Treasurers managing risk as evolving digital technologies alter their companies and jobs face some critical questions: When do you decide that the treasury organization no longer fits the company’s growth trajectory? And how do you transform treasury to align its mission with the company’s strategy and business model?
Change was the common denominator of NeuGroup’s 2017 H2meeting cycle, with topics ranging from the possible (now realized)overhaul of US corporate tax rates and the growing needfor multinational corporations to use insurance to protectthemselves from the exploding threat of cybercrime, to newrules for hedge accounting. But perhaps nothing is taking asmuch time, attention and capital (financial and human) as thetransformational changes within treasury departments, drivenby seismic shifts in business models and technology thatthreaten traditional treasury roles and functions. The tax reformpassed at the end of the year may come with significant financialadvantages for US MNCs, but it also will force many treasuriesto put current transformation plans on hold as theyincorporate the realities of a more territorial tax system intotheir global organizational structures and reevaluate how theymanage and invest cash generated offshore given reducedcosts of repatriation.
With all this in mind, NeuGroup Peer Research surveyed treasurerand assistant treasurer groups to find out how and whythey are changing their treasury organizations to remain bestin class. The following results are aggregated from approximately100 company responses received during the secondhalf of 2017 from the following NeuGroups: Treasurers’ Groupof Mega-Caps (tMega); Treasurers’ Group of Thirty Large-CapEdition (T30 LC); Treasurers’ Group of Thirty (T30); Tech20 Treasurers’Peer Group (Tech20); Assistant Treasurers’ Group of Thirty(AT30), and Assistant Treasurers’ Leadership Group (ATLG).
The biggest takeaways from the survey emerge from thenumbers that tell the story of the prevalence of transformationefforts: More than two-thirds of responding members havecompleted a recent treasury transformation project, have onecurrently underway or plan to begin one in 2018. This continuesthe trend NeuGroup has observed over the last few meetingcycles of widespread, firmwide and functional change. Thesetransformation projects primarily involve changes to treasurysystems infrastructure (85%), followed by banking infrastructureand cash management changes (71%) and shifts inorganizational structure (65%). The fact that systems are mostprominent suggest that there is not enough reflection first onstrategy (tied for fifth most prominent at 25%) and process change (fourth at 62%).Where is the attentionthat should be given topeople and ensuring thatthe human capital structureof treasury is right?
Another question iswhether the objectivesare really transformational.The surveys reveal thatthe catalysts for transformationat member companiesinclude: the desireto achieve optimal operationalefficiencies and toreduce costs; the expansionof global footprintsand M&A integrations;and developments involving technology, including sunsettingTMS support and alignment with changes to global IT strategy.
But the numbers and the data NeuGroup collects frommember surveys tell just one part of the transformation storytaking place across treasury since the financial crisis. The other,equally valuable source of practical insights and informationabout the goals, challenges and realities of these changesemerges in the exchange of knowledge among peers at Neu-Group meetings, where members discuss the details of transformationprojects and the lessons learned that may provideboth steps to emulate and to avoid for other members in thethroes of the process. Here, then, are some of the relevant tacticaltakeaways that surfaced in NeuGroup meetings in the secondhalf of 2017.
KEY TAKEAWAYS
- Planning pays off. Define a road map of goals that clearlyestablishes the end-state vision for treasury transformation andask lots of tough questions before making a transformationalleap. Do we have the right people in the right places for optimalperformance? What are the best system structures needed tosupport growth? How will all the systems talk to one another?One member company created a fully integrated solution forbank administration, cash forecasting, consistent reporting andanalytics, and a single payment hub with a standardized wireformat, and rolled out the solution globally. The results havesatisfied the company, in part because it spent so much timeevaluating options (the project has taken about eight years)before acting. And thetreasurer said there’s littlehe would do differently ifstarting over now.
- Prepare for pushback;consider force.Change management isdifficult; communicatingeffectively and having thesupport of the C-suite arecritical. Taking the time tobuild support above,across and below hasproven beneficial to thosemembers who presentedon transformation projectsthis meeting cycle.However, don’t be surprisedif you have to use “force,” such as imposing certain KPIs,to make progress. One member’s experience proves thatdespite meticulous planning in choosing systems and vendors,internal resistance can thwart successful and timely implementationof transformational change. This member tackledthe topic of treasury transformation by describing how hiscompany addressed a fragmented and outdated treasurysystem infrastructure. Goals included increasing the reliabilityand accuracy of cash-flow forecasting, boosting the percentageof cash under control and achieving further optimizationof working capital. In short, as one slide described it, the companywanted to “simplify, centralize, automate, integrate andstandardize the future treasury organization.” The memberdescribed the biggest challenge as one of change management—specifically, the resistance put up by business units tothe changes treasury wanted to implement. He said treasuryended up having to use force by establishing metrics to getaffiliates on board. And despite having a dedicated team fromIT to get up and running, this member said that only “bruteforce,” and treasury staffers doing three jobs each, got the jobdone. Consider the alternatives but accept that the team maybe stretched and stressed if there are none.
