Big payoffs from big data

Apr 15th 2015 |

You can amass an awful lot of information. The key is doing something meaningful with it. For Microsoft’s treasury team, the strategic insight comes from making use of all the information it has and gaining clarity. It has taken on board the noisy chatter from global markets, volatility, regulatory challenges and is able to take a view on how all of this, along with its own business intelligence, will pan out on its balance sheet. That means knowing in advance how funding, hedging, investment strategies will need to change and how the interaction of information and data will affect the company as it moves forward.

“The macro-economic and geopolitical forces in the world today present challenges for companies seeking to conduct business as efficiently as possible in multiple geographies and time zones. Having a clear view of all operational and counterparty risks – and a plan to mitigate those risks is vitally important”, says Amy Hood, chief financial officer of Microsoft.

Getting a picture of the risk involved is one thing, doing something useful once you have taken a view is quite another. Technology has played a big part as an enabler. Microsoft won the EuroFinance Treasury Excellence Award in 2009/10, in part for being able to gain visibility of its cash to an extent unrivalled by most.

The cash operations team has since implemented Swift ISO XML 20022 for data connection and formatting bank statements and reporting. Still, the data obtained for seeing all the cash needed to be easily understandable and readily usable at a senior level. It needed to move from big data to business intelligence.

“Streamlining and standardising cash reporting flows is a best practice in treasury management, but it is only the first step on a risk management initiative. Leading treasuries need to adopt actionable business intelligence solutions to gain the insights necessary to determine true risk exposure across all counterparty relationships,” says George Zinn, CVP and treasurer. A multi-discipline team was established to build the business intelligence tool [CFAR] using SQL Server, Share Point and Power View in order to make decisions easier. CFAR gives a dashboard which allows users dynamic visual representation of all cash balances by currency, country and entity.

“The ability to mine the big data we already have in treasury, in a fast, effective and visual manner with drill down capability has been key to connecting the dots between various data points to quickly paint a picture of global risk. Measuring and mitigating [risk] in a way that allows the business leaders to navigate successfully has been our focus,” Zinn adds.

In practical terms, being able both to anticipate and respond to geopolitical events has been one result. In the run up to the crisis in Greece, the credit and collections team could look at customer payment patterns as a leading indicator of deterioration. By adding this to data from the portfolio investment team (where they may have seen some precursors to sovereign bond risk) the company was able to join the dots and make sure the cash team could fund and provide liquidity when things went wrong. At the same time, the sales team could negotiate sooner with customers which allowed the company to collect on most of its receivables.

Managing risk using newly available business intelligence tools has become easier. “Our risk team is implementing some innovative risk mitigation structures as we look to grow our competitive position in the cloud services business,” says Zinn.

Also treasury’s expertise in risk measurement is being used to create real time risk credit assessment models which helps the online credit risk team evaluate online (subscription-based) customers (both individuals and SMEs) around the world. “This is allowing the business to take measured risk and have effective mitigation in place as we support the company’s transformation into a services and devices company,” says Anita Prasad, GM in treasury capital management.

This transformation is being supported by technology, vital when there are millions of customers to collect from around the world and working capital has to be managed across more than 250 subsidiaries. Leveraging technology to automate cash forecasting, providing real time analytical feedback on actual to forecast variance and the Swiftenabled accounts to move cash quickly has allowed the team to reduce idle cash balances around the globe while meeting [the] liquidity needs of subsidiaries. “In the end, the ability to instantaneously slice and dice the data and drive powerful business insights to support decision making is what creates the real value-add,” points out Pankaj Gudimella, senior cash manager.

For sure, everything about Microsoft is big, not just the data. The treasury operations team has a goal of full straight through processing of fixed income, equity, FX and derivative trades (trades which total nearly $400 billion a year). Swift messages are used for trade confirmation and the team recently achieved nearly 90% automated confirmations. “The operations team leverages the dynamic Power View based reporting to track counterparty exposure related to these trades and it has allowed us to spot trends that can mitigate potential losses,” says Jayna Bundy, group manager of treasury operations. That’s no mean feat as many financial institutions can’t make that claim.

Microsoft also issued in euro for the first time in April 2013 (selling €550 million 20- year bonds at a record low 2.65% coupon). That allowed it access to a new stream of investors and cut overall capital costs.

Along with the operations team being one of the first to be set to comply with Dodd-Frank regulations in terms of systems and processes – the list of achievements is also big. All this is what makes Microsoft a worthy award winner.