Consolidation 3.0: The golden age of financial consolidation

When consolidation solutions were first rolled out, 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 consolidation 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 as 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?

Lack of alternative options

Buying consolidation software is not a choice or a luxury for organizations, but a mission-critical and essential investment to enable fast and accurate consolidated actuals, 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 Given no better alternative, they have had little choice but to continue buying outdated software.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 typically must follow generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS) and often GAAP treatments. 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:

• Vendor incentive: Vendors often see no need to modernize if their current software is profitable, even if it lacks innovation.
• Workaround culture: Organizations frequently address consolidation inefficiencies by overworking staff or hiring consultants rather than seeking better solutions.
• Complexity barrier: Developing competitive consolidation software is extremely challenging due to its complexity, requiring significant development time and resources.

Consolidation 3.0

Interestingly (or perhaps confusingly), many dominant players of the 90s and 2000s — such as IBM 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 technological 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 opportunity is being filled with innovators like Anaplan’s Financial Consolidation application. 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 see 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
• Easier to use and less costly to upgrade
• Automatic product updates 

Anaplan’s next-gen consolidation application 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.

Meanwhile, the table below 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 distinguishing 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 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 I integrate a new organization, including data, into my consolidation cycle?
• How do you change consolidation, conversion, and cash flow rules? Does this maintenance require any programming or are they updated using a no-code user interface?
• How do you create a report from scratch?  Can users create their own reports and publish them for use throughout the organization?
• 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 and 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?  Are ownership rates manually calculated or system-determined?  Can the method of consolidation be automatically determined using ownership percentages?

These are key elements that we’ve prioritized in our Financial Consolidation application — and should be seen in action, as opposed to the vendor describing how it’s done (or worse, simply answering ‘yes’ to your 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.  

Waiting to modernize is no longer an option

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, the Anaplan Financial Consolidation application is there to meet them. 

Organizations gain multiple benefits from this technology, a clearer financial picture, and a greater ability to attract and retain the best talent.