TechnologyTreasury Management

Treasury Reimagined

By February 24, 2022February 28th, 2022No Comments

Treasury must reinvent its role within finance or risk losing significant head count.

By Nilly Essaides

Technological advances and growth in the use of shared services centers (SSCs) are threatening to strip treasury of much of its operational activities. As automation supplants manual work and low-value activities migrate to SSCs, treasury may lose relevancy and staff. The tidal wave of digital transformation sweeping treasury means that smart automations like AI will replace current systems and the people who work with them.

An existential threat. At a recent NeuGroup meeting, Poly’s treasurer Jean Furter shared a radical view of the future of the function: “In three to five years, 90% of treasury staff will be gone,” he said. “Too many treasuries are still in the tactical mode. If that’s all they do, they risk being automated away.” 

Research conducted by The Hackett Group in 2020, meanwhile, projected that by 2025, 100% of the current work finance handles will be executed with 50% fewer FTEs. The caveat was that the overall workload will rise substantially as finance gets more involved with business and strategic activities.

While we may argue about the exact percentages, there’s no question treasury is exposed and it’s only a matter of time before the powerful trends reshaping the finance organization catch up with it.

The mass migration. Finance organizations are siphoning large chunks of time-consuming, low-value work away from core operations to highly digitized SSCs or GBS (global business services) organizations. By standardizing, automating and centralizing activities such as cash and general ledger accounting and credit and collections, finance is able to reduce process cost, while enabling end-to-end process management. Treasuries that own (or used to own) AP and AR are already feeling the squeeze. In fact, the majority of work handled by SSCs is finance related.

Choosing your destiny. That most treasury organizations have not embraced this vision of the future is evident in the results of the 2022 NeuGroup Members Agenda Survey (see chart above). Only 17% of respondents foresee transferring work to SSCs. If the nearly 70% who expect to see treasury persist as a standalone function are to be proven right, the function must take control of its destiny before leadership forces it to let go of a lot of operational activities.

  • The main reason we haven’t seen a more pronounced trend toward the migration of treasury’s tactical work is that the function is too small to find itself in management’s crosshairs. “Right now, companies’ primary motivation is to automate and centralize in order to reduce head count. Leadership is going after the biggest bang for the buck,” said the treasurer of one NeuGroup member company.
  • While there’s a distinction between SSC migration and pure automation (e.g., manual processes can also be transferred to low-cost locations), in practical terms, it does not matter whether a process is digitized and transferred to an SSC or automated and eliminated. In both cases, it no longer resides within treasury.

The danger of inertia. It can be easy to dismiss concerns about treasury’s slimmed-down future, in part because they are too threatening to contemplate, but mostly because most treasuries have not yet experienced precipitous declines in head count. On the contrary, many of our members are struggling to hire.

  • While automation will eliminate many treasury jobs, it does not mean treasuries will stop hiring. What will change is the profile of the people they hire. We already see this trend among our forward-looking members, as they try to recruit and develop staff with big-picture thinking and advanced digital skills.

Redefining treasury’s raison d’être. To be clear, we are not arguing that the treasury will disappear. We are saying that treasurers must figure out what the function will do when activities such as bank account management, cash positioning, short-term forecasting and reconciliation are automated and/or exported to an SSC. Whether treasury perseveres depends on how its leaders reposition the function’s role within the organization. “You have to position yourself as the source of insight and value,” Mr. Furter urges.

  • “Because of the specialized nature of treasury, for example, there will always be a capital markets group that needs the intellectual horsepower,” explained a respondent to the agenda survey. “Whereas on the [operations] side, that’s where we will see a deeper dive into automation and migration to SSCs; that’s where the head count will be reduced.”

Setting the right priorities. Treasuries have limited resources. If they spend too much time on perfecting ops processes, they won’t have the capacity to look higher, toward value creation and decision-support.

  • “You have to prioritize,” Mr. Furter said. Instead of producing a daily cash report, which rarely drives decisions or actions, do it weekly. “Just because real-time data is available, does not mean you need to spend weeks implementing it in your organization.” 

While it remains important to reduce manual intervention through automation, it’s even more important to demonstrate to leadership how treasury can contribute real value through the design and execution of the capital structure, collaborating with the business to drive working capital, and managing financial risk, for example.

  • According to Mr. Furter, “These are elements that end up having a tangible impact on shareholder value.”

A temporary situation. For now, treasury cannot completely escape its operational duties and may have staff dedicated to these activities for some time. In this hybrid state, treasury is pushing operational excellence at the same time it’s pursuing a higher level of value creation. However, as fintechs introduce new technologies, such as blockchain and digital assets that aim to replace legacy financial market operations, treasury will find itself in a different position.

Above and beyond: Redesigning the operating model. The future of the treasury function is not just about shedding low-value tasks to create strategic capacity. It’s also about instigating a fundamental shift in how finance is organized, e.g., realigning treasury and FP&A activities. It’s incumbent upon treasurers to think strategically and lead high-level conversations about how to juxtapose different elements of finance.

  • FP&A focuses primarily on the income statement, yet it is still responsible for activities that are integral to the balance sheet and capital structure, such as long-term cash and debt forecasting.
  • Most FP&A leaders do not see their forecast within the context of the company’s leverage capacity and targets. It makes more sense to (1) organize around the balance sheet and the income statement; and (2) dismantle departmental barriers to integrate the management of both. 

Cross-finance collaboration. Treasury leaders are on the right path. The majority of our survey respondents chose business partnering as their #1 objective for the year, by which they mean greater collaboration with other parts of finance.

  • “We continue to find ourselves touching lots of points in the finance organization, whether that’s tax or FP&A as well as legal; a lot of things that we decide upon have multiple impacts and stakeholders, e.g., creating trapped cash through the establishment of legal entities, or the impact of tax legislation on our ability to repatriate offshore cash,” one member said. Plus, “we’re partnering with legal on new share repurchase rules, and on cash forecasting with FP&A.”

Breaking the walls. Several trends will accelerate the dismantling of departmental silos. The rapid rise of digital assets and DeFi are forcing corporates to form cross functional task forces to study legal, tax, accounting, funding and payments implications. Plus, with surging inflation, treasury will have to work more closely with the business to determine how macroeconomic trends will impact the company’s ability to make good on its debt obligations or secure needed liquidity.

  • “There’s potential for more volatility going forward,” according to one survey respondent. So the partnership with FP&A is going to be very important.

Treasury of the future will look a lot different than it does today. Treasurers who continue to focus primarily on operational or tactical excellence may fail to establish their functions as valued partners in driving companies’ financial performance. Treasurers have a choice to make and ignoring the threats won’t make them go away.

Justin Jones

Author Justin Jones

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