All humans need air to breathe, water to drink, and food to eat. Only after these basic elements are met are, we able consider our need for security, social belonging, self-esteem, and finally creativity. This hierarchical structure was first put forth by Abraham Maslow who published Maslow’s Hierarchy of Needs in 1943.
The same general idea can also be applied with a company’s Treasury management process. The below graphic depicts how one can move from being a cash manager into a strategic adviser.
The treasury pyramid
To perform any type of treasury analysis or decision making, treasury managers must have a complete view of cash sources and balances. This is frequently done through logging into multiple bank portals, pulling down files of various formats (CSV, DAT, XLS, PDF), and consolidating them into one database or spreadsheet for further analysis. More advanced users may rely upon SFTP (secure file transfer protocol), APIs, or SWIFT to bring in BAI or MT940 files. Frequently, some degree of cash forecasting is also performed to ensure adequate funding in the short to intermediate term as well.
Once a process to establish a cash position and short-term forecast is determined, a treasury manager typically progresses to asking questions about the security and stability of the data inputs used and payments processed. Are the data inputs reliable and data transfers secure, and are there sufficient controls to prevent fraud? A treasury manager’s need grows from knowing the company’s cash sources and balances to bank reconciliations (ensuring accuracy of data inputs and mitigates errors), payment processing (through manual process controls and automated filter, such as required approvals, dual authorization, exception reporting), and access security (bank signatory management).
After the need for security and stability are attained, treasury managers look to find ways in which they can provide insight to leadership. To provide insight, information must be usable and delivered via a flexible medium that allows new data sources to be absorbed and that can adapt to a changing landscape. The information must be readily available and clear so decision makers can take informed action.
Achieving the highest level of becoming a strategic adviser requires treasury managers to utilize information gathered throughout the enterprise and external sources to create new insights and ideas that will expand the company’s horizon beyond its current way of thinking. It requires treasury managers to step out of their comfort zone and think creatively to solve business problems, decrease risk, and increase total enterprise value.
Surrounding each of the four levels is the circle of connectivity. All levels within the hierarchy will collapse if treasury fails to address bank connectivity. Bank connectivity can be as simple as accessing a bank portal or interface provided by a single financial institution. For many companies, that is all that is needed. Cash positioning and forecasting can be achieved through manual processes and performed weekly or monthly. The time and effort required to minimize the cash cushion needed to meet corporate liquidity takes a back seat to the focus on operational improvement and revenue growth. This delicate balance is often tipped when some future event occurs and the need for cash clarity becomes paramount. Events come in many shapes and sizes and can include rapid growth, new funding (debt or equity), a merger or acquisition, loan covenant breach, new ERP, seasonal liquidity cycles, working capital constraints, or economic downturn.
In Steven Bradley’s Smashing Magazine article, “Designing for a Hierarchy of Needs,” he writes:
“According to Maslow, if you try to satisfy the needs of one level in the hierarchy without having first met the needs of the prior level, your place in the hierarchy will be unstable.” This paradigm also holds true with the treasury hierarchy of needs. One can’t expect to have assurance of effective fraud protection and clean reconciliations if they don’t first have a complete view of their cash position.
“Lower levels in the hierarchy serve as the foundation for higher levels. If your foundation shakes, then you get pulled back down to a lower level to stabilize your foundation before moving back up the hierarchy.” If you try to jump over one of the layers, you will find yourself constantly frustrated with the lack of clarity into your cash position and potentially worried whether your company’s liquidity is enough.
More to come
Treasury technology has room to improve.
Results from the Association for Finance Professionals’ Strategic Treasury Survey showed “…a small majority of finance professionals (53%) agrees that treasury is making very effective use of technology to manage risk and increase treasury’s contribution to the overall organization.”
Additionally, “27% of treasury departments cite ‘Identifying technologies that effectively support corporate needs, etc.’ as a challenge in Determining Adoption of New Developing Technologies.”
Don’t go it alone
Moving up the treasury hierarchy and achieving strategic adviser status requires time, effort, executive buy-in, a careful assessment of a company’s existing processes and procedures, the identification of pain points, gap analysis, prioritization of initiatives, and program management. It’s often not feasible for existing personnel to take this on in addition to their regular duties. Using an external partner to work in conjunction with an internal designate produces the optimal mix of internal knowledge and external resources to produce tangible results.
If your organization needs help in becoming the strategic adviser you know you are, there is no need to suffer through it. Contact MorganFranklin today to take the first step in your treasury transformation or our treasury solutions page visit to learn more.