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The Six “C’s” of Generating Success

Tuesday, September 22nd, 2009

Success = Components + Collection + Consolidation + Cohesion + Capability + Conclusion

By Mark P. Dangelo

www.Innovative-Relevance.com

Also published at the National Mortgage Bankers Association

With all the media sound bites and dire messages, sometimes you just want to hide in your cubicle and do nothing new. It is understandable. However, pragmatically we must move forward ensuring that people, processes, and technologies are once again relevant for the decade facing us, and our vastly different operating ecosystems (see, “Peering Forward into the Next Decade”).

So, where should we invest? What technologies or infrastructures should we use? How could we outsource more business and knowledge processes? Should we hire FTE’s or layoff? How do we measure success, and more to the point, is it merely about profits, government conformance, risk mitigation, or social responsibility?

After two brutal years where finance and mortgage groups (FMG’s) have shed hundreds of thousands of quality jobs, will the recovery be a “V,” a “U,” a “L,” or a “W?” Additionally, what will your competitors do? Who are the “desired” consumers? What are your organizational social and community responsibilities?

Indeed, there are many questions all encased by considerable economic uncertainty. Yet, the time for action is now. The time for pervasive technological and process transformations is past due.

So, what is the formula for success as we close out 2009 and peer into 2010? Whereas, no one formula or idea can capture all aspects of viability and the technology needed to deliver quality profits, the following simple framework is able to create desired organizational action.

Success = Components + Collection + Consolidation + Cohesion + Capability + Conclusion

I know, it sounds like a lot. However, let’s briefly explore the six “C’s” of success, and what you might be able to do to capitalize on the operating environment and constraints, which are poised to completely redefine FMG players, processes, and BAU (i.e., competition and intent).

Components, the Sum of the Parts is Greater

Historically, process and technology solutions were frequently viewed as one-offs left to astute and charismatic divisional heads. Technology investments, and the business lines / products they supported, were made against segmented silos of functionality and compartmentalized budgets. As the current decade draws to an undesirable conclusion, the idiosyncratic nature of these sunken ROI projections becomes all too apparent measured against new markets and upstart competitors.

In general, future technologies and co-dependent processes appear to be taking on increased importance outside of the once hallowed walls of IT – that is, “not invented here” personnel have been translated into “no longer work here.” Technology and the capital investments needed for their realization are being created in foreign cities with little geographical familiarity for domestic personnel.

Although, as the component technology pieces are being created elsewhere, the heralded death of internal IT (i.e., the “IT Killer”) by the Cloud, by SaaS, by virtualization, or even by outsourcers, are mere pipedreams.

To be sure, the IT roles of the next decade and dogmatic desires to “control from within” a corporate center are no longer a critical success factor. The roles of CIO’s and CTO’s will increasingly disappear – to be redefined in a new technology world ripe with continuous transformations and multi-faceted governance. With a historical FMG tenure of 5 years and an average salary exceeding $300K, IT leaders will have a lot to justify this next decade.

For internal IT, the ability to rapidly integrate and adapt externally developed and defined components will be greater than traditional technology provisioning. The sum of the parts is rapidly the greatest enabler for the next decade spurred by changing consumer behavior, fast cycle product demands, and competitive reactions requiring collection and cohesion of widely dispersed data sources.

Collection, It is No Longer Just About Money

Collection activities for bankers today have taken on a huge importance. Yet, collection today and tomorrow is frequently more about data than it is mere money. Not just data within a given set of delinquency or workout processes, but data that spans the over 60 distinct functional processes throughout the comprehensive mortgage cycles.

Data collection is just the first aspect of a new decade of new requirements for corporate governance and compliance. The ability to transcend the interlinked processes, both forward and backward, can no longer rely on any manual item, faxed document, or singular “swim lanes.” To achieve proper consolidation and cohesion of increasingly specialized data sources, collection must first accept the challenges of interconnectivity, while preparing for aggregation of compartmentalized data spread throughout siloed applications.

Or more simply, if garbage (inaccessible and non-searchable data sources) is allowed into the value chain of data, it pollutes the entire downstream series of demands needed for risk, decision making, and compliance.

I have to wonder, if we had electronically stored, catalogued, and managed the entire master sources of data for the millions of loans in distress during the last five, would the modifications, legal fees, and political backlash be this pronounced?

Consolidation, the Devil is in the Data

Data. Data. Data. Consequently, if data is everywhere and widely available, why is it that decisions are made that prove inadequate or let’s face it, are out-and-out wrong?

