Working capital is often viewed by treasurers through a cash and liquidity lens. But this laser focus means that opportunities for efficiency can be slipping through the cracks. At a time of unprecedented uncertainty, cross-functional data dashboards and machine learning could help treasurers to break down barriers and unlock hidden working capital efficiencies across their organisation.
When members of the British Cycling Federation began taking their own pillows away with them on training camps, their performance improved. So much so that the team won eight gold medals at the London 2012 Olympics. This success was not all down to their sleeping paraphernalia, of course. It was part of their trainer’s new ‘marginal gains’ approach – the idea that if you break down everything that goes into riding a bike, and then improve each part by 1%, the cumulative result is a significant increase in performance.
This notion of looking at an entire process and identifying areas for continuous improvement translates equally well into the world of working capital. Too often, treasurers view working capital only through their own eyes – concentrating on cash and liquidity, while finance directors typically translate ‘working capital’ as ‘the financial supply chain’. This is understandable given the departmental siloes that still exist in most organisations, but this compartmentalised approach means many corporates do not have a firm handle on their end-to-end working capital management.
Drivers of change
Now more than ever, companies require optimisation across their complete working capital lifecycle – from capital-raising activities to the opening balance of cash, closing balance of cash, and the generation of cash throughout the business. During times of uncertainty and volatility, having an end-to-end understanding of the company’s working capital can help to inform strategic decisions more quickly and accurately, enable more effective communication with stakeholders, and pinpoint areas for improvement.