Banking

Building bridges

Published: Sep 2019

Beautiful scenery of bridge at sunset, reflecting off the water

Treasury may once have been viewed as an ivory tower within the organisation. But today, it’s more important than ever for the treasury to be integrated closely with the rest of the business – both by communicating effectively with other teams, and by harnessing technology to build closer connections.

Treasury was once characterised as an ‘ivory tower’ within the organisation, with the treasurer seen as relatively separate from other departments. But, in recent years the role of the treasurer has evolved considerably to become more connected with the rest of the business.

A report published last year by the ACT, The Business of Treasury, found that 87% of respondents saw treasury as a strategic business partner in their organisations. Meanwhile, PwC’s 2019 Global Treasury Benchmarking Survey identified business partnering capabilities as one of the top three characteristics “most sought after in treasurers and their teams, beyond functional Treasury expertise.”

Connecting effectively with other departments within the business is essential to a modern treasury. But in practice, a successful integration will have many different components, from sharing knowledge and moving roles between different functions to using technology to achieve a deeper connection.

Problem solvers

First and foremost, good communication is essential when it comes to effective integration with the rest of the business. Marianna Polykrati, Group Treasurer of Greek food group Chipita, explains that in Greece, treasury has become much more integrated with the business in recent years, especially after capital control restrictions were imposed – not least because across the organisation, all departments are increasingly focusing on the importance of cash generation and improving working capital.

“This has made us collaborate with the organisation more than in the past,” she says. “In particular, we have integrated a lot with the business units within areas such as sales and procurement in order to assist with relationships with suppliers, and to facilitate clients in their own financing needs. In practice this means that we meet more frequently with all the business departments – and whenever they need assistance, they call the treasury and ask if we can help with a particular client or supplier. I would say that we have taken a role of a problem solver, facilitating cash flow needs wherever applicable.”

Sharing knowledge

Likewise, sharing knowledge is an effective way that treasury can work more closely with the rest of the business.

While the role of the treasurer is multifaceted, and can vary considerably between organisations, the main competence of the treasury specialist can be roughly defined as “quantifying financial risks and determining the time value and availability of cash flows,” says Sander van Tol, Partner at independent treasury, risk and finance consultancy Zanders. He adds that the specific knowledge around those two areas can – and should – be used in an integrated way towards the business.

“There are numerous examples of where the treasurer’s specific knowledge is required and can add value to business processes,” he adds. “Examples of the business integration are working capital management, credit risk management, insurance and procurement. With regard to the latter, treasury is often asked to support procurement around purchasing commodities and energy, as well as managing the related financial risks from this process.”

Peter Cunningham, EMEA Head of Consumer & Healthcare Sector, Treasury and Trade Solutions at Citi, notes that areas such as working capital and supply chain finance provide a clear example of how treasury can engage with the rest of the business, demonstrating “a natural relationship that’s evolved between treasury and some of these other internal verticals within the company.”

Reviewing roles

Another area of exploration is how roles within the treasury team can be organised to improve integration with the rest of the business. Cunningham says that in the past, treasurers may have focused on more traditional roles and responsibilities, such as ensuring an optimal funding model and mitigating risk. But more recently, he says some treasuries are adding new roles within the treasury team, with the specific goal of engaging more effectively with the rest of the business.

Van Tol says that from a human resources point of view there are a number of different approaches that treasuries may adopt. “Many traditional treasuries see the function as a specialised and standalone function for a high level of specific knowledge is required,” he explains. “These treasuries are not fully integrated in the business and prefer to hire (seasoned) specialist treasury professionals when there is a vacancy in the treasury department.”

If treasury sees the relationship with business only as a mere principal-agent relationship, no real value is unlocked and there is not integration. The relationship should be more seen as equal business partners in which both partners (treasury and business) can benefit from the integration.

Sander van Tol, Partner, Zanders

In other organisations, van Tol says a more integrated approach may be adopted. “Specific treasury knowledge and competences are required to get a better view of the broader finance function,” he says. “In these organisations, we see that there are job rotation schemes in place where treasury specialists transition into business roles, and finance/business managers take treasury roles.” He adds that in corporations where treasury is part of the finance function’s job rotation program or management development programme, “we tend to see a better fit between treasury and business.”

