Jan 01

2009 – A Year of Change in Finance Systems


Despite the relative absence of large new clients, lease software vendors are still investing in their products, particularly their back office functions, reports Nic Evans in January 2010 Leasing Life.

Finance Companies are expecting their technology to work harder in these tough times. As many organisations start new budget periods in the new year there will be further downward pressure on the total technology
budget, on top of cuts already made during 2009.

In the last quarter Corporate IT spending as a whole has been making something of a recovery. IBM and Oracle, big suppliers to the enterprise market, recently announced quarterly results up on a year ago. Forrester and Gartner, leading IT research firms, predict that the downturn will bottom out in the fourth quarter 2009 and that growth will resume in 2010. However the two firms don’t agree on the depth of the recession in IT and, more importantly, the speed at which the technology industry will pull out from its slump. Forrester sees a V-shaped future, whereas Gartner predicts more of an L, with revenues remaining below last year’s level until 2012 at the earliest.

Even if corporate investment in IT does bounce back, it could be some time before the benefits are felt. In their new book, “Wired for Innovation: How Information Technology Is Reshaping The Economy”, Adam Saunders and Erik Brynjolfsson highlight that it often takes five to seven years for larger IT investments to produce substantial returns because it typically takes that long for enterprises to make the organisational changes needed to capitalise on the new technology. The recession has encouraged companies to focus their IT investments on boosting the productivity of shrunken workforces.

More specifically in the asset finance market the signs of recovery in software sales are not so apparent. None of the software vendors I have spoken to in the last quarter have had more than a couple of new European customers this year for the big administration packages. However the expenditure that is being made, shares the focus on boosting productivity.

“Greatly improving origination practices including rethinking risk assessment are top of mind for nearly all business leaders.” Says Todd Davis, International Decision Systems CEO. “Also, to be able to rapidly evolve as the economy strengthens, companies are looking to be more nimble and adaptable. Being able to quickly and inexpensively react to a growing market or the ability to handle a unique deal type will provide the critical foundations for growth.”

Much of the expenditure is being spent on improving the implementation of existing software to get more efficient use – taking out some of the complexity and customisations that may have accumulated over the years or upgrading the software to take advantage of the latest features. GE Capital is understood to be in the process of re-implementing their installation of Oracle Lease Management in the UK, to take advantage of the new features in the upgrade to Release 12 of the eBusiness Suite.

There are clearly some burning areas for immediate improvement. “We are seeing a big focus on collections and forecasting, particularly liquidity reporting” says Ed White of White Clarke Group. “Our delinquency management modules are just flying off the shelf” concurs Andrew Denton of CHP Consulting. “And there is a big demand for reporting to monitor the effectiveness of the business.”

However there is a wider trend visible away from the traditional emphasis on sales systems towards improvements on the portfolio management. “We are seeing a move from the traditional front end focus of the industry toward operational excellence and back office process improvement” says Denton. “With the cut back of costs and headcount reduction that the industry has experienced there has been a loss of experience to make the necessary changes” warns White.

The maintenance and support costs of software are a major part of the Total Cost of Ownership (TCO) of the technology. The basis of the charges will depend on a number of factors. For software run on the finance companies own infrastructure the charges will be a percentage –up to 20% – of the initial licence cost. This licence cost may be calculated on the number of users, the modules and functionality used, or the volume of business under management. Clearly there are savings to be made by reviewing the licence agreement and taking unused licences and modules off maintenance. “With a choice of two systems, we are simply putting all new business onto the system with fixed costs rather than using the alternative which has volume based charging.” confides one lessor operations manager.

The other area where savings on licence and maintenance costs can be made is through consolidation of systems, particularly following rationalisation, mergers and acquisitions. One major UK bank now has five separate instances of the same application running in different locations. The software vendors are keen too assist with rationalisation of systems, even at the expense of maintenance income. “It’s in our interests to strip out unneeded costs from the organisation and help them invest in taking the system forward with new features rather than maximising our support revenue.” says CHPs Denton.

In the last month CHPs release of version 5 of their ALFA package is the most trumpeted asset finance technology news of the year.

Technically it is a major change for the company, translating the entire package to Java. However from the user’s point of view the change is much more evolutionary. CHP claim that they have kept all the functionality from the later versions of release 4 so it doesn’t require reimplementation or reconfiguration of the system. The portability of Java and SQL gives clients a broad choice of technical platform: “They can run v5 on their current platform. They can run it on a low cost open source Linux and MySQL database. They can run it on an IBM Mainframe. It’s all about maximising their existing investment in technology” Says Denton.

A big ownership saving from ALFA v5, and other entirely web based applications, comes from reductions in the desktop computing cost. Running entirely in a web browser cuts the deployment costs – there is no need to install software on each desktop – and the PC client costs – it will run equally well on older PCs or lower powered netbooks.

The simplicity of web based clients coupled with business rules processing and workflow offers more strategic efficiencies to companies.

Functions such as collections or repossessions can easily be outsourced, or financial functions can be centralised into shared service centres to give economies of scale. “The trick here is to decide what to keep local. Business rules give you the flexibility to keep short term arrears handled by operations in the customer’s local office. Over 30 days they can be passed to central delinquency management or outsourced collections.” CHP’s Denton says.

Todd  Davis of IDS reiterates the strategic benefits of operational agility “With configurable solutions like the ones from International Decision Systems, business users can use administrative tools to adapt business logic or product extensions to quickly and easily capture opportunities in a changing business landscape.”

An entirely web based client does open up a wider range of alternative options to the traditional Windows based laptop and desktop. In theory web-based applications could be run on Linux, Apple, or even a Blackberry. Google is already offering its Chrome web browser, as a slicker alternative to Microsoft’s Internet Explorer, and Android, a smartphone operating system to challenge Blackberry and the iPhone. There is much talk of Google bringing out its own free operating system.

In practice however more complex business browser applications will be optimised to run under a specific web browser – usually Internet explorer – and they would not be usable on smaller screens of smartphones. And while webmail reduces the need for the Windows PC to run Outlook or Lotus Notes email, a business is not likely to be able to run without Microsoft Office.

With this unavoidable dependence of business on the Microsoft based PC, most organisations will have been watching Octobers public release of Windows 7. The perceived corporate wisdom is that there is no benefit for early adopters of Microsoft products: “Always wait for Service Pack One”. However with most corporate users having held back from upgrading to Vista and staying on Windows XP, many will now be planning to move quickly to Windows 7. Most will already have betas and corporate preview copies being tested. The business benefits of Windows 7 are certainly there:

  • Improved security features  including Bitlocker disk encryption also protecting USB memory sticks.
  • Improved performance over Vista, with Win7 already appearing on low powered netbooks, which previously could only run XP.
  • Improved usability, with many of the annoyances of Vista ironed out.

However if you are looking for immediate cost reductions from Windows 7 you will have to look very hard. With the typical licence upgrade from XP or Vista costing around £100, and most upgrade strategies needing the PC to be wiped, Microsoft are clearly looking at restoring their revenues rather than lowering the Total Cost of Ownership.

Nic Evans  is a consultant and interim manager for finance technology, business change and value delivery, specialising in asset finance. Contact Nic@nicevans.eu or LinkedIn

© Nic Evans, 2010

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