How to maximize tangible and intangible benefits

Structure and organisation of the Treasury function of the European business of a major US corporation


Master's Thesis, 2001
103 Pages, Grade: pass

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Contents

1. Introduction
1.1. Objectives of this paper
1.2. Structure of this paper

2. Background
2.1. European Treasury Management in US companies in general
2.2. The company
2.3. Structure of the organisation
2.3.1. Previous IT strategy
2.3.2. Previous structure of Finance and Treasury
2.3.2.1. Local Treasury activities
2.3.2.2. Central Treasury activities
2.3.3. Kellogg’s Europe 2000 vision
2.3.3.1. Finance and Treasury Vision

3. Kellogg’s European Finance Project
3.1. Objectives of the Project
3.2. The proceeds of the Finance Project
3.3. Lessons learned from the Finance project

4. Literature review
4.1. Literature on Treasury Management
4.1.1. General Treasury and Banking Issues
4.1.2. Cash management and electronic banking
4.1.3. Treasury Systems
4.2. Literature on National culture, Leadership and Human Resource Management
4.3. Literature on Change management and corporate culture

5. Methodology
5.1. The Business Case
5.2. Selecting the Pan-European cash management bank
5.3. Selecting the Treasury Management System
5.4. People design
5.5. Process design
5.6. Project Management

6. Building the Business Model
6.1. The Business Case
6.2. The pan-European cash management bank
6.3. The Treasury Management System
6.4. People design
6.5. Process Design
6.6. Project Management

7. Conclusion
7.1. Key drivers of European Treasury
7.2. A model for the implementation of a European Treasury Centre

Bibliography
Kellogg company documents
Interviews
Bank documents
Websites

Appendices

1. Introduction

1.1. Objectives of this paper

This project aims to identify the optimal structure and organisation of the Treasury function of the European business of a major US corporation with the objective of maximising tangible and intangible benefits to the business.

The findings will be valuable not only to other US corporations seeking to benchmark, improve and develop their European Treasury function, but also as a general reference for possible ways of structuring and organising Treasury operations.

This paper will be based on the European Treasury project undertaken at Kellogg Company’s (“Kellogg’s”) European management centre in Manchester during 1996 to 1999, but will use that basis to reach conclusions regarding the structure and organisation of European Treasury functions in general.

Kellogg’s European Treasury Centre (“ETC”) was created as a sub-project of setting up a shared service centre; hence the focus was on functional effectiveness and operational efficiency. Many elements of Treasury were retained at corporate head office, which is typical for regional centres of US companies, and which creates a particular set of requirements for European Treasury management. Kellogg’s ETC may be considered a good role model for US operations in Europe, and references will be made to where other companies may choose different solutions to Kellogg’s due to different business structures and objectives.

Building the ETC meant introducing change to an established organisation, and it meant managing a project. Whilst this paper is not about project management nor change management in itself, reference will be made to issues relating to project management, and particularly to change management and intercultural management where this is deemed relevant. Understanding the fundamental elements of these areas, and taking a conscious and adequate approach to them, has proved critical for the success of the ETC.

1.2. Structure of this paper

Chapter Two will examine the background of European Treasury management for US companies in general, the concept and objectives of shared service centres, the concept of business process reengineering, its main ideas, assumptions, and limitations. Then the starting point for Kellogg’s will be analysed, including the previous structure of Treasury management in Europe, the competitive position the company was in, the critical issues it was facing, the key drivers in developing the shared service centre, and how European Treasury fits into the bigger picture.

Chapter Three will describe the background of the case study, discussing the objectives of the project, its organisation, and what conclusions can be drawn from the case study.

Chapter Four will concern the gathering and appraisal of available literature, reiterating all issues found in a summary of literature review, with regards to the research question.

Chapter Five will discuss the research methodology chosen, which was mainly conducted by way of qualitative research in the form of interviews. It will present the type of research undertaken for various issues, and the rationale for choosing those particular methods in contrast to others.

Chapter Six will appraise and interpret the findings from research, leading to the building of a business model as to how European Treasury can and should be organised. It will consider the suggested single bank structure, and the integrated system solution, as the two most important conclusions from the research undertaken, but also leadership challenges and management accounting. It will make references to how a company with a different type of business, structure, size, background, or geographical focus would arrive at a different decision.

In Chapter Seven, this paper will then progress to the organisation of Kellogg’s European Treasury project, the composition of the team and its tasks, the chosen approach and its rationale. It will incorporate elements of project management where necessary, as well as human resource considerations, change management and intercultural issues. This will lead to a post-implementation appraisal of achievements, lessons learnt, and decisions made in the process and an outline of opportunities for improvement that remained. References will be made to developments in the market since Kellogg’s European Treasury project was undertaken and completed, as and where they may have led to different decisions.

Finally this paper shall lead to a conclusion, summarising my findings and leading to a model European Treasury organisation. An outlook to the future shall complete this paper, presenting current expectations in the market for developments expected in the foreseeable future.

2. Background

2.1. European Treasury Management in US companies in general

US companies operating in Europe have several common key characteristics, creating a profile of their Treasury needs. The characteristics are:

- US companies have, by definition, no home market in Europe, but tend to be active in many European countries. The size of the overall operations in Europe tends to be comparable, or even smaller, than that of the business in the US, and therefore, they often look at Europe as a whole area rather than at the individual markets. Yet local management often enjoy a great degree of freedom.
- Corporate head office is in the US hence the typical corporate Treasury tasks are not part of their European Treasury operations. In particular, proximity to the board and dealing with corporate tasks is not required, and the focus is on cash management and FX risk management.
- Bank relationships in Europe are rarely close. Hence, unlike European corporates, US companies do not hesitate in putting their European banking business up for review.
- US companies are subject to tight, quarterly reporting, and actively manage their balance sheets. They require more and faster information from Europe in general, and are prepared to invest in the necessary technology. This consideration also plays a role in their readiness to move to shared services.

Kellogg Company can be seen as a typical example of a US company, having decided to create a shared service centre and a centrally managed European Treasury function. Kellogg’s individual background will serve as the case study, and shall be presented in the following chapter.

2.2. The company

Kellogg Company is the world’s leading supplier of ready-to-eat breakfast cereal, with an annual turnover of approximately USD 7 billion.[1] Around 14,000 employees are employed in sales units in all developed countries, and in a growing number of emerging markets, plus in 20 manufacturing plants of various sizes world-wide in all continents. Europe accounts for approx. 25% of turnover. European operations through wholly owned subsidiaries and their branches are in the UK, Republic of Ireland, France, Belgium, the Netherlands, Spain, Portugal, Italy, Germany, Switzerland, Austria, Norway, Sweden, Denmark and Finland.

The European Management Centre is based in Manchester, UK and supports all European subsidiaries with management services in the areas of Finance, Supply Chain, Marketing, and Information Technology.[2] It was created in its current organisational form as part of a major business reengineering project (“BPR”) in 1996 - 1998, and aimed at replacing local functions in the said areas.

2.3. Structure of the organisation

Kellogg’s traditional business model prior to the BPR was based on the idea of local management for local markets.[3] The respective eating culture and corresponding consumer habits rightly determined markets for food products. These core issues were believed to be best managed locally by management close to the market and its culture. Consequently, Kellogg subsidiaries in each country were almost entirely autonomous in how they chose to run their business, and this included the areas of Finance, IT and Treasury.

2.3.1. Previous IT strategy

Kellogg’s generic IT strategy prior to the BPR could probably best be described as the necessary evil, as it was never given much thought.[4] Every subsidiary had a Finance Director, who were Finance Business Partners to the local market, which included the authority to chose whatever IT system they considered appropriate to support those tasks. The respective local IT functions reported into them, and no effective European IT function existed, hence the Finance Directors were ultimately responsible for the IT function.

2.3.2. Previous structure of Finance and Treasury

In the environment described above, the European Finance organisation had a “dotted line” responsibility for Finance and Treasury only. Its authority covered the setting of general policy, and its role was of a consulting nature.

Every country unit had a full Finance function, covering all typical aspects of Finance: General and statutory accounting, Taxation, sales and purchase ledger, fixed assets, inventory, payroll, inter company accounts – and Treasury. The Finance Directors of the respective units managed the function. Not under pressure to keep cost or headcount down, they typically divided up their responsibilities as above, and simply employed one or two managers per task. Each of those individuals then kept hiring staff until the point where the work appeared to be done to an acceptable standard.

Staff levels were way above average for the workload performed, hence the basic processing of transactions was slow and expensive. On the technical side, Kellogg’s found that there was a vast diversity of IT systems in place, with almost every country using their own. This came as no surprise, as every country management was entirely free to chose and implement what they wanted whenever they wanted, and the company’s strong profitability in the past did not encourage financial discipline. It is, however, believed to be a common occurrence that the traditional allocation system of such overheads leads to complacency over time.[5]

The slightly simplified organisation chart of Kellogg’s European organisation prior to the European project was as follows[6]:

illustration not visible in this excerpt

2.3.2.1. Local Treasury activities

Treasury work prior to the establishment of the European Treasury was largely manual, designed by and for local people for a domestic market, with no cross border co-ordination. All of the seven major entities employed at least one full-time resource to manage what local management understood by Treasury, plus usually one back up to cover for that individual in his absence. Across Europe, a total of 14 staff looked after Treasury for their local market, but no European function existed. “Treasury” as perceived by those responsible consisted mainly of daily cash management, and arranging, enabling or even making payments to varying degrees.

Most units maintained one or several electronic banking (“EB”) systems for balance retrieval, and in some cases also for payments. The EB systems were always those provided by local banks, and had been picked without a formal selection process merely because the banks, usually offered them without a charge. They were ##################################################################################################################################################################The German subsidiary even had a Treasury Management system ###################################################

Some units were long and short in the same currency for imports or exports, or for inter-company invoices. Some would buy the same currency that others would sell, unaware of the action of the other. Also, many currency positions were left unmanaged, with payments converted at spot as and when they occurred.

2.3.2.2. Central Treasury activities

Whilst there was no European Treasury function prior to 1996, some central activities relating to Treasury already existed, notably the Netting. A Netting process had been established a few years earlier, which was run by the European Management centre in Manchester. The process was organised as follows:

1. European Financial Planning (“EFP”), who were responsible for running the Netting, request summaries of intercompany payables and receivables from all European units. Business units then provide data.
2. EFP input data into netting system.[7] It was receivables driven, hence only receivables were keyed in. Corresponding payable data was used to cross check.
3. Results were printed off for each unit, and transmitted to the respective information providers by Telefax.
4. Business units check the results against their own records. If they matched, they confirmed the numbers back to EFP.
5. In case of a mismatch, EFP contacted both units who disputed numbers, and requested an agreed number, which would then be entered.
6. When all units had submitted and agreed upon their results, they were frozen in the Netting system. Payment instructions were issued to all units.
7. EFP bought and sold surplus and deficit currencies in the foreign exchange market with partner banks.

8. At a pre-arranged date, all payments would be physically settled.

2.3.3. Kellogg’s Europe 2000 vision

The introduction of a free market in Europe in 1992 is often quoted as having been a major driver for the change in business dynamics, accompanied by increasing competitive pressure within the Branded Consumer sector. Both have led a number of companies to seek the cost and efficiency benefits of a shared service centre. They have specifically taken those functions that are not customer focused and moved them to one consolidated operation, and in many cases leaving only a sales office in country to concentrate on customers and market development.[8]

Kellogg’s was another, rather typical example. In 1995, facing much stronger competition and a continuing decline in market share and sales volumes, Kellogg’s decided to take a high level review of its business, and identify not a short term improvement, but a change of direction towards a much more effective and efficient business. It came to the conclusion that it had to respond to rapidly changing market dynamics and increased competitor pressures by improving customer focus, supply chain flexibility, information sharing, management reporting and control, and to reduce operating cost.[9] The company believed that the key to enabling the Europe 2000 vision lay in a number of co-ordinated activities involving the design and implementation of a pan-European supply chain and Finance function, supported by common, integrated computer-based business applications, technical infrastructure and management procedures. In so far, Kellogg’s followed a popular logic. It also stated that an ORACLE CPG (consumer packaged goods) solution would be implemented across Europe.

2.3.3.1. Finance and Treasury Vision

The Finance function was not spared a critical assessment of its overall performance during the year 1995, and not surprisingly, it was found to be ineffective and inefficient on all counts. In fact, this was the first time that the company had looked at its activities on an area basis. As a result, a disproportionate amount of time had to be spent at regional head office consolidating the output of the area, leading to more inefficiency and further slowdown of the entire task. Scores on information flow and response times were bad.

The lack of co-ordination between countries also meant that large retailers operating increasingly on an international basis in Europe, such as Carrefour, Promodes, Auchan, Aldi or Metro, could either not be served adequately, or were given the opportunity to exploit price differentials between markets. The previous, locally based systems could not track such behaviour. Again, Kellogg’s shared the experience of other US companies, and drew the same conclusions. Thoughts about opportunities for e-commerce came up, based on the fact that Kellogg’s business was a typical business-to-business industry.[10]

From a managerial point of view, it was found that the Finance function as it was, focused too much on transaction processing, rather than on the provision of meaningful financial data and analysis. In short, the conclusion was that the Finance function and its IT applications were both ineffective and inefficient.

Kellogg’s Europe 2000 vision provided the framework for a Finance vision, defining the desired future infrastructure of Finance at Kellogg in Europe: The purpose of the Finance project - within the Europe 2000 project – was to implement a pan-European Financial infrastructure.[11] The vision was typical for US corporates in Europe in so far as Finance and IT are often viewed as the most typical examples of services to be consolidated into a shared service centre.[12] Also, the general objectives of processing incoming information faster, improving reaction time, maximising work flow productivity and providing a bigger window for strategic thought and planning can be considered typical goals of what might now be referred to as an e-business strategy.[13]

The new Finance vision can be illustrated by contrasting it with the previous business model:

illustration not visible in this excerpt

Whilst the focus is on integration with the shared service centre, and operational effectiveness, one should not forget there is also an element of advisory services that the European Treasury function is expected to provide to management. This requirement is unique to Treasury, and does not apply to the shared service centre itself. The provision of, effectively, a professional service as a shared service is recognised in literature to be a serious management challenge.[14] The nature of this type of service is compliance oriented, and customers were the Finance Director – Kellogg Europe and corporate Treasury in the US.[15] The overall purpose of Treasury and cash management had, from this point onwards, to be seen under the prerequisites of the Finance vision. It is important to note at this stage that the drivers for European Treasury came from the business rather than from the Treasury function itself. Treasury was to be seen as another shared service, rather than a corporate function, which solved business problems through consolidation of Treasury processes.[16] This changed the outlook on Treasury dramatically from what it was before, particularly

- The idea of standardising and centralising the function
- The fact that the function was driven by the business, rather than limited to a small area of the organisation
- The need to support the EFSC working on a single platform
- The idea of European Treasury as a service provider, rather than a “black box” in a corner of the organisation
- The desired high level of automation and systems integration, compared to the previously manual transaction processing
- The fact that the Treasury sub-project was part of a reengineering project to save cost, and
- The pressure on headcount and overheads (though politically more on headcount)
- The availability of project resources, both staff and a budget

Translating the above considerations into tangible management objectives, Kellogg’s stated in its approach to banks in 1996 that the ultimate purpose of cash management within Kellogg’s was to maximise dividend remittance to the US.[17]

3. Kellogg’s European Finance Project

3.1. Objectives of the Project

Considering the previous state described above, namely the need for centralisation, it seems logical that the company would come up with those goals. In terms of process objectives for the Finance future state, Kellogg’s listed:

- To deliver full value adding financial services and counsel in support of key strategies
- To safeguard company assets and stakeholder interests from business risk
- To deliver consistent and high quality core financial information at the lowest cost

In starting the Business Process Reengineering of the Finance function, the overall generic strategy Kellogg’s decided to adopt was one of central planning. Following the above findings, it was decided that the best way forward for the organisation was to pass the responsibility for transactional processing in Finance to a central shared service centre, in order to leave the local Finance Business Partners more space to focus on more value adding activities instead. They also concluded that a shared service centre would be most efficient if all entities supported used the “single platform”, or one standard Financial accounting, consolidation and reporting system. By doing so, management hoped to either eliminate or at least automate a large proportion of the existing workload. At the same time, process flows would get faster, and general response times much shorter.[18] So far, Kellogg followed a popular school of thought that saw shared service centres as a source of major cost savings and service enhancements.[19] It was generally thought that in critical times like these, a corporate making and marketing fast-moving consumer goods should be better informed of what is going on in the market place, and could not live with the existing lead times required to find out just about anything. It was felt that the company should not spend its time pushing paper around, but should monitor the marketplace and its business very closely, in order to make high level decisions quickly, based on sound information. In effect, the company introduced the strategic component of IT for the first time, a thought that was then strange to the organisation.[20]

Kellogg’s spent little time considering on other ways of reengineering its business. Yet it should be noted that in doing so, Kellogg rejected a number of other possible business solutions. For example, there was never an ambition to create a global centre for Financial Services, or even just for Treasury. The main reason was that the core product, cereal, was a typical low value consumer product, which by nature was highly dependent on transport and storage. This meant that production had to always be relatively close to the market, with knock-on effects particularly on the company’s supply chain. It also meant that little, if any, benefits could have been achieved by managing the cereal business from a global perspective, which was the main driver in the company’s decision to create regional structures, and divide business into the geographical categories North America, Europe, Latin America, and Asia-Pacific. Another possible goal was simply not an issue for Kellogg – the National Centre. Kellogg was a one-product company, with typically one unit per jurisdiction. Therefore, it had national centres practically by default.

