Fit Over Function in Treasury Technology
Treasury management systems (TMS) were introduced to the corporate technology space more than 20 years ago. What began primarily as bank-offered tools to automate bank polling has evolved into highly complex solutions offered by a variety of third-party technology vendors. In the process, a highly competitive vendor landscape has developed, providing corporate treasury groups with a variety of solutions to choose from, each offering unique value propositions. Unlike some areas of financial services technology, the TMS market is far from commoditised.
Because of the great variety in industry, functional needs, and resources, corporations select solutions for a variety of reasons. In response, vendors take different approaches to the market, taking aim at corporations that meet one or more profile characteristics rather than taking a shotgun approach to the broad market. Two equally-sized firms with complex global operations will likely select very different solutions if one is largely a front-office treasury group and the other back-office-intensive. Additionally, a multinational middle-market manufacturer may select an expensive, highly sophisticated treasury solution that would be a waste of money for a largely domestic Fortune 500 company. The bottom line is that each TMS fits better with some treasury groups than with others.
Traditional check-box evaluations of TMS are limited in their ability to match the solution that best fits a specific treasury group’s need. Because of this, Aite Group recommends that vendors be evaluated based on their ‘fit’ with a treasury group rather than the functionalities offered.
As mentioned, treasury management systems are not a commodity business; each vendor solution offers a different value proposition, aligning differently with each treasury group. To assist in aligning the needs of treasury groups with the best-fitting vendor, Aite Group has identified the following three decision criteria to be most central in the corporate TMS decision-making process at large:
Treasury responsibilities are evolving, and have been for many years. As in evolution, treasury groups are at all different stages of their process. Some are strategic global financial centres focusing on everything from global cash and liquidity management to insurance, pension and risk management. Others are much earlier in the process, primarily focusing on cash and liquidity management. Still others exist somewhere in between.
Knowing where an individual treasury group is in the evolutionary process plays a key role in the type of solutions to evaluate. Some solutions offer tremendous functionality to support the most complex global treasury groups, while others can be scaled to support a range of treasury needs, from emerging to complex. Understanding a treasury’s stage of evolution in advance of the selection process can quickly streamline needs.
Of additional importance is understanding the future plans for a treasury group. Identifying expectations of the direction of the group can help identify whether a solution will be able to evolve with treasury. With the differences in solutions available, whether the department is becoming more important within the organisation, as well as the role of IT, will be significant factors in the selection process.
Another reason the future is important is to help treasury determine whether a vendor’s strategy over the next few years aligns well with treasury’s internal objectives. For example, if the future for treasury includes taking on more active management of accounts payable (A/P) and accounts receivable (A/R) functions, it will be important to know whether a prospective vendor has plans to offer support for these functions. Similarly, if treasury seeks to play a more strategic role within its organisation, it will be important to look for a vendor solution targeting strategic treasury. Because of this, Aite Group recommends all treasury groups establish a three-year, at minimum, treasury plan in advance of a TMS evaluation process.
In an ideal world, each treasury group would be able to select a solution regardless of cost. Unfortunately, this is not an ideal world. Every treasury group has different resources; treasury groups that are viewed throughout their organisation as cost centres may have limited budgets, for example, while those that have become recognised for their strategic focus may have access to deeper pockets. Identifying the solution budget up-front can significantly streamline which vendors can be included in the analysis process.
Other than overall budget, treasury groups need to identify how much and when the funds will be spent. Solutions have varying pricing models, each with different implications for treasury. Some require large up-front investments with smaller long-term costs, while others spread the costs over a multi-year time frame or in a subscription format. Each treasury group must determine whether one type of pricing structure aligns better with the nature of their organisation and how funds are allocated.
Treasury departments range in staffing levels. Although the general rule of thumb is that all treasury groups are leanly staffed, there are differing degrees of ‘lean’. Identifying staffing levels can assist in building the internal case for a TMS, as these solutions are designed to automate manual tasks and empower treasury to be more strategic in nature. For the purposes of this report, however, this section assumes treasury has made the decision to pursue a solution. When evaluating vendors, understanding staffing levels and staff members’ available time is tremendously important.
Vendor solutions depend on treasury personnel for implementing the solution. Some require significant dedication of one or more personnel for many months and even years. If treasury staffing is lean, implementation may be slow, or may require an additional budget to hire outside consulting to assist treasury in implementing the solution. Other solutions place more of the implementation burden on the vendor, reducing the amount of time spent by treasury, though potentially limiting some of the customisation available to the solution.
In addition to treasury staffing, TMS solutions place demands on an organisation’s IT department. Treasury must understand the nature of and availability of the IT department prior to beginning an request for proposal (RFP) process. Just as treasury staffing is critical to a timely and streamlined implementation, so is IT. IT is important for two primary reasons:
IT is responsible for integrating the TMS with all the other systems that hold or require critical treasury information. This can include the general ledger, enterprise resource planning (ERP) system, reconciliations systems and payments systems, among countless others. IT may have differing priorities than treasury, and may put other projects in front of treasury’s TMS. This can slow implementation, and also the timeliness of future TMS upgrades and the like. It is critical that treasury speak with IT in advance to understand the IT schedule, as IT availability can help them determine whether to adopt a solution with a heavy IT requirement, or one that minimises much of the IT burden by outsourcing it to a vendor.
It is also critical for treasury to identify IT’s strategy and system requirements for all new solutions. Some may demand treasury use the organisation’s ERP treasury module, while others may object to any vendor-hosted solutions. Still others will object to anything other than a vendor-hosted solution. If a treasury group fails to identify this information prior to the RFP, treasury runs the risk of falling in love with a solution that does not fit their IT requirements. In some organisations, treasury will win this fight, while others may lose. Regardless, failure to know in advance lengthens the time until any benefits of a TMS are recognised.
Treasury technology has for years empowered treasury groups to be more strategic by freeing up time spent on manual processes, centralising information, and increasing controls among other benefits. Unfortunatey for many organisations these benefits were out of reach due to a number of factors. Today, with the robust functional capabilities and the significant flexibility available, advances in technology create an opportunity for treasury groups of all shapes and sizes to benefit from treasury technology.
This article is an excerpt from an Aite Group report titled ‘Treasury Management Systems: A Market Overview and Vendor Evaluation’, published in June 2009.