Death by Spreadsheet – Part 1

death-by-spreadsheet-300x200Nearly everyone I know loves Excel. For anyone involved in a pricing or finance team, spreadsheets are the de facto tool of choice. Since the launch of VisiCalc in 1979, the grid of rows and columns, formulas and their results have been the killer application for a generation of personal computer users in business.

On a personal level, I built a lot of my early success in a corporate environment by being the go-to guy when people needed help with their spreadsheets. I became an expert in Excel early on, just before PCs spread widely into the everyday business environment. Simply by being helpful and showing people how to get the best out of their XLS files, my skills got me access to, and kudos from managers in all functions of the business in which I worked.

The reasons for the rise of spreadsheets are clear and well known. There are very low barriers to adoption as when the software is included on nearly every desktop and laptop produced and the layout is intuitive, taking inspiration from notepads and calculators that are familiar to all. As a result, spreadsheets are ubiquitous in business and are used in many functions.

For a pricing team they are invaluable. A well-constructed spreadsheet allows a user to analyse the data whilst brokering a deal by rapidly calculating margins and discounts, and changing the financial components of transaction with ease. With their excellent What-If capability, a spreadsheet exemplifies an agile approach to business modelling.

Inevitably when we visit organisations looking to implement Configuration, Pricing and Quoting (CPQ) systems we get introduced to the people involved in pricing, and the spreadsheet based models they have created or that they use.

We normally find that the users of the spreadsheet based models encounter the following challenges:

  • Complexity – what was once a simple spreadsheet has now become a monster. This in turn leads to problems in…
  • Maintainability – very often its just one person who created all the logic, who knows how it all interrelates and who therefore owns that spreadsheet. This makes it hard to change as the business evolves. This can be even more dangerous with a single point of failure for the system. More importantly, what happens if the person who created and manages that spreadsheet leaves the business?
  • Data problems – it’s very rare for anyone to document or actively manage the data model for spreadsheets. This results in inconsistency, redundancy of information and has big potential for costly errors.
  • Version control – what’s the latest version? What are the consequences if the wrong one is used? How are they communicated, distributed and eventually retired?
  • Security – while password protection is possible, it’s a basic form of IT security. Given the commercially sensitive cost and deal information that these spreadsheets contain, a stronger approach to keeping data safe is really needed.
  • Scalability My good friend Frank Sohn makes a great point that spreadsheets can be an excellent short-term solution for CPQ (http://www.novuscpq.com/excel-can-be-a-cpq-solution/) however he too concludes that scalability is one of the major limitations for a growth or large enterprise.

So, we can see that for a pricing team, spreadsheets can be a great tool, but one that has some serious limitations for enterprise deal construction.

Look out for part two of this article where we will consider how the sole use of spreadsheet based models will bring even more challenges with them when considering more specifically the configure and quote part of CPQ.

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