Kellogg’s also decided to employ a management consultancy for the project, for the consultants to help the company find the right information system to build the single platform, and also to perform the bulk of the project work on the implementation of the envisaged new structure. Key drivers for the decision to use a management consultancy on this large scale were the desire to buy in critical know-how and expertise, coupled with an expectation of running the business on a much lower staff level in the medium term. Therefore, it would not have been wise to hire more permanent Kellogg staff for whom there would not have been appropriate tasks and challenges after the project was completed.

3.2. The proceeds of the Finance Project

Kellogg’s commenced with the selection of a global business software package, and picked Oracle, a leading US-based system, which had already been successfully implemented in Kellogg’s US operations. Next, the project team created space in the Manchester office for the new shared service centre, and started recruiting staff from all major European countries.[21]

The move from the old business model to the future design of Finance meant that the following changes had to occur: First, the transactional processing had to move to the chosen central location in the shared service centre in Manchester. Second, the processing as such had to be redesigned to ensure maximum efficiency in processing invoices, payments and reports. Third, the new process design had to be standardised across all participating countries. And finally, it all had to be moved to the single platform. Note that only that final step constituted a leap in the use of Information Technology, which would bring significant benefits. It is often quoted that innovation occurs through Information Technology, and particularly the Software involved, and Kellogg’s decided to leave that step for last.[22] All in all, it was deemed a very bold and radical business process redesign.[23]

This approach contrasts with a more popular approach that starts off reengineering processes[24] by:

- Simplifying processes first as and where they are, looking for improvements that can be made by implementing best practices locally
- Then standardising them across countries, if benefits from doing so can be achieved across businesses and geographies
- Finally, centralising the processes in one location to take advantage of economies of scale[25]

Kellogg effectively aimed at achieving all those benefits in just two steps instead of three, and also in a different order. Furthermore, the time schedule pushed the project very close to the year 2000, a time when it was believed that major systems issues were likely to occur. This had a great impact on all business systems in use, as vendors were often reluctant to certify that their products were year 2000 compatible. In Kellogg’s Finance vision, standardisation of processes would achieve streamlining benefits, and it was thought that simplification would come as part of that. Therefore, it was felt that the initial step of simplification could be eliminated. Then, the company decided to centralise processes before standardising them. That decision was made under the assumption that it would be much simpler to standardise processes if they were all carried out under one roof, and that it would be much easier to establish teams and foster the exchange between different countries if all team members worked together.

The timetable was important in so far as Kellogg’s envisaged that major work needed doing to either upgrade or replace legacy systems, and in parallel, establish fallback procedures in case of systems failure. However, the company hoped to complete all major milestones before, and as a result, hoped to achieve additional benefits in eliminating the need to prepare outdated legacy systems for year 2000 compatibility.

The new organisational structure needed for the vision to work was put in place imminently, and hiring to fill all positions started in early 1996.[26] For the first time, it included a European Treasury function. The organisation chart of Kellogg Europe, therefore, was changed to the following, slightly simplified structure[27]:

illustration not visible in this excerpt

The first step was to simply change location for Finance transaction processing. It was achieved by building a parallel structure to the existing local functions in Manchester, which worked on the basis of remote access to local Information systems from the shared service centre. At the same time, the established way of working was hardly changed, as the first objective was to ensure a smooth hand over to Manchester, after which the local functions gradually closed down. Then, all work was done in the service centre in country groups, doing exactly what was done before, using the very same systems as before - an exact replica of the old business design.[28] It had taken nearly a whole year. The final result of this first step made it visible to all concerned why the BPR was initiated, and where it was heading. Work in the shared service centre was a mixture of all mainstream Finance IT systems, mostly country specific, uncoordinated, with each country group working in a slightly different manner.[29] No benefits had been achieved at this stage, save for central control, but centralisation in itself meant that the same old processes were still followed, the same consolidation work was still undertaken, and head count and processing cost were the same as before.

The second step was to redesign business processes with a view to standardising as much as possible across Europe, with the idealistic goal of establishing a single set of accounts, and a standard procedure manual. It proved to be an impossible task, as the company failed to adequately address the numerous obstacles arising from the great differences in doing business across Europe. The structure of Kellogg's business proved to be so different from one country to the next that a standard procedure, which every country could adhere to, was never produced. For example, the customer structure varied: Kellogg xxx had ten customers, and twenty across xxx where it operates, all of whom did business with Kellogg’s of more than a million Dollars equivalent. On the other hand, Kellogg xxx had four thousand customers, most of whom only purchased products worth a few thousand Dollars per year, many not even that. The xxx customers always paid on time, and xxx had no credit control function. In xxx, credit control was the biggest and most important Finance function, and virtually every customer paid late. xxx also worked with a number of agents in the south of the country, who all had different and complex arrangements with the company. Another example was the different treatment of VAT. There was none in the UK, but full VAT applied in France and other countries, and there were always different views on the correct treatment of it, in addition to problems reclaiming it. Also the invoicing structure was different - some countries worked on a margin basis, whereas France worked a highly complex system of discounts and rebates unknown elsewhere. Credit terms were different, ranging from 14 days in the UK to 90 days in Spain.[30] The accounting treatment of a number of these items was different, and the Finance Director of each country claimed that his way was an absolute must for his domestic business. Gross and net margins differed. The discussions went on and on, and no agreement was ever reached. It became obvious that it never would, as every one of the business units had very good reason to ask for special treatment of business practices known only in their own country, as they felt that otherwise their performance would be wrongly measured. In the end, a paper was produced summarising the areas where an agreement had been reached, and it was turned into a procedural manual, on the basis of which the project team worked to implement Oracle. But in addition to the procedural manual, a large number of unstructured workarounds remained, leading to manual processes based on spreadsheets and paper records.

Oracle was then set up according to the procedural manual, and all necessary static data on customers, suppliers, and invoices either way, were fed into the new system. When it was ready, it looked good initially, but did not reveal the fact that there was still a lot out there which it simply did not support: The French team kept using spreadsheets to work out customer rebates. The Italians did the same for credit control. The Germans used manual workarounds for management reporting. The Scandinavians struggled with the incompatibility of the new system with their highly efficient domestic payment system. Such workarounds remained the weak spot in the organisation, demanding a large amount of personal attention, manual adjustments to Oracle, and effectively destroyed or diluted many of the benefits that the single platform was expected to deliver.

Lastly, country after country switched to using Oracle, replacing their legacy systems. To begin with, a parallel structure was set up. This time it replicated the database of the respective legacy systems in Oracle, then running the two in parallel for a short time. Finally, the legacy systems were switched off, and the existing data and records archived for future reference and audit purposes only. The country groups were reorganised into process groups, who all looked after one process step each. On paper at least, the project had then been successfully completed.

3.3. Lessons learned from the Finance project

The overall idea of shared service centres is one of pooling resources to perform common activities, by way of serving multiple partners in order to enhance service levels and save costs. Kellogg’s as a one product company, with a good business structure of one entity per country, must have appeared to be a most obvious corporate to subscribe to it.

The company decided to go for a bold but understandable approach of moving straight from the status quo to new systems and new ways of working, thus eliminating the issue of upgrading legacy systems for year 2000 compatibility. Yet it overlooked opportunities to simplify and standardise processes in the early stages, prior to changing systems, which later caused major obstacles in the move to the common platform.

Kellogg’s also largely failed to streamline its business structure, preventing it from achieving a truly European processing model. So long as different invoicing, credit control, discount and other practices exist, it seems hard to imagine how additional streamlining benefits can be earned.

On the human side, the company succeeded in building a team of European middle managers, who successfully led staff through the Finance project. All of them agreed upon the great importance of having a good blend of nationalities and cultures and team spirit in the shared service centre, which became a reality. But on the other hand, Kellogg’s failed to change – or replace - local managers, who never subscribed to the idea of shared services at the outset, an issue, which is not uncommon.

The next chapter shall gather and appraise relevant literature, namely of Treasury management in general, project management, general leadership and intercultural management.

4. Literature review

In order to assess what the optimum organisation of the Treasury function of the European business of a major US corporation operating a shared service centre would be, one would have to examine examples of available solutions, and critically assess the extent to which they could be useful. The purpose of this literature review will, therefore, be to find information about what the optimal structure of the European Treasury function should look like. The focus will be on the organisation of the Treasury function itself, Treasury systems, banks as far as their cash management and systems abilities are concerned, shared service centres, and aspects of business culture and change management.

“Shared services” is the singular management paradigm used by major companies around the globe to organise and deliver internal support services more effectively.[31] Shared service centres developed during the 1990s as a response of corporates to changes in the competitive environment, and to progress in technical areas such as electronic data interchange. This is believed to have been triggered off in the US, where a few US corporates independently came to the conclusion that if staff work performed by separate business units addressed the same fundamental needs, there was no reason to perform it individually within each unit.[32] The principle driving the development of shared services was that business oriented units could implement best management practice focused entirely on delivering services at the lowest cost with the highest value to internal customers.[33] Literature on shared service centres was found mainly in the form of articles in magazines or presentation material from conferences at the time, but also in books written by advocates of shared services. A Treasury centre as part of a shared service centre in Europe was a new idea when the European Finance project started in 1996. There was and is no exactly comparable role model for Kellogg’s ETC. Therefore, it was only possible to research available literature on isolated aspects of European Treasury, cash management and shared service centres, but Kellogg’s had to develop the overall concept of what the ETC should look like in-house. This required all concerned to think out of the box, and consider the business from a variety of perspectives. To some extent, the project became an iterative process, whereby new information on core aspects, changes in the overall direction of the shared service centre, and developments in cash management and the banking industry, often provided new impulses.[34]

Different aspects of literature on the various issues are to be researched with different objectives in mind. In some areas, up to date, concrete information is needed, whereas a general, high level understanding is sought in others. Literature on the issue is, therefore, to be divided into the following sub-headings:

- Literature on Treasury Management, to be sub-divided into literature on general Treasury and Banking issues, cash management and electronic banking, and Treasury systems. A wide variety of literature is available here. The questions to be raised are how the Treasury department should be organised, and what its systems and bank account design should look like.
- Literature on national culture, general leadership, and Human Resource Management. What issues need to be considered when, embarking on a European Treasury project?
- Literature on change management and corporate culture. The objective being to identify possible impacts of cultural issues on a European Treasury project.

4.1. Literature on Treasury Management

With reference to the research question, the focus of research will be on selected aspects of Treasury management which relate to international cash management in Europe, international banks and relevant developments in the banking industry, centralised management of the Treasury function, and Treasury management and electronic banking systems. As a starting point, general Treasury issues shall be researched.

4.1.1. General Treasury and Banking Issues

A most valuable, initial source of information on general Treasury matters is the Association of Corporate Treasurers in London (“ACT”). It will be a key reference when looking for names, addresses and contact names of banks and Treasury management systems, which will need to be selected as part of the project. The organisation publishes a Treasurer’s handbook which provides an excellent list of relevant contacts in banking, software, consultancy, taxation and recruiting, but also an invaluable summary of cash management practices in a number of selected countries. For the purpose of this paper, the 1996 and 1998 editions will be considered, which show the state of information at the beginning and towards the final stage of the Treasury project. References will be made to the various editions of the handbook throughout this chapter on literature review. Overall, the Association of Corporate Treasurers may be regarded the strongest professional body of Treasury in Europe. Yet it is formally a body of the profession in one country, and as such it is naturally more focused on Treasury in the UK, rather than on European and international issues.

When working closely with banks, it is advisable to also gather more information about the industry in general. The selection of a cash management bank is naturally a long-term decision, which should be made on a well-informed basis. The magazine “The Banker” is a good indicator of trends and developments in the banking industry. An interesting early article entitled “homes for orphans” published in January 1996 talks about electronic banking as “the orphan in the business portfolio of many banks today, under-nurtured, unfocused and lost in search of a clear role [...]. Neglect is bred from a fundamental economic dilemma for banks [...] in the technology age.”[35] It concludes that whilst there was a “powerful cost reduction opportunity” for the big players in reducing structural costs of distribution channels, there was a short term cost element that made the decision to promote electronic business difficult. “Banks risk duplicating the fixed costs of premises with amortisation of obsolete technology infrastructure. Costs are generally hard to remove from the network as fast as new investment comes on stream.” It arrives at the conclusion that electronic banking “had reached the point of no return”.[36]

Later that year, “The Banker” presented an analysis of the relative importance of new delivery channels of banking products, along with thoughts about non-banks, particularly retailers, entering the market.[37] It stated that “PC-based banking was negligible in 1995, [but was...] expected to jump 600% by 1998, with 84% of banks offering [...] services through personal computers”, with even stronger data on the expected development of Internet banking. Here is a clear statement that banking transactions were going to be carried out increasingly via electronic means. The message fits very well with Kellogg’s Treasury vision.[38] Yet the Internet gets but a vague mention. Forecasters are quoted as saying that “the role of the branches [was to] shrink from more than 50% to about 10% “ in 2005, in favour of telephone banking, electronic and screen-based banking, and “express banking shop in non-branch locations. It does, however, recognise the uncertainty in such forecasts in warning that banks “run the risk of squandering money by investing in the wrong initiatives”. With the benefit of hindsight, one has to note just how drastically the Internet was underestimated. The same edition includes an article titled “Bye-bye to the branch” which, though focused on retail banking, provided a good analysis for the consolidation in the industry that was to come. The key message was that “automation [would] lead to quantum leaps in performance with financial institutions”, and that bank branches would generally become smaller and fewer. Again, a general trend to carry out banking business physically away from the branch tied in nicely with Kellogg’s general intentions of making payments, and gathering banking information, from a remote location: the shared service centre. It also said that “the skills required to operate [new] infrastructure [were] moving away from the core competencies of banks, and closer to the core competencies of hardware manufacturers, software houses, telecommunications companies and data processors.”[39] The latter may well be seen in conjunction with the observation that in the following few years, banks as providers of Treasury software became virtually extinct.

Still in 1996, and used as a decision basis for the European Treasury project, was the July 1996 edition of “The Banker” with its ranking of the world’s top 1000 banks.[40] It mainly noted the fall of the once mighty Japanese banks, and also noted that there “would be fewer players. It [was] hoped that they [would] also be stronger”. Banks were, however, evaluated on a country basis, which made it difficult to judge banks’ international and European performance. Still, the top few US banks on the list became the main candidates in the selection process for a pan-European cash management bank.

4.1.2. Cash management and electronic banking

The list of possible, European cash management banks turned out to be even smaller. It will be important when starting the selection of the European cash management bank. Whilst the list of “Banks offering treasury services in the UK” comprises dozens of names, only a handful of these claim to operate on an international basis on any significant scale[41]. The Treasurer’s handbook alone does not give much evidence as to how those banks are operating on an international scale. However, a look at the banks presenting at the annual Eurofinance International Cash and Treasury Management conference in October 1996 in Paris shows a much smaller list. Once those names are filtered, again, by their international, and particularly European, cash management capabilities, the shortlist would be short enough to start an initial information gathering process.

The Treasurer’s handbook provides an excellent overview of cash management practices in all 15 countries, which were to be supported by the ETC[42]. It describes the banking structure of the respective country, the central bank and market supervision, cash management practices, funds transfers, funding, investments, plus general comments on business customs in the respective country where those may differ from international standards or business practice. The total number of countries covered in the book increased with every new edition. It may be concluded here that international cash management became more and more important to Corporate Treasurers in the late 1990s, triggered by technological developments and more business-friendly banking legislation in many countries. The summary, together with the banks’ promised advice and expertise, may be deemed sufficient as a working basis for a European Treasury project.

Conferences run by Eurofinance proved to be a mine of useful information on cash management. Treasury conferences often mirror the latest issues and topics in the industry, and provide high calibre speakers and sponsors. Attending a few such conferences would put anybody looking to build a European Treasury centre in the picture on what is happening in the Treasury field, thus enabling him or her to approach the project from a wider knowledge base. In particular, the annual “International Cash and Treasury Management” conference, which takes place every year in late October in a different European location, appeared to be just the right forum to research European Treasury. Presentations, speeches and workshops are naturally state of the art, and the audience is very international. The conference held in 1998 proved to be particularly interesting, but those in 1996 and 1997 will also be considered.

