Treasury 2025: Finance departments in mid-sized corporates need to become innovation enablers

Key Findings from Nordea’s ‘Treasury 2025’ report for mid-sized corporates:

• Finance/Treasury’s role: Optimistic, has a voice and expects greater automation but not seen as innovative by the Business.
• New technologies: Limited impact on business models by 2025.
• Innovation: Driven from emerging customer needs and focused on optimising core expected benefits. Mainly internal initiatives.
• Actions finance/treasuries should take: To become an enabler requires prioritisation of the automisation agenda, understanding business model change and establshing a common agenda with the rest of the Business.

Read and download the full Treasury 2025 Report here

Taru Möller, Head of TxB Propositions at Nordea

Nordea’s annual research report into Nordic treasuries gathered around 300 survey results received from people working in both finance/treasury departments and business functions (described as anyone working outside of a finance/treasury department) in Nordic based companies. Around 32% of responses came from companies with annual revenues of less than 501 mEUR. This group has been categorised as mid-sized corporates and the results have been analysed to provide insights and recommendations specifically tailored to the segment.

Taru Möller, Head of TxB Propositions at Nordea, says: “The number of responses from mid-sized corporates is three times as many as we have received in earlier years. This gives us new insights and a much better understanding of how the mid-sized corporates are experiencing business model change and how the finance/treasury and business sides of the company are collaborating around it.”

More of a voice but not a final say

In relation to the degree in which the finance department is listened to on the topic of digital business transformation, mid-sized company respondents appeared to be heard a lot more than in larger companies. (See image below).

The Finance/Treasury role in business model innovation.

Taru says: “With regards to the finance/treasury role, one of the big differences compared to the large corporate side is that within mid-sized companies, finance/treasury seems to have more to say. In the large corporates, they struggle to get involved with business model innovation and many times are left with the job of only securing innovation funding. For mid-sized companies, finance and treasury employees are participating to a larger extent in the discussions around business model innovation, though they still struggle to become strategic partners for the business side of the company.”

Joakim Bredahl, Cash Management Consultant at Nordea

Joakim Bredahl, Cash Management Consultant at Nordea, says: “It’s probably safe to assume that smaller companies have less silos and a flatter organisational structure, meaning there is a greater opportunity to ‘hear the voice’ of the finance department. Also the CFOs answering the survey on behalf of mid-sized corporates are typically part of the C suite anyway so they are obviously present in leadership meetings and here they do experience that they have a clear voice. What’s interesting to note however, is that even though CFOs or the finance function do feel like they have a voice, only 12% of business respondents see the treasury as an area for innovation.”

Set in their ways

Overall, finance and treasury departments in mid-sized corporates are certainly listened to more but their role in sparking and driving innovation is not clear or even anticipated by the rest of the business.

Taru continues: “CFOs have a seat in management team meetings and may participate in business change discussions but the survey shows that business doesn’t see them as being capable of supporting business model creation at a high level. There is a gap between the picture the finance/treasury side see and the rest of the business. It is worthwhile paying attention as to how to position the finance/treasury function towards business in the areas of business model innovation.”

Finance/treasury opportunities to support new business model creation versus Business view.

Joakim adds: “Some companies seem to be a little bit stuck in their ways. They view the finance department as functioning in the traditional role and not really being a source of innovation. It’s also fair to ask why should a finance department be a source of innovation? The answer is that many of these new technologies coming up now can enable the treasury or finance department to have a huge say in building new business models. Through advanced data modelling and automation, the business cases could look completely different now compared to the ones people have been looking at before. The toolkit is coming to finance and treasury departments to empower them as the enablers of new business models. According to the survey, it doesn’t look like a lot of companies have that under their skin quite yet. It looks like they’re paying attention but not saying the compelling things that make them a voice to be reckoned with.”

New technology supports automation

With the abundance of new technology promising to transform business models even further into the digital space in coming years, both finance/treasury and business respondents identified the same five key technologies as candidates for adoption. These are advanced data analytics, robotic process automation (RPA), the Internet of Things (IoT), artificial intelligence (AI) and robotics.

Percentage of companies likely to adopt new technologies by 2025.

Taru says: “The finance and treasury side probably see more opportunities with robotic process automation to support the high automation agenda within their own departments. By using automation, such as machine learning, to generate insights faster and augment capabilities to create business intelligence, the treasury can evolve from operational management to providing strategic insights. When looking at the expected main benefits that the business sees from these new technologies it’s mostly connected with internal aspects like improved business efficiencies.”

