Strategic treasury: the journey so far

Treasury has shifted to perform a more strategic role in recent years, moving from a focus on transactions to analysis. Most US treasurers see the transformation moving further over the next five years.

Automation and new technology has enabled corporate treasury to enhance the efficiency of transactional business, it’s traditional ‘backbone’. Treasury professionals are now being called upon, with ever-greater urgency, to expand beyond transactions and take up strategic and transformative leadership roles, such as risk analytics.

This message kicked off a session at this year’s US Association for Financial Professionals’ (AFP) conference in Orlando, Florida. Titled ‘The Expanding Strategic Role of Treasury’ the session, introduced by Matt Bittner, vice president, strategy and business development at Cleveland, Ohio-based Dealer Tire, had a secondary title: ‘Beyond Operational – How Treasury Adds Value’.

Citing how technology and change were continuing to disrupt industries, Bittner offered examples such as Uber’s growing challenge to traditional taxi services, the demise of Blockbuster Video accompanied by the rise of Netflix, consumers’ growing uses of services such as Airbnb in place of travel agencies and the advent of the self-driving vehicle, which promises to revolutionise industries such as trucking.

Treasury in the driving seat

At the same time that the winds of change are sweeping through industries, corporate treasurers are living in uncertain times in which near-term developments are unclear. They include the outcome of this month’s US presidential elections, the repercussions of ‘Brexit’ for both the UK and global economy, the prolonged era of low, zero and negative interest rates and the emergence of non-bank financial institutions challenging the market’s established players.

Marcia Banks, a risk professional and corporate finance expert with advisory firm Sycamore Associates, said that the most recent edition of the International Monetary Fund’s (IMF) twice yearly Global Financial Stability Report, released last month, reported both an expanded appetite for risk and higher credit and macroeconomic risks than had been recorded last April.

‘Treasury is a focal point for bringing all of these factors together and developing a risk management strategy for the company,” she added. “most US treasurers already see treasury playing a more strategic role within the business and expect this to grow further over the next five years.”

Colleague Winifred Pinet believes that treasury is uniquely positioned within the company to make this prediction a reality. While ‘old treasury’ was operational in focus, today’s treasury departments are both strategic and value-enhancing for the company. In short, treasury drives value.

This means that treasury is also increasingly embedded in the organisation as the pressures around political, market, liquidity and regulatory requirements and issues grow increasingly intense.

Preparing for change

Bittner detailed how his own company, Dealer Tire, had recently reorganised. The company, originally a small tyres and parts distribution business with origins dating back to 1918, has grown in the past 15 years into a major business with annual revenues upwards of US$1bn.

Until relatively recently, three main divisions handled corporate strategy; new business development and organic growth initiatives; and financial planning and analysis (FP&A). Last year, these divisions were succeeded by Corporate Strategy, Analytics and Planning (CAP) , whose declared remit is to be “a trusted partner” for the business, delivering superior long-term value through “strong collaboration and diverse perspectives”.

CAP is driven by three guiding principles: providing the business with innovative thought leadership; ensuring that there is a proactive mindset to support evidence-based decision making; and stronger partnership orientation. In addition to the three divisions plus treasury that are now within CAP, a fourth has been added in response to Dealer’s mover into mergers and acquisitions – Business Development M&A.

Bittner added that the evolvement of the new framework had taken time and the changes hadn’t been welcomed by all of the employees affected. “The concept of treasury as a big collaborative partner within the organisation is a fairly new one,” noted Pinet.

What had helped the new strategy gain acceptance and succeed had been Dealer’s chief executive officer (CEO) and chief financial officer (CFO) recognising the value of innovative thinking, endorsing the plan and ensuring that this was communicated to the teams. “Today, the CAP team is viewed as the company’s thought leaders,” said Bittner. “We have broadened our sphere of influence, through the proactive and constant delivery of value-added services.”

Bittner noted there are various obstacles that impede treasury’s path to becoming more strategic, such as IT resource availability and securing colleagues’s support for change. He suggested that the best strategy is to seek out individual colleagues who share your way of thinking and develop “circles of influence” in building the momentum for change.

Pinet added that as the pace of change is accelerating, financial professionals can also cite the fact that “what worked well 20,10 or even five years ago isn’t very likely to still be what you need – or the technology needed – to succeed in 2018 or 2019.”

“The good news for us is that we. Live in a transformative period,” noted Banks. “Senior management needs to have a clear position on the company’s risk appetite, which provides an umbrella under which treasury can work.” There are a number of ways in which treasury’s activities can be measured and their value assessed; these can be distilled to a set of metrics that board members can read and understand fairly easily.

Ultimately, team members need to be persuaded that today’s problems can no longer be solved by continuing to employ the old tools. Strategic thinking is forward-looking, but collaboration is critical in achieving it, said Bittner. Perhaps the biggest persuasion factor is that fact the people want to be part of a winning team that has high visibility and has clearly developed a competitive advantage.

His concluding advice was to be proactive. “Seek out the problems of colleagues and if you can solve them it will enhance your credibility.”

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