Technology and integration

Aside from soft skills and human resources considerations, the treasury’s integration with the rest of the business also has a technology component. Van Tol noes that treasurers are used to working with a “relatively high number of different specialised technology solutions”, including treasury management systems, electronic dealing platforms, payment systems and bank connectivity solutions, as well as best of breed applications for areas such as cash flow forecasting, hedge accounting and risk management. However, as van Tol points out, “many of these applications are very focused on the key treasury function, and the interface to the broader finance function is often the weakest link.”

Consequently, he argues it would be beneficial for treasury’s integration with the business if this link was strengthened by a better interface between different applications. “A good example of full integration from a technology perspective are those companies who have implemented a data warehouse/data lake, which is used as the single source of truth for both treasury and the business,” he says.

That said, van Tol notes, “From an IT function’s perspective, we sometimes still come across this treasury vs the rest of the business mentality.” He adds that this is due to the very specific functional (and sometimes also technical and security) requirements defined by treasury. “For IT departments, the treasury function is a very specific and demanding internal client,” he says. “They use many different systems and have a limited number of users.”

Polykrati says that as well as working more closely with areas like procurement and sales, the company’s treasury is also more integrated with IT, not least due to the rising threat posed by cybercrime. “They are always afraid of a breach made via phishing mails – which have significantly increased during recent years – so we work closely with IT, exchanging news and real cases to improve the group’s awareness,” she explains. That said, there is still room for improvement – and in the future, Polykrati says she hopes to adopt a treasury management system so the treasury can have a more automated system in place.

Managing and forecasting cash flows

Cash forecasting is one area where close collaboration with the rest of the business is particularly important. In order to forecast effectively, treasurers will typically need to obtain information from a variety of sources, such as AP and local business units. However, this may be less than smooth if the people expected to provide information lack a clear understanding of what is needed or why the forecast is important.

Effective communication with the relevant departments is essential if treasurers are to obtain accurate information and therefore build an accurate forecast. Technology also has a role to play in streamlining this process. Nick Armstrong, CEO of Identitii, says that improvements to straight-through processing (STP) and additional functionalities arising from new and existing technologies, mean that “treasurers are able to better forecast cash positions and therefore better support other parts of the business as they play their roles.”

George Dessing, Executive Vice President Treasury & Risk at Wolters Kluwer, likewise notes that cash flow management is a complex process – “and increasingly so within the dynamic and continuously changing international environment that we deal with at Wolters Kluwer.” He says that implementing one of the company’s products, CCH Tagetik, “will help us to receive information from our businesses in a more structured and efficient way”, with automated updates and a central repository showing the impact of business changes on the company’s cash flow plans.

Blind spots

That’s not to say that the integration between treasury and the rest of the business is invariably seamless. For example, Michael Bosacco, Treasury Advisory Executive in Global Transaction Services at Bank of America Merrill Lynch, says that treasury has always been well integrated with certain disciplines, such as tax, legal accounting and, more recently, technology. He notes that these teams “all have logical dependencies and typically are united in their efforts to ensure a company’s capital and operations are optimized and the overarching strategy is successfully executed.”

However, Bosacco also notes that beyond these core corporate disciplines, it is “uncommon” to find treasury deeply rooted within the business units it supports. “As a result, there’s a tendency for blind spots to exist,” he says.

What do these blind spots look like in practice? Bosacco explains that in most companies the corporate functions report into the CFO, whereas business unit presidents report to the COO (if one exists) or the CEO, alongside the CFO. “This structure breeds treasury (or other corporate function) blind spots, since the CFO typically cannot effectively faceoff operationally from a treasury standpoint to offer integration opportunities between the businesses and treasury,” says Bosacco. “For example, if a company has three major business units, each unit will not have its own treasury function, but the units will have a dedicated finance team.”

