The How-To of Change Management

How your TMS provider stays fit for your future
BELLIN author pictureAuthor: BELLIN

With more and more companies realizing the necessity to replace aging, pre-cloud treasury solutions with current technology, the TMS market is heating up. Beyond the quest for the system that perfectly suits their needs, TMS buyers are striving to find out what type of company their service provider is and how well they will be able to serve their future needs. Ideally, they are looking for two qualities that almost seem mutually exclusive: they want technology that’s tried and trusted as much as they are looking for the trailblazer spirit of constant innovation.

When we take a glance at today’s TMS market, two business models stand out: on the one hand, there are large companies becoming even larger by taking over smaller solution providers with the intention of offering comprehensive service packages. On the other side of the spectrum, there’s a gaggle of nimble niche-dwellers waiting for their moment to disrupt a market constantly in flux. The trouble with the former approach is that solutions that have been acquired and added to a larger portfolio tend to be merely maintained and no longer be innovated. Their benefit for the customer is therefore limited. The niche innovators, on the other hand, may offer viable solutions for specific challenges but won’t – at least for the time being – be able to satisfy the buyer’s need for an encompassing TMS solution.

At a recent tech conference, our CEO Martin Bellin, 20 years of experience as a global technology provider under his belt, was asked how he managed to maintain his company’s renegade spirit. We’d like to embrace this question as an opportunity to elaborate on the issue of change management in a broader, more general manner. How do we stay relevant as a TMS provider – and how do you, our clients, profit from that?


What do you mean — disruption?

The pop pundits’ favorite buzzword when it comes to changing markets is – disruption. And that term is of key importance, if we want to address the issue of change management. However, its inflationary use tends to muddle its actual meaning and renders it useless as an instrument of analysis. In fact, the concept of disruptive innovation is over two decades old. It was outlined in 1997 by renowned Harvard professor and businessman Clayton Christensen in his seminal work “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.” According to Christensen, the hallmark of disruptive innovation is that it creates a new market and value network that will eventually disrupt an already existing market and replace an existing product. The opposite of this is referred to as sustaining innovation, which doesn’t affect the existing market.


Attack from below: low-end disruption

Christensen dismantles the widespread idea that established companies falter because they fail to keep up technologically with other competitors. As a matter of fact, disruptors quite often arise from the low end of the market, with a product that is inferior to the incumbent’s but also less expensive. While the established company is focused on consistently evolving and improving their product to cater to their current customers’ presumed needs, the low-end disruptor aims for a product that is just good enough for those customers who prioritize cost efficiency. Once he gains a foothold in that segment, he improves the product quality just enough to break into the next higher customer segment, thereby gradually moving up-market and squeezing the incumbent into a smaller and smaller niche. Eventually, the former low-end disruptor meets the demands of the high-level customers and drives the established company out of business. This particular cycle is based on the fact that improvement in product performance typically outpaces the performance that customers can make use of. There are examples galore for this kind of process, like the global success of the Japanese car manufacturer Toyota that conquered the US market with affordable compact cars before eventually moving on to luxury models like the Lexus – only to be attacked by the next generation of low-end disruptors, companies like KIA or Hyundai.


Breeding the need: New-market Disruption

But Christensen also identified another phenomenon, one that he calls “new-market disruption.” The latter targets customers with needs previously undiscovered by established businesses. In other words: non-consumers get transformed into consumers. But how? It’s important to keep in mind that most revolutionary inventions in the history of mankind were not per se disruptive. Take the automobile – at the end of the 19th century it was an exclusive luxury item and therefore no disruptor in a market dominated by horse-drawn carriages. It took a man like Henry Ford, who managed to – literally – assemble a process chain that made the company’s Model T affordable for every worker, thereby creating legions of potential new customers — and eventually rendering the horse-drawn carriage obsolete. Or let’s consider a more recent example – the iPhone. Apple’s smartphone was, despite its imponderable sex appeal, neither the most affordable or advanced model. Its disruptive effect – replacing desktops and laptops as people’s preferred device to go online – was a result of the visionary platform connecting developers and customers in an innovative way: the App Store.


Beware of the disruptor, or: how to spot one

So what do we glean from that? First of all, that it’s usually not a new product, but rather an emerging business model that established companies need to be watching out for. Developing the latter is a process, time-consuming and often marked by false starts and setbacks. In fact, the finetuning of a business model until it unfolds its disruptive force can happen so dangerously slowly that established companies won’t even have it on their radar — until it’s too late. When Netflix started their business in 1997, renting DVDs by mail, the leading video store chain Blockbuster did not feel the least bit threatened. After all, most people were renting movies on impulse and didn’t have the patience to wait around for a day or two for their flick to be shipped – even if it was going to cost them considerably less than a rental at their local video store. Thus, Netflix had to dwell on the market’s low end, catering to the fringe segment of film buffs for a full decade until the technological advancement enabled the company to alter its business model by adding the streaming of media to their service portfolio. The rest is history, just like those huge blue and yellow Blockbuster signs hovering over squat one-story structures in urban business districts.

