How to Measure Change and Sustain in Treasury: A Guide

Feedback Loops: How to Measure and Sustain Change in Treasury Operations

Treasury is a function focused on managing cash and financial risks that a company faces. How would a perfect Treasury look? It’s one that allows the organisation to operate in a risk environment aligned with its risk appetite while doing so with finesse and ease in an efficient manner.

Are there many perfect Treasury teams out there? Probably not, since the better you become, the more you uncover what else you want to do and achieve. It’s only in comparison with others that you may understand the areas where you excel and also those where you could become better.

Even though perfection is quite an elusive target, there is much to be said about great treasury teams or those that have the potential to become such. There may be a few differentiators for a Treasury team to become great, but one of the most important ones, in my opinion, is the ability to recognise its own shortfalls and learn from them to become better.

Thus, on this journey to greatness, every Treasury team will go through continuous change, be it a transformation or incremental improvement. There will be a constant burning desire to become better one step at a time, no matter how small the step may seem, always moving towards the vision of how the function should work and operate in an effective and efficient manner.

Key Performance Indicators (KPIs): What’s important for your treasury function

Peter Drucker famously said, “What gets measured gets managed,” which applies directly to our discussion in this article.

On the journey to excellence, it’s important to recognise that, regardless of how advanced your treasury function is, there will always be areas for improvement. Therefore, it’s essential to prioritise enhancements that are most critical at a given time. These priorities should align closely with the organisation’s strategic goals. As highlighted in PwC’s 2023 Global Treasury Survey, there is an increasing expectation for treasurers to act as strategic business partners involved in business growth.

Consequently, a treasurer must not only align their team’s activities with initiatives that directly benefit the business but also effectively communicate to senior stakeholders the value of these activities. Treasury teams don’t engage in tasks merely for the sake of activity; everything we do benefits the business to some extent. However, treasurers often fall short in articulating how their activities benefit the business. To communicate this effectively, a treasurer needs emotional intelligence to understand what’s important to the audience and how to convey it best, as well as data to substantiate their claims.

While emotional intelligence is a subject of a different article I penned recently, data is of utmost importance to managing the change we discuss today.

Using this approach, the Treasurer would prioritise activities and improvements expected to deliver the most value to the business, either by enabling scalability or preserving existing assets through risk management and efficiency initiatives. These priorities will also become the KPIs that Treasury will track over time to present results (a before-and-after picture) to stakeholders. This leads us to discuss the two kinds of feedback loops.

What are the feedback loops, and why is monitoring KPIs important?

There are two types of feedback loops: positive and negative.

A positive feedback loop allows you to identify favorable developments in the KPIs that you track—these are the metrics you want to increase or enhance. Examples include:

Increase in actively invested cash
Improvement in investment yield obtained over the benchmark
Growth in funds repatriated back to the HQ to support corporate activity
Enhancement in cash flow forecasting accuracy

Conversely, a negative feedback loop helps you monitor KPIs you’d like to reduce or minimize. Examples include:

Reduction of risk or volatility
Decrease in expected loss from counterparty exposures

In general, I find it more effective to formulate KPIs in a manner that drives towards an aspirational goal, ensuring a more positive direction. Consider these two KPIs:

Increase in the percentage of funds that are actively invested
Decrease in the percentage of idle cash with low investment return based on market conditions

I would argue that the first KPI is framed more positively, motivating the Treasury team to achieve the target and aiding in communicating to stakeholders why it’s impactful and important for the business. This KPI formulation facilitates a positive discussion, such as, “We feel great about achieving 95% of cash actively invested.” While the ultimate goal might be 100%, acknowledging that it may not be fully attainable is psychologically easier for stakeholders to accept.

On the other hand, the second KPI might prompt stakeholders to question, “Do we still have 5% of cash not earning any return?” This could lead to concerns about the exact amount in monetary terms and the interest foregone. Setting a goal of 0% idle cash, though ideal, may be unrealistic, and such discussions might result in less acceptance of the narrative that perfection is unattainable.

Even negative feedback loops can be utilized positively, especially in areas like risk management where reduction is beneficial. Therefore, it’s advisable to use either type of feedback loop based on the circumstances, but strive to develop a bias towards a positive narrative around the KPIs you’re tracking. This approach focuses on moving towards a goal rather than away from an issue.

Once the Treasurer understands what’s important for the business and determines the KPIs to track, the prioritization process begins. This involves deciding which initiatives will be most impactful to implement or improve.

At this stage, prioritized projects enter the change implementation phase. The model Unfreeze-Change-Freeze, introduced by Kurt Lewin in the 1950s, remains highly relevant in the context of Treasury change management. We’ll use this model to understand how continuous feedback and monitoring assist in each step of change management.

Unfreeze

The first step in Kurt Lewin’s Change Management Model is the Unfreeze stage, which involves preparing an organization to accept that change is necessary. This process entails breaking down the existing status quo before building up a new way of operating.

A critical aspect of this stage is motivating the individuals responsible for current processes, as well as stakeholders who consume or utilize the outputs of these processes, to recognize the necessity and benefits of change.

