Understanding Treasury IT Purchase Trends

By Joseph Neu

With the outlook for investment in treasury technology growing more favorable, it is useful to be mindful of current trends in mapping out your treasury’s technology spend. 

There is little doubt that the financial crisis and its aftermath have had a positive influence on treasurers’ ability to spend on systems and other IT infrastructure. The trouble is the positive impact is relative, as in the ability to spend has improved, but treasurers by no means have unlimited budgets. Plus, as with any technology spending, it pays to be smart about it. Thus, as treasurers embark on any 2011 technology plans, they should be mindful of the trends driving treasury technology spending and leading practice approaches they can leverage to be successful.

A recent presentation at a December 2010 Citi Treasury and Trade Finance Forum by Niklas Bergentoft, a Senior Manager with Deloitte’s¹ Capital Markets Technology Services practice, shed light on some of the key trends in treasury technology purchases seen from its vantage point and how to take advantage of them.

•  Look for transformational opportunities. One of the most important challenges to overcome in getting budget for treasury technology projects is to build a business case (see sidebar below). For treasury, the business case often benefits from piggy-backing on other higher priority enterprise technology initiatives. Fortunately, the financial crisis and its aftermath have created several enterprise-level initiatives for treasury to tie into, such as overcoming challenges related to cash visibility, getting more timely aggregated exposure data to manage risk and responding to increasing new regulation and related reporting requirements.

Combining such initiatives often lends itself to transformational opportunities that can be positioned as vastly enhancing treasury’s “value add” to the organization. Mr. Bergentoft cited transformation opportunities aimed at:

1. Company-wide cash and liquidity management programs;
2. Reassessing banking strategies and relationships;
3. Enhancements to liquidity management structures (e.g., payment and collection factories);
4. Investment in treasury, portfolio strategy and risk management tools;
5. Outsourcing solutions including ASP/SAAS solutions for technology;
6. Bank communications strategies;
7. Efficiency gains due to straight-through processing (e.g., cash positioning, liquidity forecasting, auto-matching used for bank reconciliation, automated treasury accounting, confirmations, payment and receipt application);
8. Counterparty exposure over cash and investment portfolios;
9. Automated investment transaction processing and reporting;
10. Platform integration savings with fewer technologies to support;
11. Consolidated accounting foundation for all transaction processing;
12. Improved accuracy and timeliness of reporting and business intelligence.

• Take the time to map out your IT strategy. Another trend being seen in treasury technology is that treasurers are taking a more structured approach to treasury technology architecture, integration and reporting to achieve:

1. Improved technology enablement, i.e., optimal use and sustainability of technology;
2. Improved data quality;
3. Increased reporting flexibility;
4. Standard integration frameworks;
5. Platform integration with fewer technologies to support.

Taking a more structured, or thought-out approach requires that treasury first map out its IT strategy.

• Requirements. This starts with an assessment of requirements, including:

1. Current and target state needs, considered from treasury, business and regulatory compliance standpoints;
2. Fit with treasury’s operating model (how centralized, how much outsourced, role in supporting business units, etc.); and
3. Access to IT support and IT strategy capabilities (see below).

•  IT Strategy. With these requirements identified, the actual IT strategy will be drawn up to include:

1. A baseline of what the current treasury IT operating model and sourcing strategy looks like;
2. The desired application strategy (e.g., “integrated” vs. “best of breed”);
3. Hosting strategy (e.g., in-house or outsourced server/data centers);
4. Integration strategy (e.g, ETL and data quality frameworks);
5. Bank communications strategy (SWIFT or direct); and
6. Data storage and business intelligence strategy.

Finally, there is the actually construct of the architecture design, to include the logical functional model with mapped requirements and overlaying solution alternatives for each treasury activity from trade execution to reporting and the technical architecture linking necessary applications, data sources and providers.

• Be clear about your application strategy. Among the most critical components of IT strategy is determining your treasury’s desired approach to applications: Do you want to pursue a path toward the most integrated technology infrastructure possible or go with a “best-of-breed” approach pulling together applications emphasizing your functionality requirements?

Both approaches are still considered to be leading practice, but Mr. Bergentoft noted the better fit depends on each organization’s treasury needs, the Treasury and corresponding IT operating models and the entity’s Treasury IT strategy. He further noted that more firms tend to be leaning in the direction of integrated platforms (when possible) with fewer distinct applications. This is consistent with the conclusions of The NeuGroup’s Global Cash and Banking Group World-Class initiatives first phase (see IT, January 2011). The reason for this is that more firms are placing a premium on more timely aggregate information and this is more easily realized on a common platform. Most treasury departments also lack the IT resources to sustain a true “best of breed” integration unless they have an extremely well-structured IT set-up or more defined best-of-breed needs.

• Select vendors thoughtfully. A clearly defined IT strategy and target architecture pays further dividends in laying the foundation for a well-structured vendor selection process. According to Mr. Bergentoft, organizations with structured IT planning will already have given consideration to clearly defined and detailed functional and technical requirements, which will in turn guide requests for demo scripts, vendor workshops and the questions that are crucial to effective reference calls (with references provided by industry peers and the vendor). He also recommends:

1. Quantitative and qualitative scoring, to identify gaps and negotiate mitigation plan prior to selection; and,
2. Negotiating with the vendor, including leveraging the value of your organization as a customer of the vendor.

• Ensure other elements of solution delivery are available. Equally, if not more important than the vendor selection process is ensuring that treasury has the necessary resources available to deliver the sought-after solution. Critical here, as Mr. Bergentoft noted is that treasury assemble a dedicated team with the right backgrounds and mix of treasury, business and IT experience, along with hands-on project management and executive sponsorship. Organizations with a structured technology methodology in place—with particular emphasis on design, quality assurance, data quality, change management/training, and transitioning (e.g., with the assistance of an internal support organization)—will be at a distinct advantage.

¹ As used in this article, “Deloitte” means Deloitte & Touche LLP, a subsidiary of Deloitte LLP.