Think about your strategic planning brainstorming sessions you have with management team maybe even including the board. The facilitator poses the question: "Where do you want to be in 5 years?" For the next hour everyone offers their gut feelings, the ideas get written on the flipcharts and after a break the team comes back and as a group decides what the future should look like.
This is all by gut feel with no empirical data to support these conclusions which is why most credit unions are fearful of taking bold steps. They don't trust the process, and frankly, they shouldn't.
Let's say for example you wanted to invest $100,000 of your retirement funds and you decided to make this decision without any research or expert input. You just decided one day watching television you liked the ads for Burger King and you felt in your gut that with the new ads, their stock will rise and you would be making a good investment. How sound of a decision is that? How comfortable are you with that decision making process when $100,000 of your own money is on the line?
Strategic planning maps out the process of how a credit union can go from Point A to Point B. With the tenuousness of the credit union industry, with government regulations and competition changing daily, and with merger sharks in the waters, simply a gut feel on a Saturday morning at a retreat center just isn’t enough information to be planning that navigation to the next point.
When using the Simplified Strategic Planning process everyone involved in the planning must do their share of research on the specifics they have been assigned before the actual planning steps happen. Good information gathering makes for better choices, and better choices make for a smoother ride through difficult transitions. Credit Unions failing to properly research the necessary information are gambling with the future of the credit union and the members. Today is a completely different era than even only 7 years ago. Now is the time to focus like never before.
-- Russell
Tuesday, July 31, 2007
Thursday, July 26, 2007
Competitive Strategies Part 2
As I mentioned in the previous blog entry, competitive strategies define the direction the credit union is moving. Some credit unions has strategic plans that are so toothless they just drift along the tide and are at the complete mercy of the financial strength of the SEGs they serve.
Previously I talked about the Niche Strategy approach and ideas, so let's move on to two other strategies to move your credit union in a particular direction.
The Commodity Strategy
Some credit unions accept the fact they are not well positioned to serve a niche market and prefer to hold the course they have been on for decades by being another commodity in the market place. Although I don’t agree with using this as a long term approach for credit unions to be competitive, it can be a stop gap approach. Let's say you want to make some shifts over the new couple of years to better position yourself but you don’t want to just sit without any strategies until you get a better definition of who you want to become, so you want to at least maximize your current situation.
A commodity strategy accepts you are one of the pack of financial institutions and you want to attract high volumes with lower margins. This is a strategy that can be a profitable approach provided you have an economy of scale. The large banks in this country have hundreds if not thousands of branches across the country to serve their large numbers of customers. They have an aggressive approach to grow by acquisition as well as with service. Their profitability is based on their size! Their size allows them to offer slim margins because of the volume they can create. How does a credit union compare? Most credit unions have an advantage to offer slightly better rates and lower fees but the commodity shopper is mostly looking for convenience followed by best rates. Wal-Mart has become expert in their ability to use their economy of scale to drive out smaller competitors and the credit unions could face the same fate when trying to compete as a commodity.
Differentiation
By differentiating your credit union from the rest of the pack of financial institutions you are able to have the best of both worlds with high volume and high margins. How is this possible? When current and prospective members must be part of your organization you have the ability to operate from a greater position of strength. Differentiation is all about uniqueness and brand recognition. Apple has been able to create this with the iPod and now the iPhone. Apple is creating must have products where price is of much less concern to the buyer than the uniqueness of product and the brand of Apple. Obviously, Apple had to work hard to establish the brand with effective advertising and build the uniqueness in the mind of the potential customer where price was an after thought.
Differentiation for credit unions can come in your community involvement, in your stated culture in your marketing or in your unique efforts to grab attention and establish that you are a bit different. Try something like Vancity, Canada's largest credit union. On June 27th they kicked off their bike sharing program by "releasing" 45 brand new red bikes to the community. Recipients are being asked to hold the bike for no longer than three weeks and then give it to another member of the community to ride. If at any time the bikes are in need of a repair they can be taken to any branch of the credit union for a tune up. On September 7th all in possession of the bikes are asked to return them to the Vancity Centre, their main branch, and hopefully all bikes will be accounted for. The bikes will then be donated to PEDAL (Pedal Energy Development Alternatives), a local non-profit that will pass them on to individuals in low-income communities.
