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Opting for stronger
central governance...
Plenty of companies grow through acquisition. It can be a fast and effective way to achieve any number of business strategies—growing top line revenues, reducing competition, and deepening brand presence, among others.
Yet depending on how well (or how poorly) these operations are integrated, the acquiring corporations and their top officers can experience discomfort when it comes to financial reporting. Troubles often spring from a lack of visibility needed to understand the inner workings of companies that have been purchased and allowed to run with autonomy.
Such was the case with a multinational company that had grown through acquisition to become an industry powerhouse in the energy field. Operating in dozens of countries across the globe and highly decentralized, it was a company that valued its culture of independence. But with the power of decision-making residing in hundreds of businesses, the company’s finance leaders saw an issue that needed to be addressed. They were concerned about the lack of accountability in the financial reporting process.
Indeed, visibility into the widely distributed operation was poor enough—and the financial accountability so distributed—that numerous material weaknesses were identified during the company’s internal controls testing. After the company was required to issue several financial restatements, finance leaders moved forward with a plan for change.
“The company believed that its culture set it apart and drove a unique aspect to the business that other people couldn’t replicate,” acknowledged PwC principal Matt Labovich, adding that the decentralized structure had put considerable decision-making power into the hands of the people at individual facilities, a factor that may have created positive outcome at the business-unit level. He points out, however, that while this autonomy aided some operations, it didn’t provide transparency or create a dependable financial reporting environment. “It doesn't always translate into being efficient,” Labovich explained, “It doesn’t help to keep your costs contained or provide access to information used for decision making.”
So the company decided to embark on a fundamental shift of organizational thought processes, business strategy, and culture. With PwC already a trusted advisor, management turned to PwC for execution help on the large transformation effort. Attributes that mattered were the firm’s team approach, global resources, and execution know-how.
From the beginning, nothing was simple. The company operated in nearly 30 countries, communicating in as many as 70 native languages and dialects. There were complex regulatory environments, a relatively intricate business model with complicated financial instruments, and a fiercely independent culture thrown into the mix. It added up to more than the average level of complexity.
Working closely together, the company and the global PwC team soon gained insight into specific issues. A lack of financial skills at the business-unit level among employees assigned to perform data collection and reporting was a major one. Most of the employees in question had joined the company through acquisition, and it was evident that many employees had had little training for their jobs. Few, if any, formal processes existed to make financial functions consistent and efficient.
Once problems were identified and steps taken to improve them, the corporation began to see immediate results. Time needed to close the books at individual business units, for example, was slashed by more than half.
As a further action, the company was later able to consolidate financial reporting within its regional operations. This led to notable cost savings, including a reduction of 90 percent of the headcount that used to be required when the function was done in the field. Not only did costs go down, but quality went up. Finally, the corporation and its senior officers reduced both business and personal risk by effecting a more rigorous protocol for financial reporting and controls.
Success hinged, in part, on a change in perception as to whether—and how—it would be possible to make decisions in the far-flung enterprise. At the core was a fundamental move from an independent business-unit orientation to a regionally focused corporate environment.
For companies thinking about such a move, the giant energy provider may offer an example of how to achieve a delicate balance between a culture of independence and needed central governance.
For example, some functions other than finance continue to work on a decentralized basis, taking advantage of local knowledge. However, new guidelines make clear how acquisitions fit into the corporate structure, with acquired companies expected to adopt a standard metric for what and how to report. The new formality makes it easier for the power company to integrate acquisitions faster and to realize greater value—synergies that had not been fully realized in the past.
The result, Labovich points out, is a company with greater transparency, more defined and dependable processes, and far greater efficiency in its financial operations.
Centralizing the finance function has eased the creation of shared-service platforms, helping trim the 19 different payroll systems into one. The company can close its books eight days faster than before, despite the 14 major languages and nine major currencies involved. And the possibility for errors has been significantly reduced.
Labovich is firmly optimistic about such financial transformation—and how to achieve it. “We look at trying to move small shifts within an organization to help them operate better,” he said, “Now this is a company with a single approach—a uniform approach—and a combined vision of what they should be and a direction to get there.”
central governance...
