Optimizing operations: A precursor to technology for ag lenders

The accelerated adoption of digital tools, products, and operations across financial services—including agricultural lending—has taken center stage in forward-looking strategies and technology investments. And still, we continue to see technology investments happen while underestimating the scope of time, effort, and required adjustments to business operations, which ultimately leaves productivity and customer experience gains on the table. The trend is no different across agricultural lending and farm credit. 

Technology is just the beginning of becoming a digital business.

Implementing the right digital solutions—ones that are scalable and secure—requires understanding and addressing your business challenges, perhaps even more than your technical needs. 

It’s a significant reason why the outcomes of technology investments continue to fall well short of expectations, creating a gap between how well organizations believe they’re doing on the digital front and the ROI they’re actually getting.

To see the value of technology investments, organizations must look more fully at optimizing their operating model and operations to create an ecosystem compatible to digital technology. 

Why do technology investments fall short of their expected value?   

Most technology projects fall short because they’re overly focused on the promising functionality the technology can deliver and less concerned about how their business model needs to transform to get the most out of the technology. It’s the proverbial “putting the cart before the horse” problem:  

• Captivated by the promising technology, most focus is placed on functionality and technical implementation, ignoring the operating model until the design and UAT phases of the project 
• Roles and responsibilities are often overlooked until decision time; this creates the default answer of leaving the status quo in place, which causes leaders and business units to panic and react at decision time—often unintentionally replicating today’s processes and roles instead of creating new ones made possible by the technology 
• Companies invest in the right technology but fail to reimagine the way they do business ahead of time, forcing design decisions to mesh with inefficient, antiquated operating models and diluting their investment 

Projects don’t underperform because of the technology—they underperform because key people and process decisions are overlooked. While these challenges ring true across all lending sectors, agriculture is compounded by its own unique set of factors. 

They include:   

• Technology for ag lending historically has ventured down one of two unique paths:   
  1. Lenders invested in and built home-grown, internally developed systems to meet their unique needs. As technology matured and IT knowledge left the organization, lenders found themselves using ad-hoc patches to keep systems operating.   
  2. Traditional banking software was acquired, repurposed, and customized to serve the unique needs of the ag market, including collateral and borrower entity structures.   

• Many lenders implemented technology systems for specific functions such as collateral management and monitoring, exposure aggregation, collections, and branch/channel connections. This resulted in a set of legacy systems that are essentially duct-taped together to continue to meet today’s needs. These legacy systems and disparate data entry often influence project members and handcuff people and process decisions to old business models, limiting innovation and derailing technology output. Because of these factors, the flow of data is often clunky and raises concerns around data integrity.

Ag lenders encounter cyclical periods, just like ag borrowers. The windows of opportunity to invest, deploy, and utilize new technology can be narrow.  During seasons of belt tightening, process improvements are often limited as the focus can shift to navigating the storm. 

How can ag lending leaders and businesses improve technology investments and implementation success rate? 

To accommodate and begin preparing for new technology, organizations must realign and optimize certain structural and operational aspects associated with the basics of people, policy, and processes.

Consider this as a foundational premise: The way you used to do business may not be the best way for business today and tomorrow. 

To align your operation before the new technology arrives, consider these three steps:

Align the strategy

• At the onset of contemplating new technology, it’s most critical to strategize the long-term vision and understand the interplay between near- and intermediate-term objectives. Going forward, leadership must set and support the overall strategy to chart the course.
• Within the realm of strategy, organizations must project how the new technology will directly impact four key areas: People, process, policy, and infrastructure—the four core competencies of the operating model.
• Once impacts have been accessed, the organization must align current state competencies to effectively integrate and interact. This often creates disproportionate change among business units. Leadership must continue to endorse the strategy and help the team see that the whole is greater than the sum of the parts.

