A Biblical Lesson In Marketplace Competition

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The biblical story of David and Goliath is familiar to most, but one person says there is an important lesson in the tale for credit unions: do not try to compete with banks by doing what banks do best.

Michael Raynor, director for Deloitte Research, author and professor at the Richard Ivey School of Business at the University of Western Ontario, told attendees at the NACUSO annual conference here that on the day of his battle with Goliath, the Israelites dressed David in armor and gave him a sword-which was a mistake.

Heavy Armor

"The armor was so heavy, David could hardly move," he said. "So David, who was a shepherd, took it off and armed himself with the sling he used to protect his flock. The important thing to remember is, David did not try to beat Goliath at his own game-he beat him with a sling, not a sword."

There are many examples of underdog companies triumphing over established entities in the business world, Raynor continued. He said Toyota did not attempt to be "better" than Ford or General Motors when it first started operations in the 1950s, but it did what it could. Today, Toyota is bigger than Ford and is expected to soon surpass GM.

"Credit unions, if they act together, can be seen as hundreds of Davids, but they need to understand the fundamentals that allow a small company to defeat an industry giant," he said. "Look at the performance most mainstream bank customers will pay for."

Many large, successful companies have been "disrupted" by smaller competitors with business models that appeared to be inferior-with smaller markets or margins, for example. It took decades, Raynor pointed out, but Wal-Mart surpassed Sears by going after the small markets Sears disdained. The key, he said, is to find a foothold at the low end of the market, and then perform an "upward march" while not abandoning the market the business started with. "The most successful companies eventually overshoot the established companies."

Four Elements of Disruption

According to Raynor, there are four elements of disruption: identifying an "identity overshoot," or those who would accept less of something in return for a lower cost; finding a foothold in these underserved (or sometimes overserved) customers; improving what matters to these customers-and only what matters; and march "upmarket" by exploiting tradeoffs and redefining competition.

"Credit unions have innovation choices," he noted. "The challenge is to find ways to serve existing members better. Major banks are Goliath. Credit unions can pick off the customers the banks don't want. They can exploit their cost advantage or they can create a strategic advantage. Find a foothold and find ways to improve until the credit union is so good it takes away bank customers."

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