Fannie Mae's Kimberly Johnson Primes The Company's Innovation Engine

I interviewed Kimberly Johnson about a year ago as she was still settling into her role as Chief Operating Officer of Fannie Mae. She discussed her path from Chief Risk Officer to COO in charge of technology, data, enterprise models, operations, the enterprise program management office, and resiliency. She also discussed her vision for innovation at Fannie Mae. A year on, I thought it would be a good opportunity to catch up with her to find out how things have progressed for her and for the company. 

She described the agile transformation that has been afoot at the company. She described the innovative ideas the company is contemplating and the process used to draw ideas from across the company and prioritize them. She also talked further about her vision for the company in the foreseeable future. 

(To read future interviews like this one, please follow me on Twitter @PeterAHigh.)

Peter High: You have been the COO for Fannie Mae since March of 2018, and the company has been going through a great period of transformation. With Fannie Mae's business, strategic aspects can be digitized. Could you talk about how you have harnessed that?

Credit: Fannie Mae

Kimberly Johnson: I looked at three different areas when I joined.

  1. I started with an internal listening tour in which I looked to understand the dynamics of the team and where the focus needed to be;
  2. Externally, I spent time looking at our customers, partners, and other companies that were going through transformations of their own. This allowed me to hear about what other CIOs and COOs were grappling with and the big issues on their table;
  3. I looked at the industry as a whole to understand the trends that we needed to be paying close attention to around housing. Over 40 percent of people surveyed put buying a house as the most stressful event in their life. By doing so, these people are saying buying a house is more stressful than applying to college, interviewing for a job, or going through a divorce, which I found remarkable. If what we do is help people get into houses, and that is such a stressful life event, there is a great deal of opportunity for us to make a better experience for our borrowers. For us, this is all about making a better experience for our customers too. We work with lenders, and we think about how we can reduce the cost, time, and complexity of everything that goes into the mortgage process so it is faster, cheaper, and easier for our customers and borrowers.

High: Part of the complexity is that there are multiple layers. While there are mortgage holders or those looking for a mortgage, there are additionally the in between people. How do you reconcile the differences in each of their needs?

Johnson: We think a great deal about the housing ecosystem, and none of these aspects exist in and of [themselves]. While we are always making sure that we put our customers at the front line, we are thinking about what business solutions they need, how we deliver the right technology to them, and how we make it easier to use and integrate into their own systems. Further, we think about preserving the industry itself. Safety, soundness, and security are at the top of our list. We build resilience into what we do, and we want to make sure that we have a system that is reliable, safe, and secure for all the users.

High: You mentioned that being agile in all that you do has become increasingly important. Can you talk about the way in which that is taking form at Fannie Mae?

Johnson: We have been on our agile journey for a number of years now. I am proud to say that, though it takes some getting used to, I am seeing some terrific signs of maturity. The flavor of agile that we are leaning into right now is all about integration with our customers. We involve our customers in the design phase, we use all of our customers’ feedback to identify problems to solve and opportunities to go after, and we do co-creation panels with them. They test our products for us before we bring them to the market. As a result, when we get to the final launch stage, we have a great deal of confidence that our product is what our customers need, not just what we think they need. In an agile world, you can take in those data points and make adjustments along the way. This is a much more flexible way to have a fast response to your customers' needs. 

High: You have talked about how you have design sessions, and you involved co-development panels of different types. Can you talk about the makeup of those and how that is done?

Johnson: We have an incredible team that does a great deal of strategic research to understand what the issues are. This team mostly collects data back from our customers and synthesizes that data into meaningful themes and ideas. While everybody wants to make every customer happy, you cannot create new products on a one-off basis. We spend extensive time researching what the entire customer base needs, rather than what a select few need. Once we have a good view of what is going to be most impactful, we spend some time doing assessments around alignment to strategy. We look to see if what we have has business value, if it is something we can continue to build on, and if it is going to have a lasting impact. Once we get through that initial prioritization, it is a question of bringing in some of the customers who are most open to experimenting. They give us great feedback along the way to make adjustments so that we get an end product that fits for a large group of our customers.

High: Could you talk about the process of innovation at Fannie Mae?

