ABS – Are YOU Prepared for a Revised Regulation AB?

July 19th, 2010

By Mark P. Dangelo

www.Innovative-Relevance.com

 

Lenders want to lend.  Consumers want to buy.  Investors want to invest.  Governments want tax revenue and GDP growth.  Politicians and their appointees, let’s face it, want politics.

Generically, it sounds very familiar, pro-consumption, and mainstream capitalistic.  Historically, when put into practice across the financial services supply chain, it has been the growth formula for developed countries since the end of World War II.  That is at least until March 2008, when “financial engineering” designed to mitigate risks exposed systemic, seismic regulatory shocks that erased over $20 trillion in global wealth, while simultaneously increasing sovereign debts. 

Now, with financial reform passed, many assume that the vast uncertainties surrounding markets, assets, and corporations should close a chaotic chapter in our historical timelines.  But what about pending updates to existing regulations?  Weren’t they “closed out” as well? 

As the summer brings reflection, let us examine the backdrop for the proposed Regulation AB (REG AB) revisions, the rationale for REG AB, and a brief review of the extensive changes out for comment.  Oh, by the way, the short answer is no, there are many more regulatory “adjustments” still in the works.

The Stage for REG AB Revisions

It is quite possible, if not highly probable, that the U.S. economic outlook will languish for at least another two years.  With high unemployment stoking a steady stream of public and private loss mitigation actions, published and stealth home inventories will rise, as real household incomes will potentially stagnate and potentially drop for over 90% of the population.  At the risk of upsetting the optimists and those longing for a return to the good-old days, the freewheeling, frivolous consumer of old is dead.

The once stoic trophy of household debt funded by rising real estate prices is now replaced with disillusionment and reduction.  The lemming investments of “me-too,” which created the largest loss of capital in history, have been replaced with a government of business as usual — all underpinned by securitized assets “guaranteed” by entities in receivership. 

True, the markets and the consumer are improving – but that improvement is hardly robust and not assured.  The Fed is once-again nervous, the markets are manic-depressive, and the consumers and homeowners are still seeking hope.  The omnipotent economy has improved from its worst – but will it last or is it even architected for sustainability?  What a difference an economic quarter makes.

It was early in the second quarter of 2010, against the prospect of a more promising future, the SEC released, “… significant revisions to Regulation AB and other rules regarding the offering process, disclosure and reporting for asset-backed securities.”  Spanning 667 pages, the implications of these proposed changes are far reaching and their compliance using new information captured within a repurposed EDGAR will have a pronounced impact on operating processes and business models for years to come.

REG AB Rationale

Come August 2, 2010, the comment period surrounding the proposed revisions to numerous 17 CFR (code of federal regulations) parts and sections will end.  It is anticipated on that by the end of 2010, some form of these new revisions and demands for private securitization (i.e., ABS, asset backed securities) will be made law. 

Pushing aside politics and headlines, without the creation of new ABS issues and markets comprised of transparent and liquid asset-backed private securitizations, mortgage banking and real estate will potentially languish for another decade.  Without faith in quality, non-government guaranteed ABS instruments, investors will continue to refocus their investment monies elsewhere.

But will these regulatory revisions succeed?  What will be the net burden and ROI?  Has the SEC with the REG AB changes articulated a critical set of enablers needed to entice investors to open their strategies to more than government-backed assets?

For those who remember, REG AB was first approved back in January 2005.  Now with the lingering crisis two years old, the SEC in their REG AB revisions states, “These proposals are designed to improve investor protection and promote more efficient asset-backed markets.”

Let’s take a cursory examination of the 667 pages of disclosures, new rules, eligibility, obligations, reports, and officer certifications.  

Parts, Sections, and Paragraphs

What stands out in the revisions first and foremost are the data fields proposed for RMBS’s and the new use of EDGAR for source code submission of cash waterfall projections. 

Regarding RMBS, the revisions declares, “We are proposing 137 data points for ABS backed by residential mortgages. The staff has surveyed the data and definitions provided by the organizations … to require additional data fields … on information already typically provided by sellers to Fannie Mae and Freddie Mac or likely to be collected by participants in Project RESTART.”  With additional mentions of the OCC, OTS, MERS, and MISMO, the data field specifics are described in detail starting in Table 2 and running for 30 pages.

