Translation: Saving through Standardization

By Matthew Conley, Technical Writer, Gallagher Financial Systems, Inc.

Translation: Saving through Standardization

At the start of the 20th century, Henry Ford started manufacturing and selling automobiles in America. By 1918, over half of all cars owned in America were made by the Ford Motor Company. While Ford’s Model T may not have been anything special to look at, it was the first automobile that was affordable to the masses. The Model T was affordable to the public solely because of Ford’s visionary innovations that created products at a lower cost than ever before. His innovations touched off a revolution in manufacturing that was much farther reaching than automobile manufacturing. What did Ford do that no one had done before with manufacturing? He created the assembly line, he enacted a division of labor, and he introduced the use of standardized and interchangeable parts. No longer would each car have to be individually crafted, each car having parts slightly different from those of the car created before and after it. Instead, cars produced from Ford’s lines had parts that were interchangeable. This innovation saved Ford time and money and allowed every American the possibility of owning an automobile. Of course, this was nearly a hundred years ago and the benefits of using interchangeable or “standardized” parts may seem glaringly obvious to America’s modern industries.

However, since the internet began to dominate American culture and more and more conventional business services are being replaced by “web services,” creating standardized parts is beginning to have a whole new meaning. Before the internet began to mature, many information technology businesses (perhaps like those early automobile manufacturers that tailored car parts for each individual car) customized their electronic data to meet their specific needs without much thought as to whether the data could be used again by a different business. With the rise of web services and with more and more data exchanges between businesses being made electronically, businesses can no longer afford to be on a different page from one another when it comes to the way data is formatted. In other words, electronic data parts must be standardized in order to create efficient communications among businesses that interchange these parts. Nowhere is this need more prevalent than in the lending industry’s relationship between lending institutions and service vendors. As such, the 1999 formation of the Mortgage Industry Standards Maintenance Organization (MISMO), whose goal it is to “develop, promote, and maintain voluntary electronic commerce standards for the mortgage industry,” was inevitable.

Although a recent survey conducted by the Mortgage Bankers Association (MBA) cited that only 40% of the survey’s participants had already adopted MISMO standards to some degree, it further revealed that 80% of all those surveyed expected to begin using MISMO standards in the near future (MISMO 2-3). It is not hard to see why companies want to adopt the standards; after all, efficiency breeds profits, and at least one study claims that loans processed using MISMO standards cost much less than those processed without standards. And whether, as Anthony Garritano asks, lenders are waiting for vendors to comply with the standards or vice versa, it is clear that companies that want to remain competitive will need to adhere to MISMO standards at some significant level. However, the desire to be MISMO-compliant must be matched with technology that is not only compliant with the lender’s business needs, but also compliant with the latest iterations of the MISMO standards.

Several companies that develop lending technology claim to offer products that support MISMO standards (Garritano). However, MISMO is an organization that must constantly evolve its existing standards and create new standards to meet the needs of the companies it is meant to serve. In fact, MISMO plans to expand the number of standards from 3,000 to over 5,000 by the year 2005 (Garritano). This expanding set of standards has technology firms scrambling to be compliant with the latest version of MISMO standards, and lending companies should seek out those technology firms that comply with the latest standards before implementing an origination or interfacing solution. Some technology firms have established initiatives tasked with improving the development of business-to-business communications. These companies employ business-to-business communications architects for the sole purpose of complying with MISMO standards and assuring interoperability between their clients and their vendors.

By using the latest standards, such technology firms can offer “out-of-the-box” support for any third-party service that supports a MISMO interface. According to Greg Alvord, business-to-business architect for Gallagher Financial Systems, “before MISMO standards, interfacing with a new provider required the lender to justify a significant development expense.” Now, some technology firms work to create standardized, “plug and play” interfaces that need little modification before clients can go live and communicate with their vendors. In other words, MISMO standards “allow lenders to take advantage of new service providers with lower fees . . . and at less cost by reusing interfaces developed previously for other MISMO compliant vendors.” Furthermore, MISMO standards also help preserve data integrity and minimize the errors that can occur when data is exchanged (MISMO 5). One study has estimated that simply sending the correct data could alone save some lending companies millions of dollars over the course of a year. Indeed, the return from investing in MISMO standards cannot be ignored. In addition, some of the more innovative MISMO-dedicated solutions providers typically create data exchange objects that can be used behind the scenes of web services to comply with MISMO XML standards and to pre-map data points from the MISMO Logical Data Dictionary to their appropriate location in a database. This standardization allows solution providers the flexibility to offer interfaces to virtually any MISMO-compliant, third-party vendor.

This type of technology solution, one that is dedicated to MISMO compliance, offers many advantages to businesses that possess it, providing “greater operational efficiencies and the agility needed to compete effectively in a dynamic market” (MISMO2). In addition, MISMO standards make it easier for technology firms to set up data communications with those companies that do not comply with MISMO. That is, MISMO standards can significantly simplify the development process for non-compliant interfaces by allowing compliant companies to map MISMO data elements to non-MISMO defined data elements much more easily than before. According to Alvord, “in effect, a MISMO-compliant technology provider can simply point the service provider’s non-MISMO elements to the correct MISMO place.”

Again, the use of MISMO standards provides a universal method of transmitting data to a company’s service providers. Standards not only provide technology firms with the means to more easily set up their products, they create the opportunity to set up products that have immediate value—products that offer a line of efficient communication between companies. In the article “Strategy as Ecology,” Marco Iansiti and Roy Levien claim that one company’s health can be measured by the health of those companies with which it interacts within a business ecosystem. If this is true, it follows that companies cannot prosper in a business ecosystem that partially revolves around the transfer of electronic data if the data is not formatted in a way that renders the data instantly useful to both companies. In other words, the MISMO standards offer a common language for lending companies to use when transmitting data. After all, how can two parties do business unless they share a common means of communication? MISMO standards provide this common language. Companies that seek and ultimately find a solutions provider that can help them learn the common “MISMO” language can begin communicating in an efficient way that all lending-related businesses can understand—a money-saving way.

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