Published: November 01, 2013
We have entered a new world with a new ‘normality’. Treasurers need more adapted IT solutions to respond to the new requirements of e-level management. This technological evolution toward TiM(R)S (Treasury intelligence Management Risk Systems) is also crucial to comply with new regulations. Treasurers need to contribute more to the decision-making process with their strong financial expertise and new generation IT solutions. Treasurers have undoubtedly become strategic partners of CEOs and CFOs.
In a world in which the financial crisis has become a sort of ‘norm’ and in a world of finance in utter chaos, in which the return to normality (or the ‘new normality’) bears no relation to the world before the sub-prime crisis, treasurers need to face up to a large number of more restrictive and onerous changes in regulations. In particular, they need to provide a number of reports to meet the requirement for transparency, which is a consequence of the financial crisis that has been affecting us for five years now. The treasurer’s environment, like the banker’s, is in a phase of profound change. Most treasurers have not yet really felt the blast of these winds of change because the new regulations are being finalised and will start to come into effect in the next few months. But nobody is in any doubt that the treasurer’s job will once again have to adapt to its changing environment. The tools and the organisation have to evolve to adapt and fit the new obligations and the new demands required by ‘C-level’ management. This adaptation will necessarily involve innovative and powerful new technology. We need to move from the traditional TMS (Treasury Management System) that all treasurers use to more powerful IT tools that cope with the new requirements, particularly regulatory requirements. These new tools need to evolve to a more advanced risk management level, towards BI (Business Intelligence) and become modular so that they can evolve continuously and meet the new needs of CFOs. The strategic priority goes to managing financial risks and to giving the most comprehensive possible real-time overview of the company’s financial position.
These priorities, belonging to a new financial order and a new world, require new solutions that are more appropriate and fit for purpose. This evolution, without being revolutionary, will see us move from the world of TMS towards that of T&RMS (Treasury and Risk Management Systems) or even onto TiM(R)S (Treasury intelligence Management Risk Systems). Technology can be a catalyst for change and makes it possible to completely overhaul our organisational structure in this evolving environment.
Whenever the economic situation becomes difficult, management demands that better tools be used to take more effective – and particularly, faster – financial decisions.
International groups need mobility and productivity to create value in this new financial world. The risk that will face many treasurers is that of having a ‘traditional’ TMS which is not really capable of coping with the challenges that await them in the next three years.
The watchword of C-level managers is this: more visibility to be able to make the right strategic decisions in good time (and as early as possible). Today people no longer expect treasurers to produce a snapshot of the financial position at point of time ‘T’ like an accountant, but instead expect more dynamic and intelligent reports to help them be proactive. This means Business Intelligence at all levels of finance. And it is here that the whole substance and essence of treasury comes into its own and, through being involved in things from the earliest stages, it can do the groundwork for taking financial decisions. We need decision-making tools rather than tools that generate statistical reports after the event, which CFOs would seldom use anyway. This is all the more essential since the new normal mode is a long-lasting economic crisis mode in which we have to mitigate the new and ever-present risks that surround us. The level of financial risks in normal mode is higher than it was in the past. We need to get used to this higher risk factor and broader risk diversity. Against a background of ongoing risk, we need to be able to react quicker and smarter than the competition. This is no easy task, admittedly.
We may also note that this buoyant treasury technology market has evolved greatly over the last few years. We are seeing the rise of mini-ERPs (for instance Reval, SunGard, and WSS) which grew mainly through acquiring add-on solutions, solutions peripheral or additional to their main software applications (i.e., TMS) or again through taking over their direct competitors. These mini-monsters now offer a wide range of IT solutions, more or less well integrated. The market has contracted and become more specialised, and we find ever fewer small independent players in it. One of the reasons for this is the exponential increase in requirements for providing reports and the growing complexity of international accounting standards (i.e., IFRS).
Fortunately technology seems to be moving ahead faster than regulatory requirements and the new post-G20 regulations. Even though we may have to produce more reports, documents and financial analyses than in the past, modern technology enables us to do it with increased productivity, producing more reliable information. These are the benefits that IT science places at the service of treasurers. We therefore find ourselves in a new era and a new phase of IT software application development.
Furthermore, SaaS (Software-as-a-Service) solutions are emerging and speed up delivery of the developments made by treasury solutions providers.
In the current economic environment, businesses need to be equipped with software giving them the maximum visibility on:
1) cash and cash equivalents (to manage them optimally),
2) the full range of financial risks that are now closely correlated and interconnected,
3) risk hedging strategies and their accounting treatment
4) the administrative/decision making and compliance reports to be submitted to the various supervisory bodies.
