An “optimization revolution” is occurring in the business world today and is being driven by several factors. First, companies need to be smarter. Second, they need to do more with less, or, to put it a different way, get more out of the resources they have — including knowledge and information. This optimization revolution is integrating select elements from process innovation, sourcing, benchmarking, analytics, information technology and management consulting to create a new business model that is much stronger and more effective than the mere sum of its parts.
Today, a growing number of executives can and are taking in and processing large amounts of data and quantifying, analyzing and delivering sophisticated reports in real time. Why? Because they can. The optimization revolution has democratized the ability to access, process and create understanding of data and thereby made it possible for executives to gain control of their decision-making process by mastering the gathering and synthesis of information.
The optimization revolution is also a “micro revolution”. Nothing is too small, too remote or too unimportant to escape scrutiny. Pieces of data no longer slip through the cracks or are dismissed as irrelevant. The analysis needed for strategic executive decisions for a sustainable enterprise can no longer afford to ignore the seemingly irrelevant or trivial. The optimization revolution is allowing managers to blend information technology, objective and experienced management consulting and management prioritization to deliver appropriate recommendations based on the standards or algorithms that they see as the most critical to their success.
No longer must an executive sacrifice breadth and depth for focus and reach: the optimization revolution is allowing decision makers to manage all data by utilizing a process that automatically prioritizes it. Add to this the fact that empowered executives with mastery of smart real-time information are global, and you have the competition of the future. All enterprises have always faced business problems. Today, the optimization revolution is empowering them to meet these challenges independently – and far more effectively.
The optimization revolution has, at its heart, a focus on pragmatism. Results matter. How you get them, less so. Preconceptions and pigeon-holing of ideas fall by the wayside in the search for a solution.
Solving Business Problems
Toward this end, technology solutions addressing technology problems are being replaced by business solutions addressing desired business outcomes — like increased yield in deal conversion, best in class customer and brand loyalty and lowest cost in the application to booking cycle. Yes, solutions to business problems will generally include technology services. But the focus will remain on the desired result, not necessarily the technological pathway to get there. Known technology issues rarely lead to changes in business decisions and strategies; however, technologies can and do enable business solutions and lead to the activities necessary for sustainable execution. Attaining the sustainable execution phase of business is more critical than ever before. Technology is being joined with behavior throughout society to improve the quality of life and success of organizations.
If they are to be successful, sustainable solutions require the best analysis and understanding of the situations, processes and practices that led to the problem in the first place. Technology can provide the information and the analysis that makes understanding the problem and, more importantly, the execution of the potential solution, possible. This “solution execution phase” — the point at which the optimization revolution actually gets applied — becomes a keystone to success. Technology facilitates the solution in many cases, but the underlying insights and solutions that lead to dramatic improvements in business outcomes are more complex and involve many people, processes and interdependencies.
Getting an optimal solution to an enterprise’s problem often requires the leadership, objectivity and knowledge that a management consultant brings. Never underestimate the power of fresh thinking, a new perspective and the insight of a professional committed to applying optimization techniques. Process management and re-engineering insights grounded in technology innovation, design and execution are a formidable combination; together, they constitute a strategy, focused on enabling the business operating model to become outcome-focused, rather than feature/function-oriented. This is optimization at its most revolutionary: focusing on removing or overcoming silo and stove-pipe mentalities in client organizations that prevent the clients from building and operating optimized businesses.
Objectivity and the use of such an outcome-driven model are important because they are more likely to lead to selection and funding of projects and re-engineering efforts that have been developed through a very granular analysis of people, process and technology. Results matter, and even the stodgiest organization can easily be moved by them. Any outcome that has been proven to create and drive value measured in business-outcome terms will inevitably succeed — and earn the support of decision makers.
By focusing on results, an outcome-driven model enhances understanding among company personnel and orients the enterprise’s actions around delivered value rather than projects. The value of the technology investment is magnified many times over when it is made in a holistic, outcome-based framework that crystallizes strategy in actionable terms and optimizes end-to-end process design and human capital and knowledge or intelligence about the business, its customers and its competitors.
