Jay Kiley
Dr. Lorrie McGovern
Literature Review
Abstract
Innovations are inevitable in the business nowadays as they lead to the increased efficiency. The more efficient the company is, the higher the profit it gains. This is equally fair for the product innovation and management improvement. Moreover, financial innovations are now even more desired. All these changes are beneficial for all parties, as development of the entrepreneurship leads to the social and political improvements. Therefore, within this paper, a literature review will be performed to reveal main discussions on the innovations in the financial management, especially in the commercial lending. Both advantages and disadvantages were discussed by different researchers. Furthermore, improved financial processes will make the lending workflow easier and faster, which will boost the economic development. While, on the other hand, this may result in the underestimation of the financial risks, which will thus threaten financial stability of the whole system. Risks are the main factors that prevent the spreading of the corresponding software, designed to simplify financial processes.
Key words: financial processes, risks, commercial lending, management improvement, financial innovations.
Modern businesses develop much faster than it was seen decades ago. This can be mainly explained by the fast development of the innovative technologies, which greatly simplify the process of sharing the information and product exchange. Internet allows even international trade to be a one click choice; which makes it necessary for the companies to improve their business faster to gain an advantage against the rivals. Enquist, Johnson, and Rönnbäck (2015) in their research examine several business excellence models in terms of the real market conditions in order to show where they can be adopted and where there is a new excellence model required. By definition, the business excellence model is a tool or set of tools, which are implemented by the management in order to perform in a more systematic and effective way. The current pace of continuous development often results in a misuse of the resources and funds, as old models do not correspond to the current business needs. Yet, customers’ needs remain unlimited while resources are easily run out. Therefore, companies have tomust select the right excellence model which will help to optimize business processes, but not compromise the quality standards. These improvements should contain not only business and financial optimization, but they must start from the corporate culture and company’s view.
Enquist, Johnson, and Rönnbäck (2015, p.322) have assessed the models of the Malcolm Baldrige National Quality Award (Baldrige), European Foundation for Quality Management (EFQM) and Swedish Institute for Quality (SIQ) National Quality Award. All these models were introduced about 25 years ago and even though they are still widely used, there should be new adjustments implemented. For example, it is vital to focus not only on the financial aspects of the business, but also contribute to the environmental and social improvements. This statement was supported by other economists, including Brown, who argues that there is a necessity for the “shift in quality management, from a mechanistic approach to a more organic approach that focuses on learning and innovation” (Brown, 2014, p. 184 cited in: Enquist, Johnson, and Rönnbäck, 2015, pp.322-323). This new business excellence approach will obviously require a new type of management, specifically, companies will need more inspirational leaders, who can easily communicate and coach the team rather than strict mangers, who overcontrolover control the employees, leaving them no room for development and improvement.
Authors state that firms should incorporate new strategies on sustainability, stakeholder co-creation and service innovation in business excellence models so that to perform more effectively in terms of the modern business landscape (Enquist, Johnson, and Rönnbäck, 2015, p.321). They also refer to the Hagel et al. argument, that new paradigm should be based on the pull principle instead of the push, which was known since the Industrial Revolution and commonly known among “old fashioned” managers (Enquist, Johnson, and Rönnbäck, 2015, p.323). SoSo, the new model, which will be based on the above mentionedabove-mentioned rules of leadership, social responsibility and shareholders’ dialogue is what they call a Business Excellence 2.0.
Improvements in the modern management systems were reviewed by other authors, yet they were not labeled as a Business Excellence 2.0. Nevertheless, Lopez-valeiras, Gonzalez-sanchez, and Gomez-conde, (2016, Abstract) have discussed some similar ideas to those of the Enquist, Johnson, and Rönnbäck. In both articles the importancethe importance of the innovative technologies is emphasized, yet, unlike the Excellence 2.0 model, the interactive use of management control systems (iMCS) suggests that the standard management system should be upgraded with a help of innovative technologies. It is a different change from a sole product innovation, as it requires changes to be implemented in the whole structure of the company not only in the product development processes. Which is most significant of this article is that it supports the idea with empirical findings based on the research of 360 companies of different size and ownership type (Lopez-valeiras, Gonzalez-sanchez, and Gomez-conde, 2016, Abstract). Although, both articles state that modern business landscape requires companies to optimize their processes. This equally refers to the products and services, including financial and banking ones.
Su, Yiyi and Si, Steven in their article named financial innovations to be the most important in the overall business modernization process (2015, p.563). At the same timetime, they emphasize on the fact that as any other changes financial innovations have both pros and cons. On the one hand, they stimulate the market as many processes become simplified and thus more available for larger audiences. On the other hand, oversimplified financial processes may lead to the threat of underestimated risks, which, in fact, caused the recent global financial crisis in 2008 (Su & Si, 2015, p.564). The pace of the modern world demands all actions to be fast, especially when talking about trading. No business can be fast enough without simple and fast financial management. Therefore, it is obvious that many businesses seek for options and tools which can support them with fast but secure financial services.