Centralising cash management in Europe and the systems to support it was the core theme of the 1998 conference. Several banks presented what they all claimed to be a global cash management solution; the main banks were Citibank, ###, and Chase Bank, Bank A###, ### Bank, Societe Generale, and Den Danske Bank[43]. Of those banks, many focused on the system-based solution they offered, e.g. Citibank, Bank A###, Chase Bank, ### Bank and Den Danske Bank. Citibank, ### and Bank A### promote both their systems and alleged geographical coverage. ### follows an interesting strategy of a partner bank concept, whereby its own system is used as the “single window” for access to all banks.[44] Shared service centres played a role, with a joint presentation of a case study by Amoco Corp. and Citibank[45]. The key issue here was how to achieve operational efficiency via standardised electronic links, in a case that was very similar to Kellogg’s, though with a much bigger company.

Electronic banking is a particularly important area of research because of the unique, big difference in relative importance for the bank and the client. For the bank, electronic banking is a loss-making by-product, demanding constant development carried out by highly paid IT specialists; at best it is a vehicle to try and cross-sell other products of the bank. For a US-company looking for a pan-European cash management solution, electronic banking is the all-important single platform for transaction execution and information, which takes months to implement and would take even longer to change. The level of service and functionality of the electronic banking system used is a key driver of the overall utility of the shared service centre. The other critical aspect is the integration of electronic banking systems with the Treasury Management system to be chosen.

4.1.3. Treasury Systems

Next, gathering information on Treasury Management Systems (“TMS”) is an important step, as the selection, and subsequent implementation, of a TMS would be part of the Treasury project.

The Treasurer’s handbook provides a list of over 20 Treasury software suppliers in its 1995/96 edition[46]. Of those, there are several multinational banks offering their own Treasury Management systems, plus a variety of specialised vendors. The 1998 edition shows a mere 16 vendors, with only one major bank - Bank A### - left as a vendor[47]. It is unclear how the list is compiled, but it is fair to assume that an industry as small and as specialised as the vending of Treasury software will not consist of many – if any – more significant players than those listed. The ACT had earlier in 1996 organised a conference in London dedicated to Treasury systems and related issues, though before a European Treasurer was appointed. The brochure gives evidence that the list of companies presenting was largely identical to the list of companies in the handbook[48]. A comparison to the list of vendors present at the annual Eurofinance International Cash and Treasury Management conference in October 1996 in Paris shows no new names[49]. Consequently, it seemed sufficient to concentrate on those vendors for the subsequent selection of a Treasury management system, and no further research was undertaken as to the total number of market participants.

TMS vendors are now expected to provide support and to add value to the re-engineering process, which is triggered off, or influenced by, the corporate’s decision to use a TMS. They should be in a strong position to provide this support given the necessity to see the “big picture” as part of an effective TMS implementation.[50] Some evidence can be drawn from independent sources like the TMS Roundtable, organised by the Bank Relationship Consultancy.[51] A few interesting points can be picked up regarding general trends in the TMS market, such as the attraction of increased payment security for corporates, and the globalisation of the TMS market. Outsourcing of some Treasury functions to banks is greeted with much scepticism, and believed to be suitable for small companies only.

TMS providers appear to mainly advertise their products at Treasury conferences, and run sophisticated websites.[52] Treasury conferences seem to make sense as a platform for TMS vendors, as they are events where the key decision-makers from a very small and specialised industry meet.[53] Key players in the industry in Europe are PeopleSoft[54], Richmond Software[55], Beyers & Partner[56], Quantum[57], Econintel[58], Integrity, XRT[59]. Most of those were also present at the 1999 Treasury systems conference by the Association of Corporate Treasurers.[60] At present, there are approximately 15 providers on the market.[61] The previous vendor used by Kellogg Germany, Hanse Orga, was not to be found at any international Treasury conference.[62]

Additional literature, mainly in the form of Treasury magazine articles, is available on the Internet and will be referred to in detail when discussing the selection process of the Treasury management system. Of particular value were articles on GT News discussing the actual selection of a system[63], and the general development of Treasury Management System and the industry itself.[64]

To summarise, the answer to the research question for literature on general Treasury management is: there are only a few international cash management banks who offer cash management services on an international basis in Europe. The banking sector is consolidating, with mergers and acquisitions being a regular occurrence. Single bank solutions are available but do not suit every company’s needs. The alternatives, multi-bank and overlay solutions are equally established, and the recommendation to “centralise, centralise, centralise”[65] cash management is omnipresent. Electronic banking and generally electronic data transmission is developing fast, as is the use of Treasury Management Systems in corporates. Integrating such systems whilst covering as large a part of the enterprise as possible is the key to streamlining. Neither electronic banking nor Treasury management systems are mature applications, so more and rapid development is to be expected, probably followed by another wave of consolidation.[66] The key conclusion to be drawn from the literature review is that the Treasury systems to be used will need to be selected carefully once the business needs are known, and implementing them will require a controlled and organised project.

4.2. Literature on National culture, Leadership and Human Resource Management

The research question for this particular element of literature is how far issues of national culture and leadership are relevant to a European Treasury project, what cultural issues can be expected, and what conclusions can be drawn from the European Treasury project?

Hofstede is credited with one of the most important cross-cultural studies in identifying the similarities and differences among employees of the same multinational company located in a variety of different countries.[67] He summarised his findings in four basic dimensions of differences between national cultures. They were power distance, uncertainty avoidance, individualism versus collectivism, and masculinity versus femininity. Power distance assessed the degree to which the culture encouraged the boss to exercise his power. Uncertainty avoidance identified the degree to which a culture encouraged risk taking. Individualism measured the extent to which the culture emphasised individualist as opposed to group concerns. Finally, the masculinity-femininity dimension distinguished what kind of achievement was valued.[68] Each country analysed could, according to Hofstede, be rated from high to low in each of those four dimensions.[69] His work stresses the importance of cultural differences in all aspects of organisational behaviour, e.g. motivation, group behaviour, leadership style, conflict management. Hofstede’s findings show that individuals from different European countries must be approached taking into consideration their cultural background. The fact that cultural backgrounds are, according to Hofstede, defined by countries of origin, demonstrates that whilst the “European”-label is omnipresent in Kellogg’s project, it has to be remembered that the individuals working on it are still coined by their national identity. The key message from Hofstede’s work is that individuals will react and respond differently according to the business culture which they have grown up in.

Similar thoughts have been developed by Hickson and Pugh[70], who analysed the impact of social culture on organisations around the world. Both Hickson and Pugh and Hofstede looked at the world, whilst Kellogg’s European shared service centre merely dealt with Europe plus the US, as US citizens in their role as employees of Kellogg’s corporate head office were key stakeholders in the project. Of the various cultures which Hickson and Pugh examine, three different cultures are to be found in “Europe” as defined by the area of activity[71] of Kellogg’s: the “Anglos” (Britain), the “Latins” (France, Spain, Portugal, Italy, Belgium), and the “Northern Europeans” (Germany, Denmark, Sweden, Netherlands, Finland). Hofstede distinguishes between the “Nordic” cultures (Denmark, Sweden, Netherlands, Finland) and the “Germanic” (Germany, Austria, Switzerland, even Italy). Hofstede’s classification ranked the “Latins” high on power distance, individualism, and uncertainty avoidance, but only medium on masculinity. The “Germanics”, in his model, scored low on power distance, medium on individualism, and high on uncertainty avoidance and masculinity. The “Nordics” were characterised by Hofstede as ranking low on power distance and uncertainty avoidance, medium individualism, and low masculinity. Finally, the “Anglos” ranked low on power distance and uncertainty avoidance, but high on individualism and masculinity.

### Bank’s article “A Treasurer’s guide to shared services”[72], unlike many publications of its kind written by banks, also addresses the human factor in shared services. It stated that generally, “the further south you go in Europe, the more reluctant people are to move home and family”. A warning comment highlighted that “existing staff were not necessarily suited to a new role demanding more initiative and analysis”. Thus, it hinted that the very different profile of a role in a shared service centre and/or Treasury centre was not comparable to that of a local position focused on routine. It arrived at the conclusion that “an open and receptive mind was needed to identify best practice wherever it may be found”, in an obvious contrast to the often encountered approach that “we have always done it this way”. There was another voice speaking from experience, which stressed the importance of considering cultural and individual backgrounds.

Literature on shared service stresses the importance of communication and cultural background. Schulman opens the chapter on communication by saying that it was “the most important single piece of any major business change implementation.”[73] Quinn states that it was “important to deal sensitively with issues of culture and language.”[74]

Training people is sometimes viewed as the key to managing the change of introducing a shared service centre, but one must remember that not everybody is ready to accept change in principle.[75]

Leadership of a European Treasury Centre must be viewed in the wider context of its overall objectives and considerations: Clearly, it must deliver first class Treasury services.[76] The environment of change requires active participation from the individual. Political pressure is, rightly or wrongly, on headcount, hence workload and time pressure will be high. The work is international by nature; hence sensitivity to cultural issues is necessary. Finally, the right individuals need to be motivated to cope with the pressure and uncertainty.

Bernard Taylor developed a model of organisational change where “truth, trust, love and collaboration” drive change.[77] His strategies are: stretch goals, future vision, lean organisation, new culture, world class, performance management, total innovation, and partnership and networks. Taylor’s ideas sound pleasant and are difficult to criticise, save perhaps for their lack of consideration for the dark side of human nature, commonly referred to as “office politics”.

Eccles developed his “readiness for change” analysis, in which he presented four main categories of factors behind successful organisational change:[78] Purpose and initiative, concordance and trust, leadership, capabilities and structure, and building on action and success.

Peter Drucker lists four “simple things” that all effective leaders have in common: They have followers, his or her followers do the right things, they are highly visible, and see leadership not as a privilege or title but as a responsibility.[79]

The answer which management theory provides to the research question is that it requires a lot from an organisation when it comes to leading people in an international environment. The demand for leaders who communicate openly, empower their people, stress goals to be achieved is omnipresent. As Schulman appropriately put it, “Business really is a team sport rather than a series of individual efforts.”[80] This and the need to consider national cultures and their impact on business, particularly in a European context, are the two key messages from the review of literature in this field for the purpose of the European Treasury project.

4.3. Literature on Change management and corporate culture

The research question regarding change management and corporate culture is, how should the project team go about introducing change to the organisation in order to make the project succeed? Extensive research has been undertaken in this field for a long time, and therefore, a wide range of literature is available. This project concentrates on a few leading authors who are regularly referred to in management literature.

Edgar Schein states that the concept of culture “has been the subject of considerable academic debate, […] and there are various approaches of defining […] culture”.[81] He then continues listing “certain things in groups [which] are shared or held in common” which are associated with culture, such as behavioural regularities, group norms, rules of the game, climate, and habits of thinking.[82] Whilst the definition of corporate culture appears to be difficult, the message from Schein’s work is that “culture” is there, evidencing itself in those ways, and must be considered when a project such as the shared service centre is undertaken. Schein promotes the idea of the “Learning culture”, whose challenge it is to “manag[e] the contradictions of stability, learning, and change”.[83]

“Change is a process”, writes Schulman, adding that “it [was] often the largest jeopardy to a shared service implementation project and [was] easily overlooked.” He believes that “resistance stemm[ed] from perceived loss – loss of the known and tried and loss of personal choice.” He recommends that in order to “minimise resistance, seek involvement of those affected by the change in determining how or if a change should happen.”[84]

Shared service centres and their establishment constitute one of the biggest changes in the working process of any company, hence the management of change as such, plays a crucial role in making that change a success. The two most common reasons for failure of shared service centres are believed to be not communicating with stakeholders early enough, and underestimating the impact of shared services on the corporate culture[85]. So the focus would have to be on communication, with a view to getting all the various parts of the business to buy into and support the idea of a shared service centre. As one author put it, “it’s vital to keep the ultimate objective in sharp focus from the outset.”[86] The European Treasury Centre must be viewed in this context as an inseparable part of the shared service centre, as the need to create it was only born as the need of the shared service centre for adequate and central Treasury support was identified.[87]

Shared service centres are viewed as a step in a process of continuous evolution,[88] which had started in the early 1980s. It is said that an iterative change process started by simplifying business processes on a country by country basis, with an aim to “do things better”. Then, international standardisation would follow, aiming at making things as similar as possible across countries. Following that, establishing a shared service centre would be the logical consequence, in order to bring together resources and processes to achieve economies of scale.[89] One has to realise at this stage that Kellogg’s aim was to take all those three steps at once, in one single project. All that in a company that was not used to seeing its business model challenged. On the one hand, it could result in achieving a true quantum leap in operating effectiveness and efficiency if it all worked out. On the other hand, the challenge to deliver was even greater than in the typical environment.

Some recent publications even advocate the outsourcing of Treasury, arguing that most companies did not properly account for the “real” cost of running Treasury and its systems.[90] Yet few organisations have so far decided to go down that route, and it remains to be seen whether outsourcing will become a mainstream way of running a Corporate Treasury.

A prerequisite to enable change was once described as “the same two things all vehicles need: a person in the driver’s seat and a source of power. [...] Thus, the first step in change mastery is, understanding how individuals can exert leverage in an organisation [...]. Getting a [...] new idea through the system [...] is the way in which corporate citizens [...] make a difference for their organisation.”[91] Kanter’s rejection of traditional, segmentalist structures of organisations and promoting an innovative, integrative approach is similar to the idea of Bennis’ earlier ideas of adaptive structures. Bennis[92] claims that “bureaucratic structures cannot cope with: rapid and unpredictable change, the increasing complexity of modern organisations, diversity of specialist expertise [...], and a humanistic, participative management styles”. Alvin Toffler[93] believed that there was a limit to the amount of change that humans can handle, and argued that “we induce shattering stress and disorientation in individuals by subjecting them to too much change in too short a time.” To summarise, change in itself must be anticipated as being a very hard exercise, as it introduces uncertainty and stress to the life of employees. Getting buy-in from the organisation is to be obtained by communicating very clearly as to why a change is undertaken, what it is expected to lead to, how the individual fits into the project and the working methods, and what the future state is likely to look like. At the same time, it is crucial to manage expectations on all levels, otherwise people will get disheartened when they feel that objectives have not been achieved.

The concept of corporate culture deserves a mention in this context. “Corporate culture”, though difficult to define, is to be understood in this context as the pattern of basic assumptions that a corporate has developed in learning to cope with its problems.[94] Peters and Waterman[95] highlighted the potential impact that values can have on organisational success. They referred to the economic success of Japanese companies, which appeared to establish co-operative, team-based cultures, concluding that the culture itself had contributed to their long-term success in business around the world. Peters and Waterman identified the “product champion” as the real driver of the business, an individual who believes so strongly in an idea that he or she will take it on himself or herself “to damn the bureaucracy and manoeuvre their projects through the system…”.[96] They quote many companies where the key to success is believed to lie in the fact that they treated “people as adults, […] as partners, […] with dignity [and…] with respect.”[97]

Kellogg’s previous business culture of local autonomy and continuity stood in sharp contrast to the corporate culture and individual approaches needed to make the business reengineering process a success. Kellogg’s rightly concluded that new faces were needed to drive and implement the change, and consequently hired a whole European management team in summer 1996.[98]

5. Methodology

Having undertaken literary research on all relevant aspects of a European Treasury project, the next logical step is to define the procedure, which it is to follow. No reference will be made to the Kellogg’s case in this chapter, as the following chapter will deal with the application of the methodology to Kellogg’s European Treasury. The assumption is that there is no structure to draw upon at the outset. Staff have yet to be hired or appointed, systems to be selected and implemented, procedures to be defined.

A European Treasury project can, at the outset, be divided into five key deliverables:[99]

- A business case for the European Treasury Centre
- Selection of the pan-European cash management bank
- Selection of the Treasury workstation
- People design
- Process design

The four key elements of the project have to be seen in conjunction with each other. Choosing to purchase and implement a Treasury Management system forces the corporate to review all Treasury activities with an open mind, as it is important to thoroughly understand one’s needs and requirements before making the right choice. Treasury Management system vendors are often expected to contribute to the business re-engineering process.[100]

5.1. The Business Case

To begin with, there ought to be a clear rationale for establishing European Treasury as a centrally managed, shared service function, one that is in line with the company’s overall strategy.[101] Some strategic considerations for a European Treasury include:

- Moving to a European organisation and a European shared services centre
- Moving away from a business model with completely autonomous business units to one where common activities are consolidated
- A deliberate attempt to reduce power of business unit heads
- An effort to gain control of bank fees and interest expenses

The Treasury function of a US corporate in Europe, operating as a shared service function, is tactical in nature. It is a necessity, and doing it well helps support the corporate strategy. However, European Treasury in itself is not strategic. Though it is tactical, Treasury needs to be done well in order to increase the company’s ability to meet its strategic goals.[102]

The business case is developed in three stages: Fact gathering, benchmarking, and interpretation of the results. Throughout the business case analysis, the effort should be self-funding, and pay back of implementation costs should occur within a few years.[103]

The starting point would be a comparison between the status quo, and the desired future state, the so-called to-be state.[104] This allows the gap between the performance in the as-is state and the desired performance to be measured, the so-called gap analysis. Then, to contrast and justify the required budget, an assessment is to be made of the quantitative and qualitative benefits. For that purpose, there is a need for both summary and process facts about the company. Summary facts include headcount, number of sites. Process facts include a detailed review of process costs and headcount, as well as determining which processes are to be carried out by which individual.[105]

Quantitative benefits could be categorised as follows:

- Savings from internal offsets of financial positions, such as positive and negative liquidity and opposite foreign exchange positions. These could be realised by suitable measures, e.g. cash pooling arrangements.[106]
- Savings from greater purchasing power in the banking market, such as lower bank fees and savings on float.
- Savings from more professional Treasury management, such as gains from competitive bidding and access to a larger market. There may be a net headcount reduction overall in centralising the function if local positions are gradually eliminated. However, it should always be noted that the goal is not to reduce headcount, but to reduce cost per activity.[107]

A fair assessment of each of these items is to be made when preparing a case for a European Treasury function. The underlying parameters have already been researched for various other purposes, so it seems logical to use them for as many purposes as possible.

