Insurrection in Excel Nation

I have a feeling that chief financial officers will miss Excel.

The Wall Street Journal reported last week that some CFOs are telling their employees to stop using Microsoft Corp.’s Excel spreadsheets for “financial planning, analysis and reporting.”

Complaints about Excel are as old as the program itself. Some of those complaints are legitimate, and Microsoft should pay heed. Until this summer, for example, Excel didn’t allow users to collaborate, a feature that Google Sheets made available free a long time ago.

Other complaints are misguided, however. Adobe Inc.’s CFO Mark Garrett told the Journal that he doesn’t want “financial planning people spending their time importing and exporting and manipulating data.” Instead, he wants them to focus on what the data means.

But organizing data — or “manipulating” it, in Garrett’s parlance — is a critical first step in that search for meaning. It’s not at all obvious how data should be organized. It requires numerous subjective judgments about which data to use and which calculations to run. Those judgments will necessarily favor some conclusions and obscure others.

By requiring users to load and organize data, Excel forces them to make decisions about how to slice and calculate it. Sure, companies can outsource those judgments to specialized software. But by doing so, they’re also outsourcing much of the thinking.

And by design, that thinking isn’t always readily apparent in specialized software. Some critical assumptions and calculations run behind the scenes, forgotten and seldom challenged. Excel, on the other hand, is an open book. There’s nowhere to hide in its iconic cells.

Excel’s transparency has played a big part in the democratization of financial information. For decades, financial data was controlled by Wall Street and academia. Both realms had armies of analysts to pore over the numbers. But beginning in the 1990s, the internet made much of that data publicly available, and Excel allowed a single user to do the work of many analysts.

Seemingly overnight, anyone with a computer could challenge the claims long made by Wall Street — claims about the accuracy of analysts’ market predictions, about the skill of active fund managers and about the effect of fees on the performance of financial products. It’s no exaggeration to say that Excel paved the way for indexing, ETFs, smart beta and all the now widely accepted ideas that Wall Street once tried to stamp out.

Microsoft has been well rewarded for its contributions. It has enjoyed a de facto monopoly on spreadsheets and other office tools for more than two decades. Its Office 365, which includes Excel, counts more than 120 million monthly users, including me.

 But that kind of success breeds complacency, and the performance of Microsoft’s stock suggests that the company has been cruising for a long time. The stock’s total return outpaced the S&P 500 Index by an average of 23.2 percentage points annually over rolling 10-year periods from March 1996 — the earliest period for which numbers are available — through the end of its 2006 fiscal year. Since then, the stock has beaten the S&P 500 by an average of just 0.2 percentage point.

The defections reported by the Journal are another reminder that Microsoft’s market share isn’t a birthright. It’s a lesson the company knows well. When Microsoft first released Excel for Windows in 1987, Lotus 1-2-3 was the king of spreadsheets. But Lotus was slow to roll out its spreadsheet software for Windows, and by the early 1990s Excel was outselling Lotus.

 Excel is still the best thing that ever happened to data geeks like me. If Microsoft wants to keep it that way, this is no time to fall asleep.

Source: Bloomberg Gadfly,