Is your Factoring Practice Ready for the “New Digital Normal”?

To map out and plan a future path on how to master this digital migration for a factoring firm is no easy task. When we look at the unprecedented chain of events unfolding on a local, regional, national and global basis, it is easy to understand why many of us are perplexed about how to begin this very important journey. Based on factoring industry surveys I have read, the crucial role of technology hasn’t seemed to command the attention of many executives and owners of factoring firms globally that I think it must.

Making the assumption this is true, raising the question of “why this seems to be the case” is appropriate. While some factoring firms and SME have started down the path of become more agile and client centric [often employing tools like block chain, AI and others] many others remain either stuck in planning mode or neutral when asked what they are really doing. One the reasons I believe for this treading water approach is I don’t think many top executives have come from the IT side or possess a deep background of the future technological needs of their own organizations and the industry in general.

This lack of experience about how to profitably apply technology tools and take advantage of changes in SMEs needs is compounded by an inability to communicate in layman’s term with external and internal IT professionals. Buzzwords and alphabetic labels used by IT specialists that zoom over the head of factoring executives [and many times me!] and others only then cause factoring industry leaders to fear that they don’t understand, which causes future lack of direction and sometimes technological paralysis. IT employees, outside suppliers and others get labeled “gizmos” or worse and walls that block progress are reinforced as a CYA approach takes over.

The result of this inability to embark on an IT strategy causes a series of short term reactions that lack the cohesive and coordinated effort needed to be successful. When this approach fails, it’ll reinforce a latent fear of IT change and allows the status quo to get further imbedded in the organization.

So what can we do as leaders in our factoring firms to not get stuck in this quagmire? For starters, I think we need to consider how we currently treat IT in our factoring businesses. We need to view our IT internal and external professionals, partners and employees as our ally and partner, not our enemy. And I believe the first step in viewing technology on a more holistic basis is to pose a series of questions and to discuss internally so all decisions may drive both a short term and longer term digital transformation in your factoring business.

As I am clearly not an expert in the technology field by any means, I sought out and found an excellent article published this month by the highly respected and regarded international consulting firm McKinsey & Co to help me jell my thoughts about this topic. Their research, entitled “Ten antipatterns that are derailing technology transformations”, was authored by McKinsey partners/other professionals located in Istanbul, Brussels and New York. I have utilized only a fraction of the excellent content from their research in the body of this article, and I would strongly encourage any factoring executive to read their work in its entirety.

I think it might be a good idea before we delve into the remainder of this article that we first define and discuss what the word “antipattern” even means; as this term is often used in the McKinsey article and is one of the key concepts in their interesting research. An “antipattern” is perhaps best defined as an ineffective solution for a problem. Another way to think about what an antipattern would be to define it as a shortsighted solution to a problem that reoccurs on a periodic or reoccurring basis. These types of solutions are usually ineffective and can actually be counterproductive in some situations.

According to the quick research I did, the term was first used and coined back in 1995 by Andrew Keonig in the book Design Patterns. The book discusses a number of design patterns in software development found to be reliable and effective. Several years later [1998] the term became more mainstream as a result of the book AntiPatterns. The term’s application stretched beyond software development and is now used to refer to commonly reinvented but bad solutions to a problem. I found many examples of the term [on Wikipedia], and only a small fraction of these are listed here;

• Analysis paralysis: A project stalled in the analysis phase, unable to achieve support for any of the potential plans of approach
• Bicycle shed: Giving disproportionate weight to trivial issues
• Bleeding edge: Operating with cutting-edge technologies that are still untested or unstable leading to cost overruns, under-performance or delayed delivery
• Bystander apathy: The phenomenon in which people are less likely to or do not offer help to a person in need when others are present
• Cash cow: A profitable legacy product that often leads to complacency about new products
• Design by committee: The result of having many contributors to a design, but no unifying vision
• Escalation of commitment: Failing to revoke a decision when it proves wrong
• Groupthink: A collective state where group members begin to (often unknowingly) think alike and reject differing viewpoints
• Management by objectives: Management by numbers, focus exclusively on quantitative management criteria, when these are non-essential or cost too much to acquire
• Micromanagement: Ineffectiveness from excessive observation, supervision, or other hands-on involvement from management
• Moral hazard: Insulating a decision-maker from the consequences of their decision
• Mushroom management: Keeping employees "in the dark and fed manure" (also "left to stew and finally canned")
• Peter principle: Continually promoting otherwise well-performing employees up to their level of incompetence, where they remain indefinitely[4]
• Seagull management: Management in which managers only interact with employees when a problem arises, when they "fly in, make a lot of noise, dump on everyone, do not solve the problem, then fly out"
• Stovepipe or Silos: An organizational structure of isolated or semi-isolated teams, in which too many communications take place up and down the hierarchy, rather than directly with other teams across the organization
• Typecasting: Locking successful employees into overly safe, narrowly defined, predictable roles based on their past successes rather than their potential
• Vendor lock-in: Making a system excessively dependent on an externally supplied component

Source: Wikipedia online search, August 2020.