Qualitative benefits, often referred to as intangible benefits, are those benefits where there is no immediate financial gain to the company. Such benefits are sometimes referred to as long-term benefits as opposed to immediate benefits, a distinction, which assumes that all qualitative benefits will lead to gains over time.[108]

Qualitative benefits can be:[109]

- Faster flow of information to management, coupled with improved accuracy and consistency
- Higher quality information to management beyond typical financial reports,
- Treasury expertise from highly qualified Treasury professionals
- Promoting the “one company” approach
- Enabling the effective maintenance of standard transaction processes

In order to know the benefits that the Treasury function achieves, it is critical to establish appropriate metrics to establish performance. These metrics must be visible and transparent, include qualitative performance as well as hard numbers. The latter can be cycle times to turn around particular processes, business volume supported per employee, error ratios, reporting speed and accuracy.

The business case should then lead to a budget for the implementation of the European Treasury Centre to be approved, which would consist of:

- Permanent positions to be filled, including transaction costs such as recruiters’ fees, relocation cost, staff overheads and other benefits.
- Contractors’ charges for temporary staff required for the project
- System cost, including purchases of a Treasury Management system and possibly a Treasury information system, plus maintenance and training fees, and additional charges for bespoke work.

5.2. Selecting the Pan-European cash management bank

The Pan-European cash management bank is the key to streamlining of transactions, and is now a mainstream element of centrally managed European Treasuries. It is conducted by undertaking the following process steps:[110]

- Gather major requirements in the context of the overall objectives and considerations of the shared service centre
- Use findings from literature review and market research for initial working list of potential banks
- Approach those banks with a request for information
- Gather feedback, and establish a shortlist of potential banking partners
- Determine detailed requirements for the pan-European cash management bank, and attend package demonstrations at suitable venues
- Validate the respective bank and their service offer against requirements
- Assess banks’ quality and requirement gaps
- Obtain formal proposals from shortlisted banks
- Conduct reference site visits of shortlisted banks’ active clients
- Evaluate the full profile of banks service by a number of parameters
- Finally, formally select the pan-European cash management bank

It is assumed that the total number of international cash management banks was and is small, and that their names could be picked from available sources.

Next, it seems fair to assume that the initial feedback received would lead to the exclusion of a number of banks who had been approached, as the service offered did not meet the company’s requirements. It is considered more effective to initially filter out less suitable banks, and hold more in-depth meetings only with those shortlisted, because this step is relatively time-consuming. The full evaluation process following the formal request for proposal is expected to be far more detailed, time consuming and in depth than the earlier information gathering. Based on those findings, the formal request for information can be composed.

The request for proposal (“RFP”) is to be sent out to the shortlisted banks, allowing them reasonable time to complete their final response. These responses will then be used by the project team as a basis for a formal evaluation and ranking of the banks item by item, in order to create a fair, comprehensive and credible assessment of the various banks. The ultimate deliverable of this process would be a recommendation to management of the most appropriate single bank in Europe.

The relevant decision-makers at the company would then formally appoint their pan-European cash management bank.

Once the single bank was selected, there would have to be an implementation process along the following milestones:

- Agree to and sign all required legal documentation for the opening of accounts, and all bank products needed
- Open accounts, install the electronic banking (“EB”) system, and interface it with legacy banks for account information purposes
- Build interfaces with Treasury Management system
- Install structured payment and receipt products from the bank. Test
- Gradually migrate from legacy systems to the new system and bank

5.3. Selecting the Treasury Management System

The selection of the Treasury workstation is a similar task to that of selecting the pan-European cash management bank. However, a few differences in the nature of the selection process and the company’s approach should be noted:[111]

- The Treasury Management system is to be used only by the Treasury function itself, but unlike the single bank it is not primarily a tool for the shared service centre[112]
- The small number of users, and the relatively small size of the package itself, means that very little input from the IT function is required, and that IT management itself is not to be part of the decision process
- Corporate Treasury in the US would naturally be involved. There might be an opportunity for system integration within the Treasury function on group and area level
- Treasury software vendors, in contrast to banks, would have no other potential business with the company. There would be no relationship issue with rejected vendors post selection. Yet the vendor of the Treasury Management system would become a long-term, strategic business partner[113]
- Most critical parameters in the selection process are either known facts, or could be reasonably estimated
- Generic Treasury procedures are more standardised, and less industry or company specific, than transactions supported by the shared service centre
Having considered the issues listed above, a company may decide to simplify the steps in the selection process and to proceed as follows:[114]
- Gather detailed requirements for the Treasury workstation, including the number of legal entities to be supported, the types of deals to be done, and estimates for a shortlist of banks whose electronic banking system would be used and the likely volume of deals by deal type
- Use findings from literature review and market research for initial working list of potential system providers
- Approach those companies with a request for information. Be very specific as to the company’s requirements and what is expected from an operational TMS, as every Treasury operation is unique[115]
- Gather feedback, and establish a shortlist of potential system providers
- Assess vendors’ quality and requirement gaps (if any)
- Conduct reference site visits of shortlisted vendors’ active clients
- Evaluate the full profile of vendors’ systems and service by a number of parameters
- Finally, select the Treasury workstation

Once the Treasury workstation is selected, there would have to be an implementation process along the following milestones:[116]

- Agree to and sign all required legal documentation for the system, covering all modules and services chosen, as well as a service level agreement for after sales support.
- Build interfaces with Electronic Banking and Accounting system. Test in a controlled environment.
- Define and build management and other control reports.
- “Go live” using the Treasury management system as the centrepiece of the European Treasury function.

5.4. People design

People design, defining roles and responsibilities in the European Treasury function was another key deliverable of the project team at an early stage. Milestones in this process are a draft organisation chart of the Treasury function, a breakdown of responsibilities, and full job descriptions for all positions.

The process for people design is as follows:

- Gather all high level tasks of the European Treasury centre
- Break those tasks down into procedures
- Estimate the relative amount of time each of those procedures should take, and also the skill set required to carry them out
- Model those tasks and procedures into individual jobs by ranking them by level and type of skill required and then assign them to jobs of different profiles. Each of these jobs should carry an estimate of 100% of relative time spent on the tasks assigned
- Develop profiles of the ideal individual who would be capable of carrying them out. Make reasonable estimates of the market value of such a person, and find the most suitable level in the corporate hierarchy for that position

A final step would be to review the outcome with recruitment experts to see how they fit the real labour market. It might be necessary to add or remove responsibilities to make a position more suitable to the type of individual who would be targeted. Also, the gap in seniority between the positions identified would have to be right for the long-term development of the future incumbents.

However, there may be situations where integrating existing staff into European Treasury would be a management objective. In this case, the latter two steps would change to fit tasks identified with existing individual profiles. It is possible that the profiles would not match the tasks in all cases, and/or that requirement gaps are identified, given that the skill set required for European Treasury is very specialised. There are now service providers who offer just that missing element of Treasury expertise to companies who wish to outsource Treasury work they believe they can do better.[117]

5.5. Process design

The starting point would be for the company to summarise on a high level the goals and objectives of their individual European Treasury function.

For a European Treasury function, they are likely to include[118]:

- Centralised Banking, Cash Management, and Foreign Exchange risk management
- Enhanced financial decision support provided at both local and area levels

The next step would be to break down every individual task of the European Treasury function (e.g. “cash management” or “reporting”) and build a process model for the optimum way of performing that very task in the given context of the company’s goals and policies. The decision parameters depend on those policies, and what value the company places on an individual objective, to define what would be the right way of dealing with a particular task in a particular company. This project does not aim to present generally valid rules for that decision-making process, and will merely present the Kellogg case as an example.

Once the various objectives are translated into agreed processes, these need to be broken down further into process maps showing each individual step necessary to perform the task, the timing and frequency of it, and the roles and responsibilities of those involved. A structured presentation of the findings in the form of diagrams or flow charts is highly desirable.

Finally, the process map needs to be translated into an operation manual describing every task to be undertaken with the highest possible level of detail. In particular, it may be extremely valuable to include instructions on how to use the respective Treasury systems in the process, down to keystroke level of detail.

5.6. Project Management

The implementation of the European Treasury Centre, once approved, must be seen as a complex project for which dedicated resources are required. The individual tasks to be managed have been outlined in this chapter as part of the methodology of building the business case, selecting the bank and the Treasury workstation, and creating the people and process design.[119] Resources consist, above all, of a project manager, and probably additional resources to carry out the actual work. The structure of the project, and the project team, is likely to reflect that of the corporate itself, and will probably be just as hierarchical.[120] Planning the European Treasury project is no different to planning other elements of shared services, and will be concerned with targets, scope, and resources. Targets are best subdivided into intermediate targets and milestones, in order to break the whole task down into bite-sized pieces.[121]

Lastly, a phase-in plan is to be developed. A “Big Bang”-approach is rare in shared services, and would delay achieving the desired benefits. There are different ways of phasing in the European Treasury function. One is to phase it in by process, another is to implement it country by country.[122]

6. Building the Business Model

This chapter will discuss the application of the methodology to Kellogg’s European Treasury project. It will draw on the procedures defined in the previous chapter, and critically appraise the actual proceedings. The first step to building the business model for the European Treasury function is to summarise the findings from research and analysis, as outlined in the previous chapter, on a high level. Then, a conceptual framework can be built from the conclusions, also weighing up competing objectives and priorities.

At the outset, an attempt was made to forecast, and budget for, the human resources required for the various elements of the European Treasury project. Long and complex analysis was undertaken to estimate the timing and workload involved.[123]

It later proved to be relatively accurate as far as the relative time spent on the individual tasks was concerned. However, as with every ambitious project, the European Treasury project slightly exceeded its timing and need for resources.

6.1. The Business Case

The actual business case for Kellogg’s European Treasury Centre was simply an absolute requirement of the shared service centre to have a Treasury facilitator.[124] In this rather unusual environment, management approval was given for

- A full time European Treasury Manager
- A project team of up to three management consultants
- A budget for Treasury systems and related cost

before the above-mentioned project even started. Therefore, the European Treasurer created the business case after he had been hired. Typically, the business case should be the core argument in justifying a budget, be it for one-off expenses or for permanent expenses such as approved headcount. Then, the business case would contrast the initial and ongoing cost with both the quantitative and qualitative benefits achieved.

A key question that needs to be answered at the outset is whether the European Treasury Centre is expected to be a cost centre, or a profit centre. The very different nature of the two approaches means that a business case will be driven by the fundamental approach the company takes.

If the ETC was expected to be a profit centre, then the business case would focus on showing[125]

- the payback period required to earn the initial investment
- the ongoing expected earnings, in absolute and relative terms, e.g. return on investment
- and their presentation in the business context, e.g. as a percentage of assets employed, or broken down by headcount
- finally, critical factors should be included which may drive the profitability of the ETC in a given context, e.g. interest levels or exchange rates.[126]

In Kellogg’s case, however, the ETC was expected to be a mere cost centre from the outset. Therefore, the approach of the business case was to

- calculate the initial set up cost of the ETC. This consisted of consulting fees attributable, salary and overheads and related cost of the European Treasurer during the project period, and actual or budgeted Treasury systems cost[127]
- calculate the ongoing cost of the ETC once it was fully operational. The running cost consisted mainly of salaries of the three full-time employees plus related overheads, and a smaller element of system cost for maintenance, upgrades and development[128]
- and contrast the findings with quantifiable benefits, which consisted of interest optimisation[129], expected savings in bank fees[130], and incremental earnings from competitive bidding of various banks.[131]
- leading to the net cost of the ETC[132]

Having established that, the business case described the qualitative benefits that were achieved. Qualitative benefits could be summarised by the availability of a professional Treasury function, and improvements in the quality and speed of availability of Treasury reporting.[133]

6.2. The pan-European cash management bank

The first and biggest milestone was the selection of the European cash management bank. It is important to bear in mind that Kellogg’s were looking for one bank to carry out all its transactions. For pure Treasury purposes, it would have been a selection of a cash management bank only, with little consideration of transactional ability.

The process started with an evaluation of the status quo in early summer 1996, when a Treasury team member visited all European Kellogg locations, and interviewed local Finance Directors and their staff. The deliverable was to capture, summarise and structure all information on banking services required by the units, given their business profile. A document was produced detailing all bank accounts, numbers, methods and sizes of all payments in and out, and banks currently used, for every European subsidiary.[134] It was to form the basis of the European banking tender in so far as it defined and quantified Kellogg’s transactional expectations of a European cash management bank.[135]

Then, the newly created tender document was sent out initially to the following banks: #### ## #######, ###### ######### ## #####, ########, ##### ####, ######## ####, ### #### ####, ####### ####[136], ### ####### ########, as a request for information[137]. The purpose was to get an overview of the level of service those banks could really provide, and also to test their level of interest in potentially bidding for this business. The response turned out to be varied. Citibank and Bank A### responded very strongly, sending back detailed responses claiming full ability to cover everything Kellogg’s were looking for, and followed up with regular phone calls from dedicated account managers. ### Bank showed some interest, while the others mainly returned brochures on their services and ticked boxes on the attached questionnaires. Attempts by the project team to call those banks to clarify details and obtain more information were disappointing. In one case, callers were given a phone number in the US and asked to cold call there, in other cases, messages were left and simply never returned. The project team concluded that the interest of those banks in bidding for Kellogg’s European cash management was obviously very limited, and decided not to take matters any further with those banks. The two banks who were invited to prepare a full business proposal were Bank A###[138] and Citibank.[139]

Of those two banks, Citibank quickly emerged as the stronger bidder, as they were able to cover all of the 15 countries which Kellogg’s wished to support from the Shared Service Centre, while Bank A### had to rely on correspondence banks in four countries.[140] This in itself was considered a major drawback for Bank A###, as inevitably workarounds would have had to have been established for operations in those countries. The project team was very concerned that this was precisely what it was trying so hard to avoid: non-streamlined processes, and lack of integration of parts of the business. It was clear that no matter how small the respective markets might have been, the fact that separate procedures would have been necessary to support them, meant that a key benefit of having the pan-European cash management bank would not have been realised. Other US corporates with a different geographical spread of their activities may not rank this aspect as highly, or may decide that they could live with immaterial shortcomings. However, this key aspect of the selection must be studied carefully.

Citibank also offered more structured cash management and transaction execution products, which allowed the shared service centre to gain control over payments and receipts from a single location for the whole of Europe. As this project is about the Treasury aspects of shared services, only a few key examples shall be listed:

Citibank offered a lockbox service covering the whole of Europe, but with central execution in London.[141] The idea was that cheques received would be collected in a domestic post office box in the name of Kellogg’s which would be emptied by a courier every day on behalf of Citibank.[142] Yet customers would not have any knowledge of this arrangement, as the post office box was in Kellogg’s name, so no adverse impact on customer relationships was to be expected from that side.[143]

On the payment side, Citibank was the only bank who could credibly claim a payment competence through their branch network, named “IMP – International Mass Payments”.[144] The key point about IMP is that a single payment file, containing all payments created by the shared service centre, would be sent to the bank, and then be broken up at the bank internally, and sent to the various countries and payment channels.[145]

Lastly, a facility named “WorldLink” offered by Citibank enabled Kellogg’s to issue remote cheques across Europe electronically out of Manchester.[146] The working principle was that a single file would be sent to the bank, and be allocated internally there. Then, the bank would mail the cheques out to the respective beneficiaries, saving Kellogg’s the related administrative work. Again, those issues were important for Kellogg’s but they would not be critical for companies who chose to use the pan-European bank only as a cash management overlay bank. Furthermore, unlike Kellogg’s who had no strong bank relationships in Europe when the decision was made, other companies may be closer to a particular bank already, and receive much stronger feedback and greater interest from them. In any case, a US corporate looking for a pan-European cash management bank, would have to go through the same selection process itself. Corporates should bear in mind, however, that the banking industry is in the process of consolidation.[147] Therefore, it is advisable to pick a strong player, who is unlikely to be taken over, thus eventually providing a declining level of service.

