If you throw a frog into a pot of boiling water, he'lljump out. If you put the same frog in tepid water and slowly turnup the heat, you will get a very different result.

Many CFOs and corporate treasurers in the United Statestoday—especially CFOs and treasurers of multinationalcorporations—find themselves in the situation of the slow-boilingfrog. The technologies and workflows that their organization hasused for years are unable to keep pace with both business-as-usualactivities and escalating disruptive events such as a bank ortrading-counterparty default, legal judgments or fines, a currencydevaluation, a fraud event, a qualified audit result, or a merger or acquisition.

Who has time for strategic planning when you are constantlyfighting fires? Yet for many companies, no single disruptive eventhas been dramatic enough to prod the finance function to jump outof the boiling water and into a more efficient way of doingthings.

Since passage of the Sarbanes-Oxley Act in 2002, the landscapefor finance departments has changed significantly. Numerous newregulations on financial services have hit not just financialinstitutions, but virtually all U.S. companies that conductbusiness in multiple jurisdictions. Cash transactions with non-U.S.counterparties are subject to much tighter scrutiny; openingforeign bank accounts requires increasing manual complianceefforts; Basel III is placing increasing pressure on reserverequirements; the maze of Dodd-Frank rules and regulations,including stress-testing, is affecting every company that hasexcess cash to invest; and the Foreign Account Tax Compliance Act(FATCA)and foreign tax reporting rules are ballooning compliancerequirements worldwide. Meanwhile, ultra-low interest rates arepushing treasurers to chase yield around the globe, which places a heavy burden onrisk management teams.

These challenges are exaggerated by the decentralized,non-standardized technology infrastructure in place at manycompanies. While it may have done a decent job of supporting thefinance function a decade ago, the finance infrastructure in manyorganizations has reached the crisis point. Finance managers seemto be sitting in a pot of slowly boiling water: So much needsfixing that it's hard to break away from the daily grind and figureout where to start.

The situation will likely get worse before it gets better.Making improvements, preparing the company and the financedepartment for disruptive events, and reducing costs in the currentcompliance environment require bold strokes and risk taking—andCFOs are notoriously risk-averse.

Signs That Something Needs to Change

There are a number of characteristics of infrastructure designthat are highly inefficient but are all too common in today'sfinance function. One is having a plethora of disbursement andreceipt systems scattered throughout subsidiaries, each with itsown bank integration. Another is the use of multiple general ledgersystems, which makes consolidation to support quarter-end financialstatements extremely time-consuming. CFOs usually inherit thesesituations from a slew of acquisitions or global expansion.

Many companies also use multiple small treasury managementsystems, each of which may handle a very specific treasury functionsuch as cash management or forecasting. Likewise, most companiesrun multiple reconciliation systems, which are oftenapplication-specific, as well as numerous financial reportingsystems that do not cross-tie. In this environment, exceptions areoften handled by several groups throughout the company, andfinancial data is dispersed across many applications rather thanbeing stored in a single data warehouse or data hub in the cloud.All of these factors create a risk of data inconsistencies and slowdown finance department processes.

Companies running multiple underlying payment-initiationsystems, each with separate approval and workflow policies, areputting themselves at risk of fraud, error, and increasedtransactional costs. Finally, many organizations handle risk management via spreadsheets and email. Thisapproach impedes the CFO's ability to react quickly and cautiouslyto disruptive events.

Moving toward more efficient operations in a multinationalbusiness generally entails a factoring process—identifyingeverywhere that different teams around the firm are handling thesame process using the same or similar tools, and consolidatingtheir efforts. Examples include replacing multiple disbursement andreceipt systems with a single system utilizing a central messagingbus with consolidated exception management; replacing multiplegeneral ledger systems with a single ledger or aledger-consolidation facility; and replacing Excel with aconsolidated credit risk exposure reporting platform that providesintraday currency and counterparty exposure calculations. And itmay entail deployment of an enterprise-wide treasury managementsystem that communicates with the banking community and with otherfinance system components. Such a technology infrastructure candramatically increase the efficiency of the finance department,substantially reducing the time required to close the quarter, andcan reduce the chance of errors.

