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Interested in the digitalization of Treasury operations? Well, you're in the right place! Welcome to Currency Cast, my name is Agustin Mackinlay and I’m the Senior Financial Writer at Kantox and your host. In this episode we have the pleasure to welcome Frédéric Chapelle, Partner at PwC Luxembourg, and Corentin Maricq, Manager Advisory - Finance & ESG Transformation at PwC Luxembourg, as well.
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Frédéric and Corentin, a warm welcome to you and thank you for joining us today in this episode of CurrencyCast. Thank you very much for having us. Well, Frédéric and Corentin, can you introduce yourself and tell us about your work at PWC? Yeah, sure. Thank you. I’m Frédéric, I’m technology partner in Luxembourg leading finance transformation, but also technology practice around financial application and solution and definitely, super interested by developing and implementing Treasury solution.
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And yourself, Corentin? So I'm Corentin, I've been here at PWC Luxembourg for seven years working for Frédéric and his technology team, with a focus on finance transformation and as well touching the new topics of ESG. And of course, very eager to learn and work on treasury and currency topics.
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So I think we're going to start with the main topic today of the conversation, which is business process automation in general and in the context of Treasury operations, in particular. At Kantox, of course we are very much interested in that subject. So let's start with a say a broad question: What are you see are the main pain points tackled by business process automation in general, and in finance and in treasury operations?
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Maybe I will take that first one. If I may say, usually what we see is that there is a strong gap between what is expected by the clients and what is delivered by the software providers or the integrator. The issue it's not coming per se from the providers or the integrators, it's more about understanding exactly what are the needs that should be fulfilled by the solution and as well the preparation.
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And usually, those two key steps are not well-considered or not enough dedicated in order to make sure to guarantee the success of the implementation. Yes, indeed. Before starting to look to automation, first you need to review your process, making them probably leaner, focus on best practices because we see many, many clients that they are really a sparse implementation with system integrators.
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They are highly customized. And then for sure, if you want to automate, you need to review your process, review your ways of working before thinking to automate. Because if you move too fast just on looking tools, solution and system integrator, you will probably miss the most important part, which is really the value you will get on transforming and adopting best practices.
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Then you can later on move on to automation and it's much more a top-down approach. When you look first to your finance transformation, the way you engage. And then we are looking to solutions that can enable the transformation and not making the opposite. Just looking to any digital tool for automation and then going up, because usually we can see a lot of failure in this kind of project.
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So you see a sort of a timetable for implementing automation, is that right? Now at Kantox, we're fans our thinking automation in three dimensions. Let's say cost, risk and growth. By cost we understand, not only reducing the cost of hedging, so for example, in the event of unfavourable forward points, if I'm selling in a currency that trades at a forward discount, I'd be doing well to delay hedge execution with conditional orders, but also reducing operational costs.
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In terms of risks, I got obvious, quite obviously it's about removing currency risk with as much precision as possible, but also removing those operational risks like spreadsheet risk, risk of human error, person risk and like. But we put the emphasis on growth, right? We always emphasize growth oriented automation, telling our clients -look, if you have currency risk under control, you can start confidently selling in the currencies of your customer, buying in the currencies of your suppliers and taking advantage of those profit margin enhancing opportunities-.
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Do you agree with our broad view of growth-oriented automation? I think that's among the main motivation to transform, of course, growth is one of the main triggers. But of course and I think you already mentioned a bit it's about risk mitigation and control framework implementation as well. So with true automation
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you can guarantee the implementation of the control framework, and mitigate risk. We as well we see, a lot of tools providing the ability to steer the performance of the company, which is very key, especially today in those times of high disruption in the economy and the global economy in general. So there are different triggers for transformation, which will not only be costs or growth, you can see different angles.
