Treasury Today Country Profiles in association with Citi

Corporate treasury benchmarking in the Nordics and Baltics

Red and black darts lined up

Are you ahead of the pack? What are the benchmarks different corporates are using in the region? What is the industry benchmark? What are your peers focusing on? What are they measuring? What’s important to them now and tomorrow?

Benchmarking involves comparing one’s business processes and performance metrics to the industry best or best practices from other companies. The term benchmarking was first used by cobblers to measure people’s feet for shoes. They would place someone’s foot on a ‘bench’ and mark it out to make the pattern for the shoes.

Today, benchmarking is used in many industries and corporate treasury is no exception as Treasury Today’s Corporate Treasury Benchmarking Studies are demonstrating. Individuals as well as organisations become world-class by constantly looking to improve. Whether world class or not, every treasury department should benchmark its performance. Only with this constant assessment can improvement take place. Benchmarking is about creating a unique reference point and pinpointing focused goals to drive the organisation forward.

Benchmarking in practice

Here is how one company used benchmarking to support its overall optimisation goal by establishing a benchmarking project to identify best practices and organisational standards to maximise value for the company. The company began by asking a broad ‘big picture’ question: how do we use our banks for cash management?

This was supported by sub-set questions as follows:

  • Are cash processes manual or automated?

  • Do we have the optimal banking structure in place in order to automate?

  • Do we have the most efficient cost structure?

  • Do we have the right system and technology in place?

It then conducted an internal process comprising numerous meetings on cash management with each process owner from domestic and international general ledger, accounts receivable, accounts payable, payroll and tax. All 28 processes that used banking information were documented using process mapping spreadsheets and flowcharts. It also asked for feedback on what their pain points were when working with banks or bank reports.

Finally, it carried out an external process review involving discussions with its banking partners, reference clients, SWIFT clients, TMS vendor clients, and other treasury organisations in its network.

The objectives were to identify the best professional practices and the best organisational standards to maximise value to the company in the most cost-effective manner, while also identifying alternatives and different approaches to help broaden out the company’s professional experience, developing professional networking.

How to benchmark

Each treasury department is unique, with a particular set of strengths, weaknesses and challenges. There is, therefore, no single way to benchmark. However there are primarily two forms of benchmarking which can be used: internal and external. An internal benchmarking project will see a treasury establish a number of key performance indicators (KPIs), for example days sales outstanding (DSO) and days payable outstanding (DPO), and track these over a defined time period. In doing so, the treasury department is able to track its performance, seeing what effects changes have, and also allowing further areas of improvement to be highlighted.

Qualitative methods can also be used to internally benchmark. These include talking to stakeholders and understanding their pain points and ideas for improvement. This data can then be analysed and used to drive change.

Treasury departments are also increasingly looking to measure the value they deliver to the wider company, as strategic business partners. This theme is particularly strong in the Nordic-Baltic region, as recent research by Nordea has revealed.

The treasury: from back office to strategic lead

Nordea Treasury 2017 cover
QR code

The treasury can expect a bright future at the top table — so says new research conducted by Nordea. The bank surveyed 82 large corporate treasuries and interviewed more than 60 CFOs and treasurers to find out how the treasury function has changed and what it will look like by 2017. Here follows a snapshot of that research.

Nordea’s conversations with treasurers have made it clear that the treasury function is in transition. While treasurers express some uncertainty over market conditions and exposure, they are hopeful about how their own positions have developed and certain about their ability to add value to their businesses. We set out to find out exactly how the treasury has fared during a challenging period — and to see what the future holds.

From back office to the top table

The bank’s Treasury 2017 report reveals that treasurers and CFOs alike acknowledge the importance of the treasury to the strategic decision making process. Providing advice to the business is now a key part of the treasury’s role, and treasurers and CFOs expect it to become even more important over the next two to three years. That is not to say that the transactional element of the treasury’s role is going away — around 60% of respondents said that it remains of high importance and will continue to do so.

Almost 60% of respondents said providing advice would be a key responsibility for the treasury in two to three years.

A broad remit

As might be expected, ensuring access to cash and liquidity is the top priority for the treasury. Close behind this come funding and capital markets, and managing exposure to interest rates and FX risks. To meet these key objectives, the treasury has a broad remit — from providing internal bank services to subsidiaries, to reducing translation risks and overseeing trade finance arrangements.

The treasury’s priorities are liquidity and access to funding.

In line with the treasury’s focus on managing risk and exposure, large corporates are working with their banks to hedge more risk — particularly around interest rates and FX. But one area where the treasury’s involvement has declined is in trading. Our research shows that only a third of treasuries have a trading mandate.

Operating a lean treasury

The treasury is having to find more efficient ways of operating to meet the growing demands on its time from its increasingly diverse workload. For many treasuries, automation and digitisation are enabling easier and faster transaction and communication processes. And some corporates are looking to realise greater efficiencies by centralising their treasuries.

Centralising the group’s cash and liquidity is the top priority for treasuries between now and 2017.

The challenges ahead

To retain its seat at the top table, the treasury will have to become more efficient in the way it manages transactions, and more knowledgeable about markets and risk. Nordea’s research shows that it has already taken great strides towards this. To add even more value, the treasury should regularly review how it manages risk and secures funding to ensure it is supporting strategic business needs effectively.

“The treasury is being challenged to execute transactions more efficiently, while providing strategic advice on a wide range of cash management issues,” says Erik Zingmark, Nordea’s Head of Cash Management and Deputy Head of Transaction Products. “And our research shows treasury is delivering.”

