The office technology sector is as competitive as ever when it comes to equipment financing. With over a dozen dedicated finance companies originating finance specific to office equipment and technology, they need to evolve their offerings in order to stay competitive.
In the past, technology companies could focus on one niche area, but now they have to dive into previously uncharted territory as end-users seek out a total solutions approach, changing the landscape of the industry and ushering in a new era in office technology solutions and financing options.
End-users no longer want to buy their supplies from one source, work with another for equipment, and deal with a long list of other firms for software. All these moving parts are hard to manage and customers seek ease by centralizing their technology vendor relationships. For example, in the past, a copier dealer could focus on one thing: copiers. But now copier dealers have a much bigger role with an opportunity to increase their offerings and scope of services.
This shift is true for finance companies as well. As many struggle to keep up, a growing number are staying ahead of the curve and meeting customers’ changing needs in new ways. In order to stay competitive, finance companies are building deeper more strategic relationships with copier dealers and IT companies. Together they can provide the total solutions approach customers want.
When customers turn to their technology provider they want to know about equipment and financing, but in addition they must have the ability to speak to the needs of their IT department from a services perspective. This provides a big advantage. Finance companies need to understand that copiers are now connected to the IT network and are used for a wide range of tasks beyond just making copies. They also need to understand the software licenses needed to keep these devices running. When finance companies can use a holistic approach to financing everything from copy machines and tablets to managed services and software licenses, they stand a better chance of earning the business of the technology providers as well as the end users.
As the market moves towards this new model, finance companies must view these relationships with equipment dealers and IT companies differently. In order to solidify and formalize their combined services, equipment dealers have taken three main paths: developing their own IT component, purchasing an IT company, or outsourcing IT services. Each path has its own set of benefits and challenges.
Progressive dealers have hired and developed their own IT staff. This path brings the IT team in-house and gives them internal knowledge. However, it can be costly and time consuming. The team needs to be trained and brought up to speed on institutional protocols.
The most popular path to the total solutions approach is purchasing an IT company. This option is quicker as it gives companies an expert IT team overnight. They can quickly begin to work in tandem and offer a greater range of services. It’s more efficient than creating your own team even if it’s not always cheaper. However, dealers need to protect themselves and know what to look for when purchasing an outside company. Often times this is an area they’ve never worked in before so they need to have a deep understanding of the companies they’re evaluating for purchase.
Key areas to consider in an acquisition include stability, history and reputation. Dealers must know how the company makes money and whether or not they are profitable. A search in judicial reporting websites will disclose a company’s litigation history, which, depending on the results, could raise red flags. Consultants can be a great resource when assessing the reputation and profitability of a company. They can also help identify if both companies’ cultures and values line up, which should be an important part of the evaluation. Dealers should consider using more than one consultant. By engaging two to three consultants the dealer can pull from a broader pool of knowledge and avoid the risk of the referral being handed off to a single consultant’s limited network.
Finally, dealers can outsource the IT services to a third party. When dealers use managed network services as a partner, they become the IT staff. Dealers need to do their due diligence to truly understand what makes the external partner strong, safe, and competent. When working with a partner, the level of research should be almost as high as when purchasing a company. Develop a comprehensive understanding of the vendor’s business model and how they protect their end users. Both companies’ reputations will be tied to each other even if there isn’t ownership.
Even with all of these options, it’s still difficult to deliver one aspect of what customers are looking for: the ability to sign only one contract. Despite having one provider who coordinates all services, customers may still have to sign separate contracts for financing, copiers, computers, service agreements, and managed network services. Frequently vendors are open to creating one comprehensive contract, but this creates more risk. The more things on a single contract, the more things can go wrong.
For example, let’s say the dealer delivered the contract on behalf of all parties and suddenly the customer’s network goes down. The customer may decide not to make their financing payments until the network starts working again. Even though the finance company has no control over the network, the customer sees them as the responsible party because they have a signed all-in-one contract with them.
Despite these challenges, one agreement can still work as long as the finance company and the other parties have a good working relationship. The two most important parameters to define up front in a single contract scenario are the responsibility for costs when there are complications (e.g. system outages) and the timeframe for different parties to meet certain requirements.
The new total solutions approach is happening now through dealers developing their own technology services, acquiring technology companies, or outsourcing their IT needs. This shift has changed the finance company's relationship with customers but it has also changed its relationship with vendors and manufacturers. As customers continue to demand more comprehensive solutions, we’ll see these relationships evolve even further.
In this market, finance companies must be prudent in how they contract and with whom they contract. Their due diligence in this area is critical to avoid the potential pitfalls discussed above. As always, a finance company must have a complete understanding of the market they are servicing with an eye on the risks and potential mitigation.