Treasurers talk skills development, digital transformation, regional treasury centers.
The Asia Treasury Peer Group held its 2018 H2 meeting, sponsored by HSBC, at GE’s offices in Singapore. A key focus was looking at treasury talent in the Asia region and how to develop and train talented people in response to digitalization. Group members also compared the current state of their regional treasury centers (RTCs) and the likely journey they will take going forward. Here are three of the meeting’s top themes:
1) Taking Treasury Talent to the Next Level. One group member asked the others to share practical examples of how they train and develop treasury staff in the region.
2) Identifying Success Factors for Digitalization. Boston Consulting Group and HSBC shared some keys to navigating digitalization successfully.
3) Comparing Regional Treasury Centers. Three members shared their regional treasury setups, providing a basis for others to compare what theirs look like today and possible future states.
Taking Treasury Talent to the Next Level
The topic of treasury training and talent development arose out of the No. 1 question that an Asia-based emerging multinational corporation (MNC) posed to the group: How do you train your people? With their responses, members also shed light on broader talent development efforts used in the region.
KEY TAKEAWAYS
1) Make use of video and visual training aids. One member shared how his treasury makes ample use of video and other forms of visual training to bring new treasury employees on board. These are typically produced in-house and show how treasury actually does things, following its own standard operating procedures. One example: This is how our team uses Quantum, the treasury management system (TMS). Another visual training tool involves leveraging banks to show new hires how to trade FX using the banks’ trading desks.
2) Rotate staff (even in the region). Several members said they have rotational programs that extend to the region, in which new hires can rotate through key roles in cash, FX and business advisory, spending four to six months in each role. At the end of their final rotation, they are given a performance review and placed in a specific role based on where they excelled. “This is a treasury-specific program that was actually started in APAC [Asia-Pacific],” one member said. Another company noted that it will hire a new MBA about every two years and put the person through a six- to nine-month treasury training program as long as it’s relevant to their regional role (e.g., they are hired into the finance team). Yet another company rotates cash management personnel across countries in the region to help cross-fertilize local innovation and help treasury better understand country-level nuances.
3) Emphasize continual learning about treasury and the business. One member described a recently launched learning program that uses a point system to build skills in several targeted areas. The targeted area can be finance-related, or it may be something else that the employee finds appealing on a functional or personal level. In addition to the continual learning program, the company also allows job swaps to promote better understanding of what everyone in the company does by doing their job for a period. From a treasury standpoint, this helps push people out into the business and bring business people into treasury, underscoring what treasury does to add value, along with a cash flow focus.
Standing Atop Others’ Digitalization
One member noted that his company had recently developed a strategy for digitalization that emphasizes the use of technology for analytics and sustainability. A big part of that strategy is employing the digitalization gains made by others. For example:
- Take what banks are developing and bring to the business. Part of one member’s strategy is taking maximum advantage of treasury’s relationship with banks by taking what banks are inventing in fintech and bringing it to the business. One example cited in fraud detection is looking at the keystroke pattern of the requester to see if it matches that of the authorized user. The bank can inform treasury of unusual patterns or if a transaction surpasses a certain level.
- Leverage consumer digitalization of payments. While this is most prevalent among direct-to-consumer businesses, several members said they were consolidating their use of digital payment gateways, such as WeChat Pay, Alipay and Union Pay in China. The most prominent means of access is through the bank portals or a TMS like Kyriba. The ideal is straight-through processing with no manual intervention.
OUTLOOK
As the discussion proceeded, it emerged that a key ingredient of successful talent development for regional treasury is to have a specific talent review process in the region. One member shared the positive impact his regional group experienced after pushing performance appraisal to the regional level for each of the major functional areas represented in APAC, including treasury. This really helped raise the visibility of talent development and training in Asia for the company, suggesting it may need to become a best practice for other multinationals.
Identifying Success Factors for Digitalization
The digitalization theme was prominent throughout the meeting, including during a session where two members talked about the process of developing their treasury dashboards, depicted in corresponding demos, and a session led by Lim Yew Heng, a partner at Boston Consulting Group, and Jennifer Doherty-Hayes, Asia head of innovation for global liquidity and cash management at HSBC, on how to make digital transformation work.
KEY TAKEAWAYS
1) Start with the business framework. The digital transformation framework that BCG describes starts with a business strategy driven by digital (which, in turn, starts with thinking about how a digital player would go about destroying the business). Many companies start by digitizing their core business and the value proposition they offer. The first step is digitizing the customer offer and go-to-market approach; then the operations of the business must digitize to execute this; also, the support functions, including treasury, need to digitize accordingly.
2) Everyone is resource-constrained. Everyone is resource-constrained when it comes to digitalization; the constraints are what create opportunity for innovation. They force organizations to rethink how they innovate and tap into skills they may not know their own people have, and they can satisfy the desire of people to learn new things.
3) You can do a lot in three weeks. One member shocked the group when he said that building his dashboard was largely accomplished in three weeks. He used a combination of internal IT and data scientists on the treasury team to build the dashboard using Qlik, a data visualization tool. Treasury also took advantage of data fed from SAP HANA to depict cash and cash investment balances by holding company and region, by currency and country, and by how much is with which bank. The dashboard is accessible by smartphone, too.
