Escolar Documentos
Profissional Documentos
Cultura Documentos
Douglas G
BPO Story Duncan
Governance of Offshore Program: Does One Model Fit All? Senior Vice President and
pg28 Chief Economist, Research and Business
Avinash Vashistha, Dr. P. K. Mukherji, Vinu Kartha
Development, Mortgage Bankers
Mortgage Offshoring to India Goes Mainstream
Craig Focardi, director, TowerGroup
pg34 Association of America, talks about pg9
Mortgage Banking trends and future
Putting the Value of Outsourcing Consultants in Perspective
Peter Bendor-Samuel, Founder & CEO, Everest Group pg36
Finding Lost Value in offshore outsourcing
Paul Thompson, Senior Advisor, Metagyre Inc. pg42 Atul Vashistha
CEO of neoIT, talks about
Outsourcing: Inside Out and Outside In seven secrets of successful
Anupam Govil, ceo & founder, global equations pg44
outsourcing strategy
pg40
Leader’s Room
The Laws of Behavior The View from a Cubicle Why Leaders... pg54
A Global Leaders’ Secret Weapon pg46 An Interview with Scott Adams
pg50 ...Should Reconsider Their Measurement Systems
Aubrey C. Daniels Scott Adams Michael Hammer
Leading authority on behavioral science Creater of bilbert Management guru and author
Contributors: i-flex Solutions | Mortgage Bankers Association of America | NASSCOM | TowerGroup | MarketWise Advisors | NelsonHall | Everest
Group | Equaterra | Leadertoleader.com | Sourcingmag.com | MetaGyre Inc | Aubrey Daniels International | Celent | Tholons | NeoIT | Global Equations
Dear Friends,
In our constant endeavor to provide you with the most comprehensive information on global outsourcing
in the mortgage industry, we have come up with our annual issue of Offshoring Best Practices.
Equinox Corporation is a global leader in providing cost-effective, high quality, Knowledge Process
Outsourcing (KPO) services to the Banking, Consumer Finance, Securities & Capital Markets and Insurance
sectors. Equinox is an i-flex company; i-flex Solutions, a multi billion dollar market capital company, is a
Global Leader in Providing IT and Outsourcing Solutions to financial institutions worldwide. i-flex services
over 625 customers across more than 120 countries.
Our Six Sigma driven integrated delivery methodology is based on a well-orchestrated blend of off-shore
and on-shore best practices model, and has significantly reduced the costs of business processes outsourced
while improving the quality and the productivity. Currently, we are handling over 35 different mortgage
Welcome to a processes, as well as, providing a complete end to end solution that utilizes a high-tech platform that contains,
an LOS, and a workflow design for distributing and monitoring the entire loan processing cycle. Some of
new mortgage our value propositions:
outsourcing l Transforming Costs Structures- your company can save upto 60% of the current cost depending upon
the location and process complexity
revolution l Redefining the Value Chain -Continual Process Improvement through Six Sigma Quality practice
l Faster Operational Cycle - Speed to Market
l Efficient Management of Volume Changes
l Access to Leading Edge Technology
l Managing Growth Effectively & Profitably
Cost advantage upto 60%! Yes, this is a big number. If you would like to know how Leading Mortgage
Banks are benefiting from a relationship with us, please write to me at dong@equinoxco.com or call me at
949-250-1445 Ext: 278. I shall be glad to brief you on our services through a webinar presentation.
Smart Companies Need Smart Solutions.
Yours Sincerely
Don Ganguly, CEO
The US mortgage industry is going through a technological transition. Mortgage has been on the low
priority in terms of automation and outsourcing in the whole banking chain. But with increasing interest
rates and competition, Mortgage banks are looking for ITO and BPO as long term strategic tools. India is
fast becoming a Mortgage manufacturing hub, with its strong competitive advantage over other economies
like China, Canada, and Philippines etc.
Some reports suggest that the offshore “BPO market size for the US Mortgage is in the range of $6 -
$7.4 billion. It is estimated that the US mortgage banking BPO market in India will grow to approximately
$1 billion over the next 5 years.”
Offshoring Best North American banking is going through a consolidation phase, it has thrown basket of opportunities
Practices, is an in space of BPO. Biggest challenge in any consolidation is the integration of processes and functions.
endeavor to Success of consolidation also depends upon how fast organizations integrate. This is a very resource & cost
connect you intensive process and banks may look for external experts to help them through their consolidation phase
by taking up outsourcable processes. Thus reducing the burden on internal resources, this also helps the
with leaders in bank to concentrate on their core competencies.
Outsourcing Though offshoring and outsourcing seems to be strategic cost optimization tool, the cost benefit
and Mortgage depends upon how successfully the outsourcing project is executed. We have seen wide gaps between
expectations and the deliverables.
space. Offshoring Best Practices, is an endeavor to connect the buyer community with the who’s who of
outsourcing and mortgage space. Some articles of this issue also address real challenges which some of you
might be facing and how you can gear up for successful outsourcing and offshoring projects. I am sure it
will guide many of you in formulating your outsourcing strategies. The flavor for year 2007 will indeed be
distributed workflow based outsourcing solution which extends risk free end to end window for mortgage
banks.
Happy Reading!
Manu Tandon / Jyoti Makhija
“Our Strength
Lies in Non-
commoditized
Higher-end
Work”
In a discourse with Don Ganguly,
CEO, Equinox Corporation, Kiran
Karnik, President, NASSCOM
(National Association of Software
and Services Companies),
talks about the trends and
developments in the KPO industry.
What are your thoughts on training filter that will create a wider base at the specific test especially for voice has to be
at the primary level? What would you entry level, and are not concentrating on created, and we are working with the
define as basic BPO skills? How is people for specialized areas. British Council on this.
