The Sun Tzu School Of Mortgage Origination

Written by Brian King and Mark Kendall
on November 24, 2010 No Comments
Categories : Required Reading

REQUIRED READING: At first glance, you may wonder what Sun Tzu's ‘The Art of War,’ a 2,300-year-old book on Chinese warfare, has to do with today's U.S. mortgage lending sector. Then again, given the last few years, maybe it is an obvious correlation.

To begin, we need to dispel the notion that we are speaking of going to ‘war’ with customers, regulators, or vendors. As Sun Tzu stated, ‘If you know the enemy and know yourself, you need not fear the results of a hundred battles.’

There are 13 chapters in ‘The Art of War,’ but three particular chapters - ‘Illusion and Reality,’ ‘Situational Positioning’ and ‘The Use of Intelligence’ – offer the greatest lessons for mortgage lenders.

‘Illusion and Reality’ focuses on the concepts of when and how to attack and defend. Sun Tzu cautioned, ‘Thus, with one skilled at attack, the enemy does not know where to defend. With one skilled at defense, the enemy does not know where to attack.’

While this text seems logical, it requires quite a bit of research and self-reflection. Because you cannot control where an enemy will attack, you must have a strong overall defense, with the ability to redirect resources as required. If you know the enemy's objectives, you may be able to predict his point of attack.Â

All too frequently, renegades use the motto of attacking quickly and often – but this strategy is rarely successful. Instead, attacks should target unguarded or uncontested areas. A determined focus on strategic moves will allow you to develop and sustain momentum.Â

In looking at the types of attack and defense, there are three primary battlegrounds: prospects, existing customers and employees. So how do you defend or protect what you already have in place, and where can you attack the competition to take away its prospects, customers, and employees?Â

For example, if you were going to launch a new mortgage loan production office in a new town, how would you staff the branch? Ramp-up time is essential, and it would be a clear choice to specifically target experienced mortgage lenders and processes for your new location.

Ideally, you would select the best possible talent – and those people are likely already working for your competitor. How would you recruit this new staff? Why should they join your firm? What is your differentiating factor?

Now let's take this example and flip it around. What if there is a competitor recruiting your employees? Would your top employees remain with you? What proactive measures can you take to protect your organization before the attack?

Sloppy arrows?

The chapter ‘Situational Positioning’ concerns situations that you might be facing. This section of ‘The Art of War’ includes legendary quotes from Sun Tzu. ‘The troops are strong and the officers weak. This is called 'the bow unstrung,'’ he wrote, adding, ‘The officers are strong and the troops weak. This is called 'dragged down.'’Â

As you may expect, the ‘bow unstrung’ reference describes strong forces without strong leadership. Since bows are not quite as popular in 2010, perhaps a more relevant analogy would be a gun with a bullet. Consider, for example, the 1960s TV sitcom ‘The Andy Griffith Show,’ where the bumbling deputy sheriff Barney Fife was not allowed to carry a loaded gun but could keep a single bullet in his shirt pocket. Perhaps the gun gave him authority, but it was ineffective without the bullet. How would you feel if your division executive was a Barney Fife?

For ‘dragged down,’ the principle is that weak troops cannot be held up by even the strongest of officers. When considering the strengths and weaknesses of your loan officers, perhaps it would be helpful to think of your team members in terms of war: Would you feel comfortable putting your career in their hands? If not, maybe this will give you new motivation to either improve or manage out weak team members to optimize your ‘troops.’

One senior executive shared a comment that his firm ‘created the illusion or belief by customers that his firm cared more for them than the competitors.’ Let's consider this: It wasn't that the firm had the best service, but it was perceived by customers as having the best service. Now that is something to ponder.

Some questions to ask yourself may include the following: What can you do tactically to identify your weaknesses and take corrective action? What is your risk if your competitor identifies your weaknesses first and exploits them?

Furthermore, do you have an employee-enabled service culture? What are you doing to retain your key employees and protect them from going to the competition?

Victory through brain power

The third focus chapter is ‘The Use of Intelligence.’ According to Sun Tzu, ‘Only if the enlighted ruler and wise general can use people of superior knowledge as spies will they surely achieve great merit.’Â

Of course, superior knowledge is difficult to obtain. There is an old saying: ‘You don't know what you don't know.’ Simply put, only with a full understanding of your own organization and its environment can you maximize success.

Ask yourself the following: As a mortgage originator, where can you improve? How does your organization compare with best-in-class lending across multiple performance metrics? Because no one can be the best at everything, and each mortgage lender is limited by its own experiences, what can you do to mitigate this risk?Â

To improve, you need knowledge that comes directly from intelligence – business intelligence. Of course, we are not literally encouraging espionage or anything that is illegal or unethical. Instead, there should be a sophisticated focus on data, information and knowledge.Â

Knowledge is the basis for any action. As stated by Sun Tzu, ‘Superior knowledge will assure victory.’ Within ‘The Art of War,’ there are five types of spies that are discussed:Â

  • The living spy returns and reports;
  • Employ the native spy from among the local people;
  • Employ the inner spy from among their officials;
  • Employ the turned spy from among enemy spies; and
  • The dead spy spreads false information abroad.

In ancient times, spies would come from every part of society and bring a full range of knowledge regarding enemy life. Multiple intelligence data points were put together like pieces of a puzzle, and a clear image began to appear. These spies provided valuable knowledge, and we have similar opportunities to ethically gain competitive information gleaned from multiple sources.Â

Does the price or time involved in obtaining intelligence generally reflect the quality of the information? You may wish to consider the phrase, ‘You don't get something for nothing.’

Generally, there is an investment in dollars, in time or in obtaining quality information. However, keep in mind that while many firms have lots of data, the processes that transform data into information are critical. Only by properly utilizing these processes can the findings be used in decision-making.

Let's discuss a few examples of the use of intelligence. Most mortgage lenders have a combination of internal and external resources to provide intelligence on the competition in the market. These include competitor advertisements, feedback from prospects and clients, ‘shopping the competition,’ and using external vendors. Mortgage lenders are interested in rates, fees, terms, prepayment penalties, underwriting guidelines and policies.Â

In addition, they are interested in understanding operational processing metrics for origination, servicing and default areas. Without competitive business intelligence, a firm may only measure itself against a budget, plan or forecast. With proper intelligence and information, a firm can measure itself against what is possible, given industry best practices and taking into consideration factors such as size, scale and geography.

A best practice is to reward front-line employees for sharing competitive advertisements. One lender provided a monthly drawing for an iPod for those who submitted competitive information. This is a low-cost way to leverage your existing team members and better understand the marketplace.

To summarize, it is important to know when to attack and where. Weak leadership, managers and team members are a problem and must be addressed proactively. In addition, there are multiple potential sources of intelligence, so select the sources of data carefully, and appropriately apply intelligence.

If you look at your mortgage lending business through the lens of Sun Tzu's ‘The Art of War,’ you will identify some possible opportunities where you can move your business forward and some potential threats where you need to defend against the enemy. Or, as Sun Tzu wisely observed, ‘Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.’

Brian King is president and Mark Kendall is vice president of Wisemar Inc., based in Charlotte, N.C. They can be reached at (704) 503-6008.

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