By Bryan Richardson
The NeuGroup’s Global Cash and Banking Group seeks to determine what world-class cash management means.
At the March meeting of the Global Cash and Banking Group (GCBG), the peer group decided it would conduct a survey of members to determine the key principles for operating a world-class cash management organization, regardless of size and budget.
Peer group members from 3M, Bechtel, Dell, Kimberly-Clark, Merck, and later Eli Lilly, volunteered to form the Core Team that would perform the heavy lifting of identifying key areas of interest, such as organizational structure, policies and procedures, and technology. They would also develop the critical survey questions that would help determine those world-class principles. Shortly after the Core Team began its work, Citi, the sponsor for the September meeting, volunteered to step into the picture with its Treasury Diagnostics tools.
After a series of testing and survey iterations, the final survey was launched on July 29.
project goals
The survey’s aim is to collect useful benchmarking data that will help GCBG members improve their own global cash management efforts by comparing their metrics to those of their peers. It will also help in the effort to create guiding principles that define world-class in these areas.
It is important to note that the idea is to focus on world-class principles that can apply to any company. It would be easy to conclude that a world-class treasury operation is part of a large company with the latest version of the most robust treasury management system in place, and is so efficient, it uses only three banks globally. But this is inaccurate. Many smaller companies have very sophisticated and streamlined operations using just their banks’ online treasury offerings.
Technology has been one of the topics of particular interest as companies are always in pursuit of the latest technological improvement. One line of questions in the survey concerned the realistic “end-state vision” of the members, including what this looks like in terms of system utilization and STP, as well as how close they are to achieving it. This raises its own question: Is the principle in play here that a world-class company is constantly pursuing improvement? Or, is it a simple matter of technology advancing faster than companies can keep up?
Too big for one meeting
During the survey development process, the group determined it would be best to split the project into two phases. Phase 1 has been focused mostly on structural categories such as geographical locations, responsibilities, supporting policies and technology. And Phase 2 on core operations and processes within cash management.
Phase 1 will be covered at the September meeting. Specific categories include:
- Member demographics
- Treasury and shared service centers
- Centralization
- Organization
- Policies and procedures
- Talent
- Technology
- Bank relationship management
Phase 2 will be covered at the March, 2011 meeting. Categories will include:
- Bank account management
- Accounting
- Liquidity management
- Cash-flow forecasting
- Cash positioning
- Intercompany transactions
Centralized vs. decentralized
One area that has garnered extra attention in the survey development efforts is the matter of centralization versus decentralization of treasury activities. This is in line with the general reassessment of optimal centralization taking place across The NeuGroup’s peer group
companies.
Judging from recent back and forth with, and between, members, it seems there is a legitimate need to dismantle the presumption that centralization is inherently better than decentralization in every case and to view them both as potentially effective structures each with their pros and cons. Thus, as a practical matter, when benchmarking key processes, for example, it is not always safe to assume that central treasury executes all aspects of the process. There may be regional or local execution elements and these may not be entirely standardized throughout the world.
Where and how processes get done can provide useful insight into how treasurers should think about centralization vs. decentralization going forward.
Treasury’s got talent
Another interesting category is that of talent. The survey questions address various sub-topics such as rotational programs, succession plans, employee development, recruiting and retention practices. Certainly these are topics a responsible treasury leader would seek to manage well. But how does a world-class organization approach them? Is high employee turnover due to strong development programs a sign of excellence, or is longevity, stability and well-rounded experience in treasury a better indicator of world-class status?
These are some of the challenges the GCBG’s 28 members will sort out over the next several meetings. Members will consider not just structures, systems or turnover ratios but also how these areas are approached and managed within the context of industry, geography and company size. International Treasurer will continue its updates on the project’s progress.