NASSCOM addressing this issue? This training is useful not only for
There are two parts to what we are The Indian brand experience is either BPO executives, but to those work-
doing right now. The first one is very great or lousy. Many operators are not ing on the front-end as well. This en-
generic; it’s for the entry-level at the keeping quality at the margin, while sures that people have access to a broad
call center--domain knowledge with no a few small operators who should range of job openings. However, voice
specialization. The focus, here, is on re- not be in business are actually in it. assessment cannot be performed with-
moving the barriers of bad communica- Is there a certification, especially on out face-to-face interaction. As we have
tion skills, low analytical skills, and poor the voice side, for call center oriented intended to go online with the generic
voice and accent. operators as the voice experience is test, we need to get people to conduct a
We identify several skill sets that the personal and goes a long way? face-to-face professional assessment.
industry’s HR personnel have defined. It’s a matter of concern that qual- The other thing that I’m very keen
These aspects are very generic, but they ity standards are sometimes not main- on is in training English teachers, so
do help the industry to cut down time tained. This has been happening for a that they can teach spoken English
and costs of recruitment and training. long time now. There are some people along with accent and communication
This is not the best solution when we are who are satisfied and some who have skills. This is a long-term plan, and we
looking for specialized skills; therefore, had a bad experience. hope to produce not only effective writ-
we hope to try and develop specialized Along with the generic certification, ers, but effective verbal communicators
courses, which add on to the general skill we need to look at communication and in the next five or ten years.
sets. For advanced levels, people will spe- accent, which happens to be a huge
cialize on specific verticals. Nevertheless, problem area. We need to look at an The Indian outsourcing industry is
we are just looking at creating a first level individual base certification for that. A reeling under a high attrition rate.
How will NASSCOM address this is- as companies realize that they cannot tions that have been providing some
sue, especially in terms of creating a turn a blind eye towards these issues. kind of broader low-level financial serv-
guideline policy? Background checks are performed, rea- ices on a mass scale on a factory kind of
This is a tough question. Frankly, sons for resignation from the previous model. However, these companies may
there are no easy answers to this. At the company are demanded, and serving of focus on an area and be unsure about
very basic level, we are trying to increase the stipulated notice period is insisted which model would work--hybrid or
supply at the input stage, to somewhat upon. Hopefully, these small steps will people-related.
reduce attrition. For specialized areas, a make a small difference to the high rates
company trains people to put them on of attrition. BPO to KPO is a big story. Do you
the job, but soon a new player comes However, even with all this in place, see that this is going beyond labor ar-
in and the first thing they do in order the attrition rate will remain bitrage, because even when
to stand apart from the others is to of- high in specialized fields, as you talk of a specialized
fer higher incentives. We tried hard to there is a dearth of readily domain, I’m still training
look at industry standards, ethics, and available skills in the market. or looking for skilled labor
created HR practices to curb this trend. This is particularly true in the at the end of the day? Have
Companies turn a blind eye to recruit- sophisticated financial serv- you seen a true solution
ing agencies who lure people away by ices section, as it requires a emerging beyond labor ar-
not only offering high salaries, but by deeper amount of training. bitrage knowledge process
also asking candidates to take up new We will also try and im- at the workplace?
offers in less than a week’s time, in order plement employee-friendly I have seen a few, but la-
to avoid using excuses like job satisfac- measures while developing bor arbitrage continues to be
tion in their existing jobs. Recruiting the database so candidates BPO to KPO at the base. It’s not that peo-
agencies benefit largely from this as need not worry about back- is a big ple would come if they had
they run the same candidate through ground check as details like story. Do a lead cost. Given a certain
different companies and get easy profit date of birth and graduation you see increase in cost levels, there
margins from the same database. We try should be enough. These are other factors that people
and reduce this with the usage of bet- kinds of checks stay with a
this going are taking into account. The
ter practices, along with fostering better person for life and will also beyond drive in most of these ar-
understanding between both recruit- serve as a complete check labor eas has been mere numbers.
ers and the industry. This problem is for the employer, simultane- arbitrage? However, this is not sustain-
bound to persist for the next few years, ously saving an employer a Don Ganguly,
able, as other locations and
until the supply system catches up. lot of money. It will be built CEO, Equinox countries will soon begin to
by an independent, respected Corporation offer the same talent.
How about creating some kind of third-party and be accessible We need people with
a national database to gather data only to an employer and not to a pro- doctorates. The US, for example, doesn’t
about people who are abandoning spective employer. have enough numbers. Companies
jobs, or are staying in jobs only for come to India looking for these skills
brief stints? This will help companies The BPO industry has gone through and are willing to pay more money for
perform background checks and en- several levels of evolution. What level it. Talent is the important driver here,
quire about references. of evolution are we at? after money. Though we have moved
We are in the process of putting in We are now beginning to see the de- from quality, to skills to data protection,
place a database for the industry, but velopment of niche players. About two- what lies at the bottom of the pyramid
there are issues like the data protection three years ago, we saw a set of small is cost. Things are fine as long as this is
security angle, employee concerns, and companies doing better than those who under control, but if costs go haywire,
unions amongst others. This system ramped up rapidly. This is happening customers are going to look for alterna-
should provide any employer with ac- particularly in new areas like market re- tives soon.
