your quoted price is off by $1/megawatt hour for the wrong

customer, you are looking at a financial disaster.

HOTEL REVENUE MANAGEMENT

GroupHotel is a large business hotel in a major North American city that derives

the bulk of its revenue and profit from group bookings associated with

conventions and hosted conferences. The success of GroupHotel is measured

by a combination of room occupancy rates and profitability per occupied room.

GroupHotel has a planning and analysis group (PAG) that analyzes historical

occupancy and profitability, studies trends associated with future group bookings,

recommends price and margin guidelines, and answers ad-hoc queries from thesales and marketing groups. This group guides critical revenue management

decisions, such as determining room inventory allocations, prices, and discounts

to maximize profitability. They make and regularly update statistical forecasts of


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uncertain demand, and perform complex modeling to make optimal pricing

decisions and predict room utilization.

PAGs most important decision support tool is the Long Range Planning

spreadsheet. PAGs director created this spreadsheet. PAG uses it to understandroom availability and demand for several months into the future, and to perform

optimization to determine the size, pricing, and margins of groups the hotel

should seek to book for each week of the analysis period. An analyst regularly

downloads bookings data from GroupHotel's reservation system, and historical

data from a mainframe archive, then runs an optimization macro to update

availability and price recommendations.

The Long Range Planning spreadsheet is tightly integrated with critical business

processes. Sales managers, marketing directors, financial analysts, and

operations managers routinely use the Long Range Planning spreadsheet to do

their jobs. Sales and marketing activities for GroupHotel are driven by the

spreadsheet outputs. Finance uses it to predict profitability for the next quarter.

Housekeeping managers use it to figure out how to staff the next month.

According to the PAG team member that was interviewed for this research, A

sustained major problem with this spreadsheet would cause a huge amount of

disruption at this property.

IX. FINDINGS AND FUTURE RESEARCH

In this section we summarize our findings into several main categories. For each

category we suggest topics that merit research.

SPREADSHEETS ARE ESSENTIAL TO BUSINESS

We presented eighteen examples of spreadsheets that are essential to business.

Each spreadsheet is indispensable to an important aspect of the organizations

activities. Without their respective spreadsheets, the people we interviewed

would struggle to do their jobs and in some cases would be unable to sustain

their companies.


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Research Questions

How prevalent are essential spreadsheets? We hypothesize that essential

spreadsheets are in common use throughout the economy. We believe this for

three reasons. First, it was easy to find essential spreadsheets, and we are

confident that we could find many more examples without difficulty. Second,

many of our research subjects mentioned other essential spreadsheets used by

themselves or their immediate co-workers, or commented on the importance of

spreadsheets throughout their companies. Third, many informal conversations

with executives, managers, business students, and professional acquaintances

consistently indicate that spreadsheets are commonly used for essential

business activities.

SPREADSHEETS FUNCTION AS INFORMATION SYSTEMS

As illustrated by the quotations from [McConnell 1996], [Gorgone, et al 2003] and

[Senn 2004] in Section I, there seems to exist a perception that spreadsheets are

somehow different than other programming tools, and that spreadsheets are

suitable for personal use but not for important tasks which are reserved to

information systems.

Our empirical findings are inconsistent with a demarcation between information

systems on one hand and spreadsheets on the other. Consider Senns

definition [Senn 2004, p.18] of Information Systems as the systems by which

data and information flow from one person or department to another. All our

spreadsheet examples are systems by which data and information flow from one

person or department to another. By this definition (as well as many other

common definitions), these spreadsheets are clearly information systems.

