Asset Financing and Servitization – reflections on IAFN 2019

Dr Chris Owen, Senior Teaching Fellow at Aston University has recently led a study on behalf of White Clarke Group on asset financing and servitization. The results of the study were presented at this year’s International Asset Finance Network 2019 Conference in London and the report Focusing on Customer Outcomes through Servitization is available for download.

In this week’s blog, Chris shares his reflections on the conference.

During the morning panel discussion at the conference, the panel chair, David Betteley asked Professor Tim Baines, “So, Tim, in ten seconds, if you had a magic wand, what one thing would you ask for to tackle this challenge?”

No pressure there then! So taking a moment to think, Tim responds. “There are three major groups wrestling with this transition to advanced services. Firstly, the manufacturers; secondly the technology providers and finally the finance community. If there was one thing that could move things forward, it would be to get these three communities thinking and working together to develop a strategic way forward.”

For me this encapsulates the findings of the research we have conducted with IAFN. Delivering advanced services requires all the players in the ecosystem to adapt and operate in new ways.

So what were the main takeaways from the conference?

Well for one thing, everyone agrees that the move away from buying assets to buying outcomes is a trend that is here to stay and is increasing across a wide range of industries. This is manifesting in an increase in the customers wanting to pay for outcomes rather than paying for assets.

In the various sessions and presentations, we saw many examples of pay per use and outcome based contracts. However, we mustn’t confuse pay-per-use and advanced services. Pay-per-use is one way in which advanced services may manifest themselves, but there are also others including paying for a business process or capability.

In an interesting talk from Ian Thompson from DLL, we heard that there is a misalignment between what end customers want and the current asset finance supply chain.

Whilst ‘pay-per-use’ and ‘pay-per-outcome’ may be direction of travel, so far the majority of the industry are still buying and financing assets.

Why is this the case? Well one talk by Nick Feasey from Lenovo suggested that these new types of contract will require the support of internal and external stakeholders, changes to systems and procedures and these all may meet with resistance to change.

New types of contract mean new types of risk. Who is going to own and price these new types of risk, these are issues the industry is still wrestling with.

What about the role of technology? We heard from several technology start-ups during the conference. Many people were commenting on how new technology is transforming the asset finance industry. One key distinction to make, though, is whether the technology is improving the delivery of existing services or enabling the creation of new services.

Over dinner, I spoke to a 30 year veteran of the industry. One thing to remember, he pointed out to me is consumer finance is very different from business finance. Sometimes we may confuse the two, but you have to be careful applying consumer financing models and solutions to business finance situations.

Final thoughts: Focus on the customer, your people and collaborate!

One theme was recurring throughout the day. These new services require new ways of working. Hearing from successful start-ups was insightful. Understand what your customers’ want, partner where you need new capabilities that you don’t currently have. Hire and retain good people.

A fascinating day and looking forward to doing more research in this area with IAFN.