Expert Roundtable: Technology Purchases

Technology has quickly become the driver of many profitable collection operations in the United States. From increasing productivity to expanding the resources at a firm’s disposal, technology has made possible what was unimaginable 10 years ago. As such, the purchase of technology has evolved into a mission-critical and complicated endeavor, with more products, services and vendors than ever before.

CollectionIndustry.com assembled a panel of top level technology decision makers from world class collections operations. The panel included Bob Dunham, owner and CEO of Receivables Management Solutions in St. Paul, Minnesota; Jason Howerton, owner and CEO of ARS National Services, headquartered in San Diego; Jim Richards, President of West Asset Management (former owner of Attention, LLC); and Doug Wilwerding, owner and CEO of Omnium Worldwide out of Omaha, Nebraska. Michael Meyer, Chief Information and Security Officer for MRS Associates in Cherry Hill, NJ was unable to be on the panel discussion call but submitted written answers on behalf of his firm.

Moderating the discussion was Paul Legrady, Director of the Research Group at Kaulkin Ginsberg Company

The panel discussion is also available for download in PDF format. Download PDF (12 pages, 189kb)

Paul Legrady: We are fortunate today to have assembled an outstanding panel on the subject of collection technology purchases.

Technology products and services are central to this industry for obvious reasons: they help reduce expenses, increase revenues, and bring some structure to the collection process. As a result, we have more than 200 technology vendors that now serve this industry with specialized products and services. These include collection software providers, payment processing services, voice communication suppliers, credit reporting agencies, portfolio scoring companies, document imaging systems, skip tracers, et cetera. And all of these are available to make the collections more efficient and more effective.

Owners and managers in this industry can read every day about the detailed specifications of these products. But it’s much more challenging to read about how these purchases are made and how they’re made most effectively. So this panel will answer questions about how collection technology purchases are planned, budgeted, executed, implemented and measured for return on investment (ROI).

Let’s begin by having each panel member introduce themselves and their companies.

Bob Dunham: My name is Bob Dunham. I’m the owner and CEO of Receivables Management Solutions Collection Agency in St. Paul, Minnesota, established in 1996. We have roughly 200 employees servicing debt buyers and creditors.

Doug Wilwerding: Doug Wilwerding, CEO and owner of Omnium Worldwide out of Omaha, Nebraska. We were founded in 1969, have about 800 associates and operate through seven locations in the U.S.

Jason Howerton: Jason Howerton, owner and CEO of ARS National Services, headquartered in San Diego, founded in 1992. We’ve got 550 associates in four locations.

Jim Richards: Jim Richards. I’m the President of West Asset Management. I’m an ex-owner of Attention LLC, and currently I’m an employee of West Corporation. We have somewhere close to 2,000 employees throughout the country and in offices in Mexico and Jamaica.

Paul Legrady: The questions I have on the purchase of collection technologies basically runs from start to finish in a purchase cycle. I’ll begin with a few questions about how these purchases are planned and budgeted, and then ask some questions about how the purchases are negotiated and executed. Then we’ll look at how these technologies are implemented and measured for return on investment.

So why don’t we start at the beginning, looking at the planning for technology purchases. How long will you generally plan for the purchase of one of these technology systems before it actually takes place?

Bob Dunham: I think your budget really sets the planning of technology purchases. Also, you have to look at what technology it is that your company needs, which is determined by what type of service you are providing for your clients.

Planning also depends heavily on whether you’re buying or upgrading. Take, for example, buying a predictive dialer. If you’re buying a dialer system it could take two to four months just to purchase the dialer and get it up and running simply because it will take 30 to 60 days to order a T1 and get it installed at your location through the vendor or the phone company.

Other technology that can be accessed through Web connections, such as Accurint or Insight America, will require less planning. If you wanted to do skip tracing online through a Web site by collectors at their workstations, that’s a task that can be done literally in hours internally within your own shop.

Doug Wilwerding: I agree with Bob in that, depending on the magnitude of the purchase, a bolt-on production enhancement tool or project-specific tool addition takes basically, from concept to implementation, a couple of weeks.

