In order for title companies to be efficient, the accounting and productions systems must be in alignment. It's easier to accomplish than you think.
by James Norwood
John F. Kennedy once said, “There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction.”
In a charged and buoyant market that is demanding, growing, and always subject to the risk of potential market swings, the title industry is facing perhaps some of its greatest challenges yet. Despite constant murmurs about an impending market correction or cool off, ALTA® recently released particularly positive first-half figures for 2004, with gross revenue for the industry up 7.96% over 2003. Therefore, the challenge is not the market risk in itself but the risk of being unprepared for market growth, since many land title businesses are ill-prepared when it comes to supporting growth with a strong and flexible internal systems infrastructure.
At the risk of overgeneralizing, it could be said that the title industry, not unlike similar groups such as state and federal credit unions, is quickly moving beyond its current information technology (IT) business systems capabilities. Specifically many companies focus on the bread-and-butter front-office production systems, which cover commercial settlement, HUD escrow closing, and related document-management applications. There is no arguing that this is a highly important element of their software. However, the issue is not so much about the fundamentals as it is the typically underserved back-office accounting applications and their ability to keep up with transactional growth, more stringent reporting requirements, and the current business climate, demanding corporate governance.
According to Mary Knox, principal analyst at industry research firm Gartner Inc., the need for an alignment of business strategy and IT investment in the financial services industry is acute. “Enterprise [office] architecture is critical for financial services providers to better align their technology investments with business strategies and processes. As the use of information and IT has changed in the financial services industry, so must its design and governance,” suggests Knox. For the title industry, business systems, and therefore process integration, are at the heart of the critical need for office architecture. Many growing title firms have invested considerably in strong settlement solutions, which offer only limited accounting support, and back it up with a small office or home office accounting package. Unfortunately, these self-contained accounting solutions were not designed for the rapid growth now evident in the industry, and certainly were not designed for real-time update from multiple contract, escrow, exchange, MPIS, and closing accounts. Stronger integration is often hampered by older or differing technologies in these systems as well. The inability to quickly access accurate, consolidated reporting is usually the result of poor or nonexistent integration.
Couple these integration issues with the price and time challenges that are typical in the industry, and you will begin to see the magnitude of the problem. A title company may realize it needs to take action but will generally balk at the perceived effort and cost to make changes. Unfortunately, the result of this approach is growth without supporting checks and balances: Business efficiency is compromised, organization-wide visibility is difficult or impossible to obtain, accuracy of information is jeopardized, and operational productivity is lost.
According to CFO magazine’s Research Services and Cap Gemini Consulting, 63% of CFOs are saddled with inadequate budgeting, forecasting, and decision-support systems, and are, therefore, hard pushed to support rigorous new reporting standards. You don't have to look too far to see how tough new accounting rules and internal controls are causing changes within the industry. For example, in early October, industry giant Fannie Mae was forced to take on new accounting practices.
The Connected Title Office Breeds Efficiency
The connected title office is a fairly straightforward concept based around a mandatory requirement of business systems integration. Research conducted by Gartner Inc. suggests that offices that define new business processes to span both front office and accounting integration and then implement systems that enable those new processes will increase return on investment (ROI) from those systems by at least 30 to 50%. So this is far from a new concept.
The five key components of the connected office are connecting, managing, accounting, budgeting, and measuring. Title companies already do a good job of “connecting” with the customer but need help in the other four focus areas.
The second component involves managing data collection. Let’s start by agreeing that data integration is a necessity. Integrated business applications save your staff time and effort and reduce error during manual rekeying. This is essential since consolidating transactions into one system has to be accurate, timely, and painless. A seamless integration approach can generate settlement and cash transactions in the back office with speed, flexibility, and accuracy, backed by sophisticated data mapping and conversion rules that in turn can be set up easily and intuitively and then left alone. This means no more deciphering, recompiling and re-keying of data in order to evaluate the performance of your locations and easier access to accurate and timely data.
The benefits of integrated business applications speak for themselves, including increased efficiency through automation of manual operations, better visibility across branches and to corporate offices, lower costs through increased personnel productivity and reduced administrative effort, and streamlined business processes that enable you to enhance customer and partner service.
The third component of the connected title office is streamlining financial operations through more robust and advanced accounting applications. Integrating your accounting function into the wider business in a safe and secure manner turns finance into a value-added department. Who, for example, would not jump at the opportunity to convert staff from focusing on data entry to focusing on business analysis?
In the connected title office there is more to business finance than just bookkeeping, there is a comprehensive resource that underpins business growth and supports the alignment of processes with strategic goals. That means you need to upgrade your accounting platform to be in line with your production environment. If your settlement solution is built on Microsoft’s SQL Server database for example, shouldn't your accounting package be as well? Seamless, low-cost integration suggests as much.
