Corporate TreasuryCentralisationCentralisation OutsourcingOutsourcing: A Treasurer’s View

Outsourcing: A Treasurer's View

Heinz Bähni, group treasurer at SGS, reveals his views on and experience of treasury outsourcing to Svante Kandel at Treasury Management SA, a Swiss treasury outsourcing firm. SGS is an inspection, verification, testing and certification company. The SGS Group employs more than 55,000 people and operates a network of more than 1,000 offices and laboratories around the world.

Q: (Svante Kandel, managing director, Treasury Management SA): Heinz, you have been dealing with treasury outsourcing since 1999, when Lonza Group was demerged from Alusuisse-Lonza Group. What were the drivers behind that decision?

A: (Heinz Bähni, group treasurer, SGS): I have been working in treasury for more than 30 years and it has always been difficult to find a cost-efficient set-up for the treasury organisation. Furthermore, in my view, we invested too much time and money in finding, maintaining and interfacing adequate treasury software.

Q (Kandel): How would you define treasury outsourcing?

A (Bähni): In a very simplistic way, I define it as the front-, middle- and back-office function of the treasury department. This automatically means that the function is an integral part of treasury. It should not be understood as the outsourcing of an individual function, e.g. managing an investment portfolio or an foreign exchange (FX) overlay-structure only, rather than a complete process. In SGS’ case, this means that group treasury maintains the decision-making while we outsource front- to back-office tasks, to a business service provider, according to the information in Table 1:

Table 1: Group Treasury/Outsourcer

Group Treasury Outsourcer
Policy and guidelines Technical platform
New bank relations Foreign exchange
New funding Loans and deposits
Treasury controlling Liquidity and cash pool management
Parental support Netting

Source: SGS

Q (Kandel): We hear the following arguments against outsourcing:

  1. We lose control over the processes.
  2. Risk for fraud increases.
  3. We share sensitive information with a third party.

Did you discuss these types of questions before you entered into the outsourcing contract?

A (Bähni): Yes, these are valid questions. I believe that each company has a different ‘risk appetite’ and therefore needs first to accept the risk connected to outsourcing internally. With regards to your arguments above:

  1. I do not see that the processes are much different compared to an in-house organisation. It is all about checks and balances, straight-through processing (STP) and, last but not least, human behaviour.
  2. There is always a risk of fraud, even in the internal treasury department. I do not see any difference with regards to an in-house solution. You should know the individuals who execute your transactions personally and if possible, check their background.
  3. The outsourcer knows only part of our activities and personally I do not [regard this as] sensitive information when they are not in possession of the full picture and the strategy remains under our control. I think there is less sensitive information in this situation than in outsourcing payroll or IT, which is quite common today.

One also has to remember that when entering into an outsourcing arrangement this will force your organisation to perform an in-depth analysis and documentation of all process within treasury, if this has not already happened. Not until then is it possible to establish the operating guidelines, or the service level agreement that enter into the issues related to the internal control of your treasury operations in detail, the segregation of duties, risk reporting, etc. I am thus of the opinion that we, as users of outsourced services, have a very clear understanding of our treasury operations – and it is constantly being reviewed and tested.

Q (Kandel): What is crucial for a fruitful relationship with the outsourcer?

A (Bähni): In my view, the most important point is communication – not only in writing, but also verbally and ideologically. The outsourcer needs to understand our way of doing business.

Q (Kandel): What benefit does outsourcing currently bring for you?

A (Bähni): We are active in more than 140 countries worldwide. Using an outsourcer is cost efficient, it frees up a substantial amount of time to deal with both strategic and non-strategic issues in these countries and we can keep a minimal organisation on corporate level.

My main objective is to support our business activities with strategic treasury topics and value-added solutions, as assessing risk and finding structured solutions for our business units. The aggregation of data and processing of transactions is, however, something that we outsource simply because we do not consider this part of treasury as a core competency for the group. Certainly, treasury-related matters have an important influence on business operations – that goes without saying after the turmoil during the past 12 months – this does not, however, imply that a treasury organisation has to cover all areas with in-house resources.

Many studies still indicate that treasurers spent far too much of their time and resources on non-treasury matters. In our case, apart for taking care of the transaction processing, outsourcing definitely offloads us in technical/system matters, HR issues, etc.

Q (Kandel): Outsourcing has been around for a while. Why do you think that more corporates are not using this process?

A (Bähni): I think the concept of outsourcing in the way I described is not very well know and understood. Also, only a few European outsourcers are around today and they do not heavily market themselves. Finally, I believe that CFOs/treasurers might have difficulties dealing with the arguments raised above from a philosophical point of view.

Q (Kandel): Considering the developments we have seen in markets during the credit crisis, is outsourcing the answer or does it provide alternative solutions?

A (Bähni): There is certainly a lot of restructuring going on and organisations hit by the current economic downturn have to review all business processes – treasury included. On the other hand, I am also of the opinion that many organisations now have a better understanding of the importance of well prepared, well-structured and robust treasury.

I am of the opinion that SGS’ way of outsourcing treasury:

  • is more cost-effective.
  • is more easily scalable (up and down).
  • reduces operation and contingency risks.

Also, I am still convinced that this is the right organisational solution for SGS, as group treasury can concentrate on supporting our businesses around the world.

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