Tech-Driven Efficiency Spurs Economic Boom
Not so long ago, Countrywide Home Loans needed an army of customers service reps to field the 20,000 calls that streamed into its offices everyday. Each inquiry--ranging from payment problems to tax questions--cost the lender about $4.
Today, almost half of those calls are handled by an automated system, which identifies the caller from the incoming phone number, scans the homeowner’s account, then automatically supplies the information it thinks the customer is seeking. Average cost per call: 60 cents.
The mind-reading technology isn’t perfect, but it saves the Calabasas company about $6 million a year and frees up 86 full-time employees to work on more complex customer problems.
It’s just one example of how a company is becoming more productive. But multiply that by thousands of other businesses doing similar things, and it becomes clearer why the nation’s economy is marking its longest expansion ever.
Earlier this month, the government reported that productivity of U.S. businesses during the last half of 1999 jumped by a stunning 5%, the biggest increase since 1992. For the year, productivity rose 2.9%, or nearly twice the average 1.5% annual gains seen since the early 1970s.
Economists say this resurgence in work force efficiency--which has been steadily rising for four years--is the linchpin in today’s unparalleled economic growth; productivity has enabled companies not only to do more work with fewer employees, but pay more without spurring inflation.
The latest gains are almost certainly the payoff from hundreds of billions of dollars in investments by U.S businesses in computers, telecommunications, bioscience and other technologies over the last decade. Manufacturers have seen the biggest spurt in productivity, reflecting their longer history of global competition that has forced factories to mechanize, out-source and downsize, all of which have boosted output-per-worker.
But since the late ‘90s, service businesses such as transportation, trade and finance have begun reaping bigger productivity rewards as well. And productivity pioneers such as Countrywide, one of the nation’s largest mortgage lenders, are leading the charge.
The lender’s path to productivity parallels the nation’s, with its occasional false starts and delays. But the efficiencies that the company has seen recently, some simple and some complex, illustrate how the service sector--which employs three-quarters of the nation’s private work force--is using technology and the Internet to do far more than ever before, faster and cheaper.
Weeks of Work Shrink Into Seconds
Employees at Countrywide used to spend weeks gathering paperwork needed to approve loans. Today, online computers use artificial intelligence to make decisions in 30 seconds.
Mortgage payments mailed without pre-printed coupons once sat for 24 hours before employees could process them by hand. Today, machines handle the task in seconds, so payments can be deposited in time for an extra day’s float.
And almost one-fifth of the company’s 2.5 million borrowers have been coaxed to make payments electronically, costing Countrywide less than 5 cents per transaction--one-fourth the cost of mailed payments.
“Ten years ago, I don’t think we would have imagined that we would be able to process and underwrite loans as fast as we can today,” said Richard Jones, chief technology officer at Countrywide.
Productivity has been anything but predictable. Experts have long been perplexed by why U.S. productivity had risen so slowly since the 1970s, despite the $2-trillion investment in computers and technology over the last 30 years. It was called the productivity paradox.
Now economists foresee a productivity payoff.
Although some remain skeptical, many experts believe that the latest acceleration reflects an economy that has attained a critical mass of computers at workplaces and homes, as well as a greater understanding of how to use new technologies. Moreover, baby boomers are in their most productive work years.
“Productivity comes in waves,” said Sung Won Sohn, chief economist at Wells Fargo Bank. “We are seeing a new wave. But we’ve just seen the tip of the iceberg. The Internet revolution will be like the discovery of electricity. We haven’t seen anything yet.”
That could prove monumental. Productivity has a more direct impact on society’s standard of living than anything else. A major reason that the Bay Area leads the nation in income per capita ($38,300 in 1998) is that the region’s computer, electronics and other high-tech manufacturing industries are widely considered to be the most productive in the land.
Generally speaking, productivity rises when workers are able to produce more goods and services in the same amount of time. It’s like finding new ways to squeeze a little more toothpaste out of the tube.
For a company such as Countrywide, that means closing and servicing more loans, with fewer or the same number of people. In 1991, Countywide originated 51 loans per employee. That number has since nearly doubled.
Countrywide, of course, has the benefit of its huge size--efficiencies of scale that many smaller mortgage lenders in the fragmented industry don’t have. Indeed, estimates by RFA/Dismal Sciences, an economic research firm, show that the number of loans originated in the mortgage industry nationally hasn’t improved at all in the last decade.
