This is the third of a three-part article series

As corporate treasurers navigate a laundry list of challenges heading into 2023, they will continue to pursue a path to growth in order to emerge from an economic downturn in a healthier position.

In the third part of this three-part article series, we summarise three more areas of importance to treasury that are expected to carry over into 2023 from 2022. Treasury technology and intelligence, geopolitical conflict and workplace challenges will likely remain as critical focal areas for corporate treasury over the next 12 months, and we hope this article can help organizations lead well during times of economic uncertainty.

Treasury technology and intelligence

The COVID-19 pandemic-induced global supply chain disruptions and the Russian invasion of Ukraine in February 2022 have ushered in treasury technology advances and investments to improve cash flow visibility and liquidity forecasting for greater efficiency, risk mitigation and cyber security. These situations have also accelerated their digitization and automation efforts, spurring the momentum towards a data-driven treasury.

Blockchain, open banking and application programming interfaces (APIs), cloud-based TMS, robotic process automation (RPA), artificial intelligence (AI), machine learning (ML) and big data analytics are key technologies that are redefining corporate treasury, helping them access real-time data and improve operational efficiencies, strengthening competitive advantage and enabling treasury practitioners to focus on strategic, value-added activities.

Corporate treasurers are also asking important questions, such as how AI and ML will promote and reinforce treasury as a strategic partner, and how big data can be harnessed to deliver smarter treasury insights, achieve operational and liquidity effectiveness, and make informed decisions.

As digitization marches into corporations in the next 12 months, enormous amounts of data generated in their systems present a tremendous opportunity for the treasury function, as data has now become a vital business asset for every organization.

The global economic headwinds of 2022, which are blowing in the direction of a global recession in 2023, have provided new impetus for adoption of big data analytics and other emerging technologies such as AI and ML for cash forecasting, commodity and credit risk management, hedging, cash flow planning, fraud detection and prevention, regulatory compliance, variance analysis and advanced scenario modelling.

RPA bots are also being used by certain corporations for standard, replicable and simple tasks in cash positioning and cash flow forecasts, including bank reconciliation, to cut costs and streamline the process.

For the benefit of treasury and finance professionals, the Association for Financial Professionals (AFP) Treasury in Practice Guide, Identifying Value for Treasury: Automation, Machine Learning & Artificial Intelligence, underwritten by Kyriba, outlines the benefits of RPA and ML and how each is being used to solve problems faced by individual treasury departments. In addition, the guide shows how to build a strong business case when seeking to adopt RPA or ML.

In 2022, corporate treasury also leveraged open banking to access multiple bank accounts with one platform using APIs, which pull in data from various sources. This allowed them to gain complete visibility into the status of transactions, prudently manage liquidity demands, facilitate real-time payments and reporting processes, and simplify supply chain finance and working capital management.

Over the last two years, corporate treasury recognized the value and benefits of becoming more data-driven, particularly for navigating complex regulation, enabling faster decision-making, adjusting investment portfolios, improving in-house banking and netting, and refining exposure identification and management. Given that treasury is at a tipping point, it is likely that treasurers will continue to enhance data intelligence in 2023 to quickly unlock insights that will help mitigate risks and improve identification of business opportunities.

In 2023, treasurers are expected to prioritize automation as a part of their digital transformation efforts. Treasurers considering digitizing their processes often face a learning curve as they approach the complexity of many categories of treasury technology. Few feel confident about navigating selection, buy-in and implementation efficiently.

Strategic Treasurer’s 2022 Treasury Technology Analyst Report can help and offers a single document explaining what matters about technology to today’s busy treasury department.* This report can act as a definitive guide and an aid to practitioners exploring how treasury technology meets treasury needs, while also helping corporate treasury stay up-to-date in the current context.

We are now on the cusp of colossal technological innovations – blockchain, open banking and APIs, AI, ML, big data analytics, TMS, RPA and other breakthrough technologies. All of these are expected to have a significant impact on the treasury function in 2023 and beyond.

CTMfile article links (treasury technology and intelligence):

• Robotic process automation and machine learning solving treasury problems
• Treasury leveraging data to optimise investment portfolios and improve in-house banking and netting
• Mastercard launches ‘Global Treasury Intelligence’ to help organizations gain greater visibility into payment flows

Geopolitical conflict

Uncertain times and resilience are words that epitomize the spirit of corporate treasurers over the last two years, but it was on February 24, 2022, that resilience and conflict thrust corporate treasurers into the spotlight once again. It was on that date that Russia launched a military offensive against Ukraine, beginning the largest military conflict in Europe since World War II.

