At one point in time, business was pretty simple. Go back to the first monetary equivalencies and you’ll find out that, in the past, goats can be exchanged for clothes. In other words, the entire system of finance in a country was based on commodities, not on a medium of exchange, like the dollar/euro/yen. Business, at that time, was all about trading. Trading fur, trading wool, cotton, you name it – it was an item used in a business setting.
However, things are a little different today. Make that extremely different. We’ve dropped the entire commodity system and we’re not using not only the fixed medium of exchange (the dollar) but a ton of other information. Information, in the early days, existed, but it wasn’t as abundant as it is today. Everywhere we look, some message is being communicated to us in a persuasive way. This information, in a business setting, quickly adds up. What used to be a simple financial calculation to figure out the exchange rate between two commodities is now a component of a complex formula in order to run a business. We have to not only consider our business’s financial status, but the state of the economic environment, the state of our competitors’ financial status and many other parameters that are not very easy to immediately dig up.
In recent years, innovations have risen to make this situation a little different. Firstly, we have to recognize what businesses actually want – they just don’t want to store information in a large data center– they want to USE this information to bring value to the company itself. Why is this important? Think about it…in the type of economic environment we’re operating in, it’s really important to understand what parts of your businesses are profitable and what parts are not. For this, financial management software have come up that analyze the cost and profit drivers of your business and break down your budget for you using a process called data mining. Essentially, the system takes data over data over data and interprets it – it provides VALUE to the entire process instead of just communicating what the data literally says to the user. This is really valuable to the business, since finances always come in databases and spreadsheets – there’s always a long list of things to keep in mind whenever making a managerial or an executive decision, so this system is definitely an asset to any business.
Another important advancement is the creation of enterprise risk management software, which scans the economic environment you’re operating in and lets you know of the potential (predicted) ups and down of the economy. Two years ago, we faced one of the great financial meltdowns of the 21st Century. If businesses are able to anticipate crashes in the stock markets, inventory deficiencies and other disasters, then the overall performance of the firm itself will increase. That’s definitely a good investment for any modern-day company.