Tackling the Financial Transformation of a Global Company
Transformation of finance and treasury is not a one-off activity but an ever-evolving process. Here, Oleh Kurinnyi, a global treasury and operations specialist, outlines his own experience and highlights some common themes.
Successful business always means growth. Boosting assets and revenue, expanding geographic presence and market share, and increasing headcount are all timeless indicators of corporate attainment. That growth can be achieved naturally – when sales volumes and revenues increase gradually based on the company's existing capacity – or inorganically as a result of increasing capacity through a merger or acquisition with another company in the same market segment.
But at a certain stage, increasing quantitative indicators requires both a qualitative change in the company's business process management structure, and a transformation of finance. As a matter of course, the latter must include treasury, where centralising cash management and unifying treasury operations are the core aims.
Typically, most treasury transformations will require the automation of certain current operations, as well as the creation of a timely and clear reporting process, to facilitate faster and more accurate management decision-making.
Reaching a new level
It all sounds easy when boiled down to its essential components, but what does cash management really look like for a global company at the initial stage of transformation? Typically, it is a collection of financially distinct business entities or branches in different regions of the world, maintaining single-currency accounts in local banks and maintaining financial records in various TMS.
This situation significantly complicates cash management for the entire company (or group of companies). But it also increases operational risks, prolonging the time it takes to prepare management reports and make decisions, and escalates operating and interest expenses. Furthermore, in a typical company, it complicates investing in R&D around external financing and even internal investment.
The outcome is like assembling a car from components from different manufacturers. The result will often be expensive, unreliable, and poorly managed. In other words, it is ineffective.
To improve treasury efficiency within a company that has reached a new level of business, it is necessary to take on a financial transformation programme. This will almost certainly require advanced treasury technology expertise, and often lead to a joint project between internal department specialists and external consulting firms. It is advantageous if these specialists bring experience in such transformations and the ability to implement their solutions without disrupting daily operations.
Stage by stage
A financial transformation project consists of six main stages, similar to those in data analysis (Ask, Prepare, Process, Analyse, Share, Act).
The first stage requires listening to the company’s management and formulating the main transformation goals. In automotive parlance, it’s essential to find answers to the strategic question: "What does your dream car look like?" It's also important to determine the budget management has available for preparing and implementing the transformation.
To continue the motoring analogy, the second stage involves collecting data on the dream vehicle’s current performance, its history (with detailed descriptions of accidents, repairs, and upgrades), its technical resources for ongoing diagnostics and maintaining control under critical loads. In treasury terms, this means collecting data on current business processes, changes in KPIs over the past three-to-five years, the data transmission system, the degree of process automation, the control system, and stress-testing results.
The data collection results are presented in the third stage of the project. This takes the form of questionnaires sent to all departments involved in cash transactions, including front office, middle office, risk management, operations and settlement centres, internal controlling, and funding. But it must also draw insight from those involved in managing databases, business process mapping, and reporting key, and supporting, financial indicators.
These results will be summarised and analysed with the aim of drawing insight into how treasury currently operates (its ‘as is’ state), as well as any issues hindering further business development, and those requiring obvious optimisation and modernisation.
The fourth stage of the project is the development of several ‘future state’ treasury business process transformation scenarios. This will include options for new automated systems. But it will also shine light on new procedures for working with internal and external stakeholders. These should align with the company’s development plans and strategic goals that were outlined by management at the initial project stage.
The strategic goals of a financial transformation project most often boil down to two possible scenarios for the company’s future. These are improving the efficiency of business processes during a period of growth and expansion, or increasing the company’s attractiveness and market value in the event of its sale to a new owner or strategic investor, including an IPO and going public.
During the fifth or ‘share’ stage, the team of consultants presents the results of the previous stage to the company’s management. The presentation includes a visualisation of the proposed financial transformation scenarios. Following the discussion, management should decide on the most appropriate option.
Last, but not least, the project stage is the implementation of the transformation option chosen by the company’s management as the most promising. Expert participation at this stage is crucial, as possession of the necessary experience and know-how to achieve the expected result step by step is key to success.
Grow, transform, progress, repeat
Here are the main results of the corporate treasury financial transformation projects in which I have participated in practice:
- Centralisation of cash management in a single global multicurrency settlement centre with cash pooling, with funds pooled in a global Tier 1 bank, instead of dozens of single-currency current accounts in regional banks in various countries.
- Systematisation and automation of invoice payments (including rent, taxes, wages, contractors, suppliers), establishing an automatic repayment schedule for accounts payable.
- Implementation of automated forecasting of incoming and outgoing cash flows.
- Transition from manual payments to automated debits (individual and batch) using the new ERP system settings.
- Addition of automated controls, with filters based on counterparty parameters and payment amounts (all within the company’s established limits and regulatory requirements).
- Implementation of a new automated TMS and ERP system linked to the online system of the new global service bank, and data migration from the old TMS and ERP systems to their replacements.
- Visualisation of treasury performance in the form of regular reports and a dashboard with online charts.
- Implementation of an automated transfer pricing system.
It’s important that the optimisation of treasury’s business processes isn’t seen as a one-off. It should be a systematic, regularly repeated effort. As the company grows and transforms its business, it needs to flexibly adapt its approaches and responses to new internal and external challenges.
