Interview with

Bill Kelvie, Chief Technology Strategist, Fannie Mae, June 30, 2000

K = Bill Kelvie  W = Wharton

W: What are the ways that leadership in e-businesses differs from leadership in traditional bricks and mortar businesses?

K:    Obviously the need for speed and rapid decision-making is critical. Most brick and mortar businesses tend to, over time, become more and more consensus driven.  They have a lot of complicated organizational structures and considerations that e-businesses either don't have or don't address well. 

W:   Did you find that amplified in your particular situation?

K:    Well, in Fanny Mae, we're actually in the center of the whole mortar system.  So everything we do is scrutinized or misinterpreted.  So yeah, it's a very big challenge.  We're sort of a messenger of the future.  Dot-coms I work with, are seen in this creative destruction process and it's sort of understood that that's what they're going to do.  But in the center of an industry that's transitioning, you have to be much more judicious, even though at the same time you have to get with it or else you'll be lost and the benefits will be lost and you'll be antiquated so that tension exists in traditional businesses.

W:   Could you walk through at least the big sort of benchmark steps that took you to get from A to B?

K:    Yeah, what we did was develop tools that basically sped up the whole mortgage process.  Very early in the nineties we recognized that it was just too expensive.  Twenty seven hundred dollars to originate a loan.  Say the average is a hundred thousand dollars but that cost is way out of whack.  It was a barrier to home ownership so we had to change all that, and we elected to do that.  So that was the genesis, and we started… we built… we didn't realize it would be internet centric but we built desktop underwriter and desktop originator, these two tools that took time into lay out the process.  That evolved.  At first we were very much oriented to providing these tools on our own network, we were worried about security, liability and all that kind of stuff.  Then we evolved them.  Once you have them though it's a short step to the Internet.

W:   As far as specifically you as a leader, or referencing your CEO, what do you see as the necessary qualities of a successful leader in the internet economy?

K:    First is a vision -- where your industry is headed and where are the big opportunities.  It may be more visionist.  It's really a fundamental understanding of how the economics are going to change and how to benefit from the change rather than be victimized by it.  So that's the most critical capability, some times people described it as a vision, but it's really just understanding where this momentum will take you and getting ahead of it.  That's a key piece and then it takes, frankly it takes patient investment and infrastructure capabilities and building things right.  A lot of people, they have the killer instinct but they don't have the ability to really execute.  I see that in a lot of dot coms.  What they do is they have a lot of VC money that they burn through and they throw a lot of things at the wall basically, hoping something sticks.  But they don't really have that patience to build the kind of capabilities that you have to have.  And that's very fortunate for Fanny Mae that our current CEO when he was vice chair, had both a good sense of where the economics were heading and also the desire to invest patiently, which has paid off.  You know it's funny because I came down from Wall Street and we've built an infrastructure that has capabilities that are very similar to a lot of Wall Street firms.  And their budget is four times, five times what mine is.  It's kind of interesting to watch that.  What they do is, they didn't have the patience, they didn't have the on going strategy.  They'll do a lot of stop start stuff, you know, when the markets are good they throw money at everything.  That doesn't make for good investments, and then when it's bad they cut everything off.  So everything you've been doing you have to discard.  We've been very patient and steady in building capabilities which I think is useful.

V:    As far as the audiences that you were looking to satisfy with your road show, the was the analyst market.  But was there a broader mission there behind that?

K:    It was the analysts that we most wanted to reach in the investor community because our stock has not been valued sufficiently for these fourteen years of record earnings.  People didn't realize all the content to our work.  We manage one of the largest financial institutions in the world, and we do it with four thousand people.  So we have a lot of technology skills, which people sort of recognize, but we were stunned a little bit by this Barons article.  It said you know " best manager of the old economy, why doesn't the stock compare…"  And it was actually flattering to us in a way.  Saying you know " here's a very good company." You know we wanted to get our story out, and the investors were very responsive, it was very pleasing to…but the analyst investors got it.  But as far as it goes it doesn't… what has happened is the internet evaluations have come down instead of our stock go up.  We didn't get exactly what we wanted out of it.

W:   Okay so vision, patient investment and execution.  Excellent.  Is there anything else you would like to add to that list from a personal standpoint?