4) Build a data warehouse. One big reason for data visualization dashboards is that reporting tools in most TMSs are cumbersome. One member has a data pull from Quantum into Power BI, so that when treasury clicks through from the dashboard it never has to go into Quantum. The next step is to build a data warehouse, in Microsoft’s Azure cloud, for example, that also includes accounts payable (AP) and accounts receivable (AR) data.
Virtual Accounts: A Mixed State of Play
While not everyone in Asia is using virtual accounts, a few members said they use them in the region with HSBC, Standard Chartered and Citi. Here are some of the key things they said:
- Start with the master file. Essentially, you start with the customer master data file and tell the bank to go at it with 1,000 virtual accounts, one for each.
- Assign AR and sales to their roles. You can leave it to AR to monitor the collections via the virtual accounts or you can assign a salesperson to measure the performance on collections. Even if sales manages it, they share the info with treasury, as one member explained it.
- Issues with change. One bottleneck is that virtual accounts are not easy to change—even though they are virtual. If you want to migrate legacy accounts to virtual accounts, it is not a simple process. If you acquire a company that was using virtual accounts, there is no easy way just to change them to feed into your accounts.
- Issues with auto-reconciliation. Another issue: how to link the electronic reporting with the necessary detail to perform auto-reconciliation. If a payment hits the virtual account, it can be hard to match up with the MT940 electronic bank account statement to determine what has been paid, especially if there is no invoice number.
OUTLOOK
One of the most important success factors in digital transformation, according to BCG, is changing your way of working by shifting to a new digital culture. This can be characterized as moving from a culture of risk and uncertainty avoidance (concern about failure) to a culture comfortable with uncertainty, where people are encouraged to “fail fast” and adopt a “test and learn” mindset. It also involves a shift from a channel- or technology-centric perspective on the development of products and services to one where innovation is centered on the customer and best-in-class benchmarks for customer experience across industries. The culture must move from favoring a rigid set of processes and slow decision-making to digital speed where paradigms shift toward an agile way of working with fast implementation. Finally, communication and sharing across groups must go from being siloed and limited to collaboration without command-and-control power centers.
Comparing Regional Treasury Centers
This session looked at how two US MNCs have set up their regional treasury centers and included the perspective of an Asia-based group treasury that is contemplating setting up a regional treasury center to support expansion outside China.
KEY TAKEAWAYS
1) Define lines of demarcation between RTC and SSC. If a company does most of its support operations from a shared-services center (SSC), it can be natural to have some treasury operations within the SSC, since both groups are serving the businesses. Typically, the SSC staff will have treasury decisions made by treasury, however. For example, activities involving bank account management reside with the SSC, but treasury is the clear owner of the accounts. Similarly, disbursements are done by the SSC but owned by treasury. Focusing less on execution and more on strategy allows treasury to work on cash and bank relations, and FX, as well as digital initiatives to improve the company’s liquidity profile and cash processes. Most of all, delegating operations to the SSC frees up time for treasury to focus on assisting the business to win deals with funding/customer finance solutions. The SSC staff working on treasury operations, meanwhile, report to the SSC head, but with a dotted line to treasury.
2) Consider an IHB structure. At one member’s company, each of the RTCs (Asia and Europe), along with cash management for the Americas, rolls up into the in-house bank (IHB), which is run by the European RTC. This puts the primary RTC focus on cash management and, related to that, managing the bank relationships via ownership of the bank accounts. The SSC deals with working capital and then provides data to treasury that feeds into its TMS (Reval). The IHB helps funnel the account structure and greatly reduces the number of physical bank accounts treasury has to manage.
3) Plan ahead. The final example featured a company that does not yet have an RTC, but recently expanded its presence in Singapore via an acquisition and hired a treasurer to oversee treasury for the entity acquired. This separate treasurer also represents the company’s planning ahead to support its international expansion. Business heads in China are currently all at headquarters, but as the company expands, the business heads may not all sit in HQ, so all of treasury may not want to be there either.
Developing a Methodology to Pass Along Treasury Costs
In the pre-meeting survey, just 24% of respondents said they pass along treasury costs to a country or business unit. But in response to a member question, participants discussed the potential methodology they might use to pass on certain costs to affiliates. For example, with bank accounts, treasury could take the total cost expended to maintain 500 bank accounts and divide up the costs among the affiliates that use them (weighted by revenue). If it takes one person to cover those accounts, you can put their cost into the allocation, too. If the affiliates borrow from treasury, they can pay for the capital used with a small margin, perhaps, for the governance process that treasury performs. If there are rating agency fees associated with debt issuance, then those might be passed on to the businesses based on their capital allocation, too.
OUTLOOK
Drawing on one member’s example of using a process audit of its RTC to improve its cash processes, perhaps the group will conduct a benchmarking project at some point to discover where each member is on their RTC and global treasury journey. The crossover to the business that treasury supports is very important in this, including determining your key pricing groups and which of them are centralized as opposed to regional. Also, how thin are your margins (e.g., how quickly do you need to hedge to protect them?)? Where do the business leaders sit? Also, going forward, what role will automation play in what is done in the region vs. globally? Plan ahead.
Sponsored by: