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Citi Treasury Roundtable Series
Ron Chakravarti, Managing Director, Citi
Bryan Richardson, Senior Director, The NeuGroup
March 2012
Defining World-Class Cash Management: Part I
Introductions
Ron Chakravarti (Speaker)
Managing Director, Head, Global Solutions Management, Liquidity & Investments
Citi Global Transaction Services
Email: [email protected]
Tel: +1.212.816.6909
Ron leads a global team responsible for the design and delivery of integrated global treasury solutions for
Citi’s corporate and financial institutional clients. He has been with Citi for five years. His prior
experience includes positions in treasury consultancy; transaction banking strategy/business
development and product management; and corporate banking while based in Asia, Europe, and the US.
Bryan Richardson, CTP (Speaker)
Senior Director, Peer Knowledge Exchange
The NeuGroup
Email: [email protected]
Tel: +501.217.9925
Bryan Richardson joined The NeuGroup in July 2007 as director of peer groups to support the growing
number of peer groups facilitated by the company. In this role, he works at expanding the universe of
groups and member companies in addition to overseeing the relationship aspects and planning and
research process for several existing groups. He also supports the research and planning process of
other peer groups and authors articles for The NeuGroup’s flagship newsletter, International Treasurer.
Prior to joining The NeuGroup, Mr. Richardson has experience in cash management, treasury and
treasury consulting at a variety of institutions.
Manage through the Euro Crisis
Respond to accelerating changes in
regulations and tax
Get engaged, and add value to the
Supply Chain
Drive for operational Treasury best
practice
Extend the credit risk management
discipline
Leverage (or make case for)
technology investment
Last month we reviewed key considerations for Treasury in 2012, which include greater alignment with the
businesses, gaining operational flexibility and achieving best in class risk management
Background
While each company’s Trading, Treasury, and Working Capital model will determine specific 2012 priorities for Treasury…
…a common theme is recognition of the need to align more closely with working capital stakeholders, while maintaining
visibility of evolving trading models and proactively addressing impacts.
1
2
3
4
5
Trading
Legal and Tax Structure Commissionaire
Limited Risk Distributor
Toll/Contract Manufacturer
TreasuryWorking Capital
Management
Treasury/Risk
Management
Processes RTC
In-house Bank
Legal entity
AP/AR Processes SSC
Netting Center
Payment Factory
―… on Behalf of …‖
Corporate
Objectives
Liquidity
Structure
and
Forecasting
Risk
Management
Process
Execution
6
1
The World Class Principles ProjectCiti, The NeuGroup Global Cash and Banking Group, and 26 member companies (led by a core team of 6)
conducted a year-long program to define world class principles for treasury cash management activities and
provide a set of benchmarks that companies can use to measure performance. The project was co-
facilitated by Citi’s Global Treasury Advisory team and used their Citi Treasury Diagnostics tools.
Part I
Defining World-Class Cash Management
Part II
Structural /
Organizational
Organizational
Structure
Treasury
Responsibilities
Talent
Management
Bank Relationship
Management
Accounting
Policies and
Procedures
Technology End
State
Bank Account
Management
Intercompany
Txns / IHB
Dividend
Repatriation
Reporting /
Dashboards
Dashboards
Cash Visibility /
Pooling
Payments
Cash PositioningProcesses
2
Who is The NeuGroup?
The NeuGroup is an independent research and publishing company dedicated to the exchange of
knowledge among treasury and finance professionals through two mediums.
Newsletter:
Launched in 1994, our flagship monthly newsletter, International Treasurer
(www.itreasurer.com) makes us a trusted advocate for global finance practitioners.
Peer Groups:
The peer group model began in 2001 with the launch of Tech20, a group of treasurer’s in
the technology industry, which served as the start of a network of Fortune 500 practitioner-
driven member forums committed to sharing knowledge and experiences with their peers.
– Current peer groups 14
– Current number of member companies 160
– Current number of members 280 +
3
What is the Global Cash and Banking Group (GCBG)?
A group of more than 25 senior treasury professionals who meet twice per year to share ideas, challenges
and solutions within an informal, yet structured environment.
3M*
Accenture*
Agrium*
Altera
Amgen*
Applied Materials*
Bechtel *
Cargill*
Celgene*
Chiquita Brands*
Cooper Industries*
Costco*
Dell*
Diebold
Dr Pepper Snapple*
eBay*
Eli Lilly*
Genentech
Google*
Hasbro*
Herbalife*
Itron*
Kimberly-Clark*
Merck*
MoneyGram*
Nike
Oracle*
Research In Motion*
* World Class Research participant World class project core team member
4
What is Citi’s Treasury DiagnosticsSM?Treasury Diagnostics is a global treasury benchmarking program created by Citi. Participants, which include
multinational corporations from around the world, are able to benchmark their treasury operations vs. the
Best In Class and identify potential opportunities for improvement.
Benchmark Six Pillars of Treasury Operations
Liquidity
Management
Working Capital
Management
Risk
Management
Subsidiary Funding
and Repatriation
Policy and
Governance
Systems and
Technology
Identify Where You Stand Relative to Peers—Learn What Counts as Best in Class
Benchmarks Benchmarks Relative Performance Detail
Winner, Celent
Model Bank Award
Silver Winner, Solution of the
Year, Treasury and Risk Alexander Hamilton AwardsWinner, Innovative Product
Performance Risk Management +/-Policy &
Governance
Liquidity
Working Capital
Sub Funding &
Repatriation
Risk Management
Systems &
Technology
4.33.6
3.6
2.4
2.4 4.9
2.6
1.0
1.7
My Score
Peer Group
Universe 3.0
2.9 4.33.6
3.6
2.4
2.4 4.9
2.6
1.0
1.7
My Score
Peer Group
Universe 3.0
2.9 4.33.6
3.6
2.4
2.4 4.9
2.6
1.0
1.7
My Score
Peer Group
Universe 3.0
2.9 4.33.6
3.6
2.4
2.4 4.9
2.6
1.0
1.7
My Score
Peer Group
Universe 3.0
2.9 4.33.6
3.6
2.4
2.4 4.9
2.6
1.0
1.7
My Score
Peer Group
Universe 3.0
2.9 4.33.6
3.6
2.4
2.4 4.9
2.6
1.0
1.7
My Score
Peer Group
Universe 3.0
2.9 4.33.6
3.6
2.4
2.4 4.9
2.6
1.0
1.7
My Score
Peer Group
Universe 3.0
2.9 4.33.6
3.6
2.4
2.4 4.9
2.6
1.0
1.7
My Score
Peer Group
Universe 3.0
2.9
Top 25% of responses
Core 50% (25-75%) of responses
Bottom 25% of responses
Average response
My Score Top 25% of responses
Core 50% (25-75%) of responses
Bottom 25% of responses
Average response
My Score
My Relative Performance
Process Area Against Peer Group Against Universe
Liquidity/funding risk Worse Worse
Interest rate risk Worse Worse
Foreign Exchange
(Transactional)Better Better
5
2. Project Highlights and Outcomes
Highlights
Utilized a survey process of over 150 questions
Over 20 companies actively participated of which 6 were on a core leader team
Two phases over the course of a year
Outcomes
Two parts:
– Foundational areas: e.g., organizational structure, policies and procedures,
technology and talent management
– Processes-centered areas, e.g., cash positioning, cash forecasting, liquidity
management, and bank account management
15 Treasury operations categories, 72 principles to define world class treasury operations
Principles vs. Practices – intended to apply to ―all of the above‖ companies
Project Highlights and Outcomes
6
Principles:
Standardize operations first then evaluate additional locations
Centralize and align cash management to the degree necessary depending on
organizational structure, geographical locations, and local on-the-ground needs
Minimize the number and location of treasury centers as much as possible without
compromising operational efficiency and timeliness. This minimizes both expense and
points of operational coordination while ensuring operational optimization
Seek to extend operations at existing SSCs to capture efficiencies and benefits such as
availability of a broader talent pool and better integration with operations. Independent
treasury centers may be warranted and necessary, in lieu of or following co-location at an
SSC
Organizational Structure - HighlightsSummary Statement - As companies expand globally the need to organize effective treasury operations to
support remote areas of the business increases. For many MNC’s, this means winning greater efficiency in
developed markets so that it can deploy additional resources in developing markets, where efficiencies are
more difficult to achieve.
7
Organizational Structure – What Project Participants Said
How many Treasury Centers do you have, where HQ counts as 1?
36%
23%
32%
5%
5%
1
2
3
4
5
9
Principles:
Cash management activities are defined as ―owned‖ or ―influenced‖ and periodically
rationalized to avoid being overburdened by non-treasury or non-strategic activities
Standardized operational cash management activities are conducted outside corporate
treasury, either at a treasury center, a shared service center, or by local in-country staff,
leaving corporate staff with more resources for managing strategic activities
All policy decisions are initiated, or at least approved by, corporate treasury
Treasury Responsibilities - HighlightsSummary Statement - Treasury touches and is impacted by many areas within a company and obviously
can’t control everything. It should, however, at least try to minimize negative impacts by building influence in
areas that it can’t control. This requires treasury to take a hard look at the tasks being performed and to
determine if they are owned by treasury and if they are not owned how much influence it should have.
