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 to today. Legacy, on-prem systems are holding finance teams back. Modern CFOs need cloud-based financial close software that is easy to implement and finance-owned - a solution that doesn’t require a coding PhD.
Interestingly, many dominant players of the 90s and 2000s 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 current labour market has dramatically changed over the last few years, causing a strong demand for more automation and less human capital to close the books.
A recent CFO.com article explores how “[t]he accelerated move to automate may point to the lack of available employees or the higher costs of retaining skilled workers; technology can be used to increase employee productivity, fill gaps in staffing, and allow existing employees to spend more time on the strategic aspects of their jobs.”
CFOs face the daunting challenge of retaining key employees and attracting new talent in an environment where employees have so much choice, and often compensation is not the only motivator. Millennials aren’t going to thrive or even accept to work in an environment where they are forced to use manual consolidation tools like Excel or legacy consolidation software. They want to use modern tools that are easy to use, intuitive and give them the opportunity to work on value added tasks. Millennials also crave work-life balance, so technologies that make their work more efficient will be critical to retaining this important talent.
In the past, many organizations have depended on human effort to accurately close their books in a timely manner but as Piper Sandler describes, “rising labour costs (inflation) and declining labor participation rates (demographics) have created a structural headwind for businesses to “do more with less (people).”
These factors are creating the necessity for consolidation vendors to innovate and address the needs of today’s CFO.
Customers interested in a solution to help them overcome today’s challenges may have a difficult time telling the difference 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 (i.e., 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.
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, 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.
Ready to see the difference consolidation 3.0 can make for your business? Sign up for a consultation with a consolidation expert today.
Guy Ménard is the VP of Operations at Fluence.