This article aims at highlighting the issue of how much treasury should be involved in an end-to-end finance transformation. 

Finance transformation or the digitalization of the treasury is high on many companies’ agenda. Typically, this involves scrutinizing all financial areas or processes in order to fully tap the potential of a renewed finance organization. This also involves adjustments to the ERP system landscape.

While core processes such as "quote-to-cash" or "procure-to-pay" should regularly be mapped in an integrated ERP system, the treasury system landscape often has specialized (add-on) systems to map the individual processes. Here, the usual trading platforms or multi-banking systems are just two examples. Additionally, many processes are segregated in terms of content, such as bank account management or financial risk management.

This triggers the debate whether the treasury’s transformation should be separated from the overall transformation due to the delineable processes and special system landscape or whether it should be looked in an integral manner.

Left or right? - Which strategy makes the most sense for treasury?

While the finance infrastructure is being adapted holistically to the new standards, many treasury departments are thinking about detaching the treasury functions from this process as part of the "treasury first" approach. This involves implementing the treasury systems independently and upstream of the global system transformation on a separate new system landscape, for example SAP S4/HANA.

Contrary to the holistic system transformation, this strategy offers the opportunity to benefit from innovations and performance enhancements at an early stage and thus optimize processes independently of other finance functions, among other things. Such innovations include not only new functions and capabilities of the system environment, which creates entirely new opportunities for treasury activities. By optimizing user interfaces and process workflows, operational benefits are noticeable as soon as the interface becomes functional.

As a result, coordination with and dependencies on other functions are much lower compared to a holistic transformation and migration. An upstream migration of the treasury processes to a connected treasury workstation also allows the treasury areas to act as innovation drivers for the finance transformation. For instance, treasury can help collect experience with digital use cases, such as cash forecasting with predictive analytics. A second aspect is that the experience gained during the technical migration can be used in a later transformation of the remaining finance areas.

In addition to the overarching aspects, decoupling can make perfect sense for treasury in any case. Of course, transformation entails substantial risks. For example, the risk that an incorrect migration of financial transactions leads to incorrect valuations or, in the case of a migration of payment transaction solutions, that in a worst-case scenario, payments are no longer executed in the new system.

Considering that there is a strong interaction between the finance and the treasury system on these and other issues, this risk can be lowered in a gradual transformation. 

This argument is frequently brought up in the many SAP S/4HANA transformations that are currently under way. Obviously, when considering whether such a "sidecar approach" is appropriate, the existing environment must be the benchmark. Inevitably, the temporary outsourcing of treasury functions to a treasury workstation requires new interfaces to the old systems, which may become redundant again in the course of the overall system transformation. Another factor is that operating systems in parallel leads to higher license and system maintenance costs. For that reason, this strategy generally entails higher costs than the integrated strategy.

Hybrid approaches are also conceivable, for example, only the risk management applications or the in-house bank are mapped in a separate system, while cash management remains integrated in the ERP system. However, this option is usually not a resilient option because system breaks within Treasury should be avoided.

Conclusion

In the end, each individual case must be carefully evaluated to determine whether the system optimization and innovation benefits outweigh the expected additional costs compared to the holistic transformation. As a rule, business units tend to favor a treasury-first approach, while IT generally prefers an integrated approach.

Source: KPMG Corporate Treasury News, Edition 115, October 2021
Authors: Börries Többens, Partner, Finanz- und Treasury- Management, KPMG AG; Daniel Müller, Senior Manager, Finanz- und Treasury- Management, KPMG AG