New research also suggests low level of integration between treasury, ERP systems is a significant problem
Atlanta, GA September 24, 2003 Few companies are utilizing the expertise of their treasury organizations in key areas such as risk management, mergers and acquisitions, procurement, or pricing, according to a new research report by benchmarking and best practice research firm The Hackett Group, an Answerthink company.
The report also cited as a significant problem the almost complete lack of integration between treasury and enterprise resource planning (ERP) systems, and found that world-class companies spend 59 percent less on treasury operations than their average peers.
The research report, "Treasury Today Expertise in Search of a New Mission," surveyed 50 U.S. corporations and analyzed how these companies' treasury organizations are responding to today's business challenges.
Hackett reported that the vast majority of companies surveyed are overlooking the ability of treasury's workers to provide advice and expertise in areas as diverse as enterprise risk management and mergers and acquisitions.
Further, treasury's expertise in cash management, strategic planning and pricing remains largely untapped. For example, 75 percent of all treasury organizations surveyed have no involvement with their company's procurement functions in supplier negotiations. Not one of the treasury organizations surveyed had any involvement with business units in reviewing or establishing pricing for goods and services.
"Companies are missing out by not involving treasury to a much greater extent in these key activities, which could benefit significantly from treasury managers' expertise in risk management, working-capital management and strategic planning," said Cliff Struhar, senior advisor for The Hackett Group.
The firm also noted that not a single company surveyed indicated that its treasury function applications are completely integrated with the overall company's ERP system(s). Seventy-two percent had no integration at all.
In light of the looming requirements of the Sarbanes-Oxley Act for timely and accurate financial reporting, "This is a warning sign for public companies that are planning their compliance approach," said Joe Lancaster, senior advisor for The Hackett Group. "All companies, public and private, should be aware of this potentially dangerous disconnect and take steps immediately to remediate it."
Lancaster added that improved integration also offers the potential benefit of enhanced cash flow, as treasury organizations that can obtain more accurate and timely information from accounts payable, accounts receivable and elsewhere can reduce the size of contingency funds.
Finally, Hackett said that first-quartile companies surveyed operate the treasury function at 59 percent lower cost than average organizations. The key differentiator is a need for less labor (resulting from simplified processes and greater use of automation) and higher spans of control.
"First-quartile companies have half as many managers, but just about the same number of clerical staff," Lancaster remarked. "There are two elements that make this possible. First, these companies have streamlined and standardized processes, simplified controls, and automated routine tasks. Then, they've given their managers greater spans of control."
Nearly 50 U.S. companies with revenues ranging from under $1 billion to over $5 billion annually were surveyed for this report, which was produced for distribution to members of The Hackett Group's Finance Business Advisory Service (BAS).