Published: September 01, 2013
Although liquidity and risk management remain the core responsibilities of treasury departments worldwide, the past few years have witnessed an expansion in the treasurer’s role, and indeed the profile of treasurers within their organisations. As a bank, Nordea is committed to maintaining a clear and detailed understanding of changing customer needs in order to develop solutions and services that meet and anticipate these evolving requirements. To support this objective, and facilitate closer dialogue amongst the corporate treasury community, Nordea recently hosted a panel discussion involving three leading corporate treasurers. The aim was to outline the ways in which they have added, and are continuing to add value to their organisations, and some of the ways in which their banking partners can support them in achieving this.
Participants first described and discussed some of the characteristics of their treasury functions.
Ulla Nurminen, Metsä
“Metsä Group centralised its treasury function in 1997 to serve the various Group companies on financial issues. The business areas were largely decentralised until 2005, since which time there has been a change in strategy. There is now an emphasis on achieving synergies across the business which has enabled treasury to centralise its functions further. We first implemented a payments factory in the late 1990s, one of the first companies to do so, and this has subsequently been expanded to include Group-wide cash pool structures, centralised trade finance support and a collection factory.”
Ulla Nurminen, Metsä
“The two main drivers were cost savings and the ability to achieve common processes. Cost savings were realised by an efficient collection account structure, reduced external banking costs and a global, transparent view of accounts receivable which enables better liquidity planning. Centralising collections has been one of the important means of harmonising business functions. ”
Ulla Nurminen, Metsä
“As we had introduced centralised liquidity management quite widely already, and we had an overall business strategy to achieve synergy and harmonisation across the group, we had senior management support for centralising collections, leading to fewer political challenges than in other organisations. Consequently, the primary difficulties we experienced were mostly technical rather than organisational.”
Ulla Nurminen, Metsä
“Since 2005, we have restructured the business substantially, which has resulted in a more focused and profitable company. Having undergone this process, the overall business strategy is now better aligned, which has made it easier to further centralise activities such as cash and treasury management.”
Lars Hove-Nielsen, Grundfos
“Treasury centralisation has proved far more challenging at Grundfos. We are currently engaged in a project to implement an in-house bank in SAP, which has required a change management process. We have a decentralised culture, with considerable autonomy amongst group companies, so it has been important to convince local management of the benefits of transferring some responsibilities to head office.”
Ulla Nurminen, Metsä
“In contrast, we had already implemented an in-house bank and centralised liquidity, so it was easier to centralise functions such as collections.”
Joakim Flinck, Paroc
“We have a financial shared service centre (SSC) in Lithuania into which we have transferred payments, collections and cash management. Consequently, we now have very few local finance staff except to co-ordinate between the SSC and the local business. By 2002, we had a single ERP in place across the business, which made it far easier to migrate activities from local businesses to the SSC. In order to alleviate any organisational concerns, directors of business divisions were appointed to the steering committee, and we engaged in an active communication programme from the start.”
Ulla Nurminen, Metsä
“In addition, senior management support is essential to overcome any organisational hurdles.”
Lars Hove-Nielsen, Grundfos
“We have taken the first steps towards centralisation over the past three or four years. We recognised that to grow in the future and retain our competitive position, we needed more consistent processes and reporting to facilitate decision-making. We were also seeking to reduce costs, and a shared services model offers a proven approach to achieving this.”
Gunnar Berger, Nordea
“From our experiences of working with other corporate treasuries, we see that gaining buy-in from local business units can be extremely challenging and should not be underestimated as a major project task, and risk, as part of any centralisation initiative. As Ulla explained too, the technical side of a project may also be considerable, and it is important to ensure that the technology requirements do not take over from the overall business objectives.” [[[PAGE]]]
Joakim Flinck, Paroc
“I think this can be the case. At Paroc, our SSC also performs accounting and reporting functions, which is probably a wider scope than shared services at some other companies. Our SSC is also responsible for many daily treasury activities, such as short-term deposits, cash flow forecasting, FX hedging etc.”
Lars Hove-Nielsen, Grundfos
“Like Paroc, albeit at an earlier stage of our development, we are also migrating order-to-cash and purchase-to-pay processes as well as treasury activities into a shared services environment. Our treasury staff within the SSC will become even more important for group treasury in the future in terms of the number of treasury transactions they conduct.”
Ulla Nurminen, Metsä
“At Metsä, our experience is a little different. We have an SSC in Poland, but it is not our intention to outsource treasury activities except for liquidity forecasting to the SSC. Instead, we continue to manage liquidity and other core treasury functions near our senior management as it is a strategic activity for the group.”
Joakim Flinck, Paroc
“Effectively, the SSC is responsible for transactional activities, while treasury is responsible for strategic activities. In treasury, we approve transactions, and also manage bank relationships, financing and other strategic activities on behalf of the group.”
Lars Hove-Nielsen, Grundfos
“Similar to Joakim’s experience, the role of our group treasury function is changing. As administrative requirements become less of a distraction, we can be more proactive in understanding and responding to the changing needs of our core business, and supporting group activities more fully.”
Lars Hove-Nielsen, Grundfos
“In our experience, centralisation is essential in order to harmonise and standardise processes, but also to achieve economies of scale.”
Ulla Nurminen, Metsä
“Centralising treasury skills is an important means of building credibility both within the business and beyond, by becoming a centre of excellence with specialist skills and professional expertise. Without centralisation, it is very difficult to build this skills base and develop the trust and credibility that is required to initiate change.”