6.3. The Treasury Management System

The selection of the Treasury Management System (“TMS”) for Kellogg Europe was, again, different to what it may have been, or what it would now be for another corporate. The overall requirement can be defined by a system that gives the company timely and accurate information that allows the corporate to evaluate its position at all times.[148] Corporate Treasury in the US already used a Treasury Management System, which was provided by XRT. XRT[149] had been implemented at corporate head office for some time, but was stand-alone for limited purposes. Kellogg’s corporate Treasury was close to XRT, and made them aware of the project in Europe which included the selection of a TMS.[150]

In the meantime, the European Treasury project team in Manchester had established a shortlist of four mainstream TMS from European vendors.

The fact that the TMS was to be used to support a shared service centre was critical in so far as it put the emphasis for the selection on integration and reporting. Key elements of the information requests were the possible integration with the pan-European cash management bank, as well as the ORACLE general ledger accounting package, and the overall reporting ability to suit the needs of a European management team and local units.[151]

Systems integration was, therefore, identified as the key point in selecting a TMS:[152] Interfacing results in relatively few and disconnected interactions between systems, such as passing a payment file to the bank. But true integration occurs only when the systems interact to ensure an end-to-end process. In other words, the payment isn’t complete until a confirmation of the debit is received by the accounting system, and the whole process is designed with that end in view.[153] This aspect will be of great interest to all US corporates in Europe, as their shared service centres will have the same requirements.

Kellogg’s decided to change direction in the selection process and benchmark XRT against one major European competitor, in order to assess and qualify any shortcomings that XRT might still have had in a European environment. The benchmark chosen was Richmond Software, who were looking good on the existing shortlist, but had so far not been fully assessed against any one of their peers.

XRT and Richmond Software were then compared to each other in great detail, and Richmond Software was considered the better choice, although XRT was considered in its ability to meet the absolute requirements that the project team had identified. Richmond were a strong home player in the European market, with numerous successful installations. Their system was designed for European formats and standards, and would not require any bespoke work. Yet it was also thought that given a strong commitment from XRT, the company could probably catch up with European providers over time, and that it was beneficial to have the same system in both corporate head office and the European area centre.

Kellogg’s decided to invite both TMS providers for a bid for not only the European TMS, but for the one at corporate head office as well, saying that it would change it if required. The assessment of the two systems also included visits to, or telephone interviews with, reference clients.[154] After intense negotiations, Kellogg’s decided to buy two installations from Richmond Software.[155]

If a US corporate in Europe were to select a TMS today, it would face a much more mature and developed market place than Kellogg’s did in 1996. It can be stated that from today’s point of view, a number of mainstream systems would all be capable of supporting the needs of a European Treasury Centre in very similar ways. Notwithstanding this, it would be beneficial to explore reference customers who use the same bank and accounting system, in order to assess how well the systems work together.

More recently, web-based solutions are being offered by Treasury Management system providers, claiming their key advantage is their ability to be accessed from – theoretically - anywhere.[156] Yet the same providers say that so far the majority of corporate Treasuries rely on mainstream, client server installations.[157]

6.4. People design

The first step in addressing people design was to summarise the deliverables and objectives of the ETC, and to then translate them into regular tasks. Estimates on the average time to be spent carrying them out had to follow, then the emerging tasks had to be ranked by the level and type of skill required to carry them out. Finally, they were to be grouped together as such that they were spread out amongst the number of individuals assigned to those tasks.

The tasks required to run the ETC could be broken down into the following three categories:

- Managerial, high level tasks, such as representation of the Treasury function internally and externally, overall responsibility and accountability of the function as such, advising senior management on funding, business development and strategic foreign exchange, and general leadership of the various Treasury processes.[158]
- Analytical tasks, such as cash flow forecasting, management reporting on Treasury issues, evaluating, and quantifying and monitoring foreign exchange exposures.[159]
- Operational tasks, such as daily cash management, ongoing maintenance and development of the Treasury systems and interfaces, day to day FX dealing, and resolution of technical and practical issues with banks.[160]

It is fair to assume that the above profile of tasks in a ETC of a US multinational corporate in Europe is very typical, though the relative time spent on the individual tasks may vary. More recently, outsourcing of Treasury activities has become more popular, particularly in situations where resources are a constraint.[161]

It became obvious that the various tasks required three full time individuals in front office, one of whom would be a manager and the other two would be Treasury Analysts on slightly different levels. Furthermore, the manager’s position was expected to change in profile, as the project situation described here would eventually come to an end, and the managerial role would change to one of routine management and maintenance. Therefore, it was considered that the Senior Treasury Analyst should have a profile that would allow him to develop into a credible candidate for the manager’s position after the project was over. The envisaged time frame for the project of two to three years was broadly in line with the time that a US corporate expected a manager to stay in any one position, so it seemed logical to enable him to smoothly move on after completion of the project.[162]

The position of the European Treasurer had already been filled. The successful candidate came from a corporate Treasury function of a German multinational company, after having completed a British and German degree in European Finance and Accounting as well as a traineeship in commercial banking. He was then to find a Senior Analyst reporting into him, with a view to developing that person into a potential successor within two years. In short, he was looking for a younger version of himself. He approached several known recruitment agencies in London on the matter, and awaited their suggestions.[163] The responses were weak: Some candidates were Finance professionals or traders based in the city, with no language skills and no real international background, looking for a career move. Others were Finance professionals or auditors from big corporates or audit firms from Europe, with language skills, but without any Treasury experience.[164] All candidates found relocating to Manchester a big obstacle, partly because of a perceived lack of career opportunities for their spouses, partly because they felt that the next career move would entail relocating again.[165] Conversations with other European Treasurers of US companies in the London area revealed that whilst they found it less difficult to attract international people, they still found themselves relying largely on British staff.[166] The successful candidate was ### ##################### ######################## ##################### ######### ### ######### ############### ############ ###### ############################## ###### ############################## ###############, ############### ################## ################## ######### ######################## ###### ##############################. ###### ############### #####################, ############### ######### ##################, ############ ### ############ ##################### ###### ##################. He agreed to move to Manchester and turned out to be a most valuable resource.

The more junior Treasury Analyst was an internal recruit. She was #####################, ############ ##############################, ######### ### ############ ########################### ############################## ######### ######### ############ ###### ##################### ##################### ############ ######### ######################## ###############. ################## ######### ############ ###### ######################## ############### ######### ############################## ### ####################################, ###### ######### ### ############### ######### ######### ######### ######################## ########################### in return for quick approval on this full-time, permanent position.[167] The team structure that emerged, considering also the segregation of duty between front office and back office, was as follows:[168]

illustration not visible in this excerpt

In order to complete the people design, it is also relevant to present a summary of the tasks of the back office, reporting into the chief accountant. As such, the back office is merely a reengineered, previously existing function but with more clearly defined responsibilities.[169]

6.5. Process Design

In the given context of a shared service centre to be supported, and particularly the ongoing reengineering of all Finance processes in general, it is obvious that process design for the European Treasury centre was to follow the same principle.[170] The most important principle to be followed is the idea of fitting processes around existing systems, rather than developing processes first, and then trying to build or adapt one’s systems to suit those processes. This most important overriding principle will be the starting point for process design.

Developing process design for a European Treasury function will be very different depending on the type of activity. There are relatively high level processes, which do not lend themselves to a formal definition, and there are routine tasks, usually around Treasury systems, which do require a very careful description of every step. The way process design is undertaken relates closely to general objectives and considerations of change management. Process design can – and should – demonstrate how thoughtful change is being brought about, the purpose of change and the business rationale behind it, and document precisely how things are going to work in future.[171] In doing so, it would have to bear in mind the overriding objectives of the bigger project.[172]

Using the high level objectives for Kellogg’s European Treasury Centre, the next step is to turn them into distinctive tasks to be carried out on a regular basis, then break them down further into sub-processes. High level tasks, and tasks which are not suitable for standardisation, have been left out. At this point, other US corporates will probably identify different tasks, or have a different focus, so the following analysis of what was right for Kellogg’s can only serve as an example.

Top level deliverables are:[173]

- Manage cash on a pan-European basis every day
- Manage FX as and when required
- Carry out the Netting process every month
- Support the single bank structure, incl. relevant systems, in the shared service centre
- Report to local and European management on a regular basis on Treasury activity

Showing the entire process of all Treasury activities would be outside the scope of this paper, therefore, examples will be given for individual sub-activities. The next level of detail for the cash management process, for example, would be:[174]

- Gather information on liquidity in all entities and banks
- Incorporate available information on the day’s payments and receipts
- Identify surplus and deficit positions, move funds to eliminate them
- Analyse liquidity, identify net borrowing or investment requirement for the day, by currency
- Identify requirement for FX dealing (if any)
- Identify optimum money market and/or FX trades to settle the day’s cash position
- Bid banks for those deals, contract with strongest bidder
- Capture deals in TMS
- Back office: verify and authorise transactions, confirm with banks
- Produce deal confirmations
- Settle deal

Then, those sub-tasks can be further divided into individual, practical steps to be undertaken. Where Treasury systems are involved, it is important to detail down to keystroke level which steps have to be followed. Those conclusions should then be defined in a procedure manual. An extract of the cash management section of Kellogg’s Treasury procedure manual is shown in Appendix 1.[175]

Finally, the procedure manual is to be printed off, and distributed to all team members. It is desirable to have a communications meeting, where the above-mentioned process is described, in order to give team members an understanding and appreciation of why the processes are what they are, the goals and objectives that led to the definition of Treasury processes. The communication process may have to be repeated regularly, as and when new team members come on board, or when system upgrades or changes in the environment bring about adjustments to Treasury processes.[176]

Communication also needs to be undertaken with management on area or business unit level. A service level agreement should be drawn up in co-operation and in agreement with the business units, which clearly defines what service the European Treasury function provides to the units.[177] It can be used as a benchmark for future service reviews.

6.6. Project Management

Kellogg’s had a dedicated project manager for the European Treasury project right from the start, plus two further Treasury team members who all came from the same consultancy that supported the Financial Service Centre. With hindsight, it was beneficial to have external project managers whose interest was in the project itself, and who would leave at the end. As for the other team members, another option may have been to hire two permanent Kellogg-staff, who would then become the two Treasury Analysts in front office. That way, a lot more of the know-how gained on the project could have been retained in-house.

The team decided to implement the European Treasury Centre country by country. It started with the easiest one, the UK, and used it as a pilot. With the business on site, it proved to be a manageable task addressing those issues that emerged after “going live”. The other countries were then brought on board one by one. The approach proved successful because the scope at any time was limited to only one country, which then got the team’s full attention. Further countries were addressed only after the processes in supporting the previous ones were satisfactory. This approach can be considered a model for other corporates.

7. Conclusion

The conclusion of this paper shall structure, discuss and contrast the findings already described and aims to provide a general guideline for US corporates and their European Treasury operations.

7.1. Key drivers of European Treasury

Centralisation of the European Treasury function is not only possible, but in the current competitive environment, imperative. Significant cost savings can be expected,[178] but more importantly, the quality of management information on Treasury matters, and the quality of Treasury support to management will make a quantum leap. It seems surprising that Treasury barely gets a mention in literature on shared services, given that Kellogg’s project demonstrated just how well the Treasury function is suited to being consolidated in a shared service centre.

Efficiency and automation are the key. The increasingly wide range of functions and the changing role of the corporate Treasurer and Treasury has meant increasing transaction volumes and complexity, which cannot be handled by traditional manual and semi-automated systems that require a great deal of human intervention and input. It is therefore logical that treasury management systems have evolved in automating many treasury activities and in removing human inefficiencies from treasury processes.[179]

Staffing the European Treasury function remains a critical issue. Experience shows that talents who are graduates, Treasury professionals, multilingual, internationally orientated, mobile, flexible, and systems literate are few and far between.[180] Any US corporate would be wise to attract suitable individuals of the right calibre early, and develop them for future responsibilities in Treasury.

Consolidating the banking structure into one pan-European cash management bank, with or without a few additional banks to cover operational requirements, is an important element of an efficient Treasury centre. It facilitates the building of a single channel of access to financial transactions and information via a single electronic banking system, which forms the external part of an integrated Treasury systems architecture. Furthermore, it is a move ahead of the banking industry, which is in the process of consolidating, and leaves the company with a partner that it has carefully chosen, rather than ending up working with an organisation that happened to emerge out of the restructuring of its existing banking partners.[181]

Lastly, outsourcing of particular, clearly defined elements of Treasury may be an option for some companies.[182] It is, however, too complex a question and too new a subject to make a general statement about outsourcing.

In a changing world, the European Treasury function could be the catalyst of change, spearheading moves towards more automation, centralisation, and systems integration. It could be a role model for the organisation, leading the way and providing first hand experience and know-how to the business.

The consumer goods industry has seen accelerated changes over the last few years, as increased competition forces consolidation in traditional markets, and US corporates in the fast moving consumer goods (“FMCG”) sector are typical examples. A number of external factors, all of which affect companies at the same time, are changing the competitive market place:[183]

- The role of financial management is increasing in importance and sophistication. Gone are the days when FMCG companies were primarily ‘cash cows.’ These companies are now focusing more on their bottom line and paying more attention to issues such as cash flow, accurate costing, and the links between finance and marketing.
- Growing competition and declining margins means that increasing financial sophistication in brand management is now a necessity, not a luxury.
- Technological developments enable companies to centralise business functions, and manage them out of a single location.
- Increasing integration of European markets, most importantly the introduction of the single currency, accelerate the development of Europe into one market place with several regions.
- However, this process remains plagued with deviating legal frameworks regarding cash management, taxation, and business law, which severely complicate matters.[184] US corporates, used to a truly single home market, face a particular challenge in understanding these issues.[185]

The industry itself has its own trends, which influence the design on the European Treasury function of a US company:

- Increased scope of treasury
- Greater variety of instruments
- Increased demand for system flexibility

No longer just the back end of trading functions, many modern treasuries now function as a sort of in-house bank. As companies have increasingly functioned on a global scale, whether because of expansion, M&A activity or simply easier access to global markets through the Internet, treasuries have become increasingly important to the actual bottom line of the business.

Thus, Treasury that once focused primarily on cash management must now be prepared to handle all levels of foreign exchange. Furthermore, FAS 133 has introduced an entirely new challenge to North American treasurers, and the roll out of the Euro has impacted treasurers worldwide.[186]

Some people even go as far as talking about a “Third Age” of Treasury and cash management, comparing the latest developments to the initial introduction of computers in the 1970s.[187]

7.2. A model for the implementation of a European Treasury Centre

The conclusion of this paper is a high-level, generic model to how a US corporate operating a shared service centre should build and implement a European Treasury Centre. The research and analysis undertaken in this project suggest the following approach:

1. Analyse the status quo. A thorough analysis of all Treasury related activities in all countries to be supported by the European Treasury Centre must be undertaken. This should cover bank relationships, cash management, systems, the structure of payments and receipts, and quantify the findings in as much detail as possible.
2. Build the business case. Management expect to understand the expected benefits before buying into the idea of a European Treasury Centre, and approving a budget for the expense. The business case should also appraise the possibility of outsourcing parts of the Treasury function.
3. Define Treasury vision. It is likely that senior management will be involved at this stage to support the overall direction of Treasury. The vision is likely to include the key elements of Kellogg’s vision, such as European Treasury as a central function, central cash and FX management, and a system-based solution with a single bank, or an overlay bank.
4. Build the Treasury team. It is likely to consist of one manager working for the company, plus probably some specialist contract resources, unless the resources are already available. It is important that the team members’ skills cover both generic Treasury management and project management. Consider particularly national culture in the business units and the company’s overall leadership style at this stage of the project.
5. Select the cash management bank and the Treasury workstation. Two separate selection projects need to be undertaken.
6. Design processes. After the bank and the Treasury workstation are selected, it is possible to define and illustrate process flows. The deliverable should be a procedure manual which illustrates the work on a high level, but also defines on keystroke level how exactly every step is to be undertaken.
7. Design permanent roles. At this stage, the various tasks of the Treasury function should be allocated to positions in a way that creates sensible roles, as a basis for management approval of such positions.
8. Finally, manage the change. Appoint a dedicated project manager whose task is to orchestrate the team efforts to make the European Treasury Centre a reality. Phase in country by country, starting with the easiest, and ensure that quick wins are picked up early. Approach business units in the countries in an appropriate manner, with regards to their cultural attitudes.

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“The Banker” magazine, August 1996 edition

“The Banker” magazine, July 1996 edition

Agenda to the 5th Annual International Cash and Treasury Management Conference by Eurofinance Ltd., Paris, October 1996

Agenda for 7th annual International Cash and Treasury Management conference, Barcelona, October 1998

Presentation material by Willem van Alphen at 7th annual International Cash and Treasury Management conference, Barcelona, October 1998, on “The role of the network bank in Euroland”.

