It doesn't matter whether your company makes light bulbs, hamburgers or sport-utility vehicles; it doesn't matter if you sell over the Internet or from a chain of retail stores. "Centralization is happening across the board," says Geoffrey Garden, the managing director in charge of global cash management service at Deutsche Bank AG in New York. "Larger multinational companies started the trend because they recognized that the opportunity to gain from this kind of activity, relative to the size of each company, is very significant."

The Push from Europe

Most recently, centralization has also been given a push by the single currency in Western Europe. The advent of the euro means there's no longer a need to maintain separate treasuries in each Western European country because of currencies. And, Weiner says, "Once companies started looking at things because of the euro, they said, 'Aha,' what about other regions?"

Nonetheless, while the concept of consolidation is clear, there are a number of gradations and variations in the ways a company can set up a global treasury. Although all significant decisions must be made on the basis of consolidated financial information and with knowledge of what other parts of the treasury are doing, that doesn't mean all actions must be taken in the same office.

When to Keep It Local

For example, even with a centralized treasury, "Day-to-day trade finance should still be done at the local level," notes Robert Statius-Muller, a managing director at Greenwich Associates. The need for local decision-making on trade finance is bound up with "the nature of the activity," he says. Trade finance is often arranged in local markets for local needs. Managing it from afar makes it harder to get it right. And nothing is lost in localizing control, he adds, because "it's less likely to lend itself to economies of scale."

Similarly, tax planning is evolving as an activity that often requires having people on the ground in all major locations. Those locals are the only ones who are likely to be fully attuned to the nuances of local tax practices and regulations. However, while local knowledge is vital, so is a focus on the big picture. After all, the corporate goal is not necessarily to minimize tax burdens in a particular country, but rather to minimize overall tax burdens. As a result, Statius-Miller says, good tax-planning "tends to be done in coordination with the head office." There have to be locals figuring out what's the

best strategy in their country, but the central office must be involved to integrate information into a global tax strategy.

Another area requiring local capabilities is the basic collection and disbursement associated with activities in that locality. In the case of most treasury functions, "we've kind of always had them here in Fort Worth," says Martin Moad, treasurer at Texas-based Radio Shack Corp. While all of Radio Shack's retail stores are in the U.S., the production of its electronic goods has increasingly shifted to Asia. This has prompted the company to open sourcing offices in that region. "They maintain bank accounts for normal operations, like payroll, materials and things like that," Moad says. These offices also do some management of foreign exchange. "They're given some leeway to run their businesses," Moad says, but these activities are prescribed by rules set in Fort Worth. And that approach seems to be a mantra for centralized treasuries: Think globally about guidelines–but act locally when it comes to handling small amounts.

One device that several companies have used is the in-house bank. At Boston Scientific Corp., for example, Treasury Director Joseph Frank says, "We run an in-house bank in which all of the subsidiaries participate. They borrow from it and put funds on deposit in it, so it provides a way of recycling our internal cash. We have a netting program which is a coordinated settlement of inter-company transactions, so that all the cash moves through the company on a timeline that everybody is on."

Of course, for some companies, the degree of centralization is not always up to them. "There are some companies that because of tax or regulatory issues might have a more difficult time doing this," notes Weiner of J.P. Morgan. Insurance companies, for example, are sometimes required to keep cash in jurisdictions in which they sell coverage, and some nations limit the funds that can be repatriated by foreign companies.

In the course of sorting out what can and cannot be centralized, it turns out companies have choices as to where their financial focal point should be located. While consolidation requires treasury decision-making in a single place, that place need not be where other senior managers are located. Sony Corp. has recently been striving to consolidate worldwide management of its cash, foreign exchange and risk–but in London, not at headquarters in Tokyo. The London time zone is better suited for following the sun in making short-term investments.

After Glaxo Wellcome merged with SmithKline Beecham at the end of 2000, the two U.K.-based pharmaceutical companies put the operating headquarters of GlaxoSmithKline PLC in the U.S. They made London not only the legal headquarters of the combined companies, but also the site of its centralized treasury. Glaxo maintains a small treasury team to oversee its large U.S. business, but London won out on the consolidated global treasury again because of time zone.

It's clear companies can pursue very different approaches in achieving centralization. Some have undertaken elaborate planning processes and centralized all at once, like EDS, where the centralization process "took 180 days from start to finish," O'Brien says. Other companies have gradually moved data and decision-making from field offices to headquarters.

Striving for Efficiency

At Atlanta-based Home Depot Inc., for example, Rebecca Flick, the director of treasury, says, "Over the next year or so, we will be pulling more financial functions into Atlanta." The reason? "It's primarily from an efficiency perspective–we're looking for the lowest cost alternatives. We're looking for opportunities to get rid of duplications and redundancies and lower our overhead," she says.

These days, the major factors inhibiting companies from achieving the benefits of consolidation often have to do with their history. Companies that have grown through mergers and acquisitions, such as Glaxo or Boston Scientific, present greater challenges in consolidating treasury operations because acquisitions add a series of fully developed and independent treasury operations.

"What happens when companies complete a merger," says Deutsche Bank's Garden, "is not 'Gee, let's make sure we have the most efficient bank structure.' They're looking for business synergy. They want to get the duplicate expense out and then move on." But, he warns, "Especially in a buoyant economy, by the time the acquirer gets to infrastructure issues, they find themselves in the midst of another merger or acquisition." As a result, they may not get to treasury issues. Eventually, management finds "they have a very large number of bank relationships and a large number of accounts across a large number of subsidiaries and acquired companies, which results in an inefficient use of cash," he says.

Not All Smiles

But even for companies that expanded through internal growth, there can be other problems. One is technological: Michael Gallanis, a principal at Treasury Strategies Inc., a Chicago financial-management consulting firm, notes that in cases where various divisions and subsidiaries are "operating on autonomous systems, it's difficult to break out of that mold and get to the point where centralization is easy and cost effective." The right technological and accounting infrastructure must be put in place before centralization can occur.

The second problem has to do with management disenchantment. No employee likes to cooperate with a process that could eventually eliminate his or her job or require a move to the headquarters city. But senior management in a locality will sometimes thwart centralization because they like heading an organization that looks like a real company complete with a treasury operation, and not just a branch office. The key: Show employees the importance of their role as gatherers of information and data for the central office. At the outset, people may feel "everything is being done by one person," Boston Scientific's Frank notes, but centralization is more about capturing information in one location. "Financial people around the world can participate in this process," he says.

In planning and implementing treasury consolidation, "It's not a case of one-size-fits-all," says O'Brien. "A lot of what we did was intuitive. You have to look at your own situation and evaluate it and then decide how to deal with it." The one point where companies are all alike, he insists, is in their ability to benefit from consolidating their financial management.

Indeed, Garden says, there's an additional synergy that comes when a company's whole financial picture is viewed from headquarters. "As many companies have been going through this process, they have not only become more efficient in how they use their money, they have freed up intellectual capacity in the treasury group to spend more time thinking about how they can improve the process, instead of focusing on transactions."