Emerging Information Technology Issues in Leasing

Transcription

1 Emerging Information Technology Issues in Leasing EXECUTIVE SUMMARY Rapid changes in information technology will trigger profound changes in the leasing industry. That is the conclusion of the Emerging Information Technology Issues report, completed last fall for the Foundation for Leasing Education. It discusses how the pervasive use of information technology will create fundamental shifts in almost all aspects of the leasing business, namely: what is being leased, how that is being leased, where leasing transactions are conducted, and to whom the items are being leased. CURRENT LEASING DRIVERS AND TRENDS Information technology is becoming increasingly crucial in the leasing industry. The 1996 Industry Future Council Report by the ELA lists five critical factors that make the role of information technology more and more essential: character of the marketplace, technological change, legislation and regulation, economic environment, and capital. In addition, many lessors face certain strategic issues that also drive how technology will affect the leasing industry. They are as follows. Differentiation versus commodity. If leasing continues to be viewed as simply a financial transaction, margins will be pushed to significantly thinner levels, thereby making leasing a commodity. Lessors must, therefore, find new ways of differentiating their services and offerings from other leasing and financial services organizations. Quality of leasing. As leasing customers seek improved service in leasing, lessors must increase their focus on the quality of the leasing process and their interaction with lessees. Time to lease. In all industries, the time to conduct business is being limited by new process approaches and expectations. Lessors are under increasing pressure to shorten the time it takes to lease equipment. Improving profitability. Improving margins, reducing costs, creating new revenue, and maximizing residual values help improve the profitability of a lessor. To increase their profit, leasing organizations must maximize both the efficiency (that is, doing things right) and efficacy (that is, doing the right things) of their businesses. With these issues and driving changes in the leasing marketplace, several new trends in leasing have emerged, including adding value to leasing through enhanced services and expansion into emerging international markets. These industry drivers, issues, and trends have created a significant climate of change for lessors. Information technology (I/T) is accelerating, influencing, and even determining these changes for the leasing industry. The impact of I/T on leasing is significant because the leasing business is, in part, an information business. Aside from the actual equipment, all a leasing organization creates, uses, and manipulates is information. Lessors will likely move in the same direction as many financial services and other information-laden industries: toward complete digitalization of information, where digital information and communication infrastructures will become more important than traditional paper, brick, and mortar infrastructures. A report from Computer Sciences Corporation for the Foundation for Leasing Education JOURNAL OF EQUIPMENT LEASE FINANCING 17

2 As information technology penetrates almost all aspects of most businesses, lessors need to become more aware of how technology can and will change leasing. TECHNOLOGY TRENDS AND BUSINESS CONSEQUENCES As information technology penetrates almost all aspects of most businesses, lessors need to become more aware of how technology can and will change leasing. The following three information technology trends have significant implications on the leasing industry: Equipment is becoming digital. Organizations must move toward entirely digital information infrastructures. The rise of the digital channel (or the pathways of digital commerce) will transform the leasing marketplace. These three trends will likely drive substantial changes in how leasing services and products will exist in the equipment financing marketplace. Overviews of these trends follow. Added emphasis has been placed on the digital channel, because this trend has the most significant long-term and strategic implications for lessors. TREND I: EQUIPMENT IS BECOMING DIGITAL Information technology, whether embedded or complementary, is transforming the design, content, and capabilities of equipment. The resulting changes in equipment management, application, and lifespan will enable changes to the creation and servicing of leases. The trend toward digitally enabled equipment has four major characteristics. 1. Accelerating changes in equipment design. Almost all equipment is being designed faster and cheaper as the design and development processes move onto digital platforms, including PC-based computer-aided-design systems. The increased speed and quality of equipment development are shortening leasing cycles and are making residual values more difficult to calculate as subsequent technological advances drive equipment design. 2. Higher degree of expertise required for use. As equipment becomes more technology intensive, lessees will require new levels of expertise as they install, operate, and maintain equipment. 3. Information about equipment. Asset management and equipment maintenance are dependent on where and how information about equipment becomes available. Information technology is enabling lessees and lessors to manage equipment (and not just electronic equipment) via computer networks and automated equipment access. With accurate access to equipment information, including diagnostics and usage information, lessors could provide additional or new asset management services. 4. Intelligent equipment. Manufacturers are integrating information technology into more equipment. Integrated circuits and microprocessors, expected in computer and networking equipment, are common in cars, trucks, and office equipment. The use of digital electronics is now extending to non-electronic equipment. Furthermore, the digital capabilities of equipment are being enhanced through software, where change of equipment functions is becoming a matter of upgrading the software used by the equipment. As the usage of digitally enabled equipment becomes more prevalent, lessors must consider how the resulting dynamics of equipment affect the leasing process. TREND II: DIGITAL ORGANIZATIONS AND INFRASTRUCTURES To go beyond administrative information technology systems and reach new levels of efficiency, lessors need to apply emerging technologies and new approaches. From electronic document management to Electronic Data Interchange, the spectrum of I/T provides a rich set of solutions and infrastructures to improve how a leasing organization operates. Leasing organizations can reach 18 VOL. 15/NO. 1 SPRING 1997