“Single window to your local accounts and payments” by Willem van Alphen, published in Treasury Management International, 1998.

Presentation material at workshop “Treasury and shared service centres: a case study” by Amoco and Citibank held at 7th annual International Cash and Treasury Management conference, Barcelona, October 1998

Agenda to the conference “Treasury Systems 1999” by the Association of Corporate Treasurers, held 15/16 April 1999 in London

“The International Directory of Treasury Services” published by Treasury Management International, April 2001

“A Treasurer’s guide to shared services” by ### Bank, published in Treasury Management International, 1998

“Outsourcing Treasury – The way forward” by Martin Jaskel and Michael Roden, published in Treasury Management International, February 2000

“Treasury Systems”-presentation by Lesley Brown, Citibank, at the 3rd Treasurer’s Forum, London, 2001

“Choosing the right Treasury Management system” by Ricky Thirion, published by GT News, 1998

“Electronic Banking systems – From systems interfacing to systems integration” by Peter Green of Citibank, published in Treasury Management International, 1997

“A Treasurer’s guide to industry trends” by Citibank, published in Treasury Management International, 1998

“A Question of Trust” by Judith Cowan, published in Treasury Management International, November 2000

“Treasury and the Internet” by Charles Palmer, published in “A Treasurer’s guide to Technology” by Treasury Management International, 2001

“Working Capital Management”-presentation by Keith Glover, Citibank, at the 3rd Treasurer’s Forum 2001, London, 22/03/2001

“Responding to the needs and responsibilities of the board: The evolving role of the Treasurer in enterprise-wide risk” by Jan Haars at the 3rd Treasurer’s Forum, 22/03/2001

“Maximum result with minimum resources” by Paul-Henri Pion, published in Treasury Management International, February 2001

“Cash and Treasury Management: Advanced Strategies for North America and Europe”-presentation by Stephen Crompton, 3rd Treasurer’s Forum, 21/03/2001.

“Impacts of a merger on the Treasury function”, presentation by Erhard Wehlen, Treasurer of Linde AG, at the 3rd Treasurer’s Forum 2001, London, 21/03/2001

“We have come a long way” by Les Halpin of Integrity Solutions, published by GT News, 14/04/2000

“The Third Age of cash management” by Mark Taylor, Bank A###, published by Treasury Management International, 1998

Kellogg company documents

“Request for Proposal - Supply of European Banking Services” by Kellogg European Management Centre, 29/07/1996

“Current State Analysis – Cash and Treasury Management” by Kellogg European Management Centre, summer 1996

“Treasury Project – Software selection”, September 1996

“Opportunities for centralised cash management”, presentation by Christof Nelischer at the Eurofinance Annual Treasury conference in Barcelona, October 1998

Interviews

Senior Executives and product specialists of Citibank and Bank A###.

Treasurers of Reebok, Omnicom, Guinness, Bosch, English China Clays, Hewlett Packard, GKN, Avery Dennison

Bank documents

“Global Cash Management Service Proposal” by Citibank N.A., London, August 1996

“European cash management proposal” by Bank A###, London, August 1996

“Global Payment Solutions”-brochure by Citibank, 1996

Websites

http://www.hanseorga.de/

http://www.gtnews.com/articles3/2042.html

http://www.gtnews.com/articles3/2070.html

http://www.gtnews.com/articles5/3093.html

http://www.gtnews.com/articles4/2792.html

http://www.gtnews.com/articles3/1900.html

http://www.gtnews.com/systems/tmsdirectory/idx.html

http://www.actsa.org.za/articles/fjtarticlemay99.htm

http://fenews.com/1999/archives/99092501.htm

http://www.xrtcerg.com

http://www.amherstgroup.com/whatis.htm

http://www.amherstgroup.com/pdfs/RE2_1197..pdf

http://www.amherstgroup.com/pdfs/internalsupport.pdf

http://www.gtnews.com/articles5/3095.shtml

http://www.disruptive.com/en/us/products/applications/financials/treasmgmt/product_content.html

http://www.richsoft.co.uk/index.htm

http://www.beyers.be/products.htm

http://www.quantumtreasury.com/solutions_quantum.shtml

http://www.econintel.com/

http://www.xrt.com/index.htm

www.oracle.com

http://www.dresdner-bank.com/produkte/firmenkunden/office_banking/cash_management_4.html

http://www.cashmanagement.de/englisch/.

https://www.cariplo.it/HomeBanking/Index.htm

www.kellogg.com

Appendices

Appendix 1

Part 1: Cash Management

Procedure: Daily Cash Management

General

Introduction

The ETC manages the liquidity position of the entities of Kellogg’s Europe daily where appropriate, otherwise weekly, depending on volumes and turnover. Cash management decisions are based on a variety of information sources, mainly from the payables and receivables departments. The ETC invests surplus balances in instruments approved by corporate policy. For overdraft balances internal or external loans are arranged where required.

The ETC uses two systems as tools for cash management: Millennium as dealing system and Citibanking as cash management system (see Chapter # for a detailed description of both systems).

On a daily basis the download of the account statements is scheduled on Citibanking in the morning. This enables to consult the bank statements of the previous day for the Citibank accounts, as well as the non-Citibank accounts via a Citibanking application called Infopool.

On basis of the bank balances and other information, the investment/borrowing decisions are made: front-office inputs the deals in Millennium. Deposits, loans and FX-deals are negotiated by phone with the counterpart banks before input. Back-office verifies the deals and sends out the payment instructions, electronically via Citibanking or by fax.

Credit limit Citibank for Europe

A credit limit of ## mio USD has been negotiated with Citibank for all Citibank branches in Europe. This credit limit can be allocated over the different Citibank branches according to the needs of the local entities. The allocation is communicated via e-mail to the Citibank relationship associate/manager for Kellogg’s, and breaks down the credit limits in local currency per Citibank branch, so that the total equivalent USD amount does not exceed ## mio USD. Via e-mail to the Citibank relationship associate/manager, these credit limits can be reallocated as and when necessary. Contacts: Katie Maycock and Nick Ditchfield at Citibank London.

Payables information

The Purchase to Pay team provides Treasury Front office with payables information via cc-mail or telephone.

Cc-mails for IMP (International Mass Payments) payments (automated batch payments from Oracle AP system via Citibank network) contain details of low value clearing payments, WorldLink cheque payments and wire transfers, split up by currency.

The following table shows the processing cycles for the IMP low value clearing payments in the different countries.

illustration not visible in this excerpt

IMP WorldLink cheque payments are debited from the Kellogg’s account the day following confirmation by Citibank London of the IMP file.

IMP wire transfers (used for foreign currency payments) are debited from the Kellogg’s account # days after confirmation by Citibank London of the IMP file.

High-value payments are payments which are urgent or for which it is more beneficial to have them clear via the high value clearing system to obtain same day value payment on a specific date. Payment information is communicated by the Purchase to pay team to Front office in time, taking into account cut-off times of the Citibank branches (see Appendix I for cut-off times).

WorldLink cheque payments via Citibanking are debited from the Kellogg’s account the day following input (and close session) if before # p.m. On this day the cheque is sent out to the beneficiary.

For direct debits and standing orders, the Purchase to Pay team will notify the Front office on a monthly basis.

The Purchase to Pay team will provide the Treasury Front Office with the Projected cash flow report each week or the Front Office will obtain the report from Oracle Accounts Payable. (NOTE: This process has been put on hold due to report specification problems in Oracle and satisfactory alternative means of communication).

Receivables information

The front office will follow up on any high value receipts expected from customers each week (e.g. ASDA receipt on Fridays).

The order to cash team will provide the Treasury Front Office with the Projected cash flow report each week or the Front Office will obtain the report from Oracle Accounts Receivable. (NOTE: This process has been put on hold due to report specification problems in Oracle and satisfactory alternative means of communication).

Hereafter follows a description in more detail of the particular cash management requirements for each of the countries.

United Kingdom

Entities

Kellogg UK Holding Company Ltd

Kellogg Marketing & Sales Company (UK) Ltd

Kellogg Management Services (Europe) Ltd

Kellogg Supply Services (Europe) Ltd

Kellogg Co. of Great Britain Ltd

Lenders Bakery Ltd

Bank Accounts

illustration not visible in this excerpt

Cash management

Information about IMP and high-value payments is communicated by cc-mail or by phone to ETC at least # day before value date by PTP department. OTC department informs ETC about receipts. This information, which is kept on paper sheets, is used to adjust the available balances of the respective accounts for investment/borrowing decisions.

Surplus money on the main GBP account (in the name of KMSAGB) is placed on overnight deposit with a limit of ## mio. GBP per counterpart.

Overdrafts are left on the account (if temporary) or a loan is negotiated and probably rolled over on a weekly basis depending on cash-flow estimates. As a general matter of bank relationship policy, those banks who participate in the $###million credit facility have first refusal.

Currently the most used counterparts are:

########################################################

Counterpart details can be found in the Static Data in Millennium (see Chapter #).

For currency payments, ETC will buy the respective currency versus GBP if the payment is of a substantial amount. For smaller currency payments, the accounts will be cleared up on a monthly basis.

The Lenders Bakery Ltd. GBP account is emptied on a regular basis by a cash transfer to the main GBP account.

The ### Bank GBP account is not operational anymore and can be closed if remaining guarantees are moved.

Kellogg Company of Great Britain Ltd. – EML account

An account is held with Citibank London in the name of KCGB, but used by Expatriate Management Ltd. (“EML”) on behalf of Kellogg’s. On a monthly basis, EML send a breakdown of payments required in the coming month to the EFSC. EFSC inform ETC of the total amount required; ETC then feeds EML-account with the appropriate funds via cash transfer in Millennium. EFSC or ETC call EML briefly to confirm that the account has been fed according to their request. EML may at times need to make high value payments, these will be sent to the PTP group for execution via Citibanking.

Credit facility

Europe is in an overdraft position from end of #### for the # years thereafter. A credit facility of $ ### M has been negotiated with ## banks each contributing $ ## M. Citibank is the agent. The borrowers are Kellogg Company of Great Britain Limited, Kellogg’s Produits Alimentaires S.A. and Kellogg (Deutschland) GmbH. The committed currencies are sterling and euro. The minimum advance is $ ## M with a term between # and # months. Typically a number of advances are drawn with different maturities to benefit from optimal interest rates and from flexibility to adjust for incoming amounts.

illustration not visible in this excerpt

Euro pooling

The Kellogg entities and Citibank branches in the countries of the euro zone, being Austria, Belgium, Finland, France, Germany, Ireland, Italy, Netherlands, Portugal and Spain, have entered into a Multi Party Target Balancing Agreement with Kellogg’s Management Services (Europe) Limited. Euro Source accounts have been opened for each entity in the local Citibank branch, as well as mirror Euro Header accounts in Citibank London in the name of the respective entity.

Under the agreement, Citibank makes daily transfers of the (value-dated) balances from (or to) the Euro Source Account and the NCD (national currency denominated) Source Account to (or from) the Euro Header Account for each entity, taking into account a target balance as threshold amount. As the last transaction of the day one transfer is made per entity to or from London depending on surplus or borrowing requirements.

Under a Cash Pooling Agreement, the euro accounts in Citibank London are segregated into a euro pool. The header account of this pool is the euro account in the name of Kellogg Management Service (Europe) Limited. The interest is accrued on the consolidated balance and credited/debited to the header account on a monthly basis. The interest is apportioned on an arms-length basis to the euro accounts of the entities.

Cut-off time

Cut-off time for sterling is ##:## pm. For foreign currency payments, please refer to Appendix (Citibank cut-off times). As of April ##, for foreign currency payments and receipts in currencies of the euro-zone, the cut-off time has been changed to ##:##pm same day.

Ireland

Entity

Kellogg Company of Ireland, Ltd.

Bank accounts

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Cash Management

With the euro cash pooling being live (see Daily Cash Management - United Kingdom: Euro pooling), there are no further money market operations on behalf of Kellogg Ireland. All surplus and borrowing requirements are directed at the Citibank Dublin accounts, from where all funds are cleared daily against the euro account of Kellogg Ireland with Citibank London. Marketable interest is applied to the London based account for both debit and credit balances.

The ### Bank IEP account is not operational anymore and can be closed pending the unsolved payroll situation and unsaleable goods payments.

France

Entity:

Kellogg Produits Alimentaires S.A.

Bank accounts:

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Cash Management

Most of the operational receipts currently flow through the Societe Generale account. Citibank Paris is used for high-value payments, netting payment and cheque payments. BNP is only used for salary and social security payments.

Since incoming amounts all come in at Societe Generale account, money is transferred from Societe Generale to Citibank Paris and BNP to cover payments.

With the euro cash pooling being live (see Daily Cash Management - United Kingdom: Euro pooling), there are no further money market operations on behalf of Kellogg’s Produits Alimentaires S.A. All surplus and borrowing requirements are directed at the Citibank Paris accounts, from where all funds are cleared daily against the euro account of Kellogg Produits Alimentaires S.A. with Citibank London. Marketable interest is applied to the London based account for both debit and credit balances.

Europe is in an overdraft position from end of #### for the # or # years thereafter. A credit facility of $ ### M has been negotiated with ## banks each contributing $ ## M. Citibank is the agent. The borrowers are Kellogg Company of Great Britain Limited, Kellogg’s Produits Alimentaires S.A. and Kellogg (Deutschland) GmbH. The committed currencies are sterling and euro. The minimum advance is $ ## M with a term between # and # months. Typically a number of advances are drawn with different maturities to benefit from optimal interest rates and from flexibility to adjust for incoming amounts.

Benelux

Entities:

Kellogg Produits Alimentaires S.A. (Kellogg’s Benelux)

Kellogg Produits Alimentaires S.A. (Kellogg’s Nederland)

Bank accounts:

illustration not visible in this excerpt

Cash management

Kellogg’s Benelux

Payments are communicated by EFSC. In Belgium, Citibank Brussels is used for high-value and netting payments. BNP BEF is used for automatic payments, Generale Bank BEF for manual payments. Incoming cheques are credited alternately on Generale Bank account and BNP account.

In the Netherlands, Citibank Amsterdam (Kellogg’s Benelux) is used for high-value payments. BNP and Generale Bank (Kellogg’s Benelux) have mainly receipts.

When needed in Belgium, excess NLG are sold for BEF and mostly settled at Citibank Brussels (netting payment).

With the euro cash pooling being live (see Daily Cash Management - United Kingdom: Euro pooling), there are no further money market operations on behalf of Kellogg’s Benelux. All surplus and borrowing requirements are directed at the Citibank Brussels/Amsterdam accounts, from where all funds are cleared daily against the euro accounts of Kellogg’s Benelux with Citibank London. Marketable interest is applied to the London based account for both debit and credit balances.

Kellogg’s Nederland

The accounting for Kellogg’s Nederland is done by Park Ad (Price Waterhouse). Park Ad manages the Generale Bank (Kellogg’s Nederland) account for their expenses. Citibank Amsterdam (Kellogg’s Nederland) will not be operational until CPG goes live when it is envisaged that the Park Ad accounting will be migrated to Manchester.

Spain

Entities:

Kellogg Espana S.A.

Kellogg Espana S.A. in Portugal

Bank accounts:

illustration not visible in this excerpt

Cash Management

Operational activity flows through BBV and Banesto. Netting payment is done from Citibank Madrid. Banco Santander account is phased out and not managed by ETC.

A credit limit of # billion ESP has been negotiated at Citibank Madrid. A credit limit of ### mio ESP is in place at Banesto.

For payments in Spain from Citibank Madrid that need same day value, there are two ways of sending the payment instruction:

#. electronically via Citibanking: in the Bank-to-bank details the words "via Bank of Spain" need to be mentioned (if not the value date will be + # days after sending the instruction), and the cut-off time is # am Spanish time.

#. by fax mentioning "via Bank of Spain": this method is preferable since the cut-off time is ## am.

With the euro cash pooling being live (see Daily Cash Management - United Kingdom: Euro pooling), there are no further money market operations on behalf of Kellogg Spain. All surplus and borrowing requirements are directed at the Citibank Madrid accounts, from where all funds are cleared daily against the euro account of Kellogg Spain with Citibank London. Marketable interest is applied to the London based account for both debit and credit balances.

The bank accounts in the name of Kellogg’s Portugal are not operational yet: transactions are dealt with from the Spanish accounts (# distributor in Portugal).

For reference purposes: ETC used to derive the Spanish liquidity position using their Financial Accounting system, FICOS. Whilst this is no longer the case, it should be remembered how it can be done:

illustration not visible in this excerpt

Retrieving: Retrieving Treasury - Projection of Balances

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Nordics

Entities

Nordisk Kellogg’s A/S

Nordisk Kellogg’s A/S (Kellogg Finland)

Nordisk Kellogg’s A/S (Kellogg Norge)

Nordisk Kellogg’s A/S (Kellogg Sverige)

##############

Bank accounts

illustration not visible in this excerpt

Cash Management

For Denmark, Citibank Copenhagen is used for manual and automatic payments and for customer receipts.

