Headquartered in the US, Starwood is one of the largest hotel and leisure companies in the world. Employing over 145,000 employees, Starwood reported sales of $5.9 billion in 2008. This month Jack Spitzer describes the strategic development of Starwood’s treasury in recent years and provides some practical tips for addressing cash management challenges in the US.

Jack Spitzer joined Starwood Hotels & Resorts in 1998 after graduating from Franklin University with a Bachelor of Science degree in Organisational Leadership and Management. In 2003, he completed his Masters of Business Administration at Arizona State University.

At Starwood, Jack has held roles in Accounting, Information Technology, and Six Sigma before joining Corporate Treasury in 2004. Prior to joining Starwood, he held finance positions within the banking, health care, and hospitality industries. He currently serves on the Finance Board for a regional non-profit organisation. Jack is married and has four children at home.

Could you give me an overview of Starwood?

Starwood has over 960 best-in-class properties in 97 countries and 145,000 associates at its owned and managed properties. Starwood is a fully integrated owner, operator and franchisor of hotels and resorts with the following internationally renowned brands: St. Regis™, The Luxury Collection™, W Hotels™, Sheraton™, Westin™, Le Méridien™, Element™, Aloft™ and Four Points by Sheraton™. Starwood Hotels also owns Starwood Vacation Ownership, Inc., one of the premier developers and operators of high-quality vacation interval ownership resorts. As part of its ‘asset light’ strategy, Starwood has significantly reduced its investment in owned real estate, while expanding brand presence primarily through third-party licensing and franchise agreements.

What is your role?

I am head of our global treasury operations and cash management strategy. This includes corporate, domestic and international cash management and related bank relationship oversight; management of our global credit facilities and letters of credit; liquidity and short-term cash flow forecasting; cash redeployment and repatriation strategies; inter-company loans and cross-currency hedging, and domestic treasury shared services and support, as well as select policy control and reporting.

How is the treasury organised?

We have a small team based in the US (Phoenix) comprised of domestic and international operations.

Domestically, the team oversees our Corporate and North America Division. They monitor our daily cash position, which is comprised of not only our corporate activities but also our US-owned hotels, through a very lean zero balancing cash sweep structure. Additionally, they serve as a shared services centre for our owned or managed hotels in the US. Through this function, they establish bank accounts and structures that meet the needs of each hotel and our management agreements, provide banking training and support for our hotel finance teams, set up credit card acquiring and handle fraud prevention and investigations, among various other responsibilities.

Internationally, we create and execute cash redeployment and repatriation strategies through inter-company loans and other tax-efficient means and manage a large cross-currency hedge portfolio. This side of the operation spends significant time reviewing cash flow forecasts from around the world and communicating with our international division finance colleagues. They execute and manage our hedge activity, monitor derivative reporting and related accounting activity, develop promissory notes and inter-company loans, and monitor our Canadian pool.

We do not have any dedicated offshore treasury resources reporting into our organisation. Our colleagues in Europe, Asia/Pacific and Latin America report up through our division CFOs. They tend to have multiple finance functions, including treasury.

How do you manage to create value with limited resources available and a large scale of responsibilities?

Since we are a small team relative to the scope of our responsibilities and size of our company, it is critical to have a talented team of professionals, which we do indeed. We operate in a very fast-paced environment where there is a constant balancing act between daily operations and progress.

I believe in the concept of ‘controlled chaos’, where there are many pieces in motion at any given time. If we get too linear in our thinking and have limited resources, typically one will spend a predominant amount of time on existing processes and very limited effort on improving the processes that could lead to benefit. So you have to operate in chaos to create significant value in the shortest amount of time. Every concept, every process, every responsibility can and should be considered for improvement or even eliminated if it is no longer adding value.

How has the treasury developed in recent years?

We have been on a very calculated strategic journey over the past four years. One of my chief objectives when I joined the team was to transform our manual process-driven domestic treasury operation into an efficient, globally focused one that could sustain a high quality of work without adding overhead.

After we laid out the strategy, we broke it up into three main pieces. These include: consolidation of our bank relationships through careful evaluation, planning and execution; implementation of straight-through processing (STP) between our biggest bank partners and our SAP system; and developing a stronger culture of cross-geographic collaboration and teamwork.

The journey for us started with consolidating our domestic cash management banking relationships to a primary bank and a few other significant relationships. This was to allow us to leverage the scale of our many hotel locations across the country, create tangible cost savings benefit, and lay the foundation for the STP phase.

