Our independent opinion helps an European subsidiary survive
by clearer communications and making their systems compatible
Business problems - USA parent wants standard business systems
Our client was a new £M European subsidiary of a £bn American financial services group. At first view, it seems natural that the parent would seek to impose its American accounting and operations systems on all of its subsidiaries. However there were two large problems for the European subsidiary:-
(i) High volumes of foreign currency transactions.
(ii) A major proportion of its revenue from joint ventures (JVs) in order to reduce risk and cost .
The American system could not handle these transactions very well and the subsidiary was expected to process them manually. Unfortunately currencies and JVs represented nearly all of the subsidiary’s business. In contrast, the American parent conduct ed most of its business in the USA. Also it was so large, it operated as a one-stop shop and hardly ever operated JVs. The European subsidiary just could not make its case. It had to keep its current systems to survive.
Our solution - communicate the costs and modify the existing systems
We proposed an amicable practical solution - to modify the IT systems so the subsidiary could function. We used our standard system specification templates to list the key features of the European accounting and operations processes. Next we tabulated the features of the American system and compared the differences. The cost implications of modifying the American systems were calculated and presented to the Americans, who kindly conceded that there would be cost & time problems. For example they needed tables to store daily exchange rates. Secondly, they needed to account for the JV - either as lead manager or as a partner. The JV lead manager had to act as the project accountant who would issue monthly progress reports and work-in-progress accounts to each of the JV partners. At the same time, we prepared estimates of modifying the European system - converting all transactions into US dollars in the required format for group consolidation in the USA. Also we identify the business risks and revenue issues if the European subsidiary has to adopt the USA systems.
Winning results - USA gets data in correct format. Subsidiary retains IT.
The cheapest and quickest option was to modify the European system, which the American parent was glad to accept because it saved having to allocate resources away from their own IT department. They allowed the European subsidiary to retain and modify its IT systems to consolidate their accounts and present data in the required American parent format.