The Opportunity to Reinvent -- January 2008 (Also appearing in the MBA Tech NewsLink)
Only with material restructuring supported by process transformations can the mortgage industry rebound from unchecked risks, poor innovation, and globalization wealth realignments.
Reinvention is a wonderful word. For those of us fighting for survival in a depressed housing and lending environment, this may not be the first word uttered when asked about the future of the industry. Yet reinvention is precisely the opportunity available to us and our management teams as they try to assemble the pieces for future personal and organizational survivability.
Why reinvention? Why not intervention or rescue or even help as the word of choice? To find this answer, we must attempt to place all the financial, technological, processes, staffing adjustments and articles holistically into context.
The Industry Baseline
The financial market and securitization rebalancing efforts underway were not created by a onetime event. It accumulated gradually but with escalating fervor as a result of credit standards, available equity, and a consumer-debt mindset that pushed ratios to record highs. Furthermore, of the over $110 trillion dollars of global debt, bonds, and government securities, less than 10% are tied to our mortgage markets. Subprime and Alt-A account for less than 20% of that reduced total.
Whereas, the mortgage industry has lost an astonishing 100,000 workers from its peak and housing prices nationwide are declining, pundits have argued that this correction was long-overdue and warranted. Of course these implications are hotly debated and beyond the scope of our discussion – they are presented here to simply set the stage.
Moreover, the mortgage industry has had a great deal of positive innovation surrounding technologies and even data standards. The moves were generally in the correct direction. Supported by Wall Street and Main Street investors, loans were securitized at record levels. However, with all the improvements there were some noticeable omissions.
The lack of process enhancements coupled with declining customer satisfaction and a deficiency of passion for continuous improvements, created organizational management teams that were content to ride the wave into the future without consideration of when it would crash into the beach. Or as one departed executive stated, “we’re still dancing.” The failure to address and invest in the first-order relationships that would create sustainable improvements and differentiation in favor of quick profits, lead to untenable customer and secondary market impacts.
Now with top line revenues falling, customers evaporating, foreclosures and delinquencies rising, and the secondary currencies illiquid, the immediate organizational reaction is less about reinvention and more about efficiencies – aka survival. The dichotomy for many firms is that as they struggle to survive, they are not looking forward or striving for innovation. The markets are not only changing, they are permanently changing requiring a forward looking team that understands the relevance of applying innovation (s) as a sustainable way to prosper.
The Operational and Organizational Challenge
On a recent conference call, it was surprising to hear organizations and senior individuals still advocating point-based technologies as the way-out for the industry. Whereas technology solutions are often innovative, they are still the catalysts for operational reinvention. Failure to understand the comprehensive process value chain from customer prospecting to servicing to securitization will materially contribute to many organizational failures (see Figure 1).
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What has been painfully obvious to mortgage professionals and their organizations are the first-degree associations which permanently exist between funding sources, market conditions, and delivery challenges. During the last 10 years of industry expansion, little interdependency concern was placed on their relationships. With market contractions driven by risk realizations, the comprehensive value chain of delivery including the securitization and exception servicing once again dominate organizational planning and financial viability. |
Figure 1 -- Investment and Market Dynamics Will Influence Industry Reinvention
Without the capital to invest in new “technological solutions,” new system implementations must offer improved paybacks and guaranteed efficiencies. Furthermore, technological innovation without process and data reinvention will create considerable executive discord while internally contributing to a potential backlash towards existing staff in favor or variable cost, collaborative outsourcing arrangements. It is unlikely that SOA, SaaS, or even .Net can singularly fix the fundamental structural failures within the processes as they exist today.
The challenge for the industry and individual organizational reinvention resides not just with the current market realities but also include:
- The time to recover given the baseline of difficulties within the company,
- Personnel skill sets and ability to achieve necessary transformations,
- A clear vision with incrementally sustainable, concrete measurements,
- Financial performance needed to retain and augment investors and secondary markets,
- Technical and operational migration strategies supported with detailed planning and superior execution,
- Holistic process mappings, dependencies, and improvement that represent new customer, market, data, and secondary considerations, and
- A high-quality customer base that is serviced utilizing custom tailored approaches meeting their origination, servicing, and cross-selling needs and behaviors.
Facing the tipping point similar to debates surrounding Global Warming, financial and mortgage institutions will be permanently altered moving into 2008 – driven by new economic realities, regulators, politicians, technologies, investors, and global markets. Ask yourself, what are your plans in 2008 for reinvention and the dependent strategies required for successful transformation?
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Is the pain over after we claim to understand reinvention and the challenges facing acceptance? Alas, no. We may even not have the worse behind us and there is a good chance that the markets will face a “double bottoming” in 2008. Yet, like a patient seeking a cure, we must recognize that the road to sustainable health can only be obtained with reinvention.
In summary, the mortgage and broader FSI markets while severely battered in reputation, financial losses, and in staffing cuts have not seen the last of the pain. Underneath the haze of asset sales, recapitalizations, disclosures, high-level departures, and risk realizations, the final chapter of what these actions constitute for businesses and their leaders has yet to be written. Only with reinvention tied to widespread process, data and technological improvements can organizations and their remaining personnel live to profit another day.
For 2008 MBA entries, click here