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Let's now tackle the issue of people and automation and, broadly speaking, at Kantox sometimes we know that that raises some fears in some quarters, am I going to be replaced or not? Or am I going to lose control? And we decided to take the view that by removing those time-consuming, error-prone and resource-intensive tasks, automation not only doesn't weaken control, it reinforces control. But now control is done
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in a more strategic level and with an added bonus, right? You have more time as a Treasurer to devote to improving your cash flow forecasts, so what is your view here? Do you see automation as a factor that weakens, that strengthens control? What is your point of view? I would say that you are reinforcing because as you can see, still in many large companies, even if they equipped with a TMS (treasury management system), even quite an advanced one.
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You can still see many image with Excel, because they have not all the workflow setup and they are changing a lot of information out of a system. And in addition they are not automated enough. So this means that they are still spending a lot of time at transactional level and the cross-checking element. Where if they were fully automated, they will just control what happened and most of the control of what happened, they will be able to produce much more on the inside, the forecast and looking as a business partner, much more than just really focusing on the lot of transactions.
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So this is probably one important area, but to reach that level, probably we need to upskill the treasurers. Because as in many areas in financial functions, we clearly see the people, it's a little bit like the people who are fearing today Chat GPT, because for consultant early development proposal on Chat GPT. But I think that what we need to do is educate ourselves, train ourselves to be stronger, to be sure that we can cope with the new challenges. Because we like or we don't like
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Chat GPT or artificial intelligence, this is coming. So it's much better to be proactive and be equipped and really looking to the new ways of working and reinforcing control by automation. Then just keep a move with a kind of resistance to change. We also frequently shift in adopting a new solution and new automation. Alright Frédéric, I see
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the temperature is going to rise a little bit as we tackle artificial intelligence because I'm really, really very interested in having your views. Before that, however, let's talk one last issue on the broad topic of automation. And we mentioned, I think you mentioned that Treasury management systems or TMS, right? Well, that's undoubtedly one of the most important innovations in the space in recent years.
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And of course, we welcome what treasury management systems do in terms of digitizing the Treasury operations in general. But we are somehow skeptical about the possibilities or the capabilities of most TMS to really be an effective tool in terms of currency management. We give you just two examples. So on the one hand, they appear to lack what we at Kantox call a strong FX rate feeder.
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That's a strange expression, but it denotes the idea that the finance team feeds the commercial teams with only the FX rate they need for pricing purposes, could be the spot rate, the three-month forward rate, the six-month forward rate with the markup per client and segment and per currency pair. And that is not definitely, the way we see, the usual functionalities of treasury management systems.
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Another area where there might be lacking is in what we call combinations of hedging programs where you need to gather information from different parts of the company. So for example, the forecast for the budget year and those firm sales orders or firm commitments. So what is your view there on all the advantages, but maybe also the shortcomings of the TMS, especially regards currency management? If I may take that one.
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So I think it was pretty well represented by François Masquelier, very known in the Treasury sector, with this technology landscape map, where you can see all of the solutions that are available in the market. And you can see that there is plenty of TMS, but plenty of other software which are serving very specific services. So when you need to go for a new solution, you should first understand exactly what your need and not only consider a TMS, but consider there are Treasury platforms or working capital platform where the TMS will take a significant volume of processes, but then what we will call core processes and then the rest should be specific to
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your own business to your own needs and then see what could be the potential integration with the best solution or even sometimes in-house processes that could be very standard that will not require that level of automation. You don't always need a Ferrari, sometimes you just need the Renault Twingo, let’s put it that way. What I can also add is that typically, usually, you need more than one tool because you have usually a part of the minimum setup of Treasury, if you are an operational company, in your ERP.
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But you always need an extended solution. But the extended solution also relies on the needs that you have according to your industry and your exposure to, I would say, the Euro versus many other currencies. But it also could be linked also to the hedging that you have on fuel if you are in cargo. So really look at the length of your industry because again, for some industry they are relevant solutions,
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but usually no. What we see more and more is a kind of best-of-breed approach when you need to play with some building blocks where you have, we see a standard TMS that you need to complement with your specific need when you want to be best in class. Because at the end, what you want to really achieve in this journey is to reach probably not for every function the best in class, but for some of them where you are really unique and you want to be stronger or safer. Because again, as we discussed at the beginning, is performance and risk.