To find out more about the main issues facing the treasury, download the Nordea Treasury 2017 report from Nordea Insights. Go to insights.nordea.com/go/treasury-2017 or scan the QR code.

The value of benchmarking

Improving productivity

  • Value can be added through analysing how the treasury can operate and execute more effectively, without error.

Meeting business needs

  • Within the business there may be a real or perceived gap between what the business needs and what the treasury is offering. A benchmarking project can therefore add value by offering the opportunity to see how the treasury can become a more effective business partner.

Goal-setting

  • A benchmarking project can be used as a goal-setting technique to drive operational change and add value. Often members of the team are aware that things can be improved, so benchmarking offers validation of this and allows the treasury to create an effective business case.

Adding value

Overall, the purpose of internal benchmarking should primarily be to allow the treasury to highlight its strengths and its weaknesses – and to build on these. But to provide context to the information obtained through internal benchmarking, one eye must be kept on the wider treasury universe. An external benchmarking project can provide the treasury with valuable data on how others are not only performing, but also what they are doing to achieve this level of performance.

Due to the somewhat nebulous nature of corporate treasury benchmarking, it is vital that the treasury should first define what the objectives of the benchmarking project are as these will determine the scope and the inputs of the study. Some projects, for example, may only require the collection of a small volume of data, while other, larger transformation projects may require more.

Best practice benchmarking

It is important that benchmarking itself is carried out in accordance with best practice to ensure that the project is worthwhile and doesn’t spiral out of control in terms of scope and time. A key consideration here is to ensure that the data is understood correctly. It is important not to be defensive if the results are not as positive as expected, while on the other hand treasurers shouldn’t be complacent if the data is favourable. Key stakeholders should also be included in the project from the beginning.

The most important aspect of any benchmarking project is having a plan, purpose and underlying reason for the project and ensuring that everyone involved is prepared.

Benchmarking checklist

  • Acknowledge that a ‘one size fits all’ approach to benchmarking does not exist.

  • Introduce benchmarks that are relevant to the way your treasury function operates.

  • Communicate the benefits of benchmarks across the organisation.

  • Obtain the buy-in from Executive Management to implement.

  • Keep it simple and don’t introduce metrics that are too difficult or impossible to measure.

  • Identify the measures through key performance indicators (KPIs) and set achievable targets.

  • Measure performance against your KPIs on a regular basis and use to introduce initiatives for continuous improvement.

  • Review your KPIs regularly to ensure they continue to be relevant and change where appropriate.

Independent Corporate Treasury Benchmarking at Treasury Today

Since Treasury Today’s Corporate Treasury Benchmarking Studies were first introduced over five years ago, around 3,500 treasury departments have participated. The results provide an impressive insight into what is being measured and, importantly, the key performance indicators or KPI metrics actually being achieved in those areas deemed business critical to the treasuries of those companies surveyed.

Areas and KPIs covered by Treasury Today’s Corporate Treasury Benchmarking Studies

Areas and KPIs covered by Treasury Today’s Corporate Treasury Benchmarking Studies

Our 2014 European Corporate Treasury Benchmarking Study reported some interesting findings. The top three treasury priorities are shown in the table below, compared to the 2013 study and those companies based in the Nordic and Baltic region.

Europe: top three treasury priorities

2013 2014 Nordic and Baltic universe (2014)
Cash management/cash pooling Cash management/cash pooling Cash management/cash pooling
Funding/credit lines Bank relationships and banking group organisation Bank relationships and banking group organisation
Working capital management FX risk management Funding/credit lines

As the treasury priorities rankings show, the corporate relationship with its bank(s) is changing to one of less dependence upon credit per se to a consultative, advisory, guidance and solutions-based approach in the truest sense. Moreover, with the heavy burden that regulation and compliance places on the corporate, as well as the many aspects of risk it must now contend with, the banks will need to redefine their transaction banking propositions to their corporate clients if they wish to retain them.

But the majority of corporates still await closure on the real basics of the treasury and cash management arena as the detailed findings of the studies show. The banks would, therefore, do well to focus their energy and scarce resources, on closing any gaps here first.

KPIs are increasing in use across Europe with almost half of all respondents saying that establishing KPIs for their treasury department and indeed improving their treasury KPI measures is important.

Although treasurers are dedicating more and more time to compliance and regulations, over half said their banks are providing them with sufficient advice and guidance on these matters; however, 22% said their banks are not and 19% are not sure.

Our studies also go much further than merely collecting KPI data and providing the corporates who participate with benchmark comparisons, with the study universe as well as their own particular industry sector.

We also ask respondents to rank their banks and what are the most important factors when choosing their bank(s) in the six areas mentioned opposite. The results of the 2014 study were rather enlightening, and proved that price is not always the be all and end all.

Most important factors when ranking banks – Treasury Today’s European Corporate Treasury Benchmarking Study 2014

Area 1st 2nd 3rd
Cash management Relationship Price Electronic banking system
Trade services Price Relationship Geographic coverage
Foreign exchange Competitive prices Operational efficiency/trade execution Service quality
Product innovation Bank develops its products in response to client needs Willing to tailor solution to your particular requirement End-to-end solutions
Customer service Problem resolution A single named point of contact Advice, guidance and consultancy provided
Technology Electronic banking platform Global connectivity Security

If you are interested in treasury benchmarking and/or wish to purchase the studies, further details are available from our Research Director john.nicholas@treasurytoday.com

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