Johnson: Seeing our innovation work come to light has been one of my great delights over the past year. We launched an innovation team a few years back, and they spent extensive time encouraging the company to come up with new and innovative ideas. Looking back, I chuckle at the idea that we did not have enough innovative ideas generated from our workforce because we now have an overwhelming supply of terrific ideas. I have found that the much harder part is determining what truly aligns to the company’s strategy. Companies have to reject the ideas that are not going to have lasting value. This involves assessing where that business value is going to come from and from there, starting with and validating some concepts. Turning those validated concepts into some tests and prototypes and getting that MVP ready to launch is a difficult aspect. The even harder part is executing with the discipline to turn that product into a business outcome. The key to this is matching that creativity and good ideas with that disciplined execution.

High: What is the process for prioritization at Fannie Mae?

Johnson: We recently launched a new concept called The Pitch, which is a magnificent website that is internal to our team. Once people submit ideas to the company, anybody in the organization can vote, respond, add, and offer to help with the project. This crowd-sourcing in which everyone at the company who understands our business strategy has commentary, suggestions, and ideas to add has helped us start to hone in on the ideas that are strategically aligned. If you mix the bottom-up approach with some top-down oversight of strategic alignment, you end up in a great place where you know that the concepts you have looked at have support from both the top and from the people at large.

High: Can you share some of the ideas that are starting to bubble up that excite you?

Johnson: We currently have a great campaign around affordable housing supply. It is no secret that there are many people who are looking for housing that is more affordable in places where it is exceedingly hard to find. We have seen that it is tough to find affordable housing in rural and urban areas. We put out a challenge for our team to come up with ideas to help us solve the affordable housing supply problem. Some ideas we are looking into include the following;

  1. 3D printed houses. You can print a house out of concrete in 48 hours, which is extraordinary. Thinking about how Fannie Mae could finance that type of property is a great way to continue to build liquidity around that type of a product;
  2. Modular homes in urban areas;
  3. Factory built housing in rural areas. 

We are getting incredible ideas from our people, and we see new additions to what is going on every day. Seeing this line up to the strategy and trying to solve some of the industry's biggest problems has been a great experience.

High: Can you talk about some of the partnership this yields?

Johnson: I have fully subscribed to the idea that we do not have all the answers. Getting strong ideas is great, but we cannot execute on every idea in isolation. We are working to convene as many partnerships as we can, which involves bringing people in to have the right conversations, getting them excited to solve the big problems that we are facing, and making it easier to work with us so that we can come up with solutions together.

High: Could you talk about the makeup of the innovation team inside the organization? 

Johnson: Our innovation team is incredible, and it has been growing as we have more innovation to manage. We have segments of this team. 

  1. A team that does a great deal of external scanning. This team looks to understand the trends and what is happening with our potential partners, our current partners, and our competition. 
  2. Individuals who focus on what we call intrapreneur. They take some of our ideas through the pilot phase and make sure they get the initial funding, the support, and the coaching and developing regarding lessons learned from previous pilots. In doing so, they make sure that the learning stays within the company and keeps evolving. 
  3. A team that is doing some work around The Pitch to make sure that we have the right assessment of ideas, that we are providing great feedback to people, and that we are managing the hundreds of ideas that are coming through. In the first week, we had over 800 people contribute to the ideas that are on The Pitch. 
  4. A terrific digital advisory council, and our enterprise innovation team helps to manage the external experts. These experts come in and advise us on a quarterly basis to make sure that we are keeping our eyes open to everything that is happening in the industry.

High: As you develop a team, what percentage are existing employees versus people who are brought in from the outside?

Johnson: We have a good mixture. While it is a newly built team, we paired some of our forward-thinking internal folks with some exceptional hires from the outside.

High: A part of innovation that is essential is risk tolerance, which is something you know quite well having previously led the function at Fannie Mae. What sort of advantages or differences in perspective do you have as a result of having a background in this topic?

Johnson: It is necessary to push forward on ideas that are just a little beyond what you think is reasonable. If you do not explore some of those ideas, you will not find out what is possible. Because of this, it is critical not to shut down ideas that are not likely to turn into anything too quickly. Instead, you have to give them some time to ruminate and develop. That said, it is important to shut down ideas that are turning into what you expected them to be. If they are not going to come to fruition, you are wasting valuable time and resources that could be used to explore other new ideas. For me, there is a balance around how much risk you are willing to take, how much uncertainty you are going to have, and how long you are willing to wait. It is critical to shut down the ideas that do not work and keep feeding the ones that do.

