Professional Documents
Culture Documents
MN30067 The Prosand Consof Treasury Centralisation
MN30067 The Prosand Consof Treasury Centralisation
Centralisation
John Herrick, Treasury Strategies - Michael Gallanis, Treasury Strategies - 16 Feb 2010
With the rapid pace of economic globalisation over the past decade, treasury
centralisation has once again become a hotly-debated topic.
This debate over a centralised versus decentralised treasury structure is not a new one. It has long
been the source of discussion and frustration for many
treasurers and chief financial officers (CFOs). Each
structural model offers benefits to the global organisation.
Clearly delineating which is superior is a difficult task, and
one that requires careful consideration.
As multinational organisations grow, and global footprints expand, the complexity of treasurers’
responsibilities increase and their ability to manage these responsibilities becomes far more
difficult. Routine treasury tasks become harder to manage, such as:
A Decentralised Model
Facing these types of significant challenges, it’s not difficult to see why many treasurers have
traditionally considered a decentralised model as a potential solution (figure 1).
While the decentralised model solves many of the problems that expansive global treasuries face,
this model has its owns challenges. A decentralised treasury structure typically requires more
aggregate global treasury personnel than a centralised structure. And the model still presents
some challenges to the HQ treasury level in areas of communication and oversight. And, in these
difficult economic times, the added costs of redundant staffing, maintenance of multiple treasury
sites and systems can be a challenging economic hurdle to overcome.
A Centralised Model
Because of these issues, many treasurers have moved to a centralised treasury structure (figure
2).
Economic
Control
Risk management
More effective management of FX exposures and interest rate risks through global
oversight.
Netting of exposures leading to cost savings from fewer FX conversions and bank
transfers.
Global view and management of limits on bank exposure.
Scale economies
Transition to a centralised treasury is no easy task. Treasurers should keep in mind several critical
success factors for a smooth transition:
Critical for local buy-in as subsidiaries give up responsibility for some treasury tasks.
Local knowledge will undoubtedly be required to structure the right banking
architecture for a global solution.
Technology
Best-in-class technology is a requirement for a centralised global treasury operation:
Treasury technology should be bank-agnostic to ease the transition from one banking partner to
another in the event of a bankruptcy or financial crisis.
A global standard enterprise resource planning (ERP) system, while not necessarily a prerequisite,
nevertheless will reduce the amount of effort to create interfaces with the new treasury technology
needed for centralisation.
Conclusion
Both the centralised and decentralised treasury structures offer advantages and disadvantages.
Which design a company chooses will depend on global footprint, available resources, executive
commitment, and available technology. Regardless of which centralisation path treasurers select, a
successful implementation will hinge on their ability to secure prior senior management buy-in, a
well-defined plan, and sufficient resources to implement. Once in place, to remain successful, each
structure will require:
With an effective treasury structure and capable resources, treasury can support even the most
challenging demands that a global business can present.
Back to top