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Multiple Prong Business Approach

This week we were in Ketchikan, Alaska and had the opportunity to ride in a floatplane over a remote section of the state.  The view from the plane allowed us to take the photo of a small glacier lake that was inaccessible from Glacier lake in Ketchikan, Alaskaany road or trail.  The view was breath taking.

We recently wrote an article detailing how successful companies utilize a laser focused approach to become the best in their field at the area they are targeting.  The other approach we’ve seen successful companies utilize is a multiple prong approach (think of a chair or tripod).  The multiple prongs can include channels, geographic locations,  marketing strategies and/or creating affiliated relationships.  With the recent closure of the summer Olympics, we used a beach volleyball analogy with the laser focused approach and for the multiple prong approach, we think its appropriate to use a summing analogy.  Swimming allows an athlete to focus on one sport and become a generalist in several different events.  For example Michael Phelps’ best event is the butterfly, however in his three Olympics he’s won twenty two medals in eight events.  Like Michael Phelps and the butterfly event, most Company’s who use a multiple prong approach have one prong that is the strongest which can help support the other prongs.  

Piggybacking For Efficiencies
Most companies with multiple prongs, have a focal prong that generates most of the revenues.  The focal prong provides the Company the ability to have the other prongs piggyback off employees, systems, policies/procedures and operational workflow processes.

For example, a retail mortgage banker may piggyback off underwriters, closing and post closing employees, and systems like the origination software, where the sunk cost is already paid, when rolling out a wholesale channel. 

Many companies find it’s cost and resource efficient to streamline employees and workflow processes during a new prong ramp up period.  When deploying a new prong, eventually there are prong specific functions like underwriting, demographic nuances and workflow process that will eventually need to be segregated.  However, functions like systems, certain policies and procedures, and loan sales may continue to be streamlined.  

Another example is marketing.  When a company develops a successful marketing campaign, many times it is the result of several previous, not so successful marketing campaign attempts.  By taking the experience learned to develop the successful marketing campaign and mirroring the campaign in other markets, the Company can streamline marketing costs and time to develop a successful marketing campaign.

Affiliate Relationships
We’ve seen several companies recently that have an affiliated business relationship prong.  The affiliated business relationship can include closing agent, appraisal and real estate companies.  These affiliated business relationships are built to take advantage of mortgage loan functions that are critical to the process.  The advantages include capturing revenues and increasing controls.  Affiliated business relationships shorten the ramp up period since the company is funneling business immediately and the affiliate may take advantage of some company employees.  Many times a mortgage company management will create an affiliate so the mortgage company intimately knows the company performing the critical services.  However any affiliated business relationship needs to have proper controls in place to ensure file integrity.  In addition, any affiliated business relationship must be disclosed to critical partners such as investors and warehouse lenders to ensure the relationship does not violate Loan Purchase or Warehouse Lending Agreements.

Becoming A Generalist
Having multiple prongs allows a company to become a generalist and not rely solely on one channel for revenues.  For example if revenues decrease from a traditionally volatile channel like wholesale, the company can rely on the revenue from a less volatile channel like retail.  Being a generalist can also allow the company to pivot and focus on the prong that is currently experiencing the highest revenues.  In addition, having multiple prongs can serve as a hedge against the impacts of industry regulations, local market value/industry fluctuations and employee attrition.  

Today, many mortgage bankers have a servicing prong to hedge against rising interest rates.  In the past most mortgage did not use the strategy, however with investor loan sale uncertainty, the reduction of servicing release premiums and low interest rates, this strategy is now in vogue.

Cameron Watts, CMB

C. M. "Corky" Watts, CMB

Cydney Gray