As Published in the Monitor
Front-End vs Back-End Automation
Resolving a Technological Dichotomy
By Steve Lundergan
Vision Commerce, Inc.
After outlining my original thoughts on writing this article, I picked up the last couple years of The Monitor’s Technology & Leasing issue. I wanted to see if I was simply restating what had already been published. After all: How many ways can we say that Technology is a business tool that helps drive growth and deliver greater profitability by promoting better operating efficiencies. In my opinion, truer words were never spoken. But, by now, you either believe it or you don’t. A recent survey done by Northern Consulting suggests that 60% of Leasing companies will automate their front end during 2003 & 2004. Even if that number is accurate, it amazes me how many companies in the industry do not feel the need to automate the front-end of their business. Even more mind boggling are those that recognize the value, but have not made it a priority. At Vision Commerce, we hear daily claims from prospects that the front-end solution is an action item - “I know we’re going to have to do this sometime in the future.” Take off the blinders, folks. The future was yesterday, but it is also tomorrow.
One of the principle keys to running a successful business is to maintain systematic procedures to produce a consistent product or service. This is the stuff that empires are made of and depend on. Take for example, GE, GM, Boeing, Emerson Electric or McDonalds. Can you imagine walking out of a McDonalds franchise with a flame-broiled burger garnished with lettuce, onion, pickle mayo, tomato and curly fries. Before you jump to point out that those are not companies in the service industry, consider Federal Express, UPS, State Farm, and ADP. You would be shocked if Federal Express decided to ground their planes one weekend to celebrate the CEO’s birthday. These companies are successful because their customers have come to expect and rely on consistent output of products and services. They remain profitable in doing so because their management has made the decision to automate their entire systems and business processes.
While this is not exclusively an equipment leasing issue, there are many Lessors who do not provide consistent output of services because of the absence of controls on its employees and operations. Ten years ago, my response to these 2 issues would have been - “This is clearly a management problem”. Today, I can say that these are problems created by management’s failure to adopt Technology that can maintain controls within their business to promote that systematic and consistent output..
Since 1978, I have enjoyed careers in the Leasing industry and since 1999 selling technology to the leasing industry. Since my involvement in the technology sector, I have recognized a strange dichotomy running throughout the industry.
Lets contrast the two distinct business segments of a leasing company – Lease Origination (marketing, selling, credit processing and documenting) or as it is now known “The front- end” and Accounting (Funding, booking, administration) “the Back-end”.
Most consider accounting as more science than art. (Those that believe it to be more art than science are the same ones who create things like “Virtual Assets”.) Of course, aside from the math part of accounting, there are also guidelines and mandates on business accounting set forth by the Financial Accounting Standards Board and our friends at Internal Revenue Service. Did you catch that? – Mandates – Rules - Things You Must Do Properly or face consequences. Is it any wonder why business owners want a systematic, consistent approach of accounting properly for their transactions?
There is no doubt that companies have recognized the need for accounting software for many years. I think I’m safe in saying that not many, if any, would start a leasing company today without accounting software? We could obviously keep our accounting of transactions manually in ledger books. But with the accounting software available today why would we make this task more labor intensive and prone to human error.
Contrast the back-end with the front end. It is in the lease origination phase of the business where companies try to be different to set themselves apart from the crowd with unique pricing, simplified credit processing and faster delivery of documentation and funding. That attempt to set yourself apart can make your operation more prone to problems derived from employee creativity or human error. How many of us in leasing sales have not been accused of committing the sin of creativity by our credit managers? And, how many problems or losses have been created by oversight or by basic human errors in our credit and documentation departments? Lessors need a systematic and consistent process during the lease origination process to insure the transfer of accurate and complete data from sales into credit, credit into documentation, and documentation into funding departments as mandated by management. Automation will still allow the Lessor to maintain policies and procedures without suppressing the creativity of your sales force.
Now here’s the dichotomy. There are two equally important, interdependent divisions of a leasing company. We automate the back-end but not the front-end. If it were not for the front-end there is no need for the back-end. Are the consequences of losses created by human error, oversight, fraud, subjective judgments or creativity at the front-end any less threatening than those potential consequences of improper accounting or administration? I would contend that the opportunity for loss resulting from problems created on the front-end are far greater than those created at the back-end.
The use of Internet “lease origination technology” can enforce systematic and consistent procedures, maintain pricing and profit margin guidelines and do it faster at every level of lease origination throughout the entire organization without geographic constraints. These Front-end systems are designed to do all that and provide an invaluable resource to:
Aid the sales team by offering dynamic tools for marketing, selling, communicating with clients and home office. It will also promote accurate submissions from the sales force.
Aid credit managers and their teams by gathering and formulating accurate data and receiving a quick calculation of the risk level of a transaction
Aid documentation by eliminating repetitive data input allowing more time for due diligence and fraud prevention activities
Aid Management by transforming accurate accumulated data into to reports to improve overall efficiencies and direct sales toward optimum business opportunities.
The Selection Process
Selecting any software can have long-term benefits or long-term regrets. To avoid the latter, your approach needs to be sound, logical, and prudent. Simple common sense should prevail. Here are a few steps to take during the selection process:
Check out the Solutions Provider –
As Lessors we are used to some pretty rigid due diligence. We always pre-qualify vendors to our Lessees. Don’t cut corners here and yield to big marketing campaigns and sales hype. Once you select a system, you’ll be married to it for some time. Your provider will need to be there as long as you’ll need the system. Find out how many active clients they have. Ask how many active users are pushing how many applications through the system.
Select the most current, stable and proven technology platform –
With ever-evolving technology, this one is more of a moving target. But ask your potential providers what their long term technology plan is in order to maintain their sustained competitive technology advantage in future years. There’s a reason technology evolves. Make certain you don’t buy 1980’s technology in 2003. You might even find it’s less expensive. Technology does not age like fine wine.
Select the Program that is right for your business -
Find a program that is scalable, flexible and allows your business to be operated as management has defined. In other words, the software should be able to conform to your business model and not force your business to conform to the software functionality.
Choose a provider who has proven Integration capabilities -
One vital element to making technology work is the capability to integrate your systems. You can buy what you believe to be the best Lease Origination System for your business. But, if integration into your other systems, you have just negated much of the benefit of the technology. These other systems include accounting systems, lease pricing software, credit scoring software, CRM software and others. There are those providers in the market today that sell both front-end and back-end systems. Some utilize the same technology, others do not. Make certain you confirm through references that the integration is accurate and smooth.
Check References. The “tell tale” truth
Don’t just get references. Get references that are using the software in similar fashion as your company will be using it. Don’t just get references. Talk to as many as you can. Don’t just get references. Ask them for a live demonstration at their offices. Bold? Maybe. But, you are spending good money for a system that your business is relying on. Your provider will know which of these references will be happy to accommodate such a visit and spend a couple hours of their time showing you the system in action. It’s a great investment of your time and money to take a trip when a reference will open its doors to you.