Global economic disruption from the past year and a half has placed a new emphasis on corporate agility. Businesses no longer view risk mitigation or supply chain agility as elevated initiatives, but as integral requirements to their operations — and corporate treasurers have stepped up to the forefront of these efforts.
The phrase “digital transformation” continues to dominate the conversations of corporate finance leaders as the treasury department looks to take on a more strategic role within the enterprise.
This is far from a new concept. What is new, however, is what it means to transform through technology. As revealed in the recent Powering Smart Treasuries Playbook: Treasurers’ 2021 Roadmap to Innovation, a PYMNTS and Citi collaboration, the ongoing digital shift for consumers has widespread implications for the corporate back office — and treasurers are increasingly paying attention.
As corporate treasurers consider their own definitions of this effort, they’re finding new ways to guide their organizations into new business models and prepare for the future, no matter what that future may look like.
Business Model Shifts
Shifting business models became a necessity for many firms at the height of the pandemic disruption, with the direct-to-consumer (D2C) model growing in popularity even now as the global economy finds a bit more stability.
For many organizations, the embrace of D2C isn’t just about mitigating risk. More firms are making this change for other reasons, including to deepen the customer relationship.
D2C can drive deeper client connections and promote customer loyalty, enabling a firm to better understand customers and customize their experience as the relationship progresses. Yet there are massive implications of making this business model shift, and the corporate treasurer has a direct role in supporting an organization as it navigates those impacts.
Individual transactions may become smaller in size, yet the collective value of those transactions can grow. Logistics costs increase, yet the cost of working with channel partners can go away entirely, while D2C can also eliminate many redundancy issues.
Overall, a firm’s approach to cash flow management and risk is likely to significantly change, and treasurers need the right tools to embrace that new paradigm.
The first step, as PYMNTS’ and Citi’s playbook highlighted, is for treasurers to hold conversations with key stakeholders and establish a robust risk management policy.
“The process should start with a conversation between treasury and business stakeholders before the planning stage is completed for any business model expansion,” it noted. “The reason for keeping treasury management front and center is clear: New eCommerce strategies may create a host of unique risk management requirements and financial vulnerabilities.”
A Journey, Not A Destination
Whether an organization has decided to change its business model, or simply seeks to optimize back-office financial operations, firms are beginning to usher in the age of the smart treasury. It’s a concept that involves embracing digitization and technology in more sophisticated ways than the digital transformation efforts of yesteryear.
For one, treasurers today are pursuing an elevated level of automation. The 2008 financial crisis and the coronavirus crisis have each served as wake-up calls for treasurers to acknowledge the need to automate as many workflows as possible. Today, that means more than mundane, repetitive tasks, and includes implementing automation into higher-intelligence, higher-value activities.
With data critical to a successful automation effort, there is growing interest among treasurers to drive smart treasuries through machine learning (ML), artificial intelligence (AI) and more expansive data analytics technologies. Rather than looking back in the rear-view mirror, it’s about looking ahead and wielding data to operate in a more predictive way — and to act accordingly.
This is a direct consequence of such disruptive global events that have agitated supply chains and encouraged business model shifts. Yet while treasurers are becoming more proactive at collaborating with their banks and trying out new technologies, finance leaders cannot expect to make these changes overnight with a few cutting-edge tools.
What’s important to recognize is that fostering an intelligent treasury is a journey, not a destination.
“Coordinating all of these moving parts takes time — an important consideration, given that growth adds risk and the prospect of exposure to new vulnerabilities, such as [foreign exchange (FX)] volatility, as companies expand beyond their own geographies,” PYMNTS’ and Citi’s playbook revealed.
Just as treasurers’ expectations have increased for the value that automation can bring to the back office, these professionals continue to raise the bar when it comes to transforming the treasury function.
That means the definition of “digital transformation” will continue to evolve as treasurers seek ways to plan for any future scenario, whether that’s a business model shift or a disruptive supply chain event. The truth is, no matter how well-educated a treasurer is on business and economics, the global market is complex and multi-dimensional, and it is impossible to predict everything.
But treasurers can take measures to prepare for those variables and help their organizations remain nimble when the unexpected inevitably occurs. As these finance professionals embrace technology and redefine what it means to transform, they will continue to push the boundaries of business resilience further into the coming years.
“Treasurers are the vanguards of progress for many organizations, even if they often work in the background,” noted the Powering Smart Treasuries Playbook: Treasurers’ 2021 Roadmap To Innovation report. “Businesses stand to improve their speed to market and raise their success rates when treasury management is made an inherent part of the innovation process and can ensure risks are mitigated and financial strategies are sound.”