In 2010 Treasury Today conducted its first European Benchmarking Study – in association with J.P. Morgan – into the field of corporate treasury. The Benchmarking Study canvassed the opinions of over 450 corporates from across the continent and has since published its findings on a range of topics including cash and liquidity management, risk management, supply chain, technology and bank relationships.

Did any of the responses to the Study come as a surprise?

It was interesting that so many people focused on the core components:

• credit.
• relationships.
• supply chain finance.

These were key themes.

I’d say overall, the majority of the results were not surprising and validated what our clients have been telling us. Having said that, I was slightly surprised that only a quarter of respondents cited regulation as a key concern as this tends to be a consistent theme in the meetings that I have with treasurers.

It’s true to say that much of the regulation is initially affecting the banking industry and maybe there is a view that this is not an issue for the treasurer. If this is the common viewpoint, then the banks have an obligation to improve their communications to their clients. Regulation such as Basel III will have an effect on day to day treasury operations. This is not just something that might affect their investment policy, but could lead to the potential in having to undergo an entire review of banking relationships due the broader costs that will be associated with financing in general.

Another thing that did surprise me was the results on SEPA – only six per cent of respondents had achieved substantial benefits as a result of implementing it. Anecdotally, clients have told me that they see value in SEPA when they are moving to it as part of an overall restructuring of their business. On a standalone basis it may not have enough traction yet, but if you are talking about SEPA as part of an overall restructuring of corporate treasury, people will see a lot more value.

Source: Reuters EcoWin/ECR

On the cash and liquidity side, I thought it was interesting feedback on the type of liquidity corporates were receiving from their banks and the fact that they were looking at a fairly stable bank group – we weren’t necessarily witnessing any consolidation in relationships. Corporates are keenly focused on having the right number of banks. They are revaluating their relationships and making decisions on them.

I think the only reason why you’re seeing some of this feedback is because corporate Europe has not finished re-financing its back-stop facilities. In another year, we’re going to see more movement in that direction. We expect corporates to consolidate their relationships further in the future.

42% of the Study’s respondents said that supply chain finance had increased in importance over the past 12 months. Do you believe this focus will continue in 2011?

Absolutely. There continues to be much greater focus on how corporates can improve their cash flow cycle and also review their supplier arrangements. There are things they can do there that can be helpful to their suppliers while increasing their own working capital.

The challenging market conditions have been going on for such a long time. I think the environment that we’re operating in right now is not about opening the next great lockbox system. It is all about how corporates can make use of their cash flow. Cash is king, and I think you’re going to continue to see this being true for much of 2011. I think we’ll hear a lot more about cash in the next Study.

The subject of supply chain financing comes up in many of our conversations with clients these days. Corporates are very open to finding new, creative and simple ways to manage their cash flows. We will hear more about it because in the past it hasn’t necessarily been on all treasurers’ radars, but it is now front and centre, particularly for heavy industry distribution and manufacturing companies. These are areas where you can really step back and take a meaningful view on how to impact on the cash flow cycle.

What innovations are you seeing in the area of SCF?

People are moving beyond the core competencies and are looking at customised or bespoke solutions. I don’t think it is necessarily a specific type of customisation that is becoming more common. I think it is the fact that clients are coming to us with very specific challenges, and with our proactive consultancy approach, we are able to work through those issues and look to provide solutions that make a complicated situation less so.

Source: Reuters EcoWin/ECR

We are also seeing corporates taking a more holistic view of procurement. From procurement of raw materials all the way down to T&E; from how to get discounts from running day-to-day offices all the way up to where to source raw materials. That comes from taking a top-down view, which looks at all aspects of the cash cycle. As opposed to having procurement looking at one area and treasury at another, it is a much more straightforward process.

In the next Study, I think we’ll see that more treasurers are becoming involved in this area – at least in the initial stages. That’s why we’re seeing a much broader view. Decision making and change management are being sponsored at a much higher level these days.

I have talked to clients who have moved treasury staff into procurement as a way to leverage talent and a different perspective. I think that has helped to accelerate the process.

Over 50% of respondents cited relationship or service quality as the single most important factor when deciding banking relationships, irrespective of company size. Why do you think these qualities are a priority?

Service quality is such a fundamental issue in this business. Once you cut through the different platforms, the competing pricing schedules and product offerings, it will fundamentally come down to relationships and how a client is valued by a bank. If you have very good consistent service quality, you are really able to make a difference for the client.

Source: Reuters EcoWin/ECR

The challenge is that clients cannot truly evaluate the promises made until an issue arises and they are able to engage with the customer service side of the business. When we sit with clients and discuss customer service, when they meet our people and see our facilities and understand the flexibility that we can offer, it is often hugely enlightening for all concerned. It is a change agent in the discussion.

What distinguishes J.P. Morgan from other banks in this field?

It is having the people who understand the globality of the business and our clients. Most importantly it is having a client centric culture that exists within J.P. Morgan. That’s not only about reacting quickly and efficiently to solve a day-to-day issue, it’s having the people that understand the client’s business and industry and proactively recommend improvements to the overall client experience. We look for long-term solutions that are right for the client rather than what is right for individual product P&L’s. After all, our mission is to make it easier for our clients.

22% of the Study’s respondents cited a lack of appropriate solutions from their banks. How would J.P. Morgan respond to that?

The challenges the treasurer faces today are increasingly complex compared to what they were five years ago. The solutions today encompass strategic product bundling which requires significant development to ensure that they can meet the client’s requirements.

From our standpoint, we have been very vocal in the market, and with our clients, on the investment we’re making to provide solutions that meet their needs. We are working with them throughout the development process to ensure that the products that we have now, together with what we are developing are both credible and helpful in mitigating risk, improving efficiency and maximising control over a company’s cash.

We have been very consistent in our approach. Where there is a need we will build it for our clients. We go where our clients need us, as opposed to building a platform and then waiting for the business to follow. It is a focused strategy and it allows us to be much more responsive.

In 2011, J.P. Morgan is additionally supporting the launch of Treasury Today’s Benchmarking Studies in Latin America, APAC and the Middle East. Why?

I view the Studies as becoming an invaluable tool to the treasurer. They will give meaningful data in helping treasurers understand how their profession is evolving and where there are similarities, whether they come from a technical or industry standpoint.

Launching the Study globally will, I hope, additionally help in sharing best practice by segment and/or region. Once established, it will be fascinating to see what differences exist, say within the tech and pharma companies, or how the same segment operates in different regions. It could become the catalyst for adopting best practice.

For J.P. Morgan, these Studies are a tool that allows us to verify the challenges we hear from our clients and whether they are common to a particular region and/or segment, and how we can, as their financial partner, deliver the solution that makes a real difference.

Over 450 individuals took the time to respond to an in-depth European questionnaire. It would be remiss of us not to take on board the results, validate them with our clients and act accordingly.