Consolidation 3.0: The golden age of financial consolidation

In 1994, when I started my career implementing consolidation solutions, most of them were deployed on premise. They were also IT-owned and maintained – which was very expensive – and required extensive programming. It was not uncommon to have projects last more than a year. 

Despite all these shortcomings, these solutions dramatically improved the financial consolidation process and helped thousands of organizations reduce manual effort, minimize errors and shorten the close process. 

Fast forward 15 years to when the cloud offered vendors the opportunity to totally change the way consolidation solutions could be implemented. So, why didn’t more of them pursue the opportunity? 

For a number of firms, developing on-premise solutions meant they accumulated significant technical debt, and it would take even more investment to create a new, modern offering that was 100% cloud-based. Instead, they cannibalized their legacy product and offered a hybrid solution that was single tenant, privately hosted with slightly more out-of-the-box functionality than the previous version, but still not disruptive or truly innovative. 

Customers continued to purchase solutions that were marginally better but with many of the same challenges or shortcomings of the previous versions. 

A similar question could be asked of finance and accounting teams: Why have organizations continued to buy consolidation software that lacks innovation and has not leveraged recent technological improvements?

Buying consolidation software is not a choice or a luxury for these organizations, but a mission-critical and essential investment to close their books faster, reduce errors and get more timely information to make better decisions. Given no better alternative, they have had little choice but to continue buying outdated software. 

During the same period, many new planning vendors embraced the cloud and completely disrupted the planning market – to the point where the vendors that dominated corporate performance management (CPM) space in the late 90s and early 2000s have gone the way of the dinosaur. 

Consolidation is a science, not an art. Organizations must follow Generally Accepted Accounting Principles (GAAP). This raises a third question: why are so many vendors re-inventing the wheel during each implementation?

These are not easy questions to answer but I have some thoughts:

• For vendors, if it’s not broken, why would they fix it – or in this case modernize it, especially when customers continue to buy software and expect to pay high license and implementation fees?
• Some organizations have in the past addressed consolidation inefficiencies by throwing resources at the problem, either by having employees work nights and weekends or by hiring consultants to help them close their books on time
• Unlike planning, consolidation is extremely complex, and it would take years of development to achieve a minimum viable product that could compete with established vendors.

Consolidation 3.0

Interestingly (or perhaps confusingly), many dominant players of the 90s and 2000s – such as IBM, SAP and Longview – have reduced investment or stopped investing in consolidation altogether. Many have sunset their products and not offered a migration path to their customers. 

The combination of technology improvements like the cloud and the fact that many players are leaving the market, is creating a massive opportunity that could best be defined as consolidation 3.0. 

This third wave of consolidation innovation is characterized by:

• A cloud-first approach to deployment
• Advanced consolidation capabilities
• Out-of-the-box features that can be used right away
• Finance-ownership and self-sufficiency, rather than relying on IT
• No coding requirements

Customers implementing consolidation 3.0 solutions are seeing dramatic improvements compared to previous generation technology.  These include:

• Lower total cost of ownership
• Lower initial setup cost
• Lower maintenance cost
• Faster time to value with customers live in weeks, not months
• A solution that is easier and less costly to upgrade
• Automatic product updates 

A consolidation 3.0 solution can take a third of the time to implement compared to consolidation 2.0. Let’s explore a typical implementation to understand how this is possible. The diagram below shows a typical timeline for consolidation 2.0 versus consolidation 3.0.

The table below, meanwhile, explores in detail the various phases of an implementation and explains why there is a dramatic difference in time between a consolidation 2.0 and consolidation 3.0 implementation.

The search for a different consolidation solution

Customers interested in a solution to help them overcome today’s challenges may have a difficult time determining between a consolidation 2.0 solution and a consolidation 3.0 solution. That’s because vendors use the same buzzwords such as “out-of-the-box”, and most initial consolidation demonstrations all look the same. How can a buyer make an informed decision? 

Much like buying a home, the initial demo should be approached like an open house showing. On the surface everything will look good, which is what the seller wants you to see. It’s only during the house inspection that the buyer can see the good, the bad and possibly the ugly. Too many consolidation buyers stop the evaluation process after the initial demo. You would not buy a house without doing an inspection, so why would you buy expensive software without doing the same in-depth inspection?

Every evaluation should have a second demo that focuses on what the customer wants to see – not what the vendors want to show. The second demonstration should focus on the following key elements:

• Is the solution a true, multi-tenant, cloud solution or is it privately hosted?
• How do you create a new entity or a new account? How do you set the properties (such as debit/credit) for these new members?
• How do you change consolidation, conversion, cash flow rules? Does this maintenance require any programming or are they updated using a no code user interface?
• How to create a report from scratch?
• Do the “out-of-the-box” reports and input forms work automatically regardless of the customer’s dimensions, or do they need to be configured, customized?
• How does the upgrade process work?
• How do you select the consolidation method for an entity? What happens when the ownership rate changes or the consolidation method changes? 

These are just a few key elements to review during the second demonstration. It’s also important to insist on seeing all these items in action, as opposed to the vendor describing how it’s done (or simply answering “yes” to every question). 

If the vendor is not showing you something, it’s probably because they are hiding some complexity, product limitation or other shortcoming in their product.  

Conclusion

Organizations can no longer hold off on modernizing and automating their consolidation process. 

Both consolidation 2.0 and consolidation 3.0 solutions will help customers improve their processes, but only the latter will provide organizations with what they need to address the challenges of today. 

As the need for automation, reduced costs, faster implementations, reduced complexity, standard functionality, and autonomy become more critical, consolidation 3.0 is emerging to meet them. 

In choosing them, organizations will gain all the benefits of technology, a clearer financial picture and a greater ability to attract and retain the best talent.