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Steal this idea.

At American Residential Mortgage Corporation, La Jolla, California, the annual occasion recognizing top performers in the company is a time of celebration. The top 20 percent of the company's loan officers named to the President's Club gather with their branch managers, operating staff and senior executives to celebrate the past year's sales achievements.

Typically, there are lots of high-spirited parties, dinners and golf mixed with business reviews and speeches exhorting this army of super salespeople to climb to even greater heights.

But this past year, the President's Club was different. It became not merely a time of celebration but a time of focused introspection on what it was that enabled these superachievers to record superior performances. And the reason for the shift in emphasis wasn't due to the fact the company was going public, or the extraordinary good spirits engendered by the company's best year on record, or the late-night kerioke party where senior management sang to American Residential employees at a local resort club. The most unusual and inspiring moments during three days of meetings were created by American Residential's best and brightest performers who had been asked to share some of the secrets of their success.

By putting the spotlight on the methods used by top achievers inside the company, American Residential was taking a critically important management step. For the first time, in a systematic way, the company began leveraging a hidden asset - the data base of "best practices" or highly effective operating techniques that enable the companys best performers to produce at far higher levels than 80 percent of their peers. During the final day of the President's Club retreat, the company focused on the best practices of its best performers - its most productive and its most innovative loan officers, dosers, processors and branch managers.

What is benchmarking?

If we lived in a world where common sense prevailed, the tool of best-practices benchmarking would seem prosaic. It is quite simply the process of searching for best practices that lead to superior performance. The word benchmarking has its linguistic and metaphorical roots in the surveyor's term. For surveyors, the practice of benchmarking referred to taking your bearings by sighting another geographic reference point. Building on that concept, the practice of benchmarking, as it's used in modern management, leads to improved performance by comparing one's performance to that of other high performers.

Much has been written recently about using the tool of benchmarking to seek best-in-class or best-in-world performers to serve as models for upgrading corporate performance. Nevertheless, much untapped gold, in terms of superior performance technique, lies undiscovered within individual companies and within the mortgage banking industry.

The search for excellent operating practices to benefit your company need not be a quest for the Holy Grail, leading to such distant places as Japan, Germany or another coast. While the search for best practices often leads outside your company or industry, it also can produce significant findings and benefits by identifying highly successful operating practices within your company (see Figure 1).

Using a seven-level model to serve as a performance hierarchy against which to measure its performance, American Residential began its search for the best within its own organization (see Figure 2).

In every mortgage bank, there exists this hidden asset of best-practices experience. Frequently, it is of extraordinary breadth, depth and value. Yet, in many mortgage banks - arguably in most American organizations - this data base of experience is often ignored, seldom understood and usually not fully valued. This experiential data base resides in the operating habits of the high performers in any corporation: those that outpace the other 80 percent in leadership, productivity, sales and quality.

The approach embraced at American Residential is not to lionize this 20 percent - but to learn from them and disseminate that knowledge to all in the company.

At American Residential, total quality management (TQM) is becoming a key part of the organization's strategy, which is based on four cornerstone concepts:

* growth through servicing and through originations;

* a balanced approach to developing different complementary businesses;

* a conservative long-term view toward organizational growth; and

* total dedication to quality. Standard TQM concepts of customer satisfaction, continuous improvement, employee involvement and quality control are central to American Residential's approach to total quality excellence - but so is its focus on identifying, understanding, articulating and deploying the best practices of its best performers.

Why is this so important? In today's increasingly competitive and fast-moving markets, one of senior management's primary challenges is to create a fast-moving organization that can react quickly and remain agile and lean throughout sudden market swings and changing economic conditions. It's the "fast learning organization" that institutionalizes the capacity for rapid change, constant improvement and creative evolution.

In its many different guises, benchmarking or the search for best practices - both inside and outside one's own company - is a powerful tool for creating an organization in which all employees - from loan officers, underwriters and processors to senior executives, support personnel and servicing staff - accelerate the constant improvement process by borrowing or creatively swiping good ideas from other high performers.