Enterprise-level strategic decisions, up to and including your platform recovery system, could turn out to be a two-year process by the time you’ve done all the needs analysis, planning, vetting of the vendors, and actually get everything converted and up and running.

Paul Legrady: Jim, can you give us the perspective of a larger company, or at least a company with more collectors?

Jim Richards: Agreeing with the previous two answers, if it is something small that we’re going to put in and it’s just a piece of equipment it could be two to four months. But we just recently started an enterprise-wide conversion, and it was at least 18 months from the beginning of planning to the time we signed the contract. And to change out the entire company, I think we have a three-year plan and that covers about 17 locations and six different business lines. So I’d have to agree with Doug, just to get through the analysis, the comparisons, the negotiations, the decision-making process is an 18-24 month issue and that’s just the beginning.

Jason Howerton: I would say that our personal experience has been, even at the enterprise level, we can realistically expect to implement new technology in six to eight months given our size. So the complexities we face are probably a bit less than what Jim or Doug face on a day-to-day basis.

Paul Legrady: How do these purchases get planned in a way that your strategy for running your business is not only considered but incorporated into the results of the purchase decision?

Doug Wilwerding: I think the first thing is, and this may sound pretty obvious, companies really need to know what their strategy is and how technology plays a role in the execution of that strategy.

In our experience, technology has never been a panacea or the culmination of strategic execution in and of itself. More appropriately, we look at technology as something that should enable our strategic execution. And by knowing our strategy we can accurately assess the attributes the technology needs to have in order to be that enabler. Once that’s clear, I think the field of alternative technologies usually narrows pretty quickly and the choices become relatively clear.

I think you need to look beyond technology, though. It’s also important to be sure that the vendor you’ve chosen can support you strategically and that their future development plans mirror your ongoing strategy.

So often we’ve made the mistake in the past of looking at vendors of technology as though we were dating them rather than marrying them. And I think really choosing the vendor that is strategically congruent is almost as important as choosing the product that you’re buying from them.

Bob Dunham: There are just so many vendors out there. Take skip tracing, for example, or services offering credit scores or recovery scores; there are a lot of different companies offering those services today. You can pay a pretty small price for one vendor’s score or you can pay a higher price for other scores, depending, of course, where the database is, who these companies are, their reputation in the industry, and where they’re getting their data from. The strategy behind technology purchases is what you do with it. Evaluating what value it brings to your company versus just buying it to say "I’ve got this technology and I get all this great data" is very important.

Michael Meyer: To keep our technology purchases in alignment with corporate strategy, we have a bi-weekly technology steering committee meeting. This meeting is where we review our projects, make purchase decisions and then set the purchase priorities.

Paul Legrady: Are investments in technologies budgeted or funded differently than any of the other investments made in your company?

Jason Howerton: We budget all of our information technology expenses from payroll to new technology purchases. We sit down at the beginning of every year and map out our strategic goals and our tactical goals and try and come up with what we think is a realistic number given our revenue forecast and profitability targets.

With regards to new technology purchases, we certainly try to do our best based on the experience of our team and information that we can gather from our peer network to try and figure out sort of what range we should budget for new technology expenditures. But it can be somewhat surprising as to what you think new technology will cost and what it ends up costing.

In terms of funding it, it depends on the size of what’s being funded. We certainly do a lot of capital leasing where appropriate. We can fund out of our cash reserves if it’s a smaller item. But it really just depends on the item.

Michael Meyer: Technology investments are budgeted and funded exactly like other investments in our company. Once a purchase need has been identified, we use a priority funding system that requires evaluation and approval by all of the execs.

Paul Legrady: Can the panel speak a bit about their experiences in having annual expenditures on technologies come either above or below what had been budgeted earlier in the year and perhaps give some suggestions as to how and why that might have happened?

Jason Howerton: We do our best to be conservative in our estimate so our hope is that we come in under budget and this year that has been the case.

