Becoming a Treasurer Series, Part 20 – Envisioning Treasury in the Future

INTRO  0:09   

Welcome to the Treasury update podcast presented by Strategic Treasurer, your source for interesting Treasury news, analysis, and insights in your car at the gym, or wherever you decide to tune in.  

 

Meredith Zonsius  0:24   

On this episode of The Becoming a Treasurer series, Craig Jeffery is interviewed on a chapter in his book, The Strategic Treasurer, a Partnership for Corporate Growth. The chapter entitled Envisioning Treasury in the Future, takes a look and makes predictions about what the future holds for treasurers. It explores what will remain the same. And what will change across several categories. Listen in to glean some Treasury insights for your journey,  

 

Welcome to the podcast, Craig.  

 

Craig Jeffery  1:01   

Thanks Meredith. 

 

Meredith Zonsius  1:02   

Today I’d like to explore a chapter in your book The Strategic Treasurer entitled Envisioning Treasury in the Future. To start us off, could you explain what this chapter title means in general terms to you. 

 

Craig Jeffery  1:15   

Sure. I guess I first want to start off by saying I’m so impressed that you’re reading The Strategic Treasurer as preparation for some of these Becoming a Treasurer series. Thank you for doing that if it wasn’t work would you still read that book?  Please don’t answer that. But you know this this idea, this chapter about envisioning treasury in the future. Now as a few years on it. But I would start with the an experience I had, and I believe I shared this on another podcast, Some time ago, this was in Disney World in Florida, and we were waiting. I know it was Space Mountain. We’re in the line you have all these lines that flip you around, and they have these sort of these things that entertain you. But ahead of recording there and I was in the future packages will be digitized and transmitted as beams of light. And this was replayed over and over again, and I can still hear it in my head. I hope I’ve remembered it correctly, but they said it enough times to last a lifetime. In my head, and you know I thought, that is not a fax machine where it copies it and sends it it’s not a, you know, it’s not like some of the printing that we use for printing physical items. But, you know, my initial reaction is, no, no it won’t, packages won’t be digitized and transmitters beams of light that’s not going to happen, we’re not going to have any reassembling. But, you know, that’s a little bit of my, my sarcasm and skepticism there, but how we do things will change so dramatically. What’s hard now will be something we don’t think about, and I think the idea that there will be a lot of change is very meritorious, and how do we envision what Treasury looks like in the future is worth an investment of time. And so, this chapter and I suppose our podcast discussion today we’ll take a look at what’s happening, what are some predictions about what the future holds for us. But holds for treasurers and Treasury, and what will stay the same and what will change across, you know, several different dimensions or categories of thought so it’s really thinking about what lies ahead. And what I mean by that is not the future is here. It’s already here now, but what lies beyond that a little bit farther as we extend our thinking and extend the trajectories of what’s occurring. 

 

Meredith Zonsius  3:53   

Craig, you mentioned changes and you know there’s been a lot of shifts in terms during the COVID 19 pandemic. How do you think Treasury and finance communities are envisioning Treasury in the recovery period? 

 