As we completed the rollout of our consolidation phase domestically, we had already identified core functions that we wanted to automate in order to create time for more value added activities, establish better internal controls, and position ourselves to handle future increases in volume without adding any additional overhead resources. These functions included:

• Implement STP for our wire and ACH transactions and confirmations for treasury-related transfers, accounts payable and Payroll.
• Previous day reporting to automate prior day postings and bank reconciliation.
• Intra-day reporting for daily cash positioning (replacing Excel).
• Automate other daily bank file exchanges, such as our cheque files used for fraud prevention.
• Automate payment application of incoming cheque and wire payments.

After careful deliberation and planning with our IT team, we executed our blueprint with our main domestic bank and later with our other significant relationships.

Concurrently, during the first two phases, we were working diligently with our international division finance teams by focusing on support and teamwork. As I mentioned, historically we had largely been a domestically focused function and we needed to foster these relationships to build the collaboration necessary for an effective and open work relationship.

Recently, we have been working towards similar goals on the international front. Through the hard work of our international division finance colleagues, collectively we have been able to consolidate our banking relationships in Europe and Asia Pacific, and we are currently working on Latin America. We have been able to leverage much of the SAP infrastructure we developed, customising to fit specs with our main bank partner in Europe and Asia. In the future, as the business identifies locations and units that can take advantage of our STP efforts, we will be in a good position to execute quickly and cost efficiently.

What particular challenges are associated with cash management in the US?

The best part about cash management in the US is that it is largely standardised throughout the country. The biggest challenge in my opinion is the significant reliance on cheques. Even though trends show payroll and vendor cheque payments on the decline, it is still a substantial part of American business in most industries. Cheques add costs and overheads, increase the potential of fraud, potentially increase the number of accounts needed, and can handcuff STP payment opportunities.

Therefore, when operating within the US, be sure there is a firm understanding of this aspect of the business. It is important to consider:

• What state will the business(es) be based in?
• How many locations are planned in the next five years?
• Will the business need a local brick and mortar location near your existing business(es)?
• How many associates will be employed?
• Will it be unionised?
• Will vendors be mostly large international or national types, or more local to where the business is based?

Additionally, if one is setting up a new business or expanding to another state, consider offering employees either direct deposit (ACH) or a payroll debit card instead of a cheque. This is relatively easy to offer in most states but not all. Hence, you will want to consider state regulations. We are currently in the midst of a major payroll card rollout that has shown very promising results. If you have to cut payroll cheques, consider choosing a bank with a strong local presence to give your associates an opportunity to cash their cheques for free if they do not have a bank account (many banks will charge a fee to do this otherwise).

Work with your vendors and other partners to establish a preferred method of payment or look at purchasing cards. ACH credit is the best alternative to cheques but debit is a possibility and should be considered for certain types of tax payments, for example.

Finally, to reduce the potential of cheque fraud, be sure to implement positive pay services. This process requires a business to deliver a daily file to the bank listing all cheques issued and voided. The bank will load the cheques into its system and the information will be used to confirm the validity of cheques, by matching certain data points, before honouring. Additionally, the bank can send a daily file in return of all the cheques that were paid, which can be uploaded to automate much of the bank reconciliation at month end. Be sure you examine closely the positive pay services of the banks you are considering as they vary greatly from bank to bank with respect to functionality and STP potential.

What impact has the financial crisis had on US cash management and how has Starwood adapted to the challenging market conditions?

It has certainly forced all businesses to rethink how they manage their cash and the efficiency with which they can aggregate or disseminate it, both domestically and cross-border. With the initial uncertainty in the credit markets, and remaining concerns since, the crisis has forced many companies to plan for the worst. More importantly, it has forced everyone to make quantum improvements in cash flow forecasting in a short period of time. This came about quickly with tremendous focus.

Today, domestic and international business operations are even more reliant on each other, thus the crisis serves to connect and galvanise everyone at the human capital level. Therefore, this heightened focus on liquidity, forecasting, and connection will provide significant value for when business and credit return to more normative levels.

Within our team’s focus, we have been able to sustain our operations and continue to move forward with our strategy due to our efforts to consolidate, automate and build relationships. We also have devoted significant time to improving forecasting and ensuring cash is redeployed efficiently and aggressively. And so, our team will be well positioned to do its part when the economic climate rebounds.

What projects are you working on in the next 12 months?

As I mentioned, we are striving to orchestrate and complete the consolidation of our bank relationships within Latin America, finalising this phase of our global strategy. We need to execute some identifiable cash pooling opportunities and push the envelope on cross-continental notional pooling concepts. Domestically, we have to push toward completion of our Payroll Card project, which will afford us the opportunity to close a significant number of bank accounts that will cut fees and significantly reduce escheatment. We will be aiding in our domestic shared services initiative which will allow us to further leverage the STP functionality we built. We are also looking to identify opportunities to consolidate credit card acquiring and drive down commission expense.