Innovative Relevance®

By Mark P. Dangelo

www.Innovative-Relevance.com

As everyone is busy digesting and commenting on financial regulatory reform, a new crisis is quietly unfolding.  Alongside markets, consumers, and investors demanding “different” behaviors, the operational “glue” that binds organizational and system interactions is rapidly losing its adhesion.  The rules of success and organizational profitability are permanently changing, and our trusted and certified systems built with precious CAPEX are losing their efficacy.

“How can this be?” is the typical response, “We measure everything!”  Although, if we examine historical organizational results or performance and project the KPI’s (key performance indicators) forward over the next 18 months, will we be so steadfast in our assertions?  Are the business case justifications and future relevancy for technology driven business solutions still relevant?  Do we have the blueprints or even the architectural frameworks, which secure operational capability to construct new products, deliver bespoke services, or even meet future compliance mandates?

Like many organizations examining their future, the relevancy of existing business processes touching people and systems, across all pillars of finance and mortgage innovation, is fast becoming a competitive liability.  Hemmed in by legacy systems, inadequate governance practices, n-1 generation skill sets, market and organizational transformation, inherited business processes have become arcane and expensive to maintain. 

It appears that an idea of “rigorous self examination[i]” within finance and mortgage groups (FMG) should not be limited to just Goldman Sachs.

Not Everyone Sees It

So, what do all the challenges mean for finance and mortgage organizational renewal at a time when budgets are thin and survivability a top corporate goal?  Is there a proven, universal approach that can be positively utilized for short-term gains with “long-tail” benefits?  How will CAR’s (i.e., challenges, actions, and results) be orchestrated, and more importantly, when will they hit the bottom line? 

However, you may be surprised to learn that hidden within our own organizations’ often resides the answer, the framework, and the (iterative and incremental) approach – business process management or BPM.  BPM is frequently practiced, but not always seen, let alone understood.  Additionally, some believe that BPM is merely a series of disciplines and technologies cobbled together in the early 1990’s, and are not up to the challenges of today’s finance and mortgage innovation demands.  They ask, “What is so special about BPM two decades after it was introduced?”

Historically, BPM has been widely accepted and practiced within IT divisions, while subsequently being provisioned by vendors using architectural approaches such as SOA and SaaS.  Yet, the BPM “call to action” represents a holistic and comprehensive set of interrelated disciplines, “promoting business effectiveness and efficiency while striving for innovation, flexibility, and integration with technology.[ii]” 

Now, with two decades of validation and improvements behind it, BPM is being utilized for more than modeling and simulation.  Today, BPM is being deployed for cost savings (e.g., with results from 10% to 35% ROI), cost avoidance, business adaptability (i.e., agility), and profitable “To-Be” roadmaps, which knit together technologies, operations, and data regardless of geography or platform.  It has found unreserved respect among select, internal champions – but moving forward, BPM will become a corporate agenda item recognized for its versatility and repeatability in driving organizational excellence and continuous innovation.

·         Gained competitive advantage against leading larger retail banks:

o   Standardization of credit packages

o   On line application for customers allowed to process factor 4X more credit applications

·         Increased customer base by 25% in one year

·         Lowered operational risk via automated credit check processes and fully automated risk compliance management (i.e., real time dashboards)

·         Reduced staff by 20%

·         Optimized Bank’s working capital via better P&L management

·         Overall productivity increase reached 35%

For many FMG’s dealing with three years of chaos, losses, and buybacks, BPM has become an organizational stealth competency – or weakness – that cannot be ignored.  Implicit in bringing BPM into the FMG executive agenda is the full recognition of dependent programs, cross-department productivity, and required organizational change mandates. 

Everything considered, by ignoring BPM as the glue which binds organizational transformation and growth, management will likely document an inaccurate picture of progress, benefits, costs, and opportunities.  The result is misplaced accountability and performance driving decisions and investments.  We have to ask the question, “Is this why for the last 15 years over 70% of all organizational initiatives consistently fail to meet their approved charters, criteria, and KPI’s?”  

BPM: Built for Relevancy – Architected for Results

As everyone is eager to “Retweet,” there are some embryonic signs that the domestic and global economy is finally improving.  In fact, John Paulson, the hedge fund manager who made billions predicting the housing market collapse, is now foretelling an impending “V” recovery in 2010 across the markets hardest hit – particularly California. 

So if the markets are recovering, why worry about rebuilding processes or streamlining them for efficiency?  After all, if you are reading this you survived the worst recession in 80 years.  No need to change now as the crisis is past, right?  

Encapsulated within the aforementioned inquires resides one of the greatest mischaracterizations of BPM – that it is only useful when times are tough or “something is broken.”  The benefits and value propositions inherent within a robust BPM framework provides the roadmaps starting at the “macro” and moving into the “micro” – not to mention the ability to traverse and audit processes in reverse. 

As shown in Figure 1, BPM practiced in the hands of experienced personnel provides the iterative and collaborative design that envelopes better publicized improvement methods (e.g., six sigma).  Also, BPM can proactively address the necessary adapters required for existing and emerging technologies along with their provisioning practices (e.g., SOA, SaaS, IaaS, BI, et al). 

