by Mike Hathaway
Using a fictional title company as an example, learn how to improve your business process to become the Big Dog in your market. data.
Reengineering Your Business Process
John is the president of ABC Title Company. ABC Title has ten employees: John (president), two abstractors, two examiners, two escrow officers, two assistant escrow officers, and one courthouse runner. Policies take about two weeks, and the escrow officers average 32 hours of overtime per month to keep up with the orders. ABC Title has a title plant with a combination of paper and microfilm. There are ten years of index data in a title plant program. ABC Title does about a hundred closings with title policies each month (8% of the total market for the county) with a profit margin of 11%. John is doing no mar‑keting and actually turning away some business because his people do not have time to do the additional work. Looking to the future, John wants 50% of the market and a profit margin of about 30%.
I have been consulting for title companies across the country for the last seven years. The title company just described is fictitious and typical of most title companies. Some companies are larger, but they all operate in a similar way. If you were John, how would you jump from 8% to 50% of the market, and from 11% to 30% profit margin? The right way to do it is to improve your business process. Improving your business process introduces the change necessary to reduce expenses, increase your productivity, increase profits, and increase customer satisfaction. Let’s use ABC Title as a model, and see how business process improvement tools and methods can help John get to 50% of the market and 30% profit. We’ll use the basic who, what, when, and how questions to walk through this example.
Who (needs business process improvement)?
John found a certified consultant with title industry experience and he attended a two‑day class on process improvement. Then he selected one employee to serve as a project champion. The consultant set up several communication tools for John and his champion. This allowed the consultant to manage the projects remotely. The consultant performed a business process analysis. The consultant showed John many areas where he could improve his business. It suggested John start with some projects that would have a quick turnaround and good capital Return on Investment (ROI). He could then reinvest the additional capital on the bigger projects. John decided to tackle the overtime issue first (a projected cash savings of about $2,300 per month). The consultant did a project analysis for the overtime project and came back with some recommendations for technology improvements, training, and some significant changes in the current business process.
Informed decisions rely on quality information. Break your business down into specific services, such as Residential Mortgages, Commercial Mortgages, Refi’s, Policies, Title Searches, Courtesy Closings, Document Preparation, etc. You can then use that information to identify the redundancies, process loops, defects, and bottlenecks. Eighty percent of the time spent for any service relies on 20% of the work performed. Improve the speed of that 20%, and you can reduce 80% of the time it takes to do the work. That reduction in time can save cash as well as increase productivity and profit.
Many title companies already own the technology needed for transaction management, virtual communications, and improved process flow. Most title companies either do not use those tools or do not fully integrate the tools into their business processes. The major hurdle is employee cooperation. You can buy your employees the greatest, fastest, most expensive computers and software the world has to offer, but if they do not use them—then all you have is a very fast and expensive electronic typewriter.
The business process analysis identified manual faxing as a big issue. The escrow officers and assistants were sending an average of ten manual faxes and an receiving an additional five to ten faxes each day. Each fax required the user to get up from his/her desk, walk to a fax machine, input the number, and then wait for confirmation. Most of the time the employee was interrupted to answer a question or just to talk. On average, each fax took about ten minutes. This added up to an average of 150 minutes per person per day – that is 200 hours per month to do manual faxes. A project analysis showed a network faxing solution would reduce the average time per fax to about two minutes – a savings of 140 hours per month. The solution would cost approximately $10,000. Additionally, a review of John’s financials showed he was spending $1,500 per month on telecommunications for a 320K DSL line, PBX and four analog lines (for the fax machines). John agreed to a network faxing solution (about $7,500), including an internal IP telephony solution (about $4,000), and an Internet bandwidth upgrade to 1.5MB (a cost of $150/month). This cut his monthly phone bills from $1,500 to $700. The consultant’s fee was $7,500 for the initial business process analysis and managing the project. The project installation and training took about two weeks. ABC Title picked up an additional ten closings per month. Here is the result:
When (should I do it)?
Many business owners like to postpone changes to see what the next person is going to do first. That is a big mistake now. The title industry is moving to centralized and shared title plants, transaction management, and virtual offices. The pace of technology is increasing, and the business owners who react first will get the lion’s share of the market. You have to do business cleaner, faster, cheaper, or any combination of these in order to take market share from your competitors. The reality is this—lenders and mortgage companies have shareholders they have to satisfy. If you can show them you have the technology to improve their profit by doing business with you, then they will. The first one in your market to offer Web‑enabled access to documents and information, high technology communications (network faxing, instant messaging, etc.), and improved performance (time from order to close) will take the majority of the market share in any market. So, if you don’t make your move now, you may find the little guy around the corner made the investment and is now the Big Dog in the county. And remember, it costs twice as much to get a lost customer back as it does to get a customer in the first place.
“It’s not so much that we’re afraid of change or so in love with the old ways, but it’s that place in between that we fear ¼ It’s Linus when his blanket is in the dryer. There’s nothing to hold on to.” (‑Trina Hoefling) Change is difficult at best. Trying to improve without using the principles of process improvement can have the opposite effect, and many times adds complexity and overhead to a business instead of the improvement sought after. So we need to get smart and use sound process improvement and project management principles to limit the side effects of change.
