The road of IT investments is an endless journey, as disruptive innovation displaces older technologies over time. It’s a necessary evil to perpetuate innovation and meet market demands, but while the road is paved with real paper dollars on new investments, most development efforts fall short of their desired goals.
It’s a problem that transcends mortgage finance into all sectors of U.S. IT projects. According to research firm Gartner, 75% of all IT projects are considered failures by those responsible for initiating them. In a survey of IT projects by the Standish Group offers similar analysis from a recent survey:
—31% of IT projects are cancelled outright
—53% of projects were challenged
—61% contained agreed upon functionality
—16% of all projects were delivered on time and to budget
The problems that make successful IT projects difficult include people-related issues like unsupportive management or inexperienced project managers and inadequate tools to document business requirements or assign and prioritize tasks.
IT is truly a specialization of skills and experience and while lenders and servicers have core competencies in providing mortgage origination and servicing, developing technology products isn’t necessarily a strength. Firms should be cautious in overinvesting in a “side business,” where it’s highly likely they will be under-equipped to roll out speedy responses to the industry’s fast-changing needs—especially in this highly regulated environment.
There are many examples of banks that have tried and because of the amount of investment, spun-off the product to try and recoup some of their investment—companies like Fleet Bank (Celeris), Monument Mortgage (Finet), Washington Mutual (Optis) and Bank of America (Framework). And with the exception of B of A, all are no longer in business.
Most of these proprietary bank systems were hard-coded systems designed by hardheaded thinking. A popular catchphrase of these software companies is that they offered “mortgage systems designed by mortgage bankers.” That concept makes me chuckle, because while they do no doubt understand the process, they most likely don’t have the technology expertise to build a successful or scalable IT product.
An example of this was at the most recent MBA Technology Conference where two former mortgage bankers introduced a mobile app that “replicates the 1003 on a tablet!” The problem with this is that the 1003 was always a poorly designed form in the paper world, so to replicate it in the digital world and market it as “revolutionary” is a classic example of taking a new technology and replicating the same old flawed process.
Lenders and servicers that begin to feel it’s more efficient and expedient to develop their own IT projects should try and resist the urge and do a sincere search to seek out a true IT partner to help them.
Resources are critical and lenders and servicers must have the right people for the job. The biggest reason for the lack of outcome satisfaction is there really are few people that have the width and breadth of business knowledge combined with key technology sense to take a fresh approach to truly change (better automate) antiquated business processes.
Experience also matters. Most people only know what they know (or conversely, they don’t know what they don’t know). This tunnel vision can block their ability to know how to fix the problem. For example, if a very experienced operations person is put in charge of an IT project, it’s likely that there will only be incremental results in automating the current process.
I call this “paving the cow path.” The operations person may be an expert on the current process, having advanced in their role through years of experience, but because of it, but is probably the last person to put in charge of changing IT because it’s difficult to see the forest for the trees.
This issue of skill set is what differentiates project implementers and innovators. Most people assigned to a project are “doers,” not process change agents. Ever since business school we have been taught that the “client is always right,” so it’s hard to tell a lender that their process is “flawed.” But if the clients were always right, why would they look to us for help?
The most successful IT projects also benefit from innovative, rather than traditional, ways of thinking about a challenge. Most operations folks in the mortgage industry have been in their roles for a large part of their career and over time, they have most likely solved flawed or inefficient processes by adapting work-arounds, rather than innovating.
Innovating is more difficult and uncomfortable because it introduces radical change, not to mention presents ego risk, since it admits there’s a problem that a firm is not currently equipped to address. But innovation also provides the best opportunity for improving processes and ensuring that operations perform at their optimal best.
Clearly, not just any vendor will do. A partner can’t just be reactionary, helping put out fires, but should rather serve as a proactive force that’s willing and able to help lenders and services look out in the future to guide them where they really want to go, while helping avoid some of the costly potholes and dead-ends that others have experienced.