I think there are timing components that are hard to predict. We do some – actually a lot – of our big purchases mostly via dumb luck, and a lot have come towards the end of the year as we rush to prepare for tax season of the coming year. Vendors are certainly motivated to hit their sales quotas for the year, so you can get some pretty significant pricing discounts if you time large-scale purchases appropriately.

Doug Wilwerding: I think over the last 15 years this has changed a little bit because everybody that is playing with larger customers has basically all the key components of infrastructures in their system. Those things antiquate pretty quickly but I think everybody’s gotten into the habit of just budgeting for that antiquation. And then there’s an element of table stakes. There’s a certain amount you are going to have to spend on technology every year just to stay in the game. So from our standpoint, the capital budgeting and the operating expenses for technology has really become kind of a standard part of the process. We anticipate that there is going to be a capital investment in some part of our technological infrastructure every year and that’s just built into your pricing and your overall expectation of return from operations.

Jim Richards: When we look at technology investments it’s all surrounded in our capital expenditure budget; normally technology is 70 or 80 percent of our budget. And I would say that if we’re not investing in new technology we’re spending about two percent of our revenue on maintenance. If we are making a purchase, we’re spending closer to five.

The interesting thing is we’ve never spent our capital budget. We can spend 60, 70, 80, 90 percent of it but technology is always more complicated in delivery and execution than our plans are. In other words, we plan to do so much of it but for whatever reason things don’t work in time or deadlines get missed and it basically pushes the expenditure back a little bit. So while we’ll budget maybe five to six percent of our revenue, we’ll always come under that just because delivery time always takes a little longer than you expect.

Paul Legrady: How much comparative shopping takes place as you’re planning for these purchase decisions?

Doug Wilwerding: Well I would assume everybody’s experience is similar to ours. We get about 300 phone calls a week from whoever is selling the next greatest revolution in collection technology. You can tie up staff time to an inordinate level looking at all of these new whiz-bang inventions and solutions. You’ve got to be pretty careful that you don’t waste time shopping for things that add marginal value or no value whatsoever.

The key thing we look at when we’re shopping the market for technology is technology that will integrate into our current platform. I am always leaning toward integrated solutions and against interfaced alternatives. Every time we deploy an interface we end up causing more problems and incurring more expense. Jim talked about maintenance costs and support costs; they just go through the roof.

So we tend to first cull out all of the available solutions in the marketplace that don’t easily integrate into our platform and whose implementation would be anything short of a relatively seamless incorporation into our existing solution. We also limit our shopping to those companies that have established platforms. We have a saying out here on the plains: you can always tell the pioneers, they’re the guys with the arrows in their asses. We tend not to want to be one of the pioneers on the bleeding edge of technology and our client base doesn’t necessarily require that of us.

So, from the standpoint of how much shopping around with vendors we do, we really look at our primary vendor’s ability to integrate with these external vendors. Secondly, we make sure that we’re looking at vendors that have established track records. Then, and only then, do we start actually investigating the benefit of the application to our clients and the performance the new technology will deliver.

Jason Howerton: I certainly agree with Doug with respect to not wanting to be the first through the door on most of the new technology that you see. For us there’s been only one instance that I can recall in the last maybe seven years where we’ve really wanted to be on that bleeding edge and that was with the Web. But other than that we are very focused, as Doug aptly put, on partnering with vendors that have a track record of good execution, good support and a stable and proven platform or infrastructure.

Michael Meyer: We do little, if any, shopping around for core purchases like computers and infrastructure. We have developed great partnerships with our main vendors like DELL, and they in turn give us the best deals and support available. We leverage these partnerships to enhance our growth, increase the depth of our capabilities and to meet our client’s deadlines. When it comes to other less important purchases like consumables, then we tend to shop around and go with the lower price vendors.