Regarding the use of EDGAR, two statements within the SEC revisions stand out.  First, “Because we believe that asset-level data should be provided to investors and all market participants in a form that facilitates data analysis, we are also proposing to require that asset-level data be filed on EDGAR in XML format.” 

This statement goes beyond the initial filing and may include the need for updated information to ensure timeliness of information within mandatory periodic reports.  Or as stated in the SEC revision document, “We are proposing 151 data points for periodic reports for ABS backed by residential mortgages.”

Secondly, EDGAR of the future may be importing waterfall cash projections for RMBS issues in Python.  “Under the proposed requirement, the filed source code, when downloaded and run by an investor, must provide the user with the ability to programmatically input the user’s own assumptions regarding the future performance and cash flows from the pool assets, including but not limited to assumptions about future interest rates, default rates, prepayment speeds, loss-given-default rates, and any other necessary assumptions … The waterfall computer program must also allow the use of the proposed asset-level data file that will be filed at the time of the offering and on a periodic basis thereafter.”

The complexities and implications of the revisions are numerous, and it is more than likely an organization will require specialized legal guidance to navigate the regulation in its final form.  However, what is apparent already is that an entire new class of technologies, analytics, and value-added services will spring from these revisions – at the same time taking current proprietary information solutions and offerings into the public domain. 

As stated several years ago in this column, the reverse financial supply chain is now gaining increased efficacy — when contrasted to the historical forward approach.  Profitable survivability for private ABS issuers and those supplying mortgage assets appears to be dependent on the ability to navigate from the investor requirements back into the consumer.

* * * * * * *

Yes, it is true.  None of us like regulations or the compliance mandates that follow them into practice.  But, out of all the market concerns and anxieties that the government has gone awry, will anyone be willing to tackle the disposition of the GSE’s absent a private and functioning ABS marketplace?  

Are we just hoping that any GSE remediation’s post midterms won’t bring the lending markets to a complete standstill once again?  Without new, private ABS issues, especially in CMBS and RMBS, where will the liquidity come from for lending to consumer and corporate customers?

So, if we don’t like the proposed revisions, our window of response to the SEC’s comment period is rapidly closing.  In their defense, this regulator is asking for feedback on a lot of questions and potential market concerns. 

In the end, it appears, our organizations’ need to be prepared for new process, technology, analytical, and procedural requirements before 2011 arrives — as some form of an updated REG AB will be likely issued.

 

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An Allegory for an Uncommon Time

June 22nd, 2010

By Mark P. Dangelo

www.innovative-relevance.com

(as also published at the National  Mortgage Bankers Association)

In a dark cave, a fire glows in the corner casting its shadows with eerie reflections on the objects within.  In the flickers of light, we can see outlines of gray and black hues sketching out eight individuals – all chained together, all facing forward. 

For decades, each of these figures –consumer, banker, GSE, financier, investor, regulator, politician, and technologist – faced the wall in a sitting position gawking at the dancing wall images encapsulating a unique reality for their daily existence.  Each saw their reality in isolation even though the images of their existence were created from the same source.

The cave, and its changing shadows, was the only existence this group of eight had ever known for business, markets, and individual reward.  The inhabitants had never left the cave, yet each was firm in their own but different, realities.  Their livelihood and prosperity was the cave.  It was comfortable, convenient, and it defined their existence. 

A Seismic Disruption

Just over two years ago, a magnitude 8.2 financial seismic disturbance unshackled the cave dwellers from their bonds, and the light that reassured them of their existence sparked and began to rapidly dim.  In short, the seismic aftermath freed each of the linked from their one-way value chain of subsistence.  As they rubbed their dust cover faces, they witnessed a new illumination coming from the entrance of the cave. 

Disoriented and driven by failing debris, the historically interconnected dwellers were separately forced into the open and the strange confines of a new world.  Grasping, groping, angry, and seeking safety, the eight moved to the glow of new surroundings, as a method to escape individual and financial demise now being delivered by the cave that once protected and sustained them.

For the group of eight (G8), their survival outside of the cave was savage.  Month after month, their long-held axioms were shattered – home ownership, mark-to-market, hedging strategies, derivatives, regulatory certainty, housing markets, ethics, investor confidence, sovereign wealth and currencies, consumer behavior, regulatory oversight, risk analytics and strategies, swaps, structured financing, fiscal responsibilities, and even government-backed enterprises, which have the potential to saddle taxpayers with $1 trillion USD in losses against the national debt (multiples greater than AIG). 

