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Treasury is dead. Long live treasury?

by Simon Brady

Published: June 22nd 2018

If Global Business Services models can do a better job at HR, procurement, networks, IT and data analytics, why doesn’t it just take over treasury? At some firms, it’s already happening. By Simon Brady.

Shared services are again all the rage as companies search for the short-term wage arbitrage of offshoring. At the end of 2016, Warner Music Group announced the creation of a new US centre of excellence for Shared Services in Nashville, Tennessee, to aggregate its US Accounting Operations, Cash Management and Recorded Music Rights Administration. In June 2016, Eltel announced its intention to establish a new Global Shared Services centre in Poland later this year. The decision has now been taken to locate the centre to Gdansk. The centre will provide all Eltel businesses globally with support services in the field of finance, human resources and procurement. And Nestlé, as part of an ongoing programme of structural cost saving, has recently set up two more SSCs, one in China and one in Portugal taking the total to nine.

Initially, treasury is in control of the outsourcing of its functions. The creation of one or more shared service centres is driven by a corporate desire for lower-cost, higher efficiency processes. Treasurers’ solution has been to centralise treasury operations and to outsource non-strategic treasury processes.

Typically, this process starts with streamlining bank account structures, bank account management and pooling mechanisms, often by moving to a single banking partner. This eliminates manual processes, creates greater cash visibility and gives treasury access to real-time information, allowing it to develop better cash forecasting and insights into the underlying businesses. Standardisation is achieved through the adoption of ISO standards or the creation of company-wide process templates.

Shell for example, as part of the company’s long-running treasury centralisation, started by templating the bank reconciliations process and then rolling that into the SSC. It then developed this idea of a single company-wide process and applied it to an ever-broader range of products and processes like payments and FX. Often this is accompanied by a restructuring of fragmented ERP systems, or at least the centralisation of feeds from multiple ERPs into a single system with analytics – such as SAP’s HANA – with a view to automating functions such as cash forecasting.

Later process migration is not simply a case of moving transactions and their associated processes, but one of breaking down and re-designing existing on-shore jobs. In other words, once established, SSCs expand their remit by identifying other processes inside the company that would benefit from being re-engineered by what has become a centre of excellence in process efficiency. For example, commercial payments and collections, which are not part of the definition of treasury at a surprising proportion of companies, also naturally sit in a shared service centre.

So, over time, companies end up with structures like Pfizer. It has in-country SSCs where necessary – its SSC in China manages its in-country bank account structure and in-country cash pooling, as well as providing forecasts on cash flow and FX exposure. The Dublin treasury centre and in-house bank manages the regional multicurrency notional pool, FX hedging and liquidity and investments.

From SSC to GBS

So what happens next? Large companies end up with a global patchwork of functional SSCs, as well as, sometime, third-party business process outsource (BPO) firms. This patchwork creates exactly the problem of fragmentation and de-centralisation that the SSCs were designed to cure in the first place. One answer has been the evolution of a Global Business Services model to integrate all shared services and outsourcing activities across the enterprise. This model abandons structures defined by narrow business functions such as finance or IT and focuses on delivering standardised, end-to-end processes. Companies can achieve this with their SSC structures – and Shell, AstraZeneca and others have their own models for achieving standardisation – but others believe the multifunctional GBS model is best.

So, Bayer Business Services is the “global in-house competence centre for business solutions and business support processes of the Bayer Group.” In fiscal 2016, it employed 5,560 people worldwide in 12 sites and achieved service volume of more than €1 billion.

Standard Chartered Global Business Services employs 13,000 people, servicing most of the 70 countries where the Standard Chartered Group has a footprint. It handles activities including finance and accounting services, software development and maintenance, and providing compliance services around Basel, anti-money laundering and know your customer.

The most sophisticated companies can end up creating a four-layered structure: the corporate centre; the ‘centre of excellence’ or GBS; functions embedded in the business and, lastly, SSCs. On this model the true GBS operates as a true centre of excellence, which attracts highly qualified staff undertaking tasks which are far from purely transactional. In this model the GBS acts as a talent pool for the rest of the finance organisation.

W(h)ither treasury?