Jim Richards: We’ve been pretty fortunate because we’ve acquired a couple companies and we have a pretty good growth pattern going. So this year, we’ve been able to afford a strategy group. Basically, we have a half a dozen people — that are not line people — concentrating on ways to do things better, whether it be scoring, enterprise-wide MIS, outbound IVR, at-home bill collection, etc. So we send all the vendors through that group so that if somebody does have a better mousetrap, we’ll identify it. I agree with some of the other comments that you can’t let all of your line people listen to all these different sales pitches and try to get them involved in selections of vendors. They’ve got a full-time job and that takes away from their revenue production.

Paul Legrady: Do the rest of you leading smaller companies also have committees or groups that screen these new technologies or that weigh in on potential purchase decisions as Jim as described?

Bob Dunham: Yes.

Jason Howerton: Yes.

Doug Wilwerding: Yes.

Paul Legrady: When it comes time to actually make the purchase, how much flexibility have you been able to exercise coming to terms with vendors?

Bob Dunham: There’s a fair amount of room from my experience. I like to negotiate simply because it’s in the nature of being a collector.

The experience that I have found in running a smaller company — as we are compared to everybody else on the panel here today – is you have a lot of room to negotiate. Where they’re willing to come down in their rates can vary quite a bit. There are a lot of variables. If you’re looking for monthly volume commitments, which could help drive a better deal, it may appear you’re getting a better price today but you’re going to be locked in for a few years. And this applies whether you’re talking about a skip trace product or if you’re talking to a long distance carrier; a lot of vendors are looking for long-term commitments. So there’s consideration for those commitments that you make while you’re negotiating.

One of the experiences where I saw a lot of mark-up, or felt there was a lot of mark-up, was in buying telephone equipment. Purchasing a new phone system, I was surprised at how much the vendor was able to come down on price based on the time of year and also based on an upcoming vendor review with their national provider.

Also, vendors always present brand new items during the sales process. Many times, you could buy some refurbished items at a significant savings for the exact same item. So there are ways to buy things that can save you huge, huge dollars by asking the right questions and/or setting some limits on what you want to pay for certain items.

Doug Wilwerding: I agree with what Bob was saying. I think his point is good: as bill collectors we all are trained that if somebody says "yes", we’ve left money on the table and we should have pushed a little harder.

I also think there’s a lot of room in negotiating. I’ve actually been quite surprised at how flexible both software and hardware vendors in telephony and computer-based technology have been over the last few years. Many of these vendors are trying to break into the collection industry and they’re looking for a platform company to work with. They may have proven track records in other industries that are applicable to ours and they want to get some exposure to this industry. We’ve seen a lot of that, specifically in the scoring and modeling hardware and applications where they’re very aggressive to get something installed in this business. We’ve been the beneficiary on a number of occasions.

I think, beyond price concessions, they’ve also been very responsive to service-level agreement concessions and performance metrics that we wanted to put into the contract.

Jason Howerton: I think those guys are right. There’s just a tremendous amount of negotiating room. I think when you start seeing supplemental NDA’s, you know you’re moving in the right direction.

Jim Richards: We never discuss the hard negotiating strategy. But I think it’s always based on the fact that it takes us so long to get something done it’s usually by the time we’re through we feel we have a fair deal. We feel the vendor’s got a reasonable profit and we’re going to have a partner in a deal that’s going to help us because I don’t care what collection company you’re in, you just do not have the skill set to completely execute technology without our partner’s help. So what we really look for is somebody that’s going to hold our hand and walk us to the right answer and then help us validate our decision based on the numbers.

But I’ve said many, many times we’re not in the IT business. Software will help, but we’re in the collection business and we spend our time selling and collecting our portfolios. And just about every other piece of our business we would love to outsource if we could.

Doug Wilwerding: I think Jim raises a good point. One of the things that I tell our technology vendors, and they have a hard time swallowing this, is that once we’ve signed the contract I want the sales process to be over. Quit trying to make me happy and start trying to make me successful. Some days that means you may have to tell me to shut up and listen to you because you’ve been down this path before. I want you to do what’s best for me, not what I want. And that’s a tough transition, to take an organization that’s spent the last year and a half trying to sell you something and once you’ve said yes they have a hard time shifting into that partnering mode.

