What type of mindset is required to successfully modernize the Treasury function?

What type of mindset is required to successfully modernize the Treasury function?

 When you want to embark on a vast project to modernize finance, as many international groups are doing now, and in a post-health crisis period, there is an essential element to consider succeeding: the mindset. Often, the culture of innovation, the desire to change to do better, is absent or weak. However, the success of a finance and treasury modernization project requires a particular mindset. The CFO remains “the sponsor” of this type of project, and as the financial adage goes (ERM), "tone from the top". The success of such a project is important but delicate. Putting all the assets on one's side, including a state of mind of change and innovation, will make it possible to approach such a digital transformation project more serenely.

CFO sponsorship

According to recent surveys in treasury, automation increasingly plays a key role in digital transformation plans for all businesses. These plans have accelerated as leaders plot treasury roadmaps to post-pandemic recovery. Nevertheless, preparing for digital transformation is not an easy journey. There are many factors to consider when contemplating a large-scale digital transformation of treasury function to ensure continuity of business and resilience. The success comes from strong CFO sponsorship, mind-set, capacity to go behind siloes and culture of efficiency and stronger internal controls. A finance digital transformation became a priority for every CFO. They see there a high potential to free the finance department from outdated and historical manual processes. It may enable finance and treasury more specifically to have more time and control, two vital elements. As the person in charge, the CFO must combine several expertise’s, like finance, (obviously), strategy, analytics, compliance, governance, automation and of course a bit of IT technology to understand what can be potentially achieved and how. The CFO must be ready and prepare its teams for changes. These modernization actions and projects must be run in pursuit of the ability to scale while at the same time ensuring repeatable, dependable, reliable, and accurate processes. The maturity level of digitization and digitalization of departments may vary. They must be all at a certain stage of their digital transformation journey. Such projects require several different skills, which might far exceed accounting and finance. CFO’s also must have a vision and a roadmap to where they want to bring the whole finance department. As we know treasury is the most important department on this huge transformation. Nevertheless, we know that time is one of the most precious assets for a CFO in any business. This explains why the adoption of the appropriate solution(s) is imperative. By selecting rightly tools, CFO’s can frees up time, reduces manual work and opens up opportunities to focus on the overarching business tasks that matter.

Business expansion cannot be supported by Treasury on XLsheets

When businesses are growing, every CFO will admit that rolling out the same processes used thus far on a larger scale simply will not work. Treasury and Cash management remain the poor relation of finance. It is often forgotten. We invest more in M&A than in asset integrations and optimized financial management. However, treasury is an essential part of finance and is the primary lever for business integration. If we see treasury and corporate finance as a vector of integration, as CFO we start to consider automating it to accelerate the full integration of any new asset. Furthermore, why do many treasury departments have had the same treasury tool (i.e., TMS) for more than ten years? Isn't it time to finally "digitize" proper. Treasury, but not only, suffers from an excessive use of XL, a completely obsolete silo approach, a lack of partnership with subsidiaries and other stakeholders, teams sometimes scattered around the globe, and (non-exhaustive list) a lack of strategic IT vision and ambition. It is best to have an IT technology roadmap to know what you want to build and achieve. However, the treasury can be a vector of value creation, for example on the e-payments segment to offer alternative ways to pay or to be paid, and the expansion of the new methods used (for a better customer experience), for example invoicing in the local currency of the counterparty (to further centralize risks), by making the financial chain of suppliers more fluid, etc. .... The treasurer could and should play a more active role in procurement, another example. Understanding the need to change and upgrade processes is the first step in a digital revolution. Technology can become a means to develop and grow a business and no longer be a simple answer to a need. There are new emerging solutions, powerful, innovative, modular and agile, as FENNECH and NeoTreasury, which can really differentiate your approach of treasury management and make life easier and more efficient.

Do opt for a "VC" approach and an entrepreneurial mindset.

The CFO could manage his/her department like a manager would manage a VC or an SME. A forward-looking finance team behaves like potential investors in the company. This amounts to managing individual departments as micro business units, but within the broader finance team. If we take a portfolio approach, for strategic executives, for stakeholders, and for driving new metrics, we will gain power. The approach to digital transformation or hyper-automation projects requires a different vision of efficiency and questioning, the basis of transformation

Does increasing efficiency mean increasing headcounts systematically?

Obviously not. Instead, the goal is to increase efficiency without touching the number of FTEs or perhaps even by reducing them or reassigning them to other tasks. Persuading the C-suite to invest in new finance technology is rarely a straightforward and simple process. There are competing interests also looking for investment. It is essential to think beyond efficiency gains, organizational issues, and short-term objectives before introducing any new finance IT solution. We, finance executives, often forget that investing in efficient tools is motivating for teams. Then, if you can't extend them at will, you might as well compose them more judiciously. It is high time to diversify the competencies of the treasury team to make it more efficient and able to face future challenges. We too often forget that investing in high-performance tools is motivating for teams. And if you can't expand them at will, you might as well put them together more judiciously. It is high time to diversify the competencies of the treasury team to make it more efficient and able to face future challenges. Beyond time savings, the objectives are to add strategic business value (such as helping the business to scale) and to strengthen internal controls, or to improve decision making. Such hyper-automation project should support business’ long-term growth.

Human reluctance to embrace new IT treasury technologies

Software implementations often carry a reputation for being painful to complete. Therefore, the CFOs should lead from the front and motivate troops. They should drive the culture shift within whole finance team. Encouraging process owners to feel motivated and ready to roll-out new IT solutions (which by the way will enhance their skill sets) is more likely to succeed than simply demanding change. The culture of change is far from being natural and acquired. Humans, in essence, are resistant to change and the unknown. Financial people want more technology in their cars and phones, but not in their work. We must overcome this obstacle by demonstrating the benefits of innovation and automation.  It will potentially be beneficial and bring long-term positive effects. The process owners must understand, accept, play the game and then will be convinced of the benefits of hyper-automation campaigns for shaping the future of finance organizations.

A complexified role for CFO

Today’s CFOs must wear many competencies (hard and soft skills) more than they did just a couple of years ago. Continuously changing circumstances, recently primarily due to the pandemic and the war in Ukraine have added even more complexity to the role. More than ever, CFOs and finance teams (including the Treasury & Corporate Finance team) can step away from manual day-to-day processes that automation can handle and instead refocus on those strategic initiatives that assist the business first to survive and then to thrive, whatever the future challenge. The worst is never certain. We have learned this the hard way. It is necessary to arm ourselves to the teeth to face the next crises. Automation and centralization have proven to be two necessary steps in this reconstruction of finance to make the company more resilient, stronger and allow human resources (freed from too many manual tasks) to focus on analysis to create value and strengthen cooperation and partnership with other departments and especially with the operations in the subsidiaries.

Francois Masquelier, CEO of Simply Treasury LUXEMBOURG

March2023

Disclaimer: This article was prepared by François Masquelier in his personal capacity. The opinion expressed in this article are the author’s own and do not necessarily reflect the view of the European Association of Corporate Treasurers (i.e., EACT).