Some would argue that collection challenges are the root of evil when it comes to success driven by sound data (e.g., KPI’s) and decisioning analytics. However, FMG CEO’s ask an important question of why nearly $2 billion annually is spent on power for data center computer equipment? With a compounded yearly increase of data storage now, by some estimates, exceeding 50% annually, what should be contained or consolidated on this equipment that isn’t already there? Where’s the value?

Consolidation of data sources for future success resides with disciplines and technologies that are still not widely in use within the mortgage industry (e.g., master data management, data deduplication, aggregation, augmentation, scrubbing, federations, structured, non-structured, et al). Some of this is cost related and others are more about skill sets and perceived need by executives for investment or action.

Consolidation, within the success formula, is also about the growing third-party portals and data providers along the segmented mortgage processes – fraud, reporting, servicing, investments, hedge funds, FOREX, systems of record, and the list grows with each passing week, and sorry to say, new government program introduced (or withdrawn). Without the first three “C’s” internalized and properly framed, the last three variables in the success formula can lead to money traps and false security.

Cohesion, Leveraging more than IT

Cohesion in this context is defined as “the ability to positively relate various sources of information to each other.” To borrow a term from the pharmaceutical industry, it is about data efficacy. Moreover, driven by new markets and required insights, integrations of the past are not the integrations of the future. In fact, the ability to efficiently and accurately integrate growing and sometimes conflicting data has recently cost many good IT professionals their career and livelihood.

The new decade dawning is already being dominated by new, virtually provisioned infrastructures (e.g., IaaS) supporting fast-cycle business functionality– e.g., Amazon, Sales Force, Microsoft, and Google. As these initial “cloud” identified offerings evolve, their robustness and business criticality takes on new importance across the enterprise. And what do these new layers of infrastructure create spanning processes and business lines? Data. Data. Data.

Therefore, the cohesion of these growing sources increases in importance. The challenge of their integration is not merely an ETL (i.e., extraction, transformation, and load), but a core shift in competencies that was once viewed only from an internal IT need. As systems are provisioned within layers of cloud infrastructures (e.g., data, voice, processes), the skill sets of cohesion and the efficacy it demands are in short supply and represents a job growth area for every IT leader and astute business person.

Capability, Fenced by Risk and Regulation

If we thought the rules of operation were cumbersome and draconian in the past, we may be severely disappointed with the future. In various speeches and interviews, the Executive and Congressional offices are all positioning for changes. Politics and lobbying being what it is, the final regulations may be some time coming – but something will change, especially if this drags into the 2010 election year.

Therefore, as more and more capabilities are delivered via cloud technologies and outsourcing relationships (just look at the numbers, acquisitions, and press releases), organization capabilities will be fenced by how quick we can react to shortened regulation cycles and risk aversion advocates (e.g., Fed, regulators, public sentiments).

Capability moving forward will be still be about systems and technology – but the time needed and patience for “failures” will be drastically shortened. Tolerance to achieve meaningful capability success will be shortened not by mere history, but by decreased CAPEX budgets, time-to-market, consumer products and their profitability, and of course, regulatory compliance.

If we are indeed confronted with a jobless recovery (the “L” or “U” scenario), how much will budgets be increased for new functional capability? What happens if a “W,” or double bottoming, is experienced in 2010? Future success requires new capabilities, but the methods and techniques of defining, provisioning, and bringing on-line will test our operations and vendor partners alike.

Conclusion, Achieving Incremental Reality from Ambiguity

With five of the six “C’s” integrated into the algorithm for success, you might be tempted to think that 83% of the equation is a passing grade. Uh, no. This last variable has proven to be the most difficult to achieve with accuracy and consistency — as it is subject to internal influences and organizational biases of beliefs. The historic methods for conclusions were often more about art than science – hubris over content

Today and more importantly tomorrow, the art of the conclusion or decision is being hurriedly replaced with analytics. Objectivity based upon vetted facts, statistics, and the other five “C’s” is ruling the discussions in the boardrooms and with investors.

In fact, spending on business intelligence tools which support robust decision making continue to increase at double-digit growth rates – an aggregated market that exceeds $60 billion. All-in-one solution sets are being deployed along the entire success equation by industry leaders IBM, Oracle, InfoSys, and SAP.

Achieving “conclusivity” is also supported by a wide range of dashboard offerings (e.g., Visual Mining), analytical and industry specific KPI firms (e.g., Intelli-Mine, Inc.), and vertical benchmarking solutions (e.g., LPS).

Linked together, the six “C’s” are a powerful formula for the changing reality of a new and ambiguous decade. Also it should be noted that the conclusions desired within FMG will no longer be reached in domestic isolation. World governing bodies, global creditors, and wealth rebalancing all will bring a stark new set of consequences for success.