Craig Jeffery  4:06   

That’s a complex question. I think I’ll try to take that in some parts so during the COVID 19 pandemic and recovery and we certainly been in recovery from the pandemic for a long time so we’re recording this at the end of the second quarter and we finished period 20 in the Global Recovery Monitor series, part of the Treasury Coalition, and there’s been a significant change in both some actions, plans, and expectations. Every time there’s a crisis, there is a change in expectations, particularly for Treasury. As I think about some of the different financial crises or issues that have come on, there is a change either short lived, or permanent in terms of what’s expected in Treasury. Back in 2008, 2009 the financial crisis, expectations on Treasury for visibility for risk management, elevated, and remained elevated, even to this day, well over a decade on, the expectations change. They stayed heightened the board had increased expectations. So, there’s an aspect of certain crises create permanent change others create a little bit of a flurry but not much activity. When you mentioned the shifts in sharp and turns during the COVID 19 pandemic. A couple of those items were notable this movement from to digitalization or from paper to electronic was, was quite dramatic. And, you know, depending on how you measure things and what you look at, you come up with some different numbers. But as we looked at what occurred from actual movement to more automated processes, whether it was with receivables or payables, or Treasury activity, we saw about two and a half years’ worth of typical movement occurred during 2020. So, what would normally take two and a half years of time in terms of items moving towards more digital method that occurred in that one year so that, that 250% is really pretty significant. So the digitalization was a big item, the ability to work, remote, but remain connected with people, really, you know, due to the length of time that people were remote changed how people worked, they’re more familiar with their remote tools and connecting and there’s certainly an impact on what people were doing with this ability to work in a different location will have permanent repercussions, not as much as people thought at the beginning, there is kind of return to the office mindset but it’s the majority is hybrid, there’ll be more flexibility of where people are and what they can do and how you manage remotely is important to have another podcast on that I’m not sure if that’ll come up before after this one. But that’s interesting. And if I have time for another one, or for more descriptive on a couple pieces of this, I think I would say that the attention of moving remotely so rapidly, and the challenge that brought to processes, made people rethink what do we need to do to make things work. And this idea of, I’m remote, I can’t do physical processes I need to move to digital, had an impact and everything from digitally signing activities to build in processes that were managed all in the system. And this, you know, I don’t know if people thought about it this way, this is how we think about it, but this idea of defects are the biggest driver of cost but what drives defects, well that’s manual processes drives defects, broken processes drive defects. All of these defects drive costs in terms of time and people which is a huge component, but also drives costs as far as the cash conversion cycle so this whole pandemic and this emergency move to liquidity which always happens during some kind of crises, really emphasized, a couple of these different levers what’s going on with receivables what’s that’s our biggest level of concern. Do we have adequate liquidity? So, you know this this recovery period. As we recover as we move forward. We’ll see more of a continued emphasis on better forecasting and liquidity planning, people running multiple models, a number of companies that never did that started doing that and needed tech to help them so digitalization and the paper to electronic world, removal of activities and manual processes to cause defects this remote environment. And then I can talk more about fraud, and security because of heightened attack methods that occurred during the crisis. Those look to continue to impact Treasury as a payment security superintendent. 

 

Meredith Zonsius  9:34   

Let’s talk a little bit about Treasury’s role in the corporation, what has changed and remain the same? Where do you see this role heading in the future? 

 

Craig Jeffery  9:43   

Yeah, this might be a little more boring than I want it to be, but you know the traditional roles of liquidity management, financial risk management, financial institution relationship management, those will stay the same as broad categories. But what’s, what’s going to change and what has been changing is this a greater risk focus, this is on financial risks that includes operational risk, particularly with payments, and some business elements of risk, which is more of a continuing factor but to each of those parts on the financial side I think Treasury has long been focused on financial risk management, whether it’s using hedging or just avoiding risk and using their financial acumen, business acumen, reasonable approach to activities. They’ve been doing that already. But what’s, what seems to be driving that change, I think of the future is anytime there’s additional volatilities more attention paid to it. But second, this overall ongoing increase in exposures that organizations face. They face this by the natural process of, they’re growing, they’re expanding into new markets, new countries, new currencies, these are factors of complexity, and by nature as you continue to become more complex your exposure is higher so risk management becomes more important, so financial risk management become more important as individual companies continue to move in that direction. So that’s more of a secular trend on the operational side on payments risk there’s so much cybersecurity risk broadly, but there’s also this area of how do we secure our payments. This requires multiple people, both the CIO the treasurer. People in AP other areas but the superintendent of payment security must be the treasurer, not the superintendent of all cyber security, but responsible for coordinating different parts for this particular area, and that’s that I think is becoming more apparent to some people, and it’s lost on others but as losses continue to come out as the attacks become more automated, both the spoofing types of attack and compromise your systems, this is going to require more attention, and ownership by the treasurer but also more support and coordination with the CIO or the Chief Information Officer, if they’re doing double duty. The last area, if I may, I know there’s more to talk about, but he said what’s going on the role of the corporation with what’s changed. The Treasury group needs to continue to act as an agent of change and one area that they are, we’re seeing continued multi-year change has to do in the cash conversion cycle, not just Treasury activity, but the whole order to collect order to pay. They’re getting more involved there, that impacts the overall aspect of liquidity that’s working capital related, but as we look to move towards more digital processes, and look at things comprehensively. The comprehensive view includes multiple areas, and asked to be coordinated, so we see either a stronger overseer, coordinator, or owner role of the cash conversion process that’s been a secular trend for many years. And there’s, there tends to be good reason for that. So, those are a few of the changes of the Treasury. Treasury’s role and, and what will occur in the future. And I know, I think I’m pretty sure you’re going to ask about data and tech as well so this idea of big data, managing data being a steward of data, and what that means for analytics and analysis with Treasury is also a big role but I’m going to hold off because I’m pretty sure you were going to talk about something like that. 

 

Meredith Zonsius  14:07   

Yeah, so we will touch on that so. Craig in your book, you mentioned that traders have a responsibility to be good stewards of assets entrusted to their care. What are some exciting technology developments to help them support business processes, and provide data more accurately and efficiently? 