K:    Just that you have to be fairly tenacious about the stuff.  What you're doing is you are reallocating resources in the company to something that a lot of very good people would view as either risky or basically away from the very important core business.  So you have to, frankly, be either a very good salesman in making them feel that it's important, or fairly tenacious, you know when the going gets tough and it looks like it's something that is a bit sketchy versus another use of the funds.  But you know, you gotta hang in there.

W:   So it sounds like there is some need for some good basic, you know, good basic methodical plodding along and then also support at the top sounds like it's important too.  Meaning that you were there to you know, and your CEO were there to sort of, keep shepherding this thing that it wasn't a middle management trying to get this thing through.

K:    One other critical thing is building a very strong team.  Actually, I'm fortunate that I have somebody… actually now has just been announced as president, has become president of our e-business division, which is really a terrific thing.

W:   So in other words it's some one dedicated to the slot.

K:    Yeah it is.  He actually has managed us very well.  But I've always felt that you need get very good people, a higher caliber of people.  You can't do this with either pedestrian talent or lack of commitment.  You have to have very good people who are willing to really commit themselves very fully.

W:   What tools do you find necessary or useful when seeking to motivate individuals to follow you vision?

K:    Clear communication and repetition.  It takes a while in discussions and getting people on board.  The second the spirit that falls on an organization.  Together people decide on tough objectives and then people pull together to make it happen.  That generally yields a very good morale.  It needs to be a very flat structure --people need to feel as if everyone counts.  It's not a consensus driven thing but it's a sense that you have a lot of people pulling together. 

W:   How do you integrate new people?

K:    This goes back to a very formative time.  We did a very exciting joint venture with IBM seven or eight years ago we ended up hiring a lot of people because lots of people participated.  IBM was going through their down time and we ended up really getting the kernel.  I've seen this and seen this in companies where companies transform by going outside and grabbing teams of people, not just one or two.  Well in this case the joint venture helped transform us and we ended up getting just a couple people there.  But we ended up pulling in this research capability.  Pulling in a lot of fine technologists and then it created the thought that Fanny Mae was doing all these innovative things.  We were on quiet server in 1990.  So by taking that one step it created a lot of excitement and it pulled in very good technologists from the Washington area, which was delightful.   That was really critical that people sought us out.  I didn’t even realize it -- it was another firm and I'm not going to mention the name -- but we hired just a couple people from this firm.   Then they each brought in a few people, and they each brought in a few people, and we ended up hiring thirty people.  And they are very good people.   The firm sent me a letter and said that we were going through the phone book and deliberately recruiting.  And I was really embarrassed because I don't think that's right to do.  And it wasn't that, it was this word of mouth that Fanny Mae was doing all this cool stuff.  So we got an elite group of people that wanted to come and be part of this and the company was clearly behind it from the top of the organization.  I was the CIO and was very involved in it because my organization was smaller.  Lots of us were more hands on, and there is really a strong sense of excitement about it all. 

W:   That's similar to the situation in the New New Thing.

K:    Yeah that's a great book, great author, actually, as well.  But yeah, for this group it was the new new thing, and they look back, a lot of us look back to that as a very exciting time.  We were well ahead.  We are way ahead of our industry, and we are well ahead of our practice anywhere.  No one was really integrating as fast into real applications.  We were building trading floor applications with the existing technology in '92.  We were basically out there a bit, pushing the vendors.  We got a lot of heady support from our vendors and that, well at the time it was Bob Ebstine from CyBase who was one of the founders, and Scott MacNealy from Sun, and Steve Jobs.  And by pushing the edge all the time we were very interactive with these companies.  It not only created the excitement but they helped us solve problems fast.  Which was critical to taming these tools.  That really reinforced everything we were doing.  I look back and that really created a lot of the excitement and exhilaration that fueled long hours in absorbing some of the gaps and the technology its self, finding the energy to plug the holes as they were discovered.

W:   How do you motivate and retain talent?