cess to a database on a “third-party search and legal outsourcing. Specializa- If you look at customers from the US,
checked” basis. tion is taking place in traditional areas typically, it’s not a labor-based play. You
The problem is not the issue of attri- like the financial services sector, and the have a system or a solution that embeds
tion, but the willingness of companies bigger players with their varied aspects labor or the solution--e.g. in the case of
to take a candidate who hasn’t served are adding to their portfolio and emerg- loan processing in mortgages, you have
the notice period in the previous com- ing as a new group of extremely special- to have a platform or a system for cus-
pany. The scenario is now improving ized people. These are often organiza- tomers. So, when we are taking our proc-
esses to India, we are standardizing our amendments, too, to strengthen this model. They may have different centers
platforms and are embedding that onto law itself. in multiple countries for different rea-
a solution. In the US, all outsourcers Second, we are working on the en- sons, or one may be following a near-
have a system for delivering services. In forcement side with law enforcement shore strategy (working out of Japan,
India, we perform collaborative process- agencies, amongst others, to create Korea, etc.). Others may not be catering
ing, where we hang off awareness and train people to large call centers which are focused on
the customer system, then to track cyber criminals, the US. Therefore, you are beginning to
work on a piece of a proc- projecting evidence, and get an increasing amount of Indian com-
ess, and give it back to the understanding what needs panies, both in the BPO space and the
customer, and so on. From to be done. A cyber crime title space, getting to global delivery.
a KPO perspective, you laboratory will be set up As a country, we are in competition
create your own solutions soon. with China. There are many countries,
or infrastructure, but the We have recognized that especially in the European Union, who
labor angle does not get there are a lot of problems will be taking their work into China
the same screening as from inside the industry apart in the next three-five years, for reasons
a pricing standpoint. from database protection of cultural affinity, but India scores in
As long as you are do- and, therefore, have em- terms of talent and comparative costs.
ing a bit of the activity, barked on two other ini- Also, we need to create something new,
your costs will be critical. tiatives. One, finding and which is different and unique to India.
Certainly, if you move to- sharing best practices not Our strength lies in non-commoditized
wards providing solutions just within the Indian in- higher-end work.
or using your intellectual We need dustry, but also worldwide.
property in the process to We now have something What do you think of English as a
people with
create a platform of some akin to an annual summit spoken language? I have heard about
kind, then you move away doctorates. where there are collabora- an initiative where hundred million
from this and start look- The US, for tions and discussions with resources in China are being trained
ing at the value and not example, customers, vendors, secu- to speak English, with the objective
the cost. It’s happening in doesn’t have rity providers, and regula- of catering to demands in the next
few areas, but not across enough tory agencies in the US, in- few years.
the board. My assessment cluding homeland security Yes, I don’t doubt this, given the im-
numbers.
is that it will take a few and financial security. mense determination of the Chinese.
years to get there. There is Companies Two, the task is to They are importing English teachers,
certainly recognition and come to India integrate some of these including people with the right accent
an awareness to increase looking for initiatives into a self-regu- so they can learn English in the cor-
capabilities and expertise these skills latory organization, the rect manner. The structure of their own
to be able to produce that and are framework of which is be- language and the fact that they are a
kind of a solution. This
willing to pay ing built now. The organi- comparatively homogenous country
would mean increased do- zation will be completely will ensure that English is not difficult
main knowledge—much more money voluntary and companies for them. In India, the reverse happens.
more than what we have for it. can join and abide by a When two Indians from different com-
at present. standard set of guidelines munities speak to each other in English,
on what they are expected to follow. We there are accent and language issues.
In the light of the data security debate, can ensure tight data protection, infor- Nevertheless, there is definitely a com-
what are your thoughts on proactive mation security, and good practices on fort factor while speaking the language.
communication and lobbying against the human resources front. In China, the entire top management
it? not only knows English, but would have
First, we have worked with the gov- What is your opinion on economies also been educated in the US. The prob-
ernment very closely to amend a few like China, the Philippines, and Ire- lem area lies with the common folk. If
laws, especially the Information Tech- land as a competitive threat to India’s you try to speak in English to someone
nology Act, in order to take care of some efforts in this field? What needs to be who is actually doing the work, he is
possible loopholes and ambiguities. This done to stay competitive? able to understand the language, but
work has been completed and there will Most Indian companies are increas- not able to speak it. In this scenario, In-
be a law soon. There will be additional ingly moving towards the global delivery dia should maintain its leading position
for the next 15 years or so.
outsourcing best practices annual issue 2006
interview
“Our Current
Expectation Is that
Rate Will Be Stable
for Some Time”
Douglas G Duncan, Senior Vice President
and Chief Economist, Mortgage Bankers
Association of America, shares his views on
the emerging trends in mortgate banking
with Arin Brahma, EVP Corporate Business
Solutions at Equinox.
The U.S. economy has bounced back continued slowing impact on the hous- I understand the long term rates are
so strongly from a slow period late last; ing market but the word which we are very much dependant on the bond
the IMF forecast the U.S. economy using for this phenomenon is “Normal- market.
would grow 3.4 percent this year but izing”. The reason to use this word is Absolutely, mortgages are priced off
inflationary pressures guides for high- because there is so much hype about the of the treasury yield curve. The 10 year
er interest rates. So, how do you trans- home prices. There will be some markets treasury is the base price for fixed rate
late these macro economic indicators where prices will fall, so you are going to mortgage products. This is because peo-
in perspective of Mortgage Industry? hear bunch of stories that the price bub- ple in US stay in a house on an average 7-
Economy is very strong but clearly ble blew up. However, we will witness 9 years. At present time the spread of the
slowing. The first quarter results were the normal state of US housing market mortgage rate over the10 year treasury is
stronger than expected but the second with prices falling in a few markets and 150 basis point so a 4.75 percent treasury
quarter was significantly slower, which in most market the prices will rise. The plus 150 basis point spread makes a 6.25
will ease the pressure on federal reserve last four & a half years were unusual percent 30 year fixed rate mortgage inter-
to continue pushing the interest rates in that very few markets had declining est rate. We believe the 10 year treasury
up. There is a debate as to how much prices thus the average increase has been is not going to go far from what it is but
further the rates will go, but our current high. The number with declining prices the spread is going to widen out little bit
modeling does not show that the Fed will increase. That’s why we use the word at close to 170 basis points by the end of
will make any further move. Our current normalizing. the year, which will translate to 6.5%.