The publicity for the credit union is fantastic. This is great PR coverage for an idea to benefit the community. Each bike being seen in use will be a reminder of the credit union's community outreach, their stance on alternative transportation and it supports their campaign of Change Everything. This idea speaks volumes to their members and prospective members about what the credit union cares for and who they are as a different and unique credit union.
-- Russell
Previously I talked about the Niche Strategy approach and ideas, so let's move on to two other strategies to move your credit union in a particular direction.
The Commodity Strategy
Some credit unions accept the fact they are not well positioned to serve a niche market and prefer to hold the course they have been on for decades by being another commodity in the market place. Although I don’t agree with using this as a long term approach for credit unions to be competitive, it can be a stop gap approach. Let's say you want to make some shifts over the new couple of years to better position yourself but you don’t want to just sit without any strategies until you get a better definition of who you want to become, so you want to at least maximize your current situation.
A commodity strategy accepts you are one of the pack of financial institutions and you want to attract high volumes with lower margins. This is a strategy that can be a profitable approach provided you have an economy of scale. The large banks in this country have hundreds if not thousands of branches across the country to serve their large numbers of customers. They have an aggressive approach to grow by acquisition as well as with service. Their profitability is based on their size! Their size allows them to offer slim margins because of the volume they can create. How does a credit union compare? Most credit unions have an advantage to offer slightly better rates and lower fees but the commodity shopper is mostly looking for convenience followed by best rates. Wal-Mart has become expert in their ability to use their economy of scale to drive out smaller competitors and the credit unions could face the same fate when trying to compete as a commodity.
Differentiation
By differentiating your credit union from the rest of the pack of financial institutions you are able to have the best of both worlds with high volume and high margins. How is this possible? When current and prospective members must be part of your organization you have the ability to operate from a greater position of strength. Differentiation is all about uniqueness and brand recognition. Apple has been able to create this with the iPod and now the iPhone. Apple is creating must have products where price is of much less concern to the buyer than the uniqueness of product and the brand of Apple. Obviously, Apple had to work hard to establish the brand with effective advertising and build the uniqueness in the mind of the potential customer where price was an after thought.
Differentiation for credit unions can come in your community involvement, in your stated culture in your marketing or in your unique efforts to grab attention and establish that you are a bit different. Try something like Vancity, Canada's largest credit union. On June 27th they kicked off their bike sharing program by "releasing" 45 brand new red bikes to the community. Recipients are being asked to hold the bike for no longer than three weeks and then give it to another member of the community to ride. If at any time the bikes are in need of a repair they can be taken to any branch of the credit union for a tune up. On September 7th all in possession of the bikes are asked to return them to the Vancity Centre, their main branch, and hopefully all bikes will be accounted for. The bikes will then be donated to PEDAL (Pedal Energy Development Alternatives), a local non-profit that will pass them on to individuals in low-income communities.
The publicity for the credit union is fantastic. This is great PR coverage for an idea to benefit the community. Each bike being seen in use will be a reminder of the credit union's community outreach, their stance on alternative transportation and it supports their campaign of Change Everything. This idea speaks volumes to their members and prospective members about what the credit union cares for and who they are as a different and unique credit union.
-- Russell
Tuesday, July 24, 2007
Competitve Strategies Define Direction
Take a look at last year's strategic planning document. What was the direction of your competitive strategies? Were you aiming for a niche market that although had low volume delivered high margins? Or were you trying to compete as a commodity to get high volumes even though the margins were low? Or did you take the time to research and develop ideas that created differentiation to your credit union where you can have high volumes along with high margins? You achieve this by delivering premium products at premium prices.
All three of these strategies can make your credit union sound and with a solid financial picture, but your actions must align with your competitive strategies and your competitive strategies must align with your approach to leading the credit union.
Niche Market
To reach a niche market you have to segment your membership and offer special features for that specific type of member. In some cases customization is required along with a good bit of research to understand the needs and proper approaches for this market. Obviously, if you want to attract young white collar members to use a particular product, then you must find ways to rise above the competition and reach that member or prospect in the correct manner based on their buying habits.