This strategy is absolutely critical for American Residential, based in La Jolla, California, with its 49 lending offices in 17 states. The company is ranked among the top nine independent mortgage banking institutions in the country, according to rankings produced by Inside Mortgage Finance for all of 1991 and for the six months ending June 1992. For the twelve months ending September 1992 and September 1991, respectively, the company originated mort- gage loans with an aggregate principal balance of $4.6 billion and $2.7 billion, a 70.4 percent increase.

American Residential underwent management-led buyout in 1990 an then, during this past August, successfully completed an initial public offering of stock. With an equity infusion of $37 million and a warehouse line o $520 million from 12 major banks, the company is well positioned to take advantage of market opportunities by rapidly expanding loan production and its mortgage servicing portfolio.

TQM dividends

Already the company's TQM initiative has started to pay dividends. It has helped American Residential effectively manage the onslaught of refinancing business without significant staff expansion. To give some idea of how staffing increases have been minimal compared with the influx in volume during the refi boom, one only need quickly review some relevant statistics. At midyear 1991 total staffing at the mortgage company was at 914, by midyear 1992 it had risen to 1,105 - an increase of roughly 21 percent. But the productivity numbers dwarf the boosted staffing numbers - particularly on the production side, where the brunt of the refi boom hit hardest. As of September 30,1991, the number of loans in the pipeline per branch staff stood at 16, but as of September 30, 1992, the number had soared by 94 percent, to 31.

Other productivity numbers that endorse he gains that the new TQM initiative has brought to the company reflect better performance per employee on the servicing side, as well. As of December 31, 1991, the number of loan serviced per servicing employee was a 618; by September 30, 1992, that ha risen to 786-an increase of 27 percent Another sign of the productivity gain posted at the company in the time since the best practices and benchmarking concepts were introduced comes fro looking at the number of loans produced per origination center. That number stood at $83 million in 1991 and rose by 35 percent to an annualize figure of $112 million for 1992.

Dedication to the TQM philosophy and to leveraging the best management practices will remain a critical operating imperative if the company is to maintain its record growth and expansion without sacrificing its tradition of quality lending. In 1991, shortly after the management buyout, for instance, American Residential's 3.2 percent loan delinquency rate covering 30-90-day past-due loans was nearly 50 percent below the national delinquency rate of 6.05 percent for the industry in 1991, as shown in the National Deliquency Survey produced by the Mortgage Bankers Association of America's economics department.

The working philosophy at American Residential is that valuable lessons are not always learned only within your own office or your own processing team. It often helps to look to others for different perspectives. That's why the search for best practices - inside and outside one's organization - is a fundamental part of the TQM process.

After internal team-based improvement efforts get under way, fast-learning individuals and teams inevitably begin to take the search outside to other branches, companies and industries, seeking the best practices in functional areas from which they might learn and accelerate their own performance improvements. The goal of all quality and benchmarking initiatives is the same: to target and achieve total performance excellence. That means to continuously improve sales, profits, cost management customer satisfaction, employee satisfaction and all other measures of financial and nonfinancial success.

Focusing on top performers

While benchmarking can involve the search for best practices outside one's own company and industry, it also relates very importantly to understanding one's own best performers. Mortgage banking institutions are excellent candidates to apply benchmarking techniques, as are many other multisite financial service companies. Variation among branches, markets, teams and individuals is a part of the common landscape. Too often, though, this variation among performers is accepted as natural and unquestioned.

In "good" organizations, those that do not summarily dismiss low performers, these modest performers are counseled and provided resources to try to help them solve their problems and meet performance expectations. But while the underachievers get this extra measure of help, too often, in many good" and "bad" companies, the high performers are ignored. But they are the ones who always meet goals, champion new initiatives and search continuously to improve.