After John’s first project was complete, he and the consultant reviewed the changes made to his business process. Further improvement would include simplifying some of the complex tasks, reducing the defects in the production department, and taking a hard look at his title plant. The consultant suggested three large projects. First – upgrade the production software and re‑design the production process from scratch. Second – work on reducing complexity and speeding up the production process with the current software. Third – automating the title plant, revising the commitment process, and selling the title information on the Internet. The first project would cost about $189,000, take at least three months to complete. The second project would cost $77,000, and take about two months. The third project would take six months and cost $202,000. John had the consultant do the project analysis on each project. The ROI for each project looked like this:
John sees that the least expensive project is Project Two – but it will not get him to his goal and he still needs to improve his title plant situation. Project One gets to both of his goals, but again ignores the plant. Project Three fixes the title plant but does little to help him achieve his goals. John realized that doing Project Two would be a waste of his capital since he would still have to do Project One within the next 12 months. He also sees the changes in the industry and wants to get a jump on his competitors in the market. Now that the company is seeing an increased monthly profit (about $7,000/month increase from his first project), he decides to do Project One, then use the increased revenue to start Project Three in nine months. The consultant helped him revise his business plans, do the project analysis, get financing, and then manage the project. Within less than a year, John has exceeded his goal and increased his overhead by only two personnel with no overtime. His employees are happier, and he is back to his original problem of turning away business because he can’t do it all.
How (do I get started)?
Business process improvement has recently started to gain momentum in the title industry. There is no way to address all the tools and methods of business process improvement in the text of a magazine article. However, here are some simple basics behind business process improvement.
1. Break down your business into specific services. Most companies do their accounting as a business whole. In order to identify process problems effectively, identify each service independently. Some examples of different title services are Residential Mortgages, Commercial Mortgages, Refinances, Title Reports, Courtesy Closings, etc. You also need to identify the average number of opportunities per month for each service.
2. Identify costs associated with each service. Break out associated costs for each service, such as labor, facilities, office supplies, associated fees, etc. Then do a profit analysis for each service to include total cost, total overhead, and total profit per transaction.
3. Document your Business Process. It is impossible to do anything to improve your business if you don’t understand how you do business. A good process analysis provides a detailed business process flow for each different service (i.e. Mortgage, Refinance, Courtesy Closing, Title Report, etc.) and a map showing a macro view of how work flows through the business organization. A good consultant can do a basic business process analysis in a very short time, and it is a good investment. Note that once you document your business processes, you need to review them regularly and update changes as they occur.
4. Identify defects. This area causes some confusion. There are actually two types of customers in a service business like a title company, the internal customer (employees) and the external customer (clients). Indications of internal customer dissatisfaction (defects) are unhappy or frustrated employees, a high employee turnover rate, apathy, absenteeism, etc. A good point to remember is that your most expensive resource is your employee. Indications of external customer dissatisfaction (defects) are loss of clients, failure to increase market share, bad reviews in local media, multiple calls to correct information, etc. Every one of these starts with a defect somewhere in your business process.
5. Identify your areas of pain. Define the parts of your process that are causing the most defects or pain in your business. Prioritize them so that you can make informed decisions about your business strategies and projects.
6. Select an improvement project. Use the information you have obtained to select a business improvement project. As you evaluate the information, you will find many projects that may give you a large return on investment (ROI) with some very small changes.
7. Analyze the project ROI. It is important to do a cost analysis for the project along with a projected rate of return. Use sound accounting principles to decide what projects to pursue. Do not over‑extend your cash reserves and lose sight of the goal—improve satisfaction and profits by eliminating defects and improving value and speed. A consultant can give you an accurate ROI analysis.
8. Implement the project. Invest in an outside consultant to help you execute the project. He/she will have the expertise to measure changes, run change experiments, and facilitate the training and integration of changes into your existing business process. Project implementation is key to achieving your expected results. If you do not execute your project correctly, you may actually see decreased revenue and increased defects.
9. Formalize changes. After the project is complete, and the results verified, formalize the process changes across your entire organization, and establish tools to measure adherence to the new standards.
The example of ABC Title Company certainly does not describe all the work involved in any of the projects listed. If projects are planned and managed properly, and follow business process rules, every title company can achieve similar results. The question now is who will be the first title company in your market to do it? Look for a consultant with title and service industry experience. Consultants are not inexpensive, but the results are worth the investment. The key here is to be flexible, be informed, and make your business decisions based on what will best improve your business process. Do that—and whether you’re small or big —you can be the Big Dog in your market.
Mike Hathaway is chief operations officer for TDMS, Inc., Denison, TX, a leader in business process improvement for the title industry. This article is an excerpt from his presentation during ALTA®’s Tech Forum this past March. Mike can be reached at 903‑436‑3091 or firstname.lastname@example.org.