10
Treasury Responsibilities – What Project Participants Said
Where is cash operations / liquidity management performed in your organization?
73%
64%
14%
23%
0%
Performed at Head Office
Performed in a Treasury Center
Performed in a Regional SSC
Performed Locally in Country
Treasury Doesn’t Manage This Function
12
Principles:
Treasury does not ―own‖ treasury accounting itself, but partners with the accounting team
to foster good relations and ensure full understanding of treasury transactions
Treasury actively supports the purchase and use of tools that provide maximum
automation and minimal errors to accounting activity
Accounting - HighlightsSummary Statement - The big issue around treasury accounting is ―who should own it‖, which can be a
surprisingly complicated matter to consider. Expertise around actual transactions clearly resides with
treasury, which typically loathes being involved with accounting, while expertise around accounting rules
generally resides with accountants.
13
Accounting – What Project Participants Said
How automated is your treasury accounting process?
33%
39%
23%
STP (Push a button and create a report with automated feeds
from all related areas
Semi-Automated (need manual input along with automated
reporting)
Manual (need to manually pull info from various sources and
inputs and generate
spreadsheet)
15
Principles:
Certifications, participation in media articles, speaker opportunities and other possibilities
for personal development are supported and encouraged
Treasury and non-treasury rotational opportunities, either formal or informal, are supported
and encouraged for personal development and career management
Non-monetary reward programs such as flexible work hours and telecommuting programs
are supported and encouraged to create and maintain employee retention and
engagement
Talent Management - HighlightsSummary Statement - Talent and technology are treasury’s two biggest assets, and because they are
generally in scarce supply they must be carefully managed. A world-class treasury operation focuses on
various methods for recruiting, developing, and rewarding treasury personnel as well as different types of
monetary and non-monetary incentive programs.
16
Talent Management – What Project Participants Said
Do You Have a Rotation Program for Treasury Employees?
55%
41%
5%
No Program
Yes, Informal Program
Yes, Formal Program
18
Principles:
A global single instance of a treasury management system (TMS) and ERP is established
or in process
Supplementing the single instance TMS, best of breed systems are incorporated into the
TMS to allow for the highest level of STP
Unique special-purpose software products are minimal, automated and standardized
across all users
STP and full automation exists for at least 75 percent of cash management activity
processes
A world class treasury has dedicated IT support
Technology End State - HighlightsSummary Statement - Treasury technology is to support efficiency with automation (STP) and decision
support. But treasury needs to pursue an end-state that their organization can support and maintain
effectively. This can be evidenced by continually driving to minimize the number of core platforms,
supplemented by "best of breed" special-purpose applications where necessary.
19
Technology End State – What Project Participants Said
How Long Do You Think it Will Take to Achieve Your End-state Vision?
18%
55%
18%
9%
Less than 1 Year
2-3 Years
4-5 Years
More than 5 Years
21
3. Conclusions
Take-AwaysThe principles are intended to provide a roadmap by which any company can measure status and progress.
By focusing on principles, the results should apply to most companies and market environments.
With multinationals facing significant shifts in patterns of growth, any treasury organization seeking to be world-class must
become efficient in how it manages routine cash processes, so that it can focus more attention on supporting the
businesses generating the cash.
Becoming world-class is not a one-time endeavor. All organizations should look to regularly benchmark cash management
activities to see where they stand relative to peers, define their end goal, and set forth the milestones and acceptable time
frames to reach them.
Gaining a fuller understanding of the principles, and their application in various circumstances is best done through candid
discussions with peers – those in the same industry, as well as those engaged in other types of businesses. Service
providers can help too, as they serve as clearing houses for the best practices they see with their customers.
Acknowledgements
We thank all members of the Global Cash and Banking Group for their collaboration on the project and for allowing us to
share highlights.
Special thanks to the Global Cash and Banking Group core team members from Bechtel, 3M, Dell, Kimberly Clark, Merck,
Cooper Industries, eBay, and Eli Lilly. Their hard work in driving the research process and subsequent analysis and in
infusing the interpretation with the perspectives of corporate treasury practitioners resulted in practical and meaningful
takeaways for other practitioners.
22
Resources
Coming Soon!
Defining World-Class Cash Management : Part II - Tactical & Process Principles (Thursday April 26, 11:00 – 12:00 ET)
Project Highlights – To be Sent to Registered Participants
World Class Cash Management Principles: Highlights from the Collaboration of The NeuGroup’s Global Cash and Banking
Group and Citi. March 2012
Resources
www.itreasurer.com
http://www.transactionservices.citigroup.com/transactionservices/home/tts/corp/liquidity/index.jsp
23
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