If your organization is typical of many American corporations, it probably applauds your best performers at an annual ceremony - and then it ignores them for the rest of the year, focusing time and attention instead on the low performers. An equally interesting - arguably far more engaging question - than "What are all our low performers doing wrong?" is the question: "What are all our best performers doing right?" After taking into account market differences, one has to wonder how can the best performers produce so much more than their peers? What highly effective approaches have they quietly developed for achieving their extraordinary levels of accomplishment?

Such people-based trade secrets can be as vital to a service organization as the closely guarded formula for concocting Coca-Cola. But the secret to the success of your own high performers can and should be freely shared and deployed within the entire organization.

This simple but powerful approach to continuous improvement and performance excellence focuses on narrowing the variation in performance levels by leveraging the learning of performers at the top. This contrasts with the typical approach of just focusing on how to improve or reform the performers at the bottom. Such an approach is well suited for marketing-driven organizations, where sales-oriented individuals are quick to pick up on good ideas that will help them improve their personal production but are sometimes slow or resistant to highly structured, variation-reducing improvement approaches, such as statistical process control, that are often associated with the quality control efforts of many fine manufacturing companies.

Since its inception, American Residential has always tried - at least informally - to recognize and celebrate its top performers. Now, to more effectively leverage its own intellectual capital," American Residential has begun to regularly and formally focus time and attention on identifying, understanding and learning from the strategies of its own best performers. As of this writing, all branch, middle and upper management at American Residential have gone through the exercises associated with the best-practices initiative. Additionally, approximately 60 percent of the home office staff has undergone the exercises.

The benefits of benchmarking

The benefits of best-practices benchmarking are many. Among the many tonic effects witnessed at American Residential and in other organizations employing some version of this process, it:

* exposes people to new ideas and novel approaches;

* ensures the rigor of internal operating targets;

* helps improve quality;

* creates openness to new ideas and fosters organizational learning;

* increases the professional development of people;

* creates greater receptivity to change; and

* raises the organization's perceived level of maximum potential peak performance.

To appreciate the power that may lie untapped or poorly leveraged in your company, consider this hypothetical question: "What would be your organization's maximum potential performance if all your loan officers operated at the peak production levels of your best performing loan officers?" In American Residential's case, the company would effectively double its total production if all 230 loan officers operated at the levels of its highest performing ones - or those in the President's Club.

As dazzling as that may sound, the same theoretical potential exists for nearly every mortgage bank. Admittedly, this is something of a "blue sky" target, but what if you could achieve just half of that potential, or just 25 percent of it, by understanding and deploying the best practices of your best performers. The performance gains are still very impressive.

No one can ever corner the market on good ideas. So you should quite shamelessly borrow ideas and practices not deemed proprietary or protected by patents, copyrights, trademarks or other protections.

To begin to build a culture where creative borrowing of good ideas and practices is commonly accepted and embraced, American Residential has seeded its TQM initiative with a clear and steady focus on the many different places and forms in which highly effective operating procedures or best practices may appear. In an effort to jump start this engine of organizational creativity, the company has used a broad-reaching set of quality-improvement-related exercises - all of which are designed to plumb the deep reservoir of good ideas and operating creativity that lies within its people.

American Residential's TQM initiative is as interested in nurturing the creative swiping of good ideas that can be quickly and profitably applied in new operating areas as it is in fostering breakthrough ideas and wholly new improvements. "Keep on the lookout for novel and interesting ideas that others have used successfully," advised Thomas Edison. "Your idea has to be original only in its adaptation to the problem you're currently working on." Edison understood that the road to continuous improvement is often most quickly traveled by taking many small steps forward. So best-practices benchmarking - even of small administrative ideas - can help the organization move forward.

Consequently, American Residential's senior executive team and then later the operating units went through a series of exercises created by Best Practices Benchmarking and Consulting, Inc., called "Steal This Idea".sup.TM - exercises, which are designed to seek embryonic best practices from within the workplace. The premise of the exercises is simple: no one individual, team, department or branch can ever corner the market on good ideas.

