Cash managers learn how Power BI is changing treasury at Microsoft, and hear how one company automated its intercompany settlements process.
Microsoft’s headquarters in Redmond, Wash., provided members of NeuGroup’s Global Cash and Banking Group an appropriate setting for discussing a host of top-of-mind issues, including how technology and digitalization are shaping departments as they undergo various forms of transformation. The digital downside, of course, is all the threats posed to MNCs by cyberfraud and the resultant need for treasury to boost defenses. The group’s last meeting of 2017, sponsored by Bank of America Merrill Lynch, also touched on the automation of intercompany settlements, a blockchain use case and how one member is creating a cash culture. These, then, were the standout themes from the meeting:
1) The Transformative Power of Technology. Microsoft demonstrated how Power BI is helping it transform treasury, just one example of how digital tools are enabling sweeping change, increasing efficiency and forcing departments to reassess. How can you take better advantage of technology you may already be paying for?
2) The Treasury Transformation Imperative. Bank of America Merrill Lynch and several members described the motivations, challenges and payoffs of transforming treasury as both technology and their businesses change. Where is your transformation on the maturity curve?
3) Creating a Cash Culture. One member laid out a strategy to improve cash forecasting and cash management by instilling better communication and collaboration with business units. How accurate are your cash forecasts?
Cybersecurity: Homegrown Solutions
This session prompted members to think more about protecting themselves from cyberthreats, with the presenter describing an automated payment tool the company developed for its own use. Its wire request tool (WRT) doesn’t accept email requests, to minimize the risk of fraud and impersonation. The process involves an upload between the WRT and SAP that eliminates the need for rekeying information, another safeguard. This issue clearly resonates with members, who told stories of hacks that started with: opening email received from a working address within the company; clicking on”unsubscribe” buttons; and clicking on a tracking link for a package. The presenter also addressed the need to protect against internal bad actors; it established a “red team” that went undercover to expose weaknesses in security by, for example, having an outsider put in a flash drive at someone else’s computer to download data without a password. So, lock your computer before you walk away! There’s also a real need for internal education about improving cybersecurity throughout organizations. One message to spread: take a go-slow approach and ask more questions before pushing that button or clicking on that email. Speed, it seems, can be the enemy of security.
The Transformative Power of Technology
Microsoft impressed members by demonstrating how Power BI, its suite of business analytics tools, can help transform treasury and “connect to hundreds of data sources, simplify data prep, and drive ad hoc analysis,” as Microsoft puts it. Think of it as Excel on steroids, a way for treasury to improve efficiency, create dashboards and better manipulate information that refreshes as new data comes in. You can pull in data from the cloud, access it directly via SAP or pull it in from a server. And if your servers are fast enough, Microsoft says Power BI can generate 10 million rows of data in 10 minutes. The tool allows treasury to provide access to dashboards to leaders who can get answers to a lot of their questions just by using filters and drill-downs. Treasury can also control user groups that see specific dashboards.
KEY TAKEAWAYS
1) Power BI is a big time-saver. Yes, it can take time and effort to set up the front end of the system so that all the data from multiple sources is converted into a standard format for use in Power BI. But Microsoft says the ultimate savings in time will add up to hundreds of hours a year. This frees up analysts to work on more important tasks that add to treasury’s ability to contribute to more strategic goals. This is one reason treasury at Microsoft has moved all reporting to Power BI and does not use a treasury management system (TMS).
2) Why not check out Power BI? It’s part of Microsoft’s Office 365 Office suite. Most companies are already paying for it and can go to powerbi.com and download it for free. You may save time and money by eliminating steps or other programs that attempt to provide the same information.
3) Compare it to other fintech tools. Power BI is not, of course, the only business intelligence or data visualization tool on the market. Departments should compare it to options including Qlik Sense and Tableau. This growing market means treasury needs to attract and retain members versed in the latest digital tools or those who can scale the learning curve quickly.
OUTLOOK
The point here is not that one tool will fit everyone’s needs, but that treasury must stay current on the range of business intelligence solutions that are playing a leading role in the transformation process that’s disrupting and reshaping finance departments across industries. Power BI is but one example of how analytics tools that are not extremely complicated can have an outsized effect streamlining processes and presenting information to senior management faster and more efficiently.
The Treasury Transformation Imperative
Bank of America Merrill Lynch underscored the need for cash managers (and bankers) to be prepared for constant change in a panel discussion on transformation. It started with a powerfully simple example of change: how our idea of a mobile phone has evolved dramatically from bulky handsets with antennas, to smaller flip phones, to today’s slim smartphones. And while it’s easy to become enamored of the latest bright, shiny piece of hardware or software, the presenter emphasized the need to make sure the beauty of a new tool is not just skin deep, saying, “We have to make sure that we’re creating and capturing the value associated with the technology we’re employing.”
Members discussed their ongoing journeys and plans to add or alter treasury management systems (TMS) and adopt more robotic process automation (RPA). One talked about unfulfilled expectations that automating data and reporting would more quickly give his company a “total view of cash.” Another observed that BI tools like the one demonstrated by Microsoft are where a lot of the opportunity lies, adding that we “have a lot of data, but that doesn’t mean anything; [you] have to be able to synthesize.”