In contrasting spreadsheets to information systems, [Senn 2004, p. 60] states

that Information systems focus on business processes (such as the processing

of customer orders, the accounting process, the inventory management process,

and increasing organizational productivity, while [spreadsheets] focus on solving

problems, aiding in personal decision making, and increasing personal


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productivity. Virtually all of our examples fit into Senns example framework of

information systems focusing on business processes. SmallSoft executes an

important planning process within a spreadsheet by accepting and integrating

diverse information inputs from across the organization. CleanCo is an example

of a spreadsheet information system used for increasing organizational

productivity. ConsultCo and AnalyCo are systems integrated with other

information systems. The examples in Section V (BigSoft and I-Bank) use

multiple sources of information to drive key financial business processes. The

Executive Information Systems examples in Section VI (MajorCorp, AssetFund,

ShrinkSoft) focus on business processes at a more strategic level than Senns

examples. The Business Process Infrastructure examples in Section VII (DevCo,

CommCorp, DealCo, Archiva, CleanCo, CompEng, NonProfOrg) are focused onbusiness processes.

Research Questions

Spreadsheet information systems have many characteristics in common with

other information systems, and thus invite many of the same types of research

questions. It seems likely that existing information systems research findings

apply to spreadsheet information systems, and that deployment of these findings

to the users and creators of spreadsheet information systems would be

beneficial.

It seems particularly important to understand the reasons that people choose

spreadsheets rather than other languages to develop information systems, and

under what circumstances would people be well-advised to choose

spreadsheets. For example, [McConnell 1996, p. 519] indicates that

spreadsheets are useful for rapid development. He indicates that spreadsheets

are uniquely powerful, requiring on average only 6 statements to implement a

function point that would require 30 statements in Visual Basic or 50 statements

in C++. [Grossman 2002] indicates that spreadsheets are well suited for

exploratory modeling of poorly-understood business issues. It may be that

spreadsheets are uniquely appropriate for certain classes of emerging/evolving


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business solutions that require results quickly and iteratively. We note that there

is a rich and well-established literature on technology adoption and productivity

(eg Katz and Shapiro 1986, David and Paul 1990) that may be useful in

addressing these questions.

SPREADSHEETS ARE ESSENTIAL FOR HETEROGENEOUS PURPOSES,

ORGANIZATIONS, AND PEOPLE

Our findings demonstrated great diversity in how essential spreadsheets are

used, where they are used, and who uses them.

Heterogeneity of Purpose

We saw remarkable variety in the purpose of essential spreadsheets, includingcompiling a business case, understanding distribution and performance of

capital, evaluating investment strategies, understanding customer perceptions,

interpreting analytical results, advanced engineering analysis, determining price

markdowns, managing hotel room inventory, pricing power contracts, allocating

costs, hedging foreign exchange, underwriting bonds, estimating software

projects, project planning and management, managing sales leads, tracking

business contacts across many people, tracking productivity, and historical

research.

Heterogeneity in Organizations and People

We found people working with essential spreadsheets in organizations of many

different sizes, ranging from less than twenty employees (Archiva, SmallSoft,

CleanCo) to tens of thousands of employees (MajorCorp, ShrinkSoft). These

companies span a wide range of different industries, including high tech, financial

services, commercial software, hospitality, consulting, communications, electricutility, and medical technology.

People in a broad range of organizational levels and functional areas created

essential spreadsheets. Essential spreadsheets were developed by senior

executives (DealCo, CleanCo, NonProfOrg) or their senior staff members


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(MajorCorp, AssetFund), people whose time is a scarce and expensive resource.

Relatively low-level individual contributors (I-Bank, ShrinkSoft) were also

responsible for creating essential spreadsheets. Functional areas represented in

our survey group included sales, marketing, business development, research,

finance, accounting, operations, and service delivery.

Choice of Software

Essential spreadsheets are created by a broad spectrum of developers, ranging

from unsophisticated technical users to highly trained engineers. Depending on

their level of sophistication, developers face very different software choices. We

consider 12 of our subjects to be sophisticated computer users, defined as

possessing the capability to evaluate the alternative of creating a traditionalcomputer program to perform the functionality provided by their spreadsheet. We

consider 6 of our subjects to be unsophisticated computer users. For

unsophisticated computer users, the spreadsheet is the only software option

available.

We asked our subjects whether they evaluated alternatives to the use of the

spreadsheet. Of the 12 sophisticated computer users, 8 said no, 2 said yes

but not seriously, and only 2 said yes. The 10 who said no or yes, but notseriously were able to judge with minimal analysis that the spreadsheet was an

appropriate choice for their task. The 2 who said yes performed a careful

analysis of alternatives and chose the spreadsheet. Sophisticated computer

users are choosing spreadsheets because spreadsheets are an appropriate

software choice for their circumstances.

