Rethinking ECDIS – lease versus buying. What’s the best option for our customers?
Today, most companies in the marine electronics business are founded on a system of selling products, either directly or through a combined sales, distribution and service network. In recent years, a new and interesting method of organizing the business has been developed. This is the method of leasing. In my opinion, the introduction of leasing will force fundamental changes in company operations. Simply because it’s in their own interest to work differently. One of the main questions is whether and how these changes will affect our customers. In this post, I’d like to highlight some of the changes linked to these two different methods and list some of the benefits and drawbacks of each. I hope to show that the change from sales to leasing is more than just a new method of financing.
The ship electronic business is in low-profit mode. It is many years since the ship electronic business was an attractive market. We have to go back to 1980-1990 to find attractive conditions. Today’s market is dominated by a low-profit income, manpower cuts and cost reductions. A new thing is the appearance of investment companies whose policy is to buy weak and scrap players in the market. They carry out huge cuts in product range and use only products, which suit their policy well. All this means that you will find a lot of products disappearing from the market, personnel leaving, a low level of development activities and poorer support activities.
Under such conditions, a business model creating reliable income is welcome. Leasing of products and services can create such conditions. Using the leasing method, companies can build an organization for development and support, even if the quantity is low. Leasing to a known number of customers will create an economy with regular income that is opposite to selling to an up-and-down market bases on last-time mandatory IMO forced implementation.
Money is the master. No doubt, all companies will focus their activities in areas where the money is to be found. This means not only sales of products, but also developing and supporting products. Any major change in the market will lead to a reshuffling of company resources. For our customers, this rapid shift looks like a sell-and-forget strategy. Losers in such organization changes are of cause the players who lost attention on their already acquired products. In case of leasing, a number of delivered products will create a stable monthly income, which is in a company’s interest to keep. In such cases they will keep the resources for it, too.
The need for a happy customer. Yes, it is true. When you lease your products, the supplier’s main policy has to be to make their customers happy with their solutions. In fact, their whole organization, including product development, logistics, support and service, has to be tuned to one thing, namely, keeping customers by making them happy. Simply because if they do not, the customer will cancel the contract, normally on 30 days’ notice. In such cases the business is gone. In this way, leasing will push for better relations to the customers and create efforts to support them quite well.
Software has to be maintained and further developed in a continuous process. We all know the rapid changes which exist within the maritime IT business. Continuous changes for OS, drivers, protocols, bugs, regulations and not least customer requests create a need for continuous product development and maintenance of software products. This collides with the typical way of developing products within the marine electronics sector, doing development projects and relocating resources to new ones when completed.
Specific models of products end, but a leasing contract does not need to end. A regular maritime electronic product has of course a finite lifetime. The exchange rate varies due to the type of product and the owner’s policy. A leasing contract which includes support, maintenance, service and a lifetime warranty does quite often include regular exchange of both hardware and software components. Under such contracts ECDIS hardware has a typical lifetime of 5 years. After 5 years on board, the provider changes the complete suite of hardware components automatically. The contract is still valid and will continue until it is stopped or the ship is sold/scrapped.
Clear and well-known demands for products. A well-known survival strategy in maritime electronics is to “sell cheap and get your money from service”. This does not fit the leasing method as leasing contracts contain a lifetime warranty and all service problems have to be covered by the maker. Therefore, a leasing product has to be designed with very high stability and user-friendliness. Unless this is so, the maker will have some serious problems.
Easy and user friendly maintenance and upgrading methods. In fact, a technician coming on board does today nearly all software upgrades. Any technician sent on board is expensive. Therefore, makers that deliver a leasing product have developed a very safe and effective maintenance and service method, which can be carried out by the user and, if needed, supported through phone or emails.
To repair defective hardware units, such as a computer, it has developed an effective replace and exchange unit system, which allow the crew on board to swap units and data.
It is indeed time to rethink also when it comes to the business models we use. In my opinion, the leasing way of organizing the business is the best for our customers and most probably for us, too.