These are the four key objectives that modern TRMS/TiMRS solutions need to supply to their customers.[[[PAGE]]]
The R in TMRS reflects this new dimension needed in everyday management and in taking medium- and long-term strategic financial decisions. The information is often in there somewhere, lurking at the bottom of a database, a report or a file, but not used. The first objective must be to find it, amalgamate it, consolidate it and prepare the data so as to format it and put it in reports and tools that help with decision-making. The worst situation is to have the information, to be able to process it and to compile it without being able to gain the benefit of it or of the analyses that it could produce. We have to go a lot further than just reporting. We now have to provide the means of taking decisions and we need to recommend strategic financial decisions.
For this, we should be talking about “Business Intelligence”. Certainly, not all financial risks are new. However their scale, size and impact, particularly as a result of their correlation and their cumulative effect, are now much greater than they were in the past.
With better software applications, treasurers can interact better with their C-level management, with audit committees and even with the board. The trick is to produce reports that are less dry, sterile and technical, and instead to produce accurate, concise and clear reports giving recommendations and backup for decisions to be made and strategies to be adopted. Fortunately for the future of the treasurer’s job, even the best machines in the world cannot do everything. If we equip ourselves with a good foundation for producing reports, analyses and syntheses on decisions to be taken/strategies to be followed, this will make communication with top management – always tricky and complicated – easier. However, we need to keep them simple and concise if they are to be understood and listened to in high places. It is often the last yards of the race that are the hardest few and most difficult for treasurers, who all too often get bogged down in technical details.
Treasurers have undoubtedly become strategic partners of CEOs and CFOs. From the relatively passive guardian of the temple role, modern treasurers have become key strategic partners within the finance function. To be able to deliver (added) value, they must have (and be able to play) a more proactive role, closer to operations; acting more as an adviser than a simple service provider and able to generate financial value and deliver bottom-line through their actions and their speed of response to events and to the (new) risks arising. Everything has come together to enable treasurers to fulfil their new enhanced role: economic environment, financial crisis, increased risk, volatility, new financial regulations and the emergence of new and more powerful software applications. These software applications can become the catalyst of this change in the job. To deliver this added value, we need to move on to the virtuous phase (akin to Maslow’s pyramid of needs), improving productivity and making the process more secure through better internal controls; by creating new financial controls and financial indicators (e.g., Key Risk/ Performance Indicators – KRIs/ KPIs); by increasing global mobility; by producing special purpose reports, analyses and recommendations to help the CFO. To do this we need to move to full, unfailing, automation of the STP (straight-through processing) type, to free up time that would otherwise be devoted to repetitive operational tasks and to reallocate it to more strategic tasks with higher added value. Visibility must be total, and the scope of coverage must be all-encompassing. We cannot tolerate any exceptions. This transparency and comprehensiveness give us the promise of taking right decisions and wise decisions. In the past we often worked in a compartmentalised and patchy way. We dealt with risks one by one, area by area, exposure by exposure, without having the consolidated overall view that is now made necessary by the interconnection of risks and their complex correlation.
Treasurers must, therefore, set up an SSC (shared service centre) in order, for example, to make payments on behalf of subsidiaries (i.e., Payment on Behalf of/ POBO). They can help forestall economic impacts on the business. They can become experts in forecasting and help anticipate financial movements and market trends. They can also streamline the financial supply chain, the true backbone of the business, and even help reduce the time taken to do things, while at the same time making them more efficient. Treasurers can improve overall treasury management by an all-encompassing approach and by keeping borrowings and bank credits down to a minimum – through an excess of prudence, these are often higher than they need to be.
They can now be key partners in merger and acquisition operations, becoming involved in transactions sooner and contributing their expertise to the decision-making process earlier. Finally, they can be the central repository of consolidated financial information (netted-off information) which can help the CFOs take strategic decisions.
Treasurers should not overlook their role of evaluating new markets onto which the company wants to move. They should be involved as early as possible whenever the paths of operations and finance cross, to decide on the group’s future strategy and expansion. The new financial regulations will, unfortunately, also take up a lot of their time and make them absolutely essential for compliance purposes (e.g., EMIR and reports to ESMA).
These few examples give an idea of the breadth of the role that treasurers could take on thanks to the new IT technology.
The job has evolved greatly since the start of this long financial crisis five years ago. However, the tools to carry out these new tasks and fulfil this role are being developed. New IT solutions – in SaaS mode, more integrated, more powerful and more secure – are emerging to help us achieve our new objectives. The real risk is being faced with a wall of new challenges with no springboard to help us jump over it. The springboard will be modules of the TRMS type. We are at the dawn of a profound but beneficial evolution of tools of this type. Let us take a deep breath and a good run up, and leap!
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