Did I forget to mention the seventh “C?”

* * * * * * * *

In conclusion, successes of tomorrow cannot be redressed on the methods of the past or the behaviors of a few. Continuous vigilance will be demanded to ensure any investment in infrastructure, the cloud, or business processes are exceeding expectations and measures. “Provision and forget” cannot be a path forward for lasting success.

As we move forward, one thing is very understandable – the methods used to measure results in a virtual, highly specialized FMG ecosystem will be distinctive and non-insular. The IT approach to provisioning, integration, and maintenance will also be different. Even the standards of interoperability and exchange will be uncommon – but likely converging.

S-U-C-C-E-S-S. No matter how it is defined, spelled, or framed, success must be generated from within. Are we really prepared across people, processes, technologies, and markets to orchestrate success in an uncertain decade?

In closing, as I get ready to attend my fifth MBA Annual show in San Diego next month, I sincerely wish everyone the best of success during this industry leading event. Make sure you say “howdy!” if you see me.

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Posted in Analytics, Architecture, Cloud Computing, Continuous Organizational Innovation, Dashboards, Data, Financial Services, Innovation, Markets, Orchestration, Outsourcing, Strategy | No Comments »

A Toxic Solution

Monday, March 9th, 2009

Using Crisis Innovation, Strategy and Technology for Tomorrow’s Challenges

By Mark P. Dangelo

www.Innovative-Relevance.com

J.P. Morgan once stated, “No problem can be solved until it is reduced to some simple form.  The changing of a vague difficulty into a specific, concrete form is a very essential element in thinking.”  As he also noted and practiced, sustainable change rarely happens during periods of economic comfort. 

So as markets, investors, politicians, and homeowners seek answers in a “simple form,” those practitioners within the discipline of crisis innovation are challenging, “Are we really asking the right questions for tomorrow’s problems in the face of trillions at risk?”  As others have noted since J.P. Morgan’s time, just because the answer is simple does not mean it addresses the core issues.

Whereas innovation within the business markets has become a cliché, crisis innovation deals with non-traditional approaches implicitly demanded during times of great stress and uncertainty.  Simply put, they question organizational “truths.”  As you can imagine, their positions, strategies, and expert opinions have not been popular – until recently.  The markets have ensured that crisis innovation is no longer esoteric or academic. 

Along these lines, during times of prosperity crisis innovators and their approaches appear detached from reality.  In business terms, they are “outdistancing” their markets and buyers.  Their “radical,” complex approaches now are being reexamined under the growing weight of huge, multi-year industry and individual failures. 

In an effort to stitch together new, innovative strategies, I asked retired Colonel John Warden, acclaimed master planner of Desert Storm and now CEO of Venturist, his insights on financial markets, risks, success, and strategy.  “There are many factors which contribute to the real success or failure of any political, military, business, or personal enterprise.  If the strategy is not good enough, the intelligence of the participants, the brilliance of the tools or weapons employed, and the prowess of execution will be to no avail for it is strategy that integrates all three to enable success.  Without strategy, an organization is dependent on luck or genius–both of which are statistically unlikely and utterly undependable to be available when needed.”

As we will discuss later in this article, 21st Century crisis innovators are looking beyond archaic limitations today – in particular, innovators are seeking new methods to repurpose toxic assets, while creating a new securitization paradigm.  But first, perhaps crisis innovators’ unorthodox questions make more sense during times of calamity?  Foundationally, do organizations have the crisis leadership skills and insights necessary to deal with a 100-year event?

A Legacy of Distress

Where we often hear about the dire state of the domestic economy, the housing crisis, and the consumer sentiments, let’s set a holistic baseline on why this legacy of distress has provided a mandate for crisis innovators and the strategic and tactical solution sets that must be implemented. 

Since the early 1990’s innovation for much of the financial and mortgage markets has been about gaining efficiencies.  Striving for lower costs and greater throughput, the value chain of players (i.e., originators, servicers, aggregators, outsourcers, investors, and Wall Street firms) concentrated on lending, registration, standards, and fraud prevention actions.  The process chains were a one-way pipeline that served the market needs during times of unprecedented euphoria and easy credit.  Some argue that was financial innovation.  Others believe that efficiency gains were merely incremental process improvement.  Still more now believe it was an “innovative” recipe for failure and crime.

