Treasury Today Country Profiles in association with Citi
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October 2010

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Powers of observation

It is possible to improve processes simply by the act of measuring them.

“Give me a place to stand and I will move the earth.”

Archimedes may have been talking about the power of levers, but the idea that you need to be sure of your own position before you can achieve great things is an evocative one.

In order to understand how you are positioned, you first have to know where others stand in relation to you. This was the philosophy behind Treasury Today’s European Corporate Treasury Benchmarking Study 2010, which was conducted in association with J.P. Morgan. The Study set out to identify best practice within the industry, in order to give corporate treasury practitioners a benchmark against which to measure themselves.

The Study, published this month, uncovers some interesting findings. In the area of investments, although the number of respondents prioritising yield dropped from 30% to 4% during the financial crisis, 68% of respondents stated that they have not changed the instruments they invest in, with 91% using bank deposits and 40% using AAA-rated money market funds. Unsurprisingly, security was the overriding priority for the majority of respondents, with liquidity overtaking yield to move into second position.

However, despite the continuing focus on security, the low interest rate environment has led some corporate investors to tackle yield more proactively, and in this month’s Cash Management article (page 35) we explore in more detail the dynamics currently affecting investor behaviour and the trends that are emerging in this area as the immediate threat of the crisis subsides. We look in particular at the different investment strategies employed by Google and Ahold since the beginning of the crisis.

The Benchmarking Study also illustrates the types of technology used extensively in the treasury function:

  • 98% of respondents were using e-banking.

  • 83% using a TMS.

  • 70% using ERP systems.

However, despite the wide range of technologies on offer to treasurers today, there are still occasions when the right tool for the job is just not available. This is the subject of our Technology article this month, where we look at treasuries that have taken the initiative and developed their own software, we review some excellent examples of in-house systems and ask whether there is scope for the treasurer to roll out such solutions on a commercial basis.

Another area that the Benchmarking Study evaluates is the metrics employed by treasuries to quantify performance, with foreign exchange gains and losses and interest income expenses emerging as some of the more popular measurements.

Whilst knowing where you stand is essential in terms of gauging a particular treasury’s success, a benchmarking exercise can do more than simply provide an insight into the company’s position in relation to its peers. In physics, the ‘observer effect’ describes the changes that any act of observation will make on the phenomenon that is being observed. By observing something, you change it. In management terms, when people are aware that they are being evaluated they will raise their game. Consequently, it is possible to improve processes simply by the act of measuring them.

The Benchmarking Study contains many other insights into the activities of European treasuries in a number of areas including cash management, bank relationships, risk management and future plans. If you would like to purchase a copy of the Benchmarking Study, please contact or call Sarah Arter on +44(0) 1304 629002.