High: As you look to the future, what are some of the trends that are making their way onto your personal roadmap?

Johnson: I am excited about the change that we are making in our team. We are putting together data modeling and analytics as a single function, which is important. This is because while many companies are focusing on getting data, structuring data, and managing data, it is essential to think about how you are using the data. Unless you can do both of those elements exceptionally well and without conflict, it is hard to get good business incomes. 

We are elevating architecture, which is something that has become a bit of a back seat. This happens quietly behind the scenes, but it is critical to make sure your architecture is designed well up front if you are building a safe, secure, and smart ecosystem.

We are looking at launching a few centers of excellence to make sure that we can carry our digital transformation through the journey. The COEs that we are thinking about are cloud, automation, machine learning and predictive analytics, and agile to make sure that we continue to have a mechanism to deliver on all these good ideas.

High: Are there any other innovations you want to highlight?

Johnson: I have been impressed with a tool we have put out called Ask Poli, which we are in the early stages of. In order to sell and service mortgages, there are a certain set of rules that must be followed, and Fannie Mae sets these standards. Our selling and servicing guides currently have 2,500 pages of rules, and our lenders have to abide by these. To make this an easier process for everybody, we are using a natural language processing tool that we fed all the rules into. If someone has a question, they can type them in to Ask Poli, and they get an immediate response back. This response is in plain English, and the response deciphers the 2,500 pages of rules that our lenders have to follow. I have been experimenting with it lately, and we are going to make it more available. Further, Pocket Poli will be available to our lenders for their use in many different ways.

There is also a great deal of value in the innovation and creativity that comes out of the Fintechs and the startups that we have spoken to. For us, the magic comes in marrying that with the scale and the experience that we have as an established industry player. We are trying to find that middle ground between how we take all the benefits of a startup and all the resources of an established incumbent and find a way to get both of those parents to work.

Peter High is President of Metis Strategy, a business and IT advisory firm. His latest book is Implementing World Class IT Strategy. He is also the author of World Class IT: Why Businesses Succeed When IT Triumphs. Peter moderates the Technovation podcast series. He speaks at conferences around the world. Follow him on Twitter @PeterAHigh.

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I interviewed Kimberly Johnson about a year ago as she was still settling into her role as Chief Operating Officer of Fannie Mae. She discussed her path from Chief Risk Officer to COO in charge of technology, data, enterprise models, operations, the enterprise program management office, and resiliency. She also discussed her vision for innovation at Fannie Mae. A year on, I thought it would be a good opportunity to catch up with her to find out how things have progressed for her and for the company. 

She described the agile transformation that has been afoot at the company. She described the innovative ideas the company is contemplating and the process used to draw ideas from across the company and prioritize them. She also talked further about her vision for the company in the foreseeable future. 

(To read future interviews like this one, please follow me on Twitter @PeterAHigh.)

Peter High: You have been the COO for Fannie Mae since March of 2018, and the company has been going through a great period of transformation. With Fannie Mae's business, strategic aspects can be digitized. Could you talk about how you have harnessed that?

Credit: Fannie Mae

Kimberly Johnson: I looked at three different areas when I joined.

  1. I started with an internal listening tour in which I looked to understand the dynamics of the team and where the focus needed to be;
  2. Externally, I spent time looking at our customers, partners, and other companies that were going through transformations of their own. This allowed me to hear about what other CIOs and COOs were grappling with and the big issues on their table;
  3. I looked at the industry as a whole to understand the trends that we needed to be paying close attention to around housing. Over 40 percent of people surveyed put buying a house as the most stressful event in their life. By doing so, these people are saying buying a house is more stressful than applying to college, interviewing for a job, or going through a divorce, which I found remarkable. If what we do is help people get into houses, and that is such a stressful life event, there is a great deal of opportunity for us to make a better experience for our borrowers. For us, this is all about making a better experience for our customers too. We work with lenders, and we think about how we can reduce the cost, time, and complexity of everything that goes into the mortgage process so it is faster, cheaper, and easier for our customers and borrowers.

High: Part of the complexity is that there are multiple layers. While there are mortgage holders or those looking for a mortgage, there are additionally the in between people. How do you reconcile the differences in each of their needs?

