At this year’s Adam Smith Awards, leading diversified technology and manufacturing company Honeywell won the award for Treasury Today’s Top Treasury Team. This month we talk to John Tus about the theory and practice of building a world class treasury team, the impact of the financial crisis on the treasurer’s role and essential skills for treasurers in difficult market conditions.

How is Honeywell’s treasury structured?

We are a geographically disbursed organisation aligned with our four major businesses across three regions: the Americas, Asia and Europe, Middle East and Africa. We operate under a universal set of global treasury policies, procedures, and systems, so no matter where you go around the globe, we’re constantly communicating using a common language.

The majority of our 29 professionals work in one of our core treasury processes: cash management and investments, trade finance, risk management (FX, commodities, and interest rates), capital structure, and debt and liquidity management. Some work across a number of processes.

Our structure is focused on turning strategy into performance by getting the right people into the right positions, giving them the freedom to innovate and creatively solve problems as part of a global team that delivers results.

Honeywell was the winner of Treasury Today’s Top Treasury Team award this year. How important is teamwork in treasury?

Teamwork is critical to our success and development as an organisation. The way I approach it is similar to the coach of a professional sports team: I look to hire the most talented and motivated individuals I can find and develop their talent through continuous learning on the job. We give people responsibility and promote a culture of teamwork through constant communication and encouragement. This means that you come into the organisation as part of a team and work as a team member that wins by delivering results. Constant communication is the key element to building our team.

While each team member is actively encouraged to achieve their own personal and professional goals and objectives, I think it’s the collaborative environment that really yields the ‘1 + 1 = 3’ result that I’m looking for.

Do you look to achieve this across your different locations?

Yes. We bring everyone together once a year to discuss our current and long-term strategy, including goals and objectives for the coming year. During these sessions we critically evaluate what is working well and what is not. Process leaders provide their vision and roadmap to the future that is critically evaluated and challenged by each team member.

We have weekly global staff meetings to discuss where we are today, what we have accomplished and what we need to accomplish in the next quarter and year. We actively review what’s happening in the global financial markets, discuss the operations of Honeywell as they impact treasury, and review where people stand with regard to some of the major projects that they’re working on. That’s the glue which holds everybody together. If you don’t communicate, people don’t really know what’s going on or believe that they are part of a team.

Do you encourage mobility within the treasury team?

Yes, that’s exactly what we do. We have a foundational base of technical experts throughout the world. We provide developmental opportunities for individuals that may want to spend a few years in treasury prior to moving into a finance role within one of our business units. We are really focused on making sure that every position that does open up is back-filled by somebody currently in treasury or within Honeywell’s finance organisation. I want to ensure that all treasury professionals have an opportunity for continued advancement.

We also move people regionally, so we will move somebody from Europe to Singapore or from Asia to the US, to achieve both their technical and personal development goals.

What steps have you taken to develop your treasury team?

Internally, we provide staff with the opportunity to learn, continuously develop, and lead one of our core treasury processes throughout the world. Externally, we provide staff with the opportunity to attend training programmes provided by third parties (such as banks and public accounting firms), as well as to attend and speak at various treasury conferences. Our management philosophy is based on earning the respect of our staff to ensure that candid performance feedback presents an opportunity for positive improvements in results or behaviours. We hire and promote from within, and actively focus on asking each staff member, “What can I do to help you become successful?”

How can the success of the treasury team be measured?

Our goal is to objectively demonstrate to management and our shareholders the economic value that treasury brings to Honeywell. I look at it from a quantitative as well as a qualitative perspective: I quantitatively measure success based on our productivity, our ability to effectively manage risks, and our ability to lower our overall net cost of financing.

We’ve had some impressive results in this area. Revenue per treasury professional increased by 50% from 2004 to 2008; bank accounts were reduced by over 35%; a company-wide FX programme is performed by one professional and over 50 acquisitions were integrated without requiring a single additional treasury professional. Honeywell’s global cost of $8.4 billion of debt was below 5% at 31^st December 2008. I think all these elements demonstrate our focus on productivity, risk management and lowering our overall net cost of financing.

I qualitatively measure success based on the objective perception of treasury within Honeywell. In other words, do the business units believe treasury is helping them achieve their goal and objectives? As in many organisations, the CEO and CFO are the most vocal arbiters of our performance, so they’re the ones who ultimately decide whether or not we’re making a difference.

How has treasury been challenged by the financial crisis?

In these uncertain times, effective liquidity management and access to the credit markets are critical for most organisations. In many cases, this is what has thrust treasury into the spotlight to provide real-time leadership in monitoring and managing global liquidity, ensuring the mobility and availability of cash, establishing access to the credit markets, and working with the business units to maximise cash flow through improved working and fixed capital management. People are more focused than ever on cash performance versus net income.

