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Treasury Transformation and the Challenge of Change Management

March 14, 2018
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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 H2 meeting cycle, with topics ranging from the possible (now realized) overhaul of US corporate tax rates and the growing need for multinational corporations to use insurance to protect themselves from the exploding threat of cybercrime, to new rules for hedge accounting. But perhaps nothing is taking as much time, attention and capital (financial and human) as the transformational changes within treasury departments, driven by seismic shifts in business models and technology that threaten traditional treasury roles and functions. The tax reform passed at the end of the year may come with significant financial advantages for US MNCs, but it also will force many treasuries to put current transformation plans on hold as they incorporate the realities of a more territorial tax system into their global organizational structures and reevaluate how they manage and invest cash generated offshore given reduced costs of repatriation.

With all this in mind, NeuGroup Peer Research surveyed treasurer and assistant treasurer groups to find out how and why they are changing their treasury organizations to remain best in class. The following results are aggregated from approximately 100 company responses received during the second half of 2017 from the following NeuGroups: Treasurers' Group of Mega-Caps (tMega); Treasurers' Group of Thirty Large-Cap Edition (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 the numbers that tell the story of the prevalence of transformation efforts: More than two-thirds of responding members have completed a recent treasury transformation project, have one currently underway or plan to begin one in 2018. This continues the trend NeuGroup has observed over the last few meeting cycles of widespread, firmwide and functional change. These transformation projects primarily involve changes to treasury systems infrastructure (85%), followed by banking infrastructure and cash management changes (71%) and shifts in organizational structure (65%). The fact that systems are most prominent suggest that there is not enough reflection first on strategy (tied for fifth most prominent at 25%) and process change (fourth at 62%). Where is the attention that should be given to people and ensuring that the human capital structure of treasury is right?

Focus of Current or Recently Completed Treasury Transformation Projects

Another question is whether the objectives are really transformational. The surveys reveal that the catalysts for transformation at member companies include: the desire to achieve optimal operational efficiencies and to reduce costs; the expansion of global footprints and M&A integrations; and developments involving technology, including sunsetting TMS support and alignment with changes to global IT strategy.

But the numbers and the data NeuGroup collects from member surveys tell just one part of the transformation story taking place across treasury since the financial crisis. The other, equally valuable source of practical insights and information about the goals, challenges and realities of these changes emerges in the exchange of knowledge among peers at Neu- Group meetings, where members discuss the details of transformation projects and the lessons learned that may provide both steps to emulate and to avoid for other members in the throes of the process. Here, then, are some of the relevant tactical takeaways that surfaced in NeuGroup meetings in the second half of 2017.