expectation is that rate will be stable for I think the first priority of the Fed- If Fed goes up by another quarter
some time. Their next move will likely be eral Reserve will be to keep the long add another 15 to 20 basis points. Our
in early 2008. Lets suppose we are wrong term inflation expectation low. Macro mortgage applications survey which is a
and there is a raise of another quarter, we environment has a lot of uncertainty in very accurate predictor for new homes
will adjust our forecast accordingly. But regard to how far the Fed will go with put the expected 2 year decline at 20%.
it seems rates will be flat for the year. In respect to interest rates. Nonetheless, we For existing homes we expect a 12-14%
the present scenario, the fixed rate prod- are of the view that in worst case mort- decline over the same period
ucts will be around 6.25% to 6.5% by gage interest rates will be not pushed to
the end of the year, which will have a beyond 7.5%. What about the builders? We talk
to some builders and the trends we the customer side increases the volatility sales culture that was ten years ago.
see is that there is lot of activity in in the business. In 2003, there was $2.5
the building space. Why is building trillion of refi in addition to $1.4 trillion So what you are saying is that there
new homes is high against the stated of the home purchase loans (the total of has been 80% decline in the margins
trends by you? $3.9 trillion). In 2004 and 2005 the and it will make lending operations
It’s true. When a builder starts a loan origination volumes were in range more sensitive to cost. I keep on get-
property they tend to take it through of $2.8 -$2.9 trillion, this year we think ting diverse numbers from various
completion. We see the number of per- the volume will further drop down to lenders on the cost of loan per unit.
mits obtained on which the property is $2.4 trillion. The dollar value of mort- I have read MBAA 2004 cost study; I
not started is at record levels, but the in- gages to finance homes sales will drop as would like to know what is included
ventory of completed properties for sale well since home sales will be down and in the unit cost and what is the unit
is at record levels. That is very consist- price will flatten. There is no question cost of originating a loan?
ent with the decline in new home sales that refis are coming down and all of All the firms operate in one or more
as demand has slowed. Secondly the this is having significant impact on the channels i.e retail, broker, correspond-
properties will are sold but not yet start- production margins of lenders. This has ent or direct marketing. Direct market-
ed is also at the record levels. So, this is translated to close to 80% ing includes telephone
a buffer on the supply side of the larger decline in margins. and internet. You have
builders. If you look at the reports you One other structural to sort the cost vis-à-vis
will see cancellations and concessions thing that’s taking place channel and also have to
are up in general for them. All of this to is on securitization front. sort by cost to create serv-
us is an orderly slowing in the housing A significant shift to the icing, secondary market-
market. On mortgage refinance side, re- private label securitiza- ing and investor relations.
fis are stronger than would be implied tion market happened be- The large diversified com-
by the current level and structure of in- cause of the development panies certainly have all of
terest rates. Interestingly, the sales mar- of vertical columns from those. You have to look
ket is not as sensitive to the interest rates consumer directly to in- at servicing cost per loan
as lot of people think. We will see a 30% vestors through secondary and secondary market ex-
decline in the refi volumes this year. market execution. So you ecution including hedg-
In some market the home prices will have companies like Mer- ing cost and servicing rate
fall steeply. Markets with heavily con- rill Lynch, Bear Stearns amortization.
centrated condos will be effected as the and Lehman who are buy-
prices of condos will fall sharply in a few ing mortgage origination Bread and Two years back the cost
markets. Supply of condos is at about 8 operations and driving the butter of the of production was not
months compared to 4 months (twenty product through their own an issue when compa-
months ago), so supply has risen very securitization structure
mortgage nies were enjoying the
rapidly. Interestingly the higher per- into investor community. market in the margins. But today it’s
centage of condo owner do not live in This is fairly recent phe- long run is becoming very critical
them as their primary residence, so the nomenon and if you take home sales. If so how do you see mort-
condos tend to be more price sensitive in context with what Wa- you look at gage bankers looking at
to short term market movements and chovia did in its acquisition the finance core vs non core, fixed
prices are more variable, so we watch of Golden West, Wachovia cost to variable cost regi-
condo markets as the leading indicator. has column within the
of home men also how they are
holding company. A year sales, it’s very looking at offshoring?
In terms of refi mortgage lenders, in ago they bought American steady. Definitely, I see a trend
last few years many brokers counted Network Mortgage which there but from mortgage
into banker and major growth has is a broker operation, but they didn’t market perspective it’s a unit labor cost
come from refi boom that pool is fast integrate it with their mortgage portfo- issue. If adjusted for productivity differ-
drying up. What will be its impact on lio operation but rather have integrated ences, wage rate advantages and efficient
mortgage lenders? it with their capital market group. So execution exist, then they make a switch.
Bread & butter of the mortgage you have got some interesting structural Most large companies are doing it but
market in long run is home sales. If you changes taking place. The industry is for some of them tried and they were not
look at the finance of home sales, it’s more about capital management and successful but part of it has to do with
very steady. The option to repay from capital market execution as opposed to the scale of the operation. Some points
are critical- are they narrowly focused or companies which are extending end and see whether or not it’s adding any
broad based, are they national, regional to end solution for loan processing. value. If it’s not, cut it off or find pos-
or local. But its an industry where the What are your thoughts on that? sibilities for re-engineering.
rule of pure competition applies. That I have tracked the structural changes
means cost minimization is profit maxi- in manufacturing like automobiles & Offshoring is in nascent & experimen-
mization in long run. So, the trick is go- airlines. Mortgage industry tal stage in Mortgage eco-
ing to be the for successful to invest in processes other than contact system, there is a need to
technology to survive and lot of them are with customers is essentially educate banks with both
making significant investments. a manufacturing process. the risks and advantages.
