by Joe Andries on Saturday, September 01, 2012
Recirculated with permission from Monitor®. Fall Conference Issue. September/October 2012. Vol. 29, No. 6, p. 42.
The financial crisis of 2008 was a watershed event that spurred many finance companies to take a closer look at the concept of “specialization of function.” In other words, focus on core strengths and outsource certain operational tasks to industry experts. Today, manufacturers with captive finance programs, banks, leasing companies, and lease brokers are increasingly turning to strategies that tap pockets of external expertise to help them fulfill their objectives.
In the not so distant past, finance companies had the perception that outsourcing business processes was a last resort or short-term solution to solve an immediate need. More recently, however, outsourcing is being used as a strategic management tool, to gain a competitive advantage, cut costs, accelerate growth and refocus resources.
Outsourcing decisions are being discussed with greater frequency in organizational development meetings, LEAN planning groups and budget meetings. The motivation is to outsource points toward improving the bottom line and setting a strategic direction that maximizes the core strengths of the company. While the list (see SIDEBAR 1) covers a wide array of situations and circumstances that contribute to a company’s success, there are still CEOs and CFOs that fear a loss of control. This fear causes decision makers to first consider in-house options, and go through the process of determining what is gained and forfeited with outsourcing.
The instances where companies have chosen outsourcing are plentiful and cover a broad spectrum of processes, situations, and industries. For example, when consumers use a Nokia smart phone, they may not realize the mobility software, and business and operational services within the phone are outsourced to Accenture, which has built a very successful business model around outsourcing and is ranked #1 on the International Association of Outsourcing Professionals (IAOP) Global Outsourcing 100 list.
In the leasing industry, many Monitor 100 companies outsource key portions of their business (e.g. invoicing, UCC filings, or full portfolio servicing), so they can turn their focus on “business-getting” activities.
One real-world example is a captive leasing company that desired rapid growth of its small lease portfolio. The company was at a crossroads between keeping everything in-house or finding a partner to service its portfolio. A determination had to be made on where to focus its time and resources. The parent company CFO had initially favored establishing an in-house servicing solution. However, like many CFOs, he undertook an analysis of servicing platform options from the perspective of cost/benefit in relation to objectives. The analysis uncovered material time and cost advantages and softened the CFO’s resolve to stay in-house.
Still not fully convinced of the outsourcing option, the CFO visited a portfolio servicing operations center to understand the reciprocal requirements of an outsourced partnership. The visit satisfied the CFO’s concerns over control and continuity. It also brought to light that choosing the right outsourcing partner is critical to a long term solution. Today, this captive leasing company focuses its time and resources on originating business. The factors that this captive leasing considered included:
- Management team’s focus and strengths were growing an origination platform
- Existing processes and systems were dated
- Access to resources were limited – both technology and employee cost and time to build versus turnkey outsource option
- Probability for success through outsourcing with a reputable partner was much higher
- The value and risk factor – proven outsource provider with an industry leading platform including people, processes, and systems
- Transition of existing portfolio
- Management of an outsourcing relationship
- Growth expectations relevant to time
- Targeted markets
- Expected portfolio performance and metrics
- Long term benefits from aligning with an industry leader
Ultimately, selecting the right outsourcing partner is critical to success. The selection process should involve a consistent and formalized approach with potential providers. Important attributes to ensure a successful and valuable fit for your organization include:
Evaluate the provider’s experience and competence in the areas you require support. How well does the outsource provider understand your business and specific requirements? Evaluate the number of services available to you, how each service applies, and the relative value delivered. Are there any gaps in knowledge and experience that will cause distractions to your growth goals? Consider the communication channels that will exist to assure consistent information flow.
Determine the level of commitment providers have to leasing and outsourcing. One of the most important questions to answer is, “Will my provider be in existence to meet our companies future needs?” The other is, “What resources have you allocated to your outsourcing platform and describe your future plans for growth?” You will want to partner with a company that is green and growing. The outsourcer should have a stand-alone business or division with clear business direction and strategy.
Evaluate the financial strength and track record of your provider. This will help assure its support of your company’s future growth. Another important factor to consider it has a business continuity plan.
Evaluate the provider’s servicing infrastructure including systems, processes, facilities and human resources. Spend time at the outsourcer’s operation center evaluating the elements that make up the servicing platform and the offering. Analyze its systems and understand how they function. Determine current and future systems capabilities and how they impact your business concept. Have processes been documented, proven and tested? Understand the hiring process and availability of future experienced and skilled staff.
Your partner must be flexible in its processes, staffing, reporting, and capabilities. After all, it is your business process that has to be supported. As your company grows and business concepts expand, so must your provider’s support. Look for examples where the outsourcer has demonstrated flexibility in the past with current customers.
Probably the most important intangible evaluation involves the cultural fit with your organization. Evaluate attributes such as work environment, technical stature, problem solving, management styles, values, goals and objectives. Ask around regarding its reputation and customer experiences. Is there an opportunity to build a solid, long lasting business relationship with your partner–someone you believe will represent your company in the utmost regard when it comes to customer service? The more reflective these attributes are will indicate improved chances of compatibility in your partnership.
Outsourcing may not be a viable option for all leasing companies. However, spending the time and resources to evaluate the available options is crucial, and the results may be surprising. More importantly, those often times “unrealistic” entrepreneurial initiatives may be more viable through a partnered outsource approach. Ask those who have managed those daunting tasks of a system conversion, establishing or improving a servicing platform or simply starting up a leasing company -- the hours and dollars add up quickly. Although not always thought of in this light, outsourcing is really a form of today’s partnering, strategic alliances and joint ventures. The prevalence of outsourcing as a management tool will continue to expand and become an important strategy for leasing companies today and into the future.
According to The Outsourcing Institute, the following are the top ten drivers behind outsourcing decisions. (Not in order of importance).
- Improve company focus
- Access to world class capabilities
- Reduce operating costs
- Reduce risks
- Resources not available internally
- Make capital funds available
- Function difficult to manage or out of control
- Free resources for other purposes
- Cash infusion
- Accelerate reengineering benefits
Many leasing companies are freeing up their strongest resources and redirecting focus on customer retention, sales and marketing. In an environment where higher levels of service are needed, it takes valuable time and material resources to maintain an efficient and flexible servicing platform. In the leasing industry, outsource providers are prevalent and many specialize in one particular facet or skill, such as insurance protection or asset liquidation. There are also a number of reputable providers that offer full operational platform support including both front-end and back-end processing. A partial list of services provided from outsourcers is below:
- Credit application, processing and adjudication
- Documentation prep, review and audit
- UCC, titling and insurance processing
- Cash management
- Customer service
- Loss mitigation