The Capital Goods and Automotives Sector: Paving the Way to Treasury Transformation 2.0
By Jared Smith, Global Sector Head of Capital Goods and Automotives, Global Liquidity and Cash Management, HSBC
Major capital goods and automotives (CGA) corporates are often early adopters of new treasury techniques and technology largely due to their substantial size, as the corresponding extent of potential cost savings and efficiency gains are attractive. As Jared Smith, Global Sector Head of Capital Goods and Automotives at HSBC Global Liquidity and Cash Management describes, because their needs are often more pronounced than treasuries in other sectors with less diverse geography and product need, CGA corporates are paving the way forward in treasury transformation.
The largest members of the CGA sector were among the first corporates globally to focus on treasury centralisation. As global, highly-diversified industrial companies, they could see the substantial potential benefits of migrating to SWIFT and common message standards, while also streamlining their banking relationships. The overhead of supporting multiple proprietary message types could be removed, central treasury’s visibility of cash globally could be enhanced and banking costs could be minimised by closing surplus accounts. In addition, their ERP systems were able to run more efficiently in terms of both processing and providing valuable management information. Essentially, these CGA corporates completed Treasury Transformation 1.0 10-15 years ago and over the intervening period have already evolved to Treasury Transformation 2.0 or beyond.
Reducing cost and change barriers for later adopters
A major change since the largest CGA companies undertook the first stage of treasury transformation is that the costs associated with that first stage transformation have declined considerably. Smaller companies, which might have found the costs of such a transformation hard to justify 10-15 years ago, now have a far easier decision to make. Technology costs have fallen substantially, with lighter, or software as a service, versions of ERP and treasury management systems (TMS) now available. In addition, these smaller companies are able to work from an established roadmap defined and refined by the larger early adopters. In addition, some smaller companies may have already undertaken some of the preliminary rationalisation needed before they embark on their treasury transformation, so they are not starting from the absolute zero point of their predecessors.
These smaller companies may therefore look to their banks for a slightly different set of skills and services than their larger peers. Many of them could be moving into new and unfamiliar territories, so the extent and depth of their bank’s physical network will be crucial in offering support and guidance on local regulation, clearing mechanisms and payment practices. More generally, they may be looking for a consultative banking relationship, as well as local language support from qualified ERP, TMS and SWIFT specialists.
Larger companies will be looking for some of the same qualities in their banks, however because of their size, diversified brands and geographies serviced, they will often already know about relevant local regulation, clearing mechanisms and payment practices.
Expectations of banking partners: single point consistency
Large diversified CGA companies have additional priorities in other areas, with one of the most important being global consistency of servicing. Partly due to their highly centralised nature, they place a premium on being able to interact with their key banks in the same manner, using the same interfaces, regardless of location. While local market conditions may occasionally prevent this, it also applies to bank products and services, where a consistent user experience and operation is highly valued.
In the case of a specific project, this consistency needs to apply across all phases of the bank interaction, starting with the relationship sales engagement. The same consistent messaging and service level then needs to be maintained by the bank’s implementation team, as well as post-implementation with the client service team.
Overlaid upon this is a need for the bank to be able to focus its expertise and delivery down to a single point. In a complex global cash management engagement, multiple bank teams around the world may be supporting and working with multiple local corporate teams. Nevertheless, for global treasury to be able monitor and manage their daily activity efficiently, it needs all the information relating to the project focused to a single local point of delivery. The inefficient alternative is for treasury to have to contact multiple local centres individually, many of which may be in entirely different time zones.
An interesting distinction regarding large companies, such as the largest CGA corporates, is that some may now view their banks less as transaction organisations and more as the owners and purveyors of information and data. This challenges their banking partners to deliver data in a way that matches the client’s approach to its consumption of that data, given the sophistication of the data management and analytical tools now at clients’ disposal. The data expectations of global CGA treasuries include exceptional granularity and detail. For instance, rather than aggregated data, they will be looking for individual transaction level data, coupled with as much detail as possible about each transaction. If they have this, they are not constrained in how they slice and analyse the data by multiple criteria, such as payment type, beneficiary/remitter type, ancillary payment information (e.g. invoice numbers) or processing time.
Large CGA treasuries expect that all this information should be made available by their bank in a single consistent format that can be automatically streamed via application programming interface (API) into their ERP or TMS. They definitely do not wish to receive a mixture of CSV files, XML formats and binary files that they will have to normalise themselves.
The historic focus of a bank’s transaction banking organisation has been to deliver extremely robust and equally efficient transaction processing. Its systems were therefore entirely fit for the purpose originally intended. However, they were implemented at a time when the focus was primarily on processing just the transaction, but not upon collecting and sharing information relating to the transaction with multiple other systems, including those on the client side. Therefore, extracting the information that CGA treasuries want from these processing systems is not a trivial task. A further hurdle in a global context is that these core processing systems may vary from region to region both in terms of transaction detail and internal format, so an additional task for the bank is the necessary data normalisation.
Transaction banks have therefore had to invest heavily in transformation projects to deliver access to the large pools of data that clients generate, thereby enabling clients to access and analyse that data conveniently. For example, HSBC has made a major commitment with its global Digital Transformation for Corporates (DTC) programme. A core part of DTC is the development of a range of APIs that streamline the extraction and normalisation of granular data from the various transaction processing systems. Furthermore, in addition to delivering on corporate data needs, DTC also provides the sort of consistent user experience clients now also require. Innovation investment like DTC also eases the path to future enhancements, such as the incorporation of blockchain technology.