Joakim Flinck, Paroc
“As a business, we are aiming to achieve continuous improvement, beyond individual change projects. This is far easier to achieve in a centralised environment.”
Joakim Flinck, Paroc
“We need our banks to understand our business and the challenges we are experiencing in order that they can recommend best practices and design appropriate solutions. Without this commitment, banks end up simply presenting products and services that do not meet a business need. A more consultative approach brings advantages to the banks too: by developing solutions in line with customer needs, they can be ahead of their competition and build long-term customer relationships. Ultimately, we expect our core banks to act as problem solvers.”
Lars Hove-Nielsen, Grundfos
“We have had experiences in the past when our banks have been a hindrance rather than a help to us. In particular, it has proved very difficult to integrate the bank’s technology with our in-house systems, as we have had to adapt to their formats, leading to considerable technical difficulties. Banks do not always understand that supporting technical integration solutions is not our core business, and that the time and resources we have available to spend on these issues is very limited. We have also found that some banks claim to understand our business, but fail to do so in reality. Consequently, trusted banks that can really achieve this are essential business partners for treasury.”
Ulla Nurminen, Metsä
“We need standardisation both within each individual bank and across the wider banking community. Without this, it is not possible to achieve the level of process automation that we are seeking.”
Joakim Flinck, Paroc
“Standardisation is key, with the same, complete reference information passed from end-to-end throughout the lifecycle of a transaction. If this could fully be achieved, we would be able to automate and ultimately outsource bank account reconciliation.”
Lars Hove-Nielsen, Grundfos
“While there are a number of standardisation initiatives underway, such as XML v.3 and SEPA, the diversity that still exists between banks, and EU member states, suggests that full standardisation remains some distance away. It has to be hoped that there is sufficient commitment across the banking community to ensure that these initiatives are ultimately successful. Without this, it is increasingly difficult for banks to meet their customers’ needs.” [[[PAGE]]]
Lars Hove-Nielsen, Grundfos
“Both from a strategic and risk management perspective, we need to work with more than one bank. As a global business, even working with three or four banks may present difficulties.”
Joakim Flinck, Paroc
“Paroc operates mainly in Europe so we are able to work with one cash management bank, and one back-up bank. It is more challenging to achieve this in a global environment, however.”
Ulla Nurminen, Metsä
“We have rationalised our cash management banks to five, which is currently the minimum for our business, even though like Paroc, we operate primarily in Europe. In theory, SEPA would allow us to work with fewer banks, but it is not realistic to appoint a pan-European bank, not least due to the cultural differences and local instruments that remain. It seems to me that it will take a number of years before we see genuine and complete harmonisation across Europe that would facilitate pan-European cash management.”
Joakim Flinck, Paroc
“There are also operational risk management issues to consider. For example, if there is a strike or a technical failure, in addition to wider credit issues, working with a single bank could pose a considerable risk. After all, taxes, salaries and interest payments are still obligatory, and interruption or failure of one bank is no excuse for non-payment. Managing this risk is treasury’s responsibility, so having at least one back-up bank is essential.”
Joakim Flinck, Paroc
“Looking ahead, it will become even more important for treasurers to understand the business and identify ways in which treasury can support the wider business objectives. For example, we are engaging in a working capital project, including working with sales to optimise payment terms and increase our influence in receivables, including credit management. We also want to ensure that we do not have excessive cash flow tied up in inventory and raw materials. Treasury has a clear role as an ambassador of financial efficiency across the business, which has the potential to deliver considerable value throughout the supply chain.”
Ulla Nurminen, Metsä
“Like Paroc, working capital is an important priority for Metsä but in our case, this is managed more at a business level than by treasury. We are participating in rolling out these initiatives at a group level consolidating processes and increasing automation to leverage the benefits of a centralised approach. We are also looking at new opportunities for bank connectivity, including cloud-based services through our ERP.”
Lars Hove-Nielsen, Grundfos
“Our aim is to support our core business in whatever ways we can. While we currently use traditional treasury techniques, it is our objective to become more independent of the banks in the future, particularly now that we have become a net investor rather than borrower. We are also looking at opportunities such as SWIFT connectivity and in-house banking.”
Joakim Flinck, Paroc
“One of the challenges with working capital optimisation is that each department has different performance measures: for example, sales teams are not incentivised based on balance sheet or cost of capital measures. One essential role that treasury can perform is to provide education and co-ordination in order to create greater alignment.”
Joakim Flinck, Paroc
“I would emphasise the importance of change management as part of every treasury project. Introducing new ways of working can have a major impact on the wider business and individuals within it, so proactive communication and senior management commitment are essential. This support cannot be tacit, it is important to have senior management visibly represented on the steering committee. Inevitably, major changes can result in job losses, which to be managed carefully and sensitively, both from an ethical perspective and to need ensure the continuity of skills. It is easy for resentment to breed, often unnecessarily, if communication is not a priority.”
Ulla Nurminen, Metsä
“I would agree with Joakim. In addition, it is important to bear in mind the company’s core business and ensure that new initiatives are prioritised in order to deliver value in that context: treasury in an integral part of the business, not separate from it, so benefits need to extend to the wider business.”
Lars Hove-Nielsen, Grundfos
“Working with the right banks, and other third party organisations such as vendors and consultants, is essential to enable treasury to fulfil its potential. Investing in this process upfront, to build trusted relationships based on a clear understanding of the needs and constraints of the business, will reap considerable benefits over the long term.”
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