This legacy debate aside, the industry for years was concentrated on delivering solutions primarily around a common question or theme, “how can we improve the volume of lending to consumers to gain greater market breadth, wallet share, and profits?”  In July 2007, just before the MBS / CMBS markets catastrophically fractured, a boasting of these “innovative” ideals were echoed by former CitiGroup CEO Chuck Prince – “we’re still dancing.”  20 months later, a U.S. Federal government injection of a trillion dollars, $2 trillion yet to be recognized and written down, loan programs and collateral exceeding $3 trillion, and a global wealth loss exceeding $40 trillion, those “innovative” financial products now resemble a terminal cancer. 

Moreover, private securitization has virtually halted, the GSE’s are under conservatorship and demanding billions to stay afloat, 10 million homes are at risk of delinquency, millions more are in trouble, and hundreds of thousands are in active foreclosure.  Consumer debt now exceeds $13 trillion or roughly the equivalent of the national U.S. GDP – a situation that last occurred during the Great Depression.  Now let’s add insult to injury.  Additional data from the government projects that if unemployment reaches 8% by mid 2009 coupled with declining home valuations, up to 35% of all homeowner’s may possess negative home equity (aka “upside down” loans).  As of now, the national federal loan rescue plan looks like only a down payment on a broad and sustained rebalancing.

If there was a time for crisis innovation and new innovative leadership, the time would be now.  So what can be done?  What approaches should be undertaken?  Are there any strategies or technology solutions that provide better efficacy as we rebuild a financial structure and stability from the ashes?

“To achieve system change, it is necessary to change a number of centers of gravity as operations against just one or two will rarely be effective,” states John Warden.  “Contrary to popular wisdom, time is always the enemy of enterprise.  It may take a long time to accomplish something but the longer the time from inception to completion, the lower the probability of success.  For a high probability of success, parallel, time-compressed operations against multiple system centers of gravity are a necessity.  As operations move from parallel to serial, the probabilities of success falls rapidly while the cost of operations mounts dramatically.” 

Hitting the Reset Button

“One might ask, ‘How can highly paid business and government leaders with blue-chip business degrees create such a mess,’” said Michael Brooks, President of Checkmate Advisors and acclaimed business analytics and causality expert.  “The more important question is, ‘Can we trust that they have what it takes to create the mess that they’ve made?’”

Crisis innovators and their pragmatic methods look beyond historical limitations and thought processes.  Nearly 100 years ago J.P. Morgan said it best, “I don’t want a lawyer to tell me what I cannot do. I hire him to tell how to do what I want to do.”  In fact, as in most cases today, taking the serious legal drawbacks away from potential discussions there are historic paradigm leaps that may be achieved. 

We all know there are trillions in “toxic assets” still hidden in the balance sheets of many, many financial and non-financial institutions.  We also know that these assets are not only thinly traded, but often lack robust documentation.  Representing an “out-of-the-box” idea, a 21st century crisis innovator was seeking a new solution to the burgeoning toxic debt hangover enveloping global markets.  Arguably “hitting the reset button” for crisis innovation sometimes leads to reassembling the best of ideas, organizations, and individuals in new and unique ways. 

Ignoring “conventional” wisdom and domestic industry editors who ridiculed European debt instruments, he proposed a solution set using July 2008 Treasury and FDIC sanctioned debt into a value framework for the repurposing of existing assets.  The end solutions, trustees, and governance structures weren’t common practice, but that didn’t mean it couldn’t gain robust domestic support in the future.

Thinking further, the 21st century innovator began aligning the multitude of needs and values of the non-for-profits, thinly traded or illiquid MBS markets, lenders, servicers, and investors.  He openly proposed combining old non-performing tranches with modified and new loans, thereby properly assessing the risks, while instituting a “cover pool” for future non-performance.  Bottom line, he proposed using the best value from each process participant and creating an acknowledged set of new asset classes that is higher rated (as compared to the old ones) and potentially has implicit government downside guarantees. 

Taxpayers (aka Treasury and the Fed) would provide downside support in a similar fashion already developed for several banks.  Private investors would benefit from upside and counterparty risk transparency along with instrument security.  Lenders would be able to reinstate these assets into performing tiers, thereby freeing funds and paying back the government.  Technologist and vendors would provide the “glue,” analytics, and dashboards needed for delivery.  Securitization markets would again be more than GSE based.  Private money would prime the pump of investment – controlled investment.

Like J.P. Morgan, this 21st Century crisis manager sought the simpler solution from those options that were already available.  He thought, unlike many existing managers, “Since the rules of engagement no longer apply, why can’t I reassemble the best of the legacy pieces into something new?”  He further mused, “If the government, associations, and lenders are seeking changes, why not address market, public, and regulatory heartburn with a positive twist on a known approach that already accounts for $3 trillion in worldwide debt?”

