Chaplin's philosophy on the need for treasury to get closer to the operating units has quickly become gospel in many treasury circles. With the increasing emphasis on working capital management and cash flow forecasting, it has become clear that treasury's ability to perform its most valued jobs is inextricably linked to the performance of the business units as well as key corporate functions such as tax, accounts payable and receivable, human resources and accounting. Consequently, treasuries have found it necessary to move out of the realm of managing bank relationships and into the realm of enterprise planning and strategy development. "If you're not working productively with internal partners outside treasury, brush up your resume," warns consultant Craig A. Jeffery, the head of Atlanta-based Strategic Treasurer LLC. "You probably won't make it through the next change in management."

LEARNING TO PLAY NICE

Realistically, productive cooperation is not easy to achieve, as Chaplin's experience would indicate. The corporate drive to centralize not only treasury but functions like A/P and A/R naturally raises suspicions among business units in the field that corporate is stripping them of the power and flexibility they need to operate well on the local level. It takes teamwork to avoid dissension that can hurt the overall corporate performance. The more the business units learn that treasury can and will help them meet their objectives, the more they will cooperate with treasury. It has to be a two-way street. "When working with internal business partners, especially treasury liaisons in the field, it's important to connect the dots and clearly articulate why treasury's way is best for the shareholders–why, for example, the company can get better borrowing rates if its bank account structure shows improved financial controls," suggests Tarek Anwar, senior vice president and sales manager for global treasury services at Bank of America. "Show the international subs and other corporate functions that treasury is aiming for more than accelerated cash flow."

But changing corporate culture takes a plan, complete with metrics to measure what you hope to achieve and incentives to reward people for moving in the right direction, Anwar insists. For example, business units may have a tendency to stockpile cash. One way to align them with corporate liquidity priorities is to give them credit for cash balances only when those balances are held in a treasury-controlled account, he suggests. Corporations can even charge business units their effective cost of corporate capital for retained cash.

Some companies go further and provide incentives for business units to reduce their working capital, Anwar reports. For example, a unit could be guaranteed that its investment budget will be raised by a percentage of the reduction it achieves in working capital. "The right incentives, tweaked in the right way, can go a long way towards getting business units to support corporate strategy," he concludes.

These new partnership demands on treasury–for different skill sets and time–can put strain on resource-constrained departments. As a practical matter, some treasuries with larger staffs will literally split the team, with one group focusing on daily operations and the other group selling solutions to other parts of the company and serving on joint task forces. For those with lean staffs–sometimes only enough to run a treasury operation–the only option is through technology and outsourcing of core treasury operations.

Three market trends are making the transition more feasible for treasurers committed to internal partnerships:

o Technology, especially shared systems. Technology can help to foster partnership thinking. Large corporations that spend hundreds of millions of dollars buying and implementing cross-functional enterprise resource planning (ERP) systems are eager to leverage that investment and move as quickly as possible to a common platform that spans all locations, all business units and all corporate functions. Implementation requires cross-functional teamwork, and greater access to information can make it easier for different parts of a company to work together.

o New bank products and services. As banks expand their products and services from lockbox and disbursement to fuller A/R and A/P outsourcing, it takes cooperation between treasury and A/P, A/R and cash application to implement these broader-based solutions. Implementing a bank product like corporate procurement cards necessarily brings together treasury and purchasing, as well as A/P and sometimes tax and accounting. Payroll cards, as well as pension investment, can bring treasury and HR to the same table.

o Enterprise risk management. Hedging is a natural activity where teamwork can grow. Business units know they create exposures and then lack the skill, the market access and the overview of net exposures to hedge themselves. They need treasury's help, and treasury needs their help to report and sometimes avoid the exposures.

COLLABORATIVE AND PROACTIVE

Kevin Leader is another example of a treasurer who has been able to create a culture of cooperation around these common goals and complementary skill sets. At San Francisco-based Bechtel Group Inc., Leader runs a small, centralized treasury that is actively involved with the company's array of big construction projects around the globe, including reconstruction work in Iraq. "In difficult areas, basic banking services may not be available. It can be a challenge just to get employees paid," Leader notes. "We're active in countries that have illiquid currencies. We have to work closely with each business unit, helping them weigh the banking capabilities, the currency issues, the credit risk and the country risk."

Such enterprise risk management should also require treasury to assume a bigger role in the preparation of contracts. While contract negotiation is a far cry from traditional core treasury responsibilities, treasurers like Leader believe that early participation with sales and marketing, bid teams and legal can help the company avoid financial pitfalls down the road. "How a contract is structured can make a big difference in our risk. We have to compete to get the job, but we also have to live with the contract if we get it," Leader says.