An acquisitive global player opts for stronger central governance
Plenty of companies grow through acquisition. It can be a fast and effective way to achieve any number of business strategies—growing top line revenues, reducing competition, and deepening brand presence, among others.
Yet depending on how well (or how poorly) these operations are integrated, the acquiring corporations and their top officers can experience discomfort when it comes to financial reporting. Troubles often spring from a lack of visibility needed to understand the inner workings of companies that have been purchased and allowed to run with autonomy.
Such was the case with a multinational company that had grown through acquisition to become an industry powerhouse in the energy field. Operating in dozens of countries across the globe and highly decentralized, it was a company that valued its culture of independence. But with the power of decision-making residing in hundreds of businesses, the company’s finance leaders saw an issue that needed to be addressed. They were concerned about the lack of accountability in the financial reporting process.
Indeed, visibility into the widely distributed operation was poor enough—and the financial accountability so distributed—that numerous material weaknesses were identified during the company’s internal controls testing. After the company was required to issue several financial restatements, finance leaders moved forward with a plan for change.
“The company believed that its culture set it apart and drove a unique aspect to the business that other people couldn’t replicate,” acknowledged PwC principal Matt Labovich, adding that the decentralized structure had put considerable decision-making power into the hands of the people at individual facilities, a factor that may have created positive outcome at the business-unit level. He points out, however, that while this autonomy aided some operations, it didn’t provide transparency or create a dependable financial reporting environment. “It doesn't always translate into being efficient,” Labovich explained, “It doesn’t help to keep your costs contained or provide access to information used for decision making.”
So the company decided to embark on a fundamental shift of organizational thought processes, business strategy, and culture. With PwC already a trusted advisor, management turned to PwC for execution help on the large transformation effort. Attributes that mattered were the firm’s team approach, global resources, and execution know-how.
From the beginning, nothing was simple. The company operated in nearly 30 countries, communicating in as many as 70 native languages and dialects. There were complex regulatory environments, a relatively intricate business model with complicated financial instruments, and a fiercely independent culture thrown into the mix. It added up to more than the average level of complexity.
Working closely together, the company and the global PwC team soon gained insight into specific issues. A lack of financial skills at the business-unit level among employees assigned to perform data collection and reporting was a major one. Most of the employees in question had joined the company through acquisition, and it was evident that many employees had had little training for their jobs. Few, if any, formal processes existed to make financial functions consistent and efficient.
Once problems were identified and steps taken to improve them, the corporation began to see immediate results. Time needed to close the books at individual business units, for example, was slashed by more than half.
As a further action, the company was later able to consolidate financial reporting within its regional operations. This led to notable cost savings, including a reduction of 90 percent of the headcount that used to be required when the function was done in the field. Not only did costs go down, but quality went up. Finally, the corporation and its senior officers reduced both business and personal risk by effecting a more rigorous protocol for financial reporting and controls.
Success hinged, in part, on a change in perception as to whether—and how—it would be possible to make decisions in the far-flung enterprise. At the core was a fundamental move from an independent business-unit orientation to a regionally focused corporate environment.
For companies thinking about such a move, the giant energy provider may offer an example of how to achieve a delicate balance between a culture of independence and needed central governance.
For example, some functions other than finance continue to work on a decentralized basis, taking advantage of local knowledge. However, new guidelines make clear how acquisitions fit into the corporate structure, with acquired companies expected to adopt a standard metric for what and how to report. The new formality makes it easier for the power company to integrate acquisitions faster and to realize greater value—synergies that had not been fully realized in the past.
The result, Labovich points out, is a company with greater transparency, more defined and dependable processes, and far greater efficiency in its financial operations.
Centralizing the finance function has eased the creation of shared-service platforms, helping trim the 19 different payroll systems into one. The company can close its books eight days faster than before, despite the 14 major languages and nine major currencies involved. And the possibility for errors has been significantly reduced.
Labovich is firmly optimistic about such financial transformation—and how to achieve it. “We look at trying to move small shifts within an organization to help them operate better,” he said, “Now this is a company with a single approach—a uniform approach—and a combined vision of what they should be and a direction to get there.”
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