Bear in mind that technology changes are not a panacea. Forexample, ledger consolidation is not the right approach for everyorganization. Some companies choose, for strategic reasons, to keeptheir accounting functions segregated to help make their businessunits more agile or to facilitate spin-offs. Companies that choosenot to take the leap onto a single companywide general ledger canharvest other low-hanging fruit, such as using a standardized chartof accounts across multiple ledgers, implementing a centralizedjournal-posting facility and ledger reconciliation system, orintroducing a consolidation layer that brings together the businessunits' various ledgers onto a common platform.

One large insurance company, for example, cut its 10-Q/10-Kproduction time in half by introducing a ledger consolidation andreconciliation system on the investment side. But this same companyhas the opportunity to do even better if it will attack theoperating side with equal vigor. For large companies with manyregional subsidiaries, these undertakings carry daunting projectrisks.

Getting Started

Remaking the finance infrastructure usually requires majortechnology rejiggering. Many finance functions are too tied up inthe day-to-day to step back and determine better ways of doingthings. How can a finance management team know if their operationsand technology are up to snuff?

The corporate finance department covers a broad swath ofresponsibilities, but a subset of these functions lend themselveswell to evaluation against best-practices benchmarks. Some treasuryactivities that can be readily benchmarked include:

• cash/bank reconciliation,
• payment and bankaccount management processes,
• cash positioning,
• cash forecasting,
• foreign exchange and currencyexposure management,
• intercompany loans and letters of credit,
• investments and debt management, and
• accounting.

The ideal way to determine whether you need to take a big leapout of a boiling infrastructure is to engage a third party tobenchmark one or more of these activities against best practices.Working with an independent firm that has deep industry knowledge but has novested interest in the study's outcome helps ensure that thebenchmarking process is effective.

Once the benchmark study is complete, finance managers candevelop a business case that quantifies the benefit of bridging anygaps that the study reveals. Note that the areas of improvementthat offer the highest return on investment (ROI) may notnecessarily be the company's first choice of a project. Decisionsabout which areas to tackle first should consider project durationand project risk as well as returns. After you complete a projectdesigned to close gaps exposed by the study, consider doing anidentical, follow-up study to see if you have actually reduced thegaps.

For those areas of the finance department that do not lendthemselves to benchmarking, such as shortening the quarterly closecycle, fraud reduction, and regulatory compliance, the key is todevelop a sound business case that has a clear ROI before gettingstarted with a project.

Tips and Techniques

After establishing that a prospective project's risks and ROImake it worth pursuing, the project team is ready to get started.The following rules of thumb are well worth considering for financeor treasury managers who want to ensure their company issuccessfully moving down the right path:

Stop doing projects focused exclusively ontechnology. Virtually all bold-change projects incorporate treasury involve people, processes, and technology.Technology is just one aspect, and it should not solely drivestrategy decisions. All too often technology projects are dominatedby what a vendor product does, rather than the customer's specificbusiness needs, and so the technology component of the projecttakes on a life of its own. Let's say your treasury managementsystem has a dozen major features but your ROI analysis suggestsyou need only three of them. The other nine functions may seem“free,” but they usually entail high implementation costs anddivert staff attention away from the company's core needs.

Focus on the business problem. If youframe the business problem and the ROI clearly, the solutionusually jumps out. Figure 1, below, shows some common examples of“solutionizing”—overemphasizing the technology side of theequation—versus properly framing the business need driving theinitiative. When business definitions are properly framed andmetrics are quantified, the optimal solution may vary greatly fromwhat may initially seem to be the obvious approach.

Every problem that a CFO has ever faced has probably vexedsomeone before you, and it has been solved. Being an activeparticipant in a peer network and/or soliciting outside help fromthe consulting community (at least for a road map) can go a longway toward both clearly articulating the business problem anddeveloping a solution.

