Unburdening the Routine with Outsourcing

As treasury gets more strategic, outsourcing the routine, non-strategic functions gets more important. Often this starts with treasury systems as evidenced by SWIFT service bureaus.

Like never before market pressures are forcing multinational treasury organizations to re-examine their day-to-day functions to meet and exceed the requirements of their customers — both internally and externally. The pressures come from many sources but the main drivers are the advances in automation along with the growth of internet technologies, cost reduction and efficiency mandates, further centralization demands, calls for more strategic input and rapid regulatory changes and compliance requirements related to FAS 133, IAS 39 and Sarbanes-Oxley (SOX) among others.

outsourcing allows Strategic focus

Along with these pressures, the treasury function has widened its sphere of influence. It has gone beyond managing cash and debt to managing end-to-end working capital, financial risk
management as well as managing the complex relationships with banks, investors and creditors.

While this broadened sphere of influence creates greater opportunities, visibility and more appealing work for treasury teams, it also exponentially increases the complexities as well as the volume of work.

Building out the existing team isn’t always the answer, nor in most cases lately is it even possible. Instead, a short-term solution would be to prioritize the most important needs and over a mid-term period create a list of repetitive housekeeping activities that could be effectively automated in an outsourcing model.

Outsourcing the mundane allows treasury to focus on the value-added work across its growing range of responsibilities.

In its basic form, outsourcing offers an integrated treasury solution that ties together a cluster of operating procedures. This way, companies can avoid the headache and cost of trying to acquire the skills involved in establishing and maintaining an evolved and integrated treasury management framework.

One place to start is with treasury management systems. As treasury management systems become more sophisticated and costly to maintain, treasurers are increasingly turning to outsourcing providers for ongoing access to the best technology as well as to perform routine, non-strategic treasury operating functions with these systems.

Outsourcing decisions always involve a consideration of what is or is not a core competence. In a treasury context, this has usually been translated simply into which functions are ‘strategic’ and which are ‘non-strategic.’

And, just about any way you look at it, managing technology is not a core competency of the treasury department. Likewise, managing the specialized applications required for treasury may also be beyond the scope of the corporate IT department. With this in mind, treasury should consider outsourcing these activities, as most MNCs have done with SWIFT connectivity.

getting it done

How do you effectively outsource? A technology outsourcing assessment starts with the BIG PICTURE of the systems portfolio. The concerns at this level are:

• Functional and architectural linking of various applications.
• Maturity and complexity of the business and IT processes around these applications.
• Speed of adoption of new technologies.
• Expectations of cost savings.

Accordingly, the decision to outsource applications falls broadly into four categories:

1. Resources. Which applications utilize the maximum number of resources? How can we utilize these resources for other projects, mainly growth and innovation?
2. Monetary. What is the ongoing cumulative cost of this application? Rank applications by the annual cost incurred.
3. Schedule. How can we do more with what we have and probably faster? And can we scope the project better?
4. Skill Sets. How can we get the best resources with relevant skill sets?

Increasingly, effective outsourcing is driven by the comparative advantage of the outsourcing partner’s expertise. Thus, quality of expertise should drive selection, and the eventual service agreement should be structured to incent the use of this expertise and not just minimize the direct cost of service. Somebody, somewhere, will always offer to do it cheaper, but will they know what they are doing when it comes to effectively managing the tasks they are given?

This article was adapted from material provided by BIRLASOFT INC., an ITO specialist offering treasury outsourcing to MNCs.