If a blue collar member is the niche you want to serve more, research the products that best fit their needs and still fit the proper margins for the credit union. Learn their buying habits and develop strategies to directly reach them. Needless to say, the different market segments used in this example are going to have different buying habits and have different product needs. The credit union needs to strategize which niche they want to be the expert in and work to deliver for that niche.
There are many different approaches to competitive strategies and in the next blog entry; I will address Commodity strategy and Differentiation strategies.
-- Russell
All three of these strategies can make your credit union sound and with a solid financial picture, but your actions must align with your competitive strategies and your competitive strategies must align with your approach to leading the credit union.
Niche Market
To reach a niche market you have to segment your membership and offer special features for that specific type of member. In some cases customization is required along with a good bit of research to understand the needs and proper approaches for this market. Obviously, if you want to attract young white collar members to use a particular product, then you must find ways to rise above the competition and reach that member or prospect in the correct manner based on their buying habits.
If a blue collar member is the niche you want to serve more, research the products that best fit their needs and still fit the proper margins for the credit union. Learn their buying habits and develop strategies to directly reach them. Needless to say, the different market segments used in this example are going to have different buying habits and have different product needs. The credit union needs to strategize which niche they want to be the expert in and work to deliver for that niche.
There are many different approaches to competitive strategies and in the next blog entry; I will address Commodity strategy and Differentiation strategies.
-- Russell
Wednesday, July 18, 2007
Be Honest With Yourself
Looking in the mirror and being honest is always a difficult thing. It's hard to admit weaknesses and I find people embellish their strengths especially when board members are involved. Management doesn't want to admit to problems and the board members are so proud of their credit union they often see things better than they really are.
This can be an obstacle to strategic planning. Effective planning requires honesty so you know where your strengths are and how strong they really are so you can set objectives to make them even stronger. In evaluating weaknesses it helps to have an outside perspective who can ask the tough questions. As one of my clients said, "Sometimes you have to ask someone outside of the family whether your baby is ugly or not." Weaknesses are naturally difficult to face, and in some cases even recognize depending on the management team dynamic.
It's easy to put the best spin on the credit union and believe you are the best in member service and product offerings. However, in the final analysis you are what you are, and if you are having a net loss in member accounts, and your loan value is decreasing then something is obviously amiss.
Declare an amnesty day where your team can "confess" openly to their concerns and views on the strengths and weaknesses. It's always better to be solution-focused rather than blame-focused, and honesty in this process will get you to better solutions quicker.
It's better to be honest when preparing for your planning process, than to work hard on spin control when the regulators are knocking on your door.
-- Russell
This can be an obstacle to strategic planning. Effective planning requires honesty so you know where your strengths are and how strong they really are so you can set objectives to make them even stronger. In evaluating weaknesses it helps to have an outside perspective who can ask the tough questions. As one of my clients said, "Sometimes you have to ask someone outside of the family whether your baby is ugly or not." Weaknesses are naturally difficult to face, and in some cases even recognize depending on the management team dynamic.
It's easy to put the best spin on the credit union and believe you are the best in member service and product offerings. However, in the final analysis you are what you are, and if you are having a net loss in member accounts, and your loan value is decreasing then something is obviously amiss.
Declare an amnesty day where your team can "confess" openly to their concerns and views on the strengths and weaknesses. It's always better to be solution-focused rather than blame-focused, and honesty in this process will get you to better solutions quicker.
It's better to be honest when preparing for your planning process, than to work hard on spin control when the regulators are knocking on your door.
-- Russell
Tuesday, July 17, 2007
The Strategies of Success in Credit Unions
Success comes in a lot of different flavors. We tend to look upon the Low/Cost Price strategy as one of the best, because credit unions following that strategy tend to be the biggest - at least in volume. But there are other strategies which work better for most credit unions (and their members), and here's why: in any market, there can only be ONE biggest. Everyone else is second place. In the low cost/price world, second place is a very bad place to be, because, ultimately, the biggest player will set their fees and rates so low as to barely make money. The second place player, lacking the extreme volume advantage of the number one credit union, is forced into a losing position.