Research Questions

Because of the high heterogeneity of purposes, organizations, and people whodevelop essential spreadsheets, it is unlikely that we will see one size fits all

recommendations for the creation, maintenance, and use of spreadsheet

information systems. As discussed in [Grossman 2002], there would be great

value in developing a taxonomy of spreadsheet information systems that can be


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used to carve up the spreadsheet universe into taxa containing sufficient

commonality to admit strong, detailed prescriptive guidance. In addition, research

related to skill acquisition by different types of spreadsheet developers would

have great academic and practical value.

The sophisticated users are choosing to use a spreadsheet. We would like to

know why. One reason may be the argument [Powell and Baker 2004] that

spreadsheet is the second best way to do many kinds of analysis and is

therefore the best way to do most modelingthe spreadsheet is the Swiss Army

knife of business analysis.

SPREADSHEETS ARE AN EFFECTIVE APPLICATION DEVELOPMENT

PLATFORM

We saw three examples of spreadsheets being used to develop application

software that is delivered to end users. SmallSoft developed a large spreadsheet

application software package that they sell commercially. AnalyCo developed a

spreadsheet application that is used by thousands of people. ConsultCo

developed a decision support system that they delivered to a client. All three

companies have professional software development skills, and made a thoughtful

choice to use a spreadsheet for their applications.

This result may come as a surprise. However, there has been for many years an

awareness of spreadsheets as a platform for creating application software.

[McConnell 1996] places spreadsheets in the category of rapid-development

languages that offer speedier implementation than do traditional third-

generation languages. Rapid-development languages include fourth-generation

languages such as Focus; database management systems; visual programming

languages such as Visual Basic; and domain-specific tools such asspreadsheets and statistical packages. McConnell indicates that because rapid-

development languages lack first rate performance and are limited to specific

kinds of problems, they are better suited to in-house business software and

limited-distribution custom software than to shrink-wrap or systems software.


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Our findings are consistent with McConnells suitability recommendations for

rapid-development languages; our three examples of spreadsheet application

software are in-house business software (AnalyCo) or limited-distribution custom

software (SmallSoft and ConsultCo).

Research Questions

How common is the use of spreadsheets for application software? Under what

circumstances are spreadsheets appropriate for application development? We

note that the owners of two of the spreadsheet applications (SmallSoft,

ConsultCo) chose to port their successful spreadsheet applications to third-

generation languages. Their reasons were very different, one because of Excel

failure due to size, the other because of a combination of concern over limitedclient willingness to pay a six figure price for a spreadsheet, plus performance

issues.

It may be that spreadsheets could be used as a powerful rapid prototyping

language, with the prototypes in some cases being suitable for deployment to

end users. We would like to know more about how a transition from spreadsheet

to third-generation language can be anticipated and managed. It is interesting to

speculate whether any applications have been ported from third-generationlanguages to spreadsheets!

INHERITED SPREADSHEETS ARE IMPORTANT

Five of the spreadsheets were provided to the current user by someone other

than the developer, but can not be considered application software (NonProfOrg,

MajorCorp, BigSoft, CleanCo, DevCo). The CleanCo spreadsheet was provided

by a seminar leader and then extensively modified by the user. The DevCo

spreadsheet was provided to project managers as a starting point, then

extensively customized. For the other three, the current user acquired the

spreadsheet by inheriting it from their predecessor when they took their current

job, and all made substantial changes to the spreadsheet. It is likely that each will

in turn pass on the spreadsheet to their successor.


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These spreadsheets are neither application software, nor are they end-user

developed software; they are something in between. When a spreadsheet is

inherited, it becomes serves as an organizational artifact (Nardi and Miller

1990). In the language of Activity Theory, such artifacts are critical to the

activities (or work systems) with which they are associated; [Kuutti 1996, p. 26]

observes that artifacts themselves have been created and transformed during

the development of the activity and carry with them a particular culture a

residue of that development. In this sense, inherited spreadsheets represent

important work system knowledge that may not otherwise be recorded.

