Treasury - When less is more

What makes this story worth reading?

It's a story of scope. It's a story of how one large multinational corporation with operations in more than 60 countries, acknowledged that in order to continue to be successful in the current business environment, they had to commit to having less - fewer databases, fewer software versions, fewer business relationships, fewer unique processes and fewer manual interventions. This is a story of how less can be more.

It is also a story of the reconciliation between perception and reality. While consolidating, standardizing and automating on a global basis are noble objectives, the perception is easier than the reality. Many times corporations make attempts to accomplish one or all of these objectives, but the reality of their corporate structure and the many unplanned challenges along the way does not allow them full success.

At Oracle, we first began by consolidating subsidiaries into three global shared service centers. We set up a center for the Americas & Canada, one for Asia Pacific and one to cover the Europe, Middle East and Africa region. Each Oracle subsidiary was assigned a migration schedule, which became our road map toward global consolidation.

To accomplish our standardization objective, we reviewed and re-engineered all our existing treasury related procedures, from cash receipt to liquidity management. This step was critical for us to ensure we ended up with fewer banks, fewer accounts and fewer processes - not more.

We defined a standard process for all transactions and implemented new internal policies to ensure compliance. Reviewing all business processes is critical to the success of globalization. If you simply take an existing process and automate it, you will have missed the opportunity to improve and enhance your business.

Standardizing is easy in theory, but in practice takes significant patience and diligence. There are many global challenges that must be considered, and you must ensure that tax structures and central bank regulations fit within the confines of your new standard process.

The table below shows a summary of our project objectives from the beginning of the project in June of 1999 through June 2003. We have reached major milestones in each of our key global objectives, and achieved significant process efficiencies and time savings.

For example, prior to our centralization, excess cash was managed in-country and investments were held at each individual bank. Today, 95% of Oracle's worldwide cash is managed centrally. We pool cash where appropriate to allow for better economies of scale. All investments are held with our Global Custody Agent.

By standardizing the banking model, we have been able to eliminate 80 bank relationships. Prior to standardization, each subsidiary had an average of eight bank accounts. Today the average is four accounts per subsidiary.

How Suite It Is
After centralizinig our business operations into three centralized shared service centers, we began to focus on improving our business through automation. We did this in two steps; first by automating the daily bank reconciliation process and then by implementing one global treasury system. We utilized the Straight Through Processing (STP) capabilities of the Oracle e-Business Suite to automatically upload more than 200 bank accounts with individual line item detail on a daily basis.

The STP for daily bank statement activity uses standard functionality within the Oracle Cash Management product to upload statement detail using a variety of file formats including MT940 and BIA2. This web-enabled interface allows us to link between the ERP suite and the appropriate 3rd party information provider. We use ABN in EMEA and Citibank in the Americas/Canada and Asia Pacific.

This activity is then automatically reconciled against AP/AR activity for a touch-free solution. Automation allowed us to have less and achieve more. By having one worldwide treasury system based on the Oracle e-Business Suite, we now have unprecedented global visibility and access to critical information across all process areas on a real-time basis.

Don't Fix What Isn't Broken
You might say, why bother? If your systems work today (albeit manually, or with multiple versions) why bother changing it? Why globalize? I would assert that it's only a matter of time before you will be asked to view your business globally, and the sooner you have the systems and processes in place the more efficiently (and quickly) you can respond to these requests.

For Oracle, we made the decision to globalize our treasury operations as part of our corporate initiative to globalize our Information Technology (IT) systems.

Improvements in technology have driven us to accelerate the pace at which we improve processes. It is my belief that technology has given us a taste of what's possible (i.e. online trading, STP, etc) and that technology savvy organizations have driven further improvements at lighting speed. STP, for example, used to be the Holy Grail for many organizations. Now, its just part of an expected implementation plan. It is no longer a question of IF you can accomplish STP, it's a question of when.

Take, for example, the concept of foreign exchange trading - in just 2 years, the concept of online foreign exchange trading has gone from an idea to a reality. At Oracle, we now execute 98% of our foreign exchange activity automatically through the FXall online portal. The advancement of this technology led us to adopt the concept early and as a result, we have achieved STP across the full foreign exchange life cycle. Each month we enter into 50+ financial hedges spanning over 30 currency pairs.

We upload our foreign exchange exposures directly from the Oracle E-Business suite into FXall for trade execution. After trade execution, the trade details are downloaded back into the Oracle Treasury product, then using the suite integration, sent directly to the GL for month-end posting. Once again, time is saved and the potential for error is reduced. Without the willingness to consider new methods, we may still be operating in the 'old world' of telephone orders.

Once we achieved STP for foreign exchange, it became a natural extension to apply that same concept to other areas like inter-company activity and investment/debt management. We now have STP for all our global bank account statements, all inter-company loan activity, all foreign exchange and soon we will complete STP for all investment activity.

STP of intercompany activity allows for the integration between Oracle General Ledger and Oracle Treasury, whereby intercompany balances are automatically loaded into the Oracle Treasury module each month. Interest rate rules are applied and the appropriate interest income or expense number is calculated within the Oracle Treasury module. This data is then automatically passed to the general ledger for posting.

So, Now What?
Achieving a global treasury organization is not a one-time event. You must ensure that processes are dynamic enough to allow you to stay global, stay efficient, and stay automated. At Oracle, we view the completion of our globalization project as Phase I. Our next steps will include further automation and control of other treasury related processes (i.e. bank guarantee requests & global account analysis).

To ensure we continue to control and approve all new accounts and bank relationships, global accounts are controlled at the corporate level. When we began our consolidation, we had 180 global bank relationships and 500 bank accounts. Today, we have 100 global bank relationships (with 38 of them earmarked to be closed in this fiscal period) and 250 bank accounts.

Additionally, the process of establishing key performance indicators (KPIs) is critical to monitoring the success of your process improvement. KPIs should be viewed as an evolving process - track what you believe to be critical, - review it along the way and change it if necessary. At Oracle, we have chosen to track things like auto-reconciliation match rates, the number of legacy bank account, and the balances held in legacy accounts.

We also track specific indicators around investment and foreign exchange activity. We have created a treasury specific scorecard that is published quarterly and sent to key executive management for their review. If you don't track it - you can't control it. It's important to spend time in this area.

In summary, making the decision to do more with less is not for the faint of heart. Globalizing your business is a hugh task, but if done properly will make your organization more dynamic, more agile, and ready for the next technology change... whatever that may be. Keep it simple. Less is more.