New Business Models Required

What does it mean that the second engine imploded (see my blog from June 5, 2009) for your business model? Do your customers require borrowing money to be able to buy your products? Then you might have to abandon your present model or at least redesign it. That is if you can't wait for the twin-engine model to return to pre-crisis levels. And that will take time.

In our latest European Treasurers' Peer Group we were visited by Robert Bergqvist, Chief Economist at SEB. According to Robert the central banks cannot actually control inflation and we would therefore need a new monetary policy framework. Unclear what but the present opinion is that credit expansion is the key to controlling the economy. This means that credit would not be allowed to grow faster than GDP and this would impose a major change and force us to find new ways to achieve growth without excessive leverage and credit driven consumption.

This would basically also mean that corporates with SME or private customers having to make relatively large investments to buy the products will now have to wait until they have saved up (if you cannot supply credit to them that is). This is a game changer for all industries requiring customers to increase debt. Here is an area where the treasurer can deliver exceptional value in developing a new business model.

Software as a Service Faster Than My IT Department

Treasury is a strange world for the internal IT in large operations. Treasury does not really fit in to all the IT policies, large ERP projects and other bureaucracy surrounding the IT organization. One example is collecting data from the operating companies such as account receivables and payables to calculate risk and cash flow forecasting. Setting up new solutions through the IT governance structure can take a lot of time and be very costly. Therefore SaaS (Software as a Service) many time makes sense for treasury. Buying directly from fast moving suppliers that set-up and run efficient solutions circumventing the inertia of your own IT department.

Treasury Wagging the Dog

Working Capital Management (WCM) is a funny creature that few companies really get their arms around. This is especially true for public companies. From my experience entrepreneur driven companies have a much better control and focus on cash and cash drivers. There it is a necessity to gear the company towards cash generation instead of earning figures forced on to public companies by the analysts.

In public companies where most KPI are built on EPS and EBITDA there is often a hard struggle to implement WCM. Since the organization is not educated on the impact on cash treasury usually is the only function understanding the difference between accounting cash and bank account cash. Therefore giving the treasury the responsibility to implement WCM in an EPS run corporate is like asking treasury to wag the dog.

Crisis Started in the Regulated Markets

There are lots of discussions how to regulate hedge funds and other high risk financial companies. Maybe there are actions to take to avoid Ponzi schemes for instance? But we shall never forget that the credit crunch did not start there. It started in the regulated part of the financial industry.

Maybe therefore more regulation is not the full answer. Regulations can be designed in ways to create systemic risks (which I say Basel II has done). Let us hope that we do not just get more regulation. Instead let us hope that we get new regulation based on common sense and the boom and bust nature of the minds of human beings.