The simultaneous emergence of several enabling technologies is priming a revolution in product and services innovation and changing how we understand and anticipate customers’ needs. Ian Robertson says lessors who utilize these asset information-related opportunities can differentiate themselves from their competition.
Big data, the Internet of Things, digitization and artificial intelligence have been hot topics in recent years, often without really explaining what they actually mean for the leasing industry. Although some organizations are already exploring these technologies in different applications, many lessors are hesitant to invest in what they perceive to be immature and potentially over-hyped technologies.
The Alta Group believes there are extremely viable business cases to be made for selected investment in what have become proven technologies, with particularly strong cases to be made in the asset management domain.
Leading lessors are focusing on asset-centric services and products enabled by exploiting this technology. Leaders in markets from technology and healthcare to transportation and industrial equipment are driving service innovation and deriving major bottomline impact from enhanced asset focus.
No longer hamstrung by the idea that major technology projects take years to implement, market leaders are using agile approaches and technology partnerships to drive rapid change within their businesses.
As liquidity has returned to the market, a need has emerged to move the value proposition away from being simply another supplier of money. Customer loyalty is declining, and competing on price and an adequate level of service is a race to the bottom. Given the emergence of new challengers — organizations with radically different cost bases and innovative origination and funding models — some organizations are pre-destined to lose this race.
Agile existing players can naturally respond to such threats, but the need to diversify and differentiate the value proposition away from a simple commodity is obvious.
The Potential Role and Impact of Technology on Asset Management
The ability to exploit new data feeds from smart assets, third-party valuation providers, external databases, partners and OEMs can drive fundamental improvements in the asset management domain with a major impact on the lessor’s overall positioning.
This improved access to data is not only at lease inception, but throughout the equipment lifecycle, providing the potential to drive deeper customer engagement and deliver financial benefits from improved risk management, more effective portfolio management and physical remarketing/redeployment activity.
The Business Case for a Greater Focus on Asset Management
The graphic below highlights principal areas where data-enabled asset management can significantly impact the bottom line.
Client Acquisition & Differentiation
Asset management can improve sales by improving residual setting and facilitating the delivery of new asset-focused products and services. The trend toward managed services and consumption-based models requires a greater understanding of equipment performance and values throughout the lease and upon return of the equipment.
Progressive lessors want to understand how to exploit both internal and external data sources to help enrich their value propositions. Approaches include the provision of detailed asset reporting solutions and assessments of current fleet values to detailed analysis of fleet structure, usage and performance.
Some lessors also desire a more data-informed consultative selling approach which focuses on actual customer equipment usage patterns and demonstrates the full lifecycle cost of their business models and solutions versus their competitors. This includes an assessment of total cost of usage including services, maintenance and repair, consumable items and running costs.
To deliver such services, lessors must be able to assemble the financial view of the client’s equipment fleet at an asset-by-asset level. This implies an equipment management information ecosystem that can assemble and analyze the service and cost elements, and not simply a schedule-level understanding of the financed hardware. The solutions to capture, harvest, consolidate, host and analyze such data have improved dramatically in recent years and are now mature technologies.
Growth & Development
The opportunity to grow the existing client footprint is a by-product of greater insight into client fleets and customer equipment usage patterns.
This can be a proactive examination of a client’s needs and a proactive sales approach either directly or in concert with partners, dealers or OEMs depending on the business model.
Sales made in this manner typically generate higher financing margins and provide opportunities to increase service revenues by moving the conversation away from rate only.
Such an approach is built upon an asset-based understanding of the client’s equipment fleet. Other key success factors are the ability to readily assemble, analyze and present the customer with a view of its equipment usage before exploring how it might be more effectively structured and used. This requires access to equipment-related information and insight or upskilling of sales teams to interact in a more proactive consultative manner.
An understanding of customer equipment usage needs in terms of output, cost and performance enables a proactive lessor to optimize its customer offerings. Proposals can combine deployment of new and used equipment to provide the optimal customer fleet mix. Such approaches, often combined with deeper data-rich customer solutions, present an opportunity to drive higher levels of customer satisfaction and loyalty. Performance and reliability are central aspects of service. With this in mind, current generation sensors and telemetry systems not only provide insight on usage and loads but also pre-warnings for required maintenance and service, helping improve the overall service experience.
Lessors offering broader value propositions that include deeper and more valued services such as fleet management and detailed asset reporting and analytics can forge stronger relationships, resulting in greater customer retention.
For lessors without system and data capabilities, many third-party technology platforms and service providers are emerging to support lessors, providing the tools and systems infrastructure to offer data for end-customer solutions.
Several platform and service providers address the services and asset data assembly issue. These providers offer dynamic asset-level reporting and the associated asset-level billing services should this competence not be already available within the lessor. These players can also provide end-customer interfaces, enabling clients to self-service their mid-term and end-of-lease management, reducing internal operational costs and enhancing customer satisfaction.
Asset Risk Management
Effective asset risk management is naturally related to accurate residual value setting.
As data sources expand and valuation datasets grow, the opportunity to better understand the fundamental drivers behind future values improves. In addition to the potential residual setting benefits, access to asset-level detail and external reference prices and reference databases offers the potential to minimize certain fraud and operational risks.
Current generation data consolidation environments and techniques combined with improvements in analytics provide today’s asset managers and data analytics teams with greater insights into the key predictors of future equipment values.
The importance of external factors such as potential changes in taxation, secondary market needs, environmental standards or macroeconomic developments remains. Web-scraping and artificial intelligence offer data-harvesting and assimilation techniques that can complement more traditional asset management review and assessment processes.
Ongoing portfolio valuation assessments combined with dynamic assessment of future values and fundamental reviews of key value drivers allow for the deployment of more proactive equipment risk management strategies. The fundamental underpinning aspects are strong asset-level detail availability combined with strong internal and external performance data sets.
These data sets are extremely valuable in guiding remarketing and/or redeployment strategies. Several data and platform providers offer subscription services that highlight market anomalies in which assets can be bought or sold at lower or higher prices than in other channels or geographies.
Alta strongly believes that asset risk management can and should be viewed as an ongoing value-creating business activity, not only a residual-setting process combined with periodic review to satisfy the needs of impairment reviews, regulators or auditors.
Asset management is a fundamental value-creating element for most equipment lessors. The ability to access, consolidate and analyze assets and asset-related information is more straightforward than ever before.
The lessors who best exploit these asset information-related opportunities can differentiate themselves from their competition and make significant bottom line impact.
While outsourcing is often more associated with call centers in the common imagination, a surprising number of equipment lessors also use third-party service providers to augment their financing business. Ron Meyer from Linedata recently had the opportunity to speak to equipment finance professionals about how and why they outsource, examining the way this could influence the future of the industry.
November 1, 2018
In the first of a two-part series, David Wiener reports on the ELFA Convention. With inflation in check and unemployment at historic lows, keynote speaker Chief Economist/Co-Founder of Moody’s Analytics, Dr. Mark Zandi said the U.S. economy is poised for economic gain; however, several potential issues threaten to derail the this progress.