There are great efficiencies What role MBAA can play
The increased compliance burden that can be imported into in facilitating the same?
like Sarbox, DoNotCall, Basel II, processes but the main con- Do you plan to create a
HMDA, RESPA, TILA will surely cern is of quality control. team which can develop
increase the cost of operations, with The way I look at the end standards in offshoring
excess industry capacity and loan vol- game is electronic mortgag- (same as MISMO for in-
umes declining by 20%. How do you es. That is defined as a cus- formation technology)?
see the industry responding to these tomer sitting at a computer Two years Standardization is the
external challenges to maintain their and applying for a loan and back, the objective of MISMO.
profitability? not meeting another person cost of MISMO is a two phase
The underlying theme of all these is throughout the entire appli- production process. Firstly it is data
transparency. Transparency means data cation, approval and grant- was not an definition & structure and
availability and purity. There is no ques- ing process including the that’s what has been fo-
tion that firms with larger databases will sale and transfer of the loan
issue when cused on for last five years
have to make investments in technology to the investor. companies of its existence. MISMO is
and tools to help them meet the compli- The information that’s were a toll to enhance the inter-
ance requirement. It’s a challenge as in- externally entered passes enjoying face between lenders and
dustry is not accustomed to this deep of through the system sup- the vendors. One thing that
consistent data reporting. Some smaller plemented by information margins. MISMO has not done is
firms will deploy the capital elsewhere or that service providers sup- process re-engineering and
go for readily available off the shelf com- ply upon the queries by and
But today in the eMortgage context
pliance tools which will immediately im- from the production man- cost is there is lot more of that to
port the efficiency that come with those. ager. It is imported into the critical. discuss. The second phase
same file with quality control Arin Brahma of MISMO activity will be
In mortgage life cycle from origina- run. This file is automatical- EVP, Corporate data purity. Data flow has
tion to servicing, how do you see ly transferred to the investor Business Solutions at become very smooth, hard-
Equinox
the role of IT outsourcing and BPO who has agreed to purchase ware and software can talk
strengthening their competitive ad- it in electronic format. Though we are to each other because they are using the
vantage in a cutthroat market? long way from that it is the production same language. This doesn’t translate
The industry has been outsourcing process and you have to see the pressure that data is of good quality. There has to
for years. Things like tax and insurance points to find out the error rates and at- be lot of efforts to standardize the data
require narrow and highly specialized tack those points and then look at each purity which is what SOX and other
capabilities, where there can be econo- entry point at the production process compliance rules are targeted at.
mies of scale. If you look at technol-
ogy solutions, anything that is narrowly
Douglas G Duncan is Senior Vice President and Chief Economist at the Mortgage
defined and replicatable will at least be Bankers Association (MBA). As leader of MBA’s Research and Business
exposed to whether or not it can be con- Development Group, Duncan is responsible for providing economic and policy
ducted efficiently again on a unit labor analysis services in the areas of real estate finance, legislative and regulatory
proposals, and industry trends for MBA and its members. He also oversees the
cost basis internally or externally. Today education products and services of the association as well as its Industry
in mortgage industry there is no compa- technology committees and standards efforts. He has oversight responsibility for the Research
ny which can say that they can do every Institute for Housing America (RIHA), the Mortgage Industry Standards Maintenance
Organization (MISMO), the Secure Identity Standards Accreditation Corporation (SISAC), and
step in mortgage process by themselves. Lender Technologies Corporation. Duncan received his doctorate from Texas A&M University,
BS and MS degrees from North Dakota State University and AA degree from Fergus Falls
There is a new breed of outsourcing Community College.
Leveraging
Collaborative Workflow: technology backbone. The limits of ge-
ography, static processing, and depend-
ency on external vendors that create
bottlenecks in the process are eliminat-
ed. Technology is a core driver but the
Technology
true innovator is the mortgage lender
itself in its definition of their business
practice, principles, and their ability to
define the right strategic relationships
with technology-enabled partners.
Collaborative workflow incorpo-
Corporate Profitability
business. It’s a relatively simple concept
with tangible results—cost reduction,
cycle time compression, parallel
task execution, touch-less
service ordering, and re-
source balancing. There
are three steps in
achieving collabora-
tive workflow.
Step One:
Establish a Solid
Loan Origination
Platform
The first step in estab-
lishing collaborative work-
flow is to deploy a solid loan
origination platform that has the
operational flexibility to incorporate
workflow, file imaging, a product and
pricing engine, automated underwrit-
ing, and the ability to inter-connect
partners through web services. The
combination of the five core compo-
nents is essential to reach optimal op-
erational effectiveness.
l Product and Pricing
true price or rate/point combinations be reviewed without human interac- rules can be setup to handle virtually
available to a consumer. The benefit of tion through a series of business rules all normal situations and exception
a PPE is that a lender can ensure that or across the globe by a processor that queues designed to provide an appro-
eligible loans are entering the transac- is an expert in a particular work task. priate level of manual intervention.
tion platform. The PPE is a separate A healthy balance needs to be struck
component that may work interac- Step Two: Organize the Process between exception management and
tively with the AUS to deliver both an to Leverage Technology and automation to ensure that corporate
underwritten result set and the pricing Achieve Business Goals profitability goals and customer service
options to the point of sale. Once the technology platform is in levels are met.
l Automated Underwriting Systems place, the next step is to clearly establish True automation is possible when
Access to investor or internal automat- the business process steps to leverage resources work interactively within the
ed underwriting systems is an essential the investment. The important prin- technology framework to fulfill a loan.