This economic and humanitarian crisis presented its own challenges for the corporate treasury department – SWIFT ban on Russia, supply chain snarls, onslaught of cyberattacks, fluctuating currencies, volatility into commodity prices, employee displacement, dampened investor sentiment, turmoil in financial markets, rising oil and gas prices that pushed up inflation, and interest rate hikes resulting in higher borrowing costs.

The fallout of the war affected the operations and sales of several large multinational companies with noticeable presence in Russia. Under pressure from investors and consumers, many Western companies decided to exit Russia completely, and then there were organizations that pulled out of Russia of their own volition.

Because of the armed conflict, a number of corporate treasurers tightened risk management practices, evaluated their total exposure to the conflicted region to limit losses, and focused on trying to maintain a larger liquidity buffer. In this connection, they reviewed and renegotiated their credit facilities globally, particularly where interest rates were inching upwards.  

Rising interest rates, inflation and ripple effects of the Russia-Ukraine conflict pushed global debt even higher, although corporate debt (excluding banks and government borrowing) only increased slightly, with debt outside the financial sector rising above US$236 trillion, about $40 million higher since the onset of the COVID-19 pandemic, as per the Institute of International Finance (IIF).

Geopolitical tensions, regulatory intervention and a looming recession also added pressure to an already fragile global economy and made acquirers more cautious in dealmaking activity. Furthermore, the interest rate climbs made mergers and acquisitions (M&A) financing tougher and more expensive in the second quarter of 2022. M&A activity in Asia Pacific, the US and Canada slumped further in the third quarter of 2022.

“Fewer than 4,700 deals were announced in the US and Canada between July and September”, as per data from S&P Global Market Intelligence. They further stated that this marked “the lowest number since the second quarter of 2020 when COVID-19 sparked a collapse in activity.”

Together, Russia and Ukraine supply 30% of the world’s wheat and barley. Ukraine has carried the moniker “the breadbasket of Europe” for many years and is among the top three grain exporters and a world leader in soybeans and sunflower oil.

Because of the raging war, Ukrainian fields, harvests, farmers, food production and transportation were affected. Disruptions in the supply of wheat, rye, barley, corn, maize and other grains pushed global food prices higher, straining developing countries and also putting pressure on Western consumers. Furthermore, Russia being a significant producer of aluminium, copper, platinum, titanium and nickel meant that bottlenecks in exports of critical metals resulted in worsening the semiconductor chip shortage, disrupting the auto and aerospace supply chains and further increasing prices of cars, electronics and other big ticket items. 

After Russia declared war on Ukraine in February 2022, the series of economic sanctions imposed on Russia upset the oil supply-and-demand balance, disrupting fuel shipments, stoking inflation and creating an energy crisis in Europe. 

The Kremlin’s decision to invade Ukraine also resulted in the EU, US and their allies decoupling Russia from the global financial artery, SWIFT. The long-term consequence of barring Russia from SWIFT may lead to China and Russia establishing an alternative payment system (RMB denominated) that is impervious to unilateral economic sanctions and will facilitate trade payments between Russia and China without using SWIFT.

Against the backdrop of war-induced uncertainty and chaos that may not end soon, corporate treasurers are expected to demonstrate more resilience over the next 12 months since they are in charge of the lifeblood of an organization – cash. Staying resilient in such uncertain times will require farsightedness, adaptability, creativity and curiosity to shield them from future geopolitical conflicts or unexpected threats.

CTMfile article links (geopolitical conflict):

• The Russia-Ukraine conflict and implications for corporate treasury
• Significant business and economic concerns surrounding Russian invasion of Ukraine
• Ukraine war has brought the world to the brink of a food crisis

Workplace challenges

In 2022, one of the biggest worries for treasurers revolved around human resources (HR) matters. Recruitment and people management, including looking after staff wellbeing, were among the top concerns for treasurers in terms of workplace challenges.

“This isn’t surprising. Treasurers have had to shift their team in and (potentially) out of working from home, at short notice, while rethinking the wider transformation of their workplace”, states the Association of Corporate Treasurers’ (ACT) Business of Treasury 2022 report.

