TechnologyTreasury Management

Stepping-stones to Treasury’s Future Operating Model

By April 21, 2022No Comments

Treasurers seeking to align with the rest of the finance org are turning to centers of excellence and shared service centers.

Shifting activities to centers of excellence (COEs) and shared service centers (SSCs) figures prominently in the plans of corporate treasury teams overhauling or refining their operating models to, in some cases, better align with the rest of a multinational’s global finance organization. That takeaway surfaced during a session at a recent meeting of NeuGroup for Mega-Cap Treasurers that featured two treasurers describing treasury transformation journeys fueled in part by automation and technology.

  • “When we look across treasury and tax and FP&A, we see a lot of similarities,” said one of the treasurers, whose company’s global finance team—but not treasury— has been shifting to a new operating model for the past few years. “And so the end goal for where we’re trying to go with the vision is to flip on its head where we’re spending our time.”
  • Specifically, treasury aims to spend less time on transaction processing and, “to the extent possible, do that through continuous improvements and/or leveraging technology, so that we can drive more insights to create value for the company,” he said.

What needs to change, what doesn’t. Moving treasury to an operating model that better serves the business requires clarity on what will change and what will remain intact. For one of the companies, which is early in the process, the point is not to make drastic changes to corporate treasury. “We’re still responsible for strategy, policy, governance; controls and compliance, core treasury processes,” the treasurer said.

  • What needs to change, though, is the number of other people—many of them accountants—in more than 100 business units, or divisions who spend “bits and pieces” of time on treasury activities. “There are a lot of people helping with forecasting, helping with identifying commodity exposures and bank account management,” the treasurer said. “We think there could be 200 to 300 people spending fractions of their time on treasury processes.”
  • Key to this company’s plan to address that issue is creating an “operations COE” and placing it between the corporate side overseeing strategy, policy and governance and the divisions that shape strategy and business partnership. “The value will come from moving the work that is done by many people to a COE,”  he said, adding that he expects the operations COE will also reduce “transaction-related” work done by corporate treasury.

What’s in a name? This treasurer equated the COE to a captive shared service center that supports different functions of accounting for finance teams, but not treasury because of how the finance operating model was rolled out. “But with all the changes we’ve been making, we think now is a good time to rethink it from a treasury perspective.”

  • The other treasurer who presented at the meeting works for a company that is further along in transforming the operating model used by treasury and finance. He draws a distinction between COEs and SSCs. “We use the term COE as centers of expertise, and in treasury this is for higher risk areas that need expert oversight,” he said.
    • “The work we send to shared services is more transactional or repeatable; so while the volume is much higher, the risk is lower because we have processes and controls in place. I think it depends on where a company is in its lifecycle of using shared services on what COE can mean.”
  • Nilly Essaides, NeuGroup’s managing director for research and insight, said SSCs typically host repetitive activities such as cash positioning or bank account reconciliation and are finance-wide and include tasks like general ledger accounting, order entry and periodic reporting. By contrast, COEs provide a valued service that is typically focused on a specific area of expertise such as analytics, automation or, potentially, tax strategy or strategic finance.
    • She added, “While the first is more about migrating low-value activities to gain economies of scale and automation and end-to-end process management benefits, the latter is about amplifying the expertise of a group or groups in order to serve a broader audience within or outside of finance.”

Outsourcing and offshoring. The company that is farther along in its treasury operating model transformation outsources some processes to offshore third-party shared services providers in addition to internal shared service centers. The treasurer said that before outsourcing to third parties, treasury had to ensure that the processes and systems it used made sense and worked well. Generally, we have an internal business services team who does intake of existing processes and coordinates with the shared service—internal or external—to work out transition times and pricing,” he said.

  • He offered some informed advice about managing the outsourcing process. “Over the years, any work that has been outsourced to internal or external shared services tends to decline in accuracy as the teams have turnover or further outsource the work offshore. So things slip through that we’re used to catching or seeing earlier, and we find out later than we’d like. Building in clear KPIs, service levels and accountability to middle office is important.”
  • The treasurer whose company is in the initial stages of changing its operating model is not planning to outsource any core treasury activities to third parties. In what we’re envisioning, it will be our resources; my team will be responsible for all the talent, even if it reports into that global businesses services function.”
  • He added, “We think there will be resources focused regionally on the business units in the Americas, another in EMEA, Asia Pacific. We’ll have a leader in there for treasury that will be part of the operations COE team, that’s more of a shared service focus, process efficiency, but they will be getting all their guidance and leadership from the corporate function.”

Bigger picture. To date, the trend toward the migration of transactional activities to SSCs has left treasury relatively untouched, and that is in part because treasury is not a major cost center in terms of headcount or a hub for massive volume of transactions (with some exceptions). Our data shows that only 17% of respondents participating in NeuGroup’s 2022 Member Agenda Survey (see chart) envision transferring work to SSCs.

  • In Ms. Essaides’ view, that is going to change, as finance organizations accelerate the pace of their adoption of SSC platforms. “If treasury expects to persist as a standalone function, it must take control of its destiny before leadership forces it to let go of a lot of operational activities.”
  • The treasurer in the early stages of the process sees other risks. “As the global finance team moves to that global finance operating model, if we’re not aligned to it, I see a lot of risks. We’re going to have things from a process perspective that could really slip through the cracks. So in our operations COE we’re going to be building out this treasury component.”
Justin Jones

Author Justin Jones

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