function of the transaction platform to ciple, however, is not only to develop/ A review of process steps to organize
provide decisions quickly to the con- deploy the right technology, but rather and leverage technology to achieve the
sumer. The most effective firms use the view technology as an investment to business goals of a mortgage lender is
automated underwriting function as a achieve a specific business goal/metric as follows:
marketing tool to capture loan transac- (cost per loan, channel profitability, l Evaluate the current business
investment in automated decisioning for each loan from point of sale through l Parallel task execution (apprais-
technology. loan closing. A keen eye will often re- al, credit, title, flood, and stipulation
l Web Services Architecture veal duplicative steps, significant wait clearing)
In order to connect to the wide array times, and bottlenecks. Careful atten- l Exception management (use
of service partners and technology pro- tion should be directed in identifying work queues and business rules to au-
viders that are involved in the mort- business processes that can be done in tomate)
gage origination process, it’s important parallel such as instantly ordering serv- l Integrate onshore, offshore, and
that the loan origination system has ices without human interaction (title, in-house resources into work queues.
an open architecture to support web flood, credit, fraud detection, apprais-
services. Optimal efficiency is achieved al, etc.). Step Three: Measure, Monitor,
when all internal and external partici- The business process is modeled to and Focus on Key Performance
pants in the mortgage lending process meet the objectives of an organization. Metrics
are connected through the transaction One clear objective may be to utilize Collaborative workflow is the intersec-
platform. Often, web services can be all resources in the most effective man- tion of technology, people, and busi-
deployed to transfer loan data electron- ner. This may include a mix of staff ness process to effectively deliver a
ically eliminating duplicate data entry employees, offshore, or outsourced service. Every step in the business flow
and costly data quality issues. resources. Collaborative workflow pro- needs to be managed, monitored, and
l Workflow and Image Management vides the flexibility to allocate work to focused upon. Open partnerships that
Workflow is the heart of what makes resources anywhere and anytime, based embrace both interactive technology
collaborative workflow achieve its on resource availability, work-group and resources create the operational
goals. The workflow tool can poten- skill set, and level of task complexity. environment to leverage collaborative
tially sit on top of any loan origina- Lenders should evaluate and de- workflow and drive profitability, quali-
tion system with an effective product velop a business flow that establishes ty, and ultimately the customer experi-
and pricing, automated underwriting, work queues for resources to effectively ence. Once the technology and process
and web-services architecture. Auto- complete their assigned tasks. Some are in place, key performance metrics
mated workflow must aim at creating loan processes can be fully automated can be put into place to dynamically
an electronic business process where such as electronic file image stipulation measure, monitor, and ensure profit-
the number of human-touch points clearing while other processes may still ability goals and a positive customer
for processors, underwriters, and clos- require human intervention. Business experience.
ers is minimized. Document imaging
is an important element of the work-
About the Author
flow in that it enables the manual file
Jordan Brown is CEO of MarketWise Advisors, LLC (www.marketwiseadvisors.com) which
to become an interactive work file that provides technology consulting and investment banking services to the mortgage industry.
contains the electronic images that can
to New Wealth
Over time, every business model and every strategy Gary Hamel
goes stale. World renowned author, speaker and business
thought leader
named Turner operating out of Atlanta was able to establish a dominant posi- saw liabilities, PECO saw opportunity.
to wed three developments—the shoul- tion in the online trading world. PECO would follow its competency
der-held minicam, more affordable ac- Today, Schwab controls some 30 into places other companies feared to
cess to satellite transmission, and the percent of all the stock trading that takes tread—taking on responsibility for
fact people no longer make it home in place on the Web. Even more impres- running environmentally risky nuclear
time for the six o’clock news—into the sive, Schwab’s market capitalization— plants in a safe, efficient manner. PECO
concept of a continuous news format. $3.5 billion in 1995, less than half that has now bought three U.S. nuclear
Innovations like the minivan, the Walk- of Merrill Lynch—has now pulled even plants that had been for sale for years—
man, and CNN succeeded not because with Merrill’s, which instead of engag- including a reactor at Pennsylvania’s
they responded to market need but be- ing the Internet, pursued until recently notorious Three Mile Island, obtained
cause they created a need consumers a policy of digital denial. for $23 million—a substantial discount
had yet to sense themselves. from its $640 million book value.
All of which attests to the fact that in You’re Never Too Old to Innovate The problem-plant strategy proved
the New Economy, the greatest rewards SCHWAB is not an upstart. And inno- just one element of a broader inno-
go to companies that create new business vation isn’t the special preserve of Inter- vation agenda. PECO teams looked
models—ideas that spark new sources of net upstarts or the denizens of the dot- beyond their traditional market to to-
revenue based on changing technology, com motels of Silicon Valley. In fact, morrow’s opportunities. A prime exam-
demographics, and consumer habits. By innovation can happen at any company, ple: PECO conceived of the wire that
definition, new business models destroy regardless of its line of business, age, or delivers electricity into each home as
old ones, which is why creating new location. a pipeline permitting a far wider car-
wealth is a threat to every traditional, Can a century-old company learn rying capacity. The company built on
unimaginative business. Never before to innovate like an industry ingenue? its core competency in power delivery
have strategy life cycles been shorter The answer is yes—provided the com- networks to launch a new communica-
and market leadership counted for less. pany is willing to examine its orthodox- tions platform. Exelon, a subsidiary of
Call it the First Law of the Innovation ies, abandon its strategy-by-habit ways, PECO Energy, has strung 27,000 miles
Economy: Companies that are not con- and engage its employees broadly and of high-speed telecommunications line
stantly pursuing innovation will soon be deeply in the effort to envision the new atop electrical transmission poles—and
overwhelmed by it. Strategy innovation markets and new opportunities that signed up over 100,000 phone custom-
is the only way to deal with discontinu- promise new wealth. ers in its first year in operation. PECO
ous—and disruptive—change. Consider the experience of PECO now looks to combine the installation
Energy Corporation—the old Phila- of electric, gas, telephone, and cable to
The Innovation Imperative delphia Electric Company. Founded in provide a single-source installation serv-
SOME companies seem to understand 1881, PECO had operated for its entire ice for its customers.
