The Changing Face of Treasury in the Online World
‘So many promises, yet so little delivered’ is the view of many industry insiders regarding the impact of the Internet on the treasury. However, that’s far too simple a view. Why is it that we’re led to think that the Internet has failed to deliver, and is it true?
Let’s take a step back. While we all know that a lot was expected of the Internet, can any of us explain in precise terms what those expectations were? Did we really think we’d have everything we wanted simply by putting a browser and an Internet connection on every desktop in the department and consider the job done?
Yet treasury professionals were no more culpable than many others in putting the technology before the business objectives. There can be no doubt that the Internet is already enhancing the functionality of many treasury departments – we are seeing it in our work every day. However, where it is having the greatest impact is where decisions about its implementation are not made in some kind of splendid technical isolation. It’s almost certainly fatal to even think about any internet-related activity without a good deal of soul-and-strategy searching – both within the treasury department and the organisation.
There is much evidence (take any recent qualitative research) suggesting that in general, the treasury is developing a more and more strategic role with an organisation. Yet, contrary to some opinions, this shift is not being driven by the Internet. The treasurer, who until recently, was cooking up new financial magic tricks in uninterested isolation, now suddenly finds himself in the spotlight of Sarbanes Oxley and IFRS. The directors suddenly have a close personal interest in what’s cooking! Most agree that this is not a bad thing, per se. Furthermore, the role of the treasurer is extending from ‘simply’ managing short-term cash to a much wider vision – working capital management, that necessitates a much deeper involvement of the treasury in the day-to-day business of the company.
The Internet is not the catalyst for the treasury department’s elevated status. Since the e-crash of the year 2000, business is in the driver seat again, and Internet is back where it belongs – an enabler, not a driver. It is simply an extremely effective facilitator that is supporting changes in structure and process that are of critical importance in the ‘new’ treasury.
Using the Internet for maximum beneficial impact on business demands a more subtle understanding of its potential. It’s not enough to ‘get online’ and expect miracles. The world-wide-web thing is what you do at home.
Yes, Internet technology can, and is, playing a pivotal role in improving overall internal efficiency – but as an enabler, not a tool. Think of it as a road – there’s no point using it unless it gets you where you want to go. And if you know where you’re going. Using a browser to check out a corporate website or sending e-mails are just two ways to use this road. But connecting different remote systems or reaching out to your subsidiaries are others – these are the destinations that really make business sense for the treasury!
So, it’s only a road – merely a communications route. However, moving data and communicating between countries, even continents – is a fundamental aspect of the treasury function. So, using the Internet effectively is primarily a matter of playing to its strengths. An Internet implementation starts to make business sense when it reflects overall treasury strategy, is embedded across all treasury functions, and allows for movement of data and communication more quickly, reliably and with far less cost and complication than traditional methods. Such a well-planned, pervasive implementation can make an impression that resonates acrossthe most global and geographically dispersed organisation.
But don’t take our word for it. This isn’t our vision of what could happen in 5 years time when the use of the technology is more pervasive. All this and more is happening now. Our clients are implementing Internet-enabled solutions and technologies to deliver an infrastructure that changes the way it thinks and works, that changes its relationships with suppliers and clients and fundamentally changes, improves and streamlines communication. And most importantly, delivers on fundamental business goals.
To centralise or stay decentralised is a debate of seemingly perennial interest. There is another alternative. Using the Internet – correctly – can make the either/or debate redundant.
Sure, most organisations will need to have some centralised functions and processes. It is both sensible and desirable, for example, to have centralised risk management and liquidity planning. But so often, the vital knowledge for decision-making is local. Imagine the scenario. Working capital management and liquidity is a major item on a company’s corporate agenda, and it’s the treasury’s responsibility to make sure that planning and forecasting is accurate.
Part of a treasurer’s job is to get to grips with what the financial future holds, and this requires better and more up-to-date data. But with a central treasury function and 400 subsidiaries worldwide, getting the vital market and sales information to aid decision-making is a formidable task. But it is much less of a task with the Internet. With web-based applications and browser-based access, subsidiaries can keep on working as they always did. They know what was sold and when the money comes in, they understand why a customer is paying late, they can reconcile the difference between forecasts and the reality. Yet the central treasury has all of this vital information in real time, to quickly determine its global financial positions.
By keeping the knowledge local, which is the best place for it to be, but with the ability to get a real view of the global financial position, sales and trends, treasuries can make the necessary decisions regarding day-to-day liquidity, plus more effectively carry out financial planning and forecasting. The same is true of risk, which, by its very nature, needs to be done centrally. But knowing how many Swiss Francs to buy or to sell, for example, at the central treasury needs local knowledge of the business that generated or paid these Swiss Francs – it is virtually impossible to effectively manage risk without access to such information. And it is totally impossible to get this information in time without the Internet.
Improving internal efficiency and streamlining processes is the mantra of many organisations, and has probably caused many a sleepless night for most corporate treasurers.
Yet, these are two areas in which the Internet is having its greatest and most glorious impact. It is, in fact, an almost perfect basis for streamlining both internal and external processes and workflow. Crucially, it allows even the largest multi-national group to work as a cohesive unit, extending throughout an enterprise and beyond, to supplier, banking and customer relationships.
The Internet delivers the technologies that can make this concept of straight through processing (STP) a reality. From the physical network that delivers the global infrastructure and enables the connections, through common communication protocols, to the ability to cater for common formats and languages – initiatives such as TWIST – that dictate the way processes and communication is carried out.
Of course, central to this is the ability to manage the workflow of a process, so that once a transaction such as a loan, is created, the process is automated every step of the way – from sending payments to the bank, to impacting accounting, to informing the supplier that they can go ahead with the deal, to sending e-confirmations to brokers. Of course, you’ll need software for this. The software will facilitate the creation and management of any single transaction through its natural lifecycle, including being sent to the correct systems, and through the various stages of verification and approval in a safe, secure, accurate and timely manner. But the software needs the Internet. In doing so, the Internet delivers what is probably its trump card, enabling a flow of information relating to millions of transactions by addresses and fulfilling the processes required to complete them.
Given that the majority of material we read about the Internet is not exactly fulsome in its praise, you may be forgiven for having lingering doubts. But the evidence is there. We are seeing an increasing uptake in the use of Internet technology amongst our client across the range of treasury services – collection, cash management, risk management, payment services, etc.
When used correctly – underpinned by a thorough understanding of business objectives – the Internet extends the vision and control of the treasury to the entire organization. It supports straight through, or complete financial value chain, processing ability, with no geographical limitations, managing the financial spectrum of collections to payments, and everything in between.