However, there are still nations which are hesitant to innovate their financial industry. Su, Yiyi and Si, Steven researched a range of countries with different approaches to the financial innovations in order to understand why there is a difference and what motivates people to innovate (2015, p.564). Clearly, there are some macroeconomic factors which define major financial tendencies; but there are also strong behavioral aspects which determine why financial managers tend or avoid any innovations. Understanding these nuances is crucial for promoting such services as Commflo's BlueSky Software.
The product suggested can be defined as a tool for the business excellence model or as a part of iMCS (Enquist, Johnson, and Rönnbäck, 2015; Lopez-valeiras, Gonzalez-sanchez, and Gomez-conde, 2016). At the same time, it is a financial tool, which makes it vital to understand the main tendencies and risks prior to launching it in a new market. Any innovation includes risk, therefore authors suggest that companies are ready to take risks in several cases: if the benefits to be achieved through the innovation are greater than the risks possible, or if both the risks and changes will not have a significant impact on the company. These patterns depend on the behavioral types of the managers or may be even take as a national behavior style (Su & Si, 2015, p.564). Authors connected their research to the level of economic freedoms in the 40 countries they assessed. As expected, the countries with higher economic freedom levels were more likely to take the risks and adopt the innovation to the financial system. This may be explained by the fact that people in developed countries have more opportunities to backup their business, in case this innovation call does not work. Meanwhile, in developing countries in most cases economic and political situation is not stable, thus neither individuals nor companies feel secure enough to take extra risks with innovations.
It isIt is hard to imagine a developed economy without a well designedwell-designed lending market. In fact, lending process became one of the vital aspects of the modern economy, as most of purchases are now made using the borrowed money. On the one side, it has many positives for all parties. The company increases its sales and production,production; consumers may afford to buy the product wanted now not waiting to collect the necessary sum later. Consumers, as the main market force, will benefit from accessing the goods in the moment they need it, without delaying the purchase time because of lack of money. Companies, meanwhile, will increase their sales and production. The government benefits from the economic growth and holds a tool to regulate money supply. However, on the other side there are numerous risks for the debts not to be returned. In order to diminish the risks possible, many companies and financial institutions spend a lot of resources and time on managing the lending process from the very first inquiry to the last fee paid.
After the recent financial crisis, which was claimed to be caused by the overwhelming number of unsecured debts, lending markets now shows positive trends. However, commercial lending remains one of the most time and resource consuming processes. Modern high-tech innovations are called to simplify most of the processes and make the routine actions more user friendly. It is obvious that technology related industries are well familiar with all peculiarities of the innovative process as they are the pioneers to implement such. Meanwhile, other industries are now also transforming to be more innovative. Particularly financial lending in the US has grown into a sub-segment of asset based lending during the past few decades. Hence, many innovations are required in this area (Brown, 2015, p.121). Which, in turn, makes the fruitful background for the BlueSky software landing.
Brown (2015, p.120), claims that the sole innovation process may be of the same importance if not more important than the product improvement itself. In his paperpaper, he researches the innovative process in the financial institutions, especially in the sub-industry of alternative financial institutions, which financially support small and medium sized businesses. Even though, they tend more to support small businesses, the commercial lending market kept growing. Nowadays, the commercial lending growth is not that significant as it was reported in 2004-2006, yet it has a positive trend, which looks promising for the companies like the BlueSkyCommflo Corporation.
It is clear that banks aim to credit as many as possible to gain the benefits first, therefore innovative technologies will be more than welcomed if they can simplify and make the lending process faster. Commercial lending though still runs behind other departments in adopting the new technologies. Which basically means that firms spend lots of time and human resources on getting a loan and processing it. Yet, modern companies are now oriented on the development which involves justified risks, but more nonfinancial benefits, like contribution to the social and environmental improvements (Enquist, Johnson, and Rönnbäck, 2015, p.321). One of the risk management options in the lending market is a loan consolidation. This tool is widely used in the US financial system and is helps secured and unsecured loans to be initiated (Brown, 2015, p.123). However, managing a consolidated package of loans is even more difficult than simplye controlling of the sole loan moanymoney flow. Therefore, an innovative software is more than desired for the modern commercial lending.
Modern technologies allow to use relatively cheap platforms and resources to reduce operating costs and to minimize human related risks. Online banking is now even more widely used than a regular visit to the bank, online purchases are also available for both individuals and businesses, thus online commercial lending is quite on time now.