the innovation imperative instinctive- existence within the public utility para-
ly. Consider Charles Schwab’s daring digm, with a regulatory strategy that Three Signs
plunge into the online unknown: When brought it significant success. In June WHAT’S standing in the way of com-
the bricks-and-mortar broker took the 1997, however, the company was look- panies that fail to innovate? In many
view that online trading was inevitable, ing to transform its regulatory strategy cases, it is the tried-and-true recipe that
it faced a choice between leading the to fit the dawning deregulated environ- brought them past success.
brokerage industry to the future or be- ment. It’s understandable. Businesses with
ing a victim of some dot-com start-up Working to examine its hidden as- a winning formula are
Over time,
that got there first. Thus, on the fateful sumptions, PECO uncovered a core logically reluctant to
every
day in 1995 when a technology team competency in operating large, mission- change horses in mid-
business
within Schwab presented a demo of critical infrastructure—a competency stream. Over time,
model
what the Web could do, senior man- honed in time of crisis a decade earlier however, every busi-
and every
agers almost instantly recognized how when PECO grappled with bringing its ness model and every
strategy
the Internet could make life better for own Peach Bottom nuclear plant into strategy goes stale—
goes stale.
Schwab customers. Schwab invested in federal compliance. PECO emerged and in our fast-for-
the Web even before it realized it would from the Peach Bottom process with a ward economy, strate-
face aggressive price-based competition proven ability to bring “problem plants” gies reach their “sell-by” date faster than
from other Web brokers. By committing to high-capacity performance with low ever. Indeed, the life cycle of successful
to the goal—and pursuing it through a operating costs. business strategies has been rapidly de-
series of low-risk experiments—Schwab As a result, where other companies clining in a period of high competition
and innovation. In the Industrial Age, a will come from. Don’t be fooled by from an afternoon at California’s Ven-
successful business strategy for steel the rosy glow of growth: Companies ice Beach, as company execs watched
manufacture or durable goods might living off a single great insight are the sun-drenched skaters slash down the
power a company for a generation or corporate equivalent of dead stars-in boardwalk, sporting color-coordinated
more; today, Moore’s Law (which states spite of their sparkle, they’re cold at the shades, Rollerblades, and bathing suits.
that computing power and speed dou- core. Like grandma’s favorite “Five and The realization: Mobile phones are as
ble every 18 months) is setting the terms Dime” store in the age of category-kill- much fashion accessory as communica-
for strategy life cycles that are measured ers and cyber-shopping info-bots: Stand tions tool, an inspiration that’s pushed
in months, not years. pat with your original business model, Nokia to the cutting edge of cells.
How can a company tell if its present and burnout is only a matter of time. l Shatter the “strategy monopoly.”
profits come from spending down past In any company, a hierarchy of organi-
success? Here are three new realities to Creating an Innovation Engine zation dominates a hierarchy of ideas.
consider: IF companies can’t depend on the The antidote: To encourage innovation,
l The inevitability of commodi- lightning bolt of sudden inspiration unlock ideas from across the company.
tization. Every new product or service or serendipitous discovery, then what? Bring together a cross-section of em-
will become a commodity in time. Not An innovative environment can be ployees at all levels to share the new
many years ago, cell phones cost upwards consciously created—if a company is perspectives that may just contain the
of $100; today, companies will give you willing to abandon old rules, shed old kernel of a bold new idea. Realize that
one to sell you their service. Likewise, habits, and upend cherished conven- every company promotes success as de-
phone service itself is now a commod- tions. The key is recognizing that past fined by today’s reigning strategy; the
ity: Traditional telecoms—local as well achievement militates against future question is how to promote new ideas
as long-distance—are engaged in a race adaptability by creating well-worn ways that may have nothing to do with that
to the bottom to see who can sell access of doing things that cause a company strategy—or may even cut against it.
to a dial tone for how little. Meanwhile, to undervalue or ignore rule-breaking That’s how Virgin Enterprises oper-
Internet upstarts are considering giving insights. Yesterday’s laserlike focus be- ates under the lead of Richard Branson.
away long-distance calls to lure people comes today’s set of blinders, narrowing Every employee has Branson’s phone
to their site, while deriving their revenue an enterprise’s field of vision from what number, and can pitch new project ideas
from advertising and other sources. is truly new to what it already knows. directly to the top. That’s how a Virgin
l The impossibility of forecasting Glimmers of great ideas are evident in Airlines flight attendant turned her dif-
future trends. Most forecasts are worth- most organizations; the problem is that ficulties in planning her own wedding
less exercises in spread- in direct proportion to the degree those into a new venture: the wedding plan-
sheet manipulation— Most great ideas are different, the “immune ning boutique Virgin Bride.
and not just because forecasts system” of most organizations attacks Institutionalize innovation by build-
small adjustments in are those ideas as foreign organisms, threat- ing a safe place for people to think new
key variables create worthless ening the host. thoughts. In some companies, new ideas
wildly different pro- exercises. Part of the challenge is demystifying are in short supply—stifled by a corpo-
jections over time. The innovation by breaking it down to its rate climate that cuts off intellectual ox-
larger problem is that traditional fore- constituent parts. Here are three ways ygen, discourages change, and demands
casting projects past assumptions for- to begin the process of awakening in- conformity. At other companies, ideas
ward, providing a sense of false comfort novation in your company: abound—and the challenge takes a dif-
to established companies wedded to ex- l Recognize that innovation doesn’t ferent shape: Creating the conceptual
isting business models. It’s like auto in- follow a schedule. Most companies are conveyor belt that moves from ideas to
dustry forecasters painting a reassuring so bounded by existing orthodoxies and action.
