A root cause of stupid

Just because something looks stupid, that doesn’t mean it is stupid.

Take, for example, the process you go through when buying or selling a house. There’s sheet after sheet of paper you have to sign, every one of which has exactly the same information: Yes, all parties want to go through with the transaction.

This being the 21st century and all, shouldn’t there be an easier way?

Yes, and in fact it’s quite easy to envision a much, much easier way:

1. Review all of the documents, or, rather, review the content that’s contained in all of the documents.

2. Sign once using an electronic signature pad.

3. Store all of the results in a central database.

Nothing to it.

Nothing to it, that is, other than persuading an entire industry to adopt the system in question.

Did I say “entire industry”? Were it only that simple. The task is to persuade all of the companies in several different industries — realtors, mortgage underwriters, mortgage servicers, title insurers, every registrar of deeds, and HUD, to name a few.

And it isn’t just a system. They’ll all have to adopt standard information formats, and to modify their processing systems to accept them.

All of which starts with an industry standards committee.

If you think this is easy, you’ve never been involved in an industry standards committee.

Just because something looks stupid, that doesn’t mean the people trapped in the system are stupid. More often than not, the stupid system is the best system possible given the constraints everyone is operating under.

Which leads to one of Lewis’s Laws of Business: Stupidity is more stable than effectiveness.

Look at most stupid systems and you’ll see similarities to the closing process:

• Blinders: Nobody who works in the system or manages part of it has much influence beyond their narrow purview.

• Self-interest: Mastering the stupidity provides job security to those who have mastered it.

• Lack of incentive: No matter how stupid the system is, there’s little obvious business benefit to be had from improving it.

The usual view of these things — in particular among practitioners of Lean and Six Sigma — centers on the importance of dealing with the end-to-end process, along with making sure someone has responsibility for it. Both are lovely sentiments, and there are business situations where it’s possible to achieve both of these preconditions.

In particular, there are business executives who recognize how poisonous persistent organizational siloes are to their competitive success. It’s these executives who are most likely to assign the label “core” to one or a handful or business processes, and to assign an owner to each one, usually on the theory that this gives them “one throat to choke.”

To be fair to all parties, they usually do manage to improve the functioning of their core processes. That’s because improving processes that are truly at the core of the business has a strong and clear connection to increased revenue, decreased operating costs, or better management of important risks to the business. The financial incentive is clear.

It’s also because more often than not the business is already organized around its core processes. Each one constitutes a functional area of responsibility — think sales, manufacturing, and distribution and you’ll understand the point. So the blinders issue isn’t in play, either.

But processes that are real-estate-closing stupid are rarely at the core of the business. They’re processes that have been cobbled together by less-influential managers and staff, with no tools beyond Excel to help with automation and with silo owners doing their best to maintain the blinders that might, if removed, allow the sort of collaboration that would result in a cleaner way of doing things.

The three root causes of real-estate-closing-level stupidity are why the still-popular practice of organizing a business as a marketplace … with shared services providers charging delivery functions and each other for their products and services … is a near-guaranteed cause of long-term competitive decline.

The practice is popular because of a deep-seated misunderstanding of the nature of marketplaces of all kinds. They’re widely thought of as a way to create “efficiency.”

And they are excellent ways to create efficiency, except that the efficiency in question is the balancing of supply, demand, and price.

There’s nothing at all in economic theory to suggest markets self-organize into efficient cross-business processes. Businesses maximize their own profitability. They won’t sacrifice it should that be required to make overall delivery more efficient.

And even if there was such a theory, all theories are subordinate to the “ugly little fact.”

In this case, the ugly little fact is ugly indeed. It’s called “buying a house.”

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Want to buy a townhouse in scenic Eden Prairie, Minnesota?