“We are inefficient when we don’t have standards,” says Johnson Controls’ Ratheiser. “For us, standardisation is key, so we can become bank independent and improve efficiency. Standardisation also drives down the cost of technology.”
Ratheiser himself has plenty of experience in working towards standardisation. Over the past 10 years, he has led initiatives at Johnson Controls, a global diversified technology and industrial group operating in more than 150 countries and with over 170,000 employees, to set up a standardised global treasury organisation.
From a strategic perspective, he says: “We had to choose the right partners, the right technology, and the right funding. It’s about visibility, and having an efficient treasury structure. You focus on the countries with the biggest business and the biggest problems.”
Ratheiser started out with a diversified banking environment using over 70 banks; many of which had different practices or standards that Johnson Controls had to implement. Another major challenge, he says, has been in understanding the different regulations across the many countries in which the group operates. Government authorities sometimes have contradictory regulations, even in the same country.
“On the one hand, it’s cumbersome. On the other hand, it’s fun as you have the opportunity to find solutions,” he says. One solution he found was in training. In many cases, regulatory bodies refused changes the first time the company requested them. However, according to Ratheiser: “If you train them up about what you can do from a cash perspective, you can get the green light to implement a change.”
The company chose to work through a bank agent initially, he says, to get help with the structure for gaining visibility over its cash. It also came to a SWIFT solution, using the MT 940 electronic account format. “We drove it through SWIFT to the whole organisation and worked with SWIFT to make sure the rulebook is the same everywhere. There are only minimal exceptions.”
The process started in 2001, and it took seven years to make all the changes. The timing was fortuitous. “By March 2008, we had global visibility on all our bank accounts,” says Ratheiser. “As a treasurer you need that. After the financial crisis, zero cash was no longer the main driver. Visibility was the key.” One of the factors that helped him gain visibility was consolidating the number of banks that the group uses; from 70 to working with 10, of which just four are core banks.
Benefits of SSCs
Ratheiser also describes how he gained processing efficiency through separate initiatives to develop shared service centres (SSCs) and payment hubs. Johnson Controls established SSCs in Bratislava and Mexico; these run operational services such as payroll, legal and payments, so they are driven by cost, headcount, operational efficiencies and standardisation to meet audit ratings.
The first step was cleaning up processes to make them more efficient. Once that was done, treasury worked with outsourcing companies to set up the SSCs. Outsourcing didn’t work well, he says, so they ended up in-sourcing the SSCs. Today, the group employs over 800 people in its SSCs and is pleased with the results, which include reduced costs and turnaround times.
The payment hubs, Ratheiser says, were set up as technical transactional centres that connect to banks and release payments. Treasury began discussing them in 2008, started implementing them in 2010 and completed the process earlier this year. Through a full request for proposal (RFP) process they figured out which banks to partner with.
“We need to have the right banks that can help us with our business and our growth,” he adds. The most important element was the direct connections to banks because there are significant costs involved. Treasury decided to send payments using SWIFTS’ FileAct transfer facility and then had to work together with its partner banks to ensure all of them could handle FileAct too.
While he has shifted roles and now focuses specifically on the automotive sector, Ratheiser’s experience is invaluable and it is clear that he remains passionate about standards, regardless of what part of the group he is working in.
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