What is the Optimal Structure for Treasury?

There is no perfect answer to the question of what is the optimal structure for a corporate treasury.  According to the recent Corporate Treasurers Council Guide on Global Treasury Structures, underwritten by Kyriba, US corporates are finding significantly more reasons to restructure their global treasury operations in order to operate effectively. Although the quest for the best corporate treasury structure is nothing new, international growth, better technology, and the more strategic responsibilities of a corporate treasurer have all led to this increased focus. 

1. International growth
With a tougher economic environmental in the US and Europe, corporations are increasingly seeking out growth opportunities in emerging markets. Companies are no longer waiting until they are well-established and wealthy to carry out overseas expansions and, as a result, treasury departments are under pressure to support businesses in non-traditional markets where treasury processes may not be so easy to manage centrally.  

2. Technology is becoming more affordable
Companies of all sizes are embracing the Cloud and this, combined with the proliferation of mobile devices, removes technology from being a hindrance to managing decentralized treasuries and keeping remote users connected.  In fact, web technology creates an opportunity to not only connect remote users and position in virtually any worldwide location, but also to ensure that processes and control are optimized.  As described in the guide, technology is both an enabler and a catalyst: without it, treasury cannot hope to make its processes more efficient and impose high-level controls. At the same time, the very process of rolling out a system triggers a transformation, as old ways of doing things are examined, discarded or improved.

3. A more strategic role for treasurers
Treasurers are becoming more responsible for collaborating with other teams and finding new ways to add value to the organization.  Robert Baldoni of the Ernst & Young Global Treasury Advisory Services Practice, said, “There’s been an increased focus on change/transformation of treasury activities, as treasury continues to enjoy a higher level of management attention.” Senior management is realizing that treasurers can provide functions like risk management and can also drive efficiencies and optimize financial returns.

Hybrid Structure

One of the strategies discussed in the guide is the implementation of a hybrid structure that takes the best of centralized and decentralized treasury structures and allows tailoring to the specific needs of the organization.  Hybrid approach can provide full cash visibility across an entire operation, spanning geographic locations, time zones and offices, while providing local and regional support. The extent to which each of these functions becomes the focus depends entirely on factors like the size of a business, its business model and the expected role of the treasury department within that business.

Mr Baldoni explained that the new technologies available to treasury departments make it much easier to embrace the hybrid model. ”Robust treasury technology provides the ability to have remote access and visibility to company cash and risk and a better controls infrastructure, which can be centralized at HQ level,” according to Mr Baldoni.

Centralizing Control to Improve Efficiency

Businesses are increasingly bending the old treasury rules to suit the way they want to work. Through using technologies and tools like re-invoicing centers, payment factories and IHBs, firms are standardizing workflows that make geographic expansion and additional workloads manageable without adding headcount.  

The changes that are taking place have been summed up effectively by Bank of America Merrill Lynch’s Dub Newman, who explained, ”We’re finding that treasury platforms are much more aligned to the overall strategic objectives of the company. Treasury has moved beyond the important but tactical aspects of executing transactions and much more to supporting the business strategy of the units they support.”

Thinking More Strategically

Treasurers are no longer required simply to process data and present facts, they need to be able to think strategically to utilize information to help the decision making process. Knowledge of the specific risks linked with operating in certain region should be taken into account and treasurers’ skill sets should allow them to present data appropriately in light of these risks. The key for treasury departments is to try to ensure they have the right levels of expertise in different geographical locations.

Treasury Technology Is an Enabler 

Automating daily treasury functions can help businesses to reach the ultimate goal of “maximizing the sources and uses of funds”, as the guide quotes Bruce Lynn of treasury consulting firm FECG.  Automating basic functions and using a treasury management provider who can help to manage banking relationships and keep track of everything from cash visibility and liquidity to optimization and risk management, can finally allow treasurers to ensure they are involved in the establishment of an effective treasury structure right from the very beginning. 

The quest for the perfect treasury structure is a balancing act of evaluating objectives, financial flows, people, technology, and corporate vision.  Through a careful analysis of these factors along with a selection of the proper underlying technologies, corporate treasurers will succeed in finding the optimal treasury structure, which quite possibly may be a hybrid combining the best elements of centralized and decentralized strategies.