Jason Howerton: We have made the mistake in years past where we’ve pushed pricing so far that, when it comes to implementation, we’re left high and dry because there’s not enough margin for our vendors to support us. That’s a mistake we’ll never make again because it is extremely painful.

Michael Meyer: Depending on the vendor, I think there is a good amount of negotiating room. Plus we also time our major purchases to coincide with the vendor’s end of month or end or quarter to ensure that we get the best pricing. For smaller purchases we wait until there is an announced or unannounced special and buy spares when it is a really good deal.

Paul Legrady: In what ways have new technology purchases changed operations at your company after the purchase is consummated?

Doug Wilwerding: Well, we may be in a little bit of a unique situation here. We’re just coming off of 25 years of being in a proprietary technology environment. I think what we felt like we were getting from a proprietary environment was a very quick response to what we deemed were our needs. What we were really doing was digging ourselves a customized and unstructured hole that was darn hard to get out of.

Going to a vended application operationally has forced us into a process discipline which has been very good for the company. It requires us to default to the configurable options that are already built into the system. And in essence I think it is actually making us much more responsive, more efficient and more cost effective than what we ever would have realized in a proprietary environment.

Paul Legrady: There must have been a great deal of training of your collectors and your other employees as that transition was made, Doug.

Doug Wilwerding: Well, first you have to go through the exorcism; getting all the people that had spent 25 years building the system that is their source of pride to realize that their baby had been sent down the river. But the training, interestingly enough, doesn’t start with the technology, it starts with the processes you’re going to follow in your business and getting people to a process discipline and then the technology comes in and supports that process.

The desktop training — teaching a collector how to read a new screen and navigate — is really a no-brainer. If your incentives are right and your portfolios have some quality to them, collectors will figure out how to use the tool. It’s really more management having the discipline to use the tool as it was built so that you can get the maximum benefit.

Bob Dunham: I like the words process system because collections has changed quite a bit. Collectors who have been in it for 15 years or so have definitely have had to learn to change the cradle-to-grave collection mentality. The collector who did a lot of their own skip tracing, who worked in a manual environment, and who worked at their own pace had little productivity reports that could point out their pacing or point out their results. In today’s collection shop, skip tracing is done through batch processing mode where thousands of accounts can be done in one press of a button. Collectors have to do very minimal type of skip work at their desktop. Now, they have to do dialer work, which 10-15 years ago was not a demand in a manual dialing environment. So they’ve had to learn to work a process of getting through more accounts and making quicker decisions.

Paul Legrady: Jason, you mentioned earlier that you had with one particular vendor negotiated hard on price and then not had the support during the implementation phase that you were hoping for. Can you speak to expectations more generally during the implementation phase?

Jason Howerton: Well, we look for a smooth execution. We establish what our expectations are prior to the implementation phase. So once we negotiate a contract, agree on a price, sign the contract, the next meeting that we have we sit down and we say, "Look, now you’re going to help us be successful and here’s our expectations, here’s the timeline, here’s the process that we think will make us successful. Do you buy into this process?" So we try to very specifically dictate terms. We have also made the mistake in the past where we signed the contract and let them "drive" and we were delayed three months and couldn’t figure out why.

From a training perspective, specifically with new technology, we invest very heavily in our own internal training group. So when possible and when appropriate, we prefer to have our own trainers train our staff. They will go through whatever vendor-supplied training exists and then roll that out to our organization because they know better than anybody how our organization learns.

Jim Richards: As we’re negotiating price or we’re concluding the price negotiations one big item that we really work on from a term standpoint is how many training hours we’re going to get from the vendor. And usually, compared to what they offer, we typically want 5 to 10 times as much. So we really negotiate hard to get their commitment that they’ll be on site, and they’ll help us with it, and they’ll train our trainers, and they’ll continually be available for our management. That’s just the one item we learned early on that normally what they offer in a training facility isn’t adequate and that’s how we test the commitment.

