Looking Beyond Cash Flow: A Fresh Approach to KPIs
By Fred Schacknies, Senior Vice President and Treasurer, Hilton
Every treasurer measures, and is consequently measured by, the performance of a company’s treasury function. In many cases, businesses have built up complex and extensive scorecards of key performance indicators (KPIs) that evaluate different elements of accuracy, speed and productivity. What is often overlooked is that these KPIs contribute to overall business success, and focus on performance against individual metrics rather than the wider picture. Is the purpose of treasury to generate a cash flow forecast with over 90% accuracy against actual flows? Or is it to ensure that the business has liquidity to meet its financial obligations, pay down debt and deliver value to shareholders? While cash flow forecasting is essential to meeting these objectives, it is time to look beyond lower level KPIs and measure performance at a strategic level. This is the approach we have instituted at Hilton.
Hilton’s treasury team
We have a global treasury team of over 25 people located in three offices- two in the US in McLean, Virginia, and Memphis, Tennessee, and one in Watford, north of London in the UK. Across these locations, we have teams covering Asia Pacific, Europe, Middle East & Africa, and the Americas, who look after core cash and treasury requirements in the relevant countries. We also have corporate functions based in McLean that support activities such as cash flow forecasting, investment and intercompany lending, plus a middle office that manages the treasury management system (TMS) and monitors data, processes and controls.
While our treasury function today is globally integrated and powered by leading-edge technology, this is a significant shift from how the function looked eight years ago. At that time, we had two distinct cash management teams based in Memphis and Watford that were connected only through email and using disparate spreadsheets. However, as a company, we have experienced a number of transformational corporate events, from the merging of Hilton and Hilton International in 2006, acquisition by Blackstone in 2007, our IPO in 2013, and the completion of the spin-offs of Hilton Grand Vacations and Park Hotels & Resorts earlier this year, that have elevated the importance of treasury within the business, and prompted us to focus on optimising our policies, processes, skills and infrastructure.
There were three fundamental principles behind this transformation:
First is the importance of real-time data. It was critical for us that data generated in one part of the organisation was immediately and universally available to other authorised users without delays.
Second, we wanted to ensure that we had a treasury organisation with the right skills and resources covering all major activities. We created defined front- and middle-office functions, and refocused our resources away from operational tasks.
Third, and partly as a result of the first two, we aimed to expand and refine our processes and capabilities, including areas such as intercompany funding, balance sheet FX and cash flow, and FX risk management.