Archive for the ‘Innovation’ Category

“I am Not the Man I Was”

Tuesday, January 5th, 2010

Looking Outside of the Comfortable Norm, Seven Pragmatically Determined Projections for 2010

By Mark P. Dangelo

www.Innovative-Relevance.com

Welcome a new decade – and good riddance to the first decade of a new millennium. With a mix of cautious optimism and somber restraint, we let our feelings of aspirations rejoice that future events will leave an indelible positive mark on our fortunes. Yet, wondering aloud, what is hidden within – behind the veil of positively spun reemerging domestic and global economies. What icy reality is poised to strike fear into recoveries balanced precariously on edge?

Per a recent U.N. economic report, the U.S. economy has very steeply increased its external debt ownership during the last 25 years (to foreign holders) — from near zero in 1986 to nearly $4 trillion. Half of that externally owed debt came within just the last two years. The stark economic realities have created multiple operating threads within the new decade – some with answers, some driving towards convergence.

As servicers, lenders, and vendors the ability to predict the next year is coming into focus – albeit narrow in their definition. However, what the 2010 budgets fail to recognize are the holistic implications of a declining dollar, a three to five year lag of unemployment recovery, and economic risks that are slowly building only to burst our holiday of joy after years of decline. Is this an overly detrimental assessment? No, no, just looking at the data that is already aligned if we care to interpret.

When examining the stark reality and meteoric changes anticipated across numerous third-party simulations, the projections below regrettably resemble the dark and foreboding figure within Charles Dickens A Christmas Story – as I play the unwilling part of the Ghost of Christmas Future.

1. Outsourcing, Offshorer Beware: The premises and value of outsourcing (on or offshore) cannot be denied – although it will surely be debated. Yet, understanding the resulting dynamics of a “100-year” recession. It may be a decade before unemployment decreases to pre-2007 levels. Moreover, it may be (barring any new tribulations) that the Federal deficit will begin only turning positive by 2020 (i.e., we can begin paying it off). Where will the money come from to reeducate the American worker looking at a decade of drift? The new decade will witness increasing implicit nationalism as the new political currency to tax foreign enterprises under the guise of rebuilding the economy. Empathy and balance of operations will be the new form of payment for those enterprises who anticipate regulatory change and consumer sentiments.

2. Regulation – A New Wrapper: Whereas politicians will finally make regulatory changes approaching the mid-term elections, the breadth and meaning of those changes will be far less clear. In an effort to exact a “pound of flesh” to soothe disgruntled voters, they will fail miserably at doing what Henry Paulson, former Treasury Secretary, said needed to be done in 2007 – a regulatory structure that works for the new millennium and for the globally interconnected markets that mortgage and lending products are now participating within. Congress is unwilling to do what must be done, and thus they will extract concessions from those individuals and operations that are believed to have benefited from the now three years of chaos.

3. An Investor Driven World: The “age of origination” has been permanently transformed. As the disposition of the GSE’s is debated, the leadership forces entering the markets are coming from the other side of the globe and the reverse financial supply chain – driven by investors demanding transparency, data, and real-time valuations (see newcomer DelphX launching in 2010). This mantra is quickly spreading as we can implicitly witness from previously benign places such as the IMF, World Bank, BIS, the UN, and even the ASF and project RESTART. The tables have turned on the traditional mortgage operator, as if they want private money to lend and originate, it comes with far greater demands and rules in product forms previously scoffed at by domestic firms. With 60% to 65% of the global liquidity sitting offshore, domestic firms now find themselves in a position not previously experienced in their lifetimes. The driver has become a mere passenger.

4. Our Heads are Firmly in the Clouds: The last five years have witnessed remarkable advancement with new technologies rooted in principles that transcend nearly four decades – cloud computing. As progress goes, cloud computing continues to advance against hyped expectations resulting in layering of innovative technology. However, the measurements and benchmarks needed to direct and evaluate technological approaches are not familiar or even clearly defined. The resulting adaptations will therefore be incrementally iterative in their design and implementation. The capital light structure of cloud computing will continue to offer needed innovation at price points and operating capabilities that will accelerate change while reducing fixed costs. Orchestrated innovation will be the discipline and rigor used in place of once standardized processes. Cloud computing will play a larger and larger role in the management innovation and principles of orchestration.