 

Craig Jeffery  14:27   

It’s a loaded question. It’s a big question. I you know I think there’s a, you know, I’ll talk about tech, a lot but that the what’s happening that’s exciting about tech at the intersection of business processes. I think there’s a couple of changes I don’t want to get too theoretical but, you know, the idea of, there’s much better tech now that’s available than there was five years ago 10, 15, 20, there’s continued revolutions, version six, version seven of data, of formats, of how we connect with different types of open API’s versus file based transfers, etc. So, this idea of exploding data, massive ability to run, compute, and to leverage things with business intelligence tools, and to do better analysis is awesome for Treasury, because they manage risks, they need to look at different models and scenarios. And to the extent that they have bigger stronger tools they have more leverage. This is really, really, this is big and so big data from how you can store data and data lakes or blobs to how you can use it with different types of analytical tools, whether they call it, business intelligence or other types of transformative tools is massive and, as good stewards, we need to use tools to be efficient and effective at what goes on so I’m going to believe that on the tech side for now. There’s long been a shift of moving to cloud computing, leveraging this ability to scale up and scale down and outsource some of the headache portions and protection issues. Two other things to talk about here maybe or we can talk, we can talk more on the process side too, but one would be managing liquid assets has always been a key area and focus but the growth and protection of payments is really interesting, the use of different types of tools, payment hubs, different types of networks for managing payments to protect it. To increase the efficiency, add to the scalability leverage of power networks is really, really useful for Treasury, and really for any payment professional, but this is, this is these are exciting times in that area and I’ll do a little bit of a side discussion for this. Meredith with your permission, 

 

Meredith Zonsius  17:08   

Yeah, that would be great. Go ahead.  

 

Craig Jeffery  17:10   

You know, there’s this, there’s this idea and change mindset of how payments work, not how payments work but how they’re handled. One is historical and linear and handoff so if I do payments I’m sending messages and I’m transferring funds. There’s this point to point to point at passing a message I’m moving funds, I’m receiving information, I’m going back and forth. And it’s all discrete set of handoffs and so it’s viewed as a linear process. Whereas there’s a lot of change and, Swift has some really interesting items so do you know other players, that have this engineer database mindset where the messaging is in the hub, it’s not a message, it’s like, here’s a database of information, and there’s inherits different properties people add to it. And so there’s a, you know, I don’t want to call it like the concept of blockchain where you have these different places you can confirm and validate, who owns what, but this idea of you have a single source of truth or a validated source of truth that people can add to it it’s, it makes it so I can see where payment statuses are, I can fix them in flight. Whereas I would always have to start the process again, or send it back through the entire channel, that’s changing how we’re doing settling, and that’s really, really interesting. So, the idea of these payment networks that are not just messaging platforms but their central engineer databases that let us add all kinds of enriched services is really, really exciting. There’s a lot more that we could talk about there, you know, including some of these faster and better payments, the idea of, you want to fast, you want it, good, you want to cheap. I think the idea of this the tech, and how we think about the processes means, why not all of them, and include secure. So, I think there’s a number of things on the payment front, but, but finally, and I don’t want to call people assets but the resources that that companies have, including their human element, the people, the staff that are wanting to develop themselves and doing great things. The idea of developing people, particularly around technology or areas, is really important to make sure you’re intentional about development of yourself, your career, and your people. And this relates to how we think about all of the data, the exhaust data but the data that comes out of how business operates that can now be used, and managed for everything from risk to forecasting across the board but… 

 

Meredith Zonsius  20:12   

Let’s touch on visibility and risk management. Will forecasting finally work for most firms? 

 

Craig Jeffery  20:19   

Forecasting is an area that people spend a lot of time on they spend the most time in Treasury for example, they buy systems that they don’t use because they’re not working very frequently. They want to spend more time they want it to be more accurate, and it’s an area of focus, year after year for at least five years now. Why doesn’t it work, and what will make it work, which is part of your question, right? Visibility works pretty well now, people are getting visibility to all their bank accounts, they’re getting visibility to their ERP systems, it’s becoming much more open, whether it’s through API’s or pushing it back and forth so there’s, there’s good progress on visibility. And then on the forecasting front, it’s really hard to do an accurate forecast and to run multiple models, because that was typically done and some Excel, pulling data out of applying my, my thoughts to it, then loading into Excel or loading into a cash platform or forecasting system or TMS. And then I have to go track and see what worked and what didn’t work. And what’s this the cycle to make that better. There’s too many touch points and too much manual activity. So, how it can work, is that if we use machine learning where it’s capturing data it can detect patterns, we can guide it in different flows of the business we make sure we’re structuring things properly, we can have much better success than we ever could before. Because we’re leveraging really powerful tools to do that, real powerful tools to see variances, real powerful tools to detect patterns. So, yes, I think the idea of we can get better and make forecasting improve in many many ways for many organizations, is we’re seeing it happen with organizations that are leveraging this type of tech. And we expect it to continue, it’s not a panacea that I put in machine learning all of a sudden I’m better that misses some of the complexity or quite a bit of the complexity. But that represents a way to get around some of the most time, I want to call time suck, but the most time intensive activities about forecasting getting an accurate so yes, I think it’ll find the work for most firms, but it’s not without work. It is with work to make that to make that a success, 