- Rethink the org structure to support key work streams.When people think of transformation projects, many think oftechnological upgrades and system integrations; however, thepersonnel component shouldn’t be overlooked. The key to creatingan optimal future state lies in the development of talentand the proper alignment of resources. One member company’s treasury leadership org chart is being divided into fourfunctional ATs to develop centers of excellence for treasuryoperations, trading and investments, risk and strategy, and corporatefinance. The objective of the transformation should beto enable treasury to scale its support for rapid global growthof an increasingly diverse product offering. As important as theability to scale, however, are reduced working capital requirementsand optimized banking and in-house bank structures,enabled by digitized, automated processes on more updatedand fit-for-purpose systems in a strong control environment.
- Standardize and automate with industry-standardsystems and processes. Streamlining and standardizing processesand systems across locations and user types is onetheme of successful transformations. One company focused ondeveloping more automation using standard processes andimplementing the latest version of SAP HANA for the cloud asits TMS. A team of engineers had been brought into treasury toassist with creating add-on automation of processing, leveragingSAP and the firm’s own technology. Similarly, another company implemented Kyriba software asits user interface, “so rather than having everyone from AR, APand payroll go to the bank portals to make payments or getstatements, they can now go to one place to log in and doeverything,” said the company’s project manager for financialinitiatives.Yet another example came from a company that set up poolingstructures in the EMEA, APAC and North America regions,greatly improving cash management and concentrating cashfor acquisitions, which used to take months and now can beaccessed right away from regional header accounts. In all cases,consistency was key to streamlining treasury processes.
- Big savings in time and money convince the skeptics.Establish before-and-after metrics to allow ROI tracking andreal-time bragging rights. One treasurer recounted that in histransformation, AP embraced the project and saw the time tomake payments cut in half; however, other departments, suchas payroll, saw little reason to change a system that wasn’t brokenand were harder to bring on board. But the new transparencyresulting from system upgrades and integrations hasuncovered unnecessary bank fees, such $10,000 in lockbox feesthat one bank had promised to eliminate the year before butdidn’t. Treasury estimates it realized an estimated $1 million inannual bank-related savings and as much as $2 million in savingsoverall. Another company’s initiative has already achievedsignificant benefits. The “serial acquirer’s” banks had grown to122 in number and its accounts to more than 400; it has sinceslashed the bank count to 60, and has a goal of reaching fiveglobal banks and fewer than 200 accounts. The company’s latestacquisition was a boon for treasury’s transformation becausethe provider of B-to-B cloud integration services already hadaccess to the SWIFT payment network, and the company wasable to use its managed services application to rationalize paymentsthrough its banks and receive their statements.
OUTLOOK
The reality of US corporate tax cuts and the decisions US MNCsface about how best to use repatriated cash will force treasuriesto take a hard look at their transformation projects and, inmany cases, push the pause button. Moving forward, efforts atchange must be aligned with the new rules governing overseasprofits and a more territorial tax regime. This will necessarilyaffect the structure and role of offshore treasury units and how MNCs balance onshore versus offshore liquidity flows and cashmanagement. Pressure from shareholder activists will complicatethe balancing act senior management must perform withtreasury’s help to recast capital structures in light of newopportunities to deploy cash.
It’s against this new backdrop that treasury must grapplewith improving its processes, procedures, personnel, controls,banking architecture and technologies. Determining how toalign each appropriately to the overarching strategy andgrowth cadence of the company (in a cost-efficient way) is amultiyear project and must include senior leadership buy-in.Success depends on formulating a clear “destination strategy,”deciding whether third parties can add appreciable value tothe process of guiding technological transitions and makingsure both internal and external stakeholders agree on this”treasury road map.” Transformation is not quick and it’s best toestablish contingency plans for the inevitable “unexpected” inyour project budget.
Transforming treasury to incorporate new, tax-driven realitieswill come as departments gain more experience with thevarious implications for all aspects of treasury’s role within thelarger business. That role will be twisted and turned by the digitalwave that’s making the cloud, data visualization, AI (artificialintelligence), and RPA (robotic process automation) and blockchainpart of every finance professional’s lexicon.
NeuGroup remains committed to helping departments plotthe best course, through surveys and knowledge exchange,wherever companies are on the path of transformation, a processand priority that has become critical for treasuries strivingto play a strategic role while managing a wide-ranging set offinancial risks.
SURVEY SAMPLE
NeuGroup Peer Research surveyed treasurer and assistant treasurergroups in the NeuGroup Network on completed, currentor planned treasury transformation projects. The survey resultsare aggregated from approximately 100 company responsesreceived over the course of the second half of 2017 and helpmembers identify common challenges for discussions at theirmeetings that generate solutions. The survey included membersfrom the following groups: tMega, T30 LC, T30, Tech20,AT30 and ATLG.
ABOUT NEUGROUP PEER RESEARCH
NeuGroup Peer Research is the research division of NeuGroup,with reports, data and analysis provided to members of theNeuGroup Network of knowledge exchange peer groups andto the subscribers of our flagship publication iTreasurer.NeuGroup Peer Research conducts research, surveys and otherbenchmarking across the NeuGroup Network, which includesmore than 400 members across 18 active, invitation-only peergroups. Each report highlights what we have learned from thisunique and exclusive access to survey data, trends and insightsof world-leading treasury and finance professionals. This indepthinteraction has made NeuGroup, iTreasurer, and nowNeuGroup Peer Research trusted thought leaders and independentadvocates for finance and treasury professionals for morethan 20 years.