Moreover, the G8 were challenged by those who had already lived outside of the cave, as they were acclimated to behaving and interacting across new world commerce.  These “global dwellers” had different mores, protocols (i.e., regulations), and business demands quite distinct from the G8.  The original G8 longed for the prior security of their cave. 

For the next 827 days, aftershocks and misplaced initiatives dominated their interactions with these global dwellers, and those that indirectly had come to depend upon them.  The G8’s prosperity (i.e., cave light), as defined by their historical cave surroundings, was being extinguished.  A new illumination was coming from a different source delivering ever changing images and realities – a radiance that was high in the sky rising from the East.  The G8 were grasping for efficacy in a new environment as the rules and workflows of operation were regularly failing their original creators.

For the G8, as they exited from cave their global wealth steadily declined by over $20 trillion, as triple-A asset backed securities and complex, opaque OTC derivatives fell in value or vanished all together.  As the markets fell, business interactions among the G8 declined resulting in 1 in 10 domestic adults being unemployed.  Moreover, unsustainable household debt or leverage approached 200% of income as government debt reached WWII ratios against GDP.

The shockwave of unemployment and survival conditions outside of the cave inverted the ratio of new mortgages when compared against delinquencies and foreclosures. Calendar 2010 promises nearly 3 million repossessions and short sales against an average of 650,000 originations.  Private securitization fell from over 60% in 2006 to < 2% in 2009.  Moreover, 2010 brings new survival risks for the G8 cave inhabitants, as global dwellers and their investors demand new restrictions as volatile sentiment creates lingering doubts – and the potential retracing (e.g., double dipping) of the on-going survival pain. 

Life on the Outside — The Unthinkable becomes Commonplace

New behaviors and strange occurrences for the G8 grew.  Consumer strategic defaults became commonplace as “underwater” became a key justification for default.  Bankers reluctantly became “utility” providers, as they never thought their actions would become public record – let alone achieve such a level of public vilification.  Making matters worse, HAMP, which was promoted with the hope for all the G8, is now facing the potential of a 75% re-default within 12 months for those already “helped.”

Even those “Sheppard’s” of the old cave – the regulators, their agencies, and politicians – now added more uncertainty and strange behavior. This diverse trio reacted to the demands of the global dwellers, and the chaos they were unprepared to experience.

Individually and using public forums, once comfortable regulators found their relationships and new world frightening.  They chose to hide behind the nearest tree to avoid retribution or inspection.  Politicians blamed everyone around them as a global distain grew into domestic consequences – their role and reelection appeared no longer ordained – as some were having tea while others were distributing wealth and retribution. 

Investors and brokers now realized, what meteorically goes up can crash to the ground destroying their secure cave and everyone in it.  It was no longer a game or an illusion on the wall of the cave.  It was real, and the consequences dehumanizing.  Actions and results went well beyond the “education” of the markets and informed investors, moral hazards, or even “the greater good.” 

And yes, the technologist who was seeking to streamline processes for operational efficiency (i.e., the interconnected images on the cave wall), find these new global dwellers offensive, belligerent, and failing to accept the storied accomplishments once taken as gospel within the cave.  Their prior status seems to have little meaning to the global dwellers, who have established themselves and their markets without the dogmatic expertise of the G8 “cave interactions.” 

Finally, after a year of debate and blame, in an effort to create a new “virtual” cave, the G8 proposed new guidance for their surroundings.  This guidance was designed to ensure their relevancy and standing in the “new world order.”  They would “set things right.” 

Creating a sweeping series of changes, captured in hundreds of thousands of words and legal language, the G8 sought to create an innovative reality – a “better” reality.  It was a new set of standards for all to follow and admire – to ensure that the collapse of the new, virtual cave can never happen, like the “real” cave did. 

In an effort to adapt to its new global surroundings, the G8 members lobbied, shouted, projected, and cajoled not only each other, but those new relationships they needed for survival and prosperity.  The new world order was now close at hand as the G8 demanded adherence and respect.  But, were these “sound laws” enough?  Too Much?  Or was it all just another illusion – more than business justification and markets demanded – to wield influence and “stake out territories?” 