 

Meredith Zonsius  23:06   

That makes sense, thanks for that explanation. So, I’m going to switch gears a little bit, again. What are some threats facing the Treasury community day-to-day, can you give a couple of examples? 

 

Craig Jeffery  23:20   

When we say threats, I have to think about cyber attacks, payments security, cyber attacks are a big issue that that can have an impact on finance, so whether you’re talking about scripts the hack of the Colonial Pipeline. Some of the attacks on the water System in Florida, the meatpacking plant, these are, these are significant, significant attacks that disrupt businesses. And in very very telling ways more than just saying, hey, we have to pay a ransom it costs us money, And more than just a big reputational risk. This is a, this is a significant, significant issue this is, I won’t get into what this means for states, nation states and how they protect their companies because many of these attackers are coming from nation state enterprises that are doing this or are granted cover. There’ll be some, there’ll be some significant changes and how this, how these are responded to over time. I’ll leave it at that. Payment fraud is also very significant, we seen a significant increase in man in the middle attacks. Ongoing persistent increase in the business email compromise types of attacks and success, and lifting funds from that. This is changing a lot of things that the larger firms have been under attack, specific targeted customer tax for some time. But the level of automation and sophistication, means that smaller firms which always were flying under the radar undetectable by the criminals are not considered worthy of attack, are now being caught up in these automated schemes, automated nets that go out and this is a big, a big deal. It’s a huge threat, and people continue to be overconfident in their abilities and progress on this front. This being underprepared for the constant automated attacks that are going on, is a real, real issue for companies, those are, those are some of the big threats, I mean there’s obviously volatility on commodity prices and low things but these are, these are sort of the big things that are confronting us now. 

 

Meredith Zonsius  26:01   

Craig, what are some tactics treasurers need to know about to help defend against fraudulent activities? 

 

Craig Jeffery  26:09   

Yeah, so I’ll say a couple so, you know, I would, I would refer people to 12 security principles. You know and some of those are making sure you can respond rapidly. The idea of the principle of least privilege, isolating what can be done or seen by people, or by credentials like these. This is important. I think the other, some of these fraudulent activities for pain from a payment security front, not cybersecurity I’ll leave cybersecurity up to the becoming a CSO whoever does a podcast that has a Becoming a CSO series. This is Becoming a Treasurer, I’d say, have, do a payment security assessment. That is a real opportunity to look at what you’re doing now compared to others, and compared to what would be a standard of good corporate conduct, the minimum standard that you need, and put in place those changes that will protect it from a human side the human firewall perspective. I have a friend who loves to say human firewall and just like you have a physical firewall that needs to be updated, you have a human firewall that needs to be updated. This training and testing on the training for payments security is vital when people have finally caught on the cyber security front, but they’re not caught up, not caught on fully payments security front, this is really important I think the other important part is just taking a comprehensive view on payments security, the payment process and comprehensive doesn’t just mean, I think Treasury payments, AP payments, payroll, but we look at the overall flow, process, the end-to-end look, all of the elements, the interior of a company, the exterior the firewall, the human firewall, and then process controls. And then, alongside that, what tools like machine learning, do we use to detect problems, those are, there’s a lot of opportunities there. And I am concerned that a significant majority are way behind where they need to be considering the threat level. 

 

Meredith Zonsius  28:30   

I know we’ve been talking a lot about changes in the treasury world let’s shift the conversation to some things that will not change.  What activities will not change significantly? 

