Archive for the ‘Process’ 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.

Analytics – The Great Equalizer or Marketing Hype?

Monday, June 22nd, 2009

By Mark P. Dangelo

www.Innovative-Relevance.com

We seemingly measure everything. We define control limits. We assess correlations and assign statistical significance. We examine process cycle times, and we do it using robust methods (e.g., Six Sigma, scorecards, dashboards, EPM), investment frameworks and measurements (e.g., budgets, forecasting, IRR, NPV), and a host of internal and industry KPI’s (key performance indicators). We pay for third-party data sources that track mortgage products, consumers, securities, and other benchmarks similar to the sports announcers who flaunt encyclopedic baseball statistics.

Our pervasive technological platforms are able to create and track infinitesimal quantitative artifacts within broad categories including; borrower contact, document management, workflows, workouts, and default management demands. During this time of crisis, we are justifiably obsessing over performance, and our ability to do it better than our competitor. It also appears that our market providers never fail to remind us of this age-old competitive axiom at every event – all underpinned by a decade of very significant corporate spending on BI (business intelligence), reporting, and aggregation toolsets.

Most recently, objective analytical assessments have been brought to center stage by an angry public, opportunistic politicians, and “late-to-the-party” regulators (e.g., Stress Testing). Analytics represent a horizontal collection framework for understanding our vertical “As-Is” states and iterating ourselves to the “To-Be” operating and strategic goals – that is determining not just measurements for the sake of siloed measuring, but interconnected department causalities (e.g., EPM).

Yet, what call to action is provided within and across these hundreds of data points routinely gathered and aggregated? Who has primary or implication accountability? Who is directly and indirectly responsible for what is measured? What does it all mean within an industry or organization struggling to survive? Who within our operations are trained and educated to unlock the hidden “secrets,” while understanding the “checks and balances” within the frameworks?

In reality, the volume of disconnected atomic-level analytics gathered within some organizations exceeds 8,000 distinct metrics. With a new obsession for measurements not seen since Edward Deming’s statistical control disciplines were finally accepted in the 1990’s, analytics in all its emerging forms are fast becoming a “great reawakening” for FMG (finance and mortgage group) decision makers as they struggle to link outcomes, accountabilities, and responsibilities.

By Design, a Confusion of Subtleties?

The next decade of FMG leaders will be enthralled with the definition and usage of analytics. Why would they not? Every week, new press releases tout new-fangled features and acronyms all in an effort to gain “enterprise performance,” “top investment,” “better decision making,” and of course, “electronic, resilient, and reliable data sources.” All laudable goals on the surface albeit somewhat cliché and increasingly ubiquitous.

However, the extensive public relations for analytics has a potential to derail its lasting benefits, as vendors advertise solutions and product repositioning over the need of changing industry usefulness. A current Twitter search finds dozens of analytics, BI, data mining, and dashboard vendors all trying to gain 140 character “leadership” in a rapidly growing seller marketplace.

Whereas, tools and their visually predictive capabilities are wonderful additions to an arsenal of corporate software, there are some prerequisites which must be addressed before those first RFI’s hit the street. To properly frame the challenges and confusions within the markets, an informal outreach to decision makers produced the following snappish reactions:

  • How does the inclusion of analytical frameworks and measures improve the performance of high-value / high return processes and those personnel within these operations? What about delegated decision making and due diligence or discovery? Can it help with the hidden risks and changing credit skills that demand knowledge – not just tools?
  • If our organization utilizes innumerable spreadsheets for decision making, does the adoption and adaptation of an enterprise solution require a cultural shift (e.g., the prohibition of “dueling” spreadsheets and / or localized data marts)?
  • If we are already using scorecards, BI tools, dashboards, reporting, mining tools, databases, and content consultants, how does the adoption of a “new analytical framework” make this any simpler – or cost effective? Is this yet another net add to the base budget?
  • How can a strategy of programs and underlying project actions be really tied to results and profits driven by the aggregation of “new fangled” analytics? What is the measurable bottom line impact?
  • How can we permanently change the underlying processes using adaptable analytical solutions? Don’t we first have to reengineer our enterprise using PPT (people, process, and technology) in that order?
  • What keeps me awake are our disparate solutions, the ability to state with 100% confidence the integrity of the results, the STP of informational sources, various “systems of record,” regulatory confidence, and the auditability of ever changing analytical aggregating teams. How is that for a start? Will another layer really help me gain the confidence and overcome the internal political challenges?
  • Is there really anyone who has a better answer or real world centers of excellence that help deal with my problems today – loss mitigation, REO, foreclosures, workouts, government oversight, and more as I try to make a profit? Will analytics really help? How and when?

Indeed the aforementioned, paraphrased reservations may be daunting for those who are passionate about the future of analytics. Regarding the decision makers, they have historically heard business and technological boasts over the years, and for now, analytics merely represent a new chapter in a familiar book. Whereas, the on-going 26 month global financial crisis has left many of corporate competitors in declining decay, there are FMG visionaries who truly believe analytics may provide a conduit for rapid redefinition or elimination of antiquated SOP’s. They are thinking big – but starting small.

Iterate, While You Orchestrate

As a senior finance person recently stated, “I don’t have time to build an ’end-all’ analytical roadmap. We have operational actions that are far more important to our financial health and delivery performance. We can’t spend months building a comprehensive and detailed design or architecture that is supplanted within the next 45 days.”

It should be noted that the finance person was very positive on the use of analytics to help assess and improve their current priorities – customer retention, product satisfaction, M&A post-deal integration, BPO / KPO enterprise initiatives, and yes, financial reporting and soundness. It is just that the tolerance for another intellectually stimulating plan was beyond their ability to support its traditional academic creation (potentially resulting in large binders of expensive approaches), if it could offer no pragmatic and direct assistance for today’s complex realities.

As a result, an oxymoronic situation is created where you have to measure to improve, but you don’t have time to overtly determine what to measure. So frequently organizations measure everything and trust the answer will fall out from the atomic elements. Sound familiar? Will consistent organizational results be established with disjointed approaches and products?

The solution? The answer fundamentally resides with the repurposing of existing business planning methods, leveraging of predefined industry analytical profiles, and the detailed techniques contained within agile software frameworks – aka leverage what works and augment. The keystone of success is how all the segments are assembled to meet the needs of the organization, and the requirements dictated to any analytical roadmap developed. Like the conductor of an orchestra, it will be up to the organization to determine the “who, why, where, what, and how.”

This new leader, a Chief Analytics Officer (CAO), will have to balance theory and vendor promises with their organizations’ (i.e., orchestra) ability to produce measurement results. Simply stated, if the orchestra cannot do scales, then it will be unable to perform Beethoven’s Symphony No. 5 with any skill regardless of how new and shinny their instruments may be.

The CAO embodies a new role within the enterprise transcending the traditional IT functions, while representing an unwavering responsibility to meet tactical and strategic operational mandates. As a conductor, the CAO role involves strategy, financial understanding, market and competitive prowess, and technical abilities to manage the often competing internal groups and external vendors.

More will be written about the CAO in future articles. But rest assured that a new leadership role and “musical score” is being carved out of the traditional FMG corporate granite. It is a role that will have a lasting and rising impact on the industry for the next decade. The CAO is the only one that can bring trust to the enterprise and validation to a growing set of constituencies all seeking to influence business models and industry behaviors. The industry skepticism will be driven out with success and a cost-effective approach that meets the constantly changing enterprise needs.

2009, the Year of the Micro Business

Thursday, January 15th, 2009

By Mark P. Dangelo

www.Innovative-Relevance.com  

Just look around.  The stats and stark realities are everywhere – approximately 3 million jobs vanish, up to $40 trillion of global wealth lost, thousands of billions in pledged worldwide government spending, and a pessimism that is as vicious and perverse as it is severe. 