K:    It's interesting because now, because we have so many cutting edge skills and we've grown large we are now a source of talent.  We have great training programs which reinforce this.  We have very good recruitment classes that we get two thousand resumes.  Even now we get two thousand resumes for fifteen kids.  I shouldn't say kids because a lot of them are people who have actually some of them have had careers.  One was an airline pilot, one was a dentist, you know those kinds of things.  But they want to get into technology, so we get a lot of really good people bottom up, then we commit to the training.  So as technology has changed we have always had very fresh courses that will totally transition you from technology A to technology B.  But first we do what call boot camp, take people from mainframe to client server.  Only one client server, in 1990 we designed a course to transition people over, and they were really glad because they could see it coming.  Although some of the mainframers told me I was going to put the company out of business.  And some of them still believe this after ten years.  They're kind of a dyed in the wool group.

W:   What kind of culture exists at your company?

K:    Well we have a company that is extremely analytical, very very heady bright people.  Very diverse in the business side.  If you can imagine managing a one point two trillion dollar book of business with only four thousand employees.  It reinforceds people who are deeply analytical and also very good at managing risk but tend to be averse, naturally.  I mean that's an important thing for the company that we manage as well as we do, which we do extremely well.  We have historically had very good account management teams that work with lenders.  This is an interesting thing because culturally we had to move from a very poor rating on customer service in the late '80s to one where the account teams have been seen as extremely helpful to lenders.  The culture is one of problem solving and people being very bright.  It's also one that we have a mission of putting people into homes and you have a very high streak of idealism and integrity, which is a very refreshing thing about the company.  I've always said it's like a Wall Street firm with a conscience.

W:   When you put the dot com on the end, was there some shift there, in terms of culture?

K:    Yes, it continues actually.  It's kind of funny.  Now people are jumping in. The thing about the internet now is lots of different people form various disciplines across the company.  And for the last three years, actually four years,  I have been starting to get involved and view it as their domain.  So those of us who were sort of very early on it are glad they came on one level, but on another they're bringing views and we have to get used to the fact that it's more than a technology.  The technologists sort of came out of my R and D labs, our first internet work in '93 and '94.  And now every body feels a part, every body has ideas, which they should.  But it's a little bit different than the lonely cult that it once was.

W:   Given the capabilities as you described as being essential for leading in a business how or where have you yourself been able to develop and acquire them?

K:    I am flattered to be seen this way, but I have always been, or for the last twenty years I've enjoyed working with energetic, intelligent people who are committed to doing something and overachieving.  And I've been able to put teams together. I personally get excited about it and that it's always contagious.  And I have a radar for working with good people, and I think this is a gift that as a technologist I am very fortunate to have. I can sort of sense who has these abilities and who can really contribute if tapped.  That is what I think is very critical.  There are a whole bunch of very aggressive people who want to get into dot com world because of greed, and that's useful, of course.  They bring skills and everything but I don't think they're the ones who are going to make a great enterprise and I don't think they're the ones that are going to get the best contribution from all kinds of talented people.  Instead I think that they are ultimately going to be destructive or their self-interest will ride out.  So it's more like if you can put a great team together where people are excited.  Attract a critical mass of really good people who have integrity then I find that people who don't have integrity don't want to bother working with them.  It's kind of interesting but its no fun or you're exposed to quickly as self-serving.  No body goes around saying that, but people who are in it for greed or taking credit for work that they haven't performed seem to not bother staying long if they can get away with it easier in other organizations.

W:   As a leader, what are your top priorities, in order of importance if possible, and why?

K:    With the web, you've got to get the next release right you know.  You're only as good as your last release and your next one better be coming soon.  So it's really having an instinct on where the most value is created and getting that value in the hands of your customers as fast a possible.  So that to me is a critical, critical thing that has to be done.  Because everybody is fighting, you have to have good execution once people start trafficking your site.  You have to be there, you have to scale, we've had… the mortgage industry is getting like the security industry.   When consumers see the rate cuts, bam… they've gotten really good now because they know they're going to save some money.  It’s a much more volume sensitive business than it ever was.  Just handling the business world is very, very critical.  The 24 by 7 issues and the help desk issues.  It's kind of interesting.  You always have to push ahead rapidly but you have to then be very good on the execution side, which is, of course, a dilemma.  I work with Syac and the trading systems on Wall Street   They would permit changes to be made extremely infrequently after months and months of testing.  That just doesn't work on the Internet.