When a sufficient amount of money has built up in the countries, ETC contacts EFSC about future payments and decides on the amount to be transferred. EFSC uses Den Danske Bank’s Teleservice system to make low value payments in bulk. EFSC must inform ETC in a timely manner of such payments, in order to enable ETC to feed the accounts appropriately.

For Finland, operational activities flow Citibank Helsinki.

With the euro cash pooling being live (see Daily Cash Management - United Kingdom: Euro pooling), there are no further money market operations on behalf of Kellogg Finland. All surplus and borrowing requirements are directed at the Citibank Helsinki accounts, from where all funds are cleared daily against the euro account of Kellogg Finland with Citibank London. Marketable interest is applied to the London based account for both debit and credit balances.

For Norway, operational activities flow through Citibank Oslo. Excess funds are held with Den Danske Bank in Oslo on an overnight basis.

For Sweden, Citibank is the main account from which payments are made and that is linked to Bankgirocentralen for customer receipts.

illustration not visible in this excerpt

Cut-off

When transferring money from Sweden, Norway or Finland to Denmark, the advice must reach Den Danske Denmark before ## am local time the day before value date. In practice this means that the payment instructions must be sent out # days before value date.

Germanics

Entities

Kellogg (Deutschland) GmbH

Kellogg (Osterreich) GmbH

Kellogg (Schweiz) AG

Kellogg Polska Sp. Z.O.O.

Kellogg Latvia Inc.

Gebr. Nielsen Vertriebs GmbH

Bank accounts

illustration not visible in this excerpt

Cash management

In Germany, high-value payments are done from Citibank Frankfurt. The automatic batch payments (Zahlplan) are done Citibank via Multicash, a German cash management system. Payroll is done from Dresdner Bank. Incoming cheques are cashed at Bremer Bank.

Activity on Deutsche Bank, Landeszentralbank, Sparkasse, Postgiro and Commerzbank has been phased out. The accounts will be closed as soon as possible. ETC sent a batch of letters to all customers who still pay to these accounts. OTC is to continue to monitor such activity, and approach customers individually if receipts or payments are still recorded in these accounts.

Excess cash is transferred to Citibank Frankfurt. Overdrafts can be kept at Citibank Frankfurt, as part of our Citibank ## mio USD credit limit for Europe. The account for Gebr. Nielsen Vertriebs GmbH is kept stand alone, and fed where necessary, or cleared against the DEM-account of Kellogg (Deutschland) GmbH in Citibank Frankfurt. Should this account build up significant balances on a regular basis, it should be considered to include it in the Euro cashpool.

Europe is in an overdraft position from end of #### for the # or # years thereafter. A credit facility of $ ### Mio. has been negotiated with ## banks each contributing $ ## M. Citibank is the agent. The borrowers are Kellogg Company of Great Britain Limited, Kellogg’s Produits Alimentaires S.A. and Kellogg (Deutschland) GmbH. The committed currencies are sterling and euro. The minimum advance is $ ## M with a term between # and # months. Typically a number of advances are drawn with different maturities to benefit from optimal interest rates and from flexibility to adjust for incoming amounts.

With the euro cash pooling being live (see Daily Cash Management - United Kingdom: Euro pooling), there are no further money market operations on behalf of Kellogg Germany. All surplus and borrowing requirements are directed at the Citibank Frankfurt accounts, from where all funds are cleared daily against the euro account of Kellogg Germany with Citibank London. Marketable interest is applied to the London based account for both debit and credit balances.

In Austria, payments and receipts flow through Creditanstalt. Citibank Vienna is used for high-value payments and to keep overdrafts.

With the euro cash pooling being live (see Daily Cash Management - United Kingdom: Euro pooling), there are no further money market operations on behalf of Kellogg Austria. All surplus and borrowing requirements are directed at the Citibank Vienna accounts, from where all funds are cleared daily against the euro account of Kellogg Austria with Citibank London. Marketable interest is applied to the London based account for both debit and credit balances.

In Switzerland, payments and receipts flow through Swiss Bank Corporation. Citibank Zurich is used for high-value payments and to keep overdrafts.

In Poland, the Citibank Warsaw accounts are not yet actively managed by ETC.

In Latvia, the bank accounts are not yet managed by ETC.

Cut-off

Fax instructions for German cash-transfers need to be sent out before ## am London time.

Italy

Entity

Kellogg Italia S.p.A.

Bank accounts

illustration not visible in this excerpt

Cash Management

Payments and receipts flow through Cariplo and Credito Italiano. The netting payment is done from Citibank Milan. When CPG goes live, it is foreseen that the payments and receipts will flow through the Citibank account. Some of the receipts however, will continue to flow through Cariplo and Credito Italiano, due to constraints of the local market.

Italy has been in an overdraft position since start-up. The main overdraft is kept at Citibank Milan: when money builds up in Cariplo and Credito Italiano it is transferred to Citibank.

With the euro cash pooling being live (see Daily Cash Management - United Kingdom: Euro pooling), there are no money market operations on behalf of Kellogg Italy. All surplus and borrowing requirements are directed at the Citibank Milan accounts, from where all funds are cleared daily against the euro account of Kellogg Italy with Citibank London. Marketable interest is applied to the London based account for both debit and credit balances.

Kellogg’s Italy has been given access locally to Citibanking online, to follow up on incoming amounts on local accounts for credit control purposes.

Cut-off

Fax instructions for cash transfers from the local banks to Citibank need to be sent out the day before value date.

Procedure: Foreign Exchange Position - Revaluation

Foreign Exchange Position

After the budget finalization ETC evaluates the FX position for the year to come on the basis of the “Intercompany sourcing of finished goods” from the European Supply Chain. This document contains a summary in monetary terms (in GBP) of the #rd party Sales and Production for the different markets. The net position per market is allocated over the ## months of the year and converted into local currency. These results are matched against the extrapolation of last year’s (or the previous six months’) netting figures to come up with a full year FX position per entity participating in the netting.

In agreement with Treasury Battle Creek, the hedging strategy is determined (e.g. ##% hedging of the FX position). The hedging runs are done by ETC in # to # chunks from November till January to smooth out FX-rate fluctuations. The hedges are allocated to banks by bidding them.

Revaluation

On a monthly basis (Friday after monthend) the ETC performs a revaluation of outstanding FX-deals within the revaluation module in Millennium. The database containing outstanding FX-deals is filtered in two groups:

- FX deals in the name of KSUPGB and with maturity beyond ## days from revaluation date. The result is booked in general ledger as “Unrealized FX profit/loss”.
- FX deals in the name of KSUPGB and with maturity within ## days from revaluation date. The result is booked in general ledger as “Realized FX profit/loss”.

ETC envisages building portfolios in Millennium containing FX-deals of the same category, in order to distinguish general netting hedging, transactional hedging, hedging as part of intercompany loans.

Millennium creates a statement with the revaluation results for each revaluation. This is submitted to the general ledger team together with a revaluation report containing more detailed information per deal and indicating FX-rates and interest rates used.

Saturn

For ####, hedging has been done using the SATURN structure. This financial structure consists in a combination of forwards and loans. The receiving leg of the forward is received # month before maturity of the forward, thereby creating a contingency element (it is not sure that we will be able to perform the paying leg), and thus avoiding the need for monthly revaluation of outstanding FX-deals. The effect is to make the P&L results less sensitive to FX fluctuations. These fluctuations have in effect been moved above the line, in operating results.

In Millennium, the forwards are input in book SATURN and the loans are input as commercial paper (in Millennium, Deals, Cash, Ecp). The face value is the amount of the loan at maturity; the discount rate is communicated by the counterpart (i.e. Bank of America).

Procedure: Back-office

Deal verification + payment instructions

After deal input in dealing system Millennium front-office informs back-office that deals are ready to be verified. Back-office verifies the deal in Millennium while paying attention to the plausibility of amounts, interest rate, FX rate, dealing entity, booking entity, settlement details and accounting entries.

For manual payments, a confirmation containing payments instructions and settlement details is printed out from Millennium, signed by # authorized signatories and faxed to the counterpart.

For electronic payments (payments from a Citibank account), the payment instructions are issued in Millennium and an electronic payment file (EFT) is created and put on the server (O:\millciti\).

This payment file is imported in cash management system Citibanking. A security check makes sure that payment files that have been altered, get rejected. Payment instructions with insufficient or incorrect data are sent or can be sent to the repair queue. Back-office completes the payment instructions: they are now ready for authorization.

The payments are authorized by one of the Citibanking authorizers while taking into account cut-off times: this triggers off a connection with Citibank London via modem where the payments are processed.

Typically, cash transfers in continental Europe need to be input early in the morning (before #:## am) to obtain same day value or ideally the day before. For GBP transfers in the UK the cut-off time is ##:## am and deals should be verified before ##:## am. This leaves enough time for the payment instructions to be imported into Citibanking (import into Citibanking is scheduled at ##:## am – alternatively a manual import can be done in Citibanking: see Chapter #) and authorized. In case of system downtime there needs to be enough time to switch to contingency means of payment, in which case a fax instruction will be sent to Citibank London.

Confirmations

For FX-deals and long-term deposits, back-office prints out a confirmation out of Millennium and has it signed by # signatories. Back-office awaits the confirmation (in two copies) of the counterpart, matches it and sends back one copy with the signed Millennium confirmation attached. The other copy is kept on file with a copy of the Millennium confirmation in the folder Confirmations received from counterparts.

For overnight deposits, the confirmation is printed out of Millennium: it is however not sent out to the counterpart. It is compared with the confirmation from the counterpart and kept on file in the folder Overnight deposits confirmations.

No confirmations are issued for cash transfers. Printed copies of cash transfer confirmations are discarded.

Any discrepancy is investigated and followed up by back-office. If necessary, the deal is deleted in Millennium and replaced.

Reconciliation

Back-office uploads the account statements from Citibanking into the reconciliation module in Millennium on a daily basis.

- All treasury transactions are reconciled with the deals as recorded in Millennium. Any discrepancies, e.g. with regards to amounts, interest or value dates, are investigated: an issue log is maintained and the issue is followed up with the counterpart until a resolution is reached.
- All non-treasury transactions are deleted on the reconciliation screen.

Accounting

Treasury transactions are currently accounted for manually. However the automatic export of accounting entries from Millennium to Citibanking has been tested and is ready for implementation.

In a first phase the accounting entries for the UK entities will be exported. An exportfile per entity is created on a weekly (or monthly) basis from Millennium and imported into Oracle.

The other entities will be exported automatically when they go live on CPG.

Delete Deals

When a deal has been wrongly input by front-office, amendments can still be made before verification by back-office. Once back-office has verified a deal, a change can only made by inputting a new deal and having the wrong deal deleted by the back-office manager. A deleted deals report can be generated out of Millennium (see Chapter #).

Procedure: Netting

Description

The intercompany liabilities are paid for through the netting that is performed on a monthly basis for the following currencies/entities:

illustration not visible in this excerpt

Only Portugal is not part of the Netting, as it is merely a branch of Kellogg Espana S.A., and all activities flow through the Spanish books.

ETC is responsible for:

- coordinating the receipt of receivables information from the EFSC: ETC collects the intercompany receivables for each entity participating in the netting.
- calculating the netting position using Millennium: the netting calculation is done using the matrix rates versus GBP. These rates are agreed upon with the local entities and are fixed for # months. They can be obtained from European Financial Planning (EFP).
- liaising with country representatives from the EFSC to ensure the netting results are correct
- providing a monthly provision to the EFSC
- issuing any payments resulting from the netting calculation: the netting calculation generates a cash transfer for every entity to or from the netting center being the ETC.
- filing netting calculations and country receivables in the Netting folder, which is kept at the ETC

Timing

Month end Calendar

illustration not visible in this excerpt

Appendix 2

appendix not provided

Appendix 3

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Appendix 4

appendix not provided

[...]


[1] See Kellogg Company’s website www.kellogg.com, see also Kellogg’s annual report 1999

[2] See “Request for Proposal - Supply of European Banking Services” by Kellogg European Management Centre, 29/07/1996, p. 8 – 10

[3] Kellogg’s may be considered a typical example of the traditional model of vertical business units. See Quinn, Barbara, Mining for corporate Gold, p. 67

[4] see Edwards, C., Ward, J., Bytheway, A.: The Essence of Information Systems, p. 106

[5] See Quinn, Barbara, Mining for Corporate Gold, p. 89

[6] Other corporate functions reporting into the Area President or the country Managing Directors have been eliminated for ease of presentation if their impact on the Finance function was minimal. Examples include Human Resources, Manufacturing, and various European or regional Marketing support functions.

[7] Kellogg’s used the Netting module of the Treasury Management System “IT-2” by Bank A###

[8] see “Global Cash Management Service Proposal” by Citibank N.A., London, August 1996, p. 5.

[9] see “Request for Proposal - Supply of European Banking Services” by Kellogg European Management Centre, 29/07/1996, p. 5

[10] see Kalakota, R., Whinston, A., Electronic Commerce - A Manager’s Guide, p. 11ff.

[11] See Appendix 2, p. 4,6,7, for an illustration of the Finance vision, and particularly the single bank and single bank account concept

[12] See “Adding value to business units” by Schulman, D., p. 7

[13] See Timms, Geoffrey, “Going Beyond the Hype – Treasury in the 21st century”, published on website http://www.gtnews.com/articles3/2070.html

[14] See Quinn, Barbara, Mining for corporate Gold, p.134 - 137

[15] See “What is Shared Services” by The Amherst Group Ltd., published on website http://www.amherstgroup.com/whatis.htm

[16] See “Adding value to business units” by Schulman, D., p. 2 and p. 8

[17] see “Request for Proposal - Supply of European Banking Services” by Kellogg European Management Centre, 29/07/1996

[18] See Timms, Geoffrey, “Going Beyond the Hype – Treasury in the 21st century”, published on website http://www.gtnews.com/articles3/2070.html

[19] see Price Waterhouse Financial & Cost Management Team, “CFO architect of the corporate future”, New York 1997, p.140 ff.

[20] see Edwards, C., Ward, J., Bytheway, A.: The Essence of Information Systems, p. 3 - 5

[21] Adding fresh faces to the company was seen to be critical to establish the desired corporate culture required for successful change management. See also chapter 3.3.

[22] See Quinn, James, Innovation explosion: using intellect and software to revolutionise growth strategies”, New York 1997, p. 45

[23] see Edwards, C., Ward, J., Bytheway, A.: The Essence of Information Systems, p. 73

[24] see Price Waterhouse Financial & Cost Management Team, “CFO architect of the corporate future”, New York 1997, p. 171 ff.

[25] See Morphy, Erika, “Systems and Possibilities”, 30/05/2001, published on website http://www.gtnews.com/articles5/3093.html

[26] Kellogg’s organisational changes reflected broadly the typical example outlined by Quinn, Barbara, Mining for Corporate Gold, p. 68 - 69

[27] Other corporate functions reporting into the Area President, the country Managing Directors or the CFO – Europe have been eliminated for ease of presentation if their impact on the Finance function was minimal. Examples include Human Resources, and various European or regional Marketing support functions. A project manager for the transition of the affected operations to the Euro was added in 1998, reporting to the CFO – Europe.

[28] The team structure was that of the “founder stage” as described in Price Waterhouse Financial & Cost Management Team, “CFO architect of the corporate future”, New York 1997, p.193

[29] see “Centralizing the European Treasury” by Christof Nelischer, published in International Finance and Treasury, 07/06/1999

[30] Albert Tur, Treasurer of Grupo Ceac, provided a useful overview of payment methods across Europe in his presentation on “Electronic Payment Instruments: The Latest Experience in Spain” at the 3rd Treasurer’s forum, 21/03/2001.

[31] See “What is Shared Services” by The Amherst Group Ltd., published on website http://www.amherstgroup.com/whatis.htm

[32] See “A Director’s Guide to Shared Internal Services” by the National Association of Corporate Directors, November 1997, published on webiste http://www.amherstgroup.com/pdfs/RE2_1197..pdf

[33] See Forst, Leland, “Running Internal Support Services Like a Business”, published on website http://www.amherstgroup.com/pdfs/internalsupport.pdf

[34] See Sidford, Colleen, “Treasury Management Systems – Part 2”, 01/06/2001, published on website http://www.gtnews.com/articles5/3095.shtml

[35] See “The Banker” magazine, January 1996 edition, p. 68 - 69

[36] See “The Banker” magazine, January 1996 edition, p. 68

[37] see “The Banker” magazine, August 1996 edition, p. 18 - 20

[38] See chapter 2.2.3.1

[39] see “The Banker”, edition August 1996, p. 21 - 23

[40] see “The Banker”, edition July 1996, p. 102 - 110

[41] The number of banks offering international cash management listed in The Treasurer’s handbook had decreased from the 1995/96 (p. 10 – 24) edition to the 1998 (p. 11 – 19) edition. Several names that dropped had been taken over by, or merged with, other banks on the list. Prominent examples include Chemical Bank (now part of Chase Bank), Nationsbank (now part of Bank A###), and Barings (taken over by ING).

