A recently published study by Citi seeks to explain what differentiates top performing treasuries from the rest. A follow-on discussion with Dr Duncan Cole, Digital & Partnerships, Client Advisory, and Ron Chakravarti, Global Head, Client Advisory, both of Citi’s Treasury & Trade Solutions team, traced the sources of success.
Companies that have nurtured treasury teams to be leaders tend to enjoy better financial performance. It may sound obvious to the treasury community that being in the driver’s seat enables the rest of the business to perform optimally, but where exactly does that advantage come from, and how easy is it to attain?
Citi’s study – Treasury Leadership: Does it Matter? – is its fourth biennial look at the impact of treasury on business, and vice versa. This time round it sought answers to three key questions on this theme: does leadership in treasury matter for a firm; what are the attributes of a leading treasury; what are the key steps needed to get there.
The study was based on a review of survey results gathered from its corporate treasury clients between May 2019 and May 2023 through the Citi Treasury Diagnostics (CTD) service. It harnessed the views of 336 respondents from organisations representing a diverse range of sizes, industries, and geographies.
The original press announcement and a link to the full 88-page survey can be found here.
Core themes
The work is divided into three chapters. Chapter one explores how treasury performance correlates with financial performance. It shows that treasury performance has measurably improved across companies between 2019 to 2023, and that larger companies (measured by annual revenue) tend to have higher-performing treasuries. The latter point, argue the authors, is because larger companies usually have the longevity necessary for the treasury function to mature, and because larger companies may also invest more in their treasury.
The second chapter covers treasury leadership in practice. It notes that most companies have formal policies across all areas of treasury responsibility. It also reveals that effective cash and liquidity management — “a minimum standard for corporate treasury” — has progressed in the past four years. It points out that the role of treasury is expanding in working capital management, and that it is increasingly addressing working capital management across both financing and operational aspects. This sees it engaging more with Procurement, Payments, and Credit and Collections to improve practices.
Within this section, risk management is identified as an area where many companies can improve, especially as unexpected funding needs were required by one in five companies in the survey period. It notes too that the focus on counterparty risk management has intensified, especially for larger companies, and that interest rate exposure management is less robust at smaller companies.
Chapter three considers the importance of technology deployment, connectivity, and digital adoption. The study shows that adopting and integrating treasury technology drives the greatest improvement in overall treasury performance.
Some 63% of all study participants have deployed a TMS or ERP treasury module, but while around 90% of larger companies are either fully or partially integrated with their banking partners at this level, the figure drops to 59% for smaller companies. Nonetheless, the tech advantage is clear for the 60% of companies that say they are now looking to leverage technology across both their core business and treasury functions. This compares with 49% in 2018.
The study notes that, in general, data and analytics are now the key areas of attention. This includes exploring the use of predictive analytics for better-informed decision-making. However, only 40% of participants have a data strategy in place, which the authors argue is essential if data and analytics are to be fully leveraged.
Planning for progress
The technological changes in treasury noted in the study are not necessarily the effect of natural incremental change, but instead seem to indicate a more proactive stance by many in the function, notes Chakravarti.
With technology and data key elements of a function like treasury, he feels companies generally understand and are responding to the need for change in this respect. “There are many large to mid-sized companies engaged in transformation in this area, and they are coming to banks such as Citi for more information and guidance, asking us about treasury best practice and how their peers are making the case for that technology and resource investment”, he notes.
The challenge for treasury often arises because resources are typically more readily directed to the business’ profit centres. However, notes Cole, the study indicates a 10% increase in activity since 2021 in forward-looking treasury projects – notably opportunities around APIs, data insights, and ML/AI. “I think this underlines a new focus, and while it doesn’t go without its own set of challenges, there is more cooperation now between banks and clients on how these tools can be leveraged.”
However, transforming treasury functions to real-time in support of digital business models is yet to attract priority attention for respondents, and there are limited projects underway for the use of digital currency or distributed ledger technologies.
Discussions on new technologies aside, the bottom line for many a treasury transformation is that cost and legacy technology remain stubbornly in the driving seat when it comes to progress. The study supports this view, highlighting these as the main hurdles, irrespective of company size. But Cole alludes to “green shoots” of recovery, with the cost obstacle diminishing – remaining the number one issue but reducing from 63% to 56% of the sample over the period of the study.
That said, the study also reveals “limited change over concerns expressed in resolving legacy infrastructural challenges, or in obtaining technical skills and other non-financial resources”, to push ahead with transformations. What’s more, company policy restrictions, and a lack of regulation concerning the emerging technologies (especially AI), are becoming more of a concern for corporate treasury.
Notwithstanding specific challenges, the data points expressed by the study, when aligned with anecdotal evidence gathered though Citi’s client engagements, show that it is easier to drive through a transformation project when treasury has invested time in developing a clear technology and data strategy, says Chakravarti.
“In looking for investments, demonstrating to the business holistically – not on piecemeal basis – what will be needed, why, and what the outcomes will be, gives the CFO a longer-term view of how technology and data can be fully leveraged by the enterprise,” he says. Marked by “evidence that there is an acceleration of the realisation of the importance of a strategic approach to transformation”, there is, he notes, “a lot more thought and effort being put into defining a treasury technology and data strategy, with this then becoming the rationale for investment”.
Seize the moment
The study demonstrates that top-performing treasuries efficiently fund working capital, deploy liquidity, and identify and mitigate risks, by transitioning from people-dependency to well-defined strategies (especially digital strategies) and processes, by developing data strategies to ensure access to timely, complete, and accurate data, and by applying technology to automate wherever possible.
The study is quite explicit in the way it urges treasuries lagging in these areas to learn from the best, and jump at the opportunity “to begin creating value by contributing to their organisation’s profitability and growth”. With this in hand, the authors conclude, “we suggest there are fewer excuses for treasury underperformance as we move into 2024 and beyond”.
