January 19, 2011
By Bryan Richardson
Following the lead of The NeuGroup FX Peer Groups, the Global Cash and Banking Group has completed the first phase of its own world-class principles project.
What does “world class” look like? Unfortunately there is no good answer to that question because there are as many definitions as there are definers. What’s more, world class for a $75bn company may be different than for a $2 bn
company.
In March 2010, The NeuGroup’s Global Cash and Banking Group (GCBG), a group of cash managers from mostly Fortune 500 companies decided to try to create a set of principles that would define and guide a cash-management operation toward being world class.
Six GCBG members (including 3M, Bechtel, Dell, Eli Lilly, Kimberly Clark, and Merck) formed a core team to drive the survey-based research process. Assisted by Citibank’s Treasury Diagnostics team, the group spent the summer of 2010 identifying the key activities to include in the research, breaking the activities into two phases and creating the nearly 100-question survey for Phase 1; 22 members participated.
The core team and Citi then evaluated and analyzed the results and developed draft principles to be further refined by the broader group at its peer group meeting in September 2010.
Phase 1 of the project included the topics of treasury organization, treasury responsibilities, talent management, technology end-state, bank relationship management and policies and procedures (see chart below).
Two of the more challenging topics were organization and responsibilities. The group debated how world-class cash management is best organized and what activities it should own vs. influence. The debate over the merits and limitations of centralization and decentralization focused a lot around the roles and reporting lines of shared service centers (SSC’s) and treasury centers (TC’s).
As the charts below clearly show, there is a strong bias toward centralization of policy-making (Fig. 1) combined with broad sharing of work load between HQ and regional and local operations (Fig. 2).
A big takeaway from the talent management discussion was the value derived from non-monetary incentives such as flexible work hours, shortened work weeks and telecommuting options. “I get more out of my employees when I give them the flexibility,” said a core team member.
The value of rotational programs both within and outside of treasury to broaden the skills was also a key takeaway. Rotation programs come in various shapes and sizes, ranging from very structured to very informal. Both work provided they are encouraged and taken advantage of. Additionally, financially supporting pursuits of additional education and certifications is another key component to effectively managing and developing staff. These investments in people breed loyalty and ultimately add more value.
The group tried to stick with a principles-based approach to defining world-class and stayed away from dictating certain absolutes such as types of systems, organization structure or number of bank relationships as determining factors. However, in one area they did agree on one statistic that a world class cash management operation should have at least 75 percent of its transactions and processes running on a “straight through” basis, i.e., STP.
Having completed Phase 1 last fall, the group is now working on Phase 2, having added eBay and Cooper Industries to the core team. Areas to be addressed include: bank account management, the key processes around accounting; liquidity management, cash flow forecasting, cash positioning and intercompany lending/in-house banking, treasury payments; repatriation and reporting, including dashboard reporting.
The group will follow the same process and will further refine the survey outcome at their March meeting. Final results are expected to be available in May.
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PRINCIPLES OF WORLD CLASS CASH MANAGEMENT — PHASE 1
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Treasury
Organization |
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The number and location of treasury centers are minimized as much as possible without compromising operational efficiency
and timeliness. This results in minimal expense and minimal points of operational coordination while ensuring operational
optimization.
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Cash management seeks to establish their extended operations at existing SSCs to capture efficiencies and benefits such as
availability of a broader talent pool and better integration with operations.
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Independent treasury centers may be necessary in lieu of co-locating at an SSC, or following co-location at a SSC, if it
becomes warranted due to growing operational significance. The degree of cash management centralization aligns with
the organizational structure, geographical locations and needs on the ground locally.
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Standardize operations first then evaluate additional locations.
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Clearly defined roles and responsibilities are published for all tasks managed within the treasury centers. They are reviewed
and updated periodically for changes in operations.
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Effective compliance monitoring is conducted as frequently as prudent and necessary based on the risk profile of the activity.
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Treasury
Responsibilities |
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Cash management activities are defined as “owned” or “influenced” and periodically rationalized to ensure cash management
isn’t overly burdened by non-treasury or non-strategic activities.
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Cash management policies, procedures and tools are standardized across the entire organization but may include unavoidable
exceptions due to local regulatory requirements.
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Standardized operational cash management activities are conducted outside of corporate treasury, either to a treasury center,
a shared service center, or to local in-country staff, leaving the corporate staff with more resources for managing strategic
activities.
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All policy decisions are initiated, or at least approved by, corporate treasury.
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Talent
Management |
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Certifications, outside participation in media articles, speaker opportunities and other such opportunities for personal
development are supported and encouraged.
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Treasury and non-treasury rotational opportunities, either formal or informal, are supported and encouraged for personal
development and career management.
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Non-monetary reward programs such as flexible work hours, or telecommuting programs are supported and encouraged
to create and maintain employee retention and engagement.
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Technology
End-State |
- A global single instance of treasury workstation and ERP is established or in process.
- Supplementing the single instance TWS, best of breed systems are incorporated into the treasury workstation to allow for the
highest level of STP.
- Unique special-purpose software products are minimal, automated and standardized across all users.
- STP and full automation exists for at least 75 percent of cash management activity processes.
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Bank
Relationship
Management |
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Bank relationship ownership and management is shared with treasury centers commensurate with their level of authority,
interaction and reliance on the banks.
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Formal review of bank account structure and bank relationship performance occurs at least annually and more frequently if
significant changes warrant.
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A system or method for reviewing bank account fees and services is established, routinely performed and standardized across
the organization.
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Review and control of all online access and tokens for external banking products is administered or governed centrally at
corporate HQ.
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Banking resolutions are standardized with minimal and consistent officers and signers as much as possible. Minimal
exceptions are permitted and only due to operational or regulatory necessity.
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Policies
& Procedures |
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Comprehensive objectives, policies and procedures that cover at least the most critical cash management functions are
published, accessible and reviewed at least annually and as operations change.
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Effective metrics to evaluate cash management performance are identified and performed regularly.
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Segregation of duties and control processes are established and reviewed periodically by a non-treasury authority.
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A robust business continuity plan that covers at least the most critical cash management functions is published, accessible and
tested at least annually for a variety of likely business disruption types.
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