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Leading practices part 11: Process mindset

This is the eleventh topic and twelfth article in a series on leading practices in corporate treasury.

For some companies, the root of many problems lies in the lack of a “process mindset”. This leading practice, rather than a set of detailed steps, is about how you approach your tasks – insularly, or as an integrated part of the larger process.

Delivering a superior experience is a key part of what process mindset is all about. Process discussions often seem to be uninteresting and operational in nature. However, given the fact that as a treasurer, there is a need to be strategic, efficient and effective, it is important to understand the value of financial processes and inculcate a process mindset.

Adopting a process mindset ensures a sound foundation for treasury management that eliminates the need to fix the same problem or issue over and over again.

Supporting the business objectives requires knowing what is being supported, including the financial processes that touch treasury at some point. To be optimized, every financial process must be examined, analysed and redesigned in the context of the overall process where they reside. Put simply, to facilitate and improve processes, the treasurer and his or her team need to think process.

Here are our recommendations on how corporations can develop and embed a process mindset to transform treasury. We are aware that the details of adopting leading practices to create a continuous process improvement mindset may differ depending upon the location, size and complexity of a business’s operations. Nonetheless, there are some aspects that stand out.

Optimize the entire process

Treasury is greatly concerned about working capital and liquidity. However, each treasury department function can impact working capital and liquidity in a positive or adverse manner. If treasury takes a narrow view of its responsibilities and looks only at the actions within its immediate and direct control, the results will be negative.

“The treasurer must ensure that treasury is helping the organization succeed by taking a process-centric view. In a process-centric treasury team, all employees are conscious that their roles involve executing a range of processes aimed at providing value to the corporation’s stakeholders,” said Craig Jeffery, managing partner at Strategic Treasurer, a leading treasury consulting firm. ⃰

“When the treasury employees go beyond their job descriptions with a conscious and consistent emphasis on cross-functional processes to enhance organizational performance, the result is process management excellence. Taking the process view into consideration for process efficiency efforts will directly support the mission of the organization,” observed Jeffery.

In addition, when looking at overall efficiency and risks, it is appropriate to optimize the entire process. Looking narrowly, one will miss bigger risks and opportunities. The corporation that only looks within a functional area or responsibility for efficiency or risks will only be able to suboptimize the whole process.

Understand and integrate the entire process

Common convention holds that upstream processes are the primary drivers of overall improvements in efficiency, productivity and profitability for corporations. But not all organizations are the same, and companies looking to maximize efficiency and return on investment (ROI) can spark treasury transformation and augment value generation by seeking to improve downstream processes as well as upstream.

“It is the integration of both upstream and downstream processes that holds the greatest potential for corporations looking to compete globally. Some of the biggest problems in processes stem from forcing or taking a limited view of the activities and excluding those upstream or downstream,” as Jeffery puts it.

In comprehending, tracking and mapping the entire process, it is easier to realize why employees upstream or downstream perform functions in a certain way. This helps them to better adapt their work to make it easier for each other.

Embracing an integrated and process-centric perspective enables treasury to step out of its comfort zone. To understand an entire business process accurately requires the treasury team to view separate activities and controls as a single process.

The corporate treasurer must synthesize different treasury disciplines or functions to ensure that all who are involved understand it and make proper changes to ameliorate any problems. It is equally important to understand each step of the process and the corresponding accounting entries and controls. Doing so will help treasurers better act as strategic business partners and establish more appropriate metrics and controls.

Leverage the process mindset to fight the tunnel vision (silo mentality)

Specialization is an essential component of building expertise within an organization, and it injects efficiency into the workforce. However, specialization can easily foster a type of tunnel vision or silo mentality in many employees.

“As treasury professionals focus solely on their area of expertise and responsibility, it is natural to develop an insular view about their activities. However, a silo mentality is isolationist and can result in miniature ecosystems, each with its own practices and risks. Moving from a siloed view to a process view ensures that the process flows effectively and efficiently, attains its objectives, and minimizes the risk of task duplication,” affirmed Jeffery.

Having tunnel vision can create unintended consequences. For example, it is important to align KPIs across the board and in consonance with company goals to eliminate inefficiency and confusion. Competing but not collaborative or cohesive KPIs typify the negative ramifications of an insular department focus.

It is also a good idea to watch for the signs and common phrases that reflect a bias or indicate a complete disregard for a process view.

In Chapter 8 of his book The Strategic Treasurer: A Partnership for Corporate Growth, Jeffery warned of phrases like, “Why should we involve bank reconciliation? This project doesn’t impact them,” “We’ll need to get the ____ department’s input, but we’ll do that after we make some more key decisions. Besides, they would just slow things down,” and “They are responsible for controlling the work in their own area. We need to focus on controlling what is on our group.” Jeffery urges caution: “these phrases may trigger a warning siren that a process problem could occur without intervention.”

When fighting against a silo view or functional myopia, it is advisable that the treasury staff observe all awkward and inefficient handoffs. Handoffs are often where the greatest risks reside. As a result, controls are vital at handoff points, but the way they are attached makes a significant difference. Controls are often bolted on at the handoff point instead of built in, and this can cause further inefficiency. “Controls should be part of the process and not bolted on. Bolted-on controls act like barnacles on a ship. They add weight and cost and decrease efficiency,” Jeffery notes.

Remember, controls need to be incorporated into the process to help corporations accomplish their objectives, and processes need to be reviewed regularly to have the necessary checks and balances to mitigate risk and protect organizations from unbridled recklessness.

Automation of processes

Inefficiency and inaccuracy are the natural outcome of manual processes.

Making treasury more efficient by automating manual processes should be a priority for corporate treasurers. Automation removes the element of human error and lets the system operate for you. It helps identify errors or issues as they occur, making it easier to resolve problems instantly or before you close your books monthly.

“Closing your books quickly and accurately is often a sign that your corporation has clean and automated processes. The less automated things are, the harder they are to close quickly and accurately,” remarked Jeffery.

Conclusion

Tools, including systems, software, techniques, models and methods, are consequential for an effective process-based management, but the dominant determinant or proof of process mindset success lies in the pursuit of demonstrably improving organizational performance.

Treasurers must build and maintain a mindset that takes the entire process into account. This should tie in with an organization’s strategic objectives and be backed by visible support from the executive management.

A process view mindset is measurement-friendly, productivity-motivated, and receptive to new ideas and insights. Implementing these time-tested leading practices will help treasurers shape and nurture process thinking, establish more appropriate controls and metrics, and have far greater success in making changes that help the balance sheet and income statement of their organizations.

 

⃰⃰ Disclosure: Strategic Treasurer owns CTMfile.

Read more from this series:

Part 1: Bank account management

Part 2: Bank relationship management

Part 3: Cash concentration

Part 4: Liquidity structure

Part 5: Treasury owns cash

Part 6A: Staff development

Part 6B: Staff development

Part 7: Risk management

Part 8: Treasury owns working capital

Part 9: Cash forecasting

Part 10: Compliance

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