Align the people

• Organizations often overlook people and process competencies and make claims such as “they’ll just have to get used to the new way,” or “the new tech won’t affect their job that much.” These approaches can dilute a technology investment and its success.
• In fact, depending upon the technology, where and how expansively it intersects with the lending value chain could have major impacts to roles and responsibilities. Organizations often assume people will simply complete tasks in the new system instead of the old one.
• Unfortunately, that is not often the case. When designing role and responsibility integration with new technology, there are several guiding principles to consider:
  • Newly created capacity: Technology should yield increased capacity beyond doing more of the same functions; it should enable ability to perform value-add work, which in return drives employee engagement.
  • Highest and best use of roles: This includes upskilling employees to deliver on the value-added work
  • Realign human capital with future-state tech: Responsibilities of the credit analyst, relationship manger, and credit officer should be evaluated to ensure appropriate salary grades are performing corresponding level tasks. Maintaining current state alignment leads to a lost opportunity cost and doesn’t fuel growth.
  • Effort to reward: New technology can allow for greater data capture and integration across the end-to-end loan life cycle, meaning much of the data only needs to be entered once. No longer will three roles potentially have to re-key the same data objects, creating the opportunity for activity disposition greater role focus. For example, the lender role will be conducting more business development activity rather than data entry for annual renewals or reviews.

Align the process, procedures, policies

• Consider these elements of alignment between tech, process, and policy to maximize ecosystem output given installation of new technology.
  • Effort to risk (credit paths): New technology may allow for greater delineation between credit treatments (e.g., scorecard vs traditional), yielding faster decision-making and an overall lower cost of credit delivery. By segmenting and innovating new credit paths, organizations can deploy right-sized efforts depending upon the credit risk and volume associated with the origination or loan servicing action.
  • Effort to quality control (multiple, redundant, quality control checks of same data points within operations): New technology may enable singular keying of data—with straight pass through—and eliminate rekeying in multiple systems, consolidating the number of times the same data is captured. The tech may also include checkpoints that prevent an incomplete workflow from moving forward to the next stage when incomplete. New tech has the potential to create high-quality workflows, and far fewer quality control checks may be required, which reduces the overall need for dedicated post-approval QC roles.
  • Automation to efficiency and value: New technology may provide obvious automation benefits, but often missed are additional automations that exist across current processes. Technology provides the opportunity to step back and ask, “Why do we do that activity?” as organizations consider how to integrate existing tasks with new technology. Rather than forcing old ways into new technology, organizations must fundamentally challenge the value associated with existing tasks. When automation is innovative and expanded beyond the obvious, organizations experience two major efficiency gains including FTE cost reduction or redeployment of FTE to higher-value tasks. For example, new technology may include automated and integrated credit bureau pulls, OCR automation for scanning and transferring borrower financial data, and even an automated credit scorecard coupled to a decision engine that provides conditional approvals in minutes instead of days.

How does a digitally aligned organization create value? 

Organizations must optimize the operating model as a precursor to technology and position themselves for successful alignment across myriad frontiers to unlock measurable value and benefit realization from the technology. For organizations to continuously evolve and improve after technology implementations, refining and adjusting the technology and processes is a must to unlock newfound value in these three areas: 

• Employee engagement: Operational enablement and data integration drives transparency, satisfaction, and accountability by leveraging automated dashboards and reporting for all activities across the value chain 
• Customer experience: Integrated technology and automation embedded within process realignment drives improved service levels with faster response and cycle times, such as decisions to loan approvals and funding 
• Financial performance: Reduced operating costs resulting from elimination of non-value add activities and incorporation of organizational design best practices 

The potential to unlock value is only limited by the organization’s perspective on realigning and optimizing it current state as a precursor to the new technology. 

The magnitude of opportunity is significant, and ag lenders must reinvent the way in which people do their jobs by leveraging new technology to drive efficiency, scalability, and sustainability. Similar to the GPS that drives the tractor, farmers and businesses alike must reevaluate their roles. Organizations must take advantage of the opportunity presented by new technology and capture benefits across roles, processes, and policies—and include full consideration of both direct and indirect benefits. 

By acknowledging that the organization built over the last decade may not be designed for ongoing adoption of new technology and integration, ag lenders may begin the process of preparing the ecosystem. Launching a strategic vision and considering impacts and change points for the people and processes will enable the organization to redesign and prepare in meaningful ways. Organizations may empower and enable employees to leverage their talents while streamlining processes, automating data sharing, and ultimately achieving ecosystem optimization.