Factor in the $50 to $75 billion in global fraud that is being revealed coupled with public handouts to “bailout” poor business practices, and there is little likelihood that “big business” will be the engines needed to drive growth in 2009-2010.  More than likely, these now quasi-government institutions will be substantial sources of job losses during the next 24 months.

As a substitute, 2009 -2010 will witness the meteoric rise of the micro-business linked under integrated banners to meet changing world and consumer needs.  There importance grows from the perishable foundations of monolithic, ineffective business operations that have decayed beyond their ability to repair themselves, and raise huge sums of capital needed for innovation supporting new consumer compositions. 

Commonly linked micro businesses also can survive the global protectionism that will be forthcoming as trade agreements are revised and nationalistic demands and tariffs are expanded (e.g., India, Russia, EU, U.S., South America, et al).  Moreover, huge Keynesian promotions will seek to benefit local, nimble domestic institutions and “disadvantage” those multi-nationals that call a foreign exchange home. 

The dawn of the fifth iteration of globalization will yield a new age of micro businesses that are linked underneath a common operating umbrella.  Analogous to what Amazon and eBay did for the retail industries over a decade ago, the winners of 2009 and beyond will be those enterprises that band nimbly together using an orchestrated, collaborative approach to solve today’s challenges. 

The benefits of integration with a micro business suite are growing as 2009 kicks off.  With widespread unemployment and fear gripping executive offices (i.e., deer in the headlights), micro-businesses offer great advantages for existing operations.  How?

·         The once sacrosanct core structures and margins may be considerably improved using micro-businesses as compared to the comprehensive costs of internal hiring, retaining, or firing of FTE’s. 

·         There is a greater flexibility with client pursuits and staffing outcomes to reach operational goals, initiatives, or consumers.

·         Faster market response time and integration of highly specialized skills (e.g., risk management).

·         Improved accountability for the “micro team” given their specialized composition and defined goals — much like a surgical operation.

·         When the goals or needs change, the organizational burden is minimized – e.g., specialized accounting analysis for FDIC regulations on using TARP funds (e.g., sources, uses, analytics).

·         If the endeavors / pilots work out, there is an ability to hire discrete employees or purchase the micro business for longer term expansion.

·         It increases market presence for a minimal risk – thinking outside of the box while allowing relevant innovation into client and consumer interactions (i.e., think holistically, act discretely).

·         Micro partnerships represent the rehabilitation of markets and offerings for established organizations. 

·         The client offerings today and tomorrow are about interconnectivity of ideas needed to address and solve specific and immediate challenges – not just strategy or outsourcing.

·         Just as micro financing has spurred great success, micro-business integration will also be favored in the new operating climates both domestically and globally.  It has become politically, economically, and ethically correct.

There are many additional discrete benefits that can be added and niches that could be highlighted.  We’ll leave those for another day and your specific circumstance.  However, don’t confuse loosely-coupled micro-business integration with traditional partnerships, collaboration, or joint ventures.  They are light years apart.  A real world model of micro-business integration success can be found with established, large (and profitable) Asian orchestrators like Hong Kong based Li & Fung.  It is apparent that the East has much to teach the West.

It should be noted that the use of micro-business integration involves an experimentation paradox.  What works and who works well together won’t be fully known until the integration efforts are underway.  Options available are frequently never known unless an open and candid dialogue is undertaken with various micro-businesses and the client / consumer prospects themselves.  A risk many domestic management teams do not comprehend – hence that is why they are inherently disadvantaged especially during a deep, long recession.

What is certain as pundits and vendors discuss “leadership” and “innovation” in the media, is that the new rules of engagement will be written by others – the micro-operators banded together for a common cause.  The old discussions just don’t have much efficacy anymore.  The year or perhaps decade of the micro-business has begun.