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
Go deeper with GlobalData
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 of 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.
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By GlobalDataIn 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.
In the asset finance market the signs of
recovery in software sales are not so apparent. None of the
software vendors spoken to in the last quarter have had more than a
couple of new European customers this year for the big
administration packages.
Notwithstanding this, there has not been a
noticeable drop in software and back-office investment.
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 in the process of
re-implementing its 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,” said Ed White, a
director of White Clarke Group.
“Our delinquency management modules are just
flying off the shelf,” concurred Andrew Denton, a director at CHP
Consulting. “And there is a big demand for reporting to monitor the
effectiveness of the business.”
However, there is a wider trend which is
distinct from the traditional emphasis on sales systems, and which
focuses on improvements in portfolio management.
“We are seeing a move from the traditional
front-end focus of the industry toward operational excellence and
back-office process improvement,” said Denton.
Meanwhile, White said: “With the cutback of
costs and headcount reduction that the industry has experienced,
there has been a loss of experience to make the necessary
changes.”
The maintenance and support costs of software
are a major part of the total cost of ownership of the technology.
The basis of the charges will depend on a number of factors. In
regards to software run on the finance companies’ own
infrastructure, the charges will be a percentage – up to 20 percent
– 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,” said
one lessor’s 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
versions of the same application running in different locations.
The software vendors are keen to assist with rationalisation of
systems, even at the expense of maintenance income.
“It is 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,” said Denton.
CHP’s release of version five of its 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 claims it has 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,”
said Denton. “They can run it on a low-cost open source Linux and
MySQL database. They can run it on an IBM Mainframe. It is all
about maximising their existing investment in technology.”
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 and the PC client costs. There is no need to
install software on each desktop – 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,” Denton said.
“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.”
Todd David of IDS reiterates the strategic
benefits of operational agility.
“With configurable solutions, business users
can use administrative tools to adapt business logic or product
extensions to quickly and easily capture opportunities in a
changing business landscape,” David said.
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 can 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 the public release of Windows 7 in October.
The perceived corporate wisdom is that there
is no benefit for early adopters of Microsoft products. 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 and include:
– 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 hard. With the
typical licence upgrade from XP or Vista costing around £100, and
most upgrade strategies needing the PC to be wiped, Microsoft is
clearly looking at restoring its 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