This kind of collaborative risk management is growing in popularity. At Cadence Design Systems Inc. in San Jose, Calif., treasury works closely with sales to structure deals offered to customers. Since Cadence has a relatively small volume of large sales–the typical sale is for millions of dollars and payments often stretch over several years–the treasury efforts become very important when determining how much credit risk the company should tolerate. Payment terms are often a careful balance between facilitating a sale to a buyer with shaky credit and protecting Cadence from bad debt, explains James Haddad, vice president of finance for the $1.2 billion maker of design software for electronic products. He illustrates: "The head of sales called me today to discuss a large sale to a customer with weak credit and explore ways we could add security features that would let us make the sale. We look to meet the customer's needs first and then our needs, but how a deal is structured may determine whether we can sell the receivable or not. Sometimes a major contract with a good customer has risks that outweigh the rewards and we take a pass on the business."

M&A is also turf ripe with opportunities for treasury partnerships. "We work closely with mergers and acquisitions on every deal, but we bring the most to the table when it's cross-border," says Steve Wolgamott, international treasury manager at Diebold Inc. in Canton, Ohio. "We look closely at how settlement would occur, what currency regulations are involved, how we could move cash into and out of the country and what exchange rates we could get. We were looking at a European company that had a Japanese subsidiary with yen receivables. Since we're already buying from Japan and hedging our yen exposure, that acquisition would have brought us a natural hedge and reduced our costs. We pointed that out."

Diebold's treasury also works with purchasing and mergers and acquisitions to flush out any derivatives that might be hidden in contracts, Wolgamott says. "Because of FAS 133, we try to get rid of unnecessary derivatives," he explains.

At the heart of better collaboration is the ability to share data and analysis and to keep all the internal partners apprised of changes as they occur. "I'm no fan of specialized software that has to be interfaced to other systems," Bechtel's Leader declares. "We're moving to standardize our systems across the enterprise, built around an ERP system," he explains. "We're moving away from treasury-specific platforms, and we've made a lot of progress in the past 24 months."

Technology has had a particularly strong impact in areas touched by the payment process, such as A/P, A/R and procurement. Increasing complexity and a rapidly growing number of choices are giving treasury new opportunities to build strategic relationships with key customers, observes Anthony J. Carfang, Chicago-based partner of Treasury Strategies Inc. For example, purchasing cards bring treasury and procurement together and provide a link between treasury and A/P and A/R. "The emphasis is on communications, not just collecting," Carfang notes. "There's growing recognition among top management that a robust payment strategy builds shareholder value."

Even small collaborations can frequently produce big results. For example, after treasury staffers at Atlanta-based Manheim Auctions Inc., a wholesale auto auction company, watched a demo of the nifty Web site Manheim's IT staff had built to accommodate online real-time bidding, they made one simple suggestion: Add a "Pay This" button at the bottom of each online account, so that buyers and sellers across 84 North American auction sites could settle up their accounts on the spot.

IT obliged. "Now, treasury collects some $1.2 billion of incoming funds two or three days sooner from the 740 dealers who signed up to have the money debited from their bank accounts through the ACH," reports Kathleen K. Decker, director of treasury operations. Those payments replace checks that otherwise would be presented physically at the point of sale and have to be taken to a bank for deposit and posted manually to the payer's account. The electronic payments post automatically, she says. Funds can't be debited until the payer clicks on the button, she adds.

Manheim, a subsidiary of Cox Enterprises Inc., is no Fortune 100 giant, but $92 billion passed through its more than 500 bank accounts last year. While $1.2 billion is a small percentage of $92 billion, it still expedites cash flow and cuts processing overhead. And it didn't take a lot of time or money to develop, Decker concludes.

At Prudential as well, stirring the pot has produced good soup. Chaplin offers one example: offering individual term life insurance is an essential part of a life insurer's business, but it requires regulatory reserves far in excess of GAAP or what would be needed to reasonably protect the company. Because of the capital it ties up, "selling term life was a real drag on our return on equity. That didn't matter so much when we were a mutual company, but once we were investor-owned, ROE was critical," he says. "People who sold term life had a hard time hitting their ROE bogies."

MOVING FROM CONCEPT TO CULTURE

So treasury went to work with the life insurance finance staff and developed an internal reinsurance structure that "lets us use senior debt at the holding company as the basis for reinsurance pricing. In effect, it brings the return from below our average weighted cost of capital to above it. It frees us to sell term life insurance more broadly without the financial penalty," Chaplin says.

Yet, despite the growing recognition of this interdependence, only a handful of treasurers like Chaplin have succeeded in making internal partnerships with the treasury function part of the institutional infrastructure, part of their corporate culture. For many, the move out of their traditional, transaction-oriented roles still remains more of a personal rather than departmental journey. But at least, there's movement.