Reorganizing Treasury to fit with future requirements

The digital transformation of treasury departments is inevitable. It has already started intensively and very fast. Most MNC’s are on the road to digitalization. But this road is long, uncertain, confusing and complicated. What will be the right roadmap and points of attention? These are the questions this article tries to answer. Let’s try to imagine what our treasurer’s future will be or be. A future that will be, no doubt about it, promising.

Treasury fiction
It is always difficult to try to make "treasury fiction" without running the risk of falling into clichés and common places. Yet, no one can claim that the treasury function has no more than any other in finance evolved significantly over the last ten years. What does the future hold for us? The acceleration of changes, the advent of a new generation (i.e. “Z”), which will revolutionize the way work is done, the logarithmic evolution of IT developments and innovations, and finally the new financial regulations are projecting us into the future at an overdrive. Change is now. Yet the difficulty is knowing how to take it and apprehend it. This is the most important challenge of the treasurer. The latest technical developments leave us with the reasonable expectation that what is imagined, wished and guessed is well on the way to materializing and being effective. The question is not so much "if" but rather "when". We need to prepare for a major change without knowing how far it will go. The fear of cannibalizing our jobs frightened more than one treasurer. Moreover, the use of subcontracting is not the real solution. At most it would be partial. We will therefore try to describe the axes of change that we will face and how best to apprehend them in a complex economic and political context and the most jostled. It is not easy to imagine one's future when the present is already so complicated and monumental. But the effort deserves to be tempted to draw its future, to prepare it adequately and to live it fully and serenely. It is a challenge of another order: a moral, mental and philosophical challenge. Being able to question yourself is the best proof of intelligence and resilience possible. Before changing and evolving, we need to be mentally prepared and aware of all the potential consequences it may have.

“Back to the future”

Treasury should be rethought by CFO’s and Group Treasurers to face the growing risk management challenges. Chief Risk Officers are worry about the best way to adapt the organization of their whole finance department, including their treasury department, to (better) react to the increasing and new risks in a faster and more efficient way than currently. The treasurer must become at the same time risk managers (what they have always been) and strategic or/and business partners. CFO’s according to couple of recent treasury surveys seem to have a full confidence in the ability of treasurers to support them to navigate through complex issues, new financial risks and uncertainties. The CFO ideally should have full faith in his/her treasurer to protect the corporation with best-in-class risk management techniques and tools. The treasurers must accept this new enlarged role and adopt a new vision more strategic than before and more long-term based. Usually, treasury is focusing on short term issues and now should develop long(er) term approaches. To revamp treasury is likely linked to a further digital transformation, promised for years by Treasury Advisory Guru’s. To explore new ways of working, treasurers need to consider new skills and to exploit further technologies. Nevertheless, resources remain tight. That makes the challenge even more complicate to face and sometime insurmountable. By successfully passing this complex process and by moving towards the second level of digitization, treasurers have an opportunity to play a higher-profile role in their future organization and prove an invaluable level of expertise. The timing to adapt is perfect as the whole finance function is under review too. It is great to have a vision of your future role, but you need to convert it into a practical implementation and better get a grip on the treasury transformation process.

Finance and Treasury of the future is now…

In a world that becomes increasingly interconnected, how could CFO’s and their treasurers creating more effective partnerships to deliver a strategic vision of the future organization? One thing is accepted by all: risk management and FX risk are on the top of our list of concerns. They are under pressure to do more without the ad hoc resources. However, digital technologies can play an increasingly important role to bridge gaps between limited resources and expectations from CFO’s. The world is marked by uncertainty and market environments change faster than before. The treasury must ideally be very agile, which is not its first known quality. The challenge is the following: spend time (which is sorely lacking) to gain through digitization to devote to the strategy for which the preliminary analysis is necessary. This technical analysis will be facilitated by the advent of technology such as artificial intelligence and other algorithms. Paradoxically, when CFO’s would like to have a longer-term vision, the market volatility has never been so high, with the impact of the inextricable geopolitics. The role of CFO’s evolves from tactical towards strategic. Therefore he/she logically looks for partnerships. Treasury, after the Global Financial Crisis, has gained ground and is in a much better position to take a (more) strategic role, providing he/she is equipped for. To take this new role, treasurers must have access to information that no one else get. There we need more forward-looking analysis, based on solid data analytics. I would like to list two interesting examples: cash-flow forecasting based on algorithms and predictive analysis on one hand and capital allocation and optimized working capital on the other. Often, we noticed that CFO’s are aware of the potential of treasurers, but not necessarily convinced on paper of their expertise. The treasurer should start working on convincing skills to make sure the CFO is aware and got the trust in his/her (hidden) potential. Vis-à-vis the affiliates, the treasurer can also bring value for example on new e-payments to bring value to operations, by using virtual accounts and SWIFT gpi to increase reconciliations. There are two hurdles to consider: (1) the treasury communication towards outside world must be improved and (2) KPI’s and dashboard to evidence what they defend.