Johnson: We think a great deal about the housing ecosystem, and none of these aspects exist in and of [themselves]. While we are always making sure that we put our customers at the front line, we are thinking about what business solutions they need, how we deliver the right technology to them, and how we make it easier to use and integrate into their own systems. Further, we think about preserving the industry itself. Safety, soundness, and security are at the top of our list. We build resilience into what we do, and we want to make sure that we have a system that is reliable, safe, and secure for all the users.

High: You mentioned that being agile in all that you do has become increasingly important. Can you talk about the way in which that is taking form at Fannie Mae?

Johnson: We have been on our agile journey for a number of years now. I am proud to say that, though it takes some getting used to, I am seeing some terrific signs of maturity. The flavor of agile that we are leaning into right now is all about integration with our customers. We involve our customers in the design phase, we use all of our customers’ feedback to identify problems to solve and opportunities to go after, and we do co-creation panels with them. They test our products for us before we bring them to the market. As a result, when we get to the final launch stage, we have a great deal of confidence that our product is what our customers need, not just what we think they need. In an agile world, you can take in those data points and make adjustments along the way. This is a much more flexible way to have a fast response to your customers' needs. 

High: You have talked about how you have design sessions, and you involved co-development panels of different types. Can you talk about the makeup of those and how that is done?

Johnson: We have an incredible team that does a great deal of strategic research to understand what the issues are. This team mostly collects data back from our customers and synthesizes that data into meaningful themes and ideas. While everybody wants to make every customer happy, you cannot create new products on a one-off basis. We spend extensive time researching what the entire customer base needs, rather than what a select few need. Once we have a good view of what is going to be most impactful, we spend some time doing assessments around alignment to strategy. We look to see if what we have has business value, if it is something we can continue to build on, and if it is going to have a lasting impact. Once we get through that initial prioritization, it is a question of bringing in some of the customers who are most open to experimenting. They give us great feedback along the way to make adjustments so that we get an end product that fits for a large group of our customers.

High: Could you talk about the process of innovation at Fannie Mae?

Johnson: Seeing our innovation work come to light has been one of my great delights over the past year. We launched an innovation team a few years back, and they spent extensive time encouraging the company to come up with new and innovative ideas. Looking back, I chuckle at the idea that we did not have enough innovative ideas generated from our workforce because we now have an overwhelming supply of terrific ideas. I have found that the much harder part is determining what truly aligns to the company’s strategy. Companies have to reject the ideas that are not going to have lasting value. This involves assessing where that business value is going to come from and from there, starting with and validating some concepts. Turning those validated concepts into some tests and prototypes and getting that MVP ready to launch is a difficult aspect. The even harder part is executing with the discipline to turn that product into a business outcome. The key to this is matching that creativity and good ideas with that disciplined execution.

High: What is the process for prioritization at Fannie Mae?

Johnson: We recently launched a new concept called The Pitch, which is a magnificent website that is internal to our team. Once people submit ideas to the company, anybody in the organization can vote, respond, add, and offer to help with the project. This crowd-sourcing in which everyone at the company who understands our business strategy has commentary, suggestions, and ideas to add has helped us start to hone in on the ideas that are strategically aligned. If you mix the bottom-up approach with some top-down oversight of strategic alignment, you end up in a great place where you know that the concepts you have looked at have support from both the top and from the people at large.

High: Can you share some of the ideas that are starting to bubble up that excite you?

Johnson: We currently have a great campaign around affordable housing supply. It is no secret that there are many people who are looking for housing that is more affordable in places where it is exceedingly hard to find. We have seen that it is tough to find affordable housing in rural and urban areas. We put out a challenge for our team to come up with ideas to help us solve the affordable housing supply problem. Some ideas we are looking into include the following;

  1. 3D printed houses. You can print a house out of concrete in 48 hours, which is extraordinary. Thinking about how Fannie Mae could finance that type of property is a great way to continue to build liquidity around that type of a product;
  2. Modular homes in urban areas;
  3. Factory built housing in rural areas. 

We are getting incredible ideas from our people, and we see new additions to what is going on every day. Seeing this line up to the strategy and trying to solve some of the industry's biggest problems has been a great experience.

High: Can you talk about some of the partnership this yields?

Johnson: I have fully subscribed to the idea that we do not have all the answers. Getting strong ideas is great, but we cannot execute on every idea in isolation. We are working to convene as many partnerships as we can, which involves bringing people in to have the right conversations, getting them excited to solve the big problems that we are facing, and making it easier to work with us so that we can come up with solutions together.