Figure 1 — www.innovative-relevance.com/MBA051810Fig1.html

Mr. Fong asserts, “For finance and mortgage organizations, BPM has always been about the proper determination of operational impacts, which can be estimated in such areas as throughput, performance, risk, quality, and availability of data.  ” 

BPM is architectonically organized to achieve results regardless of the operating conditions being experienced.  Upon detailed inspection of Figure 1, we note that the utilization of the generic BROC³ framework (or its equivalent) yields consistently measurable actions and results underpinned by technology and implementation techniques.  For FMG’s pursuing renewal, internalized BPM approaches (like BROC³) can mean the difference between commodity positioning – or market leadership.  

When asked about the proper deployment of knowledge solution sets, Mr. Fong says, “By leveraging technological innovation (e.g., cloud computing, SaaS, SOA) to implement and measure processes (e.g., via dashboards, analytics, and BI tools), organizations are able to create financial and customer insight unknowable just three years ago.  For BPM, technology represents the efficient use of scarce resources, while improving an organization’s ability to create, model, and share new business processes across the entire organization.”

Everything has Value

As we have intrinsically acknowledged, current survivability does not guarantee future organizational sustainability.  Moreover, advanced technology adoption seldom guarantees competitive differentiation – let alone lasting profitability or repeat customer loyalty. 

As noted recently in the Financial Times[iv], “… since 1977 about 700,000 new businesses have been started in the U.S. every year.  The number barely changes from year to year.”  With high domestic unemployment (national average > 9.5%) and record business failures since 2007, the extraction of organizational and operational value cannot be left to chance – or misplaced on a corporate initiative not grounded in realistic quantification. 

So what should we do?  Where is the value hidden and more importantly, how can we get approval to release it from the grips of organizational dogma?  Frankly, do we even have the time needed to reinvent our operations before the next wave of FMG crisis descends on already precariously weak balance sheets?

The answer to these questions, challenges, and opportunities commences with the identification of a business case for BPM.  As granularly presented in Figure 2, Defining the BPM Business Case for Finance and Mortgage Groups, there are many beneficial areas that occur along a continuum of organizational importance.  Moreover, Figure 2 also clearly shows that to ensure your FMG business case survives scrutiny and skepticism it must be tempered against operational requirements, rigor, and yes, reality. 

Figure 2 — www.innovative-relevance.com/MBA051810Fig2.html

“The lasting value of BPM is frequently marginalized by the lack of robust business measurement criteria,” say Mr. Fong.  “To ensure organizational sponsorship and support, the business case must be completed as part of developing the project charters and plans.”

However, Mr. Fong also cautions organizations that “BPM is an excellent discipline, but it is no ‘silver bullet’.  All FMG BPM efforts need to be viewed as components of a company’s overall strategic roadmap to meet the needs of the organization and to support the business goals.  These BPM efforts need to be become part of how the organization thinks and reacts so that they are internalized and allowed to evolve.  As with similar methodologies or PI (process improvement) efforts BPM should be viewed as a tool that an organization can use to achieve improvement milestones and lasting operating success.”

As we can now summarize, BPM should not be approached casually or as a “hammer seeking a nail.”  To make BPM more than a slogan or theory, it must align with the business model and a concrete case for its existence must be established.  BPM is much more than a set of IT tools or vendor solution sets.  Whereas, there are short-term benefits that can be achieved without a detailed business justification, if left unattended BPM will languish or be misapplied to situations that are better suited with complimentary approaches.

As demonstrated, the returns and costs of BPM spans many issues within FMG’s.  Provided as examples in Figure 2, you can see some of the items that may resonate with business leaders who are signing the “checks” for BPM enabled programs.  By qualitatively and quantitatively determining “what has value,” your BPM effort is taking an important first step on a journey to reach a proper fit not just for a given business model, but the against the culture, technologies, and operating characteristics of the enterprise. 

* * * * * * * *

It was Lao Tzu, the founder of Taoism, who said, “The journey of a thousand miles begins with a single step.”  BPM for FMG’s is both a place (i.e., discrete conclusion or end result) – and a journey of continuous process improvement delivering concrete organizational outcomes.

As we have examined in Figures 1 and 2, the adoption and adaptation of BPM creates an operating environment that is healthy and proactively aligned to changing business models, economic challenges, and consumer behaviors.  Careful and in-depth study of Figures 1 and 2 will yield additional insights and questions that I cannot address in a single article.  Perhaps I’ll save those for another column, as we didn’t even mention the outsourced and shared services implications for BPM transformation, governance, or delivery.

In conclusion, BPM is suited for “one-off” situations as well as enterprise transformations.  It is the hidden glue that binds our people, technologies, and data.  When the glue fails, our operations become like “Humpty Dumpty,” — no amount of money, people, or technology can singularly put it right.  Without managed business processes, without the glue and its adhesion, we will eventually fail.