Approaching technology decisions in the treasury function

Treasury professional
Authors
Carl Sharman	Practice Partner, EMEA
Nischala Murthy Kaushik	Head of Marketing and Thought Leadership, Global Treasury and Payments Solutions, Wipro

Introduction

The world of treasury has changed and evolved significantly over recent years, with external pressures bringing increased and intensifying expectations. Essentially the operational requirements of the treasury function have remained largely unchanged: banking and cash management, funding for the business and managing financial risk. However, in light of changes in the financial environment and internal ecosystem within businesses, the challenges faced by corporates have become more global and more complex, and need a holistic and integrated approach to how treasury functions and delivers beyond operational requirements. Key factors include:

• The globalisation opportunity: Expansion of businesses into new frontiers and emerging geographies and markets potentially increasing operational and reporting ‘blind spots’ in cash and risk management;
• The customer-driven economy: Changing attitudes in the end-customer buying profile, patterns and behaviour, with procurement departments and corporate heads requiring clear, quantifiable business cases for investment;
• The increasing expectations on the corporate treasurer: To be an advisor/strategic partner to the rest of the business;
• The organisation legacy: Developing organisation structures may lead to treasury finding that its current set-up is outdated, ineffective and in need of investment;
• Technology innovations: Increasing options for treasury technology promising cost rationalisation and advantage, but requiring commitment and ambition to evaluate, select and deliver on time, to budget, and prior to being considered out of date;
• The changing landscape of payments: Explosive growth in payments or e-payment transactions which provides growing opportunities in areas such as payment formats, real-time dashboards, bank connectivity and messaging services, where the balance between being a lead adopter, fast follower or a ‘wait and see’ reluctant investor could have commercial impacts;
• Regulatory backdrop: Increased regulatory and compliance requirements that require richer, faster reporting detail that challenge existing processes and threaten business continuity.

In such an era of flux, organisations need assurances on efficiency, competitiveness, scalability and future-proofing for investment decisions. The modern treasury function is expected to be more strategic, to collaborate with the business it serves, and to be comfortable with the use of centres of excellence to support global operations, including the use of in-house banks (IHB) and shared services centres. However, they are often burdened with poor processes and outdated technology.

Technology and systems integration appear to offer all the answers, promising automation, simplification and a bespoke landscape to consolidate and standardise operational processes and tactical reporting. Yet treasury remains a complex discipline, unique to business and sector, and making those strategic and operational decisions on when and where to invest are not quite so easy.

Investing in treasury technology: right for my business?

As with any business process, if you keep doing the same things then you will generally get the same results. More importantly, if you keep doing the same things in a fast-changing environment, you may suffer more severely on account of increasing regulatory requirements (ie SEPA), potential errors (through manual and in-house Excel-based processes), and security and fraud issues, which could mean losing competitive advantage or, worse, increased operational and reputational risk. So it can often be a challenge to find new ways of doing old things, or to do new things. Technology can be at the core of bringing about this change, although standalone technology decisions can be a recipe for delays and can breed indecisiveness. Developing a business case for investment based purely on measurable, foreseeable benefit delivery can make it difficult to get capital and project costs approved, and an actual treasury technology implementation could be out of date by the time it goes live.

However, technology-led change can undoubtedly be a catalyst for treasury to improve operational processes and drive better decision-making through automation and simplification. Due to the nature of the key disciplines it commands, treasury transformation is certainly multi-dimensional, potentially complex and can be costly and time-consuming. A technology decision can either lead this change or simply be an enabler.

Any investment in change is a big decision. With an investment in new technology, the stakes are even higher because the options move so quickly. There can be a fear of what you cannot clearly explain – but who doesn’t want to ‘press a button’ and get accurate, reliable results? Treasury technology advancement, disruption and innovation continue to bring change at a rapid pace, promising increased efficiency at lower costs. In such an ever-changing environment, with lead times on life cycles shortening all the time, it is becoming clear that you need to evaluate something new to stay still, let alone move forward.

Is it just about the technology, or is there more?

The most important question to ask is: what will new technology add to your treasury function? It can be easy to get carried away by the claims of software providers, banks and consultants. So, as the starting point, you will need a solid and tangible business case for investment in change. Most corporates will face constant challenges from within to deliver year-on-year cost savings and this can only be achieved by looking at new ways of doing things. This is one of the best outcomes of new technology solutions: not only can they help you do what you currently do better, but they can also enable you to expand in new directions. If the investment you are considering would deliver new capability, you need to assess if this is going to be relevant for the core business. Are you positioned to achieve the most out of these new opportunities? Will you need to make further investments – in new staff, for example – and instigate organisational change to fully realise these new possibilities?

The second thing to consider is the real cost of your investment. Inevitably it is measured as price paid, but what about the delays, the disruption and the impact of not fully mapping out the change programme? Technology-led transformation requires preparation and planning to realise its potential – ‘out of the box’ rarely works. Begin with the end in mind, and you are more likely to benefit from broader business change. Think broader again to reach for more: how many steps might your new technology eliminate from your current processes? How much more quickly would that enable you to deliver insight? How much better will your processes and reporting be? How much of an edge will these factors give you in terms of performance, and how can these be demonstrated as providing value to finance and the business as a whole?

Can I afford not to invest?

