Treasury Benchmarking

‘Benchmarking is dead – Long live benchmarking’

‘Benchmarking is dead – Long live benchmarking’ or ‘why conventional approaches to benchmarking are no longer practical’.

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Source: KPMG Corporate Treasury News, Edition 47, September 2015

‘Benchmarking is dead – Long live benchmarking’ or ‘why conventional approaches to benchmarking are no longer practical’.

The current IT standard is one of the most import benchmarks

Both treasury's performance and compliance's integrity are currently almost entirely influenced by IT-supported (standard) processes and the IT-derived options for managing risk. This is true regardless of fundamental strategic decisions regarding organizational structure or risk management.

Treasury IT is not merely a hollow promise of the past. On the contrary. Treasury IT has since caught up with other economic sectors and business areas and is better and cheaper and highly automated. Treasury IT solutions have established themselves in cash & liquidity/transaction management for some time now. Nevertheless, there are constant developments in straight-through processing and accounting & regulation. The last major area of development was in payment transactions and currently is in commodity management. In the meantime, there are many examples of highly efficient IT process at various companies. This means we have reached a level of development that enables us to take the relevant processes and make them standard.

Technical development in treasury IT is progressing at a rapid pace. This speed is so high that treasury is not able to keep up, but instead making step-by-step adjustments. The result is that there are increasingly fewer genuine benchmark enterprises that have already implemented all of the latest technical innovations. As a result, conventional benchmarking databases are questionable and become practically useless because the collected benchmark data does not reflect the state-of-the-art technology being used.

For example, just because none of the companies in a relevant peer group have implemented a payment factory does not mean it is not regarded today as standard from a compliance or centralization perspective. Thus, peer groups are no longer static but now dynamic, depending on the specific area being examined.

The benchmark and assessment matrix is replacing static benchmarking databases

What is today's yardstick for a best-in-class treasury? What is leading practice? What must be taken into account when defining reference values? How can they be quantified?  When does it even make sense to quantify?  The answer to these questions can be found by conducting a selective examination using a benchmark and assessment matrix.

This matrix shows the determining benchmark per topic on the horizontal axis (e.g. for HR, it still is a good idea to use benchmark companies as the determining benchmark). Quantifiability is assessed on the vertical axis (e.g. low quantifiability when assessing a company's organizational structure).

In the process, the group of benchmark companies or individual comparable companies remain relevant, as does mandatory observance of statutory and regulatory requirements.

However, as stated above, the current IT standard is increasingly becoming a determinant, i.e. IT solutions and efficient processes defined by these solutions, and complex risk management mechanisms such as dynamic FX management via CfaR or automatic reporting.

The current IT standard is presented within the benchmark and assessment matrix as the determining benchmark for the operational structure, internal control system and, to some extent, the risk strategy.

Thus, a flexible benchmarking model not only asks ‘what are the others doing?’, but also examines more closely the requirements facing state-of-the-art treasury in terms of IT trends.

This means conventional benchmarking is a thing of the past. However, benchmarking as the basis for continually improving treasury is more important than ever, but now using flexible benchmarks derived from continuous market observation and technical expertise.

For more on this topic, join the “Customized benchmarking methodology for optimizing treasury performance” webinar on September 24, 2015, at 4 p.m. CEST.

Author: Harald Fritsche, Senior Manager, hfritsche@kpmg.com 

 

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