Published: January 01, 2000
An effective global operating model can benefit treasury in numerous ways – but for companies with operations in multiple countries, regulatory variations can make it difficult to apply a single model in a consistent way. Nellie Lee, Assistant Treasurer at engineering and construction giant Bechtel Group, Inc., talks one-on-one with Liz Minick, Head of U.S. Corporate Treasury Sales at Bank of America Merrill Lynch, about how Bechtel took up the challenge with remarkable success.
NL: When it comes to corporate treasury, the definition of a global operating model varies from company to company. For Bechtel, it is defined as visibility and control over the cash we have all over the world, managed from a central location.
In our case, with more than $30bn in revenue and 53,000 employees around the world, it’s almost impossible to centralise operations into a single location so our global operating model consists of a centralised treasury hub, managed out of San Francisco, which gives us the visibility and control we need. We also have global shared service centres in Arizona and New Delhi that focus on transaction processing, such as payables, payroll and accounts receivable.
Bechtel does work in over 60 countries and in some of these emerging markets, banking is not very sophisticated. Creating a global operating model took some time to perfect, but we are very pleased with the results.
The move toward adopting a new model was put in motion in 1999 when it became increasingly clear that we had real-time visibility over cash held in the US. Where our international operations were concerned, the picture was very different. Bank balance information was limited to bank statements received at the end of each month and reconciliation was a very manual process.
We defined what we wanted from a global operating model: full visibility over all our bank accounts around the world – and then, gain better control over our liquidity.
To get to that point, however, the treasury team identified some key goals:
1) Inventory and identify our bank accounts
2) Identify which banks have our accounts
3) Rationalise the bank accounts and the banks, close unnecessary bank accounts, consolidate accounts where applicable, transition accounts from non-relationship banks to relationship banks
4) Establish an in-house bank to pool funds to maximise returns on excess funds and minimise/eliminate local borrowing needs
NL: Before we even began this effort, we discovered that our Information, Systems & Technology (IS&T) group had initiated a project to consolidate the more than 200 different Enterprise Resource Planning (ERP) systems we were operating across the company into a single platform wherever possible. Knowing the synergies that could be gained by joining forces, we began working on the business case to combine the centralised treasury project with the ERP project.[[[PAGE]]]
Early on, the treasury team initiated discussions with our banks to help support our project. Treasury worked with IS&T, which was undergoing the ERP systems consolidation, and then brought the banks on board to implement an electronic data interchange (EDI) interface for payables immediately after each systems consolidation. This turned out to be a very successful initiative. Obtaining support for the treasury project was not without its challenges. The key to the success of our project was senior management sponsorship. Our Corporate CFO, along with regional/business line CFOs, supported and helped advance our integrated project. Rather than attempt to convert all locations at once, we decided to implement one region at a time – with the first being Asia Pacific and Australia.
One of the first objectives was to understand what objections we would face by closing down the local bank accounts. The local offices did not want to give up control of their bank accounts, their ability to open bank accounts with banks of their choosing and ability to write cheques whenever they wanted. We addressed the cheque issue, provided them with a cheque book, but management of banks and bank accounts reside with Corporate Treasury. Not only was it challenging to consolidate the banks and accounts for the local offices, but we were also setting up the Shared Service Centre in Arizona – further removing control from the local offices over payables and receivables processing. Implementing the first location is always the hardest – but once we were able to gain traction in Australia, and eventually Asia Pacific, we had success stories to tell. All in all, it took us almost five years to convert all of the regions to the global operating model, so it’s important to set realistic expectations up front around timing and results.
NL: The company now has visibility to substantially all of its cash around the world. Where we don't have it is in emerging market countries where real-time balance reporting is not available. For these balances, we rely on our country controllers to provide bank statement information. Nevertheless, we continue to work on gaining visibility over that final bit of cash.
Another interesting result to come out of this exercise is that treasury is now viewed as a strategic enabler to the company’s overall success, rather than simply as a processing centre. By reporting up to management our daily global cash position, what is being done with it, and how it is being deployed and invested, we have gained a valuable seat at the senior management table.
But visibility was just the first goal. We also wanted to increase Treasury’s control and oversight over all bank accounts and ensure those accounts complied with corporate procedure and policy. Only Corporate Treasury opens/closes bank accounts and we conduct bank account reviews annually.
As a result, we significantly reduced the number of bank accounts by more than half and a large number of them are zero-balance accounts. We continually work on reducing this number where practical.
The new operating model has also supported Treasury’s FX strategy by enabling effective hedging policies and programmes to be put in place. In turn, this ties in well with the company’s long-term corporate treasury strategy, which is focused on putting the proper risk management controls in place and making the most efficient use of corporate resources.
NL: During the course of the project, we had to modify the original vision which started out more aggressive than we could realistically take on at one time. When we started the project, our goal was to take a cookie-cutter approach and implement all countries around the world the same way. We quickly realised that there are certain countries where, for example, pooling cash was not permitted – so we had to take a step back, identify the countries with various regulatory or other government restrictions, and make some adjustments to the plan.
The new centralised model has meant that some degree of local regulatory and market knowledge has been given up in the pursuit of central control. But we compensate for that by relying on our banks to supply that information, particularly in the more challenging countries. We also have country controllers who produce the statutory reports for the tax agencies, and we rely on them to advise us about new regulations that need to be adopted within the country.
Would we have done anything differently in hindsight? I would like to think we could have completed the project faster. But realistically, with each region we tackled, we had to start from the beginning in terms of selling the project, communicating the benefits to the local units, and that took time. Familiarising ourselves with the nuances of each country was also time-consuming, as was gaining an understanding of the associated central bank regulations and requirements, and knowing what was and was not permitted. We were early adopters to centralisation when this concept was relatively new. We faced a lot of challenges, communicating benefits to the local offices at the same time as we were implementing a shared service centre, both of which limited the local offices’ control over their bank accounts and payables processing. This was a major cultural change for the local offices.[[[PAGE]]]
In any case, much was accomplished given the limited resources we had on staff and the regional challenges we faced at almost every turn. Access to bank information 10 years ago was difficult, but the advances in technology have given us better access to timely information. We can make better and faster decisions now. We have an integrated ERP system, a global structure for our in-house bank, and a treasury workstation that brings in bank transactions, which we code, and interfaces to the General Ledger. This technology has allowed us to record entries daily to the ledgers allowing us to close our books for financials sooner. We are very happy with the end result.
How Thought Leadership Can Reduce the Cost of Sales by Patrik Havander, Havander & Partners A focused attention on the costs incurred by the global sales and marketing processes is becoming increasingly important for corporate banks and their transaction banking departments. While the client/bank relationship remains vital, research has shown that in fact relationship selling […]