Having examined the potential costs and whether there is an appetite to invest, you also have to consider whether you can afford not to invest. The common challenge for investment is to find ways to reduce costs or save time. Technology that delivers either – or both – of these will give you an edge which in turn could lead to better judgement, accuracy and certainty that more than justifies your investment. Therefore you need to assess the costs to your business of not investing in new technology. Recent economic and financial environments have enabled treasury functions to prioritise risk reduction and improved access to liquidity as well as to cost efficiencies. This highlights wider enterprise risk concerns, ie counterparty risk management; cash visibility and liquidity access; cash-flow forecasting; real-time reporting; IFRS 9 and other accounting and governance adherence considerations. Once expected benefits have been mapped to these objectives, the risks in not making the technology investment can overshadow financial cost savings. Making suboptimal financing decisions or not being able to provide timely financial reports could cost your organisation more than the cost of the capital investment in technology.

What common variables might influence a technology decision?

Once you make the decision to evaluate investment, there are several factors that can impact, influence and drive decision-making. While the ‘writing on the wall’ is clear that technology is the first step for treasury transformation, the actual adoption of technology can be complicated, simply because there are several factors (both internal and external) which influence the decision-making. Some of the common factors that can play a role in treasury technology decisions are:

The company vision, goals and strategy The founder/CEO/board play a critical role in outlining the company vision, goals, corporate strategy and overall risk appetite, which directly or indirectly will play an important role in outlining the expectations and responsibilities of the treasury office. In companies with a ‘high-risk appetite’, the expectations are for the treasurer to maximise profits, and hence play an active role in the trading market. Consequently, there is a recognised need to invest in technology, systems or processes to enable these functions on a daily basis. On the other hand, if the treasury mandate is on financing or optimal cash utilisation, the kind of technology solutions that are required will be significantly different.

The company profile Broadly, this includes the industry a company is part of; its size and scale (in terms of overall revenues); its operations (in terms of geographical coverage); the currencies under active management and the offerings and solutions that are provided. For example, if a company is in the retail sector, its business cycles and cash flows will be very different from those of a B2B services or logistics company. Governing treasury principles may remain the same, but its day-to-day operational dynamics and complexity could vary significantly – which determines the choice of treasury technology solutions that can be leveraged.

The organisation history and legacy How has the organisation evolved and grown? What was the M&A (Mergers and Acquisitions) landscape? And how did the technology landscape evolve over time? These key questions will help determine what kind of treasury technology solutions will be required for future-ready treasuries. There may be multiple legacy platforms to consider, and this could be a potential for catalyst for change.

The treasurer’s role, responsibilities, focus and priorities The treasury office usually houses good accountants – that is to say, people who eat, breathe, sleep, think and work well with numbers. In many instances, treasury technology decisions are made by technology experts who don’t necessarily understand how treasury functions. The wrong choice of treasury technology solutions could actually take the treasury office several years back in time, resulting in the office having to undo (or re-do) a lot of things. A strong treasurer makes an attempt to understand and learn the nuances of technology, and will sit at the table when the technology decisions are being made.

The treasury policy Most organisations (especially large ones) have well-defined policies and processes in place in terms of software/IT decisions. Some businesses have constraining IT policies that limit the investment in third-party applications in favour of ERP development. Some might mandate that all new solutions should be SaaS (software as a service) based, with software licensed on a subscription basis, and hence that will greatly influence which treasury technology solutions can even be considered for evaluation.

The ambition for treasury technology The reason that a treasury is looking at new or next-generation technology will frequently determine which option it eventually chooses. Is it for improving operational efficiency? Is it to enable and empower business decision-making based on real-time data? Is it to reduce IT costs? Is it to create a future-ready enterprise? Or is it to manage risks effectively? All of the above are variables that drive the decision-making process. However, the top business priority for the treasury office will usually determine the final choice of treasury technology.

Project budgets and timeframe The reason that a treasury is looking at new or next-generation technology will frequently determine which option it eventually chooses. Is it for improving operational efficiency? Is it to enable and empower business decision-making based on real-time data? Is it to reduce IT costs? Is it to create a future-ready enterprise? Or is it to manage risks effectively? All of the above are variables that drive the decision-making process. However, the top business priority for the treasury office will usually determine the final choice of treasury technology.

Stakeholder buy-in Treasury is a corporate-level function: it cuts across all enterprise functions, geographies and legal entities and business units, and hence it is imperative for the corporate treasury function to know, understand and work closely with different (global) groups and teams to ensure financial well-being of an enterprise. Treasury is multi-disciplinary, functioning at the interplay of business, technology, policy, process, people, procedure, operations and systems. And hence there are several key stakeholders who are affected, directly or indirectly, by the everyday functioning of the treasury. Any treasury technology initiative should have buy-in from key stakeholders if it is to have a fair shot at success.

The existing technology landscape Treasury operations span front office, middle office and back office, with each office using different systems, products, people and processes. The systems integration across the treasury landscape is complex, and includes trading platforms, bank proprietary platforms, communication, ERP, market data (ie Reuters), derivative valuations and in-house systems. Dealing with different sources of data, multiple product suites and multi-vendor scenarios only compounds the dynamics of how to manage treasury effectively. All these factors significantly influence what technology solutions can be used, and what kind of impact they deliver.

Organisational politics and power play Sometimes the actual yes/no decisions around treasury technology have everything to do with an organisation’s politics and power play. A technology solution may be competitively priced, futuristic in terms of features, and easy to roll out – but a failure to impress the key decision maker can greatly influence the final choice of treasury technology.

In addition to the above, several external factors such as laws and legal frameworks, global regulations, macro-economic risks, forex/trade policy, geo-political factors and competition may also influence the final choice of treasury technology.