With these hallmarks of disruption (business model rather than product, slow finetuning process rather than overnight sensation) established, let’s return to our original question: How does BELLIN — a bona fide disruptor – keep that renegade spirit alive despite having matured into an established company? How do we manage to stay abreast of being taken out of the game by the same mechanisms that put us on the map in the first place?


All just a little bit of history repeated?

Let’s warp back to the 90s, the time when BELLIN-founder and CEO Martin Bellin became thoroughly fed up with running a treasury without up-to-date and reliable figures: proper liquidity planning was all but impossible, risk management bordered on guesswork and payment processing was an arduous and at times opaque ordeal. He knew he needed a dynamic system to graduate from a haphazard data collector into an empowered decision maker. But there was none. Aided by the technological possibilities of the world wide web and his IT background, he cobbled together his own application. It was hardly more than a blueprint of BELLIN’s current TMS flagship tm5 – but it was good enough for its initial purpose. And soon enough, others wanted it, too. Before long, tasks and services that had traditionally been provided to businesses by their banks, could be performed in-house – and more accurately and synchronously than ever before. Treasurers — formerly mere appendixes of accounting — moved to the center of their companies’ finance departments, overseeing group-wide liquidity, financing, intercompany reconciliation and, eventually, payment processing. In a nutshell: we’re looking at a textbook example of disruptive innovation. Ironically, the former incumbents for treasury services – the banks – supported us in our quest for new clients, as they were intent on selling new financial instruments — complex derivatives – which we were able to display and process in our system. Sounds like a win-win situation, doesn’t it?


Disruptor Disruptoris Disruptor? How established disruptors avoid getting beaten at their own game

Another valid point Christensen brings up in “The Innovator’s Dilemma” is that many successful companies are well aware of the innovations surrounding them, but their business environment does not allow them to embrace them when they first emerge. Because at that point these new vistas don’t seem profitable enough and their development would take scarce resources away from that of sustaining innovations, which the bulk of their current customers profess to expect from them. BELLIN, like every other company, has gone through – sometimes costly — cycles of trial-and-error, but at least we didn’t make this particular mistake. While always modernizing and finetuning our software flagship tm5, we also invest time and resources in solutions with the potential to disrupt the existing market – like our app GTB Hub that enables users to access a comprehensive global directory of banks, to find, rate and follow them and to stay on top of relevant master data changes, and to verify their supplier’s account details. Another prospective game changer that could unfold its disruptive force by turning non-consumers into consumers is our TaaS (Treasury as a Service) offering that provides a bundle of vital treasury functions like liquidity planning, financial status, payment processing, cash pooling and netting to SMEs without in-house treasury departments at a highly affordable price point. These and other novel solutions in the making are the result of the mindset mentioned in the above paragraph: we translated the humble observation that consumers are more and more prone to spend money on services instead of on software into smart solutions for a fast-arriving future. This is our approach to change management. And even though no future-oriented strategy is immune to failure, we feel that it holds water and hence may serve as an example.


How to sustain AND change – the strangler

But how do you innovate your current software product, the one your clients expect you to sustain? How do you fortify it in a dynamically changing market? There are three options:

  • Don’t (a.k.a. take your money and run/sell)
  • Build new or
  • Strangle

The first option – to simply exploit your current product to the max respectively to sell it while you can — is chosen by a surprisingly large number of companies. It can, at least for the time being, be hugely profitable, even though that profitability is not sustainable. The second approach – building a new version of your product – undoubtedly has its pros: you get to start from scratch, unencumbered by outdated structures, able to apply the totality of your experience to a fresh start. And, believe it or not, in most cases this strategy is less costly than restructuring your old product. But that doesn’t mean it’s necessarily the right approach for you. It certainly wasn’t for us at BELLIN. That’s why we chose option number three, which received its ominous name from – a plant: the strangler fig. It’s a tree that adapts its unusual growth habit to surviving in dark forests, where the competition for light is intense. Starting from a seed dropped on top of another tree, it grows its roots downwards and envelops the host tree while also growing upward to reach into the sunlight above its canopy. Sometimes the host tree dies, sometimes the strangler fig keeps it alive by helping it to survive storms. Similarly, the strangler approach means substituting a web application’s old code chunk for chunk by new code, thereby replacing its different functional domains with new micro service-based implementations. For some time, two separate applications coexist in the same URI space, until the newly refactored application “strangles” the old one, which eventually can be shut down. The process is admittedly time-consuming and resource-intensive, as the interoperability between the two versions must always be ensured, but it still bears a host of advantages. Gradually replacing your application’s monolithic architecture by microservices is unbeatable in terms of time-to-value, as new developments quickly arrive at the client. Plus, the incumbent still gets to enjoy the advantage of remaining fully operable while building something new. But most importantly, regarding the future of your application, the modular microservice architecture provides the utmost flexibility to add new features faster and easier without having to bother with neighboring functionalities in the process. And what better strategy to keep disruptors at bay than quick and constant innovation?

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