Strategic treasury: three areas of differentiation

Stanley Tan, Head of Working Capital Advisory, Global Transaction Services at DBS.

strategic-treasury-differentiation

As corporate treasuries play an expanded, strategic role in corporate decision-making, the notion that there exists, or should exist, a “typical” treasury team will be challenged. As treasury moves further away from a middle-office support function, it is increasingly imperative that it re-examines the “standard” ways of organising itself and how it delivers value to stakeholders. This article will examine 3 areas for strategic treasury to consider when formulating their game-plans; indeed, these areas encompass elements of both “offence” and “defence” when it comes to defining the strategic treasury of tomorrow.

Playing offense: role clarity and definition

Foremost, the strategic treasury needs to crisply articulate the role it is being asked to, or wants to, play in the company. Post 2008, there is heightened scrutiny at the board and senior management level over matters pertaining to liquidity and funding. Risk management is important, as is mitigating fat tail events that could threaten the solvency of the company. However, in the intervening years, that dialogue has shifted to asking how liquidity (including cash management) and funding practices and insight could drive business growth and expansion; in short, to evaluate where and how treasury could be used to form competitive advantages.

Treasury has become a strategic partner with a seat at senior leadership tables and is in prime position to drive cross-functional changes. A 2014 Association of Finance Professionals (AFP) and Oliver Wyman (a consultancy) survey1 of over 200 finance professionals/companies indicated that 84% of respondents saw the treasury department playing a more strategic role, with 83% anticipating an expanded role over the next 5 years. 74% noted that their access to executive management was strong and/or excellent, with 37% sharing that their corporate treasurers were already part of their organisation’s executive leadership / C-suite. Remarkably, almost half - 46% - attested to the fact that treasury was already acting as internal consultants to other departments or business units.

Divergent organisational and operating models

Therein lies the first area for consideration– as treasury gets more strategic, the way treasury is organised should also adapt and diverge in order to best support their companies. Whilst there is an underlying trend of centralisation – witness the emergence of in-house banks (IHBs), Shared Services Centers (SSCs), Centres of Excellences (COEs) and Regional Treasury Centers (RTCs) – there is the need to organise tactically. Every company is different; hence, treasury needs to understand the contours of their existing company.

For example: is there already a corporate strategy/planning team? Does the Financial Planning & Analysis (FP&A) team already take on strategic projects? What are the current roles and responsibilities between Treasury and Finance? Beyond formal roles and responsibilities, there are also cultural ones to navigate: how do cross-functional projects and initiatives work? What is needed to uncover insight from the front-line in non-headquartered countries?

The strategic treasury needs to be on the front-foot to articulate how these would work and leverage their expanded influence to ensure they have the right organisation model and environment to deliver.

Playing defence: Liquidity and risk management remains the core

Second, amidst the focus on expanded strategic roles, it is important not to lose sight of core competencies. Treasury is still being expected to deliver against liquidity and financial risk management matters. With the macroeconomic environment moving endlessly from one milestone event to another – Brexit and the June Fed rate hike being next in a seemingly unending list - we are still in uncertain times. Indeed, the negative-rate conditions in parts of Europe and Asia mean we continue to be part of a living experiment challenging the classical tools of monetary policy. The strategic treasury needs to be prepared for upcoming macroeconomic uncertainty and volatility.

This rings true no matter where you might be. We juxtaposed two surveys of corporate treasurers – one by Deloitte2 (92% of respondents from U.S., EMEA) and one by PWC (Asia-focused)3 and reviewed their top three responsibilities. The top three roles were remarkably consistent: Liquidity/cash management, Financial Risk Management, and Funding. Being a value-added partner and supporting the broader business came in subsequently behind the top three.

The message is clear: strategic treasury needs to be built on firm foundations and while it plays offense and expands into new roles, its ability to deliver on its primary responsibilities and play defence will give it the credibility it needs to venture forth.

Leveraging internal and external partners

This brings us to the third area for strategic treasury to consider - partnerships. As the role and function of treasury expands, it needs to figure out how best to work with internal and external partners to create leverage to drive impact. For example, how does it (proactively) engage with HR to ensure that treasury gets sufficiently up-skilled, or that high-talent individuals within the organisation can rotate through treasury, in line with the cross-functional projects and skill-sets that are now required. Or, externally, how does it seek to forge partnerships and engage with professional partners such as software providers, banks and consultancies in an advisory capacity, and not just as vendors. This requires a mindset shift away from being largely cost-led to impact-driven.

Consider the aforementioned PWC Asia corporate treasurer survey. In that survey, 23% of respondents see treasury as cost centres where there is “no decision capability” and where they act as “simple pass through/execution centres”. This suggests a palpable disconnect between current state (middle-office, execution focused) and future state (strategic treasury). One way to bridge this gap is to build up and leverage relationships with internal and external partners, both on the “offense” and “defence” side of things.

Conclusion

Strategic treasury will continue to evolve over the upcoming years; expect to see the role they play change and a variety of operating models emerge. The three areas discussed will help to distinguish the good from the great: being able to adapt and craft a nuanced, effective organisational model; being rock-solid on the functional responsibilities; and being adroit to build and leverage both internal and external partners.

1 2014 AFP “Strategic role of Treasury: Report of Survey Results”, underwriten by Oliver Wyman

2 Deloitte: “2015 Global Corporate Treasury Survey”

3 PWC: “Transforming challenges into Opportunities”, Asia Corporate Treasury Survey 2014

(This article was first published in GTNews: Strategic treasury- three areas of differentiation.)

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