The question for treasury starts off being how well their companies can migrate treasury processes into these centres. But increasingly, if that migration goes well, it ends up being what of treasury is left outside the SSC or GBS? Does the outsourced entity end up running treasury – or does it even end up being treasury? At Vodafone, for example, the GBS unit includes the procure-to-pay cycle, the reporting cycle, cash management and management accounting in its portfolio. And indeed a small number of multinationals avoid the complexities of the question by offshoring the entire treasury function. The question then becomes whether the treasurer is then too far away from the CFO and senior management. But these are rare exceptions.

At some point, since most treasury activities are back-office processes in transition from disconnected and/or manual to connected and digital, doesn’t treasury simply get broken up into a series of automated templates and data-deliveries, and outsourced to the SSC/GBS? And if only highly-skilled, value-added activities are to remain with the business, what is the difference between 100% owned SSC/GBS subsidiaries and true outsourcing to a BPO provider? (See page 38 for more on the future of the job of treasury.)

The latter have developed from straightforward geographical wage arbitrageurs to sophisticated creators of value-added through analytics and digitalisation. They are positioning themselves as both a source of efficiency and of transformation. And their increased sophistication has been driven by specialisation: BPO offerings can be horizontal across a process type or function – HR, finance, procurement and so on – or specific to a particular industry sector.

The traditional treasury response to the idea that it is being subsumed or redistributed into these offshore units is that while the processes outlined above do naturally lend themselves to outsourcing, the treasury back office is different. Yes, it executes largely transactional processes, but they require real treasury expertise to act as an effective control. So offshoring them to unskilled staff is risky because it creates distance between the remote back office, the front office and the group treasury. Whether or not this is true is impossible

to prove one way or the other, but it seems to fly in the face of the technological advancements of the last few years. Geographical distance is not what matters. Disconnection is what matters.

Rise of the robots

The rise of robotic process automation complicates matters further. RPA is the use of software ‘robots’ to automate administrative processes by replicating the actions of human operators of computer systems. This is a new form of automation that does not require traditional Application Programming Interfaces (APIs). The software robot is ‘trained’ to execute the actions of a human operator, rather than programmed, and it is this form of automation that is forecast to remove the need for many low-skilled data-entry and similar jobs.

This could have one of two effects on in-house departments and SSCs. On the one hand, any outsourcing whose primary purpose is the offshoring of low-skilled jobs may find themselves made obsolete by technology, since RPA removes the need for humans altogether. On this view, on-shore departments become more efficient without the need to outsource and companies should conduct an evaluation of process optimisation, including considering the benefits of RPA. That evaluation may increasingly prove that offshoring is unnecessary.

On the other hand, perhaps SSCs themselves will adopt RPA technology, making the case for outsourcing to them even more compelling. In this scenario, RPA may also solve one of the perennial problems of offshoring to an SSC. Many companies find that after offshoring, headcount actually increases in the SSC compared to the legacy process, sometimes by amounts significant enough to negate much of the original business case. Using RPA to optimise the SSC may reduce this problem. It may also mean that firms have a complex trade-off between the RPA-enhanced onshore model and the RPA-enhanced SSC.

Either way, regardless of function – HR, procurement, treasury, whatever – the only things that will be left outside the process hub will be high-level, strategic and value-added. In the case of treasury it’s hard to see why those functions would not be carried out by the CFO and their team.

Treasury reborn

When EuroFinance first pointed out, some years ago, the benefits of a single enterprise-wide ERP, several treasurers wrote in to say that the idea was impossible and unnecessary.

The rapid pace of digitalisation has overtaken that criticism. Deloitte can now ask companies, “Do you have a single ERP platform, enhanced with process specific enabling technologies, robotic process automation and cognitive technology? Have you eliminated the need for manual intervention in transaction processing so that your colleagues can focus solely on analytics and other value creating activities?”

The elimination of manual processes and the seamless integration of financial processes across a business globally are no longer pie-in-the-sky. Treasurers will complete all these treasury centralisation and integration projects. And what then? What when the whole cash cycle, all the ERP feeds and all the basic data analytics are done by a GBS unit (or in the case of smaller companies, Cloud suppliers of various kinds)?

At that point either treasury has disappeared, or it has been moved into a global process unit that now already claims to be less back-office resource and more strategic partner and value-creator in the business. Sound familiar? Indeed, PwC, in its 2017 Global Treasury Benchmark Survey 2017, titled ‘The ‘virtual reality’ of treasury’, expresses the view that treasury should be viewed not as a department but as an enterprise-wide process. In some GBS models, each function or process like this has an ‘owner’. Perhaps the owners of the finance function could be called Treasurer. Just a thought