 

Craig Jeffery  28:41   

So, yeah, for activities and mindset and other items all. I’ll try to share a few things so cryptocurrency became or will cash still be king, well cash will still be king. Cash will continue to be king, liquidity is super important at all times, and even more so during times of crisis, liquidity will still be important and protecting that liquidity and understanding that, you know, pay off for all firms, thinking differently, learning will continue to be important, but I think will be seen as increasingly important. And so, things like webinars and seminars, will probably grow in importance as people learn different ways, different times and interact. I don’t think the physical events, or the online events are going to decrease. They may shift back and forth like they have during COVID, but this learning is going to be important. Liquidity will stay important, risks will continue to expand as I said earlier. The cash conversion cycle is going to continue to gradually as long slow, secular trend up in terms of moving more activities more responsibly more ownership into the treasurer’s domain will continue to occur, not necessarily they’re going to be having all the people that process AP or AR, but the overall control of that activity will increase. You know what else is going to change in the treasury world so data has changed you know we’re Treasury doesn’t sit in isolation that says, the core responsibilities as far as, like we said liquidity management, risk management those might be categories that don’t alter very much, even over many decades. But how the functions are handled, and what is done to support the overall mission does change. And, you know, so just a couple things data is exploding, exhaust data from a company’s records as data is just spun out from companies. Treasury will be able to use some of that by leveraging tools, it’s growing very rapidly. A focus on the entire comprehensive process I mentioned that before about opportunities to defend against fraudulent activities, but taking a comprehensive view also helps us with process efficiency ability to scale. And then, just so I can finish up without talking forever, on the analytical front, the change in the treasury world there’s going to be people who are the data experts in Treasury, they’ll have Treasury mindset but they’re going to become very very good with understanding the data element, and then we’ll have people that are good at processes, and they will have those that are really good at analyzing, so there’s convergence in different areas like if you’re really good at knowing where all the data is how those fit together, you might also be good at doing analysis. Maybe it’s process and analysis goes together as well. But this idea that there’s an explosion of data, we have to have a comprehensive view of processes and what we do, and we have to analyze that data we have to get it, normalize it associate it and make decisions about that those are all really really significant activities that will continue to change dramatically. And we were having a discussion in the office the other day of, you know, what happens with tech, well, and some people say well, tech on the personal side, business to consumer, consumer to business, whether it’s with your phone or other activities will always be ahead of the business to business, technology will always follow it, and I don’t think that’s true. I think that a lot of the developments so far here to for have been more rapidly developed on the consumer side, they’re easier. You don’t have to have multiple approvals for your personal account right? It’s you, whereas you might have to have segregation of duties and multi-factor authentication and a couple other control elements that exists there, so yeah, it might take a little longer to set it up there, and that leads to faster adoption by consumers. Then, you know, tech that rolls out to the business world. But what I think is going to happen is the development and the power that companies have and that treasuries happens because they’re dealing with much larger amounts of, not only money, but larger vast quantities of data. And when they can leverage that data to make different investment decisions, decisions about visibility, they can run more models become more powerful. And because they’re pulling together more information, more data, they’ll have more resources to do it. It’ll be more self directed self service analysis, which should, and I don’t know when, it should surpass what can be done on the personal side, there will just be more opportunities there so we think about the explosion of data the growth of power of, of analyzing things and the value you can achieve from it. There is more to be had on the, on the business side, it is more complex, and we’ll take longer to reach that point where there’s this inflection point or crossover point where the business side, leads, what, what goes on, and in some cases does things in advance what happens on the consumer side. But that’s just that’s another thing that that we’ve been thinking about with explosions of data, the impact and the value of what can be done in the business realm, there will be there will be a takeover, or replacement of the leader in tech development. 

 

Meredith Zonsius  35:22   

That’s very interesting. As we wrap up part 20 of the Becoming a Treasurer series, do you have any final thoughts? 

 

Craig Jeffery  35:30   

I want to talk about the change in rate of change in technology and where are the leadership from that come. Typically, we’ve seen the change in leadership and new developments happen more rapidly on the consumer side, there’s more consumers, they can adopt things more quickly, they don’t have the complexity of what businesses have. And some people think that that will always be the case. I don’t think that will always be the case. The expansion of data is far more rapid on the business side, the impact of process improvements or the ability to analyze what’s going on, what if scenarios, and other activities will certainly or should certainly allow business to business or companies to do much more significant activities with tech, with analysis, with tools like machine learning. This is exciting. And it’ll be interesting to see when that cutover happens where more of leadership and development happens on the business side than on the consumer side, technologically. So, the future is really really interesting, and the opportunities for the future continue to grow for Treasury. 

 

Meredith Zonsius  36:45   

Thanks Craig. It’s been another insightful conversation within the Becoming a Treasurer series. I look forward to catching up with you soon. 

 

Craig Jeffery  36:53   

I look forward to talking to you too, and I hope what I said, proves to be right over the next five years.  

 

Meredith Zonsius  37:01   

We will see. I’m sure it will be. Take care.  

 

OUTRO  37:05   

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