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Intelligent Treasury

Intelligent Treasury

The next evolutionary level in Treasury

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Nils A. Bothe

Partner, Audit, Finance and Treasury Management, Finance Advisory

KPMG AG Wirtschaftsprüfungsgesellschaft

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Intelligent Treasury

With the general push towards digitalization, many companies have made automation, innovation and agility their strategy’s guiding principle. Boardrooms are declaring digitalization as a goal, which puts pressure on many corporate departments to contribute to achieving this goal; treasury is no exception.  In view of the disruption experienced at the markets and the continuous progress in technology, Treasury 4.0 announced by us in 2015 is now facing a new evolutionary step. Intelligent Treasury.

This is a concept that consists of end-to-end processes, avoids media breaks and intelligently links processes. It enlists the most advanced technologies, such as the support of machine learning and robotic process automation, and is both a prerequisite and the foundation for future evolutions. Our white paper is based on a study made within the Treasury community between October 2019 and January 2020, surveying Treasury departments on how far along they are towards an Intelligent Treasury. The survey’s focus was on processes and the organizational setup, the readiness to change within the company and on technology in general. This article would like to give you a quick glance at what moved the respondents, and how their concerns and statements align with our vision of intelligent Treasury departments.

Treasury will always have to grapple with new challenges...

However, these cannot always be predicted. The current economically uncertain times triggered by the Coronavirus have shown how important it is to refocus more on Treasury’s main areas of expertise:

  • knowing how much cash there is and where it is located within the company, together with a reliable forecast on the short-term and mid-term liquidity needs;
  • detecting liquidity shortages early on;
  • ensuring the company's continuous solvency;
  • identifying and mitigating risks.

Beyond that, it is important to design an effective and efficient value chain. An intelligent Treasury department should not only be concerned with reducing manual activities to a minimum but also with maintaining a smooth communication between different systems in the Treasury department’s IT landscape.  The survey confirms this much: 96% of the respondents intend to better integrate their strategies, processes and systems or migrate these into a single system.

In order to master the ongoing changes, companies require agile methods and transparency. On the one hand, they have to react to a dynamic market environment and on the other hand they need to safeguard the company’s economic stability.

Clear focus on centralization

Our study also shows that 89% of the respondents wish to further centralize their treasury activities. The question is less whether to centralize but rather what can and should be centralized. For instance, there is an increased wish to report to Management more frequently and in more detail. There is an expectation that data should be delivered at the push of a button to various stakeholders, let’s say, the tax authorities. Decentralized processes cause unnecessary delays in comparison to real-time reporting, which can only be realized with new technologies and the centralization of activities.

Another important aspect is the increase in transparency alluded to earlier. With a centralized approach, the Finance department has an overview of what is happening at headquarters as well as at the local entities. Efforts to coordinate with local contacts are eliminated, which leaves more time to focus on the essentials.

Optimizing the IT roadmap and deploying innovative technologies

Centralization and real straight-through processing depend on the characteristics of the processes and the system landscape. The survey suggests that the highest potential for automated processes lies in payment operations (67%), followed by cash management (58%) and liquidity planning (49%).

With 18%, risk management does not seem to be an area of much priority for automation among treasurers; nonetheless, a look into the future shows interesting development opportunities here as well. Accordingly, the merging of liquidity planning and risk management is becoming increasingly likely and also makes sense. State-of-the-art predictive analytics methods (e.g. time series analyses) could be used to extrapolate plan values, prepare currency-differentiated liquidity planning and automatically determine the global FX exposure.

The advantages are clear. The previously mentioned centralized strategic approach could be expanded even further. At the level of headquarters, a brief check of the reasonableness of the reported data will be sufficient, with tasks involved becoming more process-oriented. This form of data processing in turn provides the advantage of a holistic view of all processes. This means fewer regional Treasury resources are needed.

The investment in new technologies also requires an increasingly closer coordination, communication and collaboration with the IT department. Already today, the departments are cooperating closely with activities dovetailing even more. At one level, this is because the operating department sets requirements for the IT department. At another level, the IT department needs to assess the implementation and feasibility of these requirements correctly, and also act in the role of advisor. Going forward, Treasury will also have to work together with IT as a sparring partner to develop a corporate IT road map in order to connect technology and business in the best way possible.

Analytical skills are in demand

The new technologies discussed above will bolster treasury reporting and treasury analytics. In general, 21% of our survey respondents intend to use analytics in treasury or expand these. This application is only one indication of the continuing digitalization of treasury activities. It will also require a change in the hiring strategy. Treasury employees will have to have better IT knowledge and thus require more training. A majority (84%) indicated that they are already offering training and CPD to their employees today, and that they are expecting to expand this.

What is clear is that this will also affect staff selection: these days, 93% of vacant positions require a combination of relevant expertise and technical affinity. This means that the skill to analyze available data and draw meaningful conclusions from it will become a key hiring criterion. This way, adequate decision-making information is delivered to Management, thus shortening decision-making paths. The focus of activities are therefore bound to shift from data collection and processing to analysis and interpretation.

Readiness for change and refocusing on the fundamentals of treasury

The preliminary conclusions of our Intelligent Treasury survey are the following:

Corporate strategies focus today on what is needed tomorrow. The disruptive change causes constant flux and requires adjustments. According to our survey, the treasury community is quite ready for the change. The possibilities to tackle these changes will involve a variety of technologies. These will revolutionize the treasury market considerably. Apart from the use of analytics, cloud-based TMS solutions, artificial intelligence and robotics process automation will be decisive. It is not only pivotal to have technical aids: having 100% transparency facilitates the decision-making and guarantees a complete process understanding.

Digitalization is important and necessary. The treasury community is more than aware of this fact. The proof is in our study but also in many conversations that we have with our clients every day. Nonetheless, the current situation also shows how important it is to remember the treasury department’s core competences: providing the greatest possible transparency regarding the company’s liquidity, securing its solvency and providing an adequate risk management. 

However, Treasury will have to grapple with digitalization in the medium and long-term. This is why we are providing you with an exclusive preview of our white paper with this article. You will have a more detailed view of the results from our survey as well as our vision of the treasury department of the future - the intelligent treasury - once the white paper has been published, foreseeably in June 2020.

Source: KPMG Corporate Treasury News, Edition 100, April 2020

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