Have You Completed or Are You Involved in a Treasury Transformation Project

KEY TAKEAWAYS

  • Planning pays off. Define a road map of goals that clearly establishes the end-state vision for treasury transformation and ask lots of tough questions before making a transformational leap. Do we have the right people in the right places for optimal performance? What are the best system structures needed to support growth? How will all the systems talk to one another? One member company created a fully integrated solution for bank administration, cash forecasting, consistent reporting and analytics, and a single payment hub with a standardized wire format, and rolled out the solution globally. The results have satisfied the company, in part because it spent so much time evaluating options (the project has taken about eight years) before acting. And the treasurer said there's little he would do differently if starting over now.
  • Prepare for pushback; consider force. Change management is difficult; communicating effectively and having the support of the C-suite are critical. Taking the time to build support above, across and below has proven beneficial to those members who presented on transformation projects this meeting cycle. However, don't be surprised if you have to use "force," such as imposing certain KPIs, to make progress. One member's experience proves that despite meticulous planning in choosing systems and vendors, internal resistance can thwart successful and timely implementation of transformational change. This member tackled the topic of treasury transformation by describing how his company addressed a fragmented and outdated treasury system infrastructure. Goals included increasing the reliability and accuracy of cash-flow forecasting, boosting the percentage of cash under control and achieving further optimization of working capital. In short, as one slide described it, the company wanted to "simplify, centralize, automate, integrate and standardize the future treasury organization." The member described the biggest challenge as one of change management— specifically, the resistance put up by business units to the changes treasury wanted to implement. He said treasury ended up having to use force by establishing metrics to get affiliates on board. And despite having a dedicated team from IT to get up and running, this member said that only "brute force," and treasury staffers doing three jobs each, got the job done. Consider the alternatives but accept that the team may be stretched and stressed if there are none.
  • Rethink the org structure to support key work streams. When people think of transformation projects, many think of technological upgrades and system integrations; however, the personnel component shouldn't be overlooked. The key to creating an optimal future state lies in the development of talent and the proper alignment of resources. One member company's treasury leadership org chart is being divided into four functional ATs to develop centers of excellence for treasury operations, trading and investments, risk and strategy, and corporate finance. The objective of the transformation should be to enable treasury to scale its support for rapid global growth of an increasingly diverse product offering. As important as the ability to scale, however, are reduced working capital requirements and optimized banking and in-house bank structures, enabled by digitized, automated processes on more updated and fit-for-purpose systems in a strong control environment.
  • Standardize and automate with industry-standard systems and processes. Streamlining and standardizing processes and systems across locations and user types is one theme of successful transformations. One company focused on developing more automation using standard processes and implementing the latest version of SAP HANA for the cloud as its TMS. A team of engineers had been brought into treasury to assist with creating add-on automation of processing, leveraging SAP and the firm's own technology. Similarly, another company implemented Kyriba software as its user interface, "so rather than having everyone from AR, AP and payroll go to the bank portals to make payments or get statements, they can now go to one place to log in and do everything," said the company's project manager for financial initiatives. Yet another example came from a company that set up pooling structures in the EMEA, APAC and North America regions, greatly improving cash management and concentrating cash for acquisitions, which used to take months and now can be accessed 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 and real-time bragging rights. One treasurer recounted that in his transformation, AP embraced the project and saw the time to make payments cut in half; however, other departments, such as payroll, saw little reason to change a system that wasn't broken and were harder to bring on board. But the new transparency resulting from system upgrades and integrations has uncovered unnecessary bank fees, such $10,000 in lockbox fees that one bank had promised to eliminate the year before but didn't. Treasury estimates it realized an estimated $1 million in annual bank-related savings and as much as $2 million in savings overall. Another company's initiative has already achieved significant benefits. The "serial acquirer's" banks had grown to 122 in number and its accounts to more than 400; it has since slashed the bank count to 60, and has a goal of reaching five global banks and fewer than 200 accounts. The company's latest acquisition was a boon for treasury's transformation because the provider of B-to-B cloud integration services already had access to the SWIFT payment network, and the company was able to use its managed services application to rationalize payments through its banks and receive their statements.

OUTLOOK

The reality of US corporate tax cuts and the decisions US MNCs face about how best to use repatriated cash will force treasuries to take a hard look at their transformation projects and, in many cases, push the pause button. Moving forward, efforts at change must be aligned with the new rules governing overseas profits and a more territorial tax regime. This will necessarily affect the structure and role of offshore treasury units and how MNCs balance onshore versus offshore liquidity flows and cash management. Pressure from shareholder activists will complicate the balancing act senior management must perform with treasury's help to recast capital structures in light of new opportunities to deploy cash.

It's against this new backdrop that treasury must grapple with improving its processes, procedures, personnel, controls, banking architecture and technologies. Determining how to align each appropriately to the overarching strategy and growth cadence of the company (in a cost-efficient way) is a multiyear project and must include senior leadership buy-in. Success depends on formulating a clear "destination strategy," deciding whether third parties can add appreciable value to the process of guiding technological transitions and making sure both internal and external stakeholders agree on this "treasury road map." Transformation is not quick and it's best to establish contingency plans for the inevitable "unexpected" in your project budget.

Transforming treasury to incorporate new, tax-driven realities will come as departments gain more experience with the various implications for all aspects of treasury's role within the larger business. That role will be twisted and turned by the digital wave that's making the cloud, data visualization, AI (artificial intelligence), and RPA (robotic process automation) and blockchain part of every finance professional's lexicon.

NeuGroup remains committed to helping departments plot the best course, through surveys and knowledge exchange, wherever companies are on the path of transformation, a process and priority that has become critical for treasuries striving to play a strategic role while managing a wide-ranging set of financial risks.

SURVEY SAMPLE

NeuGroup Peer Research surveyed treasurer and assistant treasurer groups in the NeuGroup Network on completed, current or planned treasury transformation projects. The survey results are aggregated from approximately 100 company responses received over the course of the second half of 2017 and help members identify common challenges for discussions at their meetings that generate solutions. The survey included members from 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 the NeuGroup Network of knowledge exchange peer groups and to the subscribers of our flagship publication iTreasurer. NeuGroup Peer Research conducts research, surveys and other benchmarking across the NeuGroup Network, which includes more than 400 members across 18 active, invitation-only peer groups. Each report highlights what we have learned from this unique and exclusive access to survey data, trends and insights of world-leading treasury and finance professionals. This indepth interaction has made NeuGroup, iTreasurer, and now NeuGroup Peer Research trusted thought leaders and independent advocates for finance and treasury professionals for more than 20 years.