Finance organizations worldwide are struggling with aging lending and leasing systems. They have read much data and various case studies showing how new systems can improve operational efficiency, increase competitiveness and integrate with the third-party solutions necessary for automated identity verification, credit information, electronic documentation and other industry requirements.
So, what’s the problem? Why aren’t more finance organizations migrating to newer systems?
One of their biggest obstacles is internal resistance to change.
In this blog post, we will discuss some of the business drivers compelling finance organizations to adopt new lending and leasing systems. We will also examine how internal resistance to change can derail projects if not managed properly. Next, a change management expert who specializes in information technology (IT) initiatives for lenders and lessors will weigh in on successful strategies for managing systems changes. And finally, we will look at the benefits of making these changes. They include expanding business volume, attracting and retaining Millennial employees, improving scalability, and ensuring business continuity in the event of disaster.
Legacy System Limitations
Much has been written about the constraints that decades-old systems, especially those powered by aging platforms, place on equipment finance organizations. To their credit, some platforms have proven incredibly resilient over the years. But there is a price to pay for the complex web of software and manual workarounds that have developed over time to accommodate older systems: efficiency and competitiveness suffer.
There is no need to discuss all of the complaints made about legacy systems, but let’s focus on one of the most frequent: the difficulty integrating with third-party solutions for automated identity authentication, credit data, electronic documentation and other industry requirements. One of these is “Know Your Customer” (KYC) requirements for verifying that a customer is an actual entity or person before extending credit. Such validations can vary from country to country but typically include checking anti-money laundering (AML) and customer identification program (CIP) databases and complying with Bank Security Act (BSA) and Office of Foreign Assets Control (OFAC) requirements. Each of these databases is updated periodically.Many lessors and lenders, even some that have purchased third-party solutions for this purpose, handle all or part of the authentication process manually. Why? Because of integration problems between legacy systems and third-party services.
Resistance to Change
It seems a simple enough decision, then, to retire an outdated legacy system if it no longer meets a company’s business requirements efficiently. But human nature makes many employees wary of major system changes. Some will openly resist them. No wonder: these workers learned to do their jobs using the hybrid legacy systems that developed in their organizations, and they are comfortable managing business this way. Some have even contributed to the system’s modifications over the years. In short, the legacy system has become part of their corporate culture.
There is another wrinkle to this resistance to change, an unintentional one, that sometimes surfaces when teams are tasked with defining what the new system should do, and it is this: they may have difficulties envisioning anything beyond an improved version of their current system.
4 Ways to Manage Change Successfully
Fortunately, there are proven strategies for helping employees adapt to system changes ─ even champion them. Carl Davis, managing director of Downswood, based in London, offers lenders and lessors the following change-management tips for launching and implementing IT projects, assembling the right teams to drive them, defining goals and assuring that participants meet their end objectives:1.
1. Simply Get Started
Getting started is the most important milestone in a project, Davis believes. It’s a straightforward concept that gives critical advice, reminding organizations not to get so mired in details and end goals that they delay the actual initiative. It also helps create a sense of urgency within the organization, using deadlines to move projects forward.
2. Cultivate Local Advocates
Encourage a cross section of stakeholders to become local advocates for change. “You almost need an Austin Powers Mini-Me everywhere. This blocks resistance in multiple places,” Davis says. While changes can be initiated top-down by senior management, the team driving the changes should include stakeholders from a representative group of departments, business functions and regions. Otherwise, resistance will build. Keep stakeholders engaged throughout the process to ensure mutual responsibility, Davis adds.
3. Consider Implementation Options
For some companies, migrating from one platform to another in one “big bang” feels too risky. For these, Davis suggests running the platforms in parallel at first. Companies can segment deals running on the new solution vs. the old platform by timeframe, volume, value or sector, for example. Another strategy used is to leverage the new platform initially for brand new spin-offs.
4. Remember, Change is a Process
Stakeholders should be reminded throughout the project that perfection is not the goal; measurable improvement is. This encourages change to happen as quickly as possible. Davis recommends that companies designate key performance indicators (KPIs) in advance to measure how effectively they are achieving their business objectives. Organizations should also keep in mind that the launch is not the end of the project. They can use the natural modularity of modern Cloud platforms and application programming interfaces (APIs) to add functionality over time, continuing to enhance their offerings.
Automobile pioneer Henry Ford was once reported to have said,
“If I had asked people what they wanted, they would have said faster horses.”
Decades later, Apple co-founder Steve Jobs referenced the quote when explaining his own philosophy. “Some people say, ‘Give the customers what they want,’” Jobs said. “But that's not my approach. Our job is to figure out what they're going to want before they do...People don't know what they want until you show it to them.”
Lessors and lenders that manage system changes successfully achieve quantifiable improvements for their companies.
Some companies are increasing their loan volume by as much as 40%. The reason? New systems enhance the customer experience, encouraging users to engage with the lessor more frequently, resulting in more deals. Other potential benefits: a 15% reduction in operating costs, a 27% decrease in time to fund, and 30% fewer policy exemptions. Moving systems to the Cloud also enables scalability and helps ensure business continuity by lowering disaster-recovery costs and supporting multi-region/localized data storage.
A less discussed benefit of IT systems replacements for finance organizations is the increased ability to attract and retain Millennials. This is true not only in the IT department but throughout the organization. Our overall workforce is aging and legacy systems are, too. The ranks of IT workers with legacy programming skills for maintaining those old platforms is thinning and commanding top salaries. It’s far easier to appeal to younger workers if you offer the technology interfaces familiar to them. Equally important: the changes will, in time, pay for themselves.