Perform proofs of concept as needed.There's nothing more useful than a properly framed proof of concept(POC) to mitigate project risk. But a POC is very difficult toperform correctly. The POC is designed specifically to convert eachunknown element into a well-understood element. Some genericexamples of typical unknowns that are serious red flags include anew, untested project team; a new vendor product; and/or a newtechnology tool set. Your POC should involve your new project teamin delivering something small but usable. The POC should includeinstalling and implementing the new product on a limited scale tosee how the vendor's implementation team gels with your team, andwhether the product does what the vendor claims it does. Andfinally, it should enable you to try your technology tool set on avery small scale. We know of one large mutual fund company thatintroduced new standards for its entire development infrastructure,only to discover after the fact that the change slowed downdevelopment by about 90 percent.

Follow best practices intechnology infrastructure design. While we like toavoid solutionizing, there are certainly some techniques that farebetter than others.

• Avoid point-to-point (PTP) system integration. Instead, build amessage bus and/or a data hub. PTP is easier to build initially,but it's very expensive to maintain in the long term. In addition,PTP makes it far more expensive to perform an impact analysis ondisruptive events such as a divestiture, acquisition, orimplementation of a major application such as a general ledger, ERPsystem, or treasury management system.
• Keep your key applications up to date with the latest versions.Failing to upgrade may result in lost vendor support for theproduct. Upgrading also improves your ability to pick up newmodules from your vendors as they become available or as needsarise.
• Try to select “open” products that make software upgrades, datamanagement, and data replication easier and lessexpensive. Consider various deployment options, includingprivate cloud hosting to reduce internal strain and outsourcing ofservices required to maintain the product (e.g., upgrades).
• Embed a workflow management tool across various systems forareas like treasury and payments. The workflow tool can streamlinetasks such as opening accounts and initiating and approving wirepayments, and it can provide a full audit trail for theseactivities.
• Work with a vendor to provide SWIFT integration and ongoingmanagement of the SWIFT relationship. There's a high price tag tomaintain new SWIFT features and the sheer volume of message typeson an in-house basis.
• Implement an automated work distribution facility that canroute tasks automatically across time zones or operations shifts toefficiently balance the workload.
• Consider integrating reference-data databases that cansignificantly streamline or virtually eliminate manual bank setupfor payments and settlement instructions.

Above all, when considering the purchase of a solution orperforming data integration, remember that business conditions willchange quickly. Your solutions and your data-integration layer needto be flexible enough to deal with changes rapidly and with minimaloperational disruption.

Additional Considerations

For finance executives who are starting to feel the heat,technology is usually a major component—but not the onlycomponent—in getting out of hot water. Often, quick hits can beachieved by focusing on business processes and staffing, withtechnology changes following an organizational restructuring.

For example, wouldn't you get a better currency conversion rateand much lower transaction costs by replacing 1,000 transactionsfor $10,000 each with two transactions for $5 million each? Asanother example, the corporate finance department would clearlyhave better controls on opening and closing of bank accounts if one“center of excellence” in each major geographic region handled bankaccount administration, rather than having 25 local subsidiarieseach managing its own accounts.

In working to get out of the boiling pot, finance should focuson whatever it takes to improve the bottom line; a strategicapproach almost always involves some combination of staffreorganization, process improvements, and technology. And taking asustainable and strategic approach to both process reengineeringand technology implementation can make all the difference. It cankeep the frog out of the pot and help the CFO focus on the boldmoves required for long-term stability and growth.

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Berl Kaufman is a senior manager withSunGard Consulting Services. A veteran consultant,Berl provides a deep perspective on both business and technicalconcerns facing executive management today. He has spoken atconferences on client reporting, collateral management, andreconciliation, and has published papers on diverse topicsranging from data management to hedge fund operations and totalquality management (TQM).