Blockchain: A Treasury Use Case
One of the commonly cited advantages of blockchain technology is that it offers a secure, shared distributed ledger that uses cryptography to create transactions that are impervious to fraud. The problem is that we’re in the early days of this nascent technology and many finance professionals haven’t been convinced of its utility and don’t want to be guinea pigs. So Microsoft tasked Bank of America Merrill Lynch with developing a use case for blockchain involving trade finance, specifically how blockchain can streamline trade transacting. The case focused on standby letters of credit. Microsoft’s goals: improve transparency, better serve customers and reduce issuance time. BAML’s goals: test and learn benefits with a corporate client and document benefits for all parties. The result, according to Microsoft: “The key benefit is the decreased time and effort involved. Historically, this process took days or weeks to achieve, was highly paper-intensive and error prone. Now all the details are easily accessible in the blockchain ledger and closing takes a matter of minutes, instead of days.”
KEY TAKEAWAYS
1) Define your goals first. Know what you want to achieve from transformation before deciding how to arrive at your “future state.” One member’s mission was improving the visibility of cash exposure and counterparty risk. Another wants to automate more processes in the hopes of becoming more efficient. Also realize that cost savings are not necessarily the name of the transformation game. One manager said “softer” benefits are his company’s goal, including improving processes and becoming more resilient and better able to react quickly to changes. Make sure senior management shares your view.
2) Transformation means anticipation. Treasurers committed to change can’t afford complacency and need to build flexibility into their transformation plans that will allow them to anticipate disruptions and opportunities that are not clear now. It’s a state of mind that keeps managers on alert for the next big thing that may make them more efficient, more secure and better able to contribute to the organization’s success at meeting strategic goals.
3) Keep one eye on cultural changes. Changes in the health care landscape mean one member is transforming to keep pace with a shift to selling directly to consumers, accepting more online payments and becoming more consumer-friendly. Another has seen its stature decline from a super-hot company to one struggling to find growth. That’s encouraged treasury to take risks and help grow the business. Realize that outside forces are an important determinant of what inside changes to make.
OUTLOOK
Data-driven business models will drive treasury transformation, a process that two-thirds of responding members are pursuing. And while the common denominator of these projects is improving treasury systems infrastructure, one size does not fit all when it comes to which tools make sense to adopt. Some companies are at the beginning of this journey and need to implement TMS. Others are implementing a new consumer payments process and disaggregating from a previous dependency, adopting best practices. Figure out where you are on the spectrum, where you want to go, and how to get there.
Creating a Cash Culture
One member led a session on best practices in cash-flow forecasting—a pain point for many treasuries—by describing how his business is taking advantage of the integration of an acquired company to create a “new cash culture.” The goals include raising the focus on cash awareness and management; improving visibility and forecast accuracy; and driving cash efficiencies and overall cash management performance. He said the current budget will be the first where business units will provide targets on DSO, DPO and inventory levels to treasury and FP&A. And he noted the acquired company has a much different background and that the two teams “have a lot to learn from one another” as they build a compatible cash management process and infrastructure.
A Center of Excellence Solution
Who owns intercompany settlements? Applied Materials found the answer to that question to be unclear and so created a new Center of Excellence group that will own all IC balances and settlements globally with a mandate to clear balances in a timely manner. Under the old system, paying entities initiated settlements and executed them manually. The new system will automate the process using an SAP 6.0 program that can be run periodically. Applied is also moving away from hub-and-spoke accounting and will allow any entity to trade with any other of the 26 that use SAP. A slide showed how each of the 26 will settle with the others, noting where netting is allowed and any limits on payments. The new system is expected to increase settlement activity significantly, with some 500 settlements a quarter, all in USD. Applied said under the current manual process, that would take at least 500 man-hours, with lots of opportunities for errors. Applied plans to go live with the new system in January 2018. We’ll check in for a progress report at the next meeting.
KEY TAKEAWAYS
1) Educate and communicate. Changing a culture to improve cash forecasting requires better communication between treasury and business units and involves educating BUs on the importance and strategic value of getting this right. Treasury needs to take command and drive the process to get everyone on board. The presenting member is now holding biweekly “cash calls” to talk through issues.
2) Motivate with praise and tact. One member said the process of getting business units to take more ownership of the cash-forecasting process is made easier by highlighting teams internally who have top-performing forecasts, minimizing the feeling that the entire process is negative. The presenter recommends setting achievable working capital targets with business units. Another member said the delicacy of the topic means treasury needs to be sensitive in its dealings with other teams and to give feedback without coming across as overly critical. Don’t underestimate the power of socializing as a means of influencing the organization. Just from conversations, the presenting member found that some teams who should be collaborating were not.
3) Leverage your quants. Building business intelligence and analytics into cash-flow forecasting is critical, and some departments are accelerating progress by tapping into talent with quantitative skills in other departments. With just over one-third of responding members saying they only have a satisfactory cash-flow forecasting process, leveraging quants appears a sound strategy.
OUTLOOK
Treasury’s ability to improve cash visibility, efficiency and forecasting is often constrained by its dependence on business units for data and the ownership of the process by FP&A. Going forward, treasury can raise its profile with the CFO by taking the lead in improving communication with both business units and FP&A. Success depends in part on nuts-and-bolts processes like monitoring cash-related metrics and improving visibility gaps. But it will also require an openness to collaborating, finding quants and communication skills that go a long way to building trust and uncovering critical information.