How Corporate Finance Can Enhance Operational Execution to Meet Rising Global Threats
Published February 28, 2018
by Michael Dinkins
Global finance leaders are collecting data to support their plans to grow in spite of known and growing challenges that lie ahead. It’s time for finance executives to fully empower the execution of these plans because the future of their companies truly depends on it.
The good times are here, for now
We are elated by a strengthening U.S. economy, falling unemployment, lower taxes and the progress being made in obstructing terrorism. Corporate earnings are projected to rise as a result of lower taxes and like kids in a candy store, we are wide-eyed as we zero in on what to do with cash repatriation. With the extra cash, we might earmark a little bit for a one-time bonus, maybe add to the 401(k), upgrade equipment, buy back a few shares – it’s fun to contemplate and communicate these plans.
The sobering side of the coin is that the success we are enjoying does not come without higher political risks, which have escalated to unprecedented company and country-specific levels.
These issues have real potential to menace companies across industries and borders:
We operate in an environment vulnerable to growing deficits driven by social programs and lower taxes. Demographic discontinuity is real and rising in the United States and other developed countries. Support of the elderly and unemployable is a central political issue because America has no working economic or political theories to address it.
Beyond our shores, the recent battlefield defeat of the Islamic State (IS) means hundreds if not thousands of IS fighters are scattering around the globe. Implications are serious for companies already facing threats from the group and its supporters.
In countries such as India, an established offshoring destination, and Kenya, an emerging one, and many, many others, the living conditions for working classes can be harsh. Companies are facing greater threats of unrest and hits to their reputations. At the same time, populist movements are gaining ground around the world, resulting in governments nullifying corporate contracts.
Continued weakening of the EU, NATO and the UN is doing little to improve stability. Trade conflicts continue to destabilize regions. Migrant crises and terrorism are fueling ever more reactionary populism and stimulating far right violence.
It’s time to prepare for a more challenging future
Times are good, funding is available and companies have a window to act. Now is the time to make an investment that ensures access to trustworthy, global, on-demand information to make sound decisions and run the company – not only during the best of times, but also under the most challenging of circumstances.
Is there a better reality than cash? I don’t think so. It is the one measurement we all understand and is every company’s value driver. A company’s cash position is never fake news. In my opinion it is the leading indicator, and what’s more, your treasury department can tell you within minutes when major developments happen anywhere in the world - and if they need immediate attention, such as: You reached a milestone on a project because you have set up payment to the vendor; a high-value customer received and paid for a product or service; a downsizing plan is complete with severance payments scheduled to be paid and the payment amount is above or below expectations.
I could go on.
In the current environment, treasury has become the proverbial lighthouse.
Use technology to remove obstacles to execution
Accuracy and speed mean everything when managing risks and opportunities alike. The sooner a plan is executed and monitored on a real-time basis, the better off your company will be. For global companies with events happening at the same time in different countries, global and decentralized operations need the ability to execute as one through demonstrated processes and systems. This is achieved through an integrated business forecasting system that interfaces with a treasury forecasting and business intelligence reporting tool.
Making a business decision, proactive or reactive, starts with reviewing historical, current and forecasted data with a team of advisors, including the board of directors. Dealing with political risk is the same. You need to know how, how much, and where a risk will impact operations. You need to know what resources are available and where, so you can develop a plan.
Once you have a plan, you want to conduct sensitivity analyses to anticipate and understand the what-if’s. Information is also shared with subject matter experts who can assess potential legal, tax, accounting, regulatory, loan compliance, personnel or customer implications.
Generally, changes are made and the plan is updated; however, everything comes to a halt if information is dated, or if people have different data or there are questions about the accuracy of information under review. Strategies most often fail because they are never fully executed, and one of the issues is that a geographically diverse team cannot act in real time with the same information. The worst scenario is acting on faulty or unreliable information.
The enlightenment that changed my outlook
I recently received an in-depth demonstration of a cloud-based treasury management solution called Kyriba. In it, I saw the answer for a progressive finance strategy, and how to get there. The right treasury management technology, and the real-time role it plays in organization-wide analysis and decision-making, underpins a solid business model for the present and the future.
The platform demonstrates how the treasury function has the power to change the business cycle (cash to cash); provide early warning indicators about the performance of the business; and most important, drive the structuring of new business deals to minimize the need for hedging, currency movement and other less reliable strategies.
Operate with a current view of the company and world
If you believe as I do that the next big corporate challenge is political risk, especially for multinational organizations, start investing now in the ability to enhance and speed execution with the right talent, processes and information at your command. Procure the ability to monitor progress and cash, and generate reports on a real-time, on-demand basis.
A treasury management system with integrated business intelligence reporting is not a luxury. In today’s environment it is a requirement, and I dare say it is irresponsible for a global company to continue operating without these capabilities. There is no equivalent means of providing real transparency to operations leaders, the executive team, the board and shareholders – or for quickly reaching consensus on the best moves to execute under any given circumstances.
Cash is king and the best early warning indicator available to your organization.