By Joseph Neu
While the overwhelming consensus among treasurers points to building their business advisory role and becoming a more strategic function (see IT, May 2006), there is a practical challenge in giving up on certain tactical projects that seem to be never-ending and soak up attention. In other words, it is very easy for treasury functions to get stuck on tactical.
The tactical pull
It is hard to blame treasury professionals if they stick with what they know—and what they know how to measure. It is even harder to do this in an environment where control is paramount. Thanks to SOX, tactical issues have become perhaps overly important.
A very good example of this is the focus many treasury professionals currently have on control and visibility of cash in affiliate bank accounts.
SOX influence. When affiliates report their cash positions, treasury wants to know that this jibes with what is in all of their bank accounts. Senior executives that sign off on the financial statements that these cash reports roll into have a strong interest in this too. Like never before, treasury functions now see it in their mandate to gain greater visibility of all corporate cash; they also seek to control bank accounts in such a way that they do not lose sight of cash even in the most remote corners of the world where their firms do business.
Mention control and the project gets almost immediate blessing from senior management; this seems to be the consensus among treasury professionals.
Not only does a cash visibility and control mandate fit well into the SOX control framework, it also is indicative of three other major sources of tactical pull.
The measurability quotient. Progress toward fulfilling the above mandate, though not always easy to make, is relatively easy to measure. For instance, treasury can identify and measure the percentage of total cash under its control, highlight countries/business units where cash is more or less under treasury control (e.g., using a scorecard or a heat map), and break out key control points and score these as well.
Such relative measurability also extends to the value-add or ROI discussions: treasury can show the incremental returns it earns on excess cash investment (or reduced interest expense on debt paid down) as a result of bringing more of the global cash pools within its purview. This is much easier than, say, determining the impact of treasury’s actions on EPS.
Fit with traditional role. As the function primarily responsible for cash andliquidity management, along with being the primary bank interface and procurer of banking services, cash visibility and control-related projects are a natural fit for treasury.
Moving into areas like supply-chain advisory services, in contrast, takes treasury into the purview of other functions. Interacting with other functions on projects makes it both more challenging to get things done and more difficult to measure the relative performance of each function based on their marginal contribution.
Economic environment. For much of the post-SOX era, the rate environment has not necessarily been ideal for the basis-point grubbing at the heart of many ROI assessments. While certain tactical projects generated “wins” in the $10 to $100 million range, which is nothing to sneeze at, the relative value of harder-to-measure strategic projects might easily overshadow such gains.
As rates rise and growth wanes, treasury may become even more inclined to feel the tactical pull. As it stands, for example, treasuries involved in getting cash under control in the wake of SOX are likely to be 80-90 percent there. Using their current ROI metrics, gaining visibility and control over the remaining 10-20 percent of global cash becomes even more enticing as rates rise.
Add to this the fact that MNCs seeking further growth are entering markets where it is increasingly difficult for treasury to gain cash visibility and control, and you have all the ingredients for a never-ending effort.
Knowing when to move on
Taking the tactical pull into account, treasurers need to have something to trigger them to move on. Chasing 100 percent on every tactical assignment will leave one with no resources to pursue strategic objectives. Accordingly, treasury needs:
1) A priority/ranking framework that assesses the relative value add of each project; and revisits it at each project milestone to help determine when to stop or backburner one item in favor of another; and
2) Acceptance of soft measures of treasury contributions to strategic business objectives—so long as hard measures of value add favor tactical treasury activities, treasury needs to soften its PM stance.