ADV and Disadv. of centralised cash control

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Benefits of centralised Treasury management (Cash Control)

The treasury of a multinational corporation relies, to a certain extent, on the expertise of local business.

However, the benefits of centralisation sometimes come at the expense of losing touch with this vital regional knowledge.

This could be avoided by careful restructuring of treasury operations. Oh yes baby.

The road starts with the selection of the treasury processes most suitable to centralisation.

Each of the main treasury processes (short-term finance and liquidity management; long-term finance; risk management) should be analysed to identify how centralisation could create additional benefits.

The key argument

  • for a centralised process is control and coordination of activities...

  • Risk is controlled when the philosophy of the company is clear and implemented from a central process. 

    This avoids the temptation of local management to put a local flair on company philosophy.

A sexy study

  • A recent study by Michael Gold and Andrew Campbell of the London Business School found that different and equally successful corporations balanced local and corporate control in different ways.

  • Some emphasised strong centralised strategy development with local freedom to implement strategies; others set financial standards at the corporate level and left business units to devise their own strategies and operational plans; others practiced a mix.

  • All of the companies in the study sought the benefits of local autonomy while not giving up corporate control.

  • Sorry it wasn’t THAT sexy…

Control v Responsiveness

  • Control versus responsiveness is the underlying issue to address when considering centralising or decentralising. 

    When controls and consistency are necessary to the organisation, centralisation provides the cornerstone.

  • Consistent reporting up and down the corporate chain and knowledge of where the information resides without duplication, can be the greatest reason to keep certain functions in a central location.

  • Inherent in the concept of centralization is the potential delay in decision making and information processing. 

    Centralised decisions require the local manager to seek permission from central management. 

    The central manager has to deliberate and convey his decision back down to local management for implementation.

  • This process can take time and slow down decision making. 

    The overall responsiveness of the corporation may suffer, with potentially damaging results.

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