Joakim says: “It’s natural that you see a focus on robotic process automation in the finance department as they are a very process driven department. One thing that we see quite often is the blurring of terminology. When you start talking about RPA, AI and robotics and automation, some companies don’t quite have the experience yet to understand and categorise them separately.”

Taru adds: “It can also actually be a case of not having access to that expertise in smaller companies. In the larger corporates, they might have more people but also different kinds of access to external consultants that can provide guidance about the opportunities and capabilities of these technologies. The smaller companies might not have the same capabilities to investigate or access knowledge.”

Joakim says: “Many mid-sized companies don’t have the resources to look into all of these technologies at once so they have to focus their efforts. What often happens is that when you find out you don’t have resources to look at everything, just figuring out the one thing that you’re going to look at can be difficult too. Inertia can be a driver for many of these uncertainties as well as often people just don’t know what to look at.”

Innovation taking place

When looking at where innovation is actually happening in the company, the survey results from mid-sized corporates did not differ greatly from the full survey results. For the mid-sized corporates that are innovating, the research showed that it is mainly taking place within the individual business unit with 73% of respondents, followed by a business development or innovation unit for 42% of respondents. Only 8% of innovation was taking place in external innovation labs.

Joakim says: “It’s interesting to note this part of the survey as we saw a lot more innovation labs three or four years ago. Many companies we’ve talked to have concluded that whilst innovation labs were great at coming up with ideas, they were not necessarily very relevant to the business. Driving innovation as an area of its own didn’t really produce any viable business cases, just lots of interesting technology for its own sake.”

“An interesting factor to note is that innovation is a very large term with many layers. So you have innovation in incremental improvements of a product, process or service and they would typically reside within the individual business units. Then you have larger scale innovations, maybe disruptive innovations where typically the business model innovations lie. They would typically not be within the individual business unit but in more of a business development or innovation unit. This is why we see that the numbers don’t add up with 73% plus 42%. Innovation happens in several places in a company at the same time,” Joakim continues.

The survey showed that the strongest driver for customer innovation amongst mid-sized corporates was moving to meet the needs of emerging customer requirements.

Drivers of innovation and business model evolution (compared to large corporates).

Taru says: “Looking at emerging customer requirements requires companies to indirectly take into account all sorts of external shocks that can impact the business. From the survey results, it was surprising to note how little external shocks like the corona crisis seemed to influence business model innovation in mid-sized companies. On the other hand, consumer behaviour in particular is rapidly changing. Therefore focusing on emerging customer requirements means many times that companies have already indirectly taken into account the business disruption or external shock.”

Keep pushing the innovation agenda and focus on automation

In order for finance/treasury departments in mid-sized businesses to move to the heart of innovation in the company, the Treasury 2025 report advises them to change perceptions and build bridges in addition to automating their operations. By using the shift to new business models and real-time they have an opportunity to become more involved in business transformation and earn a seat at the table.

The report also suggests that they need to demonstrate relevance by showing that they can have a positive impact on the customer experience. Finance/treasury departments can also become innovation role models by offering to investigate and drive their own tech initiatives with the support of the IT department. With some successful innovation projects under their belt, the department will be able to build credibility with the rest of the business.

According to the report, finance/treasury departments should also seek to build innovation skills by recruiting forward thinking digitally savvy employees. They should also make the most of new business models by getting involved early, co-creating and adding value. In this way the Treasury 2025 report suggests the finance/treasury can be an enabler or driver of innovation—not an obstacle.

Joakim concludes: “The time has come for treasuries to make their voices heard and have an impact on emerging business models. By somehow finding the time and resources to support innovation projects where possible, they can move from a fairly functional role to becoming key enablers of innovation in their organisation.”

Taru concludes: “In order to become enablers, finance/treasury departments really need to understand what these technologies can do and where to focus. They should ask themselves, what generates most value in terms of the business model transformation and is feasible for the organisation? Making prioritisation in terms of automation and what new technologies to implement, they can drive their goals without becoming too fragmented and risking that they don’t have the resources required to create the added value. Finance/treasury need to get their positions clear in the organisation and understand what impact the new business models have on the fundamental treasury processes, like P2P (Procure-to-Pay), O2C (Order-to-Cash) and WCM (Working Capital Management). By being an active participant in the business dialogues and identifying the common touch points with the rest of the business, the innovation goals are more likely to become a reality.”

Key elements for creating an evolving Finance/Treasury operations.

For more information write to Taru at taru.moller@nordea.com or Joakim at joakim.bredahl@nordea.no.

Revisit the Treasury KPIs Report 2019 and the Future Treasury Report 2018.

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