3 new operational goals by utilizing the following technology approaches. 1. Managing customization and personalization. I/T has become the primary enabler for personalizing products and services. Lessors looking at providing custom leasing services will find new technology approaches necessary for creating systems that enable customization. These approaches include modular software design, flexible data models, and new information visualization techniques. 2. Creating knowledge: data warehousing and mining. By applying data warehousing technology to their information, lessors can increase their capability to find and understand patterns in their business activities. Data mining techniques and technology help this process by searching and visualizing the found patterns to assist in decisionmaking. 3. Accelerating the credit process. By using I/T to gain faster access to credit information, as well as to automate processing and scoring of that information, leasing organizations are shortening the time it takes to analyze and approve credit for lessees. 4. Changing the document mindset. The documents created and used throughout the leasing process can now be stored, managed, and transmitted electronically. The use of electronic document management tools, including tools to support the flow of these documents through the leasing process, can eliminate the time delays and disadvantages associated with paper-based documents. (However, these tools can introduce new issues and challenges.) 5. Streamlining the existing customer interaction. The existing customer and vendor interactions can be streamlined through information technology. Three key approaches include: Using existing electronic links: Electronic Data Interchange (EDI) and Electronic Fund Transfer (EFT). Corresponding and meeting with customers through maturing digital forums, such as electronic mail. Delivering information electronically over the Internet and online services. TREND III: DIGITAL CHANNEL As the Internet phenomenon continues to boom, digital commerce is changing very rapidly. The digital channel refers to the exchange of information through global networks, including the World Wide Web. The digital channel delivers information and services to customers and consumers throughout the world instantaneously. Now that suppliers, customers, consumers, competitors, and third parties like governments and special interest groups share interconnected information technologies, including the Internet, both customer expectations and the rules of competition will change dramatically. In this new environment, companies in the leasing industry must learn how to exploit digital commerce s interactive capabilities and deal directly with consumers in new ways. Constructing a digital business requires a leasing organization to do three things. First, it must interact with the lessee through a digital channel such as the Internet. Second, the company must use information to enrich the lessor-lessee relationship by providing context and experience rather than raw data. Finally, some business processes must be executed in the digital medium, converting information into the basis for new commerce. The resulting convergence of these three activities forms the sweet spot of digital business, as illustrated below. Whether or not a company elects to enter the digital marketplace, the wider use of the Internet, CD-ROM, and other digital technologies (including telephony) is forcing lessors perhaps all businesses to cope with four broad trends. These are: The accelerating speed of business. The diminishing importance of geographic boundaries. The evolving relationships between users (lessees, buyers) and producers (lessors, sellers). The increase in information content of product and service offerings. Now that suppliers, customers, consumers, competitors, and third parties share interconnected information technologies, both customer expectations and the rules of competition will change dramatically. JOURNAL OF EQUIPMENT LEASE FINANCING 19

