The Evolution of Outsourcing ? World Leasing News

The Evolution of Outsourcing

By John R. Schaffner

Ever since the early 1990s when Business Process Outsourcing (BPO) was just beginning to become popular, the main theme has been ?concentrate on what you do best and outsource the rest.? The crux of this mantra being to apply your expertise where you could get the most impact, and decrease your costs by outsourcing to those that had expertise and economy of scale that would enable lower costs.

In the early days, outsourcing was touted as a way for companies to utilize their excess capacity to generate increased revenue. At the Equipment Leasing Association 1992 Annual Convention, a presentation entitled ?Outsourcing: Marketing Your Company?s Expertise and Over-Capacity to Other Companies,? had the objective that it ?illustrates how equipment lessors can make more effective use of their backrooms by selling excess capacity to other companies; reviews the strategies for developing the backroom into a profit center.?

The ?Backroom,? the infamous deep dark chasm where deals disappeared and customers were lost forever, was coming into the limelight as a way to augment declining margins on the financing. After all, everybody was offering the same money, and the number of companies offering lease financing was rapidly expanding.

This new ?outsourcing phenomena? was viewed by many as an opportunity, second only to establishing a Dot Com business, and was highly promoted by such firms as the Gartner Group and KPMG Peat Marwick. Companies competing to capture the ?window of opportunity? included Xerox Administrative Services, Trinity Financial Services and Stellar Financial Services.

As outsourcing evolved, it became apparent to the leading edge companies that BPO could not grow and prosper if it were based on excess capacity, but must create a competitive advantage by offering immediate credibility, extensive systems support, and a cadre of experts in the various functions of lease servicing.

In today?s turbulent leasing environment where funding is scarce and bank failures are increasing, BPO servicers are playing three major roles: providing standard processes like billing, collection and cash application, enabling startups to begin operation without the servicing burden, and what has become a key focus area, Portfolio Maximization.

The challenges that all of the members of our industry face are many; from the entrance of new organizations, the consolidation of existing ones, scarceness of capital and a slowing economy, the times ahead clearly have turbulent aspects to consider. In a strong economy, failure to properly manage risk and operations can be concealed. As the business cycle turns downward these types of failure are more readily exposed.? Successful organizations understand their strengths and weaknesses and aggressively move to mitigate their weaknesses by using the available tools inside and outside their organization.

Owning and managing the back room necessary to administer a lease portfolio is not for everyone, especially if you?re a smaller lesser, or a business that no longer needs a ?back office? leasing infrastructure due to changes in business strategy. With an outsourcing option the leasing company supplies the customers and funding, and the service provider does the rest.

This leaves the leasing company in charge of originations, credit approval, and document generation. That allows the leasing company to target their resources directly on the origination of new business and leaves the service provider to do what they do best; manage the lease accounting, billing, cash management, tax administration, and customer service functions necessary to maximize the total lease portfolio.

The portfolio management services for manufacturers, captives and financial institutions can be as comprehensive or as specific as a client requires. Clients may ask their service provider to focus on select services, which make their existing portfolio more profitable. A service provider?s systems department can provide clients with cutting edge capabilities. Through expertise and economies of scale, the services are delivered at an attractive cost.

The back room servicing, accounting and administration of leases can appear to be a daunting task for those unfamiliar with the unique accounting, tax, and end of lease management activities necessary to effectively manage a portfolio of leases. Most of the larger lessors have sizeable internal departments that handle the different components, such as accounting, tax, management-reporting, collections, customer service and end of lease activities. These departments are responsible for everything relevant to the lease after the origination and funding occur until its termination. Because of the high head count and significant costs associated with staffing, training, and keeping up with the continuing education needs and technology upgrades of a complete back room operation, many companies have turned to alternative sources of these services.

Financial servicing organizations use the economies of scale approach, providing their services to a multitude of customers by offering a low cost, highly effective alternative to internal staffing and managing back room departments. Additionally, the skills and technological tools necessary to administer leases become the responsibility of the outsourcing company, not the origination and funding source of the lease transaction.? An outsourcer uses software that segregates their various customers so that independence can be verified they stay abreast of the technology and accounting changes that take place and are and customization is available.

The benefits of using a service provider are numerous; lower startup costs, minimal hardware investments, improved cash flow, little training and staffing requirements and minimization of the other costs associated with owning and operating a lease administration system. Additionally, the smaller leasing company can access the most sophisticated and current hardware and software without a large direct capital investment. This allows the leasing company to put their resources where they matter most ? the front-end sales and lease origination process.? The service provider does all of the back room processing.

Ultimately this allows the leasing company to improve productivity, reduce expenses associated with back office services, and increase cash flow.

Outsource providers must continue to dissuade potential clients of the two most prevalent perceptions; that their services are too costly and that they lose control. Internal cultural opposition to outsourcing and the fear that the quality of their services will not be as good as expected are two other important obstacles. Clients and outsourcers need to have a long-term outlook given the investments that outsourcers must make and the reliance that the clients need to have an external service provider to consistently deliver a business process.

The fact that there are quality outsourcers available should give those contemplating the originating and funding of lease transactions the peace of mind that by using an outsourcer, a majority of what makes leasing viewed as complex and costly can be accommodated through the use of a quality, experienced outsourcing company.

After almost two decades of operation and refinement, and the culling out of the weaker service providers, it is clear that financial servicing companies provide strategic knowledge and economic advantage to their clients.

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JDR Solutions, Inc. is based inIndianapolis,IN.? The company was founded and is managed by a team of highly experienced equipment leasing and finance company professionals.? Our personnel consist of specialists who have expertise in all areas of the leasing and finance industry with particular concentrations in systems, operations, training, project management and finance/accounting. JDR Solutions is a leading provider of consulting and operational services to clients in the equipment leasing and finance company industry.? Our primary focus is on three interrelated client services:? Portfolio Administration, Business Integration/Project Management and Application Service Provider (ASP).? Our senior leadership has been involved in the formation and leadership of leasing organizations for the last twenty-five (25) years and has hands on experience in the day-to-day management of operations.

Source: http://www.worldleasingnews.com/articles/the-evolution-of-outsourcing/

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