Living High on the Hog

The mortgage lending business could take a few tips from successful market leader Harley-Davidson.

William Harley and Arthur Davidson were in their early 20s when they built their first bike in 1903 in a Milwaukee shed—a tale sounding eerily like a thousand dot-com births. Unlike so many of the information age stories, they had a real product that filled the new 20th century need to get from point A to B on the cheap. Later, the duo found themselves in competition with a number of brands for the hearts and minds of the American public. Of those, only Harley has continued production uninterrupted, and today is thought by many to be the brand most beloved by its customers in the United States—that’s not just among motorcycles, but among all companies. Harley-Davidson has endured a rollercoaster ride over its century that is not unlike the business of mortgage lending. That Harley has emerged as the most iconic brand in its field is the result not of luck, but of sound business practices from which every industry—old and new economy alike—can learn.

It has also become one of the most profitable companies, with its share price up 15,000 percent over the last 18 years and earnings of $435 million on $3.3 billion in revenues. Waiting lists for its products are as long as the line of 12-year-olds at a Britney Spears concert, despite producing machines thought by many motorcyclists to be overpriced, underpowered, and archaic in design. People want Harleys, as many as they can build, and they want a piece of the freedom and unfettered lifestyle the brand represents.

The journey to fanatic Harley-Davidson brand loyalty has been a trek over ground made treacherous by the superior products of foreign competitors, odious quality in the factory, and a former parent company loathed by the Harley faithful to this day. Despite the peril of the last 20 or so years, however, the company has emerged from its odyssey in sterling condition, owing largely to its employees. It’s an example of how people who are passionate and expert in their work wrested their fate from corporate “suits,” and did things their way. Any comparison to the independent mortgage originators who did precisely the same thing (and during precisely the same time period) is entirely intentional.

For originators, the controllers of their collective fate were large institutional lenders and mortgage bankers who tired of paying commissions along with bricks and mortar expenses. They believed that customers dealt with companies, not with individuals. Customers apparently didn’t agree, and lenders ultimately lost 60 percent or so of the retail origination business to mortgage brokers. Harley was awash in red ink about that time, and had not kept pace either with the market or with its own quality. No one rode a Harley without a full tool kit and a quart or two of oil, whereas Honda owners enjoyed boundless reliability and more exciting products at far less cost. AMF (yes, the bowling machine people) took over Harley and promptly proceeded to ignore it almost to death. About the time Harley’s reputation hit rock bottom, 13 managers gambled everything to buy it back and morph it into the kind of company they envisioned for their cherished brand.

The turnaround required new thinking. Harley managers, including current CEO Jeff Bleustein, believed the key to survival was to change the entire management paradigm. Instead of an elite at the top of the organizational chart, they wanted to bring everything to do with Harley’s future down from 50,000 feet to where the figurative rubber met the road—in the plant, with the people who actually built the bikes. As he said in a recent interview, “We wanted all the employees to think every day about how to improve the company.” This was a highly enlightened view for the time, and one that called for extraordinary cooperation in its unionized environment. Fortunately, the workers agreed, ending much of the age-old adversarial relationship between management and labor.

Emerging from Harley’s climb from stock market zero to hero came a set of concepts the company has used and improved over the years. Interestingly, almost all of them are directly translatable to companies and industries involved neither with manufacturing or motor vehicles. Service-intensive industries, such as mortgage lending, and small companies, such as mortgage origination organizations, can stand to profit from the concepts in effect at Harley-Davidson, which is about to enter its second century as America’s premiere builder of motorcycles.  For most Americans, their dream involves a home of their own; for many of them, it just might include a Harley in the garage.

Teamwork is number 1. Harley entered into historic agreements with the unions, including them in most of the decisions made regarding the company’s future. By doing this, most of the traditional friction was removed. In small companies unions aren’t a factor. But most people work even better in environments where management listens to them, asks their opinions, and fosters open and frank discussions about how to improve the company’s fortunes. Not all the ideas have to be winners, either. But the fact that everyone is part of the team binds workers and managers together in a common effort.

Shake up the teams to encourage creativity. When looking into solutions for vexing problems, Harley employs a team approach, creating solution-specific task forces to address root causes and potential fixes. Team members are chosen from across the organization but are focused on the competencies most relevant to the problem being addressed. Importantly, they don’t always put the same people on task force teams. Harley changes membership on teams by project because permanent teams can be stagnant in their thinking. At the same time, varying the teams’ makeup gets more people involved.