4 Mastering the operational dynamics of digital business will most directly translate into market leadership. THE RESULTING SWEET SPOT IS THE DIGITAL BUSINESS Interactive Channels Strategy Points of Interaction Context and Experience The long-term promise of the digital channel lies in its ability to help companies create new kinds of relationships with both suppliers and customers. The nature of online communities allows customized messages to be narrowcast (rather than broadcast) to smaller and more precisely defined segments. It also allows brands to increase their visibility through both direct advertising and subtle association with issue-specific groups. These affinity groups represent a significant opportunity area for many kinds of businesses. Digital commerce also holds significant promise in its ability to differentiate both the product or service being acquired and the experience of obtaining it. In the digital realm, information can be used to enhance both what is leased and how it is brought to the customer. The lessor can customize the leasing experience by moving the lessee from only conducting a transaction into maintaining an ongoing lessee-lessor relationship. When the equipment requires customizing after the lease has been established, information about the customer s use of equipment, preferences, and special requests transforms the equipment being leased from a commodity into a higher value (and higher margin) item. Moving up both axes simultaneously, as illustrated below, increases value even faster. Although adapting to the technology aspects of global information networks requires significant investment, and marketing to the wired world introduces new complications, we believe that mastering the operational dynamics of digital business will most directly translate into market leadership. Responding to the speed and global scale of the digital channel requires more and more real-time business processes, scaled to a broadly distributed, multi cultural audience. INFORMATION TURNS PRODUCTS INTO CUSTOMIZED SOLUTIONS Customized Product/Service Bundle Completeness of Offering Increases with information content Basic Lease Preferred Solution High value-added High profit Value-driven leasing Mass customization Commodity Exchange Low value-added Low margin Price-driven buying Mass production Transaction Quality of Leasing Experience Relationship Increases with information content To best understand how to meet the challenges of the digital channel, it is useful to examine a customer-centric view of the buying process. Taking leasing as one example of a customer process, the report shows how that process is affected by the impact of digital commerce on industries currently unrelated to leasing. New communications channels mean that lessors have opportunities to interact more directly with all customers. More important, these communications channels also represent new kinds of threats. Today s digital networks allow new intermediaries to interject themselves into the traditional buyer-seller relationship by packaging information into offerings that deliver new forms of value and convenience. These players will emerge rapidly as the digital channel s low barriers to entry allow information-rich startups to take margin from established companies with 20 VOL. 15/NO. 1 SPRING 1997

5 heavier infrastructure loads and slower response capabilities. In some cases, information about a good or service is more profitable than the good or service itself. For example, one airline that referred customers to a preferred hotel partner made more, in a year, on the referral fees than the hotel chain made on the rooms. Such arrangements will be increasingly common in the digital channel as brokers exploit new information flows to invent new value propositions. SCENARIOS AND NEXT STEPS The combination of trends in both industry and technology is creating a wide set of threats and opportunities for leasing companies. In particular, the digital channel is introducing changes that may directly affect lessors, including the ability of new business lines to disintermediate the roles of financial mediators (possibly including lessors), provide new financial services, define new markets, extend the market reach of lessors, and enable new industry partnerships. All trends of information technology, with digital commerce in particular, are helping change the approach of customer interaction from a transaction model to a customer-centric model. Using the digital environment as the communication and interaction infrastructure, lessors can more easily view and support the entire customer equipment process, from requirements to replacement, rather than just establishing and maintaining the lease. To ensure the strategic trends and implications of technology are understood and can be addressed, leasing organizations should consider the following steps. 1. Move toward bits. By moving their information into an entirely digital infrastructure, lessors will improve their efficiency and increase the value of the information. Establishing a digital infrastructure also enables lessors to create, offer, and move services over the digital channel. Four technologies should be considered in the move toward a digitally enabled organization: electronic document management, intranet technology, decision support systems, and business objects. 2. Drive technology through business strategy. As technology becomes a fundamental catalyst and enabler of new products, markets, and operational capabilities, lessors should integrate technology considerations into their strategic planning efforts. For example, to integrate technology with business strategies, lessors could: first develop the right strategic questions involving technology, realize innovations through network-enabled partnerships, and conduct a digital readiness assessment. 3. Establish the means to keep up with technology. Leasing organizations interested in finding business opportunities through technology should establish a disciplined process to learn about and adopt information technologies. This learning process should consist of three phases: research, experimentation, and education. This three-step process will ensure that the lessor finds and applies technology in an appropriate, timely, and strategic manner. The full report, Emerging Technology Issues in Leasing, is available from the Foundation for Leasing Education. For more information, call the foundation at (703) or visit its web page at DATN.HTM. In some cases, information about a good or service is more profitable than the good or service itself. JOURNAL OF EQUIPMENT LEASE FINANCING 21