This mix demands the specific expertise of management consulting, business process, benchmarking and analytics and smart-technology partners — all delivered within an integrated analytical design and delivery framework that captures maximum knowledge and applies it to innovation and solutions that will drive superior outcomes.
The Value Proposition of Technology Companies
Technology is obviously a key component of innovative solutions, but how does one determine the relative merits of one technology solution over another? Value propositions from technology companies today are emphasizing total end-to-end solutions and capabilities to replace value propositions that were once function-centered and managed as silos. This is because data can now be stored in one location and accessed by one software application. Various specialty applications can be integrated to both enter data into the single storage location and access data for analysis. This capability moves data seamlessly within the enterprise.
For example, when selecting the technology component for developing solutions, the enterprise wants to be certain it is selecting a multiple-capability technology company that is willing to be its partner in execution. More and more consulting and technology companies are working together to put the client in the middle of decision making toward their solution. Clients are empowered by greater access to information, analysis and advisors, and many are finding tough decisions somewhat easier to make when they are supported by partners that are able to inform and advise them.
Optimized Problem Solving
Businesses, including equipment finance companies, that have embraced optimization and moved to a total enterprise view, are realizing the importance of two organizational steps: First, each step in their operation, front to back, must be aligned and integrated to achieve excellence in day-to-day execution. Second, no function is regarded as independent of other functions.
Adhering to these two rules ensures that interactions are conducted with careful attention to the execution of the overall business plan, including all of the variables, constraints, policies, standards of performance, algorithms for analysis and ongoing steps for objective validation. The big picture never fades from view; the focus remains on integrating essentially every factor that can be identified into a single process focused on a common goal. Rest assured this is not an easy task, but the dividends it pays are more than worth the diligence required to make it succeed.
What, specifically, might this diligence entail? First, more attention must be paid to front-end processes than has been the case traditionally. Knowledge about origination, customers’ behaviors and preferences, channel partners’ behaviors and preferences and the actual sales, approval and booking process are critical to making the informed decisions that will grow revenue and sustainable growth. Second, high-quality back-end processes are very important to success but, with few exceptions, do not alone lead to sustained growth. In short, renewed focus on the front end without ignoring the role of the back end will help achieve the ideal balance that is needed today to pursue an optimized solution.
With an understanding of how optimization can change, say, an equipment finance company, a preliminary evaluation of the company’s business problems, including its processes and decision making, a larger business development and problem-solving
evaluation should commence systematically, unit by unit, with one common objective: to identify ways to make that company the leading competitor in its selected markets while at the same time creating the foundation and intelligence fabric required to also achieve a sustainable business operating model. After all, success that is not sustainable is only fleeting success; true success is repeatable, ongoing and sustainable.
Technology will likely be part of this business solution, but technology by itself is not a business solution. Even now, technology companies are developing internal business consulting capabilities or partnering with business consultants to enhance the value of their technology as a part of business solutions for their clients or customers. A collaborative effort between business optimization consultants and technology providers who can provide them with the real-time data and metrics they need to make accurate assumptions and create a viable plan for optimization will yield optimized results.
Implications for Equipment Finance Companies
Nowhere is the potential of this type of business process management that enhances and empowers sustained, optimized execution more evident than in equipment financing. Equipment finance companies are slowly transitioning to resemble and/or behave like knowledge-based companies in which at least two attributes become very important: 1.) having the right data to get to the best knowledge about your competitor and yourself, and 2.) having the right data to make excellent decisions about each part of your company specifically and the total company strategy that wraps it all together. This includes using the right ROI data points to analyze technology in each area as it contributes to the overall enterprise ROI and decisions about performance as measured by additional revenue and growth. Identifying the weak and strong points has never been more important — and never been more attainable than with the optimization techniques that blend technology and management consulting resources to interpret and package the data and information it produces.