The survey report said that between 2021 and 2022 it became more difficult to recruit and retain staff, and this was likely to intensify in the short to medium term. These are trying times for treasurers, as there is enormous churn in the treasury jobs market. In fact, “over half of the FTSE20 non-financial corporates have seen a change of group treasurer in the past 18 months”, according to the Business of Treasury 2022 report. In addition, people in finance and treasury are commanding higher salaries generally.

It is arguably equally challenging now for treasurers to get the right people in the right roles, to train them adequately and to manage them in a changed or virtual environment.

Furthermore, the Business of Treasury 2022 report explains that treasurers see effective working skills and leadership and strategic skills as the main barriers to career progression. Respondent treasurers with over 20 years of experience identified lack of leadership and strategic skills as their biggest impediment to career progression, while for less experienced treasury executives, effective working skills (such as time management) are a matter of the greatest concern.

As per the recent Deloitte 2022 Global Corporate Treasury Survey, “Leadership will be the most important skill for the treasurer of the future.”

Source: Deloitte 2022 Global Corporate Treasury Survey

Going forward, business and finance skills will not be enough to lead the treasury function. “The treasurer of tomorrow will not only need to possess treasury domain expertise, but leadership, risk management, and technology skills to better navigate strategic treasury priorities of tomorrow”, observes the Deloitte survey report. This will help treasury professionals build a stronger career and treasury team.

Corporate treasurers may not be far away from the next big, unexpected event in 2023. To respond effectively, they will require all the technology, data, experience and resources they can gather, but more importantly, they will need to step up and demonstrate extraordinary leadership skills – all while keeping an eye out for the next crisis.

Companies are also facing another serious challenge as they head into a recession – understaffing as talent shortage takes a toll on those still employed who are having to wear multiple hats to support the business.

Finance leaders and corporate treasurers are turning to outsourcing as a viable option, should workloads increase. Outsourcing not only addresses today’s skill shortage, but can also provide relief for generally understaffed teams, reducing the amount of time employees have to spend on mundane activities and enabling their skill sets to be used elsewhere. 

As a matter of fact, a large majority (61%) of the CFOs surveyed in the OneSource Virtual’s 2023 CFO Outlook Report indicated they are “very likely” or “somewhat likely” (34%) to consider outsourcing for certain accounting and finance-related tasks like invoice processing and invoice payment. As per the report, “74% of surveyed CFOs identified extra capacity as the top reason for outsourcing their finance and accounting tasks. For understaffed teams, this could be a lifesaver.”

Finance chiefs and treasurers are also gravitating towards automation. Automating manual processes will not only help reduce costs, but will also aid corporations in becoming less reliant on the human element and factors that determine conditions in the labour market. In addition, automation will free up their finance and treasury teams to focus on more strategic tasks that can counteract decline in economic activity by driving growth. 

Work location flexibility, combined with other forces driving the Great Resignation, like burnout, career switches and a massive surge in job searches for remote work, set the stage for a continued brain drain from in-person treasury workplaces in 2022 – not something many treasury departments can afford to continue into the future. Spurred by the pandemic and now continuing at many companies, treasury started instituting once-unimaginable remote and hybrid work policies and also putting more effort into technology advancements, communications, processes, controls and security management.

Over the next 12 months, corporate treasury is expected to deploy new, remote-friendly systems and digital tools while managing workforce turnover and off-premises employees, including training new hires and existing employees on systems that are likely to be more deliberate, better planned and accessible from anywhere.

As treasury departments adapt to remote treasury as a way of life in 2023, treasury leaders will have to continue to invest in digitization, people and team development, succession planning, employee wellbeing and empowering staff to deliver strategic support to the business. They will also have to embody a range of skills not previously associated with the function. Treasurers who do so will help their treasury teams build strong careers and thrive in the future. 

CTMfile article links (workplace challenges):

• Leading practices part 6A: staff development
• Leading practices part 6B: staff development
• Tomorrow’s successful treasury leader: Five essential traits

Conclusion

In conclusion, corporate treasury’s focus must pivot between internal and external factors that impact a business financially, particularly in an unpredictable and uncertain business environment that demands astute leadership from them to anticipate the unexpected, fund business growth, manage people, challenges and priorities, and support other functions.

We hope this three-part article series and continued reading of CTMfile content, including listening to the OpenTreasury Podcast throughout 2023, will help corporate treasurers become more strategic and forward-looking  to transform complex business challenges into competitive advantage.

⃰ Disclosure: Strategic Treasurer owns CTMfile.