Strategic Treasury

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The Third Generation of Treasury Corporate Treasury as the Financial Nerve Centre Corporate treasury is at a crossroads. On the cusp of this Third Generation, treasury organisations around the world have already begun to evolve into a fully integrated financial nerve center of the organisation.

The Third Generation of Treasury

Corporate Treasury as the Financial Nerve Center

by Laurie McCulley, Partner, Treasury Strategies, Inc.

Corporate treasury is at a crossroads. The evolution of technology, ongoing financial crises, and emergence of new risks from unexpected places has combined to usher in a new era in the treasury industry. This new era represents the Third Generation of treasury. On the cusp of this Third Generation, treasury organizations around the world have already begun to evolve into a fully integrated financial nerve center of the organization.

The treasury of the future will be an analytic and technology hub that provides end-to-end business intelligence and strategic advice to the company’s board, business units, creditors, customers, suppliers, shareholders, rating agencies and regulators. Treasury Strategies believes this trend is now emerging and will require a decade or more to fully manifest. As this Third Generation of corporate treasury gains momentum, it will become increasingly critical for corporate treasuries (along with their providers) to adopt new approaches and tools, which will be required to fully and successfully execute the role of the financial nerve center.

Earlier generations of treasury

The First Generation - Prior to 1970, companies borrowed almost exclusively from banks and kept ample compensating balances. Operating services were accommodations—simple and free. Exchange rates were fixed and liquidity was plentiful. The commercial paper market was just developing. Computers were not used in treasury. Calculators had just been invented. Banking was about relationships. 

The Second Generation – Everything changed in the early 1970s with the collapse of the Bretton Woods agreement and the elimination of the gold standard in the United States. Exchange rates fluctuated, liquidity and compensating balances dried up, banks began charging for services, and short-term investment markets blossomed. The treasury function changed radically. Financial data became available and was sometimes transformed into information. The first treasury workstations were introduced (by banks) and evolved to become critical elements of corporate treasury management. Early enterprise resource planning systems (ERPs) came to market, but they were not initially widely accessed by the finance function.

The Third Generation – Now in the Third Generation, treasury is increasingly focused on becoming the company’s financial nerve center. Information is no longer sufficient to meet the demands of external stakeholders, including regulatory bodies, investors or counterparties, or the internal demands of board members, business units or senior management. Intelligence – the strategic application of information to generate and monitor liquidity as well as mitigate risks - is required now.  

This transformation is not limited to corporations. The providers of financial services, operating services, information services and risk management services are entering a period of massive change. The entire ecosystem is impacted.

Since this transformation is centered on corporate treasury organizations, there are a few natural questions. What are the implications for treasury? What steps can a corporate treasury take in order to achieve the vision of treasury as the financial nerve center?

Treasury’s growing scope of influence

In our work with corporate clients, and in the market at large, Treasury Strategies sees a massive expansion in the scope of treasury’s influence and its activities. The mission for treasury organizations is changing – clear evidence we are moving into the Third Generation.

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