Research Questions

The phenomena of inherited spreadsheet is particularly interesting, and weshould know much more about it. Anecdotally, spreadsheet inheritance seems to

be common. In large organizations that develop key employees by frequently

rotating them through important jobs, inheritance of essential spreadsheets may

occur systematically. Inherited spreadsheets present a host of questions around

quality control, risk, documentation, and management. The prevalence and role

of this inheritance on work systems knowledge is an open question.

SPREADSHEET DEVELOPMENT PRACTICES ARE DIVERSE

As one would expect from heterogeneous people in heterogeneous

organizations, spreadsheet development practices vary widely.

Formal Development Approaches

Two of our spreadsheets (SmallSoft, AnalyCo) were created using a formal

development approach. These two examples suggest that spreadsheet

development is amenable to established software engineering lifecycle models.

SmallSofts development approach is closely analogous to the evolutionary

delivery lifecycle model [McConnell 1996, ch. 20]. SmallSoft built and delivered a

series of spreadsheet applications over multiple consulting engagements with

different clients. Each engagement taught them something about what the


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product needed to do, and motivated changes to the software. Each round of

changes to the software was carefully designed, and sometimes extensively

recoded, using disciplined coding practices. Each consulting engagement

delivered a working application to a client, tantamount to the release of a new

version.

AnalyCo used an approach that corresponds to the staged delivery lifecycle

model [McConnell 1996, ch. 36]. AnalyCos users prepared a set of written

requirements that were implemented by professional programmers. The

programmers built a prototype based on the specifications, sought feedback from

users on quality, workflow, and enhancements. They revised the prototype,

performed formal testing, and created detailed documentation before deployment

to users.

Informal Development Approaches

Sixteen of the spreadsheets were created using by people who gave little thought

to the process by which they were creating them. They performed little or no

planning. They did not have a requirements document. They did not have a clear

idea of what they were going to create when they started. They did not follow a

development methodology. The process of developing the spreadsheet taughtthem about what they wanted to do and this lesson took place as they were

doing it.

Research Questions

We know that spreadsheet errors are a serious problem [Panko 1998, 2005].

However, inadequate attention has been paid to the prescriptive issue of how

people should develop spreadsheets. This topic, called spreadsheet

engineering, requires extensive research. For this research to have an impacton the practice of spreadsheet creation, it will need to be connected to specific

taxa (as discussed above) and deployed in such a way that spreadsheet

programmers, who in our experience are very busy people, will be willing to

adopt them.


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[Grossman and zlk 2004] provide a framework for analyzing and developing

spreadsheet engineering methodologies. Spreadsheet engineering design issues

include architecture, data modeling, user interface design, and (for large

spreadsheets such as GroupHotel and SmallSoft) performance evaluation and

optimization. Based on our interviews with users of essential spreadsheets, we

believe that issues of Modularity, Compatibility, and Reusability (Alter 1966, p.

366) are especially important, particularly in light of our previous discussion of

inheritance of essential spreadsheets. Spreadsheet programmer productivity has

barely been considered, with [Panko 2000a, 2000b] providing insight into

productivity in the context of error research.

SPREADSHEET DEVELOPMENT RESOURCES AND

IMPORTANCE/COMPLEXITY ARE MISALIGNED

We anticipated that there would be a positive correlation between the importance

and complexity of a spreadsheet, and the cost and formality used in developing

the spreadsheet. Common sense suggests that spreadsheets with higher

importance and higher complexity would receive more careful (and expensive)

development. This does not seem to be common. We perceive that only 2

spreadsheets received an appropriate level of development resources. 1received excessive resources, 14 received inadequate resources, and for 1 we

could make no determination.