Paul Legrady: Can each of you describe how you measure ROI for these types of purchases and perhaps the timing of those measurements?

Doug Wilwerding: From our perspective, most of the technology we look at is really predicated on driving efficiency, whether that takes the form of allowing your collectors to handle a larger volume of accounts, increasing throughput, or increasing revenue per FTE. Technology really is a way to squeeze the cost out of your business via the most expensive component, which is labor, and do more of the non-crucial collection tasks with a machine versus a person. So that’s really how we look at measuring the ROI.

Jason Howerton: We approach it the exact same way. We really look at revenue per paid hour, and as long as we think we’re meeting expectations or exceeding expectations on that metric, we don’t do a lot of looking back at a 12-month or 24-month clip.

Bob Dunham: I agree as well. When it comes to technology for the collectors, whether it be skip trace vendors, scoring, dialers, or whatever involves the collectors, ROI is measured at the per-hour collection rate at the end of the year or at the end of the month.

There are other areas, though, where the technology has improved. Mail returns is one of them. There are a lot of companies that offer to do your mail returns and charge you up to five cents a piece for that processing. For years we struggled with that and we had to pay someone part time to do all that keying. Eventually we ended up buying the barcode scanner and had a program written inside of our own program to just basically upload an Excel spreadsheet to update the accounts. It cost less than a thousand dollars to buy that scanner and do the programming for our system. And it really cut back on all the part-time help, in fact it’s almost eliminated. So with that technology, we realized a huge savings on the bottom-line books from outside of the collection area.

Check-by-phone is another area we’re looking at. We feel that with ACH where it is today, that technology is going to help improve the bottom line. Collectors now can identify the ABA numbers and account numbers and verify funds before we make the deposits. This is going to reduce the NSF rates.

Michael Meyer: We measure the financial results by comparing and quantifying the increased revenue generated against the prior period without the new technology. Where this isn’t practical or feasible we back into the results by looking at the surrounding costs and performance information.

Paul Legrady: Is there one collection technology that you think stands to kind of create the greatest value your companies over the next five years? And perhaps, one technology that you think will have the greatest impact on the industry as a whole over the next five years?

Jason Howerton: I think that the most exciting opportunity that we see is the Web and touching consumers in a different way than they previously expected from our business and our industry. So we are investing quite heavily there. We’re very excited about the long-term prospects of the Internet.

Nearer term, we are really excited about and have been excited about — like everybody out there for the last couple of years — scoring. As the market keys in and as vendors key in to the huge opportunity that exists with off-the-shelf recovery scores, I think that will drive that efficiency that we’re all looking for.

Bob Dunham: I think all these scoring technologies are definitely helping to reduce a lot of manual work and identify accounts that we want collectors to be working, i.e., recoverable accounts. Working smarter, you know.

Jim Richards: We have a thing that we believe will change a little bit of the difference between onshore and offshore by getting our agents at their homes. It takes quite a bit of technology to bounce those calls in and out of their houses along with the data line and everything else and then try to manage independent agents. But I think in years to come you’ll see our company ending up with 500 to a thousand people sitting at home working on a variable wage based on what we collect. We think that’s some hot stuff or cool stuff going on in the future.

Doug Wilwerding: I think the next wave of technology will need to make sure that it integrates into the people that are doing the actual work. In other words, it has to be driven from the user perspective and not the software developer perspective. There is a wave of simple tools coming that remove superfluous bells and whistles and very efficiently does exactly what it is intended to do. This lowers TCO (Total Cost of Ownership), maintenance, support, administration, etc.

I have one other thing to add: we’re probably not much different than everybody else on the call in that frequently, we buy technology solutions and get them installed and use them as they were first installed. We never really go back to investigate exactly what the technology can do at its full use. We’ve actually realized a lot of ROI by going back and turning on every aspect of something we paid for years ago and getting the full benefit from it. And I think that concept is as important as selecting your technology so that you can actually use the technology to its full capability so you do realize the full ROI.

Edited by: Patrick Lunsford