Now compare this scenario with the other players - the branding player, the technology player, the service player, the location player and the niche player. All of these can be "winners" - that is, profitable - in a market dominated by a commodity credit union. True, they won't be as big, but they can co-exist because they are targeting very different member behavior patterns. For example, the niche player may strictly target SEGs and members in a specific industry or even ethnic group. By catering to the desires of the niche, this type of credit union is the first choice of many potential members almost regardless of rates and fees. This is not a license to charge ridiculous fees, but, in a niche, you may be given more leeway by your members because you serve their needs far better than the larger credit union with a low cost/price strategy.
Which strategy is yours? Do you know the behaviors your credit union is best at catering to? If you don't, see if you can get a better handle on it during your strategic planning this year.
-Robert
Now compare this scenario with the other players - the branding player, the technology player, the service player, the location player and the niche player. All of these can be "winners" - that is, profitable - in a market dominated by a commodity credit union. True, they won't be as big, but they can co-exist because they are targeting very different member behavior patterns. For example, the niche player may strictly target SEGs and members in a specific industry or even ethnic group. By catering to the desires of the niche, this type of credit union is the first choice of many potential members almost regardless of rates and fees. This is not a license to charge ridiculous fees, but, in a niche, you may be given more leeway by your members because you serve their needs far better than the larger credit union with a low cost/price strategy.
Which strategy is yours? Do you know the behaviors your credit union is best at catering to? If you don't, see if you can get a better handle on it during your strategic planning this year.
-Robert
Wednesday, July 11, 2007
Sustainability
The process lasted pretty much the entire day and fresh ideas were popping all over. Toward the end of the day names were getting whittled down to fewer options and it suddenly dawned on a couple of participants that a new name and image was going to be arrived at. Immediately, feet got shoved into the dirt and the resistance happened and the big shift in image and name became stalled, in fact the board finally voted on simply using the initials of the previous name for the “rebranding.”
To get significantly different results you have to do something significantly different.”
When you find your credit union is losing members, market share and the competition is becoming a more preferred provider, some significant shifting has to occur. You can’t just dust off what is already in place and hope it produces different results. You have to make some shifts.
Sustainability is key. I find when credit unions are in difficult times, people run around in a panic trying anything they can to change results. As soon as those desired results become more visible the natural tendency is to slide back to the comfort of old habits. In other words, no sustainability to the changes, no real shifting has taken place, so any change in results are temporary.
Well thought out management strategies are not reactionary, temporary or easy to slide back off of. They have measurements, accountability and sustainability. Strategies that have been designed to create proper changes will be better accepted by the staff, have better implementation and be treated as less of a fad where employees expect to slide away from after a few weeks.
In your planning process look for ways to create sustainable changes, not just knee-jerk reactions that only panic staff and have no lasting result.
-- Russell
Friday, July 6, 2007
How Immediate a Concern Are We?
I just read an excellent post in Seth Godin's blog about the power of immediacy. It poses an interesting question for credit unions: if immediacy is the most powerful motivator for members and potential members, where can we most easily motivate these important people? A few things come to mind:
1. Waiting in line at the credit union
2. Online, trying to get something done
3. Big life transitions - buying a house, getting married, having children
4. Standing at an ATM
Where else do our members (and people we want to become members) have immediate and pressing thoughts about our credit unions? And - just as important - what would we like them to think when they are in these moments?
If you advertise - are you intruding on your audience's thinking at a point when their credit union (or other financial institution) isn't all that immediate? If so, we either need tricks to increase the immediacy or we risk wasting out ad dollars.
-Robert Bradford
1. Waiting in line at the credit union
2. Online, trying to get something done
3. Big life transitions - buying a house, getting married, having children
4. Standing at an ATM
Where else do our members (and people we want to become members) have immediate and pressing thoughts about our credit unions? And - just as important - what would we like them to think when they are in these moments?
If you advertise - are you intruding on your audience's thinking at a point when their credit union (or other financial institution) isn't all that immediate? If so, we either need tricks to increase the immediacy or we risk wasting out ad dollars.
-Robert Bradford
Thursday, July 5, 2007
Strategic Planning - Beware of Strategies You "Have To" Use
In the hundreds of strategic planning meetings I've done, I've heard a disturbing comment more times than I like: "Of course, you HAVE TO (insert strategy here) to be successful in this industry."