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These are probably the areas where you need to reinforce your standard TMS or best practice TMS by this kind of specific add-ons. And you definitely let’s think, the FX and all the currencies are usually an area where the client needs to be better covered. And this is why when you are trying to build your future IT architecture for your treasury platform or working capital platform, that should be done in collaboration between Treasury team
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but of course IT to make sure that we are having this holistic view and understanding of the tools, and how they can integrate as well. Now, gentlemen, let's discuss that idea that you already mentioned and is artificial intelligence. Now, I work at Kantox as a Financial writer, I write a lot of the material that we would produce for the marketing department for prospects and clients.
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And I want to tell you that I just hired a writing assistant. Now, that writing assistant is Chat GPT, of course, and it's providing me valuable services. Now I know that you at PwC have conducted or are conducting lots of activities with artificial intelligence, let's call it AI, in business process automation in general.
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There are three areas from what I've seen in your work that are of interest to us and its pricing, forecasting and simulation. I'm going to ask you the next question is going to be specific early on forecasting or cashflow forecasting. But for now, Frédéric and Corentin, we need to be enlightened. Tell us more about the significance of Chat GPT in general,
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but isn't it creating an earthquake? Everybody seems to be talking about it. Tell us more about the implications that you see going forward in Finance and in Treasury management. I will say that we can talk about Chat GPT like we can talk about blockchain. those are, let's say, disruptive technology that will definitely shape the future of finance and all organizations are working in general.
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But still, people are not yet educated enough and mature enough to truly understand conceptually how it's working. So for example, blockchain will for sure shape organisations in the future, but you are not seeing organisations that clearly still understand there is still quite a black hole. And on the other side you cannot run if you are not even walking.
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So we will not talk about AI to a client, which is still working on standard processes and which is still lacking automation in his company. You should go step by step with AI being the ultimate step. And I think this is how Frederic introduced it at the beginning, we should start with the basics, the basics, and then level up when possible. A user case that PWC is developing for the moment
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for some clients, it's about moving from budget, we have still many clients working on annual budget, and we are promoting that they move on to 12-month rolling forecast. So this is the first move in order to start after year because, you know, we have many crisis, geopolitical incertitude and uncertainties and things like that.
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So we have the energy price up and down with the gasoline, the gas, the electricity. So as we are living in that kind of uncertainty, we are more and more promoting to our clients to move to a yearly exercise of budgeting with FP&A, to another one that is 12 months rolling forecast. Because it's nurturing you every two or three months to see your rolling forecast.
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You are improving already quite naturally your figures and the target that you want to achieve. But also when you start to that move then, even when you start to have reliable data, you can start to look to algorithm and to improve your simulation. Which if the energy pricing is climbing or is decreasing, then you can probably better budget.
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But this is the first use case when you will start out quite basic budget to forecast. And then from the forecast we can start to apply some algorithm with AI, to try to nail down better figures and better projections to be sure that you can resolve better steer of your profitability at the end. Let me go to my last question on that.
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That involves AI or artificial intelligence. And it was about, well, a few months ago in Luxemburg you were at the ATEL conference and you discussed I remember I think the topic of using artificial intelligence for improving your cash flow forecast is that all right? I'll tell you, we have some out-of-consensus views on this but I'd like your opinion on how you would use artificial intelligence there, in terms of improving your cash flow forecasts.
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I believe you are making reference to the conference that was given in partnership with EuroFinance. Yes, that's right. With François Masquelier right? Yeah. So basically this software enables you to true AI to anticipate and improve your working capital by optimizing your accounts receivable management, based on the payment behaviour of your customers. So it's a very flexible and it's the most implemented solution that can really help you in a very short amount of time to increase your working capital.