The same approach is easily used in origination firms. Using non-management workers is a great way to get them involved, but don’t go to the well too often with the same people. Your company may not have 7,800 employees to choose from, as Harley does, but you can rotate requests to participate on teams so that no one feels left out—and ignored. Over time, it will become obvious who likes being involved with task forces, and who would prefer to limit their work to their own tasks. These problem-solving teams will also help you identify high-potential employees who will make good candidates for promotion.

You can’t overcommunicate. Harley has learned that an informed work force is a more productive one. They use newsletters and bulletin board information to keep employees abreast of company performance, news stories and other information that details how the enterprise is doing. In addition, they focus on issues with regular town hall meetings moderated by company managers. If an employee wants to know what is going on, there is no shortage of information.

Good people want to feel plugged in to their employers, whether they are building motorcycles or making loans. This means knowing how they are doing in terms of production and profitability, as these are obviously part of job security, but also in terms of new programs and products on the horizon, in addition to a hundred other aspects of running a business.

Don’t become top-heavy. Learning from its experiences as a subsidiary of AMF, Harley knew that it had too much management. They were actively developing a core value concept of listening to the people who do the work, and in order to do so effectively, they felt the need to make communication more direct. So Harley eliminated its Executive VP level and refined its hierarchy to put information in the hands of decision-makers more directly.

Small mortgage companies, particularly as they age, can find themselves with more layers of management than they need to get the job done. Founders may be aging and easing themselves out of day-to-day management, while retaining a certain amount of authority. This means they have others doing work they used to do, but with less authority—which can lead to superfluous layers. More management means less communication with the people who do the work.

Listen to the people who do the work. Just because you slimmed down on intervening layers, it is not a given that you are now getting good information. Harley made a concentrated effort to find out what the people on the manufacturing floor were thinking. A great reason for doing this was not only that they understood the business of building motorcycles, but because one look in the company parking lot verified that they were also riders. No one knows more what the riding public needs or wants than the riders themselves.

Mortgage origination people listen to customers all day long, particularly in smaller companies. Even if they themselves do not have mortgages, they serve as a direct conduit for customer and client input, and so bear listening to. Develop a culture that allows information to flow from the “floor” to management, and you have gone a long way toward solving problems before they ever happen.

Allow the people who do the work to develop. Harley is listed as one of the top companies in America for which to work, and this recognition does not happen casually. It requires good benefits and pay, but also means that the company recognizes that good employees are worth the investment to develop. Harley’s Leadership Institute offers over 100 courses designed to develop employees personally and professionally.

Personal development is a great way to grow employee loyalty, groom for future advancement, and create greater satisfaction on the job. Fortunately, the mortgage industry currently offers more development courses than ever before, and at costs that won’t blow the budget of small employers.  Junior colleges and adult learning facilities offer business and personal training that can help you make your good people even better.

Give the market what it wants, but don’t ignore innovation. Harley-Davidson has made its fortune on the manufacturing of virtually one product—air cooled, V-twin motorcycles. Last year they introduced an entirely new class of motorcycle that looked like a (gasp!) foreign bike, leaving the core Harley customer base shaking its collective head in dismay. Harley is still making their tried and true models, but they have elected also to innovate—looking toward the future and the buyers who reside there.

A few years ago, many mortgage origination companies were content to focus on a single range of products; FHA/VA loans, for example. The rest of the world was getting into wide selections of conventionals, but there was enough business to be a tightly niched player and still succeed. Today, of course, more firms are diversifying as the refinance business ebbs and flows. They are doing Alt A and subprime loans they would not have considered just a year or two ago. Some companies simply reinvent themselves periodically, embracing entirely new product lines while working to maintain relationships with core customers. In the wholesale business, First Franklin is a prime (or subprime) example.

Harley-Davidson is an American icon, and the product it builds has something that creates brand loyalty like few others. Whatever it is—mystique, esprit, or a lifestyle that attracts hardcore types and wannabes alike—it is difficult to articulate. The best the typical Harley enthusiast can usually do is not articulate it at all, saying, “If you have to ask, you wouldn’t understand.”

As for how the company maintains the qualities the loyalists so admire, Harley boss Jeff Bleustein has no trouble articulating advice that could also be used by loan origination professionals looking to stay on top of their game. It’s advice that should be good for at least another century or so: “You should,” he says, “act as if you’re being chased by a hundred fiery demons.”

By James Hennessy