In his article “Quality Snags in the Mortgage-Finance Supply Chain,” Paul Zipkin explores the application of quality management concepts to improve the mortgage-finance supply chain. This commentary builds on Zipkin’s insights, emphasizing the need for a systems thinking approach to address the complex challenges in the mortgage-finance system.
Complex System Design
The commentary emphasizes the importance of a systems thinking approach to address the interconnected challenges faced by society, such as economic crises, social unrest, and climate change. It argues that these issues are part of a larger system and require a holistic perspective to solve. It further highlights the design flaws in the mortgage processes and products, noting that the subprime mortgage crisis represents a systemwide failure of quality. Finally, the commentary stresses the need for alignment and integration among stakeholders to avoid unintended and undesirable consequences.
Regulatory and Market Failures
The commentary discusses the regulatory and market failures that contributed to the mortgage-finance crisis. It points out that effective markets require appropriate regulatory mechanisms, transparency, and aligned incentives. The lack of oversight and regulation led to the proliferation of risky products and practices. The commentary also cautions against hasty decisions and tampering with systems without fully understanding them, as this can lead to further unintended consequences. In addition, it emphasizes the need for transparency and balanced risk among consumers, lenders, and investors to create and sustain an effective and efficient mortgage-backed securities (MBS) market.
Leadership and Learning
The commentary also highlights the importance of leadership and learning in addressing complex system challenges. It notes that the fragmented nature of the mortgage-finance supply chain, with numerous brokers, small lenders, and resellers, makes it difficult to achieve alignment and integration. Ultimately, it calls for better frameworks to understand complex financial systems and for leaders to evolve beyond their organizational roles to become stewards of the system, creating value for multiple stakeholders. And it advocates for incorporating systems thinking and ethical principles in business education and decision-making to address current and future challenges.
Latham, J. R. (2009). Complex system design: Creating sustainable change in the mortgage-finance system [Commentary]. In Quality Management Journal (Vol. 16, Issue 3, p. 7). DOI: 10.1080/10686967.2009.11918235