What's wrong with this statement? First, it implies that every successful company in an industry must follow the same strategy. Nothing could be farther from the truth. In fact, the more your strategy is different from those of you competitors, the easier you will find it to gain customers and make money - as long as the difference enhances value for at least some of your customers. Wal-Mart, IBM, Apple, Southwest Airlines - all of these companies rose to greatness by being truly different in ways their customers loved.
The second problem with this common statement is that there are unwritten "rules" that every company in an industry has to follow. Phil Kotler said it best in the title of one of his best marketing books: "First, Break All The Rules". Real entrepreneurs - the ones who make great money - are almost always rule breakers rather than rule followers. So the next time you hear someone spouting a rule for how you succeed in your business, ask yourself, "Why should I follow this rule? And can I win by breaking it?"
What's wrong with this statement? First, it implies that every successful company in an industry must follow the same strategy. Nothing could be farther from the truth. In fact, the more your strategy is different from those of you competitors, the easier you will find it to gain customers and make money - as long as the difference enhances value for at least some of your customers. Wal-Mart, IBM, Apple, Southwest Airlines - all of these companies rose to greatness by being truly different in ways their customers loved.
The second problem with this common statement is that there are unwritten "rules" that every company in an industry has to follow. Phil Kotler said it best in the title of one of his best marketing books: "First, Break All The Rules". Real entrepreneurs - the ones who make great money - are almost always rule breakers rather than rule followers. So the next time you hear someone spouting a rule for how you succeed in your business, ask yourself, "Why should I follow this rule? And can I win by breaking it?"
Monday, July 2, 2007
Find the Rarified Air for Best Returns
Credit unions have had a wonderful run of being a one-size-fits-all for members, but those times are disappearing just like the credit unions who are still trying to be one-size- fits- all. As the financial services market becomes extremely commoditized, credit unions are typically going after the easiest opportunities. Volume sales with shrinking returns only lead to a point of no return.
The best returns on your credit union strategic initiatives will be from carving a specialization niche in your market place. The harder to reach, the more work required, the less the competition and the greater the rewards. Are you ready to go after the opportunities where you can eliminate the competition?
How are you defining the markets you want to serve, not necessarily the markets you have been serving?
If you've typically had a manufacturing base of membership and your board is populated with those type employees, how flexible are you able to look at changing directions? Sometimes we are afraid of the answers we might find therefore we don't even ask the questions. But if you have the opportunity to ask the hard questions, here are questions that will improve your growth opportunities.
Some hard questions to ask yourself:
Is the foundation of my membership growing or shrinking?
Is the average age of my membership increasing or decreasing?
Is my loan portfolio growing or shrinking?
What is the profile of my perfect member?
How can we serve that perfect member in the best ways?
What changes would we have to make in order to attract and serve the perfect members?
Would the perfect member be willing to pay more for a perfect fit with a credit union? I'll give you the answer to this one -- YES!
Are we able to make the shift to smaller market share, yet a more profitable market share? If so, what would be required?
The credit unions willing to take this hard line approach to the future will in fact have a future that is more about thriving than surviving.
-- Russell
The best returns on your credit union strategic initiatives will be from carving a specialization niche in your market place. The harder to reach, the more work required, the less the competition and the greater the rewards. Are you ready to go after the opportunities where you can eliminate the competition?
How are you defining the markets you want to serve, not necessarily the markets you have been serving?
If you've typically had a manufacturing base of membership and your board is populated with those type employees, how flexible are you able to look at changing directions? Sometimes we are afraid of the answers we might find therefore we don't even ask the questions. But if you have the opportunity to ask the hard questions, here are questions that will improve your growth opportunities.
Some hard questions to ask yourself:
Is the foundation of my membership growing or shrinking?
Is the average age of my membership increasing or decreasing?
Is my loan portfolio growing or shrinking?
What is the profile of my perfect member?
How can we serve that perfect member in the best ways?
What changes would we have to make in order to attract and serve the perfect members?
Would the perfect member be willing to pay more for a perfect fit with a credit union? I'll give you the answer to this one -- YES!
Are we able to make the shift to smaller market share, yet a more profitable market share? If so, what would be required?
The credit unions willing to take this hard line approach to the future will in fact have a future that is more about thriving than surviving.
-- Russell
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