Ayayi (2014, p.5) discusses externalities that have an impact on the commercial lending provided by banks and other financial institutions. One of the questions mentioned in the article is the impact of the upscaling and downscaling of the lending on the social well beingwell-being. The author says that innovative technologies has helped reduce transaction costs and make smaller transactions profitable, new technologies in the financial industry may also increase consumers’ purchasing power and thus boost the economy. New technologies will also make collateral and a formal credit historyofhistory of the borrowers, which will be one stage closer to diminish the risks of unpaid credits (Ayayi, 2014, p.6). This is especially crucial for the developing countries. According to the author: “widespread diffusion of innovations in financial technologies, which has reduced the risks and costs of microlending, has enabled FFI to begin incorporating credit for microentrepreneursmicro entrepreneurs into their portfolios” (Ayayi, 2014, p.6). DecresedDecreased transaction and operational expenses with the same interest rates in the market will provide the lenders with higher profits earned, hence making the adoption of the innovative software more desired by the managers of the company.
Kotter defines 8 main steps to implement an innovation in the market. The first step is to create urgency so that to make everyone feel that the change is needed and it has tomust be done now. That will prevent managers from wasting time on discussions and complaining, as in most cases people are not comfortable with any changes. The second step is to build a coalition, mainly a team of inspired people who are confident in the upcoming changes. This team is needed to inspire and lead others towards the changes expected. Step three is to formulate a vision of change. This will help others to see where the company is moving. Step four will require a team of volunteers to communicate the vision to everyone else. Step five require to remove the barriers and obstacles. And step six is to set a short termshort-term task and to track its status until success. Step seven is to sustain acceleration. Lots of innovations fail as only success is presupposed, and after the first failure, the whole system crashes. In order toTo prevent this, Kotter suggests to build the change step by step. Innovation is not immediate, it requires time and efforts, yet small victories can be celebrated. The last eighth step is to anchor the change into the corporate system and move further (Kotter, n.d.). These steps are required once adopting the innovative software for the commercial lending.
It was long since the market first started talking about the software to simplify make the commercial lending processessimpler. Moreover, in the modern economic world innovations in the financial management are vital for the businesses in the modern economy (Enquist, Johnson, and Rönnbäck, 2015). Many innovative ideas fail, as people are not ready for the changes, while the manager is oriented on a fast track to success. Therefore, any first failure may be taken as the absolute one. In some cases, the society is not ready to take the risks, especially if it relates to the financial aspects (Su & Si, 2015). For such cases, Kotter’s 8 step model may be the most effective, as it motivates people to move towards the changes, but does not push changes on them. The feeling of voluntarily accepted innovation works more effectively than a “must do” order from the boss (Meredith, 2013, p.9). What is more, Kotter’s model is used to apply changes to the corporate culture, which may help the business not only implement the innovative change in the financial management, but to adjust the whole management system to a new level, with higher standards and better efficiency.
References
Ayayi, A. G. (2014) Downscaling and Upscaling Lending for Inclusive Microcredit. International Journal of Economic Perspectives8.1, 5-11. Retrieved from http://search.proquest.com.ezproxy.saintleo.edu/docview/1776143817/BB1DE9C2E9ED4C14PQ/6?accountid=4870
Brown, R.S. (2015) Equifinality In Open Systems: Explaining The Phenomenon Of Hard Money Mortgages. Profile. Academy of Accounting and Financial Studies Journal 19.1, 120-132. Retrieved from http://search.proquest.com.ezproxy.saintleo.edu/docview/1693335733/BB1DE9C2E9ED4C14PQ/17?accountid=4870
Enquist, B., Johnson, M., and Rönnbäck, Å. (2015). The paradigm shift to Business Excellence 2.0. International Journal of Quality and Service Sciences 7.2/3, 321-333. Retrieved from http://search.proquest.com.ezproxy.saintleo.edu/docview/1686426795/fulltextPDF/6CD5D431ED9446AEPQ/13?accountid=4870
Kotter, J. (n.d.) The 8-Step Process for Leading Change. Retrieved from http://www.kotterinternational.com/the-8-step-process-for-leading-change/
Lopez-valeiras, E., Gonzalez-sanchez, M. B., and Gomez-conde, J. (Jul 2016) The effects of the interactive use of management control systems on process and organizational innovation. Review of Managerial Science, 10.3, 487-510. Abstract. Retrieved from http://search.proquest.com.ezproxy.saintleo.edu/docview/1793529841/6CD5D431ED9446AEPQ/10?accountid=4870
Meredith, G. F. (2013). Building and sustaining a culture of assessment: Best practices for change leadership. Reference Services Review, 41(1), 13-31. doi:http://dx.doi.org/10.1108/00907321311300857
Su, Y. & Si, S. (2015) What Motivates Financial Innovation Across Countries? The Influences of Performance Aspiration and Economic Freedom. Management International Review 55.4, 563-587. Retrieved from http://search.proquest.com.ezproxy.saintleo.edu/docview/1699172117/6CD5D431ED9446AEPQ/20?accountid=4870
