Jeff Judy

Jeff's Thoughts - January 11, 2017

Organization vs. Flow

In my role as a consultant, I sometimes get involved in advising institutions on their credit workflow, that is, the path a credit follows from request to decision to ultimate disposition. They know their credit process is not producing the results they want, but they are not sure where things go astray. I provide the outside perspective to help them see what they are missing and to suggest a better path.

Very often, when I ask for the current workflow as a starting point, the client hands me an organization chart. That helps, but it is the answer to a different question. Still, reviewing the formal organization often gives me a hint not only as to where problems arise, but about how hard it will be to change the workflow for the better.

These days, the most typical business lending process is one in which there are a series of handoffs between multiple players. A "relationship manager" or "loan officer" gathers the initial data for the credit request, passes that on to an analyst who does some number crunching and perhaps makes a recommendation, which goes back to the relationship manager. This cycle may be repeated if there are new questions that come out of the analysis. And once the relationship manager has a recommendation, there's an approval step, documentation, monitoring, and perhaps problem loan management.

With so many hands touching any given credit, the interactions between, say, the relationship manager and the analyst have enormous impact on efficiency, on customer satisfaction, and on the soundness of the credit decisions. And those interactions don't show up on an org chart. Hopefully, they are captured in a procedures manual, although I am surprised at how often much of the credit workflow is undocumented, how much is just "passed down from generation to generation" of staff.

What an org chart does tell me about workflow is how hard it is going to be to improve those crucial interactions. After all, the biggest influence on staff are their supervisors, and even their bosses' bosses. And an organization chart maps out the silos that the players in the credit process fall into.

Consider, for example, two institutions where relationship managers and credit analysts are not managing those information handoffs as well as they should. In one, both positions are part of the same silo. In the org chart, they report to the same boss, or at least come to a common supervisor fairly quickly. In the other, these two positions are well separated in the org chart. Sometimes they don't have a common supervisor until you get all the way to the CCO.

As a credit process consultant, I know that it is going to take a lot less work to improve the workflow in the first institution, rather than the second with its deep separation of reporting relationships. When the chain of command in an organization separates players in the workflow into strong silos, it takes extra effort at higher management levels to update the process. In fact, in this situation, individual players may be less likely to understand other parts of the process. They may have tunnel vision, tightly focused on their own tasks without seeing them as a contribution to a larger process.

The silo problem doesn't just happen with relationship managers and credit analysts, by the way. In some institutions, documentation falls under credit, in others, it falls under operations. Again, which approach is more likely to help documentation staff work most effectively with other players in the process?

Even if you have workflow well described in your written procedures, I encourage you to have a graphical representation of workflow available that makes it easy to see the crucial interactions between players. In other words, in addition to the vertical interactions in reporting relationships revealed by the org chart, capture the horizontal interactions that implement the credit process.

Only when everyone can see in both dimensions, so to speak, will your credit process produce optimal results.