5. Global Interconnectivity – New Responsibility: For the time being, America has released control of its financial future. Additionally, domestic lending, be it securitized or portfolioed, is now and permanently tied to international finance. The ability of stoic mortgage operations to unilaterally determine their destiny is now firmly in the hand of evolving global regulators, carried international agendas, new investors, and even new establishments being defined outside the influence of old-line monarchs. 2010 will experience a marked rise in new instruments, exchanges, and regulator sanctioned hybrids. Money to fund not only pipelines but improvements will likely face a risk aversion in the first half of 2010 as external events (e.g., stimuli, elections, exchange rates, unemployment, asymmetric recoveries) play out daily on the front pages. A new series of covenants and demands will trickle in from non-traditional players impacting historical processes – which will be cast aside in favor of relevance, financial innovation, and market viability.

6. Back to the Future: Innovation of both business and technology will witness a rebirth of vertical provisioning. For nearly two decades organizations have been shedding operations and outsourcing all “non-core” competencies as a method to cut costs and improve delivery. The expansion of this “fact” has witnessed resistance as small and very large organizations have begun to rebuild their end-to-end verticalization chains. When markets and consumer behaviors are stable, standardization or commoditization of sub-processes cannot be outsourced – at least not in a traditional sense. It is this management reality of the need for increased vertical control that not only drives the use of layered innovations (i.e., cloud computing), but also the methods, models, techniques, and profits that are now demanded by businesses and their customers. Although, verticalization of the past is not the same as what awaits those seeking greater specialization within their delivery value chain today. It is about the assembly of segments in unique and competitively different arrangements that will create longevity – both short and long term.

7. “Unholy” Alliances – A Brave New World: 2010 holds a chance of experiencing a double-dip or retrenching of the pain. While the second blood-letting is not expected to be as deep, the nascent recovery is fragile and in some cases, unsupportable using the very instruments that saved it from destruction. Even President Obama has indicated that this double dip, double bottom might happen in 2010. It will be the resurgence of private firms and proper use of “hot money” that will craft firm relationships between previously disjointed firms. Moreover, as a result of necessity and new rules, former competitors and groups will be forced to make peace and forge alliances across the finance and mortgage markets (FMM). In 2010, the first half will witness several of these public announcements. What you ask? Well no sense giving away the answers to that question – at least not yet.

It is here at the end of all prior things, which shaped the industry as we know it, new beginnings dawns. As the gaunt and thin hand of the future points the way, we must look to Scrooge for our true reality.

Like the story penned over 150 years ago, we must take control of our destiny in new and unique ways – stepwise innovation, technology, process, and yes, people. All assembled in strange and unique ways – some with alliances previously, sometimes arrogantly deemed unnecessary.

In closing, just because the future is anticipated or debated, does not make it a reality. The future makes fools out of those of us who dare conjecture its path. “I am not the man I was” – the same can be said of our industry.

Perhaps our future is best described from a detached and introspective viewpoint.

Beat the heart of industry mortality,

From the ashes raise a cheer,

Our focus is a gauge of simplicity,

Our relevancy is our fear.


UN World Economic Situation and Prospects 2010, Global Outlook, December 2, 2009.

ibid

International Society of Professional Innovation and Management (ISPIM), December 8, 2009, at New York City.

Snapshot - A Survey of Cloud Computing Analytics and Usage

Wednesday, December 2nd, 2009

Taking the pulse of markets and their participants

By Mark P. Dangelo

www.Innovative-Relevance.com

 

As the end of this decade draws to a close, there has been great talk in the media about the sesquicentennial publishing anniversary of Darwin’s Origin of Species.  Some refer to the “animal spirits” that are contained in the dealers of Wall Street, the industry moguls, and the activists, who are trying to tame an uncooperative world.  However, just like Darwin projections and the science around evolution, a new “technical animal” called cloud computing is changing its genetic structure every day. 

