What is consolidation?
During times of economic
expansion, companies are busy acquiring other companies and growing organically
and this can lead to improvements in back-office functions being put on the
backburner. When times are not so easy, the organisation may decide that operational
efficiency and effectiveness in all of its functions is the strategic option to
follow, and these improvements apply to finance as much as anywhere else.
The
role of finance in consolidation
There are 3 aspects - improved financial process and control, measuring
the improvements attained in consolidation in other areas of the business
and creating a strategic consolidation.
Improved
financial process and control
·
management
reporting and forecasting (including rolling forecasts)
·
strategic performance
measurement
·
cash management and credit policy implementation
·
improved
use of computers
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in consolidation
Measuring
the improvements attained in consolidation in other areas of the business
Finance can be an important
part of improvements in other areas. For example, change
management disciplines (such as Six Sigma)
require the organisation to measure the financial effect of a change program,
implying that accountants are used to support the change team in its task.
Often the financial accounting system is used to measure cost savings, often
through the pricing mechanism of purchase order processing.
Back to The role of finance in consolidation
Typically, this is achieved
through creating shared service centres. The scenario is where the company has
made several acquisitions but has not applied the necessary management time and
resource to combine the back-office functions of these acquired companies into
one central place. This is explored in business
integration where a key element is understanding culture. It is important to be able to
define the culture of an organisation or team because only once its defined can you say what it is that needs to be changed,
and of course that implies that you know what you want the cultural objective
to be. From the perspective of financial control, strategic consolidation looks
to make all policies and procedures uniform within a command and control
structure.
Back to The role of finance in consolidation
An assignment that aimed to
formalise management reporting through improvement in the use of accounting
software in a strategic consolidation was Oxfordshire County
Council.