Under that rigorous standard, a lot of projects were eliminated, but "this one was not, because it really fit with a lot of key goals the company had," he says. The in-house bank helped Lucent cut the number of systems it supported. Treasury now runs just a couple of systems, down from five to six. It helped Lucent become more efficient and automate more processes, Gibbens says. "Those things all justified continuing to do this during a very challenging time for our industry and our company."

It did, however, require a great deal of juggling. One of the biggest problems: maintaining the expertise needed at the same time that the departments involved were reducing their head count. D'Amelio notes that some of the people working on the in-house bank "were so committed that they did this–which was a full-time effort in my mind–in addition to their day jobs."

Gibbens says the in-house bank was actually a plus for the restructuring effort because the efficiencies it enabled allowed treasury to function well with fewer people. Today, there are 27 people responsible for Lucent's core treasury functions, down from about 50 before the company's restructuring. "Without the rationalizing we did in systems and processes, we would have introduced way too much risk into the system as we downsized," Gibbens says. "The in-house bank enabled us to add control as we downsized."

Lucent's assistant treasurer, Denise McGlone, who oversees the core treasury functions, says consolidating systems eliminated a lot of the reconciliation of data from different systems that treasury had to do previously. "The fact that the in-house bank has a lot of infrastructure that allows automated accounting entries and provides an auditing trail, as opposed to Excel spreadsheets, is very helpful," McGlone adds. She also cites the increased visibility, noting that she can now "pull up one screen that shows me globally where our cash is, what we're doing with it and where our FX risk is." The improvements also mean treasury has more time for value-added work despite the decline in its head count, Gibbens says.

The in-house bank was implemented in phases starting in 2002. Gibbens says the multiyear time frame was necessary given the complexity of the project, which required not only new technology, but also the restructuring of processes that involved many different parts of the company. "You needed all these pieces to be in place–new policies, setting up legal entities, setting up bank account structures," he says.

PREPARING FOR THEIR NEXT MOVE

The in-house bank also provided Lucent with the structure it needed to embark on another major project that is now underway, the shift to a sales commissionaire model for the company's overseas subsidiaries. Currently, when those units make sales, they buy the products from U.S. subsidiaries and resell them–a process that ties up working capital. In a sales commissionaire model, all the sales made by overseas subsidiaries are filled by a single legal entity, which then pays a fee to the subsidiaries for their sales efforts.

The sales commissionaire structure is a fairly common best practice among technology companies, Gibbens says. "If you reduce volatility at the legal entity level, instead of having lots of little pockets of cash, it allows all of that to be brought up to one entity, where we can manage it much more efficiently." While treasury's focus is the sales commissionaire model's ability to free up working capital, it also reduces the overhead and work involved in maintaining the subsidiaries, he says.

The in-house bank was just one of the ways that treasury helped Lucent weather the storm. D'Amelio also cites the recapitalization of the company's balance sheet, an effort that began in 2002. Since then, Lucent has repurchased about $2.4 billion of its outstanding securities. "The net result is that we've saved about $150 million a year in interest," he says. The in-house bank is saving the company $4 million to $5 million a year in banking fees, D'Amelio adds. "They both affect the income statement and our cash flow positively. And the increased control and visibility over cash flows and risk enabled by the [in-house bank] are immeasurable."