Enabling treasury to grow as a strategic partner

By stepping up their risk management practices, treasurers can play a more strategic role. To do more, you need to save time somewhere and to save time in automation and STPization of processes, you need resources and money. A vicious circle, isn’t it? However, it is the approach we should adopt. It is tricky to demonstrate his/her potential without investing in time-saver tools. To free up resources, the only way is to invest in robotization, automation, STP processing and AI. Treasurers should be convincing in “selling” these investments to their boss. Personally, I don’t think outsourcing treasury operations is the best solution. Although some groups have decided to opt for that route. I always have preferred to keep control of my operations. The best news, automation and even more robots can save money too (e.g. less resources, less risks, less errors, less stress, …). The objective is to re-organize the resources to better allocate them to added-value and valorizing tasks. Treasurers are still struggling to work out on how to deliver this brave new future. ROI’s are a way to demonstrate value generated. For example, automation of bank fees controls (via BSB messaging) through a dedicated tool is easy to quantify, fully automated production of reports can be valued in man days and therefore in EUR. The digitalization of treasury is a pre-requirement for reaching an evolved strategic role. More centralization is also a pre-requirement. There is a need to pool expertise in a single location and to build treasury functions that are greater than the sum of their parts. The fast-paced state of flux and the search for speed is key (e.g. gpi, instant payments, …). To prepare this transformation, treasury needs to hire other talents, more IT oriented than before.

Technology & Automation, the 2 drivers…

The shift of function from predominantly technical towards strategic business partner is not a secret for all of us. However, the path to reach that level remains mysterious. Group Treasury has become a center for excellence in regulations, compliance and technology. But regarding technology, we could reach a higher level with the 24-hour processing and instant-focused approaches. Technics enable to work remotely more easily but in the meanwhile, millennial treasurers expect less static at work hours. The internal controls need to be reinforced because of hacking and IT piracy. These evolutions require different skills at hiring and more tech or data experts. Treasurers should become sort of internal consultants. The head of the department will have to upskill his/her workforces with change management, AI and robotic developed knowledge’s. Treasurers will be real-time risk managers and the speed element will become crucial. The stake will be the access to data and the capacity to understand how to re-unite isolated pools of data distributed across the group, to drive treasury efficiency and reach better decision-taking processes. The ability to generate value will be the key driver. It is difficult to play the oracles and the Pythia to prejudge what our future would be. However, our forecasts do not seem illusory or fanciful. The future is also what we want to do.

Digital Transformation – “From – To”

Digitization or digitalization?

The “digitalization” is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities. The “digitization” is the process of changing from analog to digital form. Digitization means automation of a process by digitizing information and injecting technology for automation. These terms are often mixed up and there is a real confusion between both. At the end of the day, we all know what they mean when used. At least it is useful to know the differences in terminology to better understand what cover. Next time you will read it, you will consider the meaning more carefully. Nevertheless, the important element is not the meaning but the objective targeted. Open banking and fintech’s will help changing our business models. The Berlin group is working on defining a common API standard (the so-called NextGenPSD2), which help moving a step forward. The speed will be the driver for these changes. We need faster processes, like new e-payment methods faster or completely new to respond to retail-users’ expectations. The digital agenda of treasurers is aimed at simplifying, removing complexity where they can, improve transparency and traceability, free up resources to “do more with less” and to secure further processes.

How to successfully transform your treasury?

Once you have recognized and identified your challenges, acknowledged the need for partnership to deliver better risk management (e.g. via predictive tools, revisited policies, …) and offered new solutions to affiliates (e.g. new e-payment methods), it will be time to raise your voice and explain your added-value potential. One of the key success factor resides in the co-creation and cooperation with affiliates. What can you bring them? If you answer these questions, you will find your way on the road to transformation. The future treasury will be maybe smaller, smarter and more responsive. They will be more effective, proactive with real-time information and decision-making tools, with predictive features (e.g. on cash-flow, FX risks, working capital optimization recommendations, etc…). By acceding to more data, treasurers will be able to make more accurate recommendations. Repetitive tasks will become trivial. Treasurers will focus less on processes and more on analysis, simulations and investigation on exceptions. He or she will become technology-driven strategic advisor to leadership. Their pieces of advice, if good and documented, will place them in front within the finance department. Technology will be user centric, integrated and developed faster. The PSD2 has opened a new era of collaboration and is promising. Nevertheless, a further degree of standardization is prerequired. Treasurers are often facing “chicken and egg” situations and need sometime to on-board solutions even if not fully on-boarded by all sell-side. Don’t wait for the final solution, be part of its construction!

This treasury revolution could be compared to the one faced by the automotive sector. We all want everything to change quickly and well. Alas, things do not always go as fast and easily as technology can. It is impossible to convert in a day every car into full electric ones and to have recharge stations across Europe, at every corner. We cannot go faster than the music. Changes take also some time. We should never neglect human resistance to changes and be prepared to fight it. On top of that, we are highly dependent on computer and IT legacy and the complete revamping is not always feasible at once, even if we see some groups daring to tackle it. Future looks promising. The most difficult thing with this necessary journey is the question of where to start. Our future will be digital.

François Masquelier, Chairman of ATEL                              

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