Please recognize that the 17 examples I have included in this article fall under the group heading of social and business operations. If you are so inclined, there are many more examples on Wikipedia that relate to project management [scope creep being my favorite], software engineering and design, object oriented programming [poltergeists my favorite], programming, methodological, [every fool their own tool an interesting one] and configuration management.

But let’s get on track and agree we on the definition of what an antipattern is. What are some of the more frequent antipatterns that McKinsey found in their research in the technology sector? How many do you see in your factoring business, or pop up in your current factoring clients? The McKinsey research outlines 10 of the ones that they most frequently found in their extensive research. I will only provide the questions they ask and encourage you to read their research for a more in depth discussion about the impact of these antipatterns and the recommendations they suggest to overcome these barriers to effective planning and growth. I selected just a couple of the 10 antipatterns; below are McKinsey’s work and text, and each covers a specific topic, question to ask, summary and recommendation.

1. Force fitting technology solutions: are you choosing technology out of context? Watch out when technology decisions do not attract business scrutiny beyond cost and a cursory discussion of “scalability/strategic alignment.”  Recommendation; leaders need to raise their hands to ask “silly” questions to fully understand the rationale and purported benefit of the recommended technology choices.
2. Adopting cutting-edge tech that’s not fully mature: are you adopting new technology that seems promising but doesn’t have a proven track record? With stability and scalability as two core elements of any IT organization’s focus, very careful due diligence and decision making are needed to avoid adopting technologies that haven’t fully matured. Recommendation; choose simple, proven technologies with which your people are familiar.
3. Initiating big-system-replacement programs: are you focusing on system replacement rather than improving existing systems in a way that is faster and more cost-effective? System-replacement projects are fundamentally complex, cost intensive, and inherently risky. Recommendation; before embarking on big-system replacement, ask the following:  Can you incrementally improve the old system instead of replacing it? If you need to build a new system, will it deliver incremental value to your customers as it scales up over time? Can you gradually phase out the old system?
4. Focusing on outputs rather than business outcomes; are your technologists focused on output instead of business/technology outcome? Are your technology targets too . . . tech-y? Does the technology organization clearly articulate and track customer-focused targets? If the answer to any of these questions is even a mild pause to reflect, you need to dig deeper. Recommendation; business and technology leaders should define joint accountability for desired outcomes.  
5. Managing IT purely for cost; are you sacrificing significant value by overindexing on price and cost? Managing IT purely as a cost center is an outdated mindset that can have drastic repercussions, ranging from the inability to attract the right talent to discouraging use of critical and expensive technologies and platforms. Recommendation; instead of managing internal IT as a cost center, consider the following to think through how to set and align efficiency incentives.
6. Outsourcing your core value streams: are vendors doing the work that creates the most value for your business? If your core technology knowledge or intellectual property (IP) is outsourced (either through offshoring agreements or vendor-support contracts), you risk limiting the impact of any transformation and depending to an unhealthy degree on a third party. Recommendation; clearly demarcate the boundaries for outsourcing at business-critical technologies or activities.

 In conclusion, I hope that this article that looks at common antipatterns will help you and your factoring organization to make better and more profitable decisions about technology in the future. To successfully address the challenges of the “new normal”, it will take a focused effort from all parties involved including IT professionals, management and ownership when looking at what is best for their business.

One thing is almost a given; the digital transformation that has kicked into high gear due to the current COVID-19 pandemic is likely only to accelerate the pace of change and increase to risk to any SME or factoring firm that does not manage their IT function carefully and strategically. The ability to spot any of the many technology McKinsey antipatterns could be the difference between success and failure to support the current and future technology needs of the business. However, when successful the goals of quicker and better client centric service, profitable long term growth and a more positive team culture will accrue to the factoring firm that has successfully managed their technology in the “new normal” era.

Mark Mandula is National Sales Director of Florida-based alternative finance firm United Capital Funding. The firm provides commercial finance opportunities to small businesses with B2B and B2G relationships by funding accounts receivables. Learn more at ucfunding.com.