One thing this is very different moving forward with the birth of cloud solutions, is that CIO’s and CTO’s will be measured by business metrics – rather than overhead metrics of cost management and infrastructure spending. 

Additionally, there are two key trends that are rapidly expanding regarding the usage of cloud computing resources and on-going viability – services and “all-in-one” offerings. 

From the survey feedback, the use of services appears to be a key component and concern for many businesses and IT professionals.  Who to trust?  Are they knowledgeable?  What cost and on-going commitment is required? 

Regarding the “all-in-one” offerings, companies are impressed with the idea of a “one-stop-shop,” but are reluctant to embrace an all-or-nothing solution that appears on the surface to be expensive with considerable lock-in periods.  However, with an increasing number of vendors all providing hardware, software and services in an end-to-end bundle, the challenge for purchasers will be evaluating each on their merits efficiently aligned with corporate needs.  Specifically, only purchase what is needed and not pay for unused or unnecessary options.

The survey was constructed to focus on seven distinct areas of interest:

·         Enterprise and Department Usage

·         Belief in Existing Analytics

·         Importance of Existing Data Sources

·         Importance of Existing Analytics

·         Cloud Computing Challenges

·         Cloud Computing Acceptance

·         Cloud Computing Preparedness

Enterprise and Department Usage

Survey results can often confirm what you have expected or in some occasions, produce insights that shed light on emerging trends or organizational beliefs.  This on-going survey was no exception.

When asked if quantitative measurements were important to the enterprise, nearly 60%[1] of the respondents said they were high to critical, yet not quite 50% said they were effective.

Conversely, only 21% of the respondents when asked the same questions about their departments or divisions, said that quantitative measurements were effective, but more than twice as many said that these same ineffective measurements were high to critically important (44%). 

The implications of these results suggest that internal process measurements were not meeting the needs of the local departments / divisions, even though the demand for measurements was moderately high.  Moreover, these same individuals surveyed believed that the enterprise had more effective analytics and that they were almost 150% more effective than their own.

Belief in Existing Analytics

While the respondents firmly indicated that the organization as a whole was better off than their departments or divisions, their belief in the value of their analytical approaches was strong (see Figure 1). 

A deficiency identified with the existing analytics was their ability to provide predictive intelligence – only 14% thought that what they were doing was of high or critical importance. 

The only other challenge potential was the use of analytics to support the delivery of strategic goals or the achievement of operational strategies – 30% identified these as low or NS (not significant). 

Importance of Existing Data Sources

The importance of existing data within the organization for the most part was what analytical specialists would expect.  First, the use of spreadsheets remained a valuable source of analytical intelligence (see Figure 2).  Moreover, point based application systems continued to be the master source for many data analysis and synthesis operations to support extraction of information into the spreadsheets.

This series of questions clearly points to potential conflicts with the use of information and the subsequent manipulation of information by desktop toolsets (and the security, logic, and integrity within them). 

The surprise factor was the 86% moderate to critical importance placed on non-internal or third party data sources for analytical decision.  Clearly, information integration, archiving, and transformation have become a primary need within business and IT departments.

Importance of Existing Analytics

Whereas, current analytics and data sources were given high marks, their importance for various decision making or operational performance were varied (see Figure 3). 

For example, 77% of respondents clearly indicated that analytics for on-going improvements or quality of delivery were of moderate to critical importance.  Yet, only 71% said that the existing data and sources were important for risk analysis and/or mitigation. 

Puzzling was that only 37% who identified analytics as important for revenue or profit improvements given that margins are always measured.  This suggests a disjointed view and potential misuse of analytics across the enterprise.  Meaning, while the departments and divisions focus on exposure and improvements, they failed to see the potential direct correlation to organizational profits.  Striking still was the lack of moderate importance (just 6%) assigned to analytics for regulatory compliance.  The results were very strong (68%) that identified analytics as important for regulatory compliance but a high percentage (25%) indicated that analytics were low or non-significant for meeting regulatory demands. 

Cloud Computing Challenges

While the source and uses of existing analytics yielded a few surprises from the expectations, the introduction of cloud computing and the data sources it generates created some clear challenges (see Figure 4). 

