I made a significant error in the design of a behavioral study . I thought that more data points would create a more accurate picture of the crowd. I tracked forty-two variables for every participant in the group. I believed this density of information would reveal a hidden truth.
I was wrong. The data did not reveal a truth. The numbers created a cloud of noise. The noise obscured the actual behavior of the people I was studying.
I presented these findings to a group of stakeholders last week. I began to hiccup in the middle of my speech. The rhythmic spasms interrupted my explanation of the data. My body rejected the complexity I had built.
The audience sat in silence while I drank water. I realized then that my work was a mirror of the problem I am now observing in the commercial finance world. We think more descriptions lead to more understanding.
The Four-Way Mirror
The accounting department produces a month-end pack. This document arrives on the third Tuesday of the month. It contains the same lease portfolio under four different accounting treatments.
The same lease portfolio, fractured into four distinct versions of the same reality.
One column shows the statutory view. The next column shows the management view. These two views do not agree. They use different rules for depreciation. They use different rules for revenue recognition.
The third column represents the group reporting framework. This view satisfies the requirements of the parent company. The fourth column is a regulatory extract. This data goes to the government agencies.
The 96-Hour Cycle
The team spends four days reconciling these four views. They spend every month making sure the differences are explained. They have performed these reconciliations for .
No senior manager has ever changed a decision based on these reconciliations. No executive has looked at the variance and altered the company strategy. The differences between the frameworks remain academic. They are mathematical artifacts of the reporting rules. These rules do not change the cash flow of the business. The rules only change the way we describe the cash flow.
The cost of these descriptions is high. The company pays for the time of the accountants. The firm pays for the software that generates the reports. The organization pays for the audits of the reconciliations. Each framework exists for a defensible reason. Each report serves a distinct audience. The tax office wants one thing. The investors want another thing.
The map is a series of spreadsheets. The territory is a portfolio of contracts. We lose sight of the contracts because we are busy with the spreadsheets. The data becomes the reality for the people in the office.
The accounting team behaves like a closed system. The members of the group follow rituals that serve the group itself. They do not look outside the room. They focus on the balance sheet. They focus on the internal logic of the spreadsheet.
This is a common behavior in large organizations. Small groups create their own languages. They create their own measures of success. The success of the month-end process is the completion of the pack. The goal is to reach the end of the Tuesday deadline.
The quality of the insight is secondary to the accuracy of the reconciliation. An accurate reconciliation proves that the math is correct. It does not prove that the business is healthy. It only proves that the rules were followed.
Maintenance vs. Growth
Each layer of representation multiplies the coordination work. It does not multiply the understanding of the portfolio. Each layer is protected by the audience that requested it. The regulator will not give up their report. The parent company will not give up their framework. The management will not give up their specific view.
The multiplication of views creates a burden on the staff. The staff becomes fatigued by the repetition. They perform the same tasks every four weeks. They explain the same variances every quarter.
Keeping the system running. Repetition. Fatigue.
Moving the system forward. Strategy. Evolution.
The work is a form of maintenance. It is not a form of growth. Maintenance keeps the system running. Growth moves the system forward. The company is trapped in a cycle of maintenance.
The Single Record of Truth
The servicing platform remains the single point of truth for the contract. This system of record acts as the source for all downstream reports. When the
maintains one version of a contract, the records remain in sync.
The master record feeds the statutory system. The master record feeds the management system. The master record feeds the regulatory system. The architecture must be API-first to prevent data duplication. The software must connect to the origination tools. The platform must connect to the core accounting systems.
This connectivity ensures that the data does not change as it moves. Data change is the cause of the reconciliation. If the data remains the same, the reconciliation is not needed. The work of the human disappears.
The humans can then focus on the behavior of the customers. They can look at the credit risk of the portfolio. They can look at the utilization of the assets. These are the things that drive profit. These are the things that matter to the survival of the firm.
The accounting treatment does not drive profit. The reporting framework does not change the risk. I have observed this pattern in many industries. We build systems to manage the complexity we created. We do not try to reduce the complexity.
We try to automate the management of it. This is a mistake in logic. We should aim to remove the redundant views. We should aim to have one view that serves all audiences. This is difficult because audiences do not like to compromise.
The taxman has no interest in the needs of the marketing manager. The marketing manager has no interest in the needs of the group auditor. Each person wants their data in their specific format. They want their information on their specific schedule.
This selfishness creates the need for the reconciliation. The reconciliation is the price of the lack of cooperation. We pay this price in hours and in morale.
A Problem of Translation
A team that spends its life on reconciliations is a team that will eventually leave. They will find work that feels more meaningful. They will look for roles where their output has a visible impact. Reconciling two versions of the same truth is not meaningful work. It is an admission of failure in the system.
“The accountants act as the translators between these tools. They spend their days translating ‘Language A’ into ‘Language B.’ It is a massive expenditure of human energy on a linguistic problem.”
The system should be invisible. The data should flow from the contract to the report without intervention. This requires a level of integration that most firms do not have. They have a collection of separate tools. They have an origination tool from one vendor. They have a servicing tool from another vendor. They have a general ledger from a third vendor.
These tools do not speak the same language. They use different definitions for a “lease.” They use different definitions for a “customer.”
From 96 Hours to 4 Minutes
We should solve the linguistic problem with better architecture. We should use a single platform for the life of the lease. The contract should live in one place from the moment it is signed. It should stay in that place until the asset is returned.
The data should be accessible to all systems through a modern interface. This would eliminate the need for the four-day reconciliation. The four days would become four minutes of processing time.
The accountants would have ninety-six hours of their lives back. They could use this time to study the behavior of the market. They could use this time to identify new opportunities. The business would become more intelligent. The business would become more responsive.
We are currently choosing to be slow. We are choosing to be confused by our own descriptions. We are like a person who owns four watches. Each watch shows a slightly different time. The person spends all day trying to decide which watch is correct.
They never leave the house because they are too busy checking their watches. The business with one record of truth knows where it stands. It does not need to reconcile its own thoughts. It can act with confidence.
The crowd of accountants can become a team of analysts. The ritual of the month-end pack can become a session of strategic planning. This is the transformation that occurs when the software does the work of the system.
The reconciliations consume the profit that the contracts were designed to create.
Beyond the Mirror
I stopped hiccuping after I finished my water. I sat down and looked at the audience. They were not looking at my data. They were looking at their phones. They were checking their own feeds of information.
Each person had a different view of the world in their hand. They were all in the same room, but they were in different frameworks. I realized that my study was just another column in their month-end pack.
We must stop building more columns. We must start looking at the rows. The rows are the actual events of the business. They are the payments made by the customers. They are the repairs made to the equipment.
These are the facts of the territory. Everything else is just a map. We should make the map as simple as possible. We should make the map a reflection of the truth.