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Understanding risk: Why treasuries need to evolve

The treasury has long been under pressure to transform — yet, as we found out in our Treasury 2025 report, only 12% of treasuries said that their department has a digitisation strategy. In most companies, the treasury is still operating on the periphery, playing a supporting role to the wider business.

The treasury has long been under pressure to transform — yet, as we found out in our Treasury 2025 report, only 12% of treasuries said that their department has a digitisation strategy. In most companies, the treasury is still operating on the periphery, playing a supporting role to the wider business. Respondents to the survey were most likely to say that the treasury is only “occasionally involved” or “has a voice, but not the final say” — 6% said it was out of the loop completely. But interestingly, 83% of CFOs see the treasury as a strategic partner for digital transformation.

As part of a series of discussions about how organisations must adapt post-COVID-19, we put together a team of experts to discuss what businesses learned; and how they see liquidity management and the role of the treasury changing.

In your opinion, what does the treasury need to do to stay relevant and help businesses move forward?

Ville: During the first wave of COVID-19 there was an awakening among corporates that the two decades long process of globalising their supply chains, and above all prioritising lowest cost wasn’t as secure as they thought. It wasn’t a wasted endeavour by any means, but the risks of a very fragile supply chain became very apparent when the pandemic started to spread and caused massive disruption. But you can’t simply change your supply chain, they need to be recalibrated and reconsidered. It takes time. The way treasuries function in the future is going to be integral to helping businesses survive these kinds of changes.

Johan: COVID-19 won’t be the last thing to disrupt global supply chains. As a result of seeing the impact of COVID-19, and the recent problems in the Suez Canal, many companies are now looking to match sourcing and production with where their customers are. But this strategy needs the backing of the treasury, and as we’ve said time and time again, that often leads to resistance or compromises.

Katy: The modern treasury wants and needs to support the business to achieve its strategy. But it can’t say yes to everything, so of course it needs to have an effective risk and cash management solution. And as we’ve seen, supply chains change, customer demands change, businesses across the world are changing, it’s inevitable that the treasury function has to change too.

What impact will this have on the role of the treasury in the next few years?

Katy: Current treasurers have to understand and manage risk from an FX and liquidity perspective, a counterparty perspective, a country perspective — there are so many variables to consider. That’s been thrown into overdrive thanks to COVID-19. Businesses that didn’t have a clearly defined liquidity or FX management plan in place are now making it an important part of their to-do list.

Johan: The other angle of liquidity is to understand how a corporate can have a more efficient and effective set up from a cash-management perspective. That’s going to force treasuries to rethink how they work and to introduce new solutions that help them offer better services to the rest of the business. A huge part of that is going to be about introducing real-time data analytics and automating certain processes and functions.

Current treasurers have to understand and manage risk from an FX and liquidity perspective, a counterparty perspective, a country perspective — there are so many variables to consider. That’s been thrown into overdrive thanks to COVID-19. Businesses that didn’t have a clearly defined liquidity or FX management plan in place are now making it an important part of their to-do list.

Katy Spicer-Eriksen, Head of Channels and Liquidity, Transaction Banking Product Management, Nordea

The Treasury 2025 report found that just one in eight (12%) treasuries are actively pushing digital transformation. What do treasuries need to do to become strategic partners and part of the transformation agenda in the future?

Johan: COVID-19 has caused a huge increase in the level of ambition from the C-suite to improve online and digital capabilities and to ensure that businesses are taking full advantage of their digital channels. You can’t just have a website and call yourself a digital business — companies need to be actively engaging, selling and providing service and support to their customers online. That’s making businesses reconsider their transformation plans.

Ville: The treasury needs to change its image. We all know that it provides a vital service of the business, but many see it as just that, a box-ticking exercise. And when the treasury does get involved, it can be seen as a barrier — rejecting ideas, scaling things back, or requesting modifications. That causes other areas of the business to avoid involving the treasury. If treasuries want to be involved at an earlier stage they need to show the value that they can deliver and that bringing them in can help navigate the challenges facing getting a new strategic project off the ground — and make it a success.

Johan: Currently, the treasury is struggling to find a natural place to be involved, and to have a say in the wider business. For other areas of the business, the question is always “what do we need to do to grow?” and resources will be put in place to allow that. For example, a business may identify customers wanting to pay in a certain way. If the solution doesn’t exist, they’ll implement one. The problem is, that solution may not be compatible with the platforms and solutions that already exist at the company and could introduce a significant risk. If treasurers don’t know this solution has been introduced, they can’t effectively manage the risk — that’s where coming in earlier is key.

COVID-19 has caused a huge increase in the level of ambition from the C-suite to improve online and digital capabilities and to ensure that businesses are taking full advantage of their digital channels. You can’t just have a website and call yourself a digital business — companies need to be actively engaging, selling and providing service and support to their customers online.

Johan Trocmé, Director, Thematics, Investment Banking, Nordea

Why has the treasury been so slow to transform?

Johan: I think one of the fundamental challenges for treasuries is that there is a gap between expectations and action. Treasuries have an ambition of where they want to be, but don’t necessarily have all the skills to get there. And likewise other areas of the business have an expectation of where treasuries should be, that doesn’t always match up.

Ville: Exactly. Digital transformation has been a buzzword for a number of years now, and it’s something that a significant number of businesses are undertaking — however that transformation doesn’t apply to all areas of the business. The e-commerce part of a business wants to grow and expand, and it can adopt new technologies and solutions to enable that, which in turn can lead to an increase in sales and customer loyalty. The same returns cannot be so obviously seen in other areas.

Johan: That can cause significant problems for treasuries. They have to justify any and all investments, but if the benefit gains aren’t immediately obvious it can be difficult to do that. Often, treasuries take on a traditional “sheriff role” — policing the different roles within the businesses, allocating funds where they see fit and toeing the line where necessary. This can create an environment that is hostile to change and innovation.

Katy: Treasuries are often in a difficult position trying to defend internal business cases for transformation projects against other priorities where perhaps there is a much clearer short-term return on investment. If they invest in themselves, that diverts funds from other areas of the business which are also trying to move forward. But, the longer treasuries wait to adapt, the farther behind they’ll fall.

Digital transformation has been a buzzword for a number of years now, and it’s something that a significant number of businesses are undertaking — however that transformation doesn’t apply to all areas of the business. The e-commerce part of a business wants to grow and expand, and it can adopt new technologies and solutions to enable that, which in turn can lead to an increase in sales and customer loyalty. The same returns cannot be so obviously seen in other areas.

Ville Sointu, Head of Emerging Technologies, Nordea

What role does the treasury have to play in digital transformation?

Johan: The more connected devices and connected solutions that are introduced, the greater the risk can become. If treasuries don’t have an oversight they can’t effectively manage that. And the problem then becomes how do treasuries keep oversight of everything? That’s where an effective management platform comes in.

Katy: We as banks must improve how we support the treasury, helping them to become more of a change agent. We can do that by helping them get more insight from the data that they have and implementing systems that improve visibility and risk management. We are giving treasuries better tooling, through dashboards and APIs, and real-time insights from a forecasting perspective. That’s helping them automate their processes, from accounts payable to receivables to the whole cash management and forecasting function. This isn’t just improving their cash flows and helping them fund transformation of the business, it’s helping carve out a new, forward-looking role for the treasury itself.

 

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