The biggest surprise was the indication by both business and IT professionals that the introduction of cloud computing materially changes the future role of IT – nearly 78%. 

Equally insightful was the 80% of respondents that said the usage of cloud computing increased the risks of meeting regulator needs and agency guidance.

As expected, respondents expected data integration challenges with cloud computing – 29% indicating high to critical issues. 

What was expected, but also telling, was the 42% who said they expected high to critical security issues.  However, equally telling was the 29% who said security challenges within cloud computing were low or non-significant. 

Cloud Computing Acceptance

While the respondents were concerned with the use of cloud computing and meeting regulatory compliance, 50% also felt that it was high to critical in meeting oversight and governance needs (see Figure 5). 

Moreover, 72% believe that cloud computing would be of moderate to critical significance to meet changing consumer and business functionality in the timeframes demanded by the markets.  The respondents also stated that ROI of cloud computing was a major factor in its adoption, but 56% indicated that cloud computing was non-significant or of moderate importance for consumers or customers.

Cloud Computing Preparedness

Finally, the most foreboding measurements regarding cloud computing arrived in the area of organizational preparedness (see Figure 6). 

In every category the ability to perform and deliver on the promises and requirements of cloud computing garnered very substantial non-significant or low ratings.  Many times, this single category gained 50% of the responses.

Regarding the ability to address security challenges, only 17% said that their organization rated high to critical capabilities.

The skills demanded for data integration across the layer of cloud applications received only 24% in the high to critical range.  This alone signified a clear challenge and opportunity surrounding skills, standardization, outsourcing, and correlation of growing data sources provisioned outside the traditional intranets.  

Yet, while there were concerns surrounding data integration abilities, the use and deployment of analytics using cloud computing data sources increased by 3% to 27%.  This margin is not significant but it may point to a greater belief that once the data is properly integrated, the ability to summarize, augment, and transform raw fields will be easier for analytical personnel. 

Finally, when asked a non-specific question on the general cloud computing skill sets internally available, 28% of the respondents believed that their organizations had the necessary high or critical abilities to effectively implement cloud computing – its data, analytics, and security.

Taken separately, each cloud computing skill category performed poorer than the aggregation. 

In Summary

The snapshot of this survey clearly points to a belief that internal analytics apart from cloud computing are established and reasonably trusted.   However, there were clear areas of opportunity regarding their usage and robustness.

Additionally, when cloud computing principles and challenges were introduced, there was a material reduction in the comfort level associated with this rapidly evolving set of integrated technologies.  The most important clearly pointed to data integration and security protection. 

[1] Note, for simplicity of presenting the survey findings in this forum, all numbers were rounded to the nearest integer.


Proven Technology, New Paradigm

Tuesday, October 20th, 2009

By Mark P. Dangelo

www.Innovative-Relevance.com

One of the few bright spots in lasting recessions is the birth of relevant innovation. These are the new products and services that markets and consumers want, which are pragmatic and sustainable regardless of the economic plight surrounding them. More new businesses start in times of chaos than in times of prosperity. The seeds of the next wave of business processes and supporting solution sets are growing.

Yet, not all relevant innovation is from quantum breakthroughs in technology. Often times the most momentous advancements are those that involve the layering of proven technologies in new and unique alignments. Additional gains are made from using modified processes, procedures, and formulations. Finally, the remainder is driven by new educational standards, skills learned, or via collaborative intelligence.

Let’s explore two potential paradigms that are quietly emerging to those seeking new uses for proven technologies.

A Vision to Look Beyond Today

The markets have seen an explosion of solutions targeting fraud in all its forms – misappropriation, misstatement, bribery, corruption, identity, occupancy, income, appraisal, shot-gunning, and the list goes on. The advances in data aggregation, statistical modeling, and integrity have given originators and law enforcement agencies new tools to combat illegal acts. But, whereas these increasingly robust solution sets are eliminating fraud in new, refinanced, or modification loan originations, there are additional benefits yet to be booked with the potential extension of solutions.

