TechnologyTreasury ManagementTreasury Technology
Midsize companies like Fellowes are seizing the initiative when it comes to building sophisticated treasury operations not typically seen at middle market companies. No longer willing to settle for low-tech solutions to meet global challenges, these middle-weight trendsetters are using cutting-edge products and services intended for much larger multinationals. And banking and software vendors, who once ignored them, are now more than ready to push the best technology into skilled midsize hands and let them run with it.
When Joseph T. Koch first arrived at office equipment supplier Fellowes Inc. a decade ago, the company was your typical family-owned middle market operation, particularly when it came to finance and treasury.
With $300 million or so in annual revenues, Fellowes took advantage of very few of the tools and services banks were offering even then. It didn't have an ERP or a treasury workstation.
And while it already had seven foreign subsidiaries, all of them were doing their own thing when it came to reporting and cash management. "We weren't leveraging best practices," Koch recalls. "We were doing business in global markets, but we weren't an effective global organization. We needed the ability to establish standards and practices to ensure consistency around the world. That included the ability to monitor and leverage our global cash position and cash flow. It was also important that our subsidiaries remain responsible for their day-to-day business and treasury requirements."
His challenge was clear: build a centralized, global treasury and banking system for Fellowes so it could capitalize on opportunities for growth in foreign markets. Getting there, however, would take ingenuity. "The key for us was to run our business in Canada, the U.K. and all the other countries where we have operations today according to the same business model," says Koch. "We needed centralized oversight of all global treasury operations and banking activities. That standardization would help us leverage best practices and information and reduce cost."
For a large multinational, this problem could have been addressed with a variety of options—more staff, a bigger budget or purchases of hardware or software. But for a midsize company like Fellowes, those choices are available in very limited quantities, if at all. Fortunately, Koch-a former banker himself-was aware of options that many midsize companies think are beyond them but, in fact, aren't. And in a happy coincidence, the treasury technology market itself awoke to the possibilities of the middle market during the decade when Fellowes was making its push.
Meet the mini multinationals, pint-size versions of major multinationals with all the aspirations for expansion, all the challenging problems and, these days, many of the same solutions. The lines have blurred; global middle market companies now have access to a broad range of sophisticated products and services as global technology and banking players cut prices and seek out new markets. "We're seeing a convergence of the middle market and large multinationals," says consultant Stephen Baird, a Chicago-based principal of Treasury Strategies Inc. "Ten years ago, they were dramatically different, but now large corporates are exploiting technology to shrink their global treasury staffs and networks, while middle market companies are becoming more global and sometimes adding staff to do it."
For instance, it's not so unusual for companies under $1 billion in revenues to sign up for notional pooling in Western Europe, a banking tool more commonly used by companies with revenues over $10 billion. "The confluence of rising interest rates, Sarbanes-Oxley compliance and a push for operating efficiency is driving leading-edge [technology] into the middle market quicker than ever," observes Dan McCarty, senior vice president for treasury management services at Comerica Bank. "Even a $5 million company can afford to use the hottest treasury product of 2006, remote deposit."
In fact, besides its two-person treasury and nine-digit sales volume, Fellowes really doesn't look dramatically different from its cousins in the Global 500 with 11-digit revenues. "We had to expand our financial infrastructure to keep up with [the company's] growth and support operations, which were also getting financially and logistically more complex," Koch says. "Effective cash and working-capital management as well as global tax considerations have driven our processes. In each case, however, the business structure and marketplace will drive our treasury and working capital structure—not the other way around."
Ten short years later, Koch and the team he assembled can claim success. Today, Fellowes has doubled its size, with more than $700 million in revenues, and subsidiaries and affiliates in 15 countries, including a new factory on the way in China and sizable operations in Japan, Korea, Russia and eight countries in Europe. The company sells directly to the big office-supply resellers, including Staples, Office Depot and OfficeMax; mass-market retailers, such as Wal-Mart, Target and Best Buy; and a range of global and regional commercial and contract stationers.
Just as importantly, the sophistication of Fellowes' infrastructure has grown as well. To deal with its new complexity, Fellowes' treasury has incorporated many tricks of the trade not typical of most companies its size. "Most banks have a bit of a difficult time finding a single relationship department to meet our needs," Koch acknowledges. "By our size, we belong in their middle market portfolio, but by the products and services we use, we require the expertise of their multinational bankers and product managers. We regularly use products and services that are normally intended for much larger corporations. For example, we are probably one of the smallest users of Bank of America's multilateral netting system," Koch adds. "But once they know our needs, our bankers usually are happy to make those services available to us."