Where integration is concerned, Bosacco says blind spots can arise both because business unit finance considers treasury to be the group that takes all the cash, and because treasury considers the business unit finance to be the group that makes decisions on how/when to collect from customers and pay vendors.

“Needless to say, the two (cash and receive/pay) converge when considering basic balance sheet management,” says Bosacco. “While CFOs and business unit presidents know this, they are rarely familiar with the operational requirements, products or services that can create the convergence” – a situation that Bosacco identifies as another blind spot. “This exists because the silo of corporate functions continues to run alongside the silo of business functions, and so integration fails,” he adds.

Eliminating blind spots with technology

Bosacco says that technology “helps break barriers by improving the visibility and awareness of data and workflows across the business and enterprise-wide, breeding openness”, noting that this is the opposite of a blind spot. He adds that “tech savvy treasuries” are beginning to use digital tools to achieve a number of goals:

  • Eliminating blind spots.

  • Rooting treasury into the business.

  • Driving convergence across the enterprise.

According to Bosacco, digital adoption – in other words, consuming data and employing technology to support near-time decision making – “provides a reusable pathway for Treasury to connect with the rest of the business. For example, business analysis generated from technology tools used to unlock data from across the enterprise can serve as the foundation to support strategic insights for both the business and company-wide.”

Bringing it all together

In conclusion, there’s much to be gained by building closer connections between treasury and the rest of the business – and there are many ways in which companies can achieve this. Key to this is approaching the task with the right mindset. As van Tol comments, “If treasury sees the relationship with business only as a mere principal-agent relationship, no real value is unlocked and there is not integration. The relationship should be more seen as equal business partners in which both partners (treasury and business) can benefit from the integration.”

Holistic treasury

Wolters Kluwer

George Dessing, Executive Vice President Treasury & Risk

Treasury is certainly an integrated function for Wolters Kluwer, which provides professional information, software solutions and services for a number of sectors, including health, tax and accounting, risk and compliance, and legal and regulatory.

“Treasury is viewed as a holistic role within Wolters Kluwer,” says George Dessing, whose responsibilities include global treasury, risk management, (non-IT) business continuity and real estate. He explains that as well as managing traditional financial risks, the treasury function has evolved over the last decade to support the business with its operational risks “by supporting and servicing via risk management and real estate teams with property and business interruption risks.”

Benefits of collaboration

According to Dessing, collaboration between treasury and the rest of the business helps the entire company to be “safer, more streamlined and more efficient”, as well as identifying opportunities that drive operational and financial agility. “Treasury can do this in three ways: be the knowledge centre; be the enabler for cost saving; be the arranger for alignment of the finance terms and conditions,” he says. “Treasury needs to be a strategic partner working closely with business to identify how to make customer experience as simple as possible, yet make sure that it is done in a secure way.”

Dessing says that under the multi-disciplinary approach used to support the company’s 2019-2021 strategy, ‘accelerating our value’, “we look at how treasury processes, practices and technology fit in with the rest of the business and uncover ways of keeping the conversation and the data flow running smoothly.” By being more connected, he says treasury can anticipate some of the challenges that might be faced by the business and when possible address them, “before items become a fire drill.”

Integration in practice

Dessing highlights three key areas where treasury is closely integrated with the rest of the business:

  • Global liquidity arranger. Dessing says: “The most important role of treasury is to ensure that the group has ample headroom and liquidity available for expanding our presence in leading, high growth parts of the business and broaden our footprint where we have achieved market leadership and enter new geographies where we see the best potential for growth.”

  • Internal bank. “We act as an in-house bank for short-term cash needs and provide intercompany loans for the mid to long-term where the cash needs are more structural,” notes Dessing. “For most intercompany transfers we have a current account netting system in place that greatly reduced handling and bank fees by avoiding having to do real cash payments.”

  • Financial treasury risk manager. As Dessing explains, “The group’s activities are exposed to a variety of financial risks, including market, liquidity, and credit risk. Financial risk identification and management is carried out by the central treasury department, whereby the treasury operations are conducted within a framework of policies and guidelines (treasury policy).”

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