High: Could you talk about the makeup of the innovation team inside the organization? 

Johnson: Our innovation team is incredible, and it has been growing as we have more innovation to manage. We have segments of this team. 

  1. A team that does a great deal of external scanning. This team looks to understand the trends and what is happening with our potential partners, our current partners, and our competition. 
  2. Individuals who focus on what we call intrapreneur. They take some of our ideas through the pilot phase and make sure they get the initial funding, the support, and the coaching and developing regarding lessons learned from previous pilots. In doing so, they make sure that the learning stays within the company and keeps evolving. 
  3. A team that is doing some work around The Pitch to make sure that we have the right assessment of ideas, that we are providing great feedback to people, and that we are managing the hundreds of ideas that are coming through. In the first week, we had over 800 people contribute to the ideas that are on The Pitch. 
  4. A terrific digital advisory council, and our enterprise innovation team helps to manage the external experts. These experts come in and advise us on a quarterly basis to make sure that we are keeping our eyes open to everything that is happening in the industry.

High: As you develop a team, what percentage are existing employees versus people who are brought in from the outside?

Johnson: We have a good mixture. While it is a newly built team, we paired some of our forward-thinking internal folks with some exceptional hires from the outside.

High: A part of innovation that is essential is risk tolerance, which is something you know quite well having previously led the function at Fannie Mae. What sort of advantages or differences in perspective do you have as a result of having a background in this topic?

Johnson: It is necessary to push forward on ideas that are just a little beyond what you think is reasonable. If you do not explore some of those ideas, you will not find out what is possible. Because of this, it is critical not to shut down ideas that are not likely to turn into anything too quickly. Instead, you have to give them some time to ruminate and develop. That said, it is important to shut down ideas that are turning into what you expected them to be. If they are not going to come to fruition, you are wasting valuable time and resources that could be used to explore other new ideas. For me, there is a balance around how much risk you are willing to take, how much uncertainty you are going to have, and how long you are willing to wait. It is critical to shut down the ideas that do not work and keep feeding the ones that do.

High: As you look to the future, what are some of the trends that are making their way onto your personal roadmap?

Johnson: I am excited about the change that we are making in our team. We are putting together data modeling and analytics as a single function, which is important. This is because while many companies are focusing on getting data, structuring data, and managing data, it is essential to think about how you are using the data. Unless you can do both of those elements exceptionally well and without conflict, it is hard to get good business incomes. 

We are elevating architecture, which is something that has become a bit of a back seat. This happens quietly behind the scenes, but it is critical to make sure your architecture is designed well up front if you are building a safe, secure, and smart ecosystem.

We are looking at launching a few centers of excellence to make sure that we can carry our digital transformation through the journey. The COEs that we are thinking about are cloud, automation, machine learning and predictive analytics, and agile to make sure that we continue to have a mechanism to deliver on all these good ideas.

High: Are there any other innovations you want to highlight?

Johnson: I have been impressed with a tool we have put out called Ask Poli, which we are in the early stages of. In order to sell and service mortgages, there are a certain set of rules that must be followed, and Fannie Mae sets these standards. Our selling and servicing guides currently have 2,500 pages of rules, and our lenders have to abide by these. To make this an easier process for everybody, we are using a natural language processing tool that we fed all the rules into. If someone has a question, they can type them in to Ask Poli, and they get an immediate response back. This response is in plain English, and the response deciphers the 2,500 pages of rules that our lenders have to follow. I have been experimenting with it lately, and we are going to make it more available. Further, Pocket Poli will be available to our lenders for their use in many different ways.

There is also a great deal of value in the innovation and creativity that comes out of the Fintechs and the startups that we have spoken to. For us, the magic comes in marrying that with the scale and the experience that we have as an established industry player. We are trying to find that middle ground between how we take all the benefits of a startup and all the resources of an established incumbent and find a way to get both of those parents to work.

Peter High is President of Metis Strategy, a business and IT advisory firm. His latest book is Implementing World Class IT Strategy. He is also the author of World Class IT: Why Businesses Succeed When IT Triumphs. Peter moderates the Technovation podcast series. He speaks at conferences around the world. Follow him on Twitter @PeterAHigh.

I am the president of Metis Strategy, a business and IT strategy firm that I founded in 2001. I have advised many of the best chief information officers at multi-billion...