For example, what struck me as having huge potential during the recent MBA Annual event was an announcement by MERS and Interthinx on their National Fraud Prevention Solution. Why did this standout? What was missed by the invited press was the underlying and potential supply chain altering principles beyond identifying fraud just during the origination processes.

When examined along the entire value or supply chain of mortgage processes – origination, servicing, securitization – the existence of a common source of aggregated information potentially offers touchpoints for bonds and equities, repurposing existing asset classes, insurance, government regulators, and of course, all aspects of complex servicing. In manufacturing terms, think of it as forward and reverse supply chains where parts are sourced in many places, but assembled in one place to create a working product.

Examined differently, if fraud information is good for the origination of a loan, why shouldn’t it be used for the same loan, borrower, and institution throughout its life-cycle? Case in point, if the loan is non-portfolioed and securitized with other “quality” loans, then over its life should the borrower or trustee overseeing the tranches (e.g., covered or hybrid bonds), all sourced aspects of the loan must be permanently accessible. The same will hold true for portfolioed loans and the new Basel rules requiring greater capital reserves in 2010 against held assets.

After all, the “originate and forget” model is dead – which is why private securitization went from nearly 65% of the market to under 5% in just three years. There are parallels and lessons learned in other industries – insurance, equities, and healthcare.

If fraud is rooted in risk mitigation, then the data for risk analysis will require a comprehensive integration of the entire data or mortgage supply chain for life. Risk analysis and the underlying agencies and regulators, which will be taking more active governance roles, require a non-siloed vision. A game-changing option is made available once we look beyond the “false” industry containers of information, and into the greater comprehension demanding new operating paradigms.

While the MERS and Interthinx announcement was positive, there is a potential for a permanent shift that reverberates across the industries – like a pebble being dropped into the center of a pond.

Think Differently, Act Aggressively

With nearly 1.7 million borrowers three or more payments behind last month, the challenges of loan modifications are still mounting. Whereas, the government has claimed success for on-going workout initiatives – albeit it permanent or temporary loan restructurings – according to RealyTrac nearly 940,000 were in foreclosure filings during Q2 2009.

In general, the optimistic industry personnel are trying to stress the positives – low interest rates, government incentives, and a hope that the bottom has been put into the market free fall. Others aren’t so hopeful. But whether you believe in a recovery or more pain, one thing is very clear – how do you reach out to a customer in trouble or those seeking advice?

The complexity and breath of answers stagger the imagination. However, what is evident is that no one method will work for all classes of loans or customers. A multi-dimensional approach using all available market and technology channels needs to be cohesively integrated to ensure the best for all parties involved – borrower, lender, servicer, and investor.

One proven technology that has been used to drive consumers to secure new loans was search engine optimization or SEO. SEO is well known to marketing professionals and ad agencies. Many users commonly associate SEO with Google, Yahoo, or other search engine rankings and ad placement. It worked great to drive potential lenders to sites during the “go-go” credit of this last decade, but does it have a use now?

The short answer is yes. SEO is undergoing a rebirth among a new class of innovative firms (e.g., Enquisite), which move beyond the mere generation of prospects and into ROI, analytics, and performance. The new solution sets employ “organic” and paid placements to arrive at a composite of contacts who may want assistance and who may have been doing research on your corporate “landing pages.”

The methods of achieving this result are beyond this article, but suffice it to say that there are fundamental shifts in the way SEO is being used – for today and tomorrow. Some additional uses for performance driven SEO are in support of compliance, loan modifications, servicing, and to address political concerns that the financial institutions are not doing enough to reach out and assist struggling homeowners and consumers at risk.

For those in the retail channels trying to assess their customer approaches, novel macro uses of SEO are beginning to capture the imagination, while influencing operating initiatives. Although, many thought they knew what SEO was, the rules are being rewritten by relevant innovators eager to assist and able to deliver.

In summary, SEO is increasingly becoming part of closed-loop systems for channel deployments and operating feedback supported by adaptive process improvement techniques. It has moved well beyond simple lists, clicks and conversions.

Adapting a phrase from history, it can be said, “I never knew SEO, but it knew me.”