TMT powers change in cash management

For companies in the telecoms, media and technology industry, cutting edge technology is a way of life, but at what cost?

The banking and the telecommunications, media and technology (TMT) industry have been even more closely linked in recent years.

In times of fast growth and consolidation in the TMT industries, the banking sector has become even more infused into the industry, says Alexandra Cook-Schaapveld, senior executive vice-president and global head of telecom, media and technology, ABN AMRO. Speaking at a recent conference in Singapore, Cook-Schaapveld said such inter-dependence between the two sectors has had an impact on finance and treasury models worldwide.

The TMT industry in recent years has been characterized by high growth, as well as consolidation and convergence. Growth in the industry has been funded by capital from banks worldwide. "Such capital raising has been a great driver of financial services," comments Cook-Schaapveld.

Consolidation of cash management processes in the TMT sector has had an important effect on bank services. The Boston Consulting Group (BCG) estimates that in1998, $168 trillion in payments were made cross border. BCG further predicts that the growth rate of such flows is 7%-8% annually.

In Asia alone, the value of domestic payments is expected to rise to $740 trillion by 2008. According to Cook-Schaapveld, a significant percentage of the flows come from the TMT sector. Centralizing payments processing and consolidation within the TMT sector has resulted in a greater focus on improved working capital management, increased automation and outsourcing of cash management and back office services.

Cook-Schaapveld says that a top-notch finance organization within the TMT sector will typically cost less than one percent of annual revenues to run. Further, many of these companies have centralized processing locations and only one system per process instead of numerous sites and systems. Such companies also have a typical budget cycle of 60 days instead of the current industry standard of 95 days, and 50% less staff than bottom-quartile performers.

How do they do it? Cook-Schaapveld cites the examples of Oracle and Sun Microsystems and the headway they made by setting up shared service centres (SSCs).

Oracle moved its financial operations to a shared service centre in Dublin in 1998. The centre sought to centralize and automate payments processing and automate the matching of receipts. The center has so far had a 90% success in automatic matching, and the technology giant claims to have successfully cut $1 billion off their bottom line.

Sun Microsystems chose to regionalize their financial services in the Asia Pacific and in a sunnier location – Australia. SWIFT (Society for Worldwide Interbank Financial Telecommunication) messages carrying payment instructions are sent by Sun Microsystems from Australia from a core global bank which enables local bank accounts to be debited in Asia.

Cook-Schaapveld concludes that the TMT industry has had a great deal of influence on shaping the cash management and treasury services. TMT companies in general have been aggressive in using and demanding new technology to bring down the cost of maintaining the finance function. Companies in the TMT sector have also taken the lead in outsourcing non-core functions, and using Web-based management as an integral part of business strategy.

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