While there are many treasury technologies available to treasury teams, these solutions fall into one of two categories: All-in-one or best of breed. Using a home tool analogy, the all-in-one treasury technology is like a multi-purpose tool. Multi-purpose tools can have as many or as few tools as you think you need (knife, screwdriver, bottle opener, saw etc.). All-in-one treasury technology operates very much the same way (cash management, debt management, hedge accounting, etc.). In contrast, a best of breed solution is like any one of the tools within the multi-purpose tool (knife, screwdriver, saw, etc.). In the case of treasury technology, best of breed solutions might be a standalone bank fee analysis tool, an FX trading portal, a hedge accounting solution, etc. So if you are a treasury technology user how do you determine which is the right solution for you?
As mentioned above, all-in-one treasury solutions encompass a broad range of functions and features. The main benefit of these solutions is similar to that of the multi-purpose tool: you have all the tools at your fingertips. When speaking to treasury professionals that select the All-in-one option, they will tell you that this solution allows their team to future proof their needs, i.e. tools are available for when the team needs them later, even though their initial needs mostly center around cash management for example. These buyers will also mention the importance of not having to worry about integrating different solutions or having to manage different vendor relationships.
The challenge with all-in-one solutions is that the tools that you believe you will be able to use in the future may not be right for your situation when the need arises. As an example, if you are using a multi-purpose tool’s saw function to cut a twig while you are on a hike, this might be the right tool to have. However, if you have multiple carpentry projects that require cutting thick pieces of wood that saw on the multi-purpose tool will no longer be adequate. In treasury technology, one area where the all-in-one approach may not be appropriate is hedge accounting. The hedge accounting solution in an all-in-one treasury management system might be able to handle the simple, low volume hedge accounting strategies, but if you require any flexibility to automate your hedging program, chances are the all-in-one solution will not meet your needs.
For an all-in-one solution to be the right choice, you have to accept that some of the tools may not be good enough when you really need them. This is especially true if your business changes significantly in the near future.
Best of breed
Best of breed solutions are focused on a specific area of need. The main benefit of these solutions is like that of the saw example above: if you have carpentry projects that require more strength and more frequent use, a motorised saw might make more sense than the saw on a multi-purpose tool. Imagine that you now have to saw multiple pieces of wood each day, every day. You want a tool that makes this work easy and reduces the time and effort you spend. From a treasury perspective, one area that could demand a specialized tool is hedging accounting. For example, if you are a US multi-national business company with different business lines, you may have different hedging strategies that require different applications of hedge accounting. With a best of breed hedge accounting solution, you would have the flexibility to manage the volume and complexity.
The challenge with best of breed is that it is specialized in its ability, i.e. it’s not going to do anything outside of its focus area. For example, you’re not going to use that saw to hammer a nail. In treasury technology that means that your FX hedging/hedge accounting technology solution will not be your bank fee analysis tool; you are going to need to buy a separate tool.
For the best of breed solution to be the right choice, you truly need the best solution; good enough is not an option. As your business continues to grow and change you want to be confident you have selected the best solution for your evolving needs.
All-in-one vs. best of breed, what is right for you?
In summary, both approaches are viable options for making treasury’s life operationally easier. The real determination for which choice is right for you depends on your business’s growth and your specific needs. For businesses in the early days of designing their hedging program or who hedge on a limited basis, All-in-one tools may be a great starter. However, the moment your hedging program grows or you require added flexibility, the best of breed model will make your life easier.
Chatham Financial provides a best of breed SaaS based Hedging/Hedge Accounting solution called ChathamDirect. If your business requires more hedging, if you have challenges with forecast certainty, or you need flexibility in applying hedge accounting, ChathamDirect is the best of breed tool for your hedging program needs.
Contact the ChathamDirect team to start a conversation about your FX risk management program.