Futuring Treasury function post-crisis

 

More than ever and because of the economic consequences of the COVID-19 crisis, CFO’s must upgrade their finance organization and “modernize” it to match future coming challenges and become slightly more agile and more resilient to next crises, when they will come again. This crisis as the former one in 2008 can be a fantastic catalyst for true and solid enhancements. Don’t miss this opportunity or you’ll be at risk. Build on experience and anticipate future needs to create strategic value for the company.

 

Phenomenal crisis, but perfect opportunity

After this phenomenal crisis we are experiencing, isn’t it time to completely rethink the organization of the finance department and more specifically treasury? The beauty of a crisis, if one can be found in the current health crisis, is that we are offered a wonderful opportunity but also an obligation to rethink the organization. The timing is perfect and gives us a fantastic opportunity. Not grasping it would be madness and error in my opinion. To learn from this crisis in our organizations would be to pretend that everything was perfect and planned, which I cannot conceive of. The heart of this change is organizational, technological and perhaps financial (depending on the case). Treasury can create strategic value and go beyond protecting company’s financial well-being. What I think is interesting is the "laboratory" aspect of the treasury department. The complexity of the treasury, its sophistication and the number of IT applications make it "the" reference department for change and modernization of the finance function. Many financials talk about it, many would like to be able to claim it and ultimately few tackles it because they are not helped, do not have the strategic vision and the roadmap of their transformation. It seems to me that this is the first piece of advice: define a roadmap and IT architecture that lives up to your transformational ambition. The most amazing thing is that everyone accepts the transformation of operating businesses, but when it comes to the transformation of finance departments, nothing is done. Finance is a "facilitator" of operational transformation, as well as an effective way to reduce costs (today's priority) and mitigate risks (by strengthening internal controls). A better treasury means it can become a business partner of operations. The CFO should be the conductor who initiates and sponsors this financial transformation. Ideally, the role of finance and the treasury, in a post-recession world, should be re-imagined, as well as the IT tools to power the function, and treasurers have a key role in this transformation.

"The current crisis will undoubtedly push for more "digitization" of the financial function."

Treasurers (in their own field) should address the following issues:

  • Post-recession economy will place increased focus on cash management and corporate treasury functions

  • The makeshift, temporary spread-sheet-based treasury systems may no longer be appropriate for growing tasks at hand

  • “Des-EXCELLISATION” should be required, or, the way to make more robust processes on XL via a solid ETL (i.e. Extract Transform Load solutions)

  • Cloud technology is there and marches and should be maximized, whatever the CIO orthodoxy. The paradox, the smaller companies are always more cloud-based than the larger ones

  • Consider powerful analytic and in-memory database technologies enabling treasurers to forecast and modeling any number of business scenario and big data sources (= generation shift and a game changer for ambitious treasury re-organization)

  • Preaching the need for upgrading treasury solutions, which is a complex exercise and often underestimated

  • It's all about 3 axes: (1) People (2) Systems (3) Knowledge. It is these axes that will delineate the scope of action.

 

 

"The heart of the coming change is organizational, technological and perhaps financial."

François Masquelier, CEO, SimplyTREASURY

Enter smart treasury era

To be successful, the project team must embrace cloud solutions using classic solutions and functionalities as well as advanced database and analytic tools, acquire powerful solutions, reducing dependency on numerous one-off solutions and acquire integrated solutions (i.e. best of breed). To create a single book of record for treasury events. The ERP and the TMS will be the two necessary back bones of the new organization.

 

 

 

 

 

 

 

 

 

 

Low-tech treasury organizations are risking firms’ future if not adapted

Treasurers usually underestimate how they can contribute to the bottom-line results and even worse how they can contribute to losses if not well re-organize to face future coming challenges, post-COVID-19. Modernization of finance function and treasury doesn’t mean a bit of blockchain, an API or two and a new TMS. It is much more than that. It is a question of how to manage treasury more efficiently. Of course, it passes through new IT tech’s and IT architecture. It requires a VISION and to make business cases to justify investments in resources, skills and IT. The legacy of former systems has often been a hurdle to changes. It is far from a linear journey. We need “banking as a service” (BaaS) agnostic solutions, with a layer of data analytics and mining and an appropriate “consolidation” reporting tool.

The current crisis will undoubtedly push for more "digitization" of the financial function. The crisis imposed external and internal "triggers" that served as catalysts to initiate transformation. Think of all those, ill-prepared, who had no BCP’s/ DRP’s in place, no electronic signature process in place had to quickly get in order. Projects of working capital, payment factory, bank account management, etc. will certainly see their status suddenly pushed forward after containment period.

The pieces of information required post-crisis are often the same but more relevant, more detailed, more quickly available and forward-looking. What is often missing is the consolidation layer, the dedicated reporting and system matching reports, as well as the dashboards, accessible in real-time by all financial executives. There are solution like the one offered by FINMETRICS ( https://www.finmetrics.com/finboard ), giving all necessary and relevant pieces of information needed.

 

Impacts of health COVID crisis on businesses and expectations:

  • Company’s cost of capital (WACC) will increase likely / higher hurdle rates and additional scrutiny from investors

  • Sharper attention to inventories to optimize their levels (as part of a huge portion of deployed capital) to also improve cash management and work cap

  • Hyperinflation countries could be banned or require closer analysis prior to dealing

  • Short terms from suppliers and longer terms from customers will likely be applied

  • Dealing with negative interest rates will force maximizing net cash position

  • More FX exposures to handle and hedge given globalization

  • Reporting, dashboarding and KPI’s effectiveness… less talks and concrete actions

  • Not the end of XL providing better framed and automated (XL aren’t real-time when business need 24/7)

  • Remote secure accesses are absolute necessity

  • Best of breed approach with concrete (i.e. interfacing with ETL solutions)

  • In-the-cloud solutions, multi-tenants, with layer of analytics

The crisis will have many impacts and will trigger lots of expectations from stakeholders. Unfortunately, there are many factors for not achieving such a required transformation.

 

Risk factors of nonbeing successful are the following:

  • Wrong technologies chosen or tech’s non scalable

  • Resistance to changes from teams (not to be underestimated)

  • Impossibility to interface and STP the systems

  • Too high dependency on XL spreadsheets

  • Panic mode which is not always the best advisor

  • Absence of vision and roadmap

  • Absence of C-level sponsoring and “kick”

 

 

 

“The new abnormal” (The Strokes)

“Futuring treasury” is one piece of the whole finance function revamping. It consists of a vision of future IT architecture, what to deliver and how and new upskilled roles of treasurers. Reporting must become forward-looking and anticipatory, more frequent and more relevant. It is too often retrospective (and this is where it hurts), irrelevant, slow to produce, not completely automated, and obsolete from its production and reading stand points. We should move towards the “real-time treasury”. By enhancing the ergonomics of existing IT solutions and consolidating reporting and dashboarding, the treasurer can go beyond protecting company’s wellbeing and create strategic value. For example, CFO’s expect more sensitivity analysis and stress tests scenario in crisis mode. The type and quality of reporting expected are increasing and request a robust solution instead of even more XL sheets, as we saw these last weeks. Tech’s and the current economic situation will power these necessary changes to face the “new abnormal”. All the cards and toolboxes are there, providing you use them. The gaps discovered during the crisis push to reinvent the structure and to adapt at the risk of sinking. Failure and I would add crisis are nothing more than a chance to revise your strategy.

François Masquelier, CEO, SimplyTREASURY