The spreadsheets created by SmallSoft and AnalyCo are high importance and

complexity, and both were created with great rigor and expense, as was

appropriate. The CleanCo spreadsheet, which is maintained by a highly diligent

individual with little confidence in his spreadsheet skills, is carefully and formally

checked on a frequent basis; the level of effort devoted to this spreadsheet isarguably excessive. For the DevCo spreadsheet, which was created by a since-

disbanded development group, we could not make a determination. The

remaining 14 spreadsheets were created without formal attention to quality

assurance, and without the benefit of a formal development process.


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Research Questions

The appropriate level of resources to devote to the development and quality

control of an essential spreadsheet is fundamentally a managerial decision.

There are many open questions. For the 14 spreadsheets that had inadequate

resources, we saw no evidence of managerial interest in these spreadsheets. Is

it because managers are making wise risk tradeoffs by choosing not to invest in

careful development? Or are these managers making mistakes, due perhaps to

ignorance, or a false belief that their developers will request appropriate

resources? How do the answers change when the manager is also the

spreadsheet developer? In addition, the principle of managing essential

spreadsheets as valuable corporate assets [Grossman 2002] should be

thoroughly explored.

SPREADSHEETS PLAY A CENTRAL ROLE IN THE EVOLUTION OF WORK

SYSTEMS

Our subjects regularly described their role in key business processes in terms of

their spreadsheets. For example, the analyst at I-Bank told us that my job is to

get the spreadsheet together to support the deals. There is very close

identification between work activities and the spreadsheet that enables thoseactivities. In the context of the Work System model [Alter 2002], these

spreadsheets serve as the technology that links together business processes,

people, and information to meet the demands of their (internal or external)

customers.

We observed in many cases that the development of the spreadsheet is very

tightly interwoven with the development of the work system. The results provided

by an early version of the spreadsheet support and motivate changes to businessprocesses, which in turn motivate changes to the spreadsheet. This is similar to

Nardis observation that spreadsheet users discovered needs as they went

along, and the interaction with the spreadsheet package directly supported this

vital process [Nardi 1993, p. 83].


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For example, at ShrinkSoft, an internal consultant was directed to develop a tool

to track customer attitudes. Development commenced with only a very high

level sense of what it would do. Development was guided by an iterative

discussion with decision makers; the spreadsheet enabled new business

processes, which motivated recognition of further business process opportunities

and therefore further spreadsheet development.

As another example, consider SmallSoft spreadsheet application software.

SmallSoft developed the spreadsheet through a series of consulting

engagements. The spreadsheet facilitated each consulting engagement, and was

in turn modified to meet the additional needs that emerged during that

engagement. At each round of changes, SmallSoft acquired additional business

process capability and knowledge as well as a more advanced spreadsheet; the

spreadsheet and the business processes are very tightly connected.

Research Questions

The co-evolution of essential spreadsheets with their associated Work Systems

suggests a number of research questions. What are best practices for managing

spreadsheets that are developed organically within a Work System to address an

unmet need? How can organizations create conditions to foster successful co-evolution of spreadsheets to and business processes? How can this co-evolution

be connected to managerial decisions regarding development resources and risk

of errors?

CONCLUSIONS

Spreadsheet information systems are essential to business. The state of

research knowledge regarding spreadsheets stands in marked contrast to

research knowledge regarding traditional procedural languages and object-

oriented programming environments. Information systems and computer science

researchers have intensively studied traditional programming, and have

developed vast theoretical and empirical knowledge about programming


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practices, software engineering, productivity, quality assurance, and many other

issues.

We believe that the way that people create and use spreadsheets merits broad,

sustained research attention. This research has the potential to significantlyimpact the practice of millions of spreadsheet developers.

X. REFERENCES

Editors Note: The following reference list contains hyperlinks to World Wide Webpages. Readers who have the ability to access the Web directly from their wordprocessor or are reading the paper on the Web, can gain direct access to theselinked references. Readers are warned, however, that1. these links existed as of the date of publication but are not guaranteed to beworking thereafter.

2. the contents of Web pages may change over time. Where version informationis provided in the References, different versions may not contain the informationor the conclusions referenced.3. the author(s) of the Web pages, not AIS, is (are) responsible for the accuracyof their content.4. the author(s) of this article, not AIS, is (are) responsible for the accuracy of theURL and version information.

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