By Joseph Neu
How treasury should best be organized is a frequent and favored topic for The NeuGroup. As noted last June, (see, “The Treasury Centralization Pendulum,” IT June 2010), the relentless drive toward centralization has run up against the constraints of global geography. Treasurers in the NeuGroup’s Engineering & Construction Peer Group, with projects spread across numerous emerging markets, raised this issue anew last winter and the subject continues to resonate across all the NeuGroups.
The World-Class Treasury Principles project conducted with Citi for our Global Cash and Banking Group tested and supported the idea that centralization of management, policy and controls coexists with regional and local execution of treasury activities. Indeed, resulting hybrid structures may become more the rule than the exception. Using this as a starting point, The NeuGroup has begun to further refine its thinking on treasury centralization in peer group discussions. Here are some of the bullet points that can help get this discussion started:
- How is technology enabling new organizational thinking? Advances in information technology enable new structures that take advantage of remote access to information and applications to process and act on that information from virtually anywhere. The old paradigm of treasury as a centralized server of financial, cash, banking, risk and payments information, attached to “clients,” needs to be refreshed for the ability to synchronize multiple data centers or have server virtualization—where there is no center, but a diffuse “cloud.”
On a purely practical level, we are seeing a shift in mind-set by treasurers and their IT departments toward SaaS/remote hosting of treasury systems and applications, which is a precursor in this trend.
- Where is the shift toward value added work taking place? Technology and process automation is resulting in a shift to value added work. Treasurers often speak of shifting resources increasingly away from treasury operations to more analytical and value added work involving business support and risk management. The need for this is compounded as business support shifts to more challenging places to do business: the emerging growth markets. As a result, treasurers are looking for people with skills and expertise required for the value work, but also looking to find more localized expertise closer to the business front lines. Value added shifts should not all take place in the center. Plus, there is a cost/value component. For example, treasurers say that they can find higher quality people for certain activities at a lower cost outside the US/Western Europe.
- How does treasury best cover the next level of globalization? As the proportion of cash flows outside of home (US) or developed markets grows, coverage models that skimp on these markets (as those centralized at HQ, often do) become less viable. Not only is the materiality hurdle of overseas cash flows breached, but these cash flows tend to be subject to greater risk or otherwise require more attention. Round-the-clock coverage achieved by centralizing in strategic time zones is one response, as is beefing up regional or even local treasury coverage (e.g., companies having a separate treasurer for Brazil or China).
- What from treasury can be embedded in the businesses? Borrowing what we have learned from some well-thought-out enterprise risk management programs, we see the possibility for a similar trend: treasury (as with risk thinking) eventually gets so embedded in everyday management that certain functions of treasury can take on a mere coordinating role—or even dissolve as they become fully embedded in the business. Along these lines, the current emphasis on rotational programs that expose high-potentials within the company to treasury and promote treasury thinking in the process are useful.
- Will the company pay for change? Too often treasury centralization has been driven as much by cost-cutting mandates as striving toward best practice. Rethinking world-class treasury organization thus requires a rethinking of treasury resources, too. In the long run, “treasury in the cloud” may be cost efficient, but it will cost most treasuries plenty to get there. Therefore, all thinking of change is for nought, if treasury lacks the buy-in to make the needed investments.