Promoting Innovation in Operating Efficiency – Talking with Treasurers

Talking with Treasurers

In March 2010, SEB hosted a Financial Summit attended by 50 CFOs and Group Treasurers from top Nordic corporations. As part of its commitment to continuing and deepening the dialogue with corporate treasurers, SEB recently organised a roundtable discussion on the topic of operational efficiency, attended by treasurers from Ericsson, Holmen, Niscayah and ASSA ABLOY.

Bo Magnusson, Deputy Chief Executive Officer and Head of Group Staff and Business Support at SEB, opened the discussions with an overview of what SEB has accomplished in the area over the past four years and how these developments are directly benefiting its corporate clients. Amongst other things, Magnusson talked about the creation of centralised group functions for operations, IT and other staff functions, which have resulted in savings of SEK 1.5bn. He also explained how SEB has outsourced parts of its operations and off-shore key back-office processes to centralised units in Latvia and Lithuania and the benefits that have ensued,

“Looking back at the journey we started four years ago, we have accomplished a lot, even if much still remains to be done. In addition, we will continually strive to be more customer-focused and think ‘outside-in’ in developing our strategy and devising customer solutions.”

The creation of centralised group functions for operations, IT and other staff functions has resulted in savings of SEK 1.5bn

With SEB’s own journey towards greater operational efficiency as a starting point, a discussion followed about how Ericsson, Holmen, Niscayah and ASSA ABLOY are also working to make business processes and internal communications more efficient. Kersti Lord, Head of Group Treasury at security company Niscayah, explained how her company strives to achieve co-ordination of processes where possible,

“The idea is to introduce process-led thinking whenever possible. We currently have somewhat disparate operating models across our divisions, so I believe it is important to focus on one process at a time and see how it can be enhanced, rather than tackling too many issues at once.”

She continues,

“The introduction of the euro made it simpler to streamline some processes since we no longer need to consider a new currency simply to cross a national border.”

Jonas Gårdmark, treasurer at door-opening solutions provider ASSA ABLOY, described how as a largely decentralised organisation, much of the work to enhance operational efficiency is initiated at business unit level,

“We have made the decision not to adopt a centralised model for the company. Instead, each division drives initiatives to improve operational efficiency. This is an integral part of our corporate philosophy, which is our belief that profitability is driven at a local business level. The exception is Corporate Treasury, where routines, policies and procedures are harmonised company-wide.”

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In contrast, at telecom services and equipment provider Ericsson, standardisation and co-ordination has been intrinsic to the business culture for many years. As Magnus Attoff, Head of Financial Risk Management and Treasury Controlling at Ericsson explained,

“For a long time we have worked to standardise our processes and we recognise the clear efficiency benefits in having as few processes and systems as possible.”

Attoff continued,

“As far as possible, we try to avoid manual data handling to achieve smooth processes. In addition, we have had shared service centres in place for several years. For example we have one single global service centre for all accounts payable activities.”

David Timner, Group Treasurer at forest products company Holmen, described how his company is currently reviewing processes in order to improve co-ordination and harmonise processes wherever feasible,

“We have shared service centres for a couple of business areas but have not really started large-scale co-ordination in a serious way. However, we have begun the work to identify common systems and processes which we will aim co-ordinate where possible.”

Ericsson’s Attoff went on to underline the importance of taking a holistic view when implementing a new IT system for enhancing operational efficiency,

“When implementing either an ERP or specialist IT tool, it often happens that the project is treated as a technology project, involving predominantly IT staff, without complementing the project with business-oriented resources. Developing processes for how to make best use of the new system is very important, otherwise users will go on as they have always done, simply using a new system: hence the system’s capabilities are not fully utilised and the business objectives are not fulfilled.”

The meeting participants generally took a positive view of outsourcing certain operations, but believed that outsourcing was best suited to commoditised, back-office processes that were not specific to the business. For example, Attoff highlighted,

“At Ericsson we have outsourced some business functions for many years, for example on the IT side. However, for us, some activities such as treasury are too much part of our core business and we would be concerned that an outsourcing agreement lacks the necessary business control and responsiveness to business requirements.”

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Niscayha’s Kersti Lord agrees,

“Functions such as treasury typically involve sensitive information which it is preferable to maintain in-house. Furthermore, I don’t think a company would save money by outsourcing its treasury operations; the only difference is that the cost would appear on a different line in the profit and loss statement.”

ASSA ABLOY’s Gårdmark commented that the company had investigated the possibility of outsourcing certain routine functions within treasury back office, but concluded that it was difficult to find the right partner and so had decided not to pursue this route.

While operational efficiency is a goal for every treasurer, with a range of technology tools and banking services available to support this objective, SEB’s Magnusson underlined the importance of carefully formulating the detailed business requirements before defining how these goals could best be achieved. This in turn enables measurable outcomes to be set and monitored to determine project success.

As Erik Seifert, Head of Global Transaction Services, Corporates of SEB’s Merchant Banking division concluded,

“A focus on achieving operational efficiency and enhancing business processes is already high on the agenda for many companies. However, each company will take a different journey, and have different priorities, according to its industry, business organisation and culture.

“Managing cost is certainly a driver for operational efficiency initiatives, but these may be equally concerned with improving controls, increasing transparency of information and enhancing the quality of the outcome. Consequently, a logical next step for companies of all backgrounds, industries and business models is to consider their approach to cash and liquidity management and control, capital requirements, mitigating financial and economic risks, and achieving regulatory compliance.

“By working with a bank such as SEB that is experienced in working successfully with a wide diversity of many of the world’s leading companies, treasurers can leverage our expertise and solutions to deliver additional value to their company. Enhancing business processes to reduce risk and cost, and enhance the speed and quality of decision-making can be a significant way of adding value. SEB’s unique Corporate Value Chain approach provides a systematic way of analysing processes, identifying and resolving inefficiencies, and delivering tangible benefits to the organisation.”