Accordingly, treasurers are concentrating more on the need for real time data on business performance – on how much cash the business is actually generating, how much cash they currently have, what commitments are coming due – and then looking at the balance sheet pretty aggressively to try and reduce investments in working capital as well as fixed capital to free up cash that can then be used to re-invest in the business or to increase liquidity. Our daily visibility over cash balances, bank relationship management strategy, and maintenance of our A, A2 credit ratings have helped us manage through the financial crisis.

What skills do treasurers need in order to thrive in difficult market conditions?

Treasurers need both the finance expertise and intelligence to know the right answer, and the ability to communicate and implement it. Forward thinking is also critical. Accordingly, a treasurer’s performance during difficult market conditions is often dependent upon how proactive they were during good markets to lock in liquidity, and develop operating procedures and systems focused on managing cash and maximising return on invested capital. For any business to thrive in difficult market conditions, it must first ensure its survival.

Do you think the required skill set is broadening?

Yes – I think that the skill set includes not only technical financial expertise and experience, but also a comprehensive understanding of your business’s global operations and performance. It’s not thinking one move down the chessboard; it’s thinking five or ten moves down the chessboard, and being able to articulate the strategy to your team and have them engage with it.

I think a lot of your credibility as a treasurer is driven off your ability to respond almost immediately with an opinion or advice when the CEO or CFO asks you what you think about a topic. The world we live in today isn’t receptive to the response, “That’s a very good question, and I’ll get back to you in a week with a PowerPoint presentation.”

In today’s environment, business leaders want useful information and answers almost immediately, or at least your opinion that can be validated in a relatively short period of time. It’s incumbent upon you as the leader of any function, particularly treasury, to have the systems and the real-time data available so you can communicate effectively and provide real-time advice that’s useful and valuable.

Has this led you to re-evaluate your systems?

Not really. What’s helped us a lot has been our philosophy of proactively looking forward and constantly asking, “What constitutes world class practice in this area?” In the context of our core processes and systems, we consider what data we really need out of the system in order to operate effectively.

So we’re always looking at the ultimate goal first: what do we really want the system or the process to do? Then the process leader develops a process and systems roadmap that can be validated by the entire treasury organisation to ensure that the needs of all end users have been met and optimised.

How have you applied the principles of Six Sigma to treasury processes?

Six Sigma and the processes around lean are really tools we use to identify defects and eliminate waste. Within any organisation people are performing processes, and if a company is paying for them to perform those processes, how do we know that the processes that they’re performing create any value for our shareowners? So we look at any process and ask ourselves, “What if it were our own money? Would we spend our own money to perform this process, reporting, or system if we owned this business?”

Accordingly, in a collaborative fashion we constantly ask people, “How do you spend your time and is it creating value for our shareowners?” If they tell us they spend five hours a week doing a particular task, and we can see that what they’re doing generates information that nobody uses, then we can save five hours a week that can be redirected to higher value work.

Of course, in order to do this you have to create an environment where people feel comfortable enough to raise their hand and say, “Hey, I spend five hours a week doing this, I don’t need to do it, right?” We have created a culture where people are constantly raising their hand and where there’s advancement by creating value through the elimination of non-value added work.

The key area where this approach helps us is in integrating acquisitions. Because we have rigorous global processes, procedures and systems, when we acquire a company we can immediately go in and convert them to our processes and procedures, around things like cash management, risk management, and financing. That’s where we can see progress today, in the sense that Honeywell has grown organically and through acquisitions over the last five years and we’ve been able to increase the amount of revenue per treasury professional by 50% without adding any additional treasury staff.

How do you see the treasurer’s role developing in the future?

Obviously the financial crisis has led to an increased level of visibility. Given the increased complexity of the global financial markets, competition for capital, and focus on risk management, I believe that the treasurer’s role will continue to evolve in a number of different areas, including:

• Partnering with the businesses to drive value creation through increasing return on capital by growing sales, increasing operating margins, and increasing asset efficiency (sales per dollar of invested capital).
• Facilitating key financial decisions impacting return on capital, including capital allocation (acquisitions vs. share repurchases), capital structure and dividend policy.
• Quantitatively aggregating and qualitatively evaluating the impact of all enterprise risks on the company’s liquidity and economic profitability.

Enterprise risk management, which has received a lot of visibility recently, is another area where treasury can be valuable – not only in the qualitative evaluation of the risk but also in attempting to quantify the impact of aggregate risk on a company’s liquidity and its economic profitability.