Today’s midsized accounting applications offer robust user security that maintain audited control and access to ensure data you can trust. Many have been designed specifically for the title industry offering average daily balances as a standard part of the program. This seamless industry approach breeds greater efficiency. These systems will typically come with a more flexible chart of accounts that can be matched to your organizational structure in support of multiple escrow accounts and branches, and also support organizational restructure through growth. And, of course, they are fully integrated in order to eliminate duplications and to save time and money, with features such as accounts payable payment processing and electronic funds transfer, and integrated electronic statements for automatic bank and cash account reconciliation.
The next component is budgeting or the ability to track and budget in real-time. Low-cost software applications created specifically to do budgeting are now commonplace and available to save you from what is commonly referred to as “spreadsheet hell.” Many organizations maintain their entire budget in a 90-gigabyte Excel file, with more circular references than should be condoned for good mental health. The budget was likely created a while ago by a spreadsheet wizard who is no longer with the organization, and nobody dares change a formula in fear of the entire thing grinding to a halt, never to be resurrected. The humble yet flexible spreadsheet was never intended for collaborative, multirevision budgeting across branch offices.
The connected title office includes a specifically created, fully-integrated budgeting tool so that branch to title office consolidation can be achieved in a way that keeps that information online and up-to-date. It all comes back to the key theme of integration. If you can pull together information from across the business automatically, you can begin to enjoy real-time income projection to actual analyses and start aligning operations with strategic goals based on decision- supported insight, not gut feel.
This brings us to our final component —analyzing business performance through information measurement. It's only when a title company—or any organization for that matter—has a fully-integrated and seamless database of information that it can begin to truly drive the business. Until then, your company is just working in a decision vacuum.
Today’s midsized accounting packages offer trusted and transparent management reporting using reporting tools that were designed by and for accountants to make comprehensive management reporting a snap. The majority offer highly professional presentations with hooks that allow drill-down (the ability to trace back to the original source) to detail—from ledger to closing transaction. They will also provide a variety of output options like XML (Extensible Markup Language), XBRL (eXtensible Business Reporting Language), Excel, and OLAP (Online Analytical Processing) to ensure information is delivered and accessed wherever needed.
It’s often difficult in the financial services industry to get executives to think about business intelligence as a mandatory facility rather than just something nice to have. The truth is, the wealth of information stored across the connected office makes it far easier to understand your business. Business intelligence means having key performance indicators available to evaluate individual operations or support manager-incentive programs, perform sales forecasting, monitor branch profitability or offer pro formal analyses for new or proposed services or locations. In summarizing the overall benefits of creating the connected title office, it is clear to see how a priority approach to integration can deliver real-world results. To begin with, predictability is enabled through immediate information delivery. It's hard to make predictions when your business information resides in duplicate in several different systems. Second, the connected title office offers greater accuracy since integration allows for traceability. For example, you can follow a discrepancy from the general ledger back to the source transaction through drill-down capabilities of the software, which means finding and fixing problems faster. Lastly, there is better future vision from historical trends, which allows you to predict what will happen in the future and take your business to the next level.
A Road map for Success
By now you may be blanching at what sounds like a very long list of investment criteria knowing full well that your IT budget is already strained and for the most part accounted for. Good news: The road to business systems success is not that long or, for that matter, costly. It was acknowledged earlier that the land title industry is particularly price and time sensitive when it comes to IT investment, which is not surprising. Current market growth in the title industry demands adaptable business processes that, in many ways, are no different from the challenges faced by far larger offices. However, the internal restraints of the title office versus a large bank for instance are far from similar. Title companies usually have small IT departments (in smaller titles companies, the systems accountant often is also the IT department), smaller budgets, and a need for payback and return in the short term. In other words, new system implementation must be measured in days not months.
The connected title office takes time but thankfully can be approached and implemented in stages, allowing for each phase to pay for itself in results before moving to the next phase. The key is to start small, but start now.
Begin by understanding the significant benefits of integration, specifically efficiency, visibility, productivity, and accuracy. Talk with other title companies about their integration experiences or leverage the resources offered by ALTA®. You can also work with your current settlement solution providers to see how they are approaching integration with more substantial back-office accounting solutions. While it is not their key focus, it may have influenced your selection of their system. The first-seen and most substantial results will be achieved by upgrading your accounting platform to be in line with your business growth. When doing this, consider the benefits enabled by utilizing a single technology platform and why it makes sense, with reductions in costs, complexities, and management overhead. Finally, consider integration beyond production and accounting as an opportunity to really create additional operational improvements with integrated budgeting, payroll, reporting, and analytics.
James Norwood is senior director of product marketing for Epicor Software Corporation. This article is an excerpt from his presentation at ALTA®'s 2004 Tech Forum. He can be reached at email@example.com or 949-585-4579.