The above example is currently just that – an idea that has yet to gain acceptance as it runs counter to existing dogma and standing regulations.  However, with vast changes are already in play, why not use a crisis innovation to achieve a new positive reality?  If the worlds’ governments are rewriting the rules in an effort to remake the financial markets, why can’t a “simpler” solution be part of the reset efforts?

Mr. Warden concludes his belief on why crisis innovation is important during period of survival and great upheaval.  “Every strategic endeavor will either fail in some manner, or less likely, succeed.  In either case, survival and prosperity demand exiting the current strategy.  In the case of success, it means moving on to a new endeavor that is appropriate for the next time increment whereas in the more likely event of failure, it means abandoning a strategy that is not working while there are still resources available to try something else.  In many ways, end games and exiting are the most difficult parts of strategy; people don’t like to change and they don’t like to admit error so their tendency is to stick with something long past the point where doing so makes any sense at all.” 

* * * * * * * * *

For those who know my strategy and work, my ideals cannot be confused with those who represent the current “establishments.”  My approaches seldom reflect conventional thinking or shackles of the “ordained” pundits.  Unlike many within and around the industry, I hope I have demonstrated that crisis innovators don’t get their cues from talk radio shows or the limitations within struggling vendors and enterprises.  You see, it is not singularly about principles, it is about sustainable survival.  The slogans, analogies, methods, and the dogma that were promoted are dead or dying.  We, collectively as a series of interrelated disciplines and experts, need to make sure that we are not part of the decay littering the landscape. 

It should be clearly understood for strategy, process, and technology that crisis innovation is very uncomfortable for established organizations secure in “the way it has always been done.”  However, survival and prosperity no longer reside in the minds and actions of a privilege few.  The dawn of the crisis innovator is upon the worldwide economies and underpinned technology infrastructures.  How will you innovate, and who, by name, are your crisis innovators within and outside of your organization?

Posted in Analytics, Business Model, Continuous Organizational Innovation, Covered Bonds, Financial Instruments, Financial Services, Industry, Innovation, Markets, Orchestration, Strategy, U.S. Treaury | No Comments »

Should Bankers go to Jail?

Tuesday, February 3rd, 2009

By Mark P. Dangelo

www.Innovative-Relevance.com  

We heralded them as masters of their environment.  They were the entitled ones, the ones that lived large, while being touted by pundits and publications as the beacons of capitalism.  They made poor decisions that fundamentally bankrupt their organizations.  They spent lavishly on themselves without regret.  They were issuing huge bonuses on one hand as they received government handouts with the other.  They flew around the country on corporate jets as they lived the lives of movie stars.  Now they complain that they are unfairly being singled out, as criticism of their actions “hurts Wall Street performance?”  Hollywood couldn’t have written a better script. 

Yet, it was this feeling of self importance that bankrupted not only their careers, but their organizations.  As they concentrated on payouts and perks, the rest of the world permanently changed driven by a new capital realizations and a lack of continuous innovation (e.g., people, processes, technologies, and operations, and risks).  Perhaps Swedish intervention model was correct, fire the executive teams and start anew? 

I am also dismayed at the rhetoric being played up on both sides of the political isle regarding how to move forward.  It seems that most politicians are only interested in their ideological position, and not what makes sense for a country which is slowing bleeding to death as these elected Congressional officials fight for so-called principles.  It would be akin to a doctor adhering to a medical procedure even though it directly caused the patient to die.  Everyone loses all in the name of “principles” and camera sound bites.

Next week brings in the “big bang” financial turnaround sponsored by the government.  Will it help?  Let’s hope so.  Will it be a cure, not even close! 

Just because there is no silver bullet or one-off panacea does not mean inaction is correct — quite the contrary.  One action alone cannot fix a systemic failure of structure, regulation, oversight, consumer debt beliefs, and continuous innovation.  Many iterative and interrelated “baby steps” will be required.

As for the bankers and executive teams, perhaps it is time to take a page from the Illinois government when they permanently banned their former governor from ever holding a future office.  Why can we not ban, as my teenagers would say, the former “players” from any future FSI roles?  It seems only fair when you consider that taxpayers are now paying for their mistakes, salaries, bonuses, jets, and God knows what else for decades to come?

So that bankers don’t feel I’m picking on them, I can easily ask the same question about auditors, outsourcers, and other leaders who have deliberately profited from their own self worth.

 

Posted in Analytics, Continuous Organizational Innovation, Financial Services, Markets, Strategy | No Comments »

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