Magazine article Mortgage Banking

Outsourcing: Art or Science?

Magazine article Mortgage Banking

Outsourcing: Art or Science?

Article excerpt

You've just read the recommendations of the outsourcing committee and you are wondering, "Are outsourcing and sanity mutually exclusive?" From those who have changed outsourcing from an art to a science, varying observations may shed light on the subject.

The groundwork for mortgage banking outsourcing was laid in the '70s with the availability of data processing via service bureaus and payment processing via lockbox. The pace slowed substantially until the late '80s when advances were made in real estate owned (REO), insurance and tax tracking and some related functions. Outsourcing, like Total Quality Management (TQM) or Management by Objectives (MBO), was another management foray set out to improve quality and service, with the definition of "success" difficult to assign.

By the early '90s, some mortgage entities began looking at outsourcing as a strategic tool for business process redesign, adding dimension to the finances of outsourcing, performance metrics and control -- and challenges for the suppliers. Wholesale outsourcing of insurance and tax departments occurred, followed by foreclosure, bankruptcy and loss mitigation functions. The pace only quickened. Success became measurable in dollars, service, and value-added -- for both the outsourcer and the supplier. What changed?

Many first entered the outsourcing cycle by attempting to differentiate whether the process under consideration was a strategic advantage or a commodity that did not differentiate them from the competition. Conceptually, that makes sense. But for an industry known for rapid change and unpredictable turns, your objective should be to maximize economic and operational flexibility and control in order to pursue different options as you learn more or as the business changes. So the first change was a clarification of objectives.

Others entered the cycle under duress, with a broken or outdated process desperately in need of triage. They quickly learned a hard lesson: Outsourcing problems can cost a fortune. Success is more likely when you achieve stability before entering the outsourcing process. Stability also provides a base set o metrics for further evaluation, a discipline that will benefit all departments.

Typically, your cranky processes are the ones most likely to benefit from something new and frequently are identified as processes that could benefit from someone else's investment in capital equipment, innovation and training. When evaluated and benchmarked against competitive and suppliers' metrics, several attributes of your process are clarified, including risk, economics, service, training and culture.

If you're not convinced that outsourcing the process is strategic, go back to your business plan and review it for short-term, intermediate and long-term change objectives. For successful outsourcing ventures, an outsourcing evaluation and a business plan dovetail not only in objectives but also in their timing and priorities as well.

With a tentative outsourcing decision made, a convergence of activities occurs: Priorities are set, change actions are identified, management buy-in is sought, and a new infrastructure for outsourcing is designed. With contracts completed and implementation under way, the most difficult part of outsourcing begins: relationship management. More a strategic alliance, the balancing of technical needs, complex relationships and external and internal factors while moving ahead in a competitive industry becomes the true measure of success.

Although the cycle is well documented in various forms and formats, it is the paradigm shift -- contract management, new relationship complexities and your supplier is now the expert -- that is hard to capture on paper. Recognizing that outsourcing is a partnership, where each entity has a stake in the success of the relationship, is a responsible approach. It's the management of the "business onus" that can make you crazy. …

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