When restructuring is treated as an ongoing process, and not a one-time event, it offers the opportunity to reassess treasury’s impact across the company. The term ‘dynamic business modelling’ captures the essence of this idea. But what does it mean in practice?
Few could fail to notice that in our increasingly digital world, new business models are continually emerging, often disrupting traditional business models. In every case, being ready means treasury has to adapt and continuously integrate, build and redefine its core services.
The idea of dynamic business modelling can be seen as a reflection of that restructuring process. As the name suggests, it is a process that is ongoing and multi-threaded. In treasury terms, changing business models in line with dynamic business model thinking will inevitably force a re-assessment of core areas such as credit and debt capacity. It is thus not something that is undertaken lightly.
The idea can be seen in action today in the FMCG sector. Agile manufacturers of, for example, white goods, are shifting from traditional supply chain patterns (where they source components and raw materials, manufacture and then sell to wholesalers) and instead are creating additional direct relationships with end-users, doing so through digital channels and/or by acquiring companies that have a direct B2C model.
Another real-world example can be seen in the insurance sector, where products are traditionally sold through brokers but are now frequently sold directly. Even the automotive sector has been exploring options to sell direct.
Online technology is changing end-user expectations, and astute businesses are responding. Often it is establishing different types of transactions, different capabilities that need to be sourced and supported, and a whole new set of accompanying processes and compliance challenges.
There is an additional layer of expense created by direct selling, but Matthew Davies, Head of Global Transaction Services for EMEA and global co-head of Corporate Sales, GTS at Bank of America believes many firms are motivated into action “by a desire to have more control over their brand”.
Overall cost issues aside, from a transaction services perspective, one aspect of dynamic business modelling requires the ability to offer the broadest possible set of payments options to customers. Businesses will almost certainly have to accept a number of transaction types that they have never previously accepted, the wholesale model most likely having been founded on old-school invoicing and bank transfers.
A range of new payment methods must come on-stream – including credit cards, global alternative mechanisms such as PayPal, and even preferred local instruments – where the market is big enough to support it. “This is not something companies would typically have dealt with in the wholesale environment, and it will require some thought,” notes Davies. “There is also the matter of deploying the technology necessary to plug into these new payments tools, and establishing additional accounting practices to underpin the new model.”
Those adapting to dynamic business models must have on their checklist an overriding need to simplify the customer experience, says Fernando Iraola, Head of Latin America GTS & Corporate Banking and global co-head of Corporate Sales, GTS, Bank of America. Failure to enhance that experience will lower the chance of repeat purchases.
It’s not just about offering an intuitive interface; speed is of the essence too, notes Iraola. Minimal clicks and maximum speed are vital. That speed must be maintained beyond the checkout, as tracking and delivery are also under close scrutiny by the end-customer who, by now, has the slick one-click service from certain internet-based retailers as their benchmark. Indeed, in the consumer space, there is very little tolerance for poor service now. This expectation is gradually transferring to the B2B space, and businesses that fail to respond will suffer the consequences.
Reaching a wider market through new channels means scaling-up for an increase in orders; failure to meet expectations very quickly creates negative views – especially as people are more disposed than ever to vent their dissatisfaction on social media.
The quest for the perfect customer experience is driving what’s happening in treasury as it helps “to deliver the promise,” says Iraola. The first condition that needs to be satisfied is the internal infrastructure to be able to meet raised demand. “Treasury needs to be agile enough to deliver.”
Without flexibility and scalability, new demand generated by the lines of business – who will be eager to go to market in the quickest possible timeframe – will rapidly outstrip treasury capacity. If treasury can’t keep up, it may force the business units to delay expansion into new markets and territories.
But with many more transactions being executed and processed 24/7, not every treasury team will be able to stay ahead of the game, notes Iraola. “We still come across infrastructures that have not seen investment for many years, this is often the case within more traditional sectors,” he says. Indeed, over many years, he has seen treasury resources (certainly from a human capital perspective) becoming “increasingly scarce” as the drive for efficiencies and cost savings have forced treasury departments “to do more with less”.
“The reality is that when you launch into a new market and you aim to grow the business, whilst technology drives efficiencies, companies should never lose sight of the need for skilled professionals,” comments Davies. Some companies are realising that their treasury has been pared back a little too hard, and that “brain power” is essential to help make strategic decisions.
However, he continues, “the biggest cause of problems in the context of dynamic business models is treasury being engaged as an afterthought”. When this happens, he fears that decisions made around payments mechanisms, currency flows, funding et al may be far from optimised.
For Iraola too, “treasury has become too strategic in nature for it not to have a seat at the table when the lines of business are thinking about their next steps”. The bottom line is that in today’s rapidly changing commercial environment, dynamic business modelling is a saving grace, and treasurers have a key role to play in sustaining its delivery, so the earlier they get involved, the more able they are to direct the flow of change in the most effective way.