At Countrywide, some of the biggest productivity strides have come in the way it handles and services the more than 2.5 million loans in its portfolio, juggling millions of monthly payments, tax bills and insurance premiums on behalf of customers.
Take the mind-reading telephone technology, dubbed Smart Call. Before it was launched in 1997 at a cost of $500,000, Countrywide employees spent thousands of hours answering simple questions. The most common: Did you receive my last payment?
Now Smart Call automatically searches for any recent activity, and if a payment has been posted in the past few days, that information is provided by the computer to the caller.
The computer has even been programmed to know the difference between a savvy borrower and a first-time homeowner. So if a new borrower calls around tax time, the computer might assume the customer is confused about a tax bill and offer a recording to remind the caller how the bill will be handled.
Many customers at Countrywide still opt to speak with a representative. But Countrywide says 43% now get the information they were looking for without ever having to ask for it.
Processing insurance bills from dozens of companies was another challenge. Countrywide workers used to do all the paperwork by hand. Now the documents are scanned into a computer that can distinguish an Allstate renewal notice from a State Farm change of address form.
Replacing People --Without Layoffs
About one-third of Countrywide’s insurance paperwork is handled almost entirely by these new machines, which hum silently in cubicles that once housed employees shuffling paperwork.
Such mechanizing has eliminated some manual jobs. But it has not resulted in significant layoffs because enhanced productivity has helped Countrywide expand its business. Although managers have found they don’t need to hire as often thanks to the technology, the company’s overall work force has still doubled since 1996, to 10,600.
“We have about the same number of people handling almost twice the mail,” said Stephen Grzeskowiak, who heads the lender’s insurance unit.
But the road to productivity hasn’t always been smooth.
Countrywide’s first automated phone system in 1989 bombed because customers were confused and frustrated. Rather than plod through numerous menus and options, most callers opted for an operator or hung up.
Similarly, customers abandoned earlier versions of Countrywide’s online loan application because the forms were too complicated. Countrywide also learned that doing business on the Internet wasn’t exactly a 9-to-5 operation.
“We found out that people were applying for loans at 2 a.m.,” said Jones, the chief technology officer. That meant keeping computer systems that once shut down in the middle of the night constantly running. “We learned there’s no such thing as down time with the Internet,” he said.
Such struggles and adjustments have been common in corporations, and may help explain why U.S. productivity lagged during the first half of 1990s.
Just as U.S. businesses did not benefit from the advent of electricity until they redesigned their factories, companies today are still having to rethink their strategies and structures to make efficient use of the new technologies.
“Some people call it technological presbyopia, or farsightedness,” said Erik Brynjolfsson, professor at MIT Sloan School of Management and a productivity expert. “Sometimes it’s easier for a company to see the long-term potential of technology than it is to see the little changes you have to make to get there.”
Online Lending Still in Its Infancy
The Internet is a prime example.
E-commerce promises to revolutionize almost every industry, as soon as businesses figure out how to best use it. Countrywide’s Web site, for instance, has offered immediate savings and productivity gains in certain areas such as enabling consumers to check interest rates and get updates on a loan approval.
But in terms of making new loans, the Internet so far isn’t saving much time or money. In fact, it may even be reducing productivity in some ways. Lenders such as Countrywide have found that their Web sites increase--not reduce--call volume to customer service centers because borrowers have questions about the process.
And the vast majority of borrowers who apply online still drop out of the process at some point, calling customer service or visiting a branch.
Countrywide officials admit it’s hard to say yet whether the online business has boosted loan-making productivity. Right now, the company’s cost to acquire a new customer is no cheaper online than it is offline: Both are about $1,500 per customer.
Over time, the company predicts online costs will be cut in half and productivity will surge again. But that will come only after it figures out--once again--how to master the new technology.
“It’s just beginning to pay off,” said David Espenschied, chief executive of Countrywide’s e-business unit. “The best is yet to come.”
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More Output, Less Cost
Productivity
of nonfarm businesses has grown in recent years at the fastest clip since the 1980s recession.
It climbed 5% in each of the last two quarters.
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Technology-driven productivity gains at Countrywide Home Loans have enabled the Calabasas-based company to increase its mortgage portfolio while lowering expenses.
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Sources: U.S. Bureau of Labor Statistics and Countrywide Home Loans
