How would you describe your first year at HML?
BB: Well, timing is everything in life, isn’t it? You could say that leaving a high street bank a year ago was inspired but it’s been a pretty challenging year all round because of the economic climate. And with all our changes in leadership over the past few years it has been important for us to communicate where HML is headed in the medium term, both internally and to our clients.
The company has grown rapidly in the past few years but to some extent we still had the foundations of a much smaller company so we needed to address that.
LS: As you say, the firm’s leadership has changed a lot recently. Do you now have a stable team?
BB: This issue is highlighted in client feedback and I’m always at pains to tell people we have a superb top team – every member is an expert in their discipline. I believe this will help us deliver our strategy in the next few years.
Inevitably, when you’re dealing with high performing people you can’t make any guarantees so I need to make work exciting enough to make them want to stay. I’m delighted with the team we’ve got and hopefully we can avoid too much change at the top from now on, so we have a stable team and a consistent strategy.
LS: HML grew with the sub-prime sector. Is that now something of the past?
BB: I’d like to think of this as a hiatus rather than that sector being dead and buried. The good news is that there is still money about and we are going to look at new propositions as they to come to market, but maybe slightly differently from the way we did in the past.
Firms are still comfortable holding mortgage risk but a few issues are holding back investment. Hopefully the government’s intervention will start to loosen some of those constraints and when that happens I expect our market to come back. However, it is important to our strategy that we participate and compete in other markets.
LS: Which markets are you looking at?
BB: We need to expand beyond start-ups and sub-prime to deal with some of the more mainstream mortgage lenders, and one thing that appeals to established players is our speed to market when it comes to new products.
I know from experience that sometimes getting the support and investment to develop a product is hard because you’re competing against other sectors within a bank. We don’t have that element of competition because we invest almost exclusively in mortgages.
Some firms have several platforms running dwindling books and keeping those up-to-date with regulatory changes is a huge cost. Why not pass that on to HML? Let us carry the cost and manage books down over time.
We have had conversations with big players about providing overflow capacity but I also think there’s an opportunity for us to challenge internal operations.
I know what these are like and reckon that in many ways we could easily compete with them.
LS: How could you challenge them?
BB: Well, to do that there are certain criteria for success and first, we have to be able to benchmark ourselves against in-house operations.
But we are so convinced about our ability to improve things that we are willing to put our profit at risk if we’re unable to outperform internal systems.
We’ve already done this in areas such as credit management but feel we can expand into other areas of mortgage administration.
It’s all about putting your money where your mouth is.
LS: Is that the way you will compete against in-house providers and other newcomers in the market?
BB: Yes. In my book competition is good – the more competition the better.
We compete against in-house facilities but we can also augment these. Our offering is not polarised – it’s not all or nothing. We can build firms’ services more quickly or deliver new types of proposition for them more efficiently. So competition yes, but also cooperation.
In terms of competitors coming into the market, it doesn’t surprise me. There are a lot of companies whose business models have had to change recently. They are trying to find new markets for themselves. But we have 20 years’ worth of history behind us which gives customers more reassurance than dealing with businesses that have recently changed their operating models.
I don’t believe in benchmarking against the competition because that only makes you as good as them – we have higher aspirations than that. What we need to do is benchmark ourselves against ourselves.
We believe in the lean philosophy of business and if you look at this it suggests you should only benchmark yourself against perfection. Of course, you’ll never get there but what this does is constantly challenge you to raise the bar. If you only compare yourself against your competitors the danger is that you will say ‘that’s good enough’.
So am I bothered by competition? Of course. But am I afraid? No.
LS: What tangible results have your customers seen from your lean approach?
BB: Put simply, the key to the lean approach is the identification and re-moval of waste for the benefit of customers. What it’s done for us in the past year is give us the structure to ensure we are clear about risk and quality. We’ve seen improved quality in a number of areas, particularly by applying our quality assurance framework.
Lean processes have given us confidence in the consistency of our quality. We have been able to redesign many processes to deliver not only quickly but also with high quality, and we’re getting positive feedback from clients.
Lean is not rocket science – it’s about good operations management. It’s about institutionalising management routines and behaviours so that if things start to go wrong, which they occasionally do in an organisation, you can see what’s happening and act early.
Our clients have been impressed by the results they’ve seen from us and many financial services companies are now looking at how the lean approach can help them. There was a perception in the past that the lean process was just for manufacturing, but if you think about an operational business such as HML, it’s what we do. LS: Will the lean approach help you compete with offshore outsourcers?
BB: Yes. A lot of manufacturers have found that you can easily compete with companies offshore by keeping things onshore and doing them more effectively. That’s what the lean philosophy allows you to do.
It’s no longer a debate about offshore or onshore, it’s now about ‘rightshore’ – which location has the capability to do a more effective job.
LS: It has been reported in the media that Skipton wants to sell HML. Is that true?
BB: I want to be clear there is no desire to sell HML. But HML is a valuable asset of the society and if it got the right price at the right time from the right people, it might consider a transaction.
We are lucky because with the society behind us we can take a longer term view than we might otherwise be able to. We are happy to be part of the Skipton group because there are a lot of benefits for us in the arrangement, but that doesn’t mean we wouldn’t be able to grow if we were sold. We have nothing to worry about either way.
LS: Why has HML taken over Baseline Capital?
BB: Baseline was a key acquisition for us and fortuitous because it was in our group. Collections, recoveries and arrears management are becoming a lot more sophisticated thanks to data analysis and interpretation, propensity modelling and predictive analytics.
HML did not have the skills set to be a truly best-in-class special servicer so we acquired Baseline. We believe the acquisition puts us in a unique position in the market.
LS: Will Baseline continue to provide services to non-group clients?
BB: It will. Baseline does things that we don’t and we will benefit from using each others’ capabilities and from the benefits of integrated support and marketing functions. But Baseline will also be able to provide its services to other companies – I don’t think there is any conflict there.
To my mind, special servicing is a combination of good data, good analytics, good definition and excellent execution of strategy.
LS: What about Scarborough Mortgage Services?
BB: It’s easy to say that HML and SMS will come together but it’s too early to say exactly how. In deals such as these you have to ensure is you don’t throw the baby out with the bath water.
There are some fantastic people and processes at SMS and we need to get the best of both.
LS: Do you plan to make any more acquisitions?
BB: One key aspect of our strategy involves looking at the whole mortgage value stream and maybe even beyond and asking ourselves how we could grow in some of those areas.
Sometimes we will build propositions ourselves, sometimes we will acquire businesses and sometimes we’ll underLStake joint ventures. We’ll use whichever is the best vehicle at the time.
For example, we wanted to strengthen our cash administration offering so we decided to build this ourselves but with special servicing we needed to build the analytics part so we got in Baseline.
Of course, there will be other opportunities for acquisitions. Our parent society is known to be quite acquisitive but any further purchases will based on whether they provide value and fit in with our strategy.
So the short answer is probably, but I can’t say where or when.
LS: So in the longer term, will HML be more than a mortgage servicer?
BB: We like to be the best at whatever we do and the skills involved in operations and technology management are interchangeable across industries.
So are we going to run off and become a multi-product, multi-sector outsourcer? I’m not sure but opportunities may come along. After all, the skill of operations management is just that – the skill of operations management.