Jeff Judy

Jeff's Thoughts - November 18, 2015

Working with Key Ingredients

"Iron Chef" is a popular TV show in which top-flight chefs create amazing meals that are then scored by a panel of judges. The catch is that the host of the show picks a "key ingredient" that has to be prominently featured in all the dishes the chefs prepare.

Now some of those key ingredients are not so easy to work with, and I am sure the chefs often wish the host had picked something else. Still, you never see a chef throw down a spatula and declare that he or she just doesn't want to cook with that ingredient. (And, you see some amazing flavors of ice cream!)

We all know how to follow recipes. But what makes shows like this exciting is that these talented chefs can take the same basic recipe we might use for a dish and turn it into something much more appealing.

Now in the credit business, we are handed some key ingredients and basic recipes. And the ingredient I hear the most grumbling about is regulation. Indeed, in recent months, as I've traveled the country in training and consulting activities, I've heard a lot of complaints about the new TRID disclosure regulations, and what a burden they are.

Other key ingredients include local market conditions. Technology is a key ingredient as well. True, not all institutions use identical technology, but the overlap is very high, so the recipes start out with a very similar foundation.

The question is, then, does your financial institution approach the basic recipe like a master chef? Do you integrate regulation into your systems, processes, and procedures so that they are followed with a minimum of effort and distraction? Do you make dealing with regulation as appetizing as possible for your staff and for your customers?

Do you treat technology as the starting point for, say, the credit decision rather than as the answer? Do you go beyond accepting reports that software generates to apply further thought and judgment to those reports, getting the best understanding of a borrower's situation?

Or do you fight the recipe? How much time is spent complaining about regulation, and trying to get around it, time that could be spent enhancing customer service? How disruptive is every change of a key ingredient, whether regulation, marking conditions, technology, or some other fundamental factor?

When master chefs encounter a new ingredient, they see an opportunity. They know that their superior vision and skills would give them a competitive advantage in making the most of that ingredient, even if it is an ingredient they would not have chosen themselves.

The most successful financial institutions operate much the same way. When the recipe changes, they leverage a change to their advantage. They know that while they are building on the key ingredients, other institutions are wasting a lot of time and resources fighting those ingredients. That makes their rivals inefficient at best, and subject to regulatory attention at worst.

In credit, we will always have limited control over the basic recipe. But the best institutions know that they have a lot of control over how tasty a dish they serve up to their customers.

Are you a master chef?