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So here it's very specific, but it's showing very good results in a very short amount of time. And I think if we can make the connection with end-to-end versus discrete transformation, this is exactly a good example. Because you are not touching the whole value chain, you are not touching all of the processes, but through discrete transformation,
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you can already get very significant results. But that's on the accounts receivable part. At the peak of the energy crisis, we saw some a company nearly bankrupted because they were selling fixed-term contracts to the consumers, but at the same time they weren't really covered by fixed price because they were buying and selling.
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It was energy brokerage and they were buying at current price. So for sure, with that kind of approach, the cash flow focus was not accurate. At the end, they finished by having to pay much more than what they collected from the consumers, so the bankrupted very fast. So this is why accuracy on your cash flow, definitely on your currency, but also with the currency management, is really key. Because when you are having this kind of huge changes, sometimes within a week, you can be in failure of payment and then exposed to bankruptcy very, very fast. Because you are not able to manage your cash flow forecast through and your currency management.
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So for some companies, it could be really critical. I can see that. All right. Now let's move to the maybe to the final points of this conversation. I'd like to tackle the issue of silos in in technology and how technology can help companies remove those silos. It looks like a like a fancy word, like a buzzword.
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It is definitely not from our perspective. Right. For example, we're seeing in the travel industry, something is really interesting. Some of the most sophisticated operators there, like like the online tour operators are really, really tech-savvy and they know how to use currency management, automated currency management, to buy in the currency of their suppliers and then to capture those FX
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markups on the selling side. Appears that is not the case for hotel chains. And here we have, we see the big potential, too. So again, as I mentioned at the beginning to use automated pricing solutions to allow those commercial teams to price with all the rates they need so that they could offer their customers local currency prices, exactly the way OTAs do
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all those are more savvy-tech participants in the travel industry. So once again, a little bit more broadly, do you see potential therefore for technology in general to help companies remove those silos and increase their sales potential by being at the same time more competitive while protecting their budgeted profit margins.
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Yeah. So I think we already mentioned that transformation and any products of transformation should be planned ahead. So you should plan it, you should make sure that you have the right governance and the stakeholders around the table whenever you're under transformation. If you want to break the silos, you should make sure that the people that you should be making sure that we'll be communicating are involved in the project governance and in the definition of the ambition and the vision of the project.
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If those people are left aside, you cannot expect them to be collaborating with you if they're not, you are understanding of what's the purpose of the transformation and what you expect to be expected results. Then as well to make sure the quality of your transformation you should always consider, at least at PwC see we believe that those four pillars should be always considered.
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So what is the vision, the strategy, what do we do with people in the organization? Because if you put it's a new tool or new technology, you should always consider people in the organization, processes and controls and finally, systems and data for your technology. Those are the two prerequisites before launching any kind of project. And I think there is as well the concept of business partnering that should be considered.
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And that's what we believe at PwC, which can be enabled through technology. But if you don't have any upskilling or training plan aside of this, you will miss that point. So it's a combination of very different factors, that if you are leaving one aside, you might miss the objective of the business partnering and the breaking of the silos. And I would say that the fact that you have usually a fragmented IT landscape, where you have usually a CRM connected to a pricing tool, at the end you have an ERP with all the finance backbone.
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But if you want to look to the revenue management, it's again another tool, treasury another one. So at the end you have such a fragmented landscape that you cannot see the end to end. And for sure, if you want to automate it’s impossible because it's so complex and the technologies are different, the ways of working are different and the people at different locations are not working exactly the same way on the same solution.
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So at the end everything is fragmented, it's very difficult to steer and to automate. So one very important way of working is always to look to the end-to-end business case and not just to see commercial versus financials. Because at the end, if you have not the whole view on the process and where you can deal with currency and when you can hedge. Because at the end, everyone wants to protect profitability and the bottom line.