[42] see The Treasurer’s handbook 1998 by The Association of Corporate Treasurers, London, p. 197 – 328. The 1998 edition is a major improvement on the 1995/96 edition (see p. 159 – 244) which covered a mere nine countries out of the 15 where Kellogg’s were active at the time.

[43] see agenda for 7th annual International Cash and Treasury Management conference, Barcelona, October 1998

[44] see presentation material by Willem van Alphen at 7th annual International Cash and Treasury Management conference, Barcelona, October 1998, on “The role of the network bank in Euroland”. See also article “Single window to your local accounts and payments” by the same author, published in Treasury Management International, 1998.

[45] see presentation material at workshop “Treasury and shared service centres: a case study” by Amoco and Citibank held during the conference

[46] see The Treasurer’s handbook 1995/96 by The Association of Corporate Treasurers, London, p. 43 – 49

[47] see The Treasurer’s handbook 1998 by The Association of Corporate Treasurers, London, p. 61 - 69

[48] see brochure to the Treasury Technology conference, the Association of Corporate Treasurers, London, March 1996

[49] see agenda to the Annual International Cash and Treasury Management Conference by Eurofinance Ltd., Paris, October 1996

[50] See Woods, andrew, “Business process Re-engineering (BPR)”, published on website http://www.gtnews.com/articles4/2792.html

[51] See “TMS Roundtable – Future Trends in the Treasury Management Systems Market” by Ken Lillie of the Bank Relationship Consultancy, published on website http://www.gtnews.com/articles3/1900.html

[52] A complete list can be found on website http://www.gtnews.com/systems/tmsdirectory/idx.html

[53] That argument was raised by representatives from Richmond Software and XRT in 1996.

[54] See also website http://www.disruptive.com/en/us/products/applications/financials/treasmgmt/product_content.html

[55] see also website http://www.richsoft.co.uk/index.htm

[56] see also website http://www.beyers.be/products.htm

[57] see also website http://www.quantumtreasury.com/solutions_quantum.shtml

[58] see also website http://www.econintel.com/

[59] see also website http://www.xrt.com/index.htm

[60] see invitation brochure to the conference “Treasury Systems 1999” by the ACT, held 15/16 April 1999 in London

[61] See “The International Directory of Treasury Services” published by Treasury Management International, April 2001

[62] see chapter 2.2.1. and see website http://www.hanseorga.de/

[63] see website http://www.gtnews.com/articles3/2042.html

[64] see websites http://www.actsa.org.za/articles/fjtarticlemay99.htm and http://fenews.com/1999/archives/99092501.htm

[65] See Morphy, Erika, “Systems and Possibilities”, 30/05/2001, published on website http://www.gtnews.com/articles5/3093.html

[66] See “The Euro and Treasury technology” by Christof Nelischer, published in The Treasurer, June 1999, p. 29 - 31

[67] see “Culture’s Consequences: International differences in work-related values” by Geert Hofstede, Sage, Beverly Hills, 1984

[68] see Organizational Behaviour” by David Buchanan and Andrzej Huczynski, Hemel Hempstead 1997, p. 536

[69] see “Organizational Behaviour” by David Buchanan and Andrzej Huczynski, Hemel Hempstead 1997, p. 535

[70] see “Management Worldwide” by David J Hickson and Derek S. Pugh, London1995

[71] see chapter 2.1.

[72] see “A Treasurer’s guide to shared services” by ABN Amro Bank, published in Treasury Management International, 1998

[73] See “Adding value to business units” by Schulman, D., p. 195

[74] See “mining for corporate Gold” by Quinn, B., p. 131

[75] See CFO – architect of the corporate future

[76] To reflect this, the job titles in Kellogg’s European Treasury centre were “European Treasury Services Manager/Analyst”

[77] see “Organizational Behaviour” by David Buchanan and Andrzej Huczynski, Hemel Hempstead 1997, p 474

[78] see “Organizational Behaviour” by David Buchanan and Andrzej Huczynski, Hemel Hempstead 1997, p 475

[79] See The Drucker Foundation, The leader of the future, p. xi - xii

[80] See “Adding value to business units” by Schulman, D., p. 6

[81] See Schein, Edgar, Organizational Culture and Leadership, p. 8

[82] See Schein, Edgar, Organizational Culture and Leadership, p. 8 -9

[83] See Schein, Edgar, Organizational Culture and Leadership, p. 363

[84] See “Adding value to business units” by Schulman, d., p. 239 - 241

[85] see Price Waterhouse, CFO architect of the corporate future, p. 173 - 205

[86] see ABN Amro Bank: “ A Treasurer’s guide to shared services”, published in Treasury Management International, 1998

[87] see chapter 2.2.3.1. discussing the company’s Finance vision

[88] see ABN Amro Bank: “ A Treasurer’s guide to shared services”, published in Treasury Management International, 1998

[89] see Price Waterhouse, CFO – architect of the corporate future, p. 171 - 176

[90] see “Outsourcing Treasury – The way forward” by Martin Jaskel and Michael Roden, published in Treasury Management International, February 2000

[91] see “The Change Masters “ by Rosabeth Moss Kanter, London 1999, p. 209

[92] see “Organizational Behaviour” by David Buchanan and Andrzej Huczynski, Hemel Hempstead 1997, p. 459

[93] see “Organizational Behaviour” by David Buchanan and Andrzej Huczynski, Hemel Hempstead 1997, p. 456- 457

[94] see “Organizational Behaviour” by David Buchanan and Andrzej Huczynski, Hemel Hempstead 1997, p.516

[95] Peters, T.J., and Waterman, R.H., “In Search of Excellence”, Harper & Row, New York 1982

[96] See Peters, T., and Waterman, R., In Search of Excellence, introduction p. xviii

[97] See Peters, T., and Waterman, R., In Search of Excellence, p. 238

[98] References to change management and a new corporate culture were made in the supporting documentation sent to candidates during the recruitment process.

[99] See Appendix 2, p.2, and Appendix 4. The business case was already in the past when the Appendix was created.

[100] See Woods, Andrew, “Business Process Re-Engineering (BPR)”, 21/03/2001, published on website http://www.gtnews.com/articles4/2792.html

[101] See “Adding value to business units” by Schulman, D., p. 116

[102] See “Adding value to business units” by Schulman, D., p. 4

[103] See “Adding value to business units” by Schulman, D., p. 118

[104] See “Adding value to business units” by Schulman, D., p. 17

[105] See “Adding value to business units” by Schulman, D., p. 175

[106] See Morphy, Erika, “Systems and Possibilities”, 30/05/2001, published on website http://www.gtnews.com/articles5/3093.shtml

[107] See “Adding value to business units” by Schulman, D., p. 179

[108] See “What is Shared Services” by The Amherst Group Ltd., published on website http://www.amherstgroup.com/whatis.htm

[109] See “Adding value to business units” by Schulman, D., p. 17

[110] See Morphy, Erika, “Systems and Possibilities”, 30/05/2001, published on website http://www.gtnews.com/articles5/3093.html

[111] see Kellogg’s internal document “Treasury Project – Software selection”, September 1996

[112] The only user of the Treasury Management System in the service centre was the back office analyst, who had to reconcile bank accounts. See also chapter 5.3.

[113] See Sidford, Colleen, “Treasury Management Systems – Part 2”, 01/06/2001, published on website http://www.gtnews.com/articles5/3095.shtml

[114] See Sidford, Colleen, “Treasury Management Systems – Part 2”, 01/06/2001, published on website http://www.gtnews.com/articles5/3095.shtml

[115] See Sidford, Colleen, “Treasury Management Systems – Part 2”, 01/06/2001, published on website http://www.gtnews.com/articles5/3095.shtml

[116] See Sidford, Colleen, “Treasury Management Systems – Part 2”, 01/06/2001, published on website http://www.gtnews.com/articles5/3095.shtml

[117] see “Outsourcing Treasury – The way forward” by Martin Jaskel and Michael Roden, published in Treasury Management International, February 2000

[118] Se chapter 2.2.3.1. – Finance vision

[119] See Sidford, Colleen, “Treasury Management Systems – Part 2”, 01/06/2001, published on website http://www.gtnews.com/articles5/3095.shtml

[120] See “Adding value to business units” by Schulman, D., p.218

[121] See “Adding value to business units” by Schulman, D., p.219

[122] See “Adding value to business units” by Schulman, D., p.193

[123] See Appendix 2, p. 15

[124] see presentation “Opportunities for centralised cash management” by Christof Nelischer at the Eurofinance Annual Treasury conference in Barcelona, September 1998

[125] See Kaplan, Robert S., and Atkinson, Anthony A., Englewood Cliffs, NJ, 1992, “Advanced Management Accounting”, p. 590 - 595

[126] In Kellogg’s case, the main sources of earnings were interest improvements on lending and borrowing, plus competitive bidding. Therefore, the key drivers of profitability would have been the volume of lending versus borrowings, plus the respective trading volume.

[127] The initial cost was relatively well documented, as invoices existed for the biggest elements consulting fees and software cost.

[128] The running cost consisted mainly of three salaries, for which an accurate budget was available, plus system maintenance cost for which invoices were available.

[129] It was assumed that if all idle liquidity from the status quo ante was collected by the ETC to repay debt, then the margin on both sides could be saved. That saving was estimated to be 1%p.a. In Kellogg’s case, the expected annual savings were $50,000.00.

[130] The calculation was very complex, relying on numerous assumptions, and would be different for every company. It was decided, therefore, to merely mention that reduced bank fees were a goal of the ETC, but no financial saving was claimed in the business case.

[131] A standard report from the TMS allowed the documentation of earnings from competitive bidding to a very high level of detail, making competitive bidding one of the stronger arguments in favour of the ETC. It is fair to assume that volumes in FX dealing, and money market activity will be the drivers of potential savings from competitive bidding.

[132] The calculation showed that after the initial set-up, the ETC would gain approx. 120% of its ongoing running cost.

[133] see presentation “Opportunities for centralised cash management” by Christof Nelischer at the Eurofinance Annual Treasury conference in Barcelona, September 1998

[134] see “Current State Analysis – European Cash Management” by Kellogg’s European project team.

[135] see “Request for Proposal - Supply of European Banking Services” by Kellogg European Management Centre, 29/07/1996

[136] now: ### Bank plc

[137] see chapter 3.1. for the initial list of banks

[138] See “European cash management proposal” by Bank A###, London, August 1996

[139] Both banks were aware of who was still being considered at that stage of the selection process.

[140] See “European cash management proposal” by Bank A###, London, August 1996

[141] see “Global Cash Management Service Proposal” by Citibank N.A., London, August 1996

[142] see “Global Payment Solutions”-brochure by Citibank. See also Appendix 2, p. 11

[143] Several local Finance Directors placed great importance on their customers not finding out about Kellogg’s new banking structure.

[144] see “Global Payment Solutions”-brochure by Citibank

[145] See Appendix 2, p. 9

[146] See Appendix 2, p. 10

[147] Hempel, George S., “Bank Management”, New York 1994, p. 666

[148] See “TMS Roundtable – Future Trends in the Treasury Management Systems Market” by Ken Lillie of the Bank Relationship Consultancy, published on website http://www.gtnews.com/articles3/1900.html

[149] see chapter 3.1., see also website http://www.xrt.com/index.htm

[150] Information relating to practices in corporate Treasury in head office was gathered during a visit of the European Treasury Services Manager to head office in December 1996.

[151] Whilst a drive towards more system integration is a typical motive for implementing a TMS, this one is rather specialised. See “Choosing the right Treasury Management system” by Ricky Thirion, published by GT News, 1998

[152] See presentation “Opportunities for centralised cash management” by Christof Nelischer at the Eurofinance Annual Treasury conference in Barcelona, September 1998.

[153] see “Electronic Banking systems – From systems interfacing to systems integration” by Peter Green of Citibank, published in Treasury Management International, 1997

[154] Companies visited/interviewed were GKN plc, Guinness, Bosch, and English China Clay for Richmond Software. It was not considered necessary to conduct reference visits for XRT as Kellogg’s were using the system al ready.

[155] XRT was virtually taken over by a competitor, CERG Finance. See website www.xrtcerg.com

[156] see “Treasury and the Internet” by Charles Palmer, published in “A Treasurer’s guide to Technology” by Treasury Management International, 2001

[157] according to an interview with Charles Palmer and Colin McDonald of Richmond Software Ltd.

[158] Those high level tasks are often viewed as the core tasks of a Treasury function. See “Responding to the needs and responsibilities of the board: The evolving role of the Treasurer in enterprise-wide risk” by Jan Haars at the 3rd Treasurer’s Forum, 22/03/2001

[159] Some banks are now trying to act as service providers even in this area. See “Working Capital Management”-presentation by Keith Glover, Citibank, at the 3rd Treasurer’s Forum 2001, 22/03/2001

[160] Operational tasks are thought to be most suitable for outsourcing. See “Treasury Systems”-presentation by Lesley Brown, Citibank, at the 3rd Treasurer’s Forum, 22/03/2001

[161] See “Maximum result with minimum resources” by Paul-Henri Pion, published in Treasury Management International, February 2001, p.43ff. See also “Outsourcing Treasury – The way forward” by Martin Jaskel and Michael Roden, published in Treasury Management International, February 2000

[162] Citibank’s relationship manger for Kellogg’s, who had worked with numerous US companies in Europe for many years, strongly advised the company to take that point seriously.

[163] Recruiters contacted included Robert Walters, Lloyd Morgan, Michael Page, and MSL selection.

[164] Motivating individuals to relocate within Europe is a long running issue for US corporates. See “A Treasurer’s guide to shared services” by ABN Amro Bank, published by Treasury Management International, 1998

[165] All recruiters without exception claimed independently that candidates were put off by the location Manchester.

[166] Companies interviewed were Hewlett Packard, Omnicom, Avery Dennison, Reebok

[167] See Appendix 3 for details on the job descriptions.

[168] Other US companies operating European Treasuries in the UK said that their staff levels were considerably higher. Avery Dennison, a company of similar size, had eight permanent Treasury staff. Hewlett Packard and Omnicom both had over a dozen staff in total.

[169] See Appendix 3 for details on front office versus back office tasks.

[170] There is no “model solution” to be found in literature. See “The Third Age of cash management” by Mark Taylor, Bank A###, published by Treasury Management International, 1998

[171] See “Centralizing the European Treasury” by Christof Nelischer, published in International Finance & Treasury, 07/06/1999

[172] See chapter 2.2.3.

[173] see chapter 2.2.3.2.

[174] see Appendix 1 for a full example of a procedures manual for cash management

[175] The highly automated way of working was state-of-the-art at the time. See “Cash and Treasury Management: Advanced Strategies for North America and Europe”-presentation by Stephen Crompton, 3rd Treasurer’s Forum, 21/03/2001.

[176] The need to communicate procedures around the team and generally within the group was convincingly supported by Erhard Wehlen, Treasurer of Linde AG, at the 3rd Treasurer’s Forum 2001, speaking on “Impacts of a merger on the Treasury function”, 21/03/2001

[177] See “Adding value to business units” by Schulman, D., p. 13

[178] This conclusion is similar to that drawn by banks themselves on electronic business. See “The Banker” magazine, January 1996 edition, p. 68 and see chapter 3.1.

[179] see “Choosing the right Treasury Management system” by Ricky Thirion, published by GT News, 1998

[180] See chapter 5.3.

[181] Hempel, George S., “Bank Management”, New York 1994, p. 666

[182] see “A Question of Trust” by Judith Cowan, published in Treasury Management International, November 2000, p. 6ff.

[183] See “A Treasurer’s guide to industry trends” by Citibank, published in Treasury Management International, 1998

[184] See “The Third Age of cash management” by Mark Taylor, Bank A###, published by Treasury Management International, 1998. Also see Morphy, Erika, “Systems and Possibilities”, 30/05/2001, published on website http://www.gtnews.com/articles5/3093.html

[185] See “The Euro and Treasury technology” by Christof Nelischer, published in The Treasurer, June 1999, p. 29 - 31

[186] See “We have come a long way” by Les Halpin of Integrity Solutions, published by GT News, 14/04/2000

[187] See “The Third Age of cash management” by Mark Taylor, Bank A###, published by Treasury Management International, 1998

103 of 103 pages

Details

Title
How to maximize tangible and intangible benefits
Subtitle
Structure and organisation of the Treasury function of the European business of a major US corporation
College
Manchester Metropolitan University Business School
Grade
pass
Author
Year
2001
Pages
103
Catalog Number
V110179
File size
891 KB
Language
English
Notes
Names have been deleted and Appendices not supplied to protect confidentiality.
Tags
This, Treasury, European
Quote paper
Christof Nelischer (Author), 2001, How to maximize tangible and intangible benefits, Munich, GRIN Verlag, https://www.grin.com/document/110179

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