Transforming Treasury: Planning for the Future

by Paige Chesser, Strategic Solution Delivery Executive, Global Business Solutions, Bank of America Merrill Lynch and Drew Strzepek, Engagement Executive, Global Business Solutions, Bank of America Merrill Lynch

The new mandate for treasury and finance leaders is to assume a more influential role within their business. Strategic planning can help them get and keep a ‘seat at the table’. Creating and executing a strategic plan can accelerate the move from transactional activities to a more strategic and value-added focus. A clearly articulated and well communicated blueprint for change drives significant benefits while elevating and repositioning the critical role that finance professionals have in their organisation.

With the heightened focus on board-level visibility and transparency of cash, treasurers must rewrite the role they and their department play in the overall organisation. The challenge of moving from a traditional transactional focus to a proactive, strategic resource requires both a mindset and operational change for the treasurer, the treasury team and the organisation. Additional factors contributing to the need for this transformation include growth expectations, global expansion, a heightened regulatory environment, as well as decentralised and fragmented systems and processes.

At some companies, it may be that the enterprise has been growing through mergers & acquisitions for several years, leaving it with a slew of antiquated financial systems that aren’t integrated with one another.

Or it could be that the treasurer — amidst all of the changes in the business — hasn’t been able to find the time to cultivate within the treasury staff the skills and competencies that are necessary to help the department thrive.

Or perhaps the treasurer has yet to adjust to new expectations and a new role: since the financial crisis, treasurers are no longer viewed as managers of a corporate cost centre, but rather as internal liquidity consultants uniquely positioned to help their companies grow and thrive.

Transforming and repositioning the treasury function can be necessary for many reasons, but it isn’t always a simple matter. A well defined and executed strategic planning process, a discipline that traditionally has been lacking in transaction-oriented corporate treasury circles, will jump-start your journey and catapult the team to success. So where do you begin?

Establish a framework

The purpose of strategic planning is to set the direction and long-range goals of the organisation with well articulated strategies, supporting tactics and aligned resources to attain the goals. This roadmap sets the stage for change, clarifies for the team what is changing and why the change needs to happen, and is a springboard for creating and communicating a vision of the future.

Executed properly, a strategic plan can enable a treasury department to align its vision, long-range strategies, performance measures and tactical execution plan with the strategic goals of the company — and move forward with confidence.

Components of the plan

There are several components to a strategic plan. You should begin by defining and documenting the strategies you will pursue over the next three to five years — strategies that are aligned with your target vision and the company’s strategic imperatives. Considerations may include people, organisation and locations, processes, technology and infrastructure.[[[PAGE]]]

Next, implement a tactical plan to drive activities that support your strategic goals. The tactical plan should include a prioritised list of the activities that treasury needs to accomplish in the coming year in order to stay on track. Tactical initiatives can then be cascaded to the appropriate associates’ performance plans to ensure resources are properly aligned to your strategy.

Finally, a comprehensive plan must include performance metrics and goals. All of your strategies need to be measurable. For example, if one of your strategic goals is to achieve complete global cash visibility, then a simple metric might be the percentage of your global bank accounts for which you have visibility. If you have daily visibility into 50% of your bank accounts today, you may want to set percentage goals for one and two years from today until you achieve your ultimate strategic goal of 100% global cash visibility.

Managing for results

Developing the plan is only half of the battle. Even the best-written strategic plan has very little chance of success if it is not actively managed to drive the desired results.

You will need to establish a management routine for reviewing progress in pursuit of your strategic goals, and develop a process to implement countermeasures when obstacles arise. For instance, if the treasury team isn’t receiving the resources it needs to achieve its goals, executives might decide to realign resources to get an initiative back on track.

Key steps in developing the plan

• Obtain executive and/or headquarter level mandate and sponsorship. Since treasury’s strategic direction must align with the overall corporate vision, you will need buy-in and a mandate from top management to proceed. It is critical to communicate how your plan will enable, accelerate and support the company’s strategies. This step also positions treasury as a key player in achieving corporate objectives and can set the stage for required future investments.
• Identify and assign dedicated resources to the plan development. Assign accountabilities and establish timelines for those involved. This promotes buy-in across the team and creates clear expectations and a unified approach.
• Gain a detailed understanding of the current state. Before plotting a course for the future, you must establish a baseline of where you are today. This can include creating process maps that document current activities and procedures. Then start collecting data — such as the number of manual transactions you do today and the number of people involved in each treasury process. Documenting the current state will help you to identify activities and processes you may want to eliminate, streamline or automate in the future state.
• Define the target state. What do you want your treasury operation to look like in three to five years? How will you be managing and controlling cash and liquidity? What will your capital structure look like? What activities do you envision the treasury team performing (analytics, internal business consulting, risk modeling, etc.)? How do you want your bank and bank account structure to look and function? What activities can be automated to increase straight-through processing, eliminate waste and reduce errors? Can the work be centralised, off-shored or on-shored, eliminated or repurposed to drive efficiencies? How will you leverage technology to achieve your optimal state?
• Evaluate the external environment. To be sure you are properly planning for the future, you must be aware of what is happening externally to your company. Considerations need to include the external market and industry, the global macro-economy, geopolitics, and the regulatory and compliance landscape. What are the strategic implications of regulations impacting treasury — such as the federal Dodd-Frank and healthcare laws or the Single Euro Payments Area (SEPA) mandate? And don’t forget to monitor what your competitors are doing that may have an impact on your strategies.
• Analyse business and associate needs, internal capabilities and process effectiveness. For instance, does a particular business unit need capital to grow in a certain geographic region? What do your treasury associates need going forward? What are the skills and competencies that will be needed as you move toward your future state? Where can you simplify, streamline and improve core processes?
• Perform an assessment of your strengths, weaknesses, opportunities and threats (SWOT). Complete a SWOT analysis to take into account those internal and external variables that may hinder success, or identify additional opportunities that need to be focused on within the plan.
• Document your key strategies. At this point, your basic strategies should be quite apparent. Develop concise statements defining these strategies as a means to what you are trying to achieve. HINT: You should only have a handful of strategies, generally fewer than 10. Examples of key strategies: global cash visibility, capital structure, cash mobility, technology, etc.
• Define metrics to measure success. Each strategy must have an associated metric that you can use to measure success. Establish a baseline related to current performance for each metric, and then set future goals with a defined timeline. The gap between current performance and the future state goal will help identify each year’s target and priorities within your 12-month tactical plan.
• Build the Multigenerational Plan (MGP). Your strategies will not be accomplished overnight. Thus, you will need to build a year-over-year plan of initiatives that allow you to move from your current state performance to your future state goal. This becomes your high-level roadmap and is a great communication tool.
• Build the tactical plan to support your MGP. This 12-month plan identifies the key tactical initiatives the team will be working on to deliver on Year 1 goals. Each tactic needs a defined statement of success, assigned accountability and key metrics aligned to the strategic metric. The tactics should then be included in individual performance plans as appropriate.
• Establish routines to drive and measure results. Establish management routines to review progress against stated goals. Teams should provide status against goals as well as escalate obstacles or key decisions requiring executive support. Progress against the 12-month tactical plans should be reviewed at least monthly and subsequent MGP adjusted accordingly.

Claiming your seat at the table

Corporations are demanding more from their treasury teams. For treasurers to claim their seat at the table, they must distance themselves from their traditional role as a caretaker of transactions and adopt a more strategic mindset. Your greatest chance for success in making that transformation calls for structured strategic planning — establishing goals aligned with the corporate vision, documenting short-term tactical plans, selecting performance metrics and managing for results.