Working Paper, please do not quote, reference, or distribute.

November 9, 2005

SPREADSHEET INFORMATION SYSTEMS ARE ESSENTIAL TO BUSINESS

Thomas A. Grossman University of San Francisco
tagrossman@usfca.edu

Vijay Mehrotra San Francisco State University zgr zlk San 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 systems researchers 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 advanced analysis, 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

Working Paper, please do not quote, reference, or distribute.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

Working Paper, please do not quote, reference, or distribute.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

Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 the importance 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 of the very important activities performed by millions of people who interact with spreadsheet information systems. We discuss specific research opportunities in the Conclusions.

Working Paper, please do not quote, reference, or distribute.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

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 on the 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 ranging from four employees to the tens of thousands. They come from corporations, family business, and the non-profit sector. Our subjects range from CEO to frontline 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.

Working Paper, please do not quote, reference, or distribute.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

Working Paper, please do not quote, reference, or distribute.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

Working Paper, please do not quote, reference, or distribute.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

Working Paper, please do not quote, reference, or distribute.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

Working Paper, please do not quote, reference, or distribute. November 9, 2005 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 to manage 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, IBank 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 the underwriting 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 of earnings, 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 and performance. 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 internal consultant 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 are doing 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. The Marketing 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 proscribed making 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 traditional bill 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 is updated 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 maintained as 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 importance of 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 provides dry-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 WMMR spreadsheet 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 and complying 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 the sales 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 understand room 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 on business 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 For example, would people be well-advised p. 519] to choose that

spreadsheets.

[McConnell

1996,

indicates

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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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, including compiling 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, electric utility, 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 (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 traditional computer 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 not seriously 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 who develop 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 thirdgeneration 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 as spreadsheets and statistical packages. McConnell indicates that because rapiddevelopment 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 thirdgeneration languages. Their reasons were very different, one because of Excel failure due to size, the other because of a combination of concern over limited client 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-generation languages 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 we should 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 taught them 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 impact on 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 [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. 1 received 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 is arguably excessive. For the DevCo spreadsheet, which was created by a sincedisbanded 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 those activities. 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 business processes, 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 coevolution 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 objectoriented 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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Working Paper, please do not quote, reference, or distribute. November 9, 2005 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 significantly impact the practice of millions of spreadsheet developers.

X. REFERENCES
Editors Note: The following reference list contains hyperlinks to World Wide Web pages. Readers who have the ability to access the Web directly from their word processor or are reading the paper on the Web, can gain direct access to these linked references. Readers are warned, however, that 1. these links existed as of the date of publication but are not guaranteed to be working thereafter. 2. the contents of Web pages may change over time. Where version information is provided in the References, different versions may not contain the information or the conclusions referenced. 3. the author(s) of the Web pages, not AIS, is (are) responsible for the accuracy of their content. 4. the author(s) of this article, not AIS, is (are) responsible for the accuracy of the URL and version information.

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Working Paper, please do not quote, reference, or distribute. November 9, 2005 Undergraduate Degree Programs in Information Systems, Communications of the Association for Information Systems (11)1. Grossman, T. (2002) Spreadsheet Engineering: A Research Framework, European Spreadsheet Risks Interest Group 3rd Annual Symposium, Cardiff, July 2002. Grossman, T. and . zlk (2004) A Paradigm for Spreadsheet Engineering Methodologies, European Spreadsheet Risks Interest Group 5th Annual Symposium, Klagenfurt, Austria. Katz, M.L. and C. Shapiro (1986) "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy 94(4), pp. 822-841. Kuutti, Kari. A Framework for Human Computer Interface Research in B. Nardi (ed) Context and Consciousness, Cambridge, MA: MIT Press pp. 2-44 Laudon, K. C. and J. P. Laudon (2006) Management Information Systems: Managing the Digital Firm, 9th Edition, Upper Saddle River, NJ: Prentice Hall, p. G1. Liebowitz, S. (2002) Re-thinking the Network Economy: The True Forces That Drive the Digital Marketplace., New York: Amacom Books. McConnell S. (1996), Rapid Development, Redmond, WA: Microsoft Press. Nardi, B. (1993) A Small Matter of Programming: Perspectives on End User Computing, Cambridge, MA: MIT Press. Nardi B. and J. Miller (1990), An Ethnographic Study of Distributed Problem Solving in Spreadsheet Development, Computer Supported Cooperative Work Proceedings: 197-208. ISBN 0-89791-402-3. Panko, R. (1998) What We Know About Spreadsheet Errors, Journal of End User Computing 10(2), pp. 15-21 Panko, R. (2000a) Errors in Spreadsheet Auditing http://panko.cba.hawaii.edu/ssr/auditexp.htm , (current 2005). Experiments, November 6,

Panko, R. (2000b) Errors During Spreadsheet Development Experiments, http://panko.cba.hawaii.edu/ssr/devexpt.htm (current November 6, 2005). Panko, R. (2005) What We Know About Spreadsheet http://panko.cba.hawaii.edu/ssr/Mypapers/whatknow.htm November 6, 2005). Errors, (current

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Working Paper, please do not quote, reference, or distribute. November 9, 2005 Silver, E. A. (2004) OM Forum: Process Management Instead of Operations Management, Manufacturing & Service Operations Management (6)4 pp. 273-279. Wikipedia (2005) Executive Information http://en.wikipedia.org/wiki/Executive_information_system October 27, 2005). System, (current

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