Developed outside the mortgage banking industry, the "Steal This Idea" exercise was initially conceived to demonstrate the power of a "borrowing shamelessly" attitude and to help foster an organizational culture that supports creativity and fast learning through benchmarking and borrowing. When applied in some organizations, it has highlighted how many traditional management systems are biased toward primarily recognizing and rewarding breakthrough ideas and inventions while new applications of existing idea and practices are often discouraged through the lack of recognition for such creative but nonheroic acts to improve the workplace.

This culture-setting, preliminary benchmarking exercise proved to be very powerful at American Residential, where the organization's employees used it to initially identify more than 350 improvement opportunities and good ideas. They ranged in scope and size from computer systems upgrades to customer survey development to operating procedure improvements. The exercises, which employed team-building, problem-solving and creativity themes, also proved to be cathartic in themselves, relieving some of the tension from a high-volume, fast-paced operating environment brought on by the avalanche of refinancings throughout 1992.

One senior vice president discovered the exercise and related concepts could be used deftly as a management tool When frustrating operating issues surfaced in one of his branches, he decide to personally conduct one of the "Steal This Idea" exercises, rather than re solely on other traditional problem solving approaches. The exercise g the senior manager a full opportunity to listen to branch staff In turn, it gave them the opportunity to turn frustration into positive involvement by identifying a range of successful operating practices they had witnessed in other units and companies that could be adopted to help address many of their operating concerns.

The exercise smoothed communications between departments, and immediate implementation of some small improvements - the "low hanging fruit" - helped boost morale and performance. One example of a low-cost, morale-boosting improvement came at the suggestion of some staff attending the exercise. They expressed concern about security in the company parking lot, which was dark by the time they were getting off work as a result of working later hours to handle the refi volume. American Residential immediately put up some more lights, and the effect on morale was extradordinary as the action signaled to the employees that their personal well-being was an important concern of management. It made the staff more willing to work the longer hours and feel better about doing so; as a result the refi volume got handled in timely fashion.

Systematically share

success stories

Another early-stage, best-practices approach was designed to encourage people to share success stories. In every successful project, one can find the seedling of a best practice. Yet often these seedlings are planted in one part of the organization and never spread to other parts of the operation. By using an analytic tool developed for the Malcolm Baldrige National Quality Award, American Residential teams began identifying the "approach "deployment" and "results" of their successful projects, initiatives and improvement actions. The aim was threefold: first, to encourage sharing and idea borrowing; second, to understand how even small but successful initiatives can be deployed more fully within the organization - and, therefore, be more fully leveraged; and third, to focus on what's going right - and to systematically learn from the company's successes - rather than just focus on where things are going wrong.

Here again, employees found a substantial supply of small actionable ideas scattered from the finance department to the servicing department. For instance, two branches identified successful practices in which loan officers and branch managers had developed data bases to track past borrowers and at a minimum of twice each year send out Christmas cards, birthday cards and other relationship - building communications. This particular idea, confessed one branch manager, was "borrowed shamelessly" from the life insurance industry. Another loan officer, who developed and extensively uses this type of data base, offered data demonstrating that 25 percent of the borrowers in his data base either refinance with him or actively provide him with referrals beyond the normal Realtor-based referral network.

Other success stories that represented embryonic, internal best practice related to cross-training, loan processing prioritization systems, prequalification systems, effective recruitment procedures peak-workload capacity utilization systems and cross-functional loan review teams.

The idea of borrowing good ideas may seem fairly basic when presented in an article such as this. But experience reveals that many organizations and their management systems inadvertently discourage such borrowing. Some of the most results-oriented managers have unknowingly developed operating styles that overlook the power of best practices. Many leading companies have developed operating environments where the underlying message is: "If it ain't invented here, it can't be any good."

The prejudice against borrowing starts in grammar schools, where students are encouraged to work alone - not in teams - and where sharing ideas on papers, tests and quizzes is called cheating" and is explicitly discouraged. Fast-learning organizations, in contrast, embrace a "we can learn from anyone attitude" that encourages borrowing and creative sharing of ideas and systems that are nonproprietary.

