3 is the magic number

Eric Matheny (AGCS) on the Treasury Triangle Concept

3 is the magic number

This autumn, Eric Matheny, responsible for AGCS’s global treasury, will give a Ted Talk at the AFP Conference in San Diego. The reason for this presentation is a concept he described for his company concerning a framework that optimizes the organization’s cash management and can be used globally, in any language, any culture and any business. Laurens Tijdhof, partner at Zanders, spoke with Matheny and asked him about the opportunities of the Treasury Triangle Concept.

In Europe, insurance company AGCS (Allianz Global Corporate & Specialty) is better known as Allianz, its parent company, headquartered in Munich, Germany. Eric Matheny works out of the Chicago office, where AGCS has a large presence. As head of global treasury, he travels frequently. “We are now spending more time and effort in Asian countries such as South Korea, China and India. While the business in Asia is growing, most of our business is split between Europe and the US”, Matheny explains.

Why did you create the Treasury Triangle Concept (TTC)?

Matheny: “The concept was born out of need. When I joined Allianz eight years ago, I was asked to build a global treasury team and a standard framework.

Our business is global commercial property and casualty insurance, which has grown very quickly, expanding from Europe to the US and Asia. So we had several integrations around the world that we had to incorporate into our systems. A lot of new people also joined the team, trying to figure out Treasury’s role in the organization. Most business leaders didn’t really understand how it was all supposed to work from a cash flow and treasury perspective.

So that was my challenge: I needed a quick way to get everyone to work on a standard framework that we could rely upon, explaining and advising how treasury supports the business. We needed to use it worldwide and it needed to be easy to explain to senior leaders, IT colleagues and others who were totally new to the treasury function.

When we looked across our business, we saw several different entities handling treasury differently, with highly decentralized, non-standard processes. So I created a graphical method to explain how my standard treasury framework was going to work. This triangle was the easiest way to do that.”

Could you describe it?

“It is a graphical method to explain the functioning of a standard, global treasury process framework to optimize the management of cash for any business.

Its symbolism can be used in any language, culture, or business. The Treasury Triangle consists of three legs.

The first is the treasury workstation (TW), the single connection point to the bank. The other two are internal elements: the general ledger (GL) and the operating system (OS). The GL accounts for all incoming and outgoing cash. The OS, which is connected to the TW for all outgoing payments data and incoming cash information is connected to the GL for journal entries.”

Treasury Triangle

And what value does it add to the business?

“In the past eight years we have created new growth models and have been digitizing our business. From our IT department we were asked how Treasury would work and incorporate recent software upgrades. When I showed them the triangle, they realized it made sense.

For example, when we expanded to Brazil, we had a so-called ‘greenfield operation’; we really started from scratch. We had to open bank accounts, needed new operating systems, etc. The treasury triangle made things easier – the language didn’t matter. And we’re still using the model in Brazil to explain and advise our senior business people and IT.”

You mention senior executives and IT, but do you also use this model to train your treasury colleagues and the CFO?

“Any person who comes into our team has to understand it. My team conducted ‘lunch and learn’ sessions to present it to anyone who was interested.

We then also talked about treasury in general and why we wanted to use more digital payment methods. A new acquisition or system implementation can be very complicated – with the triangle, however, you can boil it down to a simple picture.

The recent Fireman’s Fund Insurance Company integration involved 11 operating systems, so the question was how to integrate these different systems into our business. Then I drew the picture to show that those systems were represented by the operating system, one of the TTC legs.

So these 11 needed to be connected to both our treasury system, called ACTS (Allianz Treasury Cash System), and the general ledger. That really helped people visualize how the cash is going to flow to the business and how transactions are going to be recorded in the general ledger.

‘Apart from the three legs, there are three steps to take if you use it’

In the US we still rely on the paper check for collecting premiums. There’s a well-known concept in US banking, called lockbox, which is a service offered by commercial banks to organizations, to simplify the collection and processing of incoming paper checks.

With this service the bank can process the checks that are mailed in and put the relevant information in data files that you can send to your operating system for cash application purposes. It’s a very complicated process, but the triangle enabled me to explain to my IT team how this was going to work in our company.

What typically happens is that the customer pays his premium, which comes to the bank and the treasury system. The treasury system can then turn this into information that can be fed to the operating system, which can feed into the journal entry to the general ledger. That’s how the triangle can easily explain a complicated process.”