One effective approach is to highlight areas within the existing process that require improvement. Monitoring business activities through Key Performance Indicators (KPIs) becomes essential in this context. Data-driven insights make it easier to articulate the need for change and to envision the desired outcomes.

A common challenge in this phase is the lack of baseline data, which is crucial for measuring progress. Establishing a baseline allows for comparison before and after implementing changes, ensuring that the project’s success is quantifiable and well-understood.

The importance of securing buy-in at this initial stage cannot be overstated. Change management initiatives often falter due to a lack of engagement, misunderstanding of the change’s purpose, or active resistance. Therefore, it’s advisable to establish relevant KPIs early in the planning process. This proactive monitoring serves as a foundation for continuous improvement and provides a benchmark for assessing the effectiveness of implemented changes.

Change

The second phase of Kurt Lewin’s Change Management Model is the Change stage, where the actual transition occurs. During this critical period, the importance of feedback loops and Key Performance Indicators (KPIs) cannot be overstated. They serve as navigational tools, guiding both project management and process improvement efforts.

Feedback loops are essential mechanisms that provide insights into the change process. They enable organizations to monitor progress, identify challenges, and make necessary adjustments promptly. By establishing continuous feedback loops, organizations can adapt to real-time changes and ensure alignment with employee needs and organizational goals.

In project management, identifying and monitoring KPIs is vital for focusing attention on areas critical to a project’s success. KPIs such as change adoption rate, employee engagement levels, and stakeholder satisfaction provide measurable indicators of progress. Regularly tracking these metrics allows project managers to assess the effectiveness of change initiatives and make informed decisions.

For larger projects with extended timelines, KPIs offer tangible evidence of progress, which is crucial for maintaining team motivation. Celebrating milestones reflected in positive KPI trends can boost morale and reinforce commitment to the project’s objectives. Additionally, transparent communication of KPI progress to stakeholders outside the immediate project team fosters trust and demonstrates accountability.

When a specific process undergoes change, monitoring relevant KPIs ensures that the transformation is progressing in the desired direction. For instance, tracking metrics related to process efficiency, error rates, or output quality can reveal whether the implemented changes yield the anticipated benefits.

Moreover, continuous monitoring may uncover new opportunities for enhancement. For example, if a process improvement leads to increased efficiency, further analysis might identify additional areas where similar strategies could be applied, resulting in even greater organizational benefits.

Sustaining momentum during the change phase is essential for successful implementation. Regular feedback and KPI monitoring help in identifying and addressing resistance, ensuring that the change initiative remains on track. By fostering an environment where feedback is valued and acted upon, organizations can enhance employee engagement and facilitate smoother transitions.

In conclusion, the integration of feedback loops and diligent monitoring of KPIs during the change phase is instrumental in guiding projects to successful outcomes. They provide the data-driven insights necessary for informed decision-making, help maintain team motivation, and ensure that process improvements achieve their intended objectives.

Refreeze

The final stage of Kurt Lewin’s Change Management Model is the Refreeze phase, where new processes and behaviors are solidified to become the standard operating procedure within an organization. This stage is crucial to prevent regression to old habits and to ensure that the implemented changes are sustainable and effective.

A common challenge during the refreezing stage is the natural tendency for individuals to revert to familiar routines, especially if the new processes are not yet deeply ingrained. To counteract this, it’s essential to implement strategies that reinforce the new behaviors:

Continuous Monitoring: Regularly assess adherence to the new processes through audits and performance evaluations. This helps identify areas where individuals may be slipping back into old habits and allows for timely corrective actions.
Positive Reinforcement: Recognize and reward compliance with the new processes. Acknowledgment of efforts can motivate individuals to maintain the desired behaviors and discourage regression.

Even after a change initiative is deemed complete, unforeseen challenges may arise that could impede the full success of the project. It’s imperative to establish mechanisms for identifying and resolving these issues promptly:

Feedback Mechanisms: Encourage open communication channels where team members can report problems or suggest improvements related to the new processes. This collaborative approach facilitates the early detection of issues and collective problem-solving.

Regular Performance Reviews: Conduct scheduled evaluations to assess the effectiveness of the new processes. Analyze KPIs to determine if the changes are delivering the anticipated benefits or if adjustments are necessary.
Adaptability: Be prepared to make iterative changes to the new processes based on feedback and performance data. Flexibility ensures that the organization can respond to challenges and continuously improve.

In conclusion, the refreezing stage is a critical component of the change management process, ensuring that new processes are firmly established and sustained over time. By implementing continuous monitoring, providing ongoing support, addressing post-implementation issues, and integrating changes into the organizational culture, Treasury operations can achieve lasting improvements and prevent regression to outdated practices.

Conclusion

In Treasury operations, the continuous pursuit of excellence necessitates a structured approach to change management, effectively guided by Kurt Lewin’s Change Management Model, which encompasses the stages of Unfreeze, Change, and Refreeze. By establishing and monitoring Key Performance Indicators (KPIs) throughout these stages and utilizing Feedback Loops, Treasury teams can identify areas for improvement, implement necessary changes, and solidify new processes to prevent regression. This methodical approach ensures that Treasury functions not only align with organizational strategic goals but also adapt to evolving business environments, thereby enhancing efficiency, risk management, and overall operational effectiveness.

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