1.) Equipment finance companies want and need to do more with less. This goal requires careful measurement of all elements of the business and leading to analysis and decisions that make for excellence in practice in all areas. At its simplest, this is optimization as an enterprise-wide goal. And inasmuch as capital is a key life-blood for equipment finance companies, investments in all parts of the operation must be analyzed and evaluated carefully. Am I getting everything out of this particular function or process that I must to meet the enterprise’s objectives? Is my capital investment in this function as part of the solution I am implementing certain to yield a result commensurate with its expense? This is fundamental ROI justification, and it remains a key benchmark.
2.) A second area that holds significant promise and is being embraced by players in the equipment finance industry for identifying value leakage is end-to-end process and sub-process diagnostics that benchmark performance in the most critical business processes and identify the value capture opportunity in investing in re-engineering, technology or outsourcing to move closer to best-in-class performance.
3.) Among the trends growing in commercial finance is the use of techniques from other business applications, such as supply chain and inventory management and the advanced use of new technology accommodating large and previously disparate data sets. Many commercial lenders that work with retail outlets are developing optimized inventory turnover analyses to minimize the time that inventory loans remain unpaid. These analyses are especially valuable when the retail item is larger, like large-scale consumer goods and vehicles. Financial institutions will work with automobile dealers to optimize showroom placement in order to maximize speed to sale, credit profit and sales.
4.) Processes are not capital investments, but they can yield a handsome ROI when they are afforded the same level of scrutiny and improvement. These diagnostics can be applied to identifying opportunities to increase sales, decrease costs, increase customer satisfaction or eliminate operational process breaks and their attendant risks.
5.) The explosion of data from new sources has also led to new combinations of data-adding value, and in some cases the new data bring value to data components that did not yield significant decision improvement in the past. For example, in the past, adding phone-contact details to client entity payment history has yielded only minor improvements in decision modeling and small contributions to the models. But combining Internet contact and inquiry to the call detail record now adds much larger evidenced contribution to predictive- and decision-modeling behavior.
6.) In the past, adding contact record detail from inbound and outbound telephone contacts has yielded less than a 3% contribution to the outcome prediction, not enough of a contribution to merit the cost of the integration of these data into the decision process. With the addition of internet contact, social media and login data, however, the weight of evidence of these combined data now have exceeded 15% and even 20% of a modeled outcome — making the cost of process revision worthwhile and yielding far more accurate and powerful decision models.
7.) Equipment finance companies have higher expectations from those that provide them services, including consulting companies and technology companies. This is leading to informal and formal convergence by consulting companies and technology companies to meet those high expectations collaboratively by leveraging the capabilities of each in a unified effort on behalf of the client. In many respects, they are being asked to practice what they are preaching. The mantra of the optimization revolution is to identify areas for collaboration based on shared data and enhanced communication. Business consultants and technology providers that demonstrate their success by adhering to these best practices should have little trouble integrating them into their clients’ organizations.
Michael Fleming is a managing director of The Alta Group’s projects for the service provider vertical in the equipment leasing and finance industry. Service providers have become increasingly important as partnering with technology companies and other service providers has leveraged the capabilities of equipment finance companies. Fleming assists clients in strategic consulting, market and competitive analysis and unilateral and multilateral projects. He holds B.A. and M.A. degrees and has participated in executive education programs including programs at the Kellogg School of Management, Wharton School of Business and the University of Chicago Graduate School of Business.
Christopher Acevedo is vice president for Genpact’s Commercial Banking and Lending Industries Group in North America, where he leads a team of vertically focused consulting, process management, IT and Smart Decision Services experts that advises and delivers business solutions for the commercial finance, lending and banking sectors. Genpact has one of the largest dedicated business process, IT and analytics practices in the global commercial finance industry. Acevedo has over 20 years of executive experience in global banking, product management and financial markets as a business executive, consultant and strategist. He holds a B.S. in securities and investments finance and an M.B.A. in corporate international finance and strategy from the University of Illinois.