Rebuilding Against the After Shocks

So dawns a new quarter as the G8 lobby for and lament against financial reform and revolution.  Nearly three years after their cave collapsed, those original eight who were holistically linked have fractured and polarized.  As the pillars burn, for many innocents caught in a financial disruption not of their making, the Four Horsemen have arrived in rumbling droves. 

However, from the ashes of illusion, hope arises – and we believe prosperity will be forthcoming, driven by new guidance and innovation.  But when?  Who will be the beneficiaries?

Contrary to the hope of G8 members, rebuilding does not mean the same or even retro.  Very little will be the same, and the time machine is out-of-commission.  The old cave light taken for granted as the “Sun” by the G8 is now larger providing illumination for all the global dwellers – not just those within the destroyed bunker.  This “New Sun” (rising in the East) is not easily controlled, and it must be harnessed differently if a new ecosystem of co-dependent business models is to be sustained. 

However, for those adjusting to the global dwellers and their “strange” relationships, there is a material risk.  If they adopt and adapt to new behaviors and methods of business, will they be shunned (or worse) should they return to their original G8 members?  Will they recognize their old friends and foes?  Will they be cast aside by those who still favor those dogmatic methods, which once led to prosperity – but sowed the seeds of the largest financial seismic disruption in 80 years (but the largest in net losses)?

For the G8, questions remain in the effort for transparency and viability.  A cursory few include:

·         Consumer:  Will their new “cave” be dependent upon old ideals?  Will they behave so differently that only “educated” owners will be allowed to participate in the new society?

·         Banker:  Will their longing for the historical, be the seeds of their slow demise?  Have their sunk costs of cave participation become so culturally ingrained that they only are perceived to change when forced?

·         GSE:  What will their role be after the “period of convenience” ends?  Are they the next “public-private” villain as the global dwellers seek a new leader(s)?

·         Financier:  Where’s the deal, what’s the spread, and how can it be hedged?  Is this new world really any different than the old one?

·         Investor:  What will be recoverable and who was to blame for their loss of stature and capital?  We were “mislead,” right?

·         Regulator:  What are the implications and impacts of action or inaction?  Is it a global world or “each cave / clan for themselves?”

·         Politician:  Am I interfering in the life and property of “my subjects” with “proper justification?”  Is it safer to be “feared than loved?”

·         Technologist:  Do we have the new skills, processes, data, and architectures needed for conformance and compliance?  Will the existing become immaterial?

Rebuilding, as Machiavelli wrote in 1513, is a torturous compromise, “Men have imagined republics and principalities that never really existed at all.  Yet the way men live is so far removed from the way they ought to live that anyone who abandons what is for what should be pursues his downfall rather than his preservation; for a man who strives after goodness in all his acts is sure to come to ruin, since there are so many men who are not good.“

* * * * * * * * *

So even after nearly 2500 years of allegorical symbolism, it still appears that our parable has not reached its conclusion – not yet.  For lurking within the woods and waters surrounding the recently combined global dwellers, including the G8, are bears, bulls, bugs, horses, reptiles, lions, sharks, snakes, and may be an iceberg.  The environment has changed, the interactions uncertain, and predators are many.  The only axiom still valid is that a new equilibrium has not been achieved. 

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In Times of Renewal, Everything has Value – Not Everyone Sees It

May 18th, 2010

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.

BPM Case Study Benefits and Outcomes– Large U.S. Retail Bank[iii]

·         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%

According to Pedro Fong, BPM Senior Manager at SunGard Consulting (SGC), “The potential for tangible returns using BPM are there.  Nevertheless, the key factors for sustained success reside with the proper alignment of BPM approaches to the goals of the organization.  Experientially assessing how much an enterprise is prepared to invest (i.e., time, people, capital, implications) in making those goals a reality, influences the plan of attack, number of iterations, technology, and the establishment realistic performance benchmarks.” 

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.

 


[i] Lloyd Blankfein, Goldman’s chief executive, May 7, 2010, as published in Financial Times.

[ii] Wikipedia, definition for business process management.

[iii] Data furnished by SunGard Consulting.

[iv] “US Unemployment,” Financial Times, May 10, 2010.

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