Functional Treasury

The treasury function continues to evolve, stepping beyond its traditional boundaries to sit closer to strategy and operations. Increasingly, companies must adopt global or international perspectives to both serve and operate in geographically dispersed markets.

Coordinating the needs of internationally dispersed corporate divisions to deal effectively with local issues in a way that is aligned with the overall strategy of the group is a complex task for the treasury department of any large company.

The process of coordination is particularly acute in the airline industry, as it needs to respond quickly to changes in its markets. The industry is normally the first to feel the financial and operating impact of any global adversity. Recent major crises have included the Gulf War, the 9/11 and 7/7 terrorist attacks, SARS, the sub-continental tsunami, and the credit crunch. The industry has had to deal with these and ever-rising oil prices that have climbed to unprecedented levels and significantly contributed to the demise of several airlines in recent months.

Some, including Virgin Atlantic, have recognised that centralisation of key functions like treasury will enable airlines to respond faster to global changes. Alex Harris, the airline's group treasurer, sees this step as crucial when tackling the complex needs of a forward-looking organisation.

Since it was founded by Richard Branson in 1984, it has become one of the world's leading international airlines, serving its major cities. Flying out of Gatwick, Heathrow and Manchester airports, it operates long-haul services to 30 destinations worldwide as far apart as San Francisco, Shanghai and Sydney.

The company's internal structure has evolved throughout this expansive period and continues to do so. For Harris, the control and visibility afforded by a centralised treasury function has helped to give his organisation the responsiveness that is so vital for its future. Retail card acceptance

Commercial cards acceptance

Along with managing the day-to-day impact of investment markets, liquidity, interest rates and foreign exchange on the company, which are all managed centrally, Harris is also responsible for Virgin Atlantic's activities in the retail card space.

As with local banking and cash, the card sector had grown in a fragmented way to satisfy local requirements and conditions. In line with the firm's strategy for banking and cash, Harris says it took a holistic view but worked collaboratively across functions and overseas operations to put in place a strategy to centralise and standardise card processes globally.

The company has recently implemented 3D secure protocol which improves security for web-based systems and provides other enhancements and opportunities for the airline.

"Implementation of the payment card industry standard for the storage of card data is well under way," he says.

In addition, the firm is in the process of implementing a global card acceptance solution that will integrate and standardise its global card acceptance process to ensure the interoperability of systems and processes, reduce cost, improve transparency and importantly, deliver a consistent and enhanced customer journey irrespective of point of entry.

Centralisation benefits

Centralisation has provided the treasury function with an enterprise-wide perspective that enables more efficient management of diverse projects, including its card activities, and of the performance of local entities within the group. This is to ensure key decisions on all projects are aligned with strategy and that the needs of the overall organisation are best served.

"There is a clear chain of command from the centre of the organisation. We decide on the core strategy and develop business cases for the executive committee. We seek buy-in at all levels, but we will implement our strategy based on what's best for the organisation overall and not on local or functional whims," remarks Harris.

This need for authority and accountability does not, however, diminish the value of input from other stakeholders. In fact, it supports the forum for input to influence strategy and enables its more efficient execution.

Harris recognises that it is important to communicate with functional heads across the organisation on major projects. Teamwork is as important as authority and consistency.

The importance of a clear chain of command is particularly noticeable in the area of cash management, where Harris is keen to ensure that the needs of the many always outweigh the needs of the few.

"In cash management we must accept that certain jurisdictions may be sub-optimal at local level, but yield better results for the organisation as a whole. We may choose, for instance, a global banking partner that may not be the best in a specific location, but is better overall," notes Harris.

"A small part of the business cannot act in a way that is sub-optimal for the whole organisation," he adds.

Keeping pace with evoloution

Of course, there are many other trends that will determine how treasury departments will operate in the future, and technology will have a great bearing on those trends. A treasury management system (TMS), for instance, is set to step beyond their traditional role and become part of a new paradigm in which they are more closely integrated with other vital business systems.

TMS has evolved over time into a set of self-contained systems, which may soon cease to be fit for purpose unless they adapt to their role in business agility and strategic planning.

"In the joined-up STP world there is a need to seamlessly transfer data from ERP systems to TMS systems, out into the banking world and back again. We've had to invest in that process, but the industry wants more up-front integration. When corporates buy a TMS system they want to know it will communicate with their ERP systems."

When Virgin Atlantic invested in TMS a few years ago, it considered the option of ERP systems with integrated TMS capability, but very early on identified that large ERP vendors were paying lip service to the needs of treasury. Back then TMS was an add-on, but now it is a different story.

"Oracle, SAP and others are building world-class TMS systems, or buy top quality systems from other vendors. So, the industry will look in the future to these ERP vendor systems, which are easier to implement and have a lower cost."

Change may be the only constant for the treasury function at the moment, as organisational structures continue to adapt to the demands of operating in dynamic, global markets, while developing standards and technologies reshape the business environment. An organisation's ability to glean opportunity from these changes will depend heavily on the quality of communication among all interested parties – within the company and with external partners, especially banks.

"We need to communicate with them and if there are different standards for doing that, it becomes expensive and complex. Ultimately, we want standard formats and a single gateway," he concludes.