How can treasury take a bigger seat at the corporate table?

By Kyriba October 3, 2014

Treasury was, for many years, viewed as a cost center for many organizations. The treasurer’s remit was primarily that of a watch keeper, ensuring corporate cash was tracked and kept secure, but they had limited powers to impact corporate strategy. A significant reason for this very tactical role was that the core process of maintaining daily cash visibility – accessing bank portals, entering balances into spreadsheets, manually checking the status of transfers – was so time-consuming and labor-intensive that there was little time to perform more strategic activities. Even for those who did have the time, parsing actionable data and performing analytics using data from spreadsheets was a similarly complex task.

As a result, there is still a common perception among treasury practitioners of treasury as a predominantly tactical function. In fact, the higher up an individual within the treasury organization, the more likely they are to view it as tactical. As the chart below shows, treasurers and CFOs are twice as likely to view the treasury department as primarily tactical in function, compared to other members of the treasury team.

Tactics vs strategy

This fact is borne out by the types of activities in which treasurers are involved. According to research carried out earlier this year, just 19 percent play an active role in market expansion decisions, and 17 percent taking part in revenue growth acceleration initiatives. In fact, only 37 percent of treasurers view data analysis for decision support as one of their top three tasks, far behind activities such as cash position reporting and forecasting and bank reporting. Bear in mind that this data is not for treasury departments as a whole, but for treasurers themselves. Many of them continue to spend much of their time and resources on similar activities – cash position reporting and forecasting, bank account management, etc. – as cash and treasury managers, whose roles are much more focused on these tasks.

It’s clear that before treasurers start to promote themselves for a bigger role at the corporate table, there needs to be a change in self-perception among the treasurer community, with them pushing for a deeper role in broader business initiatives. Without this self-belief and drive, it will be difficult for treasurers to convince executive leadership to give them a broader remit for driving strategy and value. Executive leadership teams are full of type-A personalities, so for a treasurer to become part of this group, there needs to a considerable amount of cheerleading for treasury’s contribution to the organization.

However, there is some positive change taking place within the treasury department and its focus on more strategic business initiatives. According to research, 48 percent of treasurers see their role becoming more strategic in the past two years, compared to just eight percent who see themselves being less strategic. One significant factor behind the shift in this perception is that as more and more organizations have moved the bulk of the treasury processes from spreadsheets to treasury management systems, this has both freed up resource and provided the visibility, data and analysis needed for treasury to support broader business decisions and initiatives.

While at their most simplistic, treasury management systems enable enhanced productivity, this is the gateway to much higher-value benefits, from increased financial controls and deeper global to more effective decision-making capabilities. All of these contribute to treasury becoming a strategic partner to the business as a whole. With a treasury management system in place, treasurers can both proactively offer a deeper level of insight into larger business decisions, and in turn (although this will certainly not be an overnight change), will have their opinions sought on these issues as a trusted resource.

As one practical example, with many large organizations continuing to hold onto large cash reserves in the wake of the Great Recession, and interest rates remaining near historical lows, organizations are looking to the treasurer to deliver new ways to achieve value for their cash. On top of traditional treasury-oriented initiatives for cash optimization, one area where treasurers are starting to have a deeper impact throughout the organization is supply chain finance. While supply chain has usually been the domain of procurement, programs such as dynamic discounting enable cash-rich buyers to leverage their excess liquidity to secure discounts on invoices from their vendors, often providing returns significantly higher than existing market rates.

M&A is another area where the potential impact of treasury’s input can’t be understated. Treasurers can help with a variety of critical issues, from the planning stage to the execution of the deal, through to the integration of the two organization’s financial operations. Specific examples include:

  • Assessing the impact of currency and interest rates on price for, and value of, acquisition targets
  • Advising on the ideal capital structure and the availability of financing options to finance the deal
  • Measuring the deal’s impact on credit ratings, borrowing capacity, financial exposures and regulatory compliance
  • Determining redundancies in the combined organization’s treasury and banking operations

As treasury management systems are becoming more widely adopted in the corporate environment, treasurers are able to provide deeper insight and analysis of liquidity positions and how cash can be better deployed. This insight can then be parlayed into more treasury input into major transformation initiatives, further increasing the treasurer’s profile in the organization. While a board seat is probably not on the agenda for many treasurers, there is no reason why the treasurer shouldn’t be viewed as an integral part of any forward-thinking organization’s management team. Whenever any major corporate initiative is being planned, one of the most important questions should be “has treasury been consulted on this?”

All statistics and graphs taken from the Kyriba / Association of Corporate Treasurers Treasury Surveys of 2013 and 2014. More information can be found here.

This article originally appeared on gtnews.com on October 6, 2014.

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