- Firms that are searching for value-added activities within the firm (spinoffs, re-
structuring) or from outside the firm (mergers and acquisitions) are developing
in-house expertise in valuation and investment banking which was previously
outsourced. - Cash flow can be disrupted by movements in external factors such as exchange
rates, commodity prices, and interest rates. Ensuring that these external prices
do not adversely impact the firm’s ability to make value-enhancing investments
is the domain of financial risk management.
All of these examples reflect the treasury services required of an increasingly
strategic, proactive, value-added role for treasury.
(e) Treasury Drivers. A number of trends have emerged in the 1990s that are driv-
ing change in the treasury function. The reexamination of business processes, reengi-
neering, the adoption of new technology and electronically linked business partner-
ing, and the changing view of finance’s role in the global firm are now causing drastic
changes in the way treasury looks and works.
Activities can be subdivided into three major classifications: administrative, trans-
action, and strategic. Administrative activities focus on the reporting dimensions.
Transaction activities include working capital concerns (A/R, A/P, etc.), and have
themselves fallen under considerable scrutiny in the past few years as firms have
reengineered many of their financial functions. The strategic dimensions of treasury
activities, for example, treasury operating as an internal consultant to line functions
or business units, treasury acting as a focal point for intelligence gathering regarding
the currency and interest rate positions and sensitivities of major competitors, are all
relatively new additions to the role of treasury. They are, however, the primary future
direction of treasury managerial resource use and attention.
Treasury may be treated as a cost center, a service center, or a profit center, though
the latter is relatively rare and of considerable debate as to its appropriateness.^5 Be-
cause most treasury departments are cost centers, they are typically small in man-
power resources and large in capital/technology commitments. This point cannot be
overstated; treasury organizations today are attempting to expand the scope and so-
phistication of their activities with higher-powered people, and higher-powered
processes. For example, many of the transaction-based activities which have occu-
pied manpower in the past such as the processing of accounts receivable and payable
have now been automated. An efficient treasury function today requires sophisticated
human and capital resources alike.^6
Technology is also having real functional and organizational impacts on treasury.
The development of real-time systems has had a profound impact on the cash man-
ager’s ability to execute the three-step implementation process outlined above. The
5.2 TREASURY MANAGEMENT 5 • 9(^5) A 1995 survey by Price Waterhouse of 386 corporate treasuries indicated that 7 percent considered
their treasury a profit center, 67 percent a service center, 19 percent a cost center, and 7 percent not de-
fined.
(^6) WT Grace & Company, a $5.8 billion U.S.-based multinational, restructured treasury operations in
1993, expanding treasury staff to 17 from a mere 3 in 1990. In addition to the restructuring of reporting
guidelines (tax management now reports to the treasurer instead of the controller), the scope of activity
has been expanded to include both foreign exchange and interest rate risk management, requiring new
highly trained staff and computerized system support.