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So if you want to really have this bottom line perspective, definitely you need to have an integrated view and the way you are engaged from commercial to financials to be sure that when you are looking at the bottom line with revenue management, you have all of the stages, including definitely currency management. And with automated currency management it will be easier,
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you have the full value chain and also securing your cash. Yeah, well, absolutely. Here both Corenting and Frederic you touched on topics like governance, fragmentation, silos. And that leads me to maybe the last question of today's episode. And it has got to do with also material that I know you do produce at PwC.
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Well, of course, the topic of resistance to change, right? Or maybe the conservatism bias that we see at many companies. At Kantox, we were keen to say that this in fact is not our competitors, it is conservatism bias that is our worst or our toughest competitor. Do you see it that way and how can you or how can we take steps to overcome that resistance to change?
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But I think nobody likes change even in our personal lives. So this is something that as consultants, we need to deal with. And how do you want people to change if you want to involve them? Meaning that change management should be since day one, even day zero. so maybe at the inception of the project and throughout the project.
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So you should make sure that you have the right governance, the right stakeholders, that they are aware of the vision and the mission of the project, about the consequences and the expected results. The vision should be top-down, but of course as well, bottom-up or otherwise, you might lose them. If they are not convinced that this particular technology will help them to work better, to break the silos, to have this new concept of business partner within their business, they will let's say, sabotage it.
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So you really must make sure that they're on board and fully aware of what's happening. And this is at the end for their own benefit. This is why, again, upskilling before initiating any transformation is very important because they make have time acquainted of what's happening, because we see many clients moving for a new system implementation, but they are just coping as is.
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So what is usually a strong failure due to the conservatism. Because it's 20 years that I'm treasurer, 20 years that I'm efficient, why do I need to change? This is exactly why you need to change because definitely, the world is changing. The way we are dealing with currency is changing, the systems are changing, the process of changing. So by definition, you need to adopt best practices, the new standard.
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Because 20 years ago there was no way I know cloud solutions. So everything is changing very fast. And if you want to stay relevant because again, you are working in a competitive market, you are not implementing a Treasury system or a currency management system just for the pleasure to implement it. You're implementing it because you want to be efficient, effective and to preserve your margin and profitability.
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So this is a must have. But to reach that must have, you need to equip your team to upskill them and to make it really the fact that adopting new solutions is best for the whole company ecosystem. It not only for the CFO, for the Treasurer, is the end-to-end value chain. This is why we do believe that starting by a very clear and strong business case, and in this business gives a compelling case for change. Because if it's just a benefit and then we have a right, okay, it's very good.
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But all of this, and even starting by this, is a compelling case for change that will nurture the business case. But if you have not the case for change, with very clear pain points and the way we will tackle it, to ease the life of the people making the transaction and the day-to-day business, it's a high chance of failure.
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Yes, absolutely. So Frederic Chapelle, partner at PwC Luxembourg, Corentin Maricq, Manager Advisory Finance and ESG Transformation at PwC Luxembourg. So really, really it was fantastic to have you on our podcast, on Currency Cast. We've covered a lot of topics. We started with the general aspects of business process automation, we’ve dealt with risk, cost, growth, discrete versus end-to-end automation and control.
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We moved to try treasury management systems and then you enlightened us about artificial intelligence, the hottest topic at the moment. We finally made some points about how to remove those silos and as you said Frederic, how to upskill in order to come to that resistance to change. Gentlemen, is there something that you would like to add?
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I would say thank you very much, because for us, it's also very interesting to be able to share with you what's currently happening on the market and definitely a solution like you are developing are more and more adopted. And I think these trends will move forward. So I think very interesting to look at what's coming. Same for me.
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Thank you very much for joining and participating to this podcast. Very, very interesting for us. Yeah, thanks! All right, that's great. I'm sure we'll have you on in another episode of CurrencyCast in the meantime, au revoir and merci! As well, thank you! Merci!