There are exceptions, but is there always a solution for every exception?

“There is no way you can have the perfect triangle in any business. Yet we do have a mechanism for exceptions, which we call the Treasury Triangle Exception Document.

Basically, for each country we track where this treasury process might not exist. We go through all exceptions each year with our local business leaders, to make sure that these exceptions become part of the treasury standard.”

So it looked like the framework was not covering the way it was set up with other integrations, but you learned that basically the framework helped you to dig into the functionality of a system, to see the potential overlaps and to identify it from a security point-of-view?

“Exactly. Imagine that your operating system is connected directly to your bank. If you have a company with multiple operating systems, you would have to connect each to that bank. That’s a very inefficient process and open to potential fraud.

The Treasury Triangle helped me to highlight that this is the most secure and efficient way of collecting and paying cash – and accounting for it.”

At Allianz, as an insurance company, your operating system basically concerns claim management and managing the insurance core business. General ledger can be applied to any company and a treasury workstation as well. But you’re acting in a quite fragmented system environment. If you make your model a bit more generic, could this system work for companies that use only one or two systems, such as a global SAP system that applies the framework and the triangle as well?

“Yes, I think so. In the case of SAP, you would have to separate it into modules; the GL module, an SAP payments module and the treasury workstation – the three legs of the triangle.”

Why is Allianz not working in a single system environment?

“We have a standard operating system, called Global Genius. Insurance is a specialized industry; the insurance information is so highly regulated, in terms of information that is needed for all those payments and collections. It requires much more detailed information and a system to do things that SAP probably couldn’t provide.”

Does that apply for the treasury workstation as well in your case?

“When I was looking at solutions, I could have installed my own treasury system or I could have gone out into the marketplace with an RfP. But Allianz already had an internal treasury system in place, called ACTS.

The main advantage was that it was set up globally by our own people and used by other Allianz entities – so I could use it anywhere in the world – and ACTS was automatically connected to the Allianz cash pool, so I had easy access to this critical liquidity function. These two factors drove me into the internal model for a treasury system.”

How would you recommend people who are active in treasury, but not in the insurance business, to start the TTC in their organization?

“The magic number in using the concept is three. Apart from the three legs, there are three steps to take if you use it.

First is definition, the second is analysis and implementation, and the third is monitoring.

‘Definition’ means sitting down with the stakeholders and trying to define how the operating systems are working today.

At the second step, you’re working towards an optimal or target state for your treasury; you bring in the triangle and try to see if you can fit the current situation into the triangle framework. We have a standardized Excel file, called the Treasury Tracker, which allows us to keep track of all the tags that need to be completed, in order to implement the Treasury Triangle in our business.

Then the monitoring comes in around six months later: Is the triangle working the way it is supposed to? If not, it means that another round of analysis and implementation is needed; what’s working well and what needs to be fixed? We found out that this three-step process works really well.”

So, what dos and don’ts can you give people starting to work with the TTC?

“There are a couple of things. An important ‘do’ is to clearly identify your stakeholders – who are the people that touch cash on a daily basis? These are the ‘grass root treasury fans’. You need to know what their issues are, so get to know them well and take them out to lunch. Explain the triangle to them in an informal way and tell them you want to improve the way cash is collected and paid.

”An important ‘do’ is to clearly identify your stakeholders – these are the ‘grass root treasury fans’ ”

You also need to get the triangle approved at the highest level of the business, in order to have the whole organization following it.

The third thing to do, is to start a marketing campaign to highlight the triangle, so that it becomes the business’ best practice. You need people to embrace the concept and embed it into the business. The only ‘don’t’ that I can tell you is: don’t be afraid to stand up for your framework.

When it comes to opening bank accounts or moving cash, it’s easy to ignore it. Don’t back down and be a strong advocate for it.”

What kind of feedback would you like to have from the internal client’s users to know that your approach and concept was successful?

“Perfect feedback would be phrases like ‘I was able to save time on my journal entries, posting cash’, ‘payments go out faster’ or ‘we can really simplify our banking structure’.

It’s about simplifying and saving money. In the past year we saved USD 300,000, just in bank fees, by simplifying our bank account structure.

Simplicity is a big theme for us, because many things are complicated in the insurance business. The triangle allows you to think through the complexities of a growing organization, to keep it simple and to keep the bank accounting structure optimal.”