Organizational cultures that overlook - or even discourage - creative borrowing and learning from best practices may be very deep-rooted. They are often dramatized in the way many senior executive spend a disproportionate amount of their time assisting the "problem children." This management style was dramatized during a senior executive meeting of another large financial services company.

The executive team was discussing "sales" that were closed and then fell apart. Some analysis revealed that certain units were far more subject to these problems than others. As the senior executive team was getting ready to fire a missile at the units that were the worst offenders, it was suggested that the company should examine the practices of those units and sales representatives who were high producers and seldom - if ever - had closed sales fall apart. With this suggestion, a light went on for the chief executive, who then observed: "I spend nearly all my time providing help and resources to the troubled units. The only time I ever see my best performers is at the annual awards banquet. I really don't know exactly what our best sales-people are doing to achieve such high levels of success. But it's certainly worth finding out." The incident led the company to undertake a best-practices study of their best salespeople.

Putting it into practice

American Residential exposed its top salespeople, senior executives and managers to the concept of best practices through education and exercises presented at its President's Club retreat. Together, the top loan officers, branch managers, senior executives and operations staff gathered to work to identify the best individual sales and management practices that together constitute a "total quality sale."

What's a total quality sale? It's the ideal, customer-focused experience where all members of the mortgage bank work together as a team - not just to close the sale, but to deliver the right type of product through a fast, error-free process that extends from sale to closing to the ongoing servicing relationship. The process delights the customer and creates long-term loyalty that leads to positive "word-of-mouth advertising" and active referrals by the customer.

When viewing the sales function in this highly integrated fashion, it is easy to understand why no one person can ever monopolize an organization's or an industry's best practices. There is no one right way to market, qualify a customer, determine customer needs, gather information or establish customer trust and rapport. Rather, there is a class of highly successful and effective approaches perfected by many different top performers, most of whom excel in somewhat different ways and in different areas see Figure 3).

The result of the best- practices exercises and analysis undertaken by American Residential's best loan officers, branch managers and operations staff was the compilation of scores of highly successful operating practices that spanned the entire sales process. These internal best practices touched on creative marketing approaches (the company's top unit producer personally uses billboards in his home market in Utah); referral-generation systems (Massachusetts branch); ongoing product training (Utah branch); effective prequalification procedures (California branch); team servicing and processing practices (Washington state branch); cross-training and job sharing (Virginia branch); effective workload prioritization (California branch); as well as many other areas.

To further tap into other best practices from which the organization might learn, American Residential also implemented a survey to identify winning strategies that highly effective competitors have employed. The first-line source for such competitive intelligence is American Residential's own employees working within its network of 49 branches in 17 states. This best-practices survey identified activities where others have excelled, in areas such as training, marketing and brand development, internal communications, automation, pricing, new product development, benefits, processing and closing functions.

What's next?

From here, American Residential will continue to scrutinize and borrow the best practices of other high performers - inside and outside the mortgage banking industry. Of course, once identified, good ideas must be implemented to have any value. For that, there is no substitute for focus and dedication by managers, loan officers, processors and staff. But if seeing is believing, then best-practices benchmarking is a valuable valuable tool that supports successful implementation, by helping staff to recognize and support change because they are shown real evidence that other approaches may yield better results than their own. The productivity numbers cited earlier certainly offer strong evidence that this approach produces real and measurable improvement in performance.

There is no doubt that the quest for total performance excellence is an arduous one. But by borrowing creatively and by learning from the best, every organization can reach toward its full potential to become a higher performing company. Those. that succeed at this will find they can best serve their customers by growing quickly, learning quickly and adapting quickly to change.
COPYRIGHT 1992 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:benchmarking among mortgage banks
Author:Bogan, Christopher; Robbins, John
Publication:Mortgage Banking
Date:Dec 1, 1992
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