picture of steadily rising minivan and obsolete business models that they think
family sedan sales—the year before Ford they can schedule strategic insight the From Ideas to Action
rolled out something it called the Sports way you record a reminder in your day- CAN a company really institutionalize
Utility Vehicle. Whatever industry planner. But the truly innovative bursts innovation? Witness the effort of Royal
you’re in, you can’t drive change looking of insight that trigger new ideas don’t Dutch/Shell, the Anglo-Dutch oil giant.
in the rear view mirror. obey the corporate planning calendar. With $138 billion in revenues, 102,000
l The futility of waiting for inspira- Consider that the idea for Nokia’s employees, and nearly a century-old tra-
tion. If it’s a given that great companies wildly successful rainbow-hued cell dition, Shell is the epitome of a lumber-
are built on a brilliant idea, the next phones emerged not from a daylong ing industrial behemoth—the last place
question is where the next great idea strategy session in the corner office but you’d expect to find entrepreneurial
zeal. Within Shell’s Balkanized organi- Shell, a kind of innovation stockpot Innovation-minded companies spark
zation—which one employee com- that helps entrepreneurial employees new conversations by bringing together
pared to a maze of 100-foot-high brick shape their own ideas or bring new in- executives with employees of all ranks
walls—access to capital is tightly con- sight to existing ones. To date, several to question corporate orthodoxies and
trolled, investment hurdles are daunt- of GameChanger’s ventures have found search for new ways to do business.
ing, and radical ideas move slowly, if at homes in a Shell operating unit or in l Seek new perspectives. If you want
all. Shell’s globe-trotting managers are one of the company’s various growth your company to do a better job of en-
famously disciplined, diligent, and me- initiatives. Still others have been carried visioning the future, ask the people who
thodical. In cataloguing their character forward as R&D projects, while the re- will get to the future first: Your young-
and capabilities, “wild-eyed dreamers” is mainder have been wound down and est employees. If you want to know how
not a term that comes to mind. written off as interesting but unproduc- consumers act, don’t observe them in
Enter Shell’s GameChanger initia- tive experiments. focus-group captivity—join the Nokia
tive, begun in 1996. As an incentive to GameChanger is producing measur- execs for a day at the beach. Want a new
innovate, a group of Shell employees able results: Of Shell’s five largest growth vision? Try a new vantage point—and
were given the authority to allocate $20 initiatives for 1999, four had their gen- watch a world of opportunity open up.
million to rule-breaking, game-changing esis in the GameChanger—including l Spark new passions. Innovation
ideas submitted by their peers. Proposals one exploring an entirely new business comes from the heart
would be accepted from anywhere with- focused on renewable geothermal en- as well as the head. Innovation
in the company—no need to squeeze ergy sources. Fully 30 percent of Shell’s Companies that aren’t comes
radical new ideas through the keyhole of exploration and production R&D afraid to innovate en- from the
existing programs and priorities. budget is now devoted to ventures that gage employee ener- heart as
Shell’s GameChanger team embarked are GameChanger graduates. gies in a new and pro- well as the
on an Action Lab: An intensive five-day As the Shell case suggests, it is possi- foundly different way. head.
experience designed to dramatically ac- ble to create an internal constituency for When people are part
celerate the translation of “gamechang- change—inspiring a new breed of “in- of a cause and not just a cog in the
ing” ideas into practical venture plans novation activist” to find an ear and an wheel, their IQ—innovation quo-
for the launch of new businesses—plans outlet for creative new concepts within tient—skyrockets.
of the kind that would pass muster with a company. Compared to innovation- And above all, recognize that in to-
venture capitalists in Silicon Valley. The unfriendly organizations that leave their day’s economy, capital is plentiful; good
goal was for each team to present its iconoclasts no option but to take their ideas are scarce. Companies that look
story to a “venture board”—a panel of bright ideas elsewhere, Shell’s experience to incremental change to generate ad-
senior Shell executives and representa- proves that established companies can ditional revenue will tend toward sub-
tives from Shell Technology Ventures create a hospitable climate for change. sistence at best—eclipsed by companies
Inc., a unit whose job is to fund late- that create an environment of innova-
stage technology commercialization. Hammer Time tion, spawning the new ideas that gen-
The venture board was empowered by WHAT can innovation-minded execu- erate new wealth. That’s why an ambi-
GameChanger to “sponsor” winning tives do to create such a culture in their tious enterprise must replicate within
concepts and fund the next round of company? Here are three ways to kick- itself the basic DNA of innovation: A
business development. In the end, four start the innovation process: culture of continuous experimentation
teams out of the original twelve received l Start new conversations. New embedded broadly and deeply through-
six-month funding to put them on a ideas don’t obey an organizational out a company.
path toward full-fledged business plans. chart. Companies that want to get seri- All of which brings us to the final
For Shell, GameChanger was the be- ous about innovation need to break the characteristic of the true innovator: cour-
ginning of an attempt to institutionalize “strategy monopoly” that closes off the age—the guts to realize it’s time to take
innovation. Today, any employee with a executive suite from new ideas perco- a hammer to your own business model,
promising idea is invited to give a 10- lating in other corners of the company. before someone else does it for you.
minute pitch to the panel, followed by a
15-minute Q&A session. Ideas that get About the Author
a green light often receive funding—on Gary Hamel is founder and chairman of Strategos, a consulting firm focused on strategy
average, $100,000, but sometimes as innovation, and also a visiting professor of strategic and international management at the
much as $600,000—within eight or ten London Business School. A frequent contributor to Harvard Business Review, Fortune, and
days. Ideas that don’t pass muster enter the Wall Street Journal, Hamel is coauthor of the best-selling Competing for the Future and
author of Leading the Revolution.
a database accessible to anyone within
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