An understatement: Exponential technology will impact corporate treasury

An understatement: Exponential technology will impact corporate treasury

Today’s technologies offer opportunities that we have never seen before. Moreover, these possibilities are becoming greater continuously; today’s technologies do not develop linearly, but exponentially. Exponential technology will change your treasury and finance departments too. The question is how will you manage the challenges and embrace the opportunities? Together with the American Association of Financial Professionals (AFP), we researched the impact of exponential technology on corporate treasury. This article offers a summary of our findings.

In 2015, fewer than 5 per cent of the Fortune 500 companies had an official role for the chief digital officer (CDO); now around 20 per cent of these same global companies have a designated CDO role. Even industrial giants such as General Electric, ABB Group and Bombardier have created a CDO position in the past two years. Jeff Immelt, the former Chairman and CEO of GE, claimed that GE will transform into one of the top 10 software firms by 2020 and believes that GE’s future viability depends on this digital transformation.

This sentiment to digitize and adopt technology throughout an organization is reflected across the entire corporate spectrum. David Felton, VP & treasurer at Discovery Networks International, says: “As Discovery is expanding digital, it means we are receiving payments from digital online customers to subscribe to particular services either as apps or online. That’s a big change for Discovery and one that is expanding significantly.”

Banks have also realized they need to have a ‘digital’ strategy due to the emergence of digital banks in the consumer sector. As society increasingly adapts to online banking, the idea of visiting a bank branch is fading. These new challenger banks provide consumers with a fully digital solution in retail banking, while gradually encroaching into the wholesale space.

Other companies such as M-Pesa in Kenya, run by Vodafone’s subsidiary Safaricom, offer financial services – once the exclusive domain of the traditional banks – to local businesses and consumers.

Viability and acceptance

During the last decade, FX dealing platforms became standard applications in most corporate treasury departments. These platforms delivered real-time competitive pricing and improved control with a higher degree of straight-through-processing. The widespread viability and acceptance of these platforms is an example of how quickly it took the corporate world to adapt to a new technology.

However, we expect the time to adapt to decrease in the future as the acceptance of new technologies becomes faster and as vendors offer more and more functionality. SAP, for instance, invested billions into SAP S/4HANA and, more recently, launched SAP Leonardo, which combines artificial intelligence, machine learning, blockchain, analytics and the Internet of Things within one platform. SAP’s co-founder Dr. Hasso Plattner calls it “a set of tools to build a system with machine learning algorithms to find insights”.

Algorithms enabled the emergence of high-speed trading in financial markets over the past few decades. Now, written in code by self-educated programmers and smart university students, algorithms can do almost any calculation required. The algorithms are further enhanced today with machine learning capability; the algorithm learns from its own output and improves on this for the next cycle.

Julia Kirby of Harvard University Press said of her own research: “It is where even the process of how the task needs to get done continues to evolve and the machine’s ability to bring in feedback information and then tweak its own performance is superior to what the human mind can do.”

Traffic light

Considering the breadth of treasury activities and tasks, the internal and external parties, the extensive volume of data and number crunching (daily, weekly, monthly), the multiple sources to collect information and the sensitive and confidential nature of the underlying operations, it’s an understatement to say exponential technology will impact corporate treasury.

Jean Furter, VP & treasurer at Brocade Communications Systems, maintains that “there are many functions and treasury processes we are doing today in a corporate treasury department that I can easily visualize as being taken over by technology, there is absolutely no question in my mind about this. This can take two to four years, but it will happen. Much of the operational work we do today is going to disappear.” We believe that this new wave of exponential technology will impact corporate treasury in one of three ways: a corporate treasury will use these innovations to either improve, redesign, or replace a function or process.

Figure 1 Treasury impact matrix (example)

Figure 1: Treasury impact matrix (example)

Figure 1 identifies a selection of treasury activities and processes and how much exponential technology will impact that function. The green traffic light indicates a lower impact; these innovations will improve but maintain the core process.

Where we expect a moderate impact and a change in the process design, we allocated an orange traffic light. For the processes where we envisage a total replacementor redundancy, we allocated a red traffic light. This exercise will vary from company to company, but highlights the need for corporate treasuries to undertake a treasury impact assessment for their organization.

Corporate impact tree

Exponential technologies will impact corporate treasury from both internal and external angles. As evidenced by our conversations with corporate treasurers, the ‘ivory towers’ of treasury and finance are fast becoming digital command centers full of data analytics, algorithms and self-improving processes.

According to Kirby, “the practice of management itself is also going to be hugely disrupted. Management is now going to be defined by the constant need to re-examine the mix of work between humans and machines and always be directing that freed up human capacity into areas of even higher value. Management is going to have to make this huge paradigm shift to thinking much more about ‘exploration’ than ‘exploitation’ of opportunities and imagining the possibilities for how to innovate in the best way.”

The human impact is apparent. Skills that were once a necessity for treasury are being replaced with RPA (robotic process automation). New skills are being required, causing internal challenges for organizations in ‘up-skilling’ while creating opportunities.

Kirby maintains the threat to jobs is real. However, in her research (in cooperation with Tom Davenport), they do not see huge job losses, but they see people adjusting to these encroachments by changing their job content in a variety of ways. She goes on to say that “if you are going to invest in these tools, the most important consideration is how your people are going to be leveraged by those tools and how your people are going to be, more than ever, the source of your advantage.”

 

Figure 2 The corporate impact tree

Figure 2: The corporate impact tree

Increasing productivity and transparency

Zac Nesper, VP & assistant treasurer at HP Inc., believes that exponential technology will increase productivity, advance analytics, and deliver new insights that will profoundly change the nature of treasury. By reducing the amount of time teams spend compiling data and creating reports, he maintains “there is a lot of value that can be created by better leveraging technology to unleash the skills of our treasury team on analyzing the results and taking action.” The potential for process improvements, redesigns or replacements is significant and applies to all corporate treasury and finance departments.

Externally, regulators, RegTech and FinTech companies are challenging the slow-to-change financial service organizations. Regulators, although geographically different, all strive for the same end result: greater transparency in order to protect stakeholders, such as clients or investors. As these regulators draft and implement new guidelines, providers and end users must adapt to the ever-changing challenges and opportunities.

The FinTech ecosystem creates tremendous opportunities for corporate treasuries. The offerings are both complimentary and new. Treasurers need to evaluate these advancements relative to their own operational processes. Dashboards, trading platforms, trade finance, supply chain financing and bank account reconciliation solutions are becoming available over the internet. All of this is putting a new light on the meaning of straight-through-processing.

The need to transform proactively

Digital transformation is happening all around corporate treasuries. We expect an exponential growth in the speed and adoption of technology, rather than the linear growth we have seen in the past. FinTech companies are predominately driving this by creating ecosystems that push functional limits beyond legacy applications. As innovative technology continues to expand, the levels of control, transparency and efficiency will increase within those treasury organizations that embrace the change.

Treasury and finance departments can no longer ignore or deride this disruption. You can no longer operate in isolation but must start to connect digitally. Finance leaders need to respond to challenges with a visionary attitude and set the highest priority for digitization. You need to proactively transform in their approach.

2018 and beyond will continue to see innovative technology expand exponentially. Finance professionals who welcome and embrace the challenge for change will excel. You must evaluate the manual processes and identify those that are candidates for improvement, redesign and replacement by these technologies.

You also have to assess the human